Economic Overview GET ET O OFF FF OF MY MY CLOUD OUD IPSOS - - PowerPoint PPT Presentation

Economic Overview

GET ET O OFF FF OF MY MY CLOUD OUD

IPSOS GLOBAL CONFIDENCE INDEX December 2017

Source: IPSOS, Sage Policy Group; February 2018.

94 95 96 97 98 99 100 101 102 103 104 Nov-00 May-01 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 OECD - Total Euro area (19 countries) United States China

The business confidence index (BCI) is based on enterprises’ assessment of production, orders and stocks, as well as its current position and expectations for the immediate

• future. Opinions compared to a “normal” state are collected and the difference between positive and negative answers provides a qualitative index on economic conditions.

OECD BUSINESS CONFIDENCE INDEX Select Regions / Countries

Source: OECD, Sage Policy Group; February 2018.

2018 2018 Pro

• Proj. G

Globa bal O l Outpu put G Growth: + h: +3.9% 2017 Growth (Estimate) World: 3.7% Euro Area: 2.4% United States: 2.3% Japan: 1.8%

ESTIMATED GROWTH IN OUTPUT Select Global Areas | 2018 Projected

Source: International Monetary Fund: World Economic Outlook Update January 2018, Sage Policy Group; February 2018.

A N N U A L % C H A N G E 1.9% 2.3% 1.9% 3.6% 7.4% 6.6% 6.5% 1.7% 4.0% 3.3% 4.9% 2.7% 2.3% 2.9% 1.2% 1.4% 1.5% 1.9% 2.3% 2.4% 2.2% 2.3% 0% 2% 4% 6% 8% 10% Brazil Mexico Latin America & the Caribbean Middle East, North Africa, Afghanistan, & Pakistan India China Emerging & Developing Asia Russia Emerging & Developing Europe Sub-Saharan Africa Emerging Market & Developing Economies United States Canada Australia Japan Italy United Kingdom France Germany Spain Euro Area Advanced Economies

20 40 60 80 100 120 140 2005 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17

January 2018 2018 = 125. 125.4

CONSUMER CONFIDENCE INDEX United States

Source: Conference Board, Sage Policy Group; February 2018. Note: 1985 = 100.

December 2017 2017 = 104. 104.9

80 85 90 95 100 105 110 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 2017

NFIB INDEX OF SMALL BUSINESS OPTIMISM United States

Source: National Federation of Independent Business, Sage Policy Group; February 2018. Note: Data is seasonally adjusted 1986 = 100.

$0 $400 $800 $1,200 $1,600 $2,000 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Q3 3 2017 2017 = $1. $1.74 74 Trillio lion

PAINT IT BLACK – CORPORATE PROFITS United States

Source: Bureau of Economic Analysis, Sage Policy Group; February 2018. Note: After tax with IVA and CCAdj .

I N B I L L I O N S

November 2017 = 2017 = 5. 5.88 88

2 3 4 5 6 7 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17

JOB OPENINGS United States

Source: Bureau of Labor Statistics, Sage Policy Group; February 2018.

I N M I L L I O N S

• 40

42 59 74 109 134 196 210 306 438 527

• 100

100 200 300 400 500 600 Information Government Mining and Logging Trade, Transportation, and Utilities Other Services Financial Activities Manufacturing Construction Leisure and Hospitality Education and Health Services Professional and Business Services

2, 2,055K 055K j jobs ga gained

BEASTS OF BURDEN – NONFARM EMPLOYMENT United States | December 2016 vs. December 2017

Source: Bureau of Labor Statistics, Sage Policy Group; February 2018. Note: Data is seasonally adjusted.

I N T H O U S A N D S

0.6% 1.7% 3.8% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Baltimore Chicago New York Philadelphia

• St. Louis

Los Angeles Houston San Diego Detroit San Francisco Washington Charlotte Phoenix Atlanta Boston Denver Tampa Minneapolis-St. Paul Miami Dallas-Fort Worth Portland Seattle-Bellevue San Antonio Riverside-San Bernardino Orlando

EMPLOYMENT GROWTH - PERCENT CHANGE 25 Largest Metros | December 2016 vs. December 2017

Source: Bureau of Labor Statistics – CES Survey, Sage Policy Group; February 2018. Note: Data is not seasonally adjusted.

