1. The Current State
of the Capital Markets
Breakfast Forum
September 12, 2013

2. September 12, 2013
The Great Rotation
Andrew D. Kanaly
Chairman

3. Key Investment Issues
•
Slow global growth, but improved prospects in second half
– U.S. key strengths: housing/autos/energy/deficit reduction
– Europe remains in recession
– Emerging economies transitioning to domestic growth
•
Federal Reserve preparing to normalize monetary policy
– Fed appears poised to scale back bond buying late 2013
– Fed unlikely to raise short rates prior to 2015
•
30 year bull market in bonds is likely over
– Will rising interest rates derail the economy?
– Asset allocation implications of rising interest rates
•
Bull market in equities remains intact
– Earnings acceleration into 2014 bullish for stocks
– U.S. stocks fairly valued; emerging market stocks are cheap
– Potential “great rotation” from bonds to stocks
– Expect near term volatility due to interest rates and earnings
Copyright 2010 Kanaly Trust. All rights reserved.

4. The Wheel
Source: Bill Boyar (He was there)
Copyright 2010 Kanaly Trust. All rights reserved.

5. The Heliocentric Universe
Brought to you by heretics: Copernicus, Galileo, Kepler
1543-1621
5
Copyright 2010 Kanaly Trust. All rights reserved.

6. The Tri-Cone Drill Bit
Thank You: Hughes Tool Company
Copyright 2010 Kanaly Trust. All rights reserved.

7. Elvis
Copyright 2010 Kanaly Trust. All rights reserved.

8. Rotation From Bonds to Stocks?
Source: Strategas Research
Copyright 2010 Kanaly Trust. All rights reserved.

9. Wage Inflation to Determine Speed of Interest Rate Rise
* Highlighted asset classes denote significant position change since 12/31/12
Copyright 2010 Kanaly Trust. All rights reserved.

10. 10 Year Treasury Note Yields (since 1979)
Daily Data 1/02/1979 - 9/05/2013
10-Year Constant Maturity Treasury Note Yields
15.84
15
14
15
%
13.99
14
13.65
9/05/2013 = 2.98%
13
13
12
12
11
11
10.23
10
10
10.12
9.47
9.09
9
9
8.76
8.05
8
8
7.74
7.06
7
7
6.79
6.95
6
6
5.44
5.53
5.25 5.26
5.19
5
5
4.89
4.61
4.27
4
4.16
4.01
4.22
3.70
3.34
3
4
3.75
3.89
3.21
3.13
3
2.41
2
2008
2003
1998
1993
1988
1983
2013
1.43
Source: Federal Reserve Board
(B151)
2
2.08
 Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .
Copyright 2010 Kanaly Trust. All rights reserved.

11. Ownership of Marketable Treasury Debt as of 03/31/2013
Numbers in parentheses in $ Billions
(Total = 11905.5)
Other Foreign
(3316.8)
Household
Sector
(1229.4)
10.3%
Monetary
Authority
(1796.0)
27.9%
15.1%
4.9%
9.4%
Nonfinancial
Business
and State
& Local
Governments
(580.2)
Japan (1114.3)
10.7%
China (1270.3)
21.8%
Financial
Institutions
(2598.4)
S
ource: Federal Reserve Board
B920A
Copyright 2010 Kanaly Trust. All rights reserved.
© Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html
For data vendor disclaimers refer to
www.ndr.com/vendorinfo/

12. Ownership Trends of Marketable Treasury Debt
39
38
37
36
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
Quarterly Data 1998-03-31 to 2013-03-31
Household Sector (10.3%)
Nonfinancial Business and State & Local Governments (4.9%)
Monetary Authority (15.1%)
Financial Institutions (21.8%)
China (10.7%)
Japan (9.4%)
Other Foreign (27.9%)
39
38
37
36
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
S
ource: Federal Reserve Board
1999
2000
2001
2002
B920B
Copyright 2010 Kanaly Trust. All rights reserved.
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
© Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html
For data vendor disclaimers refer to
www.ndr.com/vendorinfo/

