1. Comprehending the Construction Marketplace Economics Trends Implications Rusty Sherwood, VP Market Development January 20, 2008 2009 Outlook

2. 2 2 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Trends  US & Global –Sustainability/Green Building –Interoperability and BIM –Workforce/Labor –Innovation –Materials –Project Delivery Methods “The trouble with our times is that the future is not what it used to be” Paul Valery

3. 3 3 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Trends  US & Global –Sustainability/Green Building –Interoperability and BIM –Workforce/Labor –Innovation –Materials –Project Delivery Methods Context Big Picture 2009 Trend Factors So what

4. 4 4 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. The McGraw-Hill Companies – Essential Information & Insight… $6.8 Billion in Revenue (2007)… 280 offices in 40 countries. Leader in every market we serve.

5. 5 5 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. History Founded by James H. McGraw, Frederick W. Dodge and Clinton Sweet Over 100 Years Ago Today Serves One Million Customers Within the $4.6 Trillion Global Construction Community, Helping Industry Enterprises Save Time, Money and Energy McGraw-Hill Construction Market leadership for more than a century…  Leading provider of construction information  Founded over 100 years ago  Key industry alliances  Over 1,000,000 customers  Serving private sector, government, financial community serving business needs four ways.

6. 6 6 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Leading provider of construction information  Founded over 100 years ago  Key industry alliances  Over 1,000,000 customers  Serving private sector, government, financial community serving business needs four ways. Get Smarter Get Seen & Selected Find Opportunity Sell & Market Smarter Increase Efficiency of Business Processes, and Build Project and Employee Productivity Identify Key Project Opportunities, and Increase Your Company’s Backlog Build Your Company’s Market Presence & Identity Analyze, Identify and Evaluate Market Conditions and Opportunities MHC Integrated Media: Print, Online, Events MHC Research & Analytics MHC Network ® & Dodge Database MHC Network ® Express & Performance Tracking

7. 7 7 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Trends  US & Global –Sustainability/Green Building –Interoperability and BIM –Workforce/Labor –Innovation –Materials –Project Delivery Methods Economics the big picture

8. 8 8 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Construction Market Indicators The decline for Total Construction became steeper in 2008.

9. 9 9 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Major U.S. Construction Sectors (Starts ) Single Family Housing still falling; Commercial Building heading down; Institutional Bldg. healthy for now; Public Works slipping.

10. 10 10 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture The U.S. economy has been in recession since Dec. ’07.

11. 11 11 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture Inflation had shot upward – but then fell sharply in second half 2008.

12. 12 12 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture Short-term rates are down; long-term rates have also retreated. With Dec. 16 action, the federal funds funds rate target now set at 0% to.25%. Numerous steps taken to improve liquidity over the course of 2008. Also a plus – second stimulus bill coming.

13. 13 13 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture   The Fall 2008 Financial Market Turmoil – –U.S. Treasury takeover of Fannie Mae, Freddie Mac in September. – –Lehman Brothers goes bankrupt, AIG gets cash infusion. – –Merrill Lynch sold to Bank of America. – –Depositors pull out from money market funds. – –Credit markets freeze up. – –U.S. Treasury proposes $700 billion bailout or rescue program. – –Congress modifies program, passed. – –Modified rescue – U.S. Treasury will use $250 billion to buy stakes in banks -- TARP (Troubled Asset Relief Program), no longer focus of rescue effort. – –Citigroup rescue package – $20 billion additional infusion, $300 billion to guarantee losses on troubled assets. – –Additional program to buy up debt at Fannie Mae and Freddie Mac. – –Will it work?

