Learn how to analyze your local market and compare it to tenants and investors in other markets. With his 35 years of commercial real estate research expertise, Dr. Mueller analyzes supply/demand factors for the five major property types and how they affect occupancies and rents in 55 U.S. markets. Gain a deeper understanding of commercial real estate fundamentals and learn how to turn market cycle information into useable knowledge for decision making.

1. Glenn R. Mueller, Ph.D.
Professor
University of Denver
Franklin L. Burns School of Real Estate
& Construction Management
&
Real Estate Investment Strategist
Dividend Capital Research
gmueller@dividendcapital.com

2. Dr. Glenn Mueller
• Real Estate Investment Strategist – Dividend Capital Group
 Professor – University of Denver – Franklin L. Burns School of Real Estate & Construction
Management
 Visiting Professor – Harvard University, 2002-2012 & summer executive education
semesters
 Guest Lecturer – Wharton School, Yale, Berkeley, Ohio State, Indiana Univ., UNC, USC,
European Business School, University of Regensburg
Previous Experience
 Legg Mason – Real Estate Investment Strategist – Head of REIT research group
 PriceWaterhouseCoopers – National Director of Real Estate Research
 Alex. Brown Kleinwort Benson – Head of Real Estate Research
 Prudential Real Estate Investors – Vice President of Real Estate Research
 B.S.B.A. in finance from the University of Denver
 MBA from Babson College
 Ph.D. in Real Estate from Georgia State University

3. Why Real Real Estate Fits A= SIZE
Why Estate Fits a Portfolio Portfolio
= Size
U.S. Real Estate vs. Other Asset Classes - 12/10
U.S. Real Estate vs. Other Asset Classes (December 2010)
Source: CoStar2010, Federal Reserve, December 2010 and The Bond Market Association, 2010. This investment is subject to real estate risks associated with operating and
leasing properties. Additional risks include changes in economic conditions, interest rates, property values, and supply and demand, as well as possible environmental liabilities,
zoning issues and natural disasters.

4. All Real Estate = Half - 12/06
U.S. Real Estate Values = $33.3 Trillion
Source: Prudential Real Estate Investors, December 2006.

5. 5 Key Macro Economic Factors
Population Growth
Exhibit 1
Exhibit 2
Employment Growth
GDP Growth
4.0%
5.0%
4.4%
4.0%
4.4%
3.6%
3.1%
3.0%
2.5%
2.0%
2.8%
3.1%
1.9%
1.8%
1.7%
2.0%
2.8%
2.7%
3.0%
1.0%
3.3%
1.8%
1.1%
1.1%
1.0%
0.0%
0.0%
1.1%
1.0%
0.0%
-3.0%
-4.0%
-2.0%
-2.6%
-3.0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
-4.3%
-5.0%
2010
2011
2012
2013
2001
2014
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Moody’s Précis U.S. Metro December 2010, Bureau of Labor Statistics (bls.gov)
Source: 4
Exhibit Moody’s Précis U.S. Metro December 2010; Bureau of Economic Analysis (bea.gov)
Exhibit 3
Interest Rates
Infla on
6.00%
5.19% 5.30%
5.00%
-0.5%
-1.2%
-2.0%
-1.0%
-0.6%
-0.3%
-1.0%
0.0%
2.9%
2.0%
5.0%
5.02%
5.2%
5.0%
4.0%
4.3% 4.3%
4.8%
4.6%
4.00%
3.7%
3.63%
3.56%
3.00%
4.40%
4.11%
3.5%
3.3% 3.2%
3.0%
3.2%
2.8%
2.3%
2.5%
2.9%
2.9%
2.7%
2.5%
2.0%
2.91%
91- Day
LIBOR
_______
2.30%
2.00%
1.68%
1.79%
10-Year
Treasury
_______
3.8%
3.4%
3.5%
4.61%
1.00%
4.0%
2.5%
1.6%
1.5%
1.6%
1.6%
1.0%
0.5%
0.0%
1.22%
0.69%
0.34%
-0.3%
-0.5%
0.46%
-1.0%
0.00%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Moody’s Précis U.S. Macro September 2010 & U.S. Metro December 2010; wsjprimerate.com/libor
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Source: Moody’s Précis U.S. Macro September 2010; Bureau of Labor Statistics (bls.gov)
2012
2013
2014

