Presented by Dianne Crocker Principal Analyst, EDR Insight OC DDD June 4, 2015

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1. MARKET INDICATORS POINT TO CONTINUED RECOVERY.
2. OPPORTUNITIES ARE BEING CREATED FOR ALL OF US.
3. FORECAST FOR MODERATE GROWTH OVER NEAR TERM.
TODAY’S THEMES

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MARKET BAROMETERS

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DRIVERS FOR PROPERTY DEMAND TRENDING IN THE RIGHT
DIRECTION:
• PROPERTY INVESTMENT CONTINUES ITS SLOW CLIMB.
• HOUSING MARKETS RECOVERING NICELY.
• JOB GROWTH BACK TO PRIOR PEAK LEVELS.
• INTEREST RATES STILL EXTREMELY LOW.
• RECORD-HIGH NEW CONSTRUCTION/DEVELOPMENT.
• SECONDARY METROS RALLYING BACK.
PATIENT’S VITAL STATS

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SMALL CAP SALES:
• Up 22% in 2014
• A 7-year high
LARGE CAP SALES:
• Up 45% in 1Q15
THE HIGHLIGHT OF THIS RECOVERY:
PROPERTY TRANSACTIONS GROWTH

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• MAJOR BUYING CLASSES
• Real estate investment trusts (REITs)
• Foreign investors**
• Private equity funds
• Hedge funds
• Traditional developer/owner/operators
DEAL MAKING: WHO’S INVESTING?
2014 TOP BUYERS
ARCP
Blackstone
JP Morgan
Norges Bank Investment Mgt
Hines
OMERS
Starwood Capital Group
MetLife
Essex Property Trust
David Werner Real Estate

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EXPANDING UNIVERSE OF U.S. BUYERS
THREE TIMES AS MANY BUYERS TODAY THAN IN DEPTHS OF DOWNTURN

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• SMALLER SECONDARY METROS WITH STRONG GROWTH
PROFILES ARE SEEING INVESTOR INTEREST:
• Portland, Seattle, Denver, Austin, Nashville, Atlanta, Las Vegas, etc.
• COMMON DENOMINATORS:
• Strong job growth
• Growing technology sectors, healthcare and financial services
industries
EXPANDING UNIVERSE OF METROS:
SMALLER MARKETS HEATING UP

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THE STORY IN LENDING

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• FINANCING MARKET IS INCREASINGLY COMPETITIVE.
• BANKS HAVE $ TO LEND, UNDERWRITING STILL VERY CAUTIOUS.
• UPTICKS IN LENDING VOLUMES SUPPORT POSITIVE INVESTMENT
TRENDS.
• REGIONAL/MID-SIZED BANKS ARE GAINING MARKET SHARE...
LENDING TRENDS IN 2015

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• A POSITIVE TRAJECTORY IN LENDING
• 2014 VOLUMES:
• 6.5% ANNUAL GROWTH (FDIC)
• STILL 25% BELOW 2007 PEAK, EXCEPT MULTI-
FAMILY LENDING
• WIDE VARIABILITY IN GROWTH BY BANK SIZE…
PROPERTY LENDING:
SLOW PACE OF GROWTH IN ORIGINATIONS

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• U.S. AVERAGE GROWTH IN LOAN PORTFOLIOS: 6.5%
• STRONGEST GROWTH:
• LARGEST REGIONAL BANKS
• MID-SIZED BANKS
• PARTICULARLY STRONG GROWTH IN:
• CONSTRUCTION/DEVELOPMENT LOANS GROWING THE
FASTEST
• MULTIFAMILY STILL STRONG
VARIANCE IN GROWTH BY BANK SIZE
Growth in CRE
Loan Portfolios
(2014 vs. 2013)
All banks 6.5%
Assets >$50B 4.1%
$10B-$50B 16.8%
$1B-$10B 10.5%
<$1B -1%

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• HEADING INTO NEW ROUND OF REFINANCING, PEAKING IN 2017
• LENDERS VIEW AS OPPORTUNITY TO INCREASE VOLUMES.
• EXCESS CAPITAL LOOKING TO FINANCE SOLID REAL ESTATE.
• SURGE IN REFINANCING ACTIVITY FROM NOW THROUGH 2017.
LENDING OPPORTUNITY:
NEW ROUND OF REFI’S