2.4% 3.6% 4.1% 4.7% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Minneapolis-St. Paul San Francisco Denver Boston San Antonio Dallas-Fort Worth San Diego

• St. Louis

Orlando Portland Tampa Washington Detroit Phoenix Los Angeles Baltimore Miami Riverside-San Bernardino Seattle-Bellevue Atlanta Charlotte Houston New York Philadelphia Chicago

Source: Bureau of Labor Statistics, Sage Policy Group; February 2018. Note: Data is not seasonally adjusted and area boundaries do not reflect official OMB definitions.

UNEMPLOYMENT RATES 25 Largest Metros | November 2017

United ted S Sta tates tes = 4. 4.1% 1%

GI GIMME E SHEL HELTER ER

MEGATREND ONE

The Revenge of Homeownership

3.62% 4.15%

1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18* 15-Year 30-Year

Source: Freddie Mac, Sage Policy Group; February 2018. *Week ending 1/25/2018.

15-YEAR AND 30-YEAR FIXED MORTGAGE RATES United States

• From 2006-2016 the

number of households headed by owners remained relatively flat.

• At the same time, the

number of households renting their home increased significantly (+26.5%).

• The share of renter

households also increased—from 31.2%

• f households in 2006 to

36.6% in 2016.

HOUSEHOLDS: OWNER VS. RENTER OCCUPIED United States

Source: Census Bureau; Pew Research Center, Sage Policy Group; February 2018.

36.2 75.4 75.0 21.3 34.2 43.3

10 20 30 40 50 60 70 80 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 Owner Occupied Renter Occupied N U M B E R O F H O U S E H O L D H E A D S I N M I L L I O N S

Q4 4 2017 = 2017 = 64. 64.2% 2%

58% 60% 62% 64% 66% 68% 70% 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 2017

Source: Census Bureau, Sage Policy Group; February 2018. Note: Data is not seasonally adjusted.

HOMEOWNERSHIP United States

Source: Census Bureau, Sage Policy Group; February 2018.

PRIVATE NEW MULTIFAMILY CONSTRUCTION United States

I N B I L L I O N S

Note: Data is seasonally adjusted annual rate.

November 2017 = 2017 = $60. $60.5

$0 $10 $20 $30 $40 $50 $60 $70 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

December 2017 2017 = 836 836

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Nov-99 May-00 Nov-00 May-01 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17

SINGLE-FAMILY HOUSING STARTS United States

Source: Census Bureau, Sage Policy Group; February 2018.

I N T H O U S A N D S

Note: Data is seasonally adjusted annual rate.

3.3% 3.6% 4.1% 5.2% 5.7% 6.3% 6.4% 6.9% 7.0% 7.0% 7.0% 9.1% 10.6% 0% 2% 4% 6% 8% 10% 12%

S&P/CASE-SHILLER HOME PRICE INDICES Select Metro Areas | 12-Month Ending November 2017

Source: Standard & Poor’s, Sage Policy Group; February 2018.

P E R C E N T C H A N G E

• 18.4%
• 14.9%
• 14.2%
• 8.4%
• 8.3%
• 5.6%

2.4% 7.1% 7.2% 7.7% 26.5% 29.1% 29.6% 33.9% 45.2% 58.9%

• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50% 60% Water Supply Sewage and Waste Disposal Manufacturing Religious Public Safety Conservation and Development Highway and Street Power Transportation Health Care Educational Amusement and Recreation Commercial Communication Office Lodging

Total N Nonresid identia ial l Construction: +$81. $81.5 5 Billio lion; + +12. 12.8% 8%

Source: Census Bureau, Sage Policy Group; February 2018.

NONRESIDENTIAL CONSTRUCTION SPENDING United States | November 2014 vs. November 2017

T H R E E - Y E A R P E R C E N T C H A N G E

$0 $10 $20 $30 $40 $50 $60 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Foreig ign i investment i increased 85. 85.1% 1% i in 2015 2015

Cross-border investment remained elevated in 2016: Although down relative to a record 2015, offshore investment levels still exceeded the pre-2015 high in 2007.