14. 14 14 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture Tighter lending standards are a major constraint for 2008/ 2009. More instances of tight credit conditions affecting large projects, such as Cosmopolitan Resort in Las Vegas Echelon Resort in Las Vegas Atlantic Yards in Brooklyn Seattle development (Clise property) Chicago Spire

15. 15 15 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture   The Emergency Economic Stabilization Act of 2008 had numerous attachments, including “green provisions”. -- Electricity generation. Tax incentive for generating electricity from wind extended for one year. Tax incentive for generating electricity from other sources – geothermal, hydropower, trash combustion – extended for two years. -- Energy efficiency. Extends tax credit for energy efficient improvements for commercial buildings through 2013. Energy efficient incentives for residential homes extended through 2009.   GDP Pattern: 2007 2008 2009 2010 +2.0% +1.1% -2.0% +2.5%

16. 16 16 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture Federal budget – $455 billion deficit for fiscal 2008, more in 2009. Federal Spending for Fiscal 2008   Federal-aid highway program, up 5%   Mass transit, up 5%   Airport Improve. Grants, flat   Corps of Engineers, down 2%   EPA Water Infrastructure down 7% -- Clean Water SRF’s, down 35%   GSA Construction, down 33%   GSA renovations, down 16%   DOD base realignment, up 29% Renewed focus on infrastructure following I-35 W bridge collapse in Minneapolis Fiscal 2009 –   Status quo bill passed, holding funding at 2008 levels through March 2009.   Base realignment account gets another 18% hike.   Large deficit limits options for next Administration.

17. 17 17 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture   Proposed Stimulus Bill   “The American Recovery and Reinvestment Plan”.   Goal: Save or create at least 3 million jobs by the end of 2010.   Cost: $775 billion or more   Likely passage: now mid-February   Key components   Middle-class tax cuts   Business investment incentives   State fiscal relief   “Substantial investments in infrastructure, education health, and energy.”   Energy and infrastructure are two largest components of job creation.   Impact on construction –

18. 18 18 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture Numerous bond measures passed, but state fiscal health has weakened. November 2006 Elections   California -- voters approved Prop. 1B -- $19.9 bil. for transportation, also $10.4 bil. for school facilities November 2007 Elections   Texas – school const. measures passed.   Washington State – voters rejected Proposition 1, which would have used tax hikes to fund transportation projects. November 2008 Elections   California – voters approved $10 bil. measure for high-speed rail line, a $1 billion measure for children’s hospitals, and Los Angeles voters approved a $7 billion measure for school construction.   But, numerous states with projected budget gaps for Fiscal Year 2009, including: Shortfall $ bil. California $36.0 New York 6.4 Florida 5.7 Illinois 3.8 New Jersey 3.7 Massachusetts 3.3 Georgia 2.7 Virginia 2.3

19. 19 19 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture Materials Prices moved higher in 2008; now some signs of easing.   In early 2008, investors pushed commodity prices upward.   Is slower U.S. economy leading to less pressure on commodity prices? Recent months – yes.

20. 20 20 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Macroeconomic Picture

21. 21 21 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Trends  US & Global –Sustainability/Green Building –Interoperability and BIM –Workforce/Labor –Innovation –Materials –Project Delivery Methods Construction Economics 2009 The Good The Bad The Ugly The Upside

22. 22 22 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. The Good…   Public Buildings… federal projects continue / tougher at state level – –Now settling back slightly from ‘07 highs   Public Works… both environmental and transportation to improve – –ST – pull back, but quick re-strengthening transportation, water   Schools… slowing but off historic highs – –Higher Ed / “Dorms” turning negative but decent volume   Healthcare… settling expected – –LT – demographics/aging population favor expansion   Material Costs… product prices cooling due to capacity surplus – –Steel still impacted by global demand, but improving

23. 23 23 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. The Bad…   Energy… major pull-back but transmission capacity remains prime need – –LT – existing tax incentives / new administration pro-alternatives and energy independence   State Public Works… state income / deficits creating project pullback – –Yet to be funded projects at serious risk   Offices… Better supply management preventing sharp pullback but expect double digit correction – –Job market; demand for office workers may prolong slump   Multi-family… residential still depressed but some demand in apartment easing slide in multi-fam   Manufacturing… expect double digit drop; some segments flat   “Work on the boards”… 10 th straight months of declines – –October steepest decline in history of ABI tracking – –Firms focused on commercial & industrial feeling the brunt of this downturn – –All regions of country effected – Northeast & South the mildest declines

