36 Offices in 17 Countries Beyond the Media Stories: What’s Happening in the USA? John Thomas Global Real Estate Practice Group Leader

State of the U.S. Market The market is fluid No consistent answer to the question of how is the market Strengths  Multifamily Housing  Super prime commercial  Health care related real estate 2

State of the Market Weak spots  Home Building  Suburban Office  Unanchored Retail  Hospitality 3

4 Lender Preferences Source: NREI Lender Survey

State of the Market Commercial rental growth is generally slow Commercial vacancy rates remain high – 16.2%  60bps below recessionary peak  380bps below prerecession low Week employment growth hurts office fundamentals. Growth follows employment. 5

Net Job Gains over Next 5 Years 6

State of the Market Interest Rates are low Capital is tight, but there are signs of progress In 2Q 2011, net commercial and multifamily debt increased for the first time in 18 months 7

Outlook The Good  Corporate profits are up  Prime office markets are holding up  Stock market at 4 year high  Unemployment is creeping down  Strong holiday retail season  Overseas Investors  Tourism increasing  Signs of life in the lending market 8

Lender and Borrower Optimism 9 Source: NREI Survey

Outlook The Bad  Forecasted GDB revised downward 10

Revised U.S. GDP 11

Outlook The Bad  Fear of second global slow down  Federal Reserve retrenchment  Possible meltdown in Eurozone  Fear of credit crunch 12

Libor Spread over U.S. Treasuries 13

Outlook The Bad (continued)  Political Stalemate  High energy and commodity prices  Stubbornly high unemployment 14

Slow Growth in Jobs 15

Outlook The Bad (continued)  High consumer and government debt levels  Fiscal Drag 16

Outlook Real estate concerns  Will bubble burst on top tier commercial  Lease renewals from 2007 top of market  Loan maturities from 2007 top of market  Credit crunch 17

The Cause The impact of the housing crisis has been under reported Home construction is a major economic driver  55% of construction  Durable goods 18

The American Dream - Homeownership 19

The Cause Aggressive lending practices supported by the Government  Low teaser rates  No amortization  Little or no underwriting Home ownership increases Wall street makes money Construction Booms Prices go up – owners feel wealthier 20

The Cause But then the bubble pops 21

Housing Prices 22. S&P/Case Shiller

The Cause Prices dropped in 18 of 20 largest markets 3.6 million mortgages are 90 days or more late Housing markets are out of balance S&P estimates 45 months to clear the market 23

24 National Association of Home Builders

Conclusions Large debt levels suggest a slow recovery Paying off debt will reduce consumer and government spending Real estate implications  Wealth preservers go to quality  Long term investors look at : – Multifamily – Day to day retail – Mezzanine Debt  Higher return investors go for growth or distressed assets 25

Conclusions How to move forward  Debt forgiveness in the home mortgage market  Political resolution 26

Lessons Learned Housing matters Political decisions have significant impacts. Despite challenges, savvy players thrive. 27