CPPI Sept 2011

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SPECIAL REPORT

COMMERCIAL SEPTEMBER 21, 2011

Table of Contents:

OVERVIEW 1Notable Observations and Themes 3

EASTERN REGION PROPERTY TYPE

INDICES 5SOUTHERN REGION PROPERTY TYPEINDICES 7SOUTHERN CALIFORNIA PROPERTYTYPE INDICES 7MAJOR OFFICE MARKET INDICES 9FLORIDA APARTMENT INDEX 10FROM THE LAB 11APPENDIX 12

Analyst Contacts

Tad Philipp

Director CRE [email protected]

Kevin Fagan

Analyst

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Nick Levidy

Managing Director Structured Finance

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Tiffany Putman

Analyst

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ADDITIONAL CONTACTS:

Client Services Desk: 1.212.553.1653Monitoring: [email protected]: www.moodys.com

Moodys/REAL Commercial Property PriceIndices, September 2011

Overview

The National All Property Type Aggregate Index (CPPI) recorded a 5.0% increase in

July, bringing it to 12.6% above its post-peak low.Despite three consecutive monthly increases, the CPPI now stands only slightly above itsaverage for the past two years.

The contraction of CMBS lending and stalled employment growth are expected to prolongthe bottoming process for the market as a whole.

Apartments in the eastern region have posted a new all-time high. Office in San Francisco iswithin 5% of its 2008 peak. The other 14 sub-sectors reported in this issue remain 10% ormore below peak levels.

FIGURE 1

Moody's/REAL Commercial Property Price Index (CPPI)National All Property Type Aggregate

Based on data through the end of July 2011

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2 SEPTEMBER 21, 2011 SPECIAL REPORT: MOODYS/REAL COMMERCIAL PROPERTY PRICE INDICES, SEPTEMBER 201

FIGURE 2

Current Moodys/REAL CPPI and Change from Earlier PeriodsNew This Period: National All Property Type AggregateRepeated This Period: National Four Property Types

Top 10 MSAs Four Property Types

West Four Property TypesNew This Period: East Four Property TypesSouth Four Property TypesSouthern California Four Property TypesMSA Office Markets New York, San Francisco, and Washington DCMSA Apartment Market Florida

CurrentIndexM

1 MonthEarlier Peak Date Since PeakP

Low SincePeak Date

Changefrom LowL

National All Property Type Aggregate 110.26 5.0% Oct. 2007 -42.5% Apr. 2011 12.6%

CurrentIndexQ

1 QuarterEarlier Peak Date Since PeakP

Low SincePeak Date

Changefrom LowL

National Apartments 134.96 0.6% 1Q 07 -30.6% 3Q 09 14.8%

National Industrial 118.16 2.5 4Q 07 -38.6 1Q 11 2.5

National Office 125.66 8.9 2Q 07 -29.2 3Q 09 11.0

National Retail 129.38 -0.3 3Q 07 -33.7 2Q 10 9.1

Top Ten MSAs1 Apartments 152.76 -2.2 3Q 07 -31.4 4Q 09 7.1

Top Ten MSAs- Industrial 137.02 2.2 4Q 07 -31.6 3Q 10 8.9

Top Ten MSAs- Office 148.86 0.2 2Q 07 -13.1 3Q 09 40.2

Top Ten MSAs- Retail 147.08 5.8 4Q 07 -26.1 1Q 10 16.9

West Apartments 139.74 -4.1 1Q 08 -29.1 2Q 11 0.0

West Industrial 171.47 1.9 4Q 07 -5.5 3Q 09 29.5

West Office 114.99 5.3 3Q 07 -33.8 1Q 11 5.3

West Retail 130.67 -8.0 3Q 07 -34.2 2Q 11 0.0

CurrentIndexA

1 YearEarlier Peak Date Since PeakP

Low SincePeak Date

Changefrom LowL

East Apartments 210.62 7.8% 2011 0.0% N/A N/A

East Industrial 128.06 3.1 2007 -27.0 2010 3.1East Office 150.77 15.7 2007 -14.9 2009 24.1