Source: Jones Lang LaSalle, Real Capital Analytics, Sage Policy Group; February 2018. Note: Among transactions larger than $5.0 million.

COMMERCIAL/MULTIFAMILY OFFSHORE INVESTMENT Sales Volume Reaches New Heights in 2015/2016

I N B I L L I O N S O F U . S . D O L L A R S

2.2% 2.3% 2.6% 3.0% 3.4% 4.2% 6.9% 7.6% 9.7% 17.4% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Austin Houston Seattle-Bellevue Dallas-Ft. Worth Chicago San Francisco Los Angeles Boston Washington New York

FOREIGN INVESTMENT IN U.S. CRE Top Destination Markets | First Half 2017

Source: Jones Lang LaSalle, Real Capital Analytics, Sage Policy Group; February 2018. Note: Among transactions larger than $5.0 million, includes portfolio, entity-level transactions.

I N V E S T M E N T A S P E R C E N TA G E O F T O TA L

MEGATREND TWO

Capitalization Rates: Red Flag or New Normal?

December 2017 2017 = 126. 126.0

10 20 30 40 50 60 70 80 90 100 110 120 130 140 Dec-97 May-98 Oct-98 Mar-99 Aug-99 Jan-00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17

COMMERCIAL PROPERTY PRICE INDEX United States

Source: Green Street Advisors, Sage Policy Group; February 2018. Note: Indexed to 100 in August 2007.

MONETARY POLICY TIGHTENING/EASING Global | December 2017

Source: Council on Foreign Relations, Global Monetary Policy Tracker, Sage Policy Group; February 2018.

6.45% 6.22% 1.91% 2.24% 4.54% 3.98%

1% 2% 3% 4% 5% 6% 7% 8% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 STNL Cap Rates 10-Year Treasury Rates Spread

STNL* CAP RATES VS. 10-YEAR TREASURY RATES United States

Source: Federal Reserve Bank of St. Louis, Calkain Companies, Sage Policy Group; February 2018. *Single Tenant Net-Leased.

2013 2014 2015 2016 2017

19 19TH

TH

NERV RVOUS BREAKDOWN

Q4 4 2017 = 2017 = 2. 2.6% 6%

• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% 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 2017

GROSS DOMESTIC PRODUCT United States

Source: Bureau of Economic Analysis, Sage Policy Group; February 2018. Note: 1st (advance) estimate at Q4 2017; data is seasonally adjusted annual rate.

P E R C E N T C H A N G E F R O M P R E C E D I N G P E R I O D

December 2017 2017 = 0. 0.6% 6%

• 1.5%
• 1.0%
• 0.5%

0.0% 0.5% 1.0% 1.5% 2.0% Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17

Index a at D December 2017: 2017: 107. 107.0 w 0 where 2010: 2010: 100 100

LEADING ECONOMIC INDICATORS INDEX United States

Source: Conference Board, Sage Policy Group; February 2018.

O N E - M O N T H P E R C E N T C H A N G E

December 2017 2017 = 2. 2.4% 4%

0% 2% 4% 6% 8% 10% 12% Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17

SAVING RATE United States

Source: Bureau of Economic Analysis, Sage Policy Group; February 2018. Note: Savings as percentage of personal disposable income.

• According to the International Institute of Finance (IIF), global

debt has reached an all-time high in 2016

• At $215

$215 t trillion, global debt—including household, government, and corporate—now represents 325% 325% o

• f g

global G GDP

• Last year, the IMF warned of risks to the global economy:
• “sheer size of debt could set the stage for an unprecedented

private deleveraging process that could thwart the fragile economic recovery”

Source: Institute of International Finance, Global Debt Monitor, Business Insider, The Telegraph, Reuters, Sage Policy Group; February 2018.