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• VYING FOR A PIECE OF THE REFI MARKET:
• Traditional lenders
• Life companies
• Conduits
• Private equity (non-bank lenders, new this refi cycle)
NEW REFI PLAYERS

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• CONSTRUCTION SPENDING
• 2014: HIGHEST LEVEL SINCE
DOWNTURN
• APRIL: FASTEST MONTHLY
PACE IN MORE THAN 6 YEARS
• POINTS TO MARKED INCREASE
IN U.S. DEVELOPMENT IN 2015
• EXPANDING TO SMALLER
METROS…
2015: THE YEAR FOR NEW DEVELOPMENT

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METRO MAGNETS:
1. Denver
2. Raleigh-Durham
3. Suburban VA
4. Oakland
5. Las Vegas
6. Austin
7. San Jose
8. Miami
9. Seattle
10.Portland
THE CONSTRUCTION/DEVELOPMENT OPPORTUNITY
MOST ACTIVE GROUPS
ACQUIRING SITES FOR
DEVELOPMENT
HFZ Capital Group
Greenland Group
Tishman Speyer
Carmel Partners
Oceanwide Real Estate Group
Crown Resorts
Oaktree
Mitsui Fudosan
Fortis Property Group

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SCOREKEEPER BENCHMARKS:
ORANGE COUNTY

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Region 1Q Growth YonY
Northeast 2%
West 14%
MidAtlantic -4%
South 1%
Midwest 1%
California 6%
North Atlantic 8%
South Atlantic -1%
U.S. AVERAGE 4%
SCOREKEEPER: REGIONAL GROWTH 1Q2015

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SCOREKEEPER: GROUND-TRUTHING THE
MIGRATION TO SECONDARY METROS
TOP 10 HIGH-GROWTH METROS
FOR PHASE I ESA GROWTH:
1Q2015 (YonY)
Las Vegas, NV 52%
Columbia, SC 42%
San Antonio, TX 38%
Charleston, SC 26%
Milwaukee, WI 22%
San Francisco, CA 20%
Sacramento, CA 19%
Stamford, CT 16%
Portland, OR 14%
Raleigh, NC 13%

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SCOREKEEPER: STATE TREND LINE
Up 6%
YonY

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SCOREKEEPER: METRO FOCUS
CALIFORNIA IN THE CONTEXT OF U.S. TOP 50 METROS:

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REAL ESTATE OUTLOOK: CALIFORNIA METROS
Source: ULI/PwC, Emerging Trends in Real Estate 2015.
• Orange County:
• 2nd in U.S. for INDUSTRIAL
• 8th for OFFICE
• 9th for RETAIL

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CURRENT INVESTMENT CLIMATE:
ORANGE COUNTY
“This area has bounced back from
being the epicenter of the mortgage
collapse. The recovery in financial
services, tech-related employment and
strong foreign trade have led the
recovery in the Orange County
economy.”

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NEAR-TERM FORECAST

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• STILL A LOT OF ROAD TO RUN IN THIS RECOVERY.
• TRANSACTION VOLUME REMAINS ON THE MEND.
• MODERATE GROWTH IN NEW ORIGINATIONS.
• CONTINUED MIGRATION TO SECONDARY AND TERTIARY METROS.
• FAVORABLE LOW INTEREST RATE ENVIRONMENT.
• PHASE I ESA FORECAST: 4 TO 8% RANGE NEXT 2 YEARS.
“2015 WILL BE ONE OF THE STRONGEST YEARS WE’VE SEEN IN
COMMERCIAL REAL ESTATE SINCE THE CREDIT CRISIS AND IT’S FOR
ALL THE RIGHT REASONS.”
~KEN RIGGS, RERC
“OPTIMISM IS THE HIGHEST IT’S BEEN SINCE THE DOWNTURN.”
~RYAN SEVERINO, REIS
THE NEAR-TERM MARKET FORECAST

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• RISK MANAGEMENT IS NOW EVERYONE’S BUSINESS.
• PAST “DEAL KILLERS” ARE NOW BEING MANAGED.
• FAILED PROPERTIES/PROJECTS ARE MOVING BACK INTO PLAY.
• EFFICIENCY IN DUE DILIGENCE IS PARAMOUNT.
THE FORECAST FOR RISK MANAGEMENT

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