13. Ownership of Corporate and Foreign Bonds as of 03/31/2013
Local, State &
Federal
Governments
(129.0)
Numbers in parentheses in $ Billions
(Total = 12791.7)
Household
Sector
(2454.6)
Insurance
Companies
(2566.3)
1.0%
19.2%
20.1%
16.9%
16.4%
Other (2097.3)
Mutual
Funds and
ETFs
(2156.0)
6.0%
20.5%
Banks and
Credit
Unions
(769.8)
Rest of the
World (2618.5)
S
ource: Federal Reserve Board
B922
Copyright 2010 Kanaly Trust. All rights reserved.
© Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html
For data vendor disclaimers refer to
www.ndr.com/vendorinfo/

14. Ownership Trends of Corporate and Foreign Bonds
55.0%
Quarterly Data 1975-12-31 to 2013-03-31
55.0%
Household Sector (19.2%)
Local, State & Federal Governments (1.0%)
Rest of the World (20.5%)
Banks and Credit Unions (6.0%)
Insurance Companies (20.1%)
Mutual Funds and ETFs (16.9%)
Other (16.4%)
52.5%
50.0%
47.5%
52.5%
50.0%
47.5%
45.0%
45.0%
42.5%
42.5%
40.0%
40.0%
37.5%
37.5%
35.0%
35.0%
32.5%
32.5%
30.0%
30.0%
27.5%
27.5%
25.0%
25.0%
22.5%
22.5%
20.0%
20.0%
17.5%
17.5%
15.0%
15.0%
12.5%
12.5%
10.0%
10.0%
7.5%
7.5%
5.0%
5.0%
2.5%
2.5%
0.0%
0.0%
S
ource: Federal Reserve Board
1976
1978
1980
1982
1984
B922A
Copyright 2010 Kanaly Trust. All rights reserved.
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
© Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html
For data vendor disclaimers refer to
www.ndr.com/vendorinfo/

15. Ownership of Municipal Securities and Loans as of 03/31/2013
Numbers in parentheses in $ Billions
(Total = 3728.6)
Insurance
Companies
(458.8)
Other (109.4)
12.3%
Rest of the
World (63.7)
2.9%
1.7%
Banks and
Credit Unions
(382.2)
10.3%
44.5%
Household
Sector
(1657.7)
28.3%
Mutual Funds
and ETFs
(1056.8)
S
ource: Federal Reserve Board
B923
Copyright 2010 Kanaly Trust. All rights reserved.
© Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html
For data vendor disclaimers refer to
www.ndr.com/vendorinfo/

16. Ownership Trends of Municipal Securities and Loans
Quarterly Data 1977-06-30 to 2013-06-30
Household Sector (44.5%)
Mutual Funds and ETFs (28.3%)
Insurance Companies (12.3%)
Banks and Credit Unions (10.3%)
Rest of the World (1.7%)
Other (2.9%)
72.5
70.0
67.5
65.0
62.5
72.5
70.0
67.5
65.0
62.5
60.0
60.0
57.5
57.5
55.0
55.0
52.5
52.5
50.0
50.0
47.5
47.5
45.0
45.0
42.5
42.5
40.0
40.0
37.5
37.5
35.0
35.0
32.5
32.5
30.0
30.0
27.5
27.5
25.0
25.0
22.5
22.5
20.0
20.0
17.5
17.5
15.0
15.0
12.5
12.5
10.0
10.0
7.5
7.5
5.0
5.0
2.5
2.5
0.0
0.0
S
ource: Federal Reserve Board
-2.5
1978
1980
1982
1984
-2.5
1986
B923A
Copyright 2010 Kanaly Trust. All rights reserved.
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
© Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html
For data vendor disclaimers refer to
www.ndr.com/vendorinfo/