GLOBAL DEBT REACHES ALL-TIME HIGHS

December 2017 2017 = 32. 32.44 44

10 20 30 40 50 Dec-80 Dec-81 Dec-82 Dec-83 Dec-84 Dec-85 Dec-86 Dec-87 Dec-88 Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17

SHILLER PRICE-EARNINGS RATIO United States

Source: Robert J. Shiller Data used in his book, "Irrational Exuberance" Princeton University Press, Sage Policy Group; February 2018.

1/ 1/28/ 28/18 = 8 = $11. $11.8K

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 1/1/14 3/1/14 5/1/14 7/1/14 9/1/14 11/1/14 1/1/15 3/1/15 5/1/15 7/1/15 9/1/15 11/1/15 1/1/16 3/1/16 5/1/16 7/1/16 9/1/16 11/1/16 1/1/17 3/1/17 5/1/17 7/1/17 9/1/17 11/1/17 1/1/18

SHATTERED! – BITCOIN PRICE

Source: CoinMarketCap.com, Sage Policy Group; February 2018.

• U.S. setting up for best year since

’05. . .

• Global economy also picking up

momentum, in large measure due to policymaking

• Job opportunities are abundant
• Corporate profitability elevated
• Consumer and business confidence

has been surging. . .

• And now tax cuts, including major

reductions in corporate taxes . . . What could go wrong?

• A lot can go wrong – that’s always true –

first there are the Black Swan threats – cyber, contagion, conflict, Korea, EMP, trade war:

• “I’m forever blowing bubbles, pretty

bubbles in the air, they fly so high, nearly reach the sky, and like my dreams, they fade and die”

• Equity markets? U.S. bond market?

Commercial real estate? Bitcoin? Where are all the pretty bubbles?

• 2018 will be fine – better than fine – 2019

might be, too, but beyond that, possible deleveraging cycle prompted by a repricing of assets – Bad!!!! TIME IS ON MY SIDE, AT LEAST IN THE NEAR-TERM

Source: Sage Policy Group; February 2018.

MEGATREND THREE

Elevated Apartment Absorption – Will it Continue?

Source: Delta Associates; February 2018.

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015 2016 2017

Long-ter erm A Annual al A Aver erage e Absorptio ion = = 7, 7,096 096

N U M B E R O F U N I T S

CLASS A APARTMENT ABSORPTION Washington Metro Area

District of Columbia Northern Virginia Suburban Maryland

Source: Grosvenor, McCaffery Interests, Insight Property Group; February 2018.

APARTMENT ABSORPTION LEADERS District of Columbia – Capitol Hill/Riverfront/SW & NoMa/H St.

F1RST Residences, 1263 1st Street, SE The Apollo, 600 H Street, NE

Source: Clark Realty Corp, Kettler; February 2018.

APARTMENT ABSORPTION LEADERS Northern Virginia – RCB Corridor and Tysons

Ten at Clarendon, 3110 10th Street N Highgate at the Mile, 7915 Jones Branch Drive

Source: Berman Enterprises, Monument Realty; February 2018.

APARTMENT ABSORPTION LEADER Suburban Maryland – North Prince George’s County

The Remy, 7730 Harkins Road Monument Village, 9122 Baltimore Avenue

Source: The Bozzuto Group, Delta Associates; February 2018.

CLASS A APARTMENT RENTER TYPES Urban Locations in Washington Metro Area | 2015

MILLENNIALS GEN X BABY BOOMER TRADITIONALIST

60% 2% 13% 25%

Source: The Bozzuto Group, Delta Associates; February 2018.

A V E R A G E M O N T H S O C C U P I E D

CLASS A APARTMENT AVERAGE TENURE BY RENTER TYPE Urban Locations in Washington Metro Area | 2017

10 20 30 40 50 60 Millennials Gen X Baby Boomer Traditionalist

% O F 2 5 - T O 3 5 - Y E A R - O L D S W H O M O V E D I N T H E P R E V I O U S Y E A R

MOBILITY BY GENERATION OF 25 TO 35-YEAR OLDS United States

15% 20% 25% 30% Millennials in 2016 Early Boomers in 1981 Traditionalists in 1963 Gen X in 2000 Late Boomers in 1990

Source: Pew Research Center, American Community Survey, Delta Associates; February 2018.

