1. Economic & Commercial Real Estate Finance Outlook
May 2017
Presented by
Barbara Byrne Denham
REIS, Inc.
Jamie Woodwell
Mortgage Bankers Association

2. Agenda
The Economy
Commercial Real Estate Markets
CRE Finance Markets
Outlook

3. The Economy

4. Economic Dashboard
GDP Growth: 0.7% (SAAR, Q1 2017) Job Growth: 211,000 (SA, Apr. 2017) Unemployment Rate: 4.4% (SA, Apr. 2017) Participation Rate: 62.9% (SA, Apr. 2017) Year-over-year Change in Weekly Earnings: +2.55% (SA, Apr. 2017) Retail Sales: +4.8% (Year-over-year change, excl. motor vehicle & parts, Mar., 2017) Inflation: 2.0% (CPI-U year-over-year change, less food and energy, Mar. 2017)

5. The Current Expansion is Growing Slower
So it has room to grow
Source: Bureau of Economic Analysis

6. Labor Market Tightness - Implications
Source: Bureau of Labor Statistics

7. Employment by Selected Industry Indexed to January 2008 = 100
Source: Bureau of Labor Statistics

8. Metro Areas are Seeing Most of the Job Growth

9. Total Employment Growth
Top and Bottom Metros, Q over Q1 2016
Source: Reis

10. Retail Sales, year-over-year change
Source: Census

11. Changes in the Number of Owner- and Renter-occupied Households and Homeownership Rate
Thousands of
households
Homeownership
rate (%)
Source: Mortgage Bankers Association and Census Bureau

12. The Millennial Progression
Mortgage Bankers Association
7/18/2018
The Millennial Progression
In 2014, 23 yo represented the largest 1 year age group of millennials (w being the largest 5 year band)
Peaks are in and 2030 for the groups shown
change in pop ( )
1,560,349 3,212,914 3,074,399
Source: Census 2014 National Population Projections
Mortgage Bankers Association

13. CRE Fundamentals

14. National Apartment Market
Supply & Demand Trends
Source: Reis; Top 50 Primary Apartment Markets

15. National Apartment Market
Quarterly Vacancy and Rent Statistics
Source: Reis; 79 of 275 Apartment Markets

16. Top and Bottom Apartment Markets
Year-Over-Year Comparisons
Effective Revenue Per Unit, Percent Change 2016Q1 – 2017Q1
Source: Reis

17. National Office Market
Supply & Demand Trends
Source: Reis; Top 50 Primary Office Markets

18. National Office Market
Quarterly Vacancy and Rent Statistics
Source: Reis; 79 of 190 Office Markets.

19. Net Absorption per Added Employee has Changed

20. Top and Bottom Office Markets
Year-Over-Year Comparisons
Effective Revenue Per Square Foot, Percent Change 2016Q1 – 2017Q1
Source: Reis

21. National Retail Market
Supply & Demand Trends
Source: Reis; Top 50 Primary Retail Markets

22. National Retail Market
Quarterly Vacancy and Rent Statistics
Neighborhood and Community Shopping Centers
Source: Reis; 77 of 190 Office Markets

23. Top and Bottom Retail Markets
Year-Over-Year Comparisons
Effective Revenue Per Square Foot, Percent Change 2016Q1 – 2017Q1
Source: Reis

24. Real-Estate Using Retail Sales
Not as Bad as the Media has Portrayed

25. Industrial Powers Through
Flex/R&D vacancies fell to 10.9%, a 20 basis point drop in the first quarter.
Effective rents rose by 0.5% in the quarter, and 2.0% over the year – up by 20 bps versus 2016’s annual effective rent growth.
Flex/R&D
Warehouse/distribution vacancies fell by 10 basis points in the first quarter, to 10.1%
Effective rents rose by 0.6% in the first quarter; 2.4% year- over-year.
Warehouse/
Distribution
Source: Reis

26. Self-Storage in the First Quarter
First quarter occupancies weakened by 40 basis points in the fourth quarter, ending the year at 89.3%.
There were still gains in occupancy for the year, with occupancies improving by 20 basis points over year-end ’s 89.1%.
Year-over-year rent growth was 4.1% for the West region, followed by the South Atlantic.
Source: Reis

27. Senior Housing Fundamentals
Source: Reis

28. Student Housing in the First Quarter
Updated figures reflect outlook from Fall 2016 to Fall 2017.
Continued strength in properties that rent by the Bed, with vacancies expected to fall by 40 basis points to 4.3% by the start of Fall 2017.
Vacancies drift upwards for properties that rent by the Unit, but vacancies still rock bottom low at 1.8%.
In general, rent growth for properties that rent by the Bed appears stronger.
Source: Reis

29. Affordable Housing Fundamentals
National vacancies increased by 10 basis points in Q at a very tight 1.7%.
Asking rent growth for the US was 0.2%, but some metros like Charleston and Minneapolis saw growth of close to 1.0% for the quarter.
Total coverage of 100 metros throughout the country; 31 metros saw a slight rent decline in the first quarter.
Source: Reis

30. Cap Rate Spreads Against 10-Year Treasury Rate
2008Q1 – 2017Q1
Source: Reis

31. Summary and Conclusions
GDP growth slowed in 2016 and early 2017, but this was not unexpected.
Job Growth in 2017 has improved in most sectors except retail.
Holding steady with our forecasts, but with a significantly wider band of uncertainty – both on the upside and the downside.
Near term boost in economic activity may show up in stronger CRE fundamentals. Again, note higher uncertainty both on the upside and downside. More questions than answers in the new administration’s first days.

32. CRE Finance

33. Multifamily and Other Commercial Mortgage Delinquency Rates Among Major Investors
Bank & Thrift (90+ day delinquency or nonaccrual)
CMBS (30+ day delinquency including REO)
Life Companies (60+ day delinquency including in process of foreclosure)
Fannie Mae and Freddie Mac (60+ day delinquency)
Source: FDIC, Wells Fargo Securities and Intex, ACLI, Fannie Mae and Freddie Mac.

34. CMBS Delinquency Rate (%)
Source: Trepp, Morgan Stanley Research

35. 1998-2007 Vintage Conduit CMBS Balance, 60d+ including FC/REO and Delinquency Rate
Source: JPMorgan Securities

36. Mortgage Bankers Association
7/18/2018
Change in Outstanding Balance of Commercial and Multifamily Mortgages ($billions)
Source: MBA CREF Database
Mortgage Bankers Association

37. Commercial/Multifamily Mortgage Debt Outstanding ($millions)
Source: MBA Commercial and Multifamily Mortgage Debt Outstanding

38. Commercial/Multifamily Mortgage Servicing Firms, by Share of UPB of Primary and Master Servicing
73% >75% of balance in one source
Source: MBA

39. Commercial/Multifamily Mortgage Bankers Originations
Mortgage Bankers Association
7/18/2018
Commercial/Multifamily Mortgage Bankers Originations
$billions
Source: MBA CREF Database
Mortgage Bankers Association

40. Mortgage Bankers Originations, by Property Type ($billions)
Source: MBA

41. Mortgage Bankers Originations, by Capital Source ($billions)
Source: MBA

42. Different Capital Sources, Different Drivers
Banks – CRE Fundamentals, Regulatory Guidance, HVCRE Life Companies – Alternative Investment Options GSEs – Lending Caps, Housing Goals, Duty to Serve CMBS – Bond Markets, Risk Retention, Fundamental Review of the Trading Book FHA – Rates, Construction, MAP Guide, MIP for Affordable

43. Commercial & Multifamily Mortgage Bankers Originations in 2016 – 10-year, Fixed Rate Loans
Source: MBA, Characteristics of Commercial and Multifamily Originations

44. BANKS: Year-to-date Originations for Banks ($billions)
Source: MBA CREF Database

45. LIFE INSURANCE COMPANIES: Year-to-date Originations for Life Insurance Companies ($billions)
Source: MBA CREF Database

46. FANNIE MAE AND FREDDIE MAC: Quarterly Originations for GSEs ($billions)
Source: MBA CREF Database

47. CMBS: Originations for CMBS ($billions)
Source: MBA CREF Database

48. CMBS: Spreads to Swaps (basis points)
Source: MBA and CMAlert

49. OUTLOOK

50. UPB of Non-Bank Commercial/ Multifamily Mortgages, by Year of Maturity ($billions)
Source: MBA Annual Commercial/Multifamily Loan Maturity Volume

51. UPB of Non-Bank Multifamily Mortgages, by Year of Maturity ($billions)
Source: MBA Annual Commercial/Multifamily Loan Maturity Volume

52. Mortgage Bankers Association
7/18/2018
Current Unpaid Principal Balance of Non-bank Commercial/multifamily Loans Maturing, by Year
$Billions
Source: MBA CREF Database
Mortgage Bankers Association

53. Mortgage Bankers Association
7/18/2018
Commercial/Multifamily Property Sales, Mortgage Bankers Originations and Non-bank Maturities ($millions)
n.a.
n.a.
n.a.
n.a.
Source: MBA CREF Database and Real Capital Analytics
NOTE: Maturities not available prior to 2009
Mortgage Bankers Association

54. Mortgage Bankers Association
7/18/2018
Actual and Forecast Commercial/Multifamily Mortgage Bankers Originations
$millions
Source: MBA CREF Database
Mortgage Bankers Association

55. Commercial and Multifamily Property Prices and Mortgage Debt Outstanding (Index: Nov. 2007 = 100)
Source: MBA and Moody’s/RCA

56. Contributions to Commercial Property Price Changes

57. Mortgage Bankers Association
7/18/2018
Historical Mortgage Rates, NOIs and Property Prices Relative to Current Levels
Life Company Fixed Rate Mortgage Rate
(Percent)
Moody’s/RCA Property Prices
(Index: 2016 Nov. = 100)
NCREIF NOIs
(Index: 2016 Q4 = 100)
Source: ACLI, NCREIF, Moody’s/RCA
Mortgage Bankers Association

58. Ten-Year Treasury Yields Actual and Q4 Philly Fed Forecasts
Percent
Source: Federal Reserve Board, Federal Reserve Bank of Philadelphia

59. Mortgage Bankers Association
7/18/2018
Contact Information
Jamie Woodwell
Vice President | Commercial Real Estate Research
MBA
Barbara Byrne Denham
Senior Economist
Reis, Inc.
(212) | extension 286
Mortgage Bankers Association