NAIOP Capital Markets 101 September 2016

The Myth – DC Metro Falling in Eyes of Investors

Source: PWC/ULI Emerging Trends in Real Estate

Market Outlook 2010 vs. 2016

San Jose

Washington, DC

Detroit

Source: PWC/ULI Emerging Trends in Real Estate

PWC Overall Real Estate Prospects

0369

12151821242730333639

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Char

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Seat

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Den

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Nas

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San

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Port

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Los A

ngel

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Rale

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Dur

ham

San

Jose

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Coun

ty

New

Yor

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San

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Min

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San

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Rank 2010 Rank 2016

…and then we have this…

Clarion | Cushman & Wakefield

Reality – US is Strong, DC Economy is Stronger

Source: PWC/ULI Emerging Trends in Real Estate

-4%

-2%

0%

2%

4%

6%

8%

China MiddleEast

UnitedKingdom

Canada LatinAmerica

Eurozone Japan Russia UnitedStates

2014 2015 2016e

Global Slowdown GDP Growth with Forecast , 2014-2016

Source: IMF

Global Monetary Policy • Eurozone ECB launching QE in March 2015,

bond-buying $60 Billion per month through March 2017; also dropped short-term rates to effectively 0%

• Japan BOJ launched new QE in October of

2014, swelling monetary base by $670 billion per year; introduced negative interest rate on new excess reserves

• China PBOC cut interest rates from 4.6% to 4.35%% in October 2015 – has continued to inject Yuan thru liquidity facilities

• Australia cut interest rates in May to record low of 2%

• India Central bank reduced its main rate by half a percentage point in October 2015 – citing economy is “far from robust”

Central Banks Ease while U.S. Considers Tightening

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%Sw

itzer

land

Japa

n

Ger

man

y

Fran

ce

U.K

.

Cana

da

Sout

h Ko

rea

U.S

10 Year Treasury Yield

Source: Bloomberg

DC Metro Employment % Growth YOY

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%19

91Q

219

91Q

419

92Q

219

92Q

419

93Q

219

93Q

419

94Q

219

94Q

419

95Q

219

95Q

419

96Q

219

96Q

419

97Q

219

97Q

419

98Q

219

98Q

419

99Q

219

99Q

420

00Q

220

00Q

420

01Q

220

01Q

420

02Q

220

02Q

420

03Q

220

03Q

420

04Q

220

04Q

420

05Q

220

05Q

420

06Q

220

06Q

420

07Q

220

07Q

420

08Q

220

08Q

420

09Q

220

09Q

420

10Q

220

10Q

420

11Q

220

11Q

420

12Q

220

12Q

420

13Q

220

13Q

420

14Q

220

14Q

420

15Q

220

15Q

420

16Q

2

Washington DC, MSA US

DC MSA Now Outperforming the US

Source: BLS

Job Growth in Major Markets July 2016 YOY

185,800

115,100 107,300 92,500

74,000 69,400 68,700 66,500 56,300 52,900 50,900 47,800 42,900

5,500

2.0%

2.0%

3.2% 2.9% 2.9%

2.7%

3.0% 3.5%

2.0%

1.2%

3.6%

1.8%

2.2%

0.2%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

-10,000

40,000

90,000

140,000

190,000N

ew Y

ork

Los A

ngel

es

Dalla

s

Was

hing

ton,

DC

Mia

mi

Atla

nta

San

Fran

cisc

o

Seat

tle

Phila

delp

hia

Chic

ago

Denv

er

Bost

on

Detr

oit

Hous

ton

Non Office-Using Office-Using % Growth YOY

Source: BLS

-1,390

280

4,770

7,960

8,260

10,380

17,220

18,850

-5,000 0 5,000 10,000 15,000 20,000

Information (76k)

Financial (153k)

Federal Government (364k)

Manufacturing & Construction (203k)

Retail (275k)

Leisure & Hospitality (308k)

Education & Healthcare (422k)

Professional & Business Services (732k)

# of Jobs

NoVA Other DC Metro Total MSA

Employment by Sector DC Metro with NoVA Breakout, July 2016 YOY

(total sector employment)