17. Monthly
Bid-to-Cover Ratios for 2-,3-, and 5-Year Nominal Treasury Securities Data 1/31/2009 - 8/31/2013 (Log Scale)
3.8
3.7
3.6
3.5
3.4
3.3
3.2
3.1
3.0
2.9
2.8
2.7
2.6
2.5
2.4
2.3
2.2
6-Month Smoothings
3.8
3.7
3.6
3.5
3.4
3.3
3.2
3.1
3.0
2.9
2.8
2.7
2.6
2.5
2.4
2.3
2.2
BTCRatio
2-Year
3-Year
5-Year
M
J
S
D
M
2010
J
S
D
M
2011
J
S
D
M
J
2012
(
(
(
)
)
)
S
D
3.21
3.27
2.61
M
2013
J
3.2
3.2
3.1
3.1
3.0
3.0
2.9
2.9
2.8
2.8
2.7
2.7
2.6
2.6
2.5
BTCRatio
2.4
7-Year
10-Year
30-Year
2.3
(B0021)
2.5
(
(
(
)
)
)
2.59
2.71
2.38
2.4
2.3
Bid-to-Cover Ratios for 7-,10-, and 30-Year Nominal Treasury Securities

Copyright 2013 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at www.ndr.com/copyright.html . For data vendor disclaimers refer to www.ndr.com/vendorinfo/ .
Copyright 2010 Kanaly Trust. All rights reserved.

18. Will Rising Rates Derail the Stock Market?
S&P 500 Performance Around Year/Year Declines
In Long-Term Bonds of at Least 15%
Start Dates
% Change
126 Days Later
1/21/1980
1/05/1982
4/25/1984
8/28/1987
8/25/1994
10/01/1999
6/14/2004
12/04/2009
9.29
-10.63
5.32
-18.11
4.28
16.82
5.57
-3.98
17.44
15.24
14.88
-20.6
19.1
11.98
6.71
10.59
1.07
9.42
Average
% Change
252 Days Later
Long-term bonds reflect Barclay's Capital Long-Term Treasury Bond Price Index
Source: Ned Davis Research
Copyright 2010 Kanaly Trust. All rights reserved.

19. Rising Interest Rates – Asset Allocation Implications
•
Avoid long duration fixed income strategies
– Kanaly muni bond portfolios have duration less than 5 years
– DoubleLine Total Return Fund – duration less than 2 years
•
Swap interest rate risk for credit risk
– Strengthening economy favors credit-sensitive fixed income
securities
– High quality, long duration fixed income likely to provide little
return as interest rates normalize
•
Invest in actively-managed, unconstrained strategies
– Floating rate debt
– High yield corporates, non-Agency mortgages
– Non-USD debt
– Convertible bonds
– Ability to short
•
Consider reducing fixed income allocations in favor of alternatives
– Long-short equity
– Absolute return/non-correlated strategies
Copyright 2010 Kanaly Trust. All rights reserved.

21. State of the Capital Markets
Middle Market M&A and Private Equity Update
Cliff Atherton
Managing Director
September 2013

22. Middle market deals normally represent more than 25% of total deal value
and 80% to 90% of deal volume (no. of transactions)
Percentage of Total Deals
% of Total Deals
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2006
2007
2008
% ($) Deals Under $250M
2009
2010
% ($) Deals $250M+
Source: PitchBook
2011
2012
2013*
%Deals (#) Under $250M
* As of 2Q 2013
22

23. M&A activity in oilfield services
Billions
# of Deals
140
$60.0
123
120
$50.0
101
101
100
$40.0
85
80
$30.0
60
$20.0
42
39
40
$10.0
20
$52.5
$30.1
$12.8
$29.5
$38.7
$24.5
$11.1
2007
$0.0
2008
2009
2010
2011
2012
2013*
Value
0
Deal Count
Source: Deloitte Oil & Gas Mergers and Acquisitions Report
* As of 2Q 2013
23

24. M&A activity in midstream
Billions
# of Deals
$90.0
$80.0
70
65
61
60
54
$70.0
50
$60.0
40
39
40
36
$50.0
$40.0
30
$30.0
20
$20.0
10
$10.0
$30.2
$11.2
$12.3
$9.4
$83.5
$39.5
$26.5
2007
$0.0
2008
2009
2010
2011
2012
2013*
Value
0
Deal Count
Source: Deloitte Oil & Gas Mergers and Acquisitions Report
* As of 2Q 2013
24