East Retail 147.99 -4.7 2007 -26.8 2009 7.5

South Apartments 99.06 18.0 2007 -38.7 2009 19.6

South Industrial 125.32 -20.6 2008 -34.7 2011 0.0

South Office 124.07 11.5 2006 -29.9 2010 11.5

South Retail 123.63 19.6 2007 -31.8 2010 19.6

So. California Apartments 186.82 2.3 2007 -13.0 2009 5.3

So. California Industrial 163.33 6.4 2007 -22.0 2010 6.4

So. California Office 147.43 0.3 2008 -24.8 2009 1.4

So. California Retail 144.40 -12.6 2008 -43.6 2011 0.0

New York Office 203.27 25.0 2008 -10.9 2010 25.0

San Francisco Office 127.39 22.8 2008 -4.9 2009 30.3

Washington DC Office 144.45 -1.5 2008 -18.5 2009 4.9Florida Apartments 151.68 22.7 2006 -31.7 2009 36.0

M Monthly series. Most recent data is through July 31, 2011.

P Change since the peak of the index. Discrepancies between the All Property and National sector indices may reflect different time spans as well as

different repeat-sales data samples and differences in the mathematical procedures used to construct the indices.

L Change since the recession level low. At 0% if the index is currently at its recession level low. N/A values indicate a current period price peak.

Q Quarterly series. Most recent data is through the end of the 2nd quarter 2011. Analysis is based on data from that 2nd quarter.

1 Top Ten MSAs refers to the ten MSAs with the most transactions by dollar volume, in each property type.

A Annual series. Most recent data is through the end of the 2nd quarter 2011. Analysis is based on data from four quarters (3Q10, 4Q10, 1Q11 and2Q11). Given that the measure is of a rolling four-quarter period, data as of the end of the 1st quarter cannot be compared with that from the endof the previous quarter.

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The Moodys/REAL Commercial Property Price Indices (CPPI) measure the change in actualtransaction prices for commercial real estate assets based on the repeat sales of the same assets atdifferent points in time.1

Notable Observations and Themes

The CPPI recorded a 5.0% gain in July, the third consecutive month of increasing prices. Thisbrings the CPPI to 12.6% above its post-peak low and back in line with recent trends as the two

year and counting bottoming process continues. This months gain is more a continuation of the

bottoming process than a harbinger of recovery.

In this months From the Lab section, we report a slight uptick in prices for distressed assets andmajor assets in major markets. The broad middle market (non-distressed and non-trophy assets)

was the primary driver of this months 5.0% increase.

The middle market accounted for approximately 60% of Julys repeat-sales activity. Distressedassets and major assets/major markets accounted for roughly 28% and 12% of July observations,

respectively.

The contraction of CMBS lending in recent months has adversely affected the availability offinancing for middle market assets. A healthy CMBS market will be critical for a broad based and

sustainable commercial property price recovery.

Price increases in the near term are likely to be earned the old fashioned way, by rent growth,rather than through higher leverage or financial engineering. Continued economic uncertainty wil

take a toll on the assumptions utilized by buyers in making their investment decisions. Slow job

growth will crimp expectations for the absorption of vacant space and for rent increases, which in

turn will constrain near term price increases.

Of the metropolitan level annual sub-indices, the best performers over the last four quarters wereNew York office, San Francisco office and Florida apartments. The New York and San Francisco

office indices are approaching their 2008 peak values. Florida apartments have shown a sharp

pick-up of 36% from their post peak low but still remain 32% below their 2006 high.

July transaction volume remained high at 192 repeat-sales observations. The average monthlytransaction count for 2011 to date is 181 as compared with 144 during 2010 and 96 during 2009

The best performing sectors in the East regional annual indices were office and apartment, withEastern apartments setting a new all-time high.

Three of the four southern property types (apartment, office and retail) experienced double-digitprice increases over the prior four-quarter period, while southern industrial declined and set a new

post-peak low.