Source: BLS

-52

-8

36 39 26

45 62

74 93

118

41

9

56 71 64

50 23 14

-51

11

43 40 29 18

58 64 53 48 41 33

-120

-70

-20

30

80

13019

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Thou

sand

s

DC Metro Annualized Job Growth Historical Average: 36,000 Jobs

FORECAST

Historical, Current and Projected Job Growth DC Metro Annualized Job Growth

Source: BLS

Job Growth Forecast

58,080

64,399

53,105 47,792

40,832

32,827

0

10,000

20,000

30,000

40,000

50,000

60,000

2015 2016 2017 2018 2019 2020

Cushman & Wakefield George Mason University Moody's Average Historical Average: 36,000

Source: Cushman & Wakefield, Moody’s, GMU-CRA

Federal Spending In The DC Region The Party Doesn’t Matter

$0

$50

$100

$150

$200

$250

Reagan Bush I Bush II Clinton Obama

Republican Controlled House Democrat Controlled House Light Colored Bar = Opposite Party President

Billi

ons

Forecast

Source: Cushman & Wakefield, White House OMB

DC Metro Unemployment Rate DC Metro vs. the US and Major Markets, July 2016.

3.4% 3.6%

3.7% 3.8%

4.0% 4.7%

4.7% 4.8%

4.8% 4.9% 4.9% 4.9%

5.2% 5.3%

5.6%

0% 1% 2% 3% 4% 5% 6%

Boston

Denver

Washington, DC

Dallas

San Francisco

Los Angeles

Atlanta

Miami

New York

Seattle

United States

Detroit

Philly

Houston

Chicago

Source: BLS

Federal % of Total Employment is Shrinking DC Metro Federal Government as a Percentage of Total Employment

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

1990

Q1

1990

Q4

1991

Q3

1992

Q2

1993

Q1

1993

Q4

1994

Q3

1995

Q2

1996

Q1

1996

Q4

1997

Q3

1998

Q2

1999

Q1

1999

Q4

2000

Q3

2001

Q2

2002

Q1

2002

Q4

2003

Q3

2004

Q2

2005

Q1

2005

Q4

2006

Q3

2007

Q2

2008

Q1

2008

Q4

2009

Q3

2010

Q2

2011

Q1

2011

Q4

2012

Q3

2013

Q2

2014

Q1

2014

Q4

2015

Q3

2016

Q2

Non-Federal Employment Federal Employment Federal % of Total Linear (Federal % of Total)

Source: BLS

DC Metro Population 540,000 new people from 2009-2015

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Seattle Denver Boston Baltimore Portland Las Vegas Atlanta Miami Minneapolis Cleveland

DC Population Growth 2009-2015

Source: US Census

DC Metro Economic Indicators

0%

10%

20%

30%

40%

50%

60%

$0$10,000$20,000$30,000$40,000$50,000$60,000$70,000$80,000$90,000

$100,000W

ashi

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n, D

CSa

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anci

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Denv

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s Ang

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Dalla

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ates

Detr

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Mia

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Incomes and Education

Median Incomes

Educational Attainment - % of Population with Bachelor's

21

5

4

Fortune 1,000 HQ’s

NoVA DC Maryland

The Smartest, most Well-Paid Workforce in the Nation with Great Companies to Work For

Source: US Census, Forbes

Wealthiest Counties in the U.S. Median Household Income – 4 of 10 Wealthiest U.S. Counties are in the DC Metro Region

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Source: Census, Motley Fool

Capital Markets – DC Metro Office Trends

Office Sales Volume 2015 Among Major Metros

$32.5

$15.2

$11.1 $9.7 $8.7 $8.3

$5.6 $5.1 $4.1 $3.1 $2.8 $2.0

$388

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

NYC Metro SF Metro LA Metro DC Metro Chicago Boston Seattle Atlanta Dallas Houston Denver Philly Metro

$Bill

ions

Sales Volume 2015 YTD Average Price Per SF

Source: C&W, RCA

Office Sales Volume YTD 2016 Among Major Metros

$23.1

$8.8 $8.4

$5.4 $4.0 $3.7 $3.2 $3.0

$1.9 $1.9 $1.5 $0.5

$245

$0

$100

$200

$300

$400

$500

$600

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

NYC Metro LA Metro SF Metro Boston DC Metro Chicago Seattle Dallas Atlanta Philly Metro Denver Houston