6. Demand For Real Estate
 Employment growth lags GDP growth by 2 to 4 quarters
 GDP turned positive in 3Q09 — Employment turned positive in 2Q 2010
Forecast

7. US Commercial Real Estate Cycle
Follows US Economic Cycles
3 Key Metrics:
• Occupancies
• Rents
• Prices
Source: Glenn Mueller, PhD

8. Market Cycle Analysis
Physical Cycle
Demand & Supply drive Occupancy
Occupancy drives Rental Growth

9. Market Cycle Quadrants
Phase 2 - Expansion
Phase 3 - Hypersupply
Demand/Supply Equilibrium Point
Occupancy
Long Term Vacancy Average
Phase 1 - Recovery
Phase 4 - Recession
Legg Mason Real Estate Research
Time

10. Phase 2 - Expansion
Phase 3 - Hypersupply
Demand/Supply
Equilibrium
Occupancy
High Rent
Growth in
Rent Growth
Rents Rise
Tight Market
Positive But
Rapidly
Declining
Toward New
Construction
Levels
Cost Feasible New
Long Term Average Occupancy
Construction Rents
Below
Inflation &
Negative
Rent
Growth
-
Below
Inflation
Rental
Growth
Physical
Market Cycle
Characteristics
Negative
Rental
Growth
Phase 1 - Recovery
Source: Mueller,1995
Phase 4 - Recession
Time

11. Historic National Office Rental Growth
11.0%
10.5%
11
10
12
6.4%
9
8
Occupancy
10.0%
13
6
14
6.7%
5
0.3%
4
15
4.0%
-1.0%
-3.0%
1.6%
3
1
3.3%
7
Long Term Average Occupancy
1.7%
12.5%
6.1%
2
2.7%
16
30 Year Cycle - Periods 1968-1997
-1.5%
Time
1

12. Historic National Industrial Rental Growth %
8.3%
6.8%
4.6%
11
10
5.1%
9
8
Long Term Avg Occupancy
7
3.0%
8.5%
12
5.9%
3.8%
14
6
Occupancy
4.8%
13
5
-2.1%
4
15
4.6%
-0.4%
0.8%
3
1
0.7%
0.4%
16
2
30 Year Cycle - Periods 1968-1997
2.8%
Time
1

13. National Property Type Cycle Locations
Phase III — Hypersupply
Phase II — Expansion
Apartment
Health Facility
Hotel — Ltd. Service
Retail — 1st Tier Regional Mall
Retail — Factory Outlet+1
Industrial — R&D Flex
Retail — Neighborhood/Community+1
10
9
11
12
8
7
13
LT Average Occupancy
6
Hotel — Full-Service
1
2
3
4
5
Industrial — Warehouse
Senior Housing
Office — Downtown+1
Office — Suburban
Retail — Power Center+1
Phase I — Recovery
14
15
16
2nd Qtr 2013
Source: Mueller, 2013
Phase IV — Recession
1

14. Office Market Cycle Analysis
2nd Quarter, 2013
Albuquerque
Chicago
Cleveland
East Bay
Hartford
Las Vegas
Long Island
Los Angeles
Milwaukee
Norfolk
N. New Jersey
Sacramento
San Antonio
Stamford
Wilmington
Wash DC
1
3
2 Cincinnati
Atlanta
Baltimore+1
Boston
Charlotte
Dallas FW
Denver
Houston
Miami+1
Minneapolis
New Orleans+1
Nashville
Oklahoma City
Orlando+1
Philadelphia+1
Riverside
Seattle+1
Tampa
4
Columbus
Detroit
Ft. Lauderdale+1
Indianapolis
Kansas City+1
Memphis
Orange County
Palm Beach
Phoenix+1
Richmond
San Diego
St. Louis+1
NATION
Pittsburgh
Portland+1
Raleigh-Durham+1
San Francisco+2
10
11
9
12
8
13
7
14
6
5
Jacksonville+1
San Jose
Austin
Honolulu
New York+1
Salt Lake
LT Average Occupancy
Source: Mueller, 2013
15
16
1