24. 24 24 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. The Ugly…   Residential… single family continues downward through 2009 – –2009 single family starts 30% of 2005 peak – –Diversification of multi-family has eased length of downturn ie: apts – –A few rays of sunshine…national market declining at a declining rate   Retail & Warehouses… bankruptcies will continue; consumer spending down; expect a dramatic pullback – –Expect double digit declines following ’08’s massive 1-year 30% drop   Hotels… surplus capacity; reduced travel budgets; big pullback expected   Access to construction financing… – –Conventional lending guidelines unprecedented tightening through 2009 – –Degree of access crisis still unclear (when do banks get “back to business”?) – –Expect greater scrutiny on new funding – –Expect impact on projects “in-flite”

25. 25 25 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Upside factors…   Alternative Energy… expect Obama administration support, but when will impact be felt? – –Probably not much help in 2009, but 2010 beyond!?!   “Green” (Public) Work… expect greater energy & water efficiency, and health quality requirements – –Required “triple bottom-line” results will sustain demand in spite of market slowing   LEED certified construction… developers, owners recognizing financial results in operations, occupancy, lease rates & resale – –Demand for LEED certified projects well above present supply   Alternative construction financing… – –Will lack of conventional credit access stimulate use of new methods found effective internationally (ie: P3)? And…

26. 26 26 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.   The Pending Stimulus Bill… significant emphasis in construction and energy   Boost to infrastructure, especially highways and bridges   School modernization efforts   Energy efficiency improvements to federal buildings   Energy efficiency incentives directed at residential buildings.   Incentives, support for alternate energy sources   11,391 projects “ready to go” with funding!! Upside factors…

27. 27 27 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Trends  US & Global –Sustainability/Green Building –Interoperability and BIM –Workforce/Labor –Innovation –Materials –Project Delivery Methods Construction Economics 2009 The Details

28. 28 28 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Single Family Housing Construction has continued to fall sharply. Single Family Housing Starts 2005 1.626 million units +5% 2006 1.331 million units -18% 2007.937 million units -30%

29. 29 29 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Single Family Housing Major negatives – falling prices, tighter lending. Single Family Housing Starts 2008 2008.550 million units -41% 2009 2009.460 million units -16% Home prices continue to fall. Subprime lending turmoil is now affecting more traditional mortgage lending. (Fed. Reserve surveys) Steps taken to improve funds available for mortgages -- will they help? Also – efforts to limit foreclosures taken at state level; similar efforts at federal level could be coming in spring ’09. One positive – low mortgage rates.

30. 30 30 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Multifamily Housing Construction relatively stable in 2006, weakened in 2007 and 2008.   Comprised of both apartments and condominiums.   Helped by push for downtown redevelopment. Demographics supportive, especially from empty-nesters.   Mid-decade strength came come from condominium development, focus now on apts.   Was attractive investment target, less so now – due to mounting concern about over-building of condos and diminished credit availability. Multifamily Housing 2006 516,000 units -3% 2007 455,000 units -12% 2008 310,000 units -32% 2009 250,000 units -19%

31. 31 31 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Commercial Bldgs. -- Stores Construction in 2007 at all-time high; now in sharp retreat.. Store Construction 2006 308 msf -1% 2007 313 msf +2% 2008 210 msf -33% 2009 150 msf -29% (msf = million of sq. ft.)   Derived demand from housing market – definitely going up; now true going down.   Substantial building from five major players: Wal-Mart, Home Depot, Lowe’s Target, Kohl’s   Impact of slowing retail sales – reduced store openings, store closings, etc.   Still, competitive retail landscape.   Fate of “lifestyle centers”?