$Bill

ions

Sales Volume 2015 YTD Average Price Per SF

Source: C&W, RCA

Office Investment Sales Volume Washington DC Metro

$10.2

$14.1 $12.5

$3.4 $2.3

$4.3

$7.2

$5.4 $6.8

$8.0

$9.7

$4.0

-$1.0

$1.0

$3.0

$5.0

$7.0

$9.0

$11.0

$13.0

$15.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD

Bill

ions

DC NoVA SMD Historical Average: $7.6 Billion

Source: Cushman & Wakefield

Office Pricing $/square foot

$424

$201

$146

$0

$100

$200

$300

$400

$500

$600

$700

$800

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

DC NoVa SMD

Source: Cushman & Wakefield

Office Cap Rates Washington, DC Metro Area, all classes

1.69%

5.14%

8.81%

6.80%

0%1%2%3%4%5%6%7%8%9%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US 10 Yr Treasury DC Office Cap Rate MD Office Cap Rate VA Office Cap Rate

Source: C&W

Historical and Projected Interest and Cap Rates

0%1%2%3%4%5%6%7%8%9%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

US 10 Yr Treasury DC Office Cap Rate SMD Office Cap Rates NoVA Office Cap Rates

Source: Cushman & Wakefield, US Treasury

FORECAST

Office Cap Rates Washington, DC Metro Area, all classes

2.22%

5.39%

6.99%

7.05%

0%1%2%3%4%5%6%7%8%9%

10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

US 10 Yr Treasury DC Office Cap Rate MD Office Cap Rate VA Office Cap Rate

Source: Cushman & Wakefield 28

Where Foreign Buyers Are Most Active Cross-border office sales as % of total sales volume – 2016

DC Metro 30%

New York 38% U.S. = 25%

Foreign acquisitions under 10% of investor composition YTD 2015

Dallas 37%

Miami 31%

Philly 35%

Source: Cushman & Wakefield, RCA

Boston 16%

Denver 21%

Seattle 28%

Los Angeles 24%

Chicago 21%

Nashville 12%

Austin 21%

San Francisco 17%

$0

$500

$1,000

$1,500

$2,000

$2,500 $2,171.8 $1,765.7

$1,720.0

$1,066.7 $840.7

$744.9 $707.2 $364.0

$300.2 $150.7 $21.5

Mill

ions

2012 2013 2014 2015 2016

Source: Cushman & Wakefield, RCA

Foreign Investment in DC Metro Office By Country, DC Metro 2012-2015

The Multifamily Market

Historical Completions by Market DC Metro

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2008 2009 2010 2011 2012 2013 2014 2015

Uni

ts

District of Columbia Suburban Maryland Northern Virginia Average

8,000 / Year Average

Source: C&W, Delta

Forecasted Deliveries

0

1,000

2,000

3,000

4,000

5,000

6,000

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2016 2017 2018 2019DC SMD NoVA

14,000 Units 8,900 Units DC Metro

Source: C&W, Delta

Multifamily Absorption DC Metro

2,379

4,063

2,589

1,574 735

7,741

1,776 2,646

4,436

8,081

6,782

5,176

6,849

5,926

10,147 10,631

4,308

0

2,000

4,000

6,000

8,000

10,000

12,00020

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

YTD

DC MD VA

Source: REIS, CoStar

Housing Permits Single Family vs. Multifamily

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

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 2013 2014 2015 2016

# of

Uni

ts

Single Family Multifamily Total Average: 30k Units/Year

7,700 Units below average

Source: Moody’s

Multifamily – Washington Metro Area

Multifamily 2010 2011 2012 2013 2014 2015 2016 YTD

Total Volume $3.26 Billion $4.91 Billion $5.74 Billion $8.65 Billion* $3.96 Billion $8.31 Billion** $2.42 Billion

# of Transactions 57 91 101 123 73 129 43

Average of Price/Unit $223k $190k $193k $271k $185k $200k $208k

Average Cap Rate 5.66% 5.54% 5.16% 5.25% 5.60% 5.60%

DC 4.50% 4.77% 4.54% 5.60% 5.00% 5.70%

Nova 5.57% 5.60% 5.12% 5.40% 5.40% 5.00%

Maryland 6.15% 6.23% 5.83% 6.89% 6.10% 5.50%

*Inclusive of the Archstone portfolio sale **Inclusive of the Home Properties, Associate Estates, Gables Residential privatizations / portfolio transactions

Source: C&W, RCA

By 2026…

850,000 Additional People

327,000 Households 33,000 Units/Year 13,000 MF Units/Year

Source: Cushman & Wakefield

Thanks