Source: The Bozzuto Group, Delta Associates; February 2018.

CLASS A APARTMENT RENTER TYPES Urban Locations in Washington Metro Area

60% 60% 25% 25% 13% 13% 2% 2%

2015 Average Tenant Tenure = 22.1 Months Millennials Gen X Baby Boomer Traditionalist

59% 59% 27% 27% 12% 12% 2% 2%

2017 Average Tenant Tenure = 22.1 Months

Source: Delta Associates; February 2018.

APARTMENT MARKET OPPORTUNITIES Washington Metro Area

Co Co-Livi ving ng Apartm tments ts Rise i e in n Popu pularity Among g Millen ennials Inv nvest st i in Cutting- Edge Techno hnology Go w

• wit

ith S Smalle ler and M More Efficien ent U Uni nit Des esig igns Look B

• k Beyon
• nd

Fitness ess Facilities a es and nd Poo

• ols

ls

MEGATREND FOUR

The Beginning of the End of Boutique Condominium Development?

AVERAGE UNIT COUNT OF NEW CONDO PROJECTS Washington Metro Area

20 40 60 80 100 120 140 160 180 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Note: Includes condo projects actively selling, under construction, and/or pre-marketing. Data is of year-end for each year. Source: Delta Associates; February 2018.

N U M B E R O F U N I T S

74 74

10 20 30 40 50 60 70 80 90 100 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 N U M B E R O F U N I T S

AVERAGE UNIT COUNT OF NEW CONDO PROJECTS District of Columbia

Source: Delta Associates; February 2018. Note: Includes condo projects actively selling, under construction, and/or pre-marketing. Data is of year-end for each year.

50 50

SHARE OF CONDOMINIUM SALES ACTIVITY Washington Metro Area

Note: Includes condo projects actively selling, under construction, and/or pre-marketing. Source: Delta Associates; February 2018.

2009 37% 37% 46% 46% 17% 17% 2017 2017 23% 23% 64% 64% 13% 13% 2009 2009

District of Columbia Northern Virginia Suburban Maryland

Source: Monument Realty; February 2018.

NEW CONDOMINIUM PROJECTS District of Columbia

Avidian, 1210 Van Street, SE 624 Eye Street, NW

Source: Meridian Group, Kettler, Renaissance Centro; February 2018.

NEW CONDOMINIUM PROJECTS Northern Virginia

Verse, The Boro - Tysons The Arbor, Arbor Row - Tysons

Source: Peterson Cos; February 2018.

NEW CONDOMINIUM PROJECTS Suburban Maryland

The Haven at National Harbor

NEW CONDO SALES VS. APARTMENT ABSORPTION Washington Metro Area

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 New Condo Sales Apartment Absorption

Source: Delta Associates; February 2018.

Source: Delta Associates; February 2018.

CONDOMINUM MARKET OPPORTUNITIES Washington Metro Area

Build i in Supply- Constraine ned d Submarkets Condo Pr

• Proj
• ject

Size S Should N Not Be e Too L

• o Large,

Avo voiding L Long nger er Sales P Pro rograms ms Target F First-Time e Millen ennial Homeb ebuyer ers i s in n Select S t Submarkets ts Crea eate M e Mixed ed-Use se Build ildings to A Allo low for

• r H

Hig igh-Rise e Condo do Co Constr truction

MEGATREND FIVE

Battle of the Fittest – The Office Amenities War

V A C A N C Y R AT E

18. 18.5% 5% 15. 15.3% 3% 10. 10.3% 3%

6% 8% 10% 12% 14% 16% 18% 20% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 New Construction Class A - 2nd Generation Class B

Source: CoStar, Transwestern; February 2018.

OFFICE VACANCY RATE Washington Metro Area

26.8 Million SF

Source: CoStar, Transwestern; February 2018.

CLASS B/C OFFICE INVENTORY REMOVED Washington Metro Area | 2010 - 2020

DEMOLISHED TO NEW OFFICE

18%

CONVERTED TO ANOTHER PROPERTY TYPE RENOVATED TO CLASS A OFFICE

28% 54%

Source: Transwