© 2014 Environmental Data Resources, Inc.

EBA Monthly RMC Call

By:

Dianne Crocker, Principal Analyst

EDR Insight

January 8, 2014

2014 Forecast:Entering the 2nd Half Of Market Recovery

Survival Mode

True start of

market rehabilitation

Year of refocusing

and repositioning

Market in Transition

2008 2010 201220112009 2013 2014

View of Market: 50,000 Feet

Y-on-Y Growth, 2013 (preliminary)

CRE Lending +14%

-SBA Lending + 9%

Property transactions:

-Large +27%

-Small (<$5M) +18%

-Portfolios +20%

CMBS Issuance +46%

Phase I ESAs +14%

• All debt spigots are open.• Growing investor confidence.• More diversity in lenders,

investors.• Activity across broader spectrum

of properties.• Improving property fundamentals.

• By 3Q13, deal flow up 27% in 3Q YTD

• Nov up 15% YonY• Poised for healthy finish to

the year

Large Commercial Real Estate Deals Up

Headline Makers on Major Property Deals

• The universe of buyers is growing rapidly • The number of active buyers over the past twelve months

grew by 3,300 participants with the private sector seeing the greatest growth.

• A number of new investors from Asia and Europe are also growing in influence.

Recent Trend:

• The velocity of small-cap sales is more than keeping pace with the larger CRE investment market.

• Up 17% YTD (3Q13) • Transactions continue to grow at a faster clip in

bigger cities than smaller ones.

Small Cap Transactions

• Multifamily is still the “belle of the ball” (up 31% Y-on-Y)

• Retail: sales of strip centers are up 30% • Office/industrial getting more interest• Warehouse activity, especially in port cities

Property Types in Favor

Geographic Spotlight

Good News on the CMBS Front

• 2012: • Post-recession high

of $48B • 2013:

• Prelim #s: $80B in 2013

• Up 65% YonY • 2014 Forecast:

• Same or better

Banks’ Sell-off of Nonperforming Assets

• Lenders have returned to originating commercial real estate loans as values and credit quality improve and demand increases

• Commercial and multifamily real estate borrowing and lending continued at a moderate clip in the third quarter.

• Origination volumes:• 29% higher than in Q3 2012 • Flat compared to 2Q13• Up 14% year to date

Source: MBA’s Quarterly Index of Commercial/Multifamily Mortgage Bankers Originations.

Commercial Property Lending Volume

LENDING: A Positive Take

“More banks were lending on income-producing commercial real estate properties in more places in the 3rd quarter. The number of lenders who plan to increase property loans in next 12 months far outnumber those who plan to lower them.”

~ Sam Chandan, president and chief economist at Chandan Economics

Lending Leaders: CRE

Page 14

• Supported more than $29B in loans in FY13—its third-highest year ever.

• More than 54,000 loans backed through its 7(a) and 504 programs

• The number of 7(a) loan increased to 46,399 in 2013, 4.6% over the number of loans in FY 2012.

• The 504 loans produced more than 7,700 loans in FY 2013, a slight decrease from FY 2012.

• 7(a) lending is picking up steam after being halted by the government shutdown. (down 7% in 4thQ)

SBA Lending: A Bright Spot

• The comeback of commercial real estate lending is gaining momentum, especially credits backed by apartments and leased properties.

• CRE lending was a scourge for scores of community banks during the financial crisis, but more banks are warming up to it in their quest for higher returns. • However, CRE lending volumes remain well below the

highs of six years ago.

Bottom Line on Lending

© 2014 Environmental Data Resources, Inc.

APPROACHES TO ENVIRONMENTAL RISK MANAGEMENT

• 94% of institution’s boards now devote more time to risk

management oversight than five years ago

• 80% percent of chief risk officers report directly to either the

board or the CEO

Source: Deloitte lender study

Banks and Risk Management

• Phase I ESAs more likely to go to a Phase II than in past years • 16% vs. 6% 2 years ago

• More attention on environmental policies by financial institutions.• Investors, lenders as risk conscious as ever.

Attitudes Toward Risk

• Real estate should put in strong performance in 2014• U.S. economy shows signs of strength• CMBS lenders, insurance lenders and bank lenders will all be

active• Expect to see growth from commercial mortgage funds with

3rd party capital• 2014 marks the 2nd of the market’s recovery• Modest growth

Upshot for 2014

Dianne P. CrockerPrincipal Analyst, EDR Insight

Research and Analytics:www.edrnet.com/EDRInsight

Twitter: @dpcrocker Email: dcrocker@edrnet.com