32. 32 32 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Commercial Bldgs.-- Warehouses Construction rebounded in 2007; now heading down. Warehouses 2006 221 msf -1% 2007 255 msf +15% 2008 193 msf -24% 2009 140 msf -27%   Slow economy now having Impact on construction.   Vacancy rates now moving up. 2008Q3 reported at 11.4%, after bottoming at 9.5% in 2006 Q3.   Still, push coming from greater demand from increased global trade.   Larger regional facilities being built by major retailers.   Need for updated facilities to handle improved inventory management practices.

33. 33 33 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Commercial Bldgs.-- Hotels Construction soared in 2006, more growth in 2007 and 2008. Hotels 2006 82 msf +68% 2007 86 msf +5% 2008 83 msf -3% 2009 57 msf -31%   Industry financials had strengthened: Occupancies in 2006 at 63.3%, vs. 63.1% in 2005. Revpar in 2006 up 7.5%. almost as strong as 8.5% in 2005. (Smith Travel Research) 2007 Revpar up 5.7%. 2008 Revpar up only 1%.   In 2005: hotel/casino projects, and convention center- related hotels.   In 2006 and 2007: broader expansion, more Las Vegas projects, convention center hotels, “condo” hotels

34. 34 34 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Commercial Bldgs. -- Offices Construction upturn has been measured this time … Office construction 2006 208 msf +24% 2007 219 msf +5% 2008 168 msf -23% 2009 125 msf -26%   Market fundamentals still relatively healthy, but now turning. office employment vacancy rates – suburban in 2008 Q3 up to 15.8%; downtown in 2008 Q3 rose to 10.9%   In 2006 and 2007: several major high-rise projects reached groundbreaking, including: Goldman Sachs headquarters Freedom Tower 11 Times Square Early 2008: more NYC WTC – Towers 2, 3, 4

35. 35 35 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Commercial Bldgs. -- Offices Office Building Factors   Overbuilding is less than in past cycles.   But – cutbacks in office employment now affecting market fundamentals more severely.

36. 36 36 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Commercial Bldgs. -- Alterations

37. 37 37 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Institutional -- Educational Bldgs. School construction still strong, but losing some momentum. 2007 2008 Primary, Jr. Highs -6% -5% High Schools -7% +10% Colleges/Univ. +10% +1% Libraries -5% -11% Laboratories +11% -30% Museums -26% +6% Comm. Colleges -0- +8% Vocational Schools -43% +33%   Numerous states in recent years have passed school construction bond measures, especially California and Texas.   Major universities increased capital spending plans – but, now under re-evaluation. Educational Buildings 2006 230 msf +5% 2007 220 msf -4% 2008 223 msf +1% 2009 192 msf -14%

38. 38 38 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Institutional – Educational Bldgs. College/University construction was strong, now declining. Colleges, Univ.,Comm.Col. 2006 29.3 msf +12% 2007 31.8 msf +8% 2008 32.4 msf +2% 2009 27.2 msf -16% Dormitories 2006 24.1 msf -11% 2007 26.6 msf +10% 2008 29.0 msf +9% 2009 24.0 msf -17%

39. 39 39 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Institutional -- Educational Bldgs. School renovation work already strong – now getting more emphasis from school modernization focus of Obama stimulus plan.