1 A summary or short version of the repeat sales methodology is available in a Moodys Special Report. US CMBS: Moodys Publishes the First Commercial Property

Price Indices Based on Commercial Real Estate Repeat Sales Data . Sept. 19, 2007. This is available on Moodys.com > Research & Ratings > By Market Segment >

Structured Finance > Commercial MBS > CRE Indices. A very detailed and complete explanation of the methodology is available in a White Paper from MIT. David

Geltner and Henry Pollakowski.A Set of Indexes for Trading Commercial Real Estate Based on the Real Capital Analytics Transaction Prices Database. MIT Center for Real

Estate. Sept. 26, 2007.
http://www.moodys.com/moodys/cust/research/MDCdocs/19/2007000000441711.pdf?frameOfRef=structuredhttp://www.moodys.com/moodys/cust/research/MDCdocs/19/2007000000441711.pdf?frameOfRef=structuredhttp://www.moodys.com/moodys/cust/research/MDCdocs/19/2007000000441711.pdf?frameOfRef=structuredhttp://www.moodys.com/moodys/cust/research/MDCdocs/19/2007000000441711.pdf?frameOfRef=structuredhttp://www.moodys.com/moodys/cust/research/MDCdocs/19/2007000000441711.pdf?frameOfRef=structuredhttp://www.moodys.com/moodys/cust/research/MDCdocs/19/2007000000441711.pdf?frameOfRef=structured

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National All Property Type Aggregate Index

The National All Property Type Aggregate Index is a monthly series, and this report is based on datathrough July 31, 2011. This series is illustrated in Figure 1.

Moodys/REAL National All Property Type Aggregate Index recorded a 5.0% gain in July, the thirdconsecutive month of increasing prices, bringing the national index to 12.6% above the post-peak lowset in April.

Despite the recent momentum, the CPPI is consistent with its two-year average. The contraction inCMBS lending and continued economic uncertainty may preclude significant near term recovery.

FIGURE 3

Moodys/REAL CPPI: Monthly Value Changes

July transaction volume remained high at 192 repeat-sales observations. The average monthly

transaction count for 2011 is 181 compared with 144 for 2010 and 96 for 2009. The share ofdistressed sales decreased slightly in July to 27.6%.

FIGURE 4

Moody's/REAL CPPI: Volume and Number of Repeat-Sales Transactions

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Sales Volume [L] Number of Sales [R]

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As shown in Figure 5, nearly 28% all repeat-sales transactions were considered distressed in July.2 Julywas the 18th consecutive month (and 22nd out of the last 24) in which the share of transactions thatwere distressed exceeded 20%. This is consistent with the two year and counting struggle for the CPPIto move beyond its post-peak bottoming.

FIGURE 5

Moody's/REAL CPPI: Distressed Sales as a Percentage of All Repeat-Sales

All 16 annual indices had more than the minimum 40 required repeat-sales observations. Theprocedure to be applied by Moodys/REAL in the event of low levels of repeat sales observations wasdiscussed in the May 2009 report and is outlined in more detail in the MIT white paper. 3 The resultsof this procedure become frozen going forward.

FIGURE 6

Moody's/REAL CPPI: Repeat-Sales Transaction Volume for the Annual Indices

Eastern Region Property Type Indices

The Eastern RegionProperty Type Indices for the four major property types is an annual series,based on one year of data on a rolling basis updated each quarter. This index is based on data for thefour quarters Q3 2010, Q4 2010, Q1 2011, and Q2 2011.

2 A distressed sale involves an asset in which a notice of default, foreclosure proceeding, or bankruptcy of the owner has occurred.3 Please see the MIT Methodology White Paper, Section 6.2 for further details. David Geltner and Henry Pollakowski. A Set of Indexes for Trading Commercial Real

Estate Based on the Real Capital Analytics Transaction Price Database. MIT Center for Real Estate. Sept. 26, 2007.

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NumberofTransactions

Apartment Industrial Office Retail

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Three property type indices in the East realized positive price gains over the past year and haveoutperformed their respective national indices during this period. Lead by strong growth in New YorkCity office prices, eastern office was the strongest performer, achieving a 15.7% gain. All fourproperty types have outperformed their respective national indices since the peak.

FIGURE 7

Moody's/REAL CPPI: EastProperty Type Indices

Based on data through June 2011 or end of the 2nd quarter.

Eastern apartments and industrial both had a positive price movements, increasing by 7.8% and 3.1%,respectively, over the past year. Both outperformed their national counterparts, which fell 0.2% and5.1% respectively over the same period. Apartment values in the East reached an all-time peak in thecurrent period, topping the prior peak set in 2007. Eastern industrial values are currently down27.0% since their peak in 2007. National apartment and industrial indices are currently 30.6% and38.6% respectively below their peak values.

Eastern retail experienced the only price decrease among the property types covered in the region,falling 4.7% in the second quarter. This is in sharp contrast with national retail prices, whichincreased by 9.1% over the same period.