15. Industrial Market Cycle Analysis
2nd Quarter, 2013
Denver+1
Salt Lake+1
San Francisco+1
Long Island
Norfolk
Orange County
Sacramento
St. Louis
1
2
Hartford
Jacksonville
Las Vegas+1
New Orleans+1
Orlando
Richmond+1
Stamford
3
Atlanta+1
Boston+1
Austin+1
Baltimore
Palm Beach+2
Cincinnati
Portland+1
Cleveland
San Antonio+1
Columbus+2
Seattle+1
Detroit
East Bay
Philadelphia
Raleigh-Durham
Tampa
Wash DC
7
6
4
Charlotte+1
Kansas City+1
Memphis+1
Milwaukee
Miami+1
Nashville+2
New York+1
N. New Jersey
Oklahoma City
Phoenix
NATION
5
Honolulu
Houston
Indianapolis
Los Angeles
Riverside
San Jose
10
11
9
12
8
13
LT Average Occupancy
14
15
Chicago+1
Dallas FW+2
Ft. Lauderdale+1
Minneapolis
Pittsburgh
San Diego+1
Source: Mueller, 2013
16
1

16. Apartment Market Cycle Analysis
2nd Quarter, 2013
Charlotte
Cleveland
Indianapolis+1
Jacksonville
Oklahoma City
Orlando
Raleigh-Durham
Stamford
St. Louis
Tampa
Norfolk
1
2
Detroit
Nashville
Palm Beach+1
3
Memphis
Richmond
San Antonio
Chicago+1
East Bay
Las Vegas+1
Long Island
Miami
N. New Jersey+1
Portland+1
Salt Lake+1
San Diego
Seattle +5
Wash DC
7
6
4
5
Atlanta+1
Houston
Ft. Lauderdale
Milwaukee
New Orleans+1
Orange County
Baltimore+1
Columbus+1
Cincinnati
Hartford
Honolulu
Kansas City
Los Angeles
Minneapolis
Philadelphia
Pittsburgh
Riverside
Sacramento+1
NATION
Boston+1
Dallas FW+1
Denver
New York
Phoenix+1
San Jose+1
10
11
9
8
Austin
San Francisco
12
13
LT Average Occupancy
Source: Mueller, 2013
14
15
16
1

17. Retail Market Cycle Analysis
2nd Quarter, 2013
Atlanta
Chicago
Cincinnati
Kansas City
Milwaukee
N. New Jersey
Philadelphia
Richmond
Riverside
1
2
Cleveland
Detroit
3
Boston+1
New York+1
Austin+1
Pittsburgh
Baltimore+1
Salt Lake
Miami+2
Wash DC
Minneapolis+1
Hartford
San Diego
Indianapolis
Las Vegas+1
Palm Beach
NATION+1
Honolulu+1
San Francisco+1
San Jose+1
10
11
9
12
8
7
6
4
5
Charlotte
Columbus
Dallas FW+1
Ft. Lauderdale+1
Jacksonville
Memphis
Nashville
New Orleans+1
Norfolk
Oklahoma City+1
Orange County
Orlando
Phoenix+1
Sacramento+1
St. Louis
Tampa
13
LT Average Occupancy
Denver+1
East Bay
Houston
Long Island+1
Los Angeles +1
Portland+1
Raleigh-Durham+1
Seattle
14
15
San Antonio+1
Stamford
Source: Mueller, 2013
16
1

18. Hotel Market Cycle Analysis
2nd Quarter, 2013
Atlanta
Baltimore
Charlotte
Cleveland
Detroit+1
Orange County
Cincinnati
Hartford
Kansas City
Norfolk
Phoenix
Richmond
Sacramento
1
Chicago
Los Angeles+1
Minneapolis+1
East Bay
Nashville
New Orleans
Pittsburgh+1
Seattle+1
NATION
Ft. Lauderdale+1
Miami
N. New Jersey+1
Palm Beach+1
Portland+1
San Francisco+1
San Jose+1
Honolulu
New York
10
9
8
7
2
Indianapolis
Memphis
Milwaukee
Riverside
Stamford
4
5
Columbus
Dallas FW
Jacksonville
Las Vegas
Oklahoma City+1
Raleigh-Durham
St. Louis
San Antonio
12
13
6
3
11
LT Average Occupancy
Philadelphia
Salt Lake
Tampa
Austin+1
Boston+1
Denver+1
Houston+1
Long Island
Orlando
San Diego
Wash DC
Source: Mueller, 2013
14
15
16
1