40. 40 40 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Institutional -- Healthcare Buildings Healthcare facilities reached new high in 2006, now settling back. 2007 2008 Clinics/ Nursing Homes +2% -7% Hospitals -16% +25%   Ongoing need to replace aging facilities   Hospital vs. outpatient clinic dynamic   Closer scrutiny of finances   Growth of the elderly population Healthcare Facilities 2006 110 msf +1% 2007 103 msf -6% 2008 110 msf +7% 2009 97 msf -12%

41. 41 41 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Institutional Buildings Public Buildings had strong 2007; Amusement category weakening again. 2008 Detention Facilities -47% Armories/Military +41% Courthouses -6% Police/Fire Stations +13% Post Offices -5% Total Public 2006 +2% Total Public 2007 +48% Total Public 2008 -1% Total Public 2009 -6% 2008 Convention Centers +12% Sports Arenas +55% Theaters -29% Other (inc. theme parks) -14% Total Amuse. & Rec. 2006 +8% Total Amuse. & Rec. 2007 -9% Total Amuse. & Rec. 2008 -9% Total Amuse. & Rec. 2009 -5%

42. 42 42 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Institutional Buildings Churches still declining, airport terminal work (sq. ft.) now weak Religious Buildings 2006 34 msf -6% 2007 31 msf -11% 2008 27 msf -12% 2009 25 msf -7% Airport Terminals 2006 3.1 msf -28% 2007 2.2 msf -28% 2008 2.1 msf -5% 2009 1.9 msf -9%

43. 43 43 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Manufacturing Buildings Plant construction in sq. ft. lackluster, yet growth in dollar terms Manufacturing Buildings 2006 83 msf +4% 2007 90 msf +8% 2008 78 msf -13% 2009 70 msf -10% Manufacturing Buildings 2006 $13.6 bil. +34% 2007 $17.6 bil. +29% 2008 $26.9 bil. +53% 2009 $18.3 bil. -32% Surge of ethanol plants in 2006-2007 Huge refinery additions in 2008

44. 44 44 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Public Works -- Highways & Bridges Highways and bridges slipped back in 2008; should get more funding in 2009 from stimulus bill. Highways, Bridges 2006 $51.0 billion +15% 2007 $53.6 billion +5% 2008 $52.4 billion -2% 2009 $55.9 billion +7%   Renewed focus on infrastructure following I-35W bridge collapse in Minneapolis.   Fiscal 2008 appropriations – federal-aid highway program up 5%, including added funding for bridge maintenance. Fiscal 2009: status quo.   Congress supplied $8 billion to Highway Trust Fund in Sept.   Potential boost in 2009 from second stimulus bill.   AASHTO – 5,148 projects totaling $64 billion ready to start in 180 days.   This year and next – debate over new transportation bill to replace SAFETEA-LU.

45. 45 45 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Public Works -- Environmental Environmental public works is now settling back. May get gradual boost from stimulus bill. Environmental Public Works 2006 $33.4 billion +6% 2007 $37.1 billion +11% 2008 $38.2 billion +3% 2009 $37.8 billion -1% Projects generally take longer to reach construction start stage compared to transportation work. Various “gap” analyses point to aging infrastructure, and how current funding is coming up short.

46. 46 46 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Electric Utilities New electric utility starts have soared in 2008. Electric Utilities 2006 $17.7 billion +125% 2007 $16.8 billion -5% 2008 $26.4 billion +57% 2009 $17.1 billion -35%   Energy Bills -- tax incentives for oil and gas production, electric utilities, transmission lines, etc. Extended with financial rescue package.   Capacity utilization had climbed to 87% for full year 2007; has since retreated to 83% (late ’08).   Stimulus bill should provide boost -- incentives for alternative sources of electricity generation. Also, push for “smart grid.”

47. 47 47 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. U.S. Total Construction Starts for 2009 Billions of Dollars 2005 2006 2007 2008 2009 Total Construction670.3689.9638.2550.7482.2 +13%+3%-7% -14%-12% Single Family Housing315.5272.4201.2122.2104.1 +12%-14%-26% -39%-15% Multifamily Housing 68.669.963.5 41.033.9 +36%+2%-9% -35%-17% Commercial Bldgs.72.293.0100.7 87.567.7 +7%+29% +8% -13%-23% Institutional Bldgs. 100.1110.7117.2129.0121.3 +12%+11%+6% +10%-6% Manufacturing Bldgs.10.113.617.626.918.3 +26%+34%+29% +53%-32% Public Works96.0112.5121.2117.8119.7 +9%+17%+8% -3%+2% Electric Utilities 7.917.716.8 26.417.1 +6%+125%-5% +57%-35%