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National Aggregate Office Retail Apartments Industrial

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Southern Region Property Type Indices

The Southern RegionProperty Type Indices for the four major property types is an annual series,based on one year of data on a rolling basis and updated each quarter. This index is based on data forthe four quarters ending with the second quarter of 2011.

Three of the four southern property types (apartment, office and retail) experienced significant priceincreases over the last four-quarter period, while industrial declined and set a new post-peak low.

FIGURE 8

Moody's/REAL CPPI: SouthProperty Type Indices


Southern retail experienced the largest price increase of any property type within the region, gaining19.6% over the past year. Southern retail outperformed the national retail index, which increased by9.1% over the same period. The Southern retail index is currently 31.8%% below its 2007 peak,comparable to the national retail index that is currently 33.7% off its peak.

Southern apartments and office both had positive price movements, increasing by 18.0% and 11.5%,respectively, through the second quarter. Both indices outperformed their national counterparts,

which fell 0.2% and rose 2.3%, respectively, over the same period. Apartment values in the South arecurrently 38.7% below their 2007 peak. Southern office values hit a new post-peak low in the priorperiod ending in 2010, and they are currently down 29.9% from their 2006 peak.

Southern industrial exhibited an annual decrease of 20.6%, far worse than that the national industrialindex decline of 5.1% over the same period. The Southern industrial index is currently 34.7% below

its 2008 peak, slightly better than its national counterpart which is down 38.6%.

Southern California Property Type Indices

The Southern CaliforniaProperty Type Indices for the four major property types is an annual series,based on one year of data on a rolling basis and updated each quarter. This index is based on data forthe four quarters ending with the second quarter of 2011.

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Of the four Southern California indices, three (apartments, industrial and office) exhibited slight tomoderate price increases. Southern California retail experienced a significant price decline of 12.6%and set a new post-peak low.

FIGURE 9

Moody's/REAL CPPI: Southern CaliforniaProperty Type Indices


On the other end of the performance spectrum is Southern California industrial, which gained 6.4%.Since the peak of the market in 2007, industrial prices in Southern California have declined by 22.0%

Southern California apartment and office both had small positive price movements, increasing by2.3% and 0.3%, respectively through the second quarter. Apartment values in Southern Californiapeaked in 2007 and are currently down 13.0% from that point. Office values in Southern Californiaare currently down 24.8% since their peak in 2008.

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Major Office Market Indices

Three major office markets typically experience sufficient transaction volume to support an annualprice series: New York, San Francisco, and Washington DC. This index is based on data for the four

quarters through the end of the second quarter of 2011.

The New York office index had the largest gain among the three major office markets, rising 25.0%.Since peaking in 2008, prices are off by 10.9% for the New York office series, slightly better than the14.9% decline in the eastern office index.

FIGURE 10

Moody's/REAL CPPI: Major Office Markets Indices


Office prices in San Francisco have also measured a strong increase in the past year, gaining 22.8%.The San Francisco office index peaked in 2008 and current prices are within 5% of peak values. Incomparison, the western office index is 33.8% off its peak value.

The Washington DC office index decreased by 1.5% in the past year. The peak for the Washingtonoffice market occurred in 2008 and prices are currently 18.5% below that level.

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Florida Apartment Index

An aggregation of several Florida MSAs generally provide sufficient volume of apartment transactionsto support an annual FloridaApartment series. The Florida markets included in the series are:

Orlando, Tampa, Fort Lauderdale, Miami and West Palm Beach. Like the other annual series it usesdata from a rolling four quarters, culminating with the end of the second quarter of 2011.

FIGURE 11

Moody's/REAL CPPI: Florida Apartment Index


Florida apartment prices increased by 22.7% over the past four quarters, the second positivemovement in the index since its peak in 2006. Since the peak, prices have fallen 31.7%, slightly betterthan the 38.7% drop in the broader southern apartment index.

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From the Lab4

In this edition of From the Lab, we look at the price performance of major assets (prior sale above $10million) in six major markets excluding distressed transactions. 5 This data subset is intended as a

proxy for the portfolio of an investor holding high quality properties with low/no leverage (there arefew distressed transactions absent leverage). As shown in Figure 12, July saw a slight increase of 1.3%.