19. 1970s Cycle
•Factors Driving The First Half Cycle (5 Year)
•Strong Demand from the 1960s that stopped
•Recession 1974
•Capital Flow - Mortgage REITs produced oversupply
•Factors Driving The Second Half Cycle (5 Year)
•Baby Boom Generation Goes to Work = Demand
•Capital Flow Shut Down = no supply = Lenders Recover
•Markets tighten and reach peak occupancy 1979 (5% vacancy)

20. 1970s Office Demand & Supply
Demand
Supply
8%
Oversupply Years
Baby Boomers Go To Work
6%
4%
2%
Source: FW Dodge, CB Commercial, BLS, Mueller
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
0%

21. 1980s Cycle
•Factors Driving The First Half Cycle (5 Year)
•Tight market in 1979 pushes rents and prices up
•Inflation pushes real estate prices higher
•Tax Act of 1981 attracts taxable investors supply up
•Thrift Deregulation allows capital to flow
•Factors Driving The Second Half Cycle (5 Year)
•Tax Act of 1986 slows taxable investors, but not tax free
•Poor stock market attracts Pension & Foreign capital
•Rising R.E. prices masks poor income returns

22. 1980s Office Demand & Supply
Demand
Supply
10%
8%
Oversupply Years
6%
4%
2%
Source: FW Dodge, CB Commercial, BLS, Mueller
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
0%

23. 1990s Cycle
•Factors Driving The First Half Cycle (5 Year)
•Moderate but stable demand growth (1991 recession
minor)
•Oversupply and Foreclosures shut down construction
•Excess space Absorbed – ―Markets Recover‖
•Factors Driving The Second Half Cycle (5 Year)
•Moderate Demand growth Continues
•Oversupply Absorbed and Return Performance improves
•Construction ―Constrained‖ causing rents & prices to rise
•More ―Efficient Markets‖ match supply to demand

24. Demand Supply
1990s Office Demand & Supply
3.0%
Demand
2.5%
Matched
Supply
Oversupply Absorbed
2.0%
1.5%
1.0%
0.5%
Source: FW Dodge, CB Commercial, BLS, Mueller
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0.0%

25. 2000 - 2010 Cycle
Demand
Globalization‖ - creates more stable U.S. economy
•―
•Job Growth out of ―Technology Change‖
•2.8 million population growth per year for 10 years
•Baby boomers at ―highest income earning‖ years
•second home market wave
•Echo boom children – college, first job, & renting
•Aging population not a major factor till 2014
•Employment Growth drives commercial demand

26. World Growth Continues
U.S. Growth driven by World
World GDP Shares
Source: World Bank — Historic GDP, Capital Economics Outlook Report — Forecasts, 3Q2011.
2011 & 2012 GDP Forecasts

27. 2000 - 2010 Cycle
Supply Constraint
•Public Markets make R.E. Capital markets efficient
•Economically Driven capital - low spec construction
•500 + Research Watchdogs – Data Available
•Constrained Supply (economically driven capital)
•construction labor harder to find
•materials costs increasing (steel, concrete)
•infrastructure problems constrain growth
•Feedback loop keeps demand and supply in better balance
•Greater transparency
•Faster reaction to demand slowdown

28. Commercial Real Estate Supply Growth
– Lowest construction levels in 42 years
Source: Property & Portfolio Research & Mueller

29. 2000s US Office Demand & Supply
2000's Office Demand & Supply
3%
2%
1%
2000
2002
2004
2006
0%
Supply Reacted to
Demand Slow Down
-2%
Demand
Supply
-3%
Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2011.
2008
2010

30. 2012+ Office Demand & Supply Forecast
3%
2012+ Office Demand & Supply Forecast
2%
1%
0%
2011
2013
Demand
-1%
Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2011.
2015
Supply
Demand Avg. = 1.51%
Supply Avg. = 0.81%

31. Occupancy Cycle and Rent Growth
Office Cycle
10.0%
8.0%
92
6.0%
4.0%
90
2.0%
0.0%
88
-2.0%
-4.0%
86
-6.0%
Rent Growth
Occupancy
Sources: Property and Portfolio Research, Grubb & Ellis, Mueller 2012.
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
84
1982
-8.0%