25. M&A activity in downstream
Billions
# of Deals
60
$35.0
54
$30.0
50
$25.0
40
33
$20.0
28
30
24
$15.0
20
15
$10.0
14
10
$5.0
$30.1
$11.3
$10.3
$8.7
$9.1
$12.4
$0.3
2007
$0.0
2008
2009
2010
2011
2012
2013*
Value
0
Deal Count
Source: Deloitte Oil & Gas Mergers and Acquisitions Report
* As of 2Q 2013
25

26. Average multiples in middle market deals reached 6.3 times in 2012 and since
2010 the number of deals has exceeded the number completed in 2008
Average Multiples and Deal Volume
Multiple
183
6.2
202
Deal Count
250
222
33
165
91
200
180
5.8
150
6.0x
5.4
6.2x
6.0x
6.0x
6.3x
6.1x
5.9x
100
50
0
5
2007
2008
TEV/EBITDA
2009
2010
2011
2012
Deals/Year
Source: GF Data for 1,672 transactions valued at $10 - $250 million and at multiples ranging from 3 to 12 times LTM Adjusted EBITDA
26
2013 1H

27. Within the middle market, size affects the multiple paid
Buyout Multiples within the Middle Market by Deal Size
Multiple
8.0x
7.5x
7.4x
7.7x
7.2x
7.5x
7.2x
7.0x
6.5x
6.5x
6.0x
5.5x
5.0x
5.4x
5.5x
2008
5.7x
5.5x
2009
5.3x
5.4x
4.5x
4.0x
2007
2010
$100M-$250M
2011
$10M-$25M
Source: GF Data for 1,672 transactions valued at $10 - $250 million and at multiples ranging from 3 to 12 times LTM Adjusted EBITDA
27
2012
*As of2Q 2013

28. Lenders are once again actively supporting M&A transactions
Total Debt Multiples
Multiples
3.7X
4.0x
3.5x
3.0x
3.3X
0.6x
1.0x
2.5x
0.8x
1.1x
1.0x
0.9x
0.9x
1.0x
2.0x
3.1x
1.5x
1.0x
2.3x
1.8x
2.2x
2.3x
2.4x
2.5x
2010
2011
2012
2012 4Q
2.2x
0.5x
0.0x
2008
2009
Senior Debt / EBITDA
2013 1Q
Sub Debt / EBITDA
Source: GF Data for 1,672 transactions valued at $10 - $250 million and at multiples ranging from 3 to 12 times LTM Adjusted EBITDA
28
2013 2Q

29. Buyout capital structures use less sub debt as a result
Equity and Debt as a % of Total Enterprise Value (TEV)
% of TEV
100.0%
90.0%
80.0%
36.6%
29.7%
35.7%
36.7%
36.5%
15.9%
16.0%
47.4%
47.5%
47.1%
2011
2012
2013 1H
42.1%
70.0%
60.0%
50.0%
16.2%
12.4%
16.5%
10.8%
40.0%
30.0%
20.0%
46.9%
54.0%
51.8%
2009
2010
10.0%
0.0%
2008
Equity
Sub Debt
Senior Debt
Source: GF Data for 1,672 transactions valued at $10 - $250 million and at multiples ranging from 3 to 12 times LTM Adjusted EBITDA
29

30. While the buyout market was stable from 2010 – 2012, the trend in the first half of
2013 is to fewer but larger deals
Billions
$160
Billions
1,023
$140
$900
$120
3,175
2,669
$147
$140
Capital Invested ($B)
$500
2,134
1000
500
1H 2013
2,358
$600
738
1H 2012
$100
$800
$700
# of Deals
1500
2,071
0
# of Deals
3500
3000
# Deals Closed
2,232
2,171
2500
2000
1,754
1,490
$400
1500
$300
1000
$200
500
$100
$220
$304
$507
$844
$352
$158
$362
$373
$358
2004
$0
2005
2006
2007
2008
2009
2010
2011
2012
Capital Invested ($B)
Source: PitchBook
30
# Deals Closed
0

31. After a crowded closing calendar at the end of 2012 middle market deal-making in
1H 2013 fell to levels not seen since 2009
Billions
# of Deals
$500
1,631
$450
$400
1,544
1,052
$300
849
1,600
1,320
1,339
$350
$250
1,800
1,330
1,082
1,400
1,107 1,105 1,127
1,038
1,148
1,200
1,023
964
1,000
905
726
764
800
$200
738
$150
400
$100
200
$50
$0
600
$103 $117 $132 $172 $198 $309 $371 $473 $192 $160 $77
1H
2H
2004
1H
2H
2005
1H
2H
2006
1H
2H
2007
1H
2H
2008
Capital Invested ($B)
Source: PitchBook
1H
$81 $160 $202 $173 $200 $147 $211 $140
2H
2009
1H
2H
2010
1H
2H
2011
1H
2H
2012
0
1H
2013
# of Deals Closed
* As of 2Q 2013
31

32. PE capital invested and deal count have grown substantially since 1995
# of Deals
Billions
$900
3,175
$800
3,000
2,669
$700
2,358
$600
2,171
1,754
1,458
1,118
$300
925
$352
$304
1,028
849
$2
66
$4
107
$2
127
$3
143 208
$12
$10
$76
$25
$373 $358
1,500
1,000
$119
305
$19
$362
$158
466
59
1,490
2,000
$220
657
$200
$30
2,500
2,071
$507
$400
$0
2,232
2,134
$500
$100
3,500
$844
$78
$59
500
$72
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Total Capital Invested ($ billions)
Source: PitchBook
32
Deal Count

33. PE firm growth since 1980 – The inflection in PE industry growth occurred in
1996 and 1997
No. of Firms
5,000
4,500
4,000
3,500
3,000
New
2,500
2,000
Existing
1,500
1,000
500
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
Source: Preqin
33

34. PE firms hold just under 4,000 portfolio companies purchased in 2008 or earlier
Companies
8,000
U.S. PE Company Inventory
7,000
6,154
6,000
5,430
6,508
6,802
6,851
5,742
4,771
5,000
3,872
4,000
2009-2013*
2005-2008
3,054
3,000
2,339
3,913
2,000
3,866
2012
2000-2004
2013*
1,000
0
2004
2005
2006
2007
2008
2009
2010
2011
As of Year
Source: PitchBook
* As of 1Q 2013
34

35. While the capital the capital overhang is declining there is still significant dry
powder in 2009 and older funds
Billions
*
Source: PitchBook as of 12/31/12 – U.S. PE Capital Overhang
* As of 6/30/2013
35

36. Current Overhang by vintage year and fund size
Fund Size ($ Billions)
Under $100M
$100M-$250M
$250M-$500M
$500M-$1B
$
$
$
$
2007
0.4
2.0
2.9
3.2
Subtotal
$
8.5 $ 12.6 $
8.2 $ 11.3 $
$1B-$5B
$
9.3 $
15.0 $
Subtotal
$
9.3 $ 19.1 $ 15.0 $
$5B+
$
12.2 $
24.9 $
7.4 $
-
Subtotal
$ 12.2 $ 24.9 $
7.4 $
-
Total
$ 30.0 $ 56.6 $ 30.6 $ 18.0 $
$
$
$
$
2008
0.2
1.6
3.6
7.2
$
$
$
$
19.1 $
2009
0.2
1.4
3.6
3.0
$
$
$
$
Source: PitchBook as of 12/31/12
36
2010
1.0
1.8
3.5
5.0
$
$
$
$
2011
0.4
3.6
4.3
10.5
$
$
$
$
2012
0.0
2.6
7.2
11.5
$
$
$
$
2013
0.2
1.3
5.2
$
$
$
$
Total
2.3
13.1
26.4
45.6
18.8 $
21.3 $
6.7 $
87.4
6.7 $
34.0 $
41.1 $
2.4 $
127.6
6.7 $
34.0 $
41.1 $
$
13.1 $
47.0 $
$
13.1 $
47.0 $
2.4 $ 127.6
8.7 $
113.4
8.7 $ 113.4
65.9 $ 109.4 $ 17.9 $ 328.4

37. Current Overhang of $328 Billion by fund size and vintage year
Current Overhang ($B)
Cumulative Overhang ($B)
$117.2 Billion
$120
$500
$109.37
$450
$100
$400
Overhang by Vintage and Fund Size
$350
$80
$300
$65.88
$56.63
$60
$250
$200
$40
$150
$30.59
$29.99
$18.04
$20
$17.87
$100
$50
$
$2007
2008
Under $100M
2009
$100M-$250M
2010
2011
$250M-$500M
Source: PitchBook as of 12/31/12
37
$500M-$1B
2012
$1B-$5B
2013
$5B+
Cumulative Overhang ($B)
Current Overhang ($B) by Vintage
Cumulative Overhang

38. In 2012 PE Funds provided 10x more Equity capital ($358 B) than IPOs
Billions
# of IPO
Offerings
$50.0
300
276
$45.0
250
$40.0
$35.0
198
193
200
175
$30.0
$25.0
150
136
$20.0
97
102
100
$15.0
54
$10.0
50
27
$5.0
$37.8
$29.8
$36.2
$43.3
$23.1
$19.2
$34.7
$28.7
$35.1
$16.9
2004
$0.0
2005
2006
2007
2008
2009
2010
2011
2012
2013*
Dollar Volume ($billions)
Source: WilmerHale 2013 Mid-Year IPO Market Review
0
# IPOs
* As of 6/30/2013
38

39. The majority of IPOs were made by VC and PE-backed companies
Billions
# of Offerings
$35.0
140
121
$30.0
120
$25.0
100
83
78
88
$20.0
80
54
$15.0
60
33
19
$10.0
40
$5.0
20
$23.5
$4.7
$8.9
$13.3
$21.7
$30.5
$11.7
2007
$0.0
2008
2009
2010
2011
2012
2013*
Capital Exited ($B)
0
PE & VC Backed IPOs
Source: PitchBook
* As of 2Q 2013
39

40. Total IPOs vs. PE & VC backed companies IPOs vs. energy PE & VC backed IPOs
Billions
$50.0
$45.0
$40.0
$43.3
$35.0
$35.1
$34.7
$30.0
$25.0
$20.0
$30.5
$28.7
$23.5
$23.1
$21.7
$19.2
$15.0
$16.9
$13.3
$10.0
$11.7
$8.9
$5.0
$4.5
$4.7
$0.0
2007
2008
$0.3
$1.9
$1.0
2009
Total
2010
PE & VC
Source: PitchBook; WilmerHale 2013 Mid-Year IPO Market Review
$4.2
2011
$3.5
2012
$0.6
2013*
Energy PE & VC
* As of 6/30/2013
40

41. State of the Capital Markets
Real Estate Finance
Presented by Tom Fish

42. National Perspective

43. Although relatively low from a historical perspective, the
10-year Treasury yield has been on the rise since mid-May
As of 9/5/13, the 10-year treasury hit 2.99, the highest level since
July 2011. We attribute the recent move to the Fed’s plan to taper off
the pace of its $85 billion monthly bond purchase program; which
some investors are overly concerned that it could begin as early as
mid-September.
8%
7%
6%
Yield (%)
5%
4%
3%
2%
1%
Aug-93
Feb-94
Aug-94
Feb-95
Aug-95
Feb-96
Aug-96
Feb-97
Aug-97
Feb-98
Aug-98
Feb-99
Aug-99
Feb-00
Aug-00
Feb-01
Aug-01
Feb-02
Aug-02
Feb-03
Aug-03
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
0%
T en yr treasury
Source: Moody’s Analytics, Bloomberg, Jones Lang LaSalle Research
One mo libor

44. CMBS Spreads
3Q2006 – 3Q2013*
Highly-rated CMBS spreads remain at post-crisis lows, but have widened as much
as 50+ bps since mid-May, before tightening by 15-25 bps since beginning of July
AAA CMBS Spread to Swaps
1,200
1,000
800
600
400
* As of September 6, 2013
As spreads tightened, Banks are more likely to lend as originating loans are in favor of positive leverage.
Source: Bloomberg, Commercial Mortgage Alert, Jones Lang LaSalle Research
Aug-13
May-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Aug-09
May-09
Feb-09
Nov-08
Aug-08
May-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
0
Oct-06
200
Jul-06
Spread over swap rates (basis points)
1,400