48. 48 48 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Points of Perspective – U.S. Construction

49. 49 49 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Points of Perspective – U.S. Construction

50. 50 50 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Impact of Recession on Construction   Commercial building has the strongest negative response to recession   One year after start of last 2 recessions commercial has fallen by 30%   The change in Institutional is slight and lagged.   Based on construction starts Public Works shows little downward impact in the near term   More impacted by federal funding, environmental mandates and state transportation bonds   Impact of recession may be present but spread out over several years so hard to discern

51. 51 51 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Global Total Construction Spending – Top 15 Countries

52. 52 52 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Trends  US & Global –Sustainability/Green Building –Interoperability and BIM –Workforce/Labor –Innovation –Materials –Project Delivery Methods Trends Green Innovation Labor & Materials Project Delivery

53. 53 53 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Becoming Mainstream Tipping Points Occurring Across Industry Sectors  Commercial –By 2010: 10% of all starts green (~$23 billion)  Corporate America –By 2009: 82% greening at least 16% of their real estate portfolios (18% greening at least 60%)  Healthcare and Education –Over next 5 years: Dramatic increases expected  Residential –By end of 2007: 52% of the builder population greening at least 16% of their portfolio Green Building Serves as Market Differentiator in Down Markets   Green Building

54. 54 54 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Sources: U.S. Energy Information Administration, 2006; World Trends & Forecasts, Nov-Dec 2005; Glenn and Gordon, “Update on the State of the Future,” Jan-Feb 2006 The Prime Catalyst – Global Energy Demand, Impact and…  Energy resources are being used at the rate of 421 Quadrillion BTU annually, increasing 3.8% each year  Energy demand will grow 71% by 2030  New energy investments of $538 billion needed each year  CO2 emissions are being produced at the rate of 25 billion metric tons annually Alternative energy is growing in popularity and getting cheaper!   Green Building

55. 55 55 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Perceived Advantages of Building Green from AEC firms and Owners 8-9% 13.6%  Decreased Operating Costs: 8-9% 13.6% 7.5% 10.9%  Increased Building Values: 7.5% 10.9% 6.6% 9.9%  Improvement in ROI: 6.6% 9.9% 3.5% 6.4%  Increased Occupancy: 3.5% 6.4% 3.0% 6.1%  Rent Rise: 3.0% 6.1% 71% 77%  Increased revenue flows: 71% 77% 59% 61%  Increased profits: 59% 61% Advantages are Increasing Over Time! 20052008   Green Building

56. 56 56 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Impact of LEED  LEED more important than government Programs  Contractors find LEED even more effective –Consistent with other studies  Resistance to mandates   Green Building

57. 57 57 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Driven by Key Sector Needs & Adoption  Key Drivers to Future Green Growth: –Changing ethics –Government regulations –Energy cost increases –Corporate Investment/Involvement –Market differentiation –Cost savings –Health benefits –More green product availability EducationInstitutionalHealth CareRetail HospitalityOffice Government U.S. Sectors Expected to Have Green Building Growth #1 Growth Sector in Europe = same in Europe   Green Building

58. 58 58 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Adopting New Means & Methods Considered Key to Productivity Gains  Innovation Broadly Refers to Process and Procedure Improvements  Many Global Firm Leaders Believe Innovation in Technology and Processes Will Help Solve Their Biggest Concerns Pre-Fabrication & Modularization 13% Safety & Health of Workforce 29% New Construction Methods & Processes 13% Green Building 16% Intelligent Building & Infrastructure 13% Other 16% Areas of Innovation with Greatest Expected Impact on Future Business   Innovation

59. 59 59 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. BIM “tipping point” in AEC/O in 2008   BIM Who is using BIM?

