1. Commercial Real Estate, Policy Intervention, and the Mortgage Performance Outlook December 3 2009 〆 National Association for Business Economics Sam Chandan PhD FRICS ‣ President and Chief Economist Real Estate Econometrics ‣ Adjunct Faculty of Real Estate The Wharton School of the University of Pennsylvania

2. General Business Conditions 2 Sources: Federal Reserve Banks of Dallas, New York, and Philadelphia Growth Contraction

3. Consumer Sentiment Tracks the Labor Market 3 Reuters / Michigan Consumer Sentiment Index Month-to-Month Non-Farm Employment Change (Thousands)

4. Consumers Drag on the Economy 4 Year-to-Year Percent Change in Income, Savings, and Spending Source: Bureau of Economic Analysis First Fiscal Stimulus

5. Asset Price Adjustments 5 Final Concentration Guidance Released Loan Workout Guidance Released For Comment Concentration Guidance Released

6. Cyclicality in Risk Aversion 6 Transaction Volume by Sector Source: Real Capital Analytics Risk is Underpriced; Investment is Opportunistic; Hold Periods Shorten Risk Dominates Pricing; Assets Prices and Transaction Volumes Fall; Price Discovery Slows Final Concentration Guidance Released Billions $

7. TALF, Credit Markets, and Credit Costs 7 Sources: Federal Reserve Board of Governors, British Bankers Association, Commercial Mortgage Alert, Real Estate Econometrics TED Spread CMBS Spreads 10 Year AAA Spread Over Swaps CMBS Spread / Basis Points TED Spread / Basis Points TALF Expansion to CMBS: Illiquidity Premium Falls, Default Premium Does Not 2007 Average CMBS AAA Spread

8. Outflows from Commercial Real Estate 8

9. Banks’ Market Participation 9 Billions $ New Lending and Renewals/Modifications by Largest Banks Source: Treasury Department, Bank Filings

10. Share of Banks Tightening Commercial Real Estate Lending Standards Source: Federal Reserve Adjustments in Bank Credit Standards 10 Year Domestic Banks Foreign Banks 201022.4%28.6% 201120.0%14.3% When do you anticipate that your bank will normalize credit standards for commercial real estate lending for investment-grade borrowers?

11. Commercial Mortgage Defaults 11 Higher commercial real estate mortgage concentrations at regional and community banks, but higher default rates at larger national institutions. Wide variation in observable outcomes across institutions within different classes that is unrelated to concentration or geographic focus Mortgage Performance by Asset Class

12. Commercial Mortgage Defaults 12

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