32. Office Market Cycle FORECAST
2nd Quarter, 2014 Estimates
Albuquerque
Boston
Cincinnati
Columbus
Dallas FW
Denver
East Bay
Indianapolis
Memphis
Miami
Norfolk
Philadelphia
Phoenix+1
Richmond
San Antonio+2
San Diego
NATION
Atlanta
Chicago
Cleveland
Detroit
Ft. Lauderdale
Kansas City
Las Vegas
Long Island
Los Angeles
Milwaukee
Sacramento
St. Louis
1
2
Hartford
N. New Jersey
Stamford
Wash DC
Jacksonville+1
Nashville+1
Oklahoma City+2 Austin
Portland+1
Honolulu
Riverside
4
Baltimore
Charlotte
Houston
Minneapolis
New Orleans
11
9
8
7
6
3
10
5
12
13
Salt Lake
14
LT Average Occupancy
New York+1
Pittsburgh
Raleigh-Durham
San Francisco+2
Orange County+1
Orlando
Palm Beach
San Jose
Seattle
Tampa
Source: Mueller, 2013
15
16
1

33. Occupancy Cycle and Rent Growth
Industrial Cycle
96.0
8.0%
95.0
6.0%
94.0
4.0%
93.0
2.0%
92.0
0.0%
91.0
-2.0%
90.0
-4.0%
89.0
Rent Growth
Occupancy
Sources: Property and Portfolio Research, Grubb & Ellis, Mueller 2012.
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
88.0
1982
-6.0%

34. Industrial Market Cycle FORECAST
2nd Quarter, 2014 Estimates
Atlanta+1
Baltimore
Boston+1
Charlotte
Cincinnati
Detroit
East Bay
Jacksonville
Kansas City
Milwaukee
Nashville+1
Orlando+1
Philadelphia
Raleigh-Durham
Tampa
Richmond
Sacramento
St. Louis
1
2
Hartford+1
Memphis+1
Miami+1
New York+1
Oklahoma City
Phoenix
Pittsburgh+1
San Diego
NATION
6
3
Long Island
4
5
Cleveland
Columbus+1
Las Vegas+1
New Orleans+2
Norfolk
Orange County
Stamford
Wash DC
Austin+1
Riverside
San Antonio+1
Honolulu
Houston
Indianapolis
Portland+1
Salt Lake
San Francisco
Seattle+1
10
11
9
8
7
Chicago+1
Dallas FW+1
Ft. Lauderdale+1
Minneapolis+1
N. New Jersey
Palm Beach+1
12
Denver+2
Los Angeles
San Jose+1
13
LT Average Occupancy
Source: Mueller, 2013
14
15
16
1

35. Occupancy Cycle and Rent Growth
Apartment Cycle
6.0%
4.0%
94.5
2.0%
0.0%
93.5
-2.0%
-4.0%
92.5
-6.0%
Rent Growth
Occupancy
Sources: Property and Portfolio Research, Grubb & Ellis, Mueller 2012.
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
91.5
1988
-8.0%

36. Apartment Market Cycle FORECAST
2nd Quarter, 2014 Estimates
Baltimore+1
Cincinnati
Columbus
Detroit
Denver
Kansas City
Minneapolis
Seattle+3
NATION
Ft. Lauderdale
Houston
Milwaukee
New Orleans+1
Orlando
Palm Beach
St. Louis
Stamford
Tampa
6
Raleigh-Durham
1
2
Norfolk
3
4
5
Charlotte
Cleveland
Indianapolis
Memphis
Oklahoma City
Richmond
Atlanta+1
Austin
Jacksonville+1
Nashville
Orange County
Riverside
San Antonio
San Jose
Wash DC
Chicago
Dallas FW
Hartford
Honolulu
Long Island
Los Angeles
Miami
N. New Jersey
Philadelphia
Phoenix+1
Pittsburgh
Portland
Sacramento+1
Salt Lake+1
10
9
11
12
8
7
13
Boston
East Bay
Las Vegas+2
New York
San Diego
San Francisco-1
LT Average Occupancy
Source: Mueller, 2013
14
15
16
1

37. Occupancy Cycle and Rent Growth
Retail Cycle
6.0%
94
4.0%
93.5
2.0%
93
0.0%
92.5
-2.0%
92
-4.0%
91.5
-6.0%
Rent Growth
Occupancy
Sources: Property and Portfolio Research, Grubb & Ellis, Mueller 2012.
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
91
1983
-8.0%