60. 60 60 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. Source: ENR April 23, 2008   BIM Structural adoption of BIM accelerating

61. 61 61 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.   From SmartMarket Report on BIM ArchitectsEngineersContractorsOwners 2009: Year of the Contractor Low Med High V.High   BIM BIM project involvement 2009 Year of the Contractor

62. 62 62 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved. The Workforce Crunch: A Global Concern Demographic Shifts Around the World Are Leading to a More Mobile, Aging Workforce  Top Concerns of Both European and U.S. Firm Leaders –Training –Safety –Well-being of workforce  U.S. Construction Workforce –Industry needs to fill 12 million new jobs by 2012 –An estimated 95,000 new craft workers will be needed each year for the next decade to replace those leaving the industry  European Construction Workforce –Biggest shortage seen in electricians, carpenters, roofers, plumbers –Expect shortage to stay severe for next 5-7 years   Workforce Resources

63. 63 63 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Project Delivery Methods  Construction Management At-Risk is the most common delivery method among respondents  Design-Bid-Build is a close second, though it represents more by “number of projects” than by “dollar value” Project Delivery Method Used Most Often - By Project Is the case for IPD growing?

64. 64 64 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Trends  US & Global –Sustainability/Green Building –Interoperability and BIM –Workforce/Labor –Innovation –Materials –Project Delivery Methods So what implications

65. 65 65 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.   Assume pending or proposed projects are NOT safe if financed through conventional construction loans – –Anecdotally loan-to-values of 60% or less are at risk   Stay close to existing clients & keep an eye on fiscal health of key trade and supply partners   Expect “Green” to become de facto market expectation, particularly for public works, institutional and office – –Can you deliver profitably; are you aligned with trades experienced with green projects? – –Are you internalizing sustainability efficiencies into your business? Besides direct bottom-line impact, “green savvy” clients will begin to inquire about your corporate commitment to sustainable business practices   Implications

66. 66 66 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.   Infrastructure, Education, Healthcare, Alternative Energy & Transmission are all good bets over the long term… – –Driven by demographics – –Driven by state of economy – simultaneous need for jobs and repairs – –Driven by need for energy independence – –Priorities of Obama’s Stimulus Plan   Alternative delivery ie: IPD becomes increasingly attractive as owners look for greater efficiencies and risk sharing – –Is your firm ready to engage and/or lead IPD projects? – –BIM is the critical enabler in IPD/other project management efficiencies – have you invested / are competent with these enabling technologies? Industry leaders Walter P Moore, JE Dunn - near 100% BIM deliverable   Implications

67. 67 67 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.   Alternative financing like PPP has renewed appeal as state /local govt’s balance infrastructure needs and budget shortfalls   It’s a great time to recruit! – –Top talent at weaker firms are looking   Use of prefabrication and modularization will accelerate – –Owner expectations driving job productivity improvements, reduced waste and better cost management – –Companies in favorable cash position are investing in innovation to secure profitable competitive advantage   Implications

68. 68 68 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.   “Co-opetition” essential to managing risk and leveraging expertise on complex high $ projects   Continued softness in residential and “softening” with income / retail segments should stabilize / reduce building material costs…   Don’t expect fuel costs to remain low… – –Any recovery will spark a rapid rise in oil prices – –Energy mgm’t should remain a top priority with operational efficiency efforts – –Carbon taxes and offsets are coming!!   Implications

69. 69 69 McGraw-Hill Construction Confidential. All information presented © McGraw-Hill Construction, 2007. All rights reserved.  Trends  US & Global –Sustainability/Green Building –Interoperability and BIM –Workforce/Labor –Innovation –Materials –Project Delivery Methods “Luck favors the prepared mind.” - Louis Pasteur - Thanks for listening! Questions or comments?? mark_sherwood@mcgraw-hill.com