45. CMBS delinquency breakdown for July 2013 versus the
year ago period
CMBS delinquent unpaid balance* declines in July for four of the five categories
compared to a year ago; higher for REO
Category
30-Day
60-Day
90+-Day
Foreclosure
REO
Current
Total CMBS *
Total CMBS Del.
Delinquent %
Jul-13
UPB ($Bil)
$3.44
$2.04
$11.15
$10.62
$19.49
$698.28
$745.02
$46.74
Jul-12
UPB ($Bil)
$8.74
$3.34
$18.58
$12.22
$17.17
$650.76
$710.82
$60.06
6.27%
8.45%
* Includes the "All Deals", "Agency" and "Canadian" portfolios as identified
by Morningstar - representative of all CMBS data collected by
Morningstar Credit Ratings, LLC ("Morningstar") on a monthly basis.
* Source: Morningstar, Jones Lang LaSalle Research

46. Current commercial and multifamily real estate debt
outstanding: $3.07 trillion as of Q1 2013
Holders of commercial and multifamily mortgages outstanding
REITs, $33 bil. (1%)
Finance Companies, $45 bil. (1%)
Agency & GSE-Backed, $121 bil. (4%)
Other, $221
bil. (7%)
GSEs, $262 bil. (9%)
Lender Type
Amount (Millions)
%
Bank & Thrift
$1,496,000
49%
CMBS, CDO & Other ABS
$562,000
18%
Agency / GSE Portfolios & MBS
$121,000
4%
Life Insurance Companies
$328,000
11%
GSE
$262,000
9%
Finance Companies
$45,000
1%
REITs
$33,000
1%
All Other
$221,000
7%
Total
$3,068,000
100%
Source: Federal Reserve, Jones Lang LaSalle Research
Life Companies, $328
bil. (11%)
CMBS,CDO & Other
ABS $562 bil. (18%)
Commercial Banks,
$1.50 tril. (49%)

47. Houston and Dallas strong when compared to major
Gateway markets
$25,000
Total transaction volume by market (ranked by order of volume)
– apartment, industrial, office and retail
2011
2012
Properties of at Least $5 Million, entity-level transactions are included in these data.
Source: Jones Lang LaSalle Research, Real Capital Analytics
YTD 2013*
*YTD 2013 estimates based on preliminary data as of early August 2013
Austin
Northern NJ
Denver
San Francisco
Phoenix
San Jose
Boston
Chicago
Dallas
DC
$0
Los Angeles
$5,000
Atlanta
$10,000
Seattle
$15,000
Houston
Ranked # 6
Ranked # 8
Ranked # 6
$20,000
Manhattan
Transaction volume ($ in millions)
$30,000

48. Cross-Border capital into the U.S. remains strong
Canadian asset managers and REITs; Singaporean sovereign wealth funds; German investment
managers; and Chinese private HNW individuals have been highly active year-to-date*
Source of Capital
Volume in $US Billions
# of Properties
Canada
$7.09
287
Singapore
$1.88
8
Germany
$1.71
43
China
$1.70
12
South Korea
$1.45
18
Israel
$1.29
38
Australia
$1.14
15
Switzerland
$0.80
11
Norway
$0.63
5
Other
$3.59
77
Total
$21.28
514
* Properties and portfolios of $2.5 million and greater, September 5, 2013
Source: Real Capital Analytics, Jones Lang LaSalle Research

49. Market destination of cross-border capital
Gateway markets remain top destination of choice for cross-border capital
Market Destination
Volume in $US Billions
# of Properties
Manhattan
$3.55
21
Los Angeles
$2.82
27
Washington, DC
$1.00
12
Houston
$0.90
16
Seattle
$0.87
18
Chicago
$0.85
12
Inland Empire
$0.81
7
Hawaii
$0.78
2
Atlanta
$0.63
17
Other
$9.07
382
Total
$21.28
514
* Properties and portfolios of $2.5 million and greater, September 5, 2013
Source: Real Capital Analytics, Jones Lang LaSalle Research