38. Retail Market Cycle FORECAST
2nd Quarter, 2014 Estimates
Denver+2
East Bay
Houston
Long Island+1
Los Angeles
Miami+1
Portland+1
Raleigh-Durham+1
Seattle
Atlanta
Chicago
Detroit
Kansas City
Milwaukee
New Orleans
N. New Jersey
Philadelphia
Richmond
Riverside
Sacramento
St. Louis
1
2
Hartford
Indianapolis
Las Vegas+1
Orlando
Palm Beach
San Antonio
NATION
3
Cleveland
Cincinnati
4
Austin+1
Baltimore+1
Boston+1
Minneapolis+1
New York
San Diego
Pittsburgh+1
Salt Lake
Wash DC
10
Honolulu+1
San Francisco+1
San Jose+1
11
9
12
8
7
6
5
Charlotte
Columbus
Dallas FW+1
Ft. Lauderdale
Jacksonville
Memphis
Nashville
Norfolk
Oklahoma City+1
Orange County
Phoenix
Tampa
13
LT Average Occupancy
14
15
Stamford
Source: Mueller, 2013
16
1

39. Occupancy Cycle and Rent Growth
Hotel Cycle
7.0%
69.0%
5.0%
3.0%
66.0%
1.0%
-1.0%
63.0%
-3.0%
-5.0%
60.0%
-7.0%
Rent Growth
Occupancy
Sources: Property and Portfolio Research, Grubb & Ellis, Mueller 2012.
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
57.0%
1988
-9.0%

40. Hotel Market Cycle FORECAST
2nd Quarter, 2014 Estimates
Kansas City
Norfolk
1
2
Long Island
Nashville
Oakland
Philadelphia
Pittsburgh
Salt Lake
Seattle
Dallas FW
Oklahoma City+1
Cincinnati
Hartford
Richmond
Sacramento
8
7
6
3
4
5
Columbus+1
Indianapolis
Jacksonville+1
Memphis
Milwaukee
Phoenix+1
Raleigh-Durham+1
Riverside+1
San Antonio
Stamford
St. Louis
Atlanta
Baltimore
Cleveland
Charlotte
Detroit+1
Las Vegas
Minneapolis
Orange County
Tampa
Boston+1
Ft. Lauderdale
Orlando
Palm Beach +1
Portland+1
San Diego
San Jose
10
Honolulu+1
New York+1
11
9
12
San Francisco+1
13
LT Average Occupancy
Austin+2
Chicago
Denver+1
East Bay
Houston+1
Los Angeles+1
Miami
New Orleans
N. New Jersey
Wash DC
NATION
14
15
Source: Mueller, 2013
16
1

41. Market Information
used to:
• Determine market competition
• Set lease strategies
• Evaluate improvement programs
• Provide knowledge

42. Real Estate
Financial Cycles
Capital Flows
Affect Prices

43. Market Cycle Capital Flow Impact
Capital Flows to Existing Properties
Cost Feasible Rents Reached
Hyper Supply
LT Occupancy Avg.
Capital Flows to New Construction

44. National Office Physical Market Cycle
vs. Financial Cycle = New Permit Values
65,000
96
Physical
60,000
Financial
No Lag
50,000
45,000
40,000
88
35,000
30,000
84
25,000
20,000
15,000
80
1972
1976
1980
1984
1988
Source: CB Commercial, Census Bureau
Market Cycle
Source: BEA, CB Commercial, Mueller
1992
1996
2000
Permit
2004
Value ($Mil)
Occupancy
92
55,000

45. Flow of Funds Commercial Mortgages
All Sectors (1976 - 2001)
25,000
False Price
Appreciation
Support
20,000
($ Mils)
15,000
10,000
?
5,000
0
Public Market
Volatility
-5,000
Source: Federal Reserve
2000Q1
1998Q1
1996Q1
1994Q1
1992Q1
1990Q1
1988Q1
1986Q1
1984Q1
1982Q1
1980Q1
1978Q1
1976Q1
1974Q1
1972Q1
1970Q1
-10,000

46. Bond Values DROP as Interest Rates Rise
10 Year Treasury Yields 1953 - 2011
Average Total Return 53-80 = 3.9%
Average Total Return 80-10 = 8.6%
LT Average 6.29%
Average Total Return 53-70 = 1.9%
* As of 2013
Source: U.S. Treasury — Federal Reserve Bank of St. Louis.