Distressed assets also recorded an increase of 2.6%. Transaction volume for distressed sales comprised27.6% of this months observations.

As in June, the broad middle market (non-major assets and non-distressed assets) drove the bulk of theoverall increase of 5.0% in the July CPPI. Middle market transactions have accounted forapproximately 60% of volume in recent months.

FIGURE 12

From the Lab: Performance Comparison Between CPPI, Six-City Index and Distressed Since Peak

Based on data through July 2011

Special thanks as always to David Geltner of Geltner Associates and Bob White of Real CapitalAnalytics for their contributions of analytics, data and market commentary.

4 From the Lab reports results from indices developed for research purposes. Such indices may employ different methodology than the Moodys/REAL CPPI in order to

account for data limitations and may be reported on an infrequent basis.5 The six cities are: Boston, Chicago, Los Angeles, New York, San Francisco and Washington DC

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CPPI Six-City Index (Excluding Distressed) Distressed

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The attached Appendix includes the following:

A calendar summarizing the report cycle, i.e., which indices are updated in which month. The

calendar also indicates the precise release dates for Moodys/REAL Indices for the next year (Figures

13, 14, and 15).

A listing of the cities included in the Top Ten Indices (Figure 16).

Charts for the 12 sub-indices that were not recalculated for this report. These are repeated from the

previous report so that both data and charts for all indices, whatever the most recent calculation, are

included here in one document for readers convenience (Figures 17 19).

Appendix

FIGURE 13

CPPI: Report Release Cycle 2011

January February Marc

Jan. 24, 2011 Feb. 22, 2011 March 22, 2011

Report to be released: Aggregate Aggregate Aggregate

For period: November December January

Based on data through: November 30 December 31 January 31

Report to be released: 12 Quarterly Indices (A) 16 Annual Indices (B)

For period: 4th Quarter 4th Quarter

Based on data through: December 31 December 31

April May June

April 20, 2011 May 23, 2011 June 22, 2011


For period: February March April

Based on data through: February 28 March 31 April 30


For period: 1st Quarter 1st Quarter

Based on data through: March 31 March 31

July August Se

July 20, 2011 Aug. 22, 2011 Sept. 22, 2011


For period: May June July

Based on data through: May 31 June 30 July 31


For period: 2nd Quarter 2nd Quarter

Based on data through: June 30 June 30

October November December

Oct. 24, 2011 Nov. 21, 2011 Dec. 21, 2011


For period: August September October

Based on data through: August 31 September 30 October 31


For period: 3rd Quarter 3rd Quarter

Based on data through: September 30 September 30

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FIGURE 14

(A) 12 Quarterly Indices include the following:

Apartment Retail Office Industrial

National ApartmentTop 10 MSAs Apartment

West Apartment

National RetailTop 10 MSAs Retail

West Retail

National OfficeTop 10 MSAs Office

West Office

National IndustrialTop 10 MSAs Industrial

West Industrial

FIGURE 15

(B) 16 Annual Indices with Quarterly Releases include the following:

Apartment Retail Office Industrial

East ApartmentSouth Apartment

So. California ApartmentFlorida Apartment

East RetailSouth Retail

So. California Retail

East OfficeSouth Office

So. California Office

New York OfficeSan Francisco Office

Washington DC Office

East IndustrialSouth Industrial

So. California Industrial

FIGURE 16

Top Ten Cities by Property Type

Apartment Industrial Office Retail

AtlantaChicago

Dallas

Houston

Los AngelesNew York

Raleigh Durham

San FranciscoSeattle

Washington DC

AtlantaBoston

ChicagoDallas

Los AngelesNew York

Phoenix

San FranciscoSeattle

Washington DC

AtlantaBoston

ChicagoDallas

Houston

Los AngelesNew York

San FranciscoSouth Florida

Washington DC

AtlantaChicagoDenver

Houston

Los AngelesNew York

Phoenix

San FranciscoSouth Florida

Washington DC

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FIGURE 17

Moody's/REAL CPPI: National Property Type Indices

Based on data through June 2011, or the end of the 2nd quarter.

FIGURE 18Moodys/REAL CPPI: Top Ten MSAs Property Type Indices


FIGURE 19

Moody's/REAL CPPI: West Property Type Indices


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Report Number: SF262321

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CPPI Sept 2011

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