50. U.S. and select market GDP growth & 10-year Treasury
comparison
(2001 – 2012)
The strong GDP growth of Houston and Texas overall makes borrowing rates here highly favorable
US
Texas
Florida
California
New York
Houston
10yr Treas
10.00%
8.00%
Percentage
6.00%
4.00%
2.00%
0.00%
-2.00%
-4.00%
Source: Jones Lang LaSalle Research, BEA, Bloomberg
YE 2012
YE 2011
YE 2010
YE 2009
YE 2008
YE 2007
YE 2006
YE 2005
YE 2004
YE 2003
YE 2002
YE 2001
-6.00%

51. U.S. and select market GDP growth & 10-year Treasury
comparison
Growth for Texas and Houston ahead of 10-year Treasury in most years; past
three years since recovery, Houston has shown steady growth
GDP Growth Vs. 10-Year Treasury
YE 2001
YE 2002
YE 2003
YE 2004
YE 2005
YE 2006
YE 2007
YE 2008
YE 2009
YE 2010
YE 2011
YE 2012
US
0.40%
1.94%
3.87%
2.90%
2.81%
2.38%
2.21%
-3.32%
-0.08%
2.39%
1.97%
1.67%
Texas
4.40%
2.60%
5.30%
9.60%
7.20%
8.90%
8.80%
5.40%
-5.70%
7.60%
7.70%
5.80%
Florida California New York Houston
5.30%
0.10%
3.80%
1.80%
5.80%
1.90% -0.40%
1.30%
7.10%
3.10%
0.30% -1.69%
8.20%
4.60%
2.80%
7.02%
9.60%
4.20%
4.40% -2.80%
7.40%
3.30%
4.10%
5.63%
4.00%
1.00%
0.10%
7.86%
-1.70% -0.40% -2.20% -1.36%
-3.68% -5.10% -1.40% -0.79%
0.90%
0.30%
4.00%
4.84%
2.50%
1.20%
1.20%
3.70%
4.10%
3.50%
1.30%
4.80%
Source: Jones Lang LaSalle Research, BEA, Bloomberg
Spread Between GDP Growth & 10-Year Treasury
10-Year
5.05%
3.82%
4.25%
4.22%
4.39%
4.70%
4.23%
2.21%
3.84%
3.29%
1.88%
1.75%
US California
-4.65%
-4.95%
-1.88%
-1.92%
-0.38%
-1.15%
-1.32%
0.38%
-1.58%
-0.19%
-2.32%
-1.40%
-2.02%
-3.23%
-5.53%
-2.61%
-3.92%
-8.94%
-0.90%
-2.99%
0.09%
-0.68%
-0.08%
1.75%
Texas
-0.65%
-1.22%
1.05%
5.38%
2.81%
4.20%
4.57%
3.19%
-9.54%
4.31%
5.82%
4.05%
Houston
-3.25%
-2.52%
-5.94%
2.80%
-7.19%
0.93%
3.63%
-3.57%
-4.63%
1.55%
1.82%
3.05%

52. Texas markets top metro-level employment growth as
Silicon Valley drops to sixth place
Silicon
Valley
2.9%
Denver
3.1%
Dallas
3.6%
Austin
3.3%
Source: Jones Lang LaSalle, Bureau of Labor Statistics
Charlotte
3.1%
Houston
3.6%

53. Office sector

54. Tech and energy still leading recovery, but more
markets participating in the recovery as we head into
the second half of 2013
Net absorption as a percent of inventory
2010
Source: Jones Lang LaSalle
2011
2012
2013

55. Sunbelt markets starting to add to the recovery, but
tech and energy still dominating growth
2013 net absorption as percent of inventory
2.5%
2.0%
U.S. average
Energy
markets
Technology
markets
Sunbelt
markets
1.5%
1.0%
0.5%
0.0%
Houston
Dallas
Source: Jones Lang LaSalle
Silicon
Valley
Austin
Portland
San
Francisco
Seattle
Atlanta
Miami
Phoenix
San Diego

56. 11 markets have seen over 500,000 s.f. of starts since
Q1 2012; Houston responsible for 28.6 percent of starts
8,000,000
7,119,392
Construction starts (s.f.)
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
Source: Jones Lang LaSalle
2,489,651
2,107,872
1,531,449
1,496,757
1,448,672
1,100,000
1,022,000
854,684
732,595
637,000