47. Commercial and Residential Real Estate Bubbles[1]
[1]
index).
S&P/Case-Shiller Housing Price Index CS-10 (residential price index); Moody’s/REAL Commercial Price Index (commercial price

48. US Commercial Property Prices
Moody’s/RCA CPPI
Billions
Sales Volume
Property Prices
$160
180.00
$140
$120
160.00
$100
140.00
$80
$60
120.00
$40
100.00
$20
$-
80.00
2001Q1
2002Q1
http://www.rcanalytics.com
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1

49. Billions
Portfolio Buyers Dominate Trades
160
140
120
100
80
60
40
20
01Q1
02Q1
03Q1
04Q1
05Q1
06Q1
Individual
Source: Real Capital Analytics April 2013
07Q1
08Q1
Portfolio
09Q1
10Q1
11Q1
12Q1
13Q1

50. Property Price Movements
Cap Rates
Source: Real Estate Research Corporation - Chicago
8.5
8.9
8.5
9.0
8.0
Office - CBD
Office - suburban
Industrial - Warehouse
Industrial - R&D
Apartments

51. Property Price Movements
10.2
7.9
8.9
8.7
Hotels
Regional Mall
Power Center
Neighborhood Comm.
Historic Cap Rates
12
11
10
9
8
7
Hotels
Regional Mall
Source: Real Estate Research Corporation - Chicago
Power Center
Neighborhood Comm.
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
6

52. Transaction Cap Rates - RCA
10.0%
9.5%
9.0%
8.5%
8.0%
7.5%
7.0%
6.5%
6.0%
5.5%
J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM
2001
2002
2003
Apartment Avg Cap Rate
2004
2005
2006
Industrial Avg Cap Rate
2007
2008
2009
Retail Avg Cap Rate
2010
2011
2012
Office Avg Cap Rate
Properties and portfolios $2.5 million and greater. Prior to 2005, RCA primarily captured sales valued at $5M and above.
© Real Capital Analytics, Inc. 2013. Data believed to be accurate but not guaranteed. Last Updated: 6/27/2012
2013

53. Cap Rate SPREAD over 10 Year Treasury
http://www.rcanalytics.com

54. CBD Office & Apartments Leading Price Recovery
Moody’s/RCA Price Indices to 2-13
220.00
200.00
180.00
160.00
140.00
120.00
100.00
80.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Retail
Office - CBD
Office - Suburban
http://www.rcanalytics.com
Industrial
Office
Apartment
2010
2011
2012

55. Investors Starting to Move Beyond Major Markets
Moody’s/RCA Price Indices to 2-13
220
200
180
160
140
120
100
80
2000
2001
2002
2003
Major Markets (All-Property)
http://www.rcanalytics.com
2004
2005
2006
2007
National All-Property
2008
2009
2010
2011
2012
Non-Major Markets (All-Property)

56. Next Favored Tier of Markets Emerging
Region/Market
Boston
New York Metro
NYC-Manhattan
NYC-Boroughs
NYC-Burbs
DC Metro
Philly/Baltimore
NEMA Others
NEMA Region
Miami/South Florida
Tampa/Southw est Florida
Orlando/Central Florida
Jacksonville/North Florida
Atlanta
Southeast ex Florida/Atlanta
Southeast Region
Chicago
Midw est ex Chicago
Midw est Region
Denver
Dallas/Houston/Austin
Phoenix
Southw est Others
Southw est Region
Seattle
San Francisco Metro
SF-San Francisco
SF-San Jose
SF-Oakland
Los Angeles Metro
LA-CBDWest
LA-OrangeCounty
LA-ValleyVentura
LA-InlandEmpire
LA-LongBeach
San Diego
Sacramento/Central CA
Las Vegas
West Others
West Region
US Total
Year-Over-Year Price Change
92%
94%
98%
99%
8%
23%
2%
70%
-12%
97%
84%
84%
92%
77%
63%
80%
64%
63%
90%
74%
85%
68%
74%
86%
87%
57%
82%
83%
91%
89%
94%
87%
75%
75%
83%
68%
77%
62%
83%
73%
63%
4%
1%
3%
6%
16%
-13%
16%
8%
5%
10%
7%
6%
-1%
2%
10%
10%
24%
6%
9%
8%
9%
14%
30%
-16%
-4%
-6%
-5%
3%
-18%
3%
-2%
16%
12%
-23%
0%
7%
All Property Types. Data through Q3'12. Peak pricing benchmarked to Q4'07
http://www.rcanalytics.com
Now as % of Peak
-2%
37%
65%
74%
74%

