Real Estate Capital Policy Advisory Committee (RECPAC) December 1, 2015 Committee Meeting 1 What inning are we in?

What Inning Are We In? We are in the last inning when… Asset prices appreciate beyond fundamentals: Stock prices Housing prices There is a build up in leverage, particularly for financial firms The real economy is getting out of balance (consumers, pace of building, etc.) There is an increase in M2 growth / decline in bank excess reserves 2

Asset Prices Profits and Equity Prices Equities Rise with Corporate Profits 3

4 Equity Fundamentals

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6 What about Tech? 6 Tech P/E’s

Housing Prices / Affordability Median Prices Approaching ‘07 Peak 7

8 Commercial Real Estate

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10 An Economy in Balance Are we getting overheated?

Deleveraging Cycle Just Ending 11

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13 Money Supply and Inflation

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15 The QE effect

Where Are Rates Heading? 16

Some Future Risk to Adumbrate … The flow of capital into U.S. real estate continues to increase Total acquisition volume for the 12 months ending June 30, 2015, was $497.4 billion, up 24.6 percent year-over-year While this pace of growth is probably not sustainable, investors across the board (with the exception of the government-sponsored enterprises [GSEs]) are anticipated to have capital availability in 2016 that is equal to or greater than 2015 levels With pricing already near record levels in a number of markets and property types, will this cause bubble pricing? 17

Volatility Will worldwide volatility push too much capital into the U.S. Real Estate Market? Recent public equity volatility and continued uncertainty surrounding the Federal Reserve policy decisions have wreaked havoc on investment portfolios This market volatility continues to push jittery global capital to the U.S. property market as precipitous devaluation in foreign currencies is propelling a seemingly non-stop flight towards safe haven tangible assets and superior risk adjusted yields 18

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We are in the middle innings … Asset prices are being driven by fundamentals, not speculation The global savings glut is driving interest rates, not Fed policy Leverage is not a factor The real economy is in balance 20