57. Next Favored Tier of Markets Emerging
RCA CPPI
Rebounding
Still Challenged
225
225
200
200
Seattle
Miami
175
175
Phila
150
Dallas 150
Houston
125
125
100
100
Phoenix
Atlanta
Las Vegas
http://www.rcanalytics.com
'12
'11
'10
'09
'08
'07
'06
'05
'04
'03
'02
'01
'12
'11
'10
'09
'08
'07
'06
'05
'04
50
'03
50
'02
75
'01
75

58. Composition of CRE Buyers
30%
31%
30%
37%
37%
43%
50%
14%
17%
12%
25%
10%
10%
5%
6%
7%
5%
3%
9%
9%
15%
10%
17%
18%
7%
8%
10%
14%
24%
9%
9%
9%
8%
9%
7%
20%
3%
'07
NT REITs
http://www.rcanalytics.com
13%
13%
14%
10%
6%
6%
8%
'08
'09
'10
Instit
Cross-Border
17%
12%
5%
5%
5%
'11
'12
H1 '13
REITs
User/Other
Eq Fund
Private

60. Lending Composition & Owner Changes
ALL Property Type Lenders Originations by Volume 2012
All Property Buyers
2012 Net Change To Portfolio Holdings
1%
Public/REIT
22%
23%
Private
Gov't Agency
Non-Listed REIT
User/Other
Financial
Insurance
Int'lBank
10%
6%
Equity Fund
National Bank
Reg'l/Loc Bank
CMBS
14%
Cross-Border
Private
Institutional
16%
-$10
7%
Source: Real Capital Analytics, 2013
-$5
$0
$5
$10
Billions

61. Debt Capital: Credit Conditions Improving
Composition of Lenders
http://www.rcanalytics.com

62. US Distress – Past The Peak
Total Outstanding Distress
Troubled
REO
Restructured
Monthly Additions -Workouts -Net Change
Resolved
$25
$450
$20
$400
$15
$350
$10
$300
$250
$5
$200
$0
$150
-$5
$100
-$10
$50
$0
J '08
J '09
http://www.rcanalytics.com
J '10
J'11
J'12
J'13
-$15
J '08
J '09
J '10
J'11
J'12
J'13

63. 250
CMBS Issuance $ Billions
200
150
100
50
Source: Commercial Mortgage Alert
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
0

64. Slowing Transactions A Common Trend
AMERICAS
http://www.rcanalytics.com
EMEA
ASIA PAC

65. Global Trade Routes
http://www.rcanalytics.com

66. 2008 Physical and Financial Cycle
2013 Physical Cycle
 Demand & Supply affect occupancies  drives rental growth
 GDP growth resumed 3Q 2009. Employment growth followed 2Q 2010
 RE Demand growth resumed 2Q 2010
Home building employment less than 2% of all U.S. labor
 Supply growth slowest in 42+ years — potential absorption jump in 2013?
 Recovery phase 2011-2014 - growth phase starts 2014, 2015, 2016?
2012 Financial Cycle
 Capital flows affect prices — stock market recovering, volatile in 2013?
 Real estate was safest investment alternative 2000-2007, pushing prices up
 Real estate prices dropped 2008, 2009 now buying opportunities in 2010 – 2014?
 Debt financing hard in 2012 - creating buying opportunity for Cash Buyers
 Differentiate residential versus commercial real estate to your investors!

67. Conclusions
• Real estate is a separate asset class
– Historically Stable Earnings and price growth
– Positive Diversification benefits
– Public and Private investment available
– Equity and Debt investment available
– Fundamentals declined 08, 09 recovering 10-13
– Market & Property Selection Important
– Maturing Loans provide buying opportunity

68. For an electronic copy of the
Real Estate Market Cycle Monitor
email
gmueller@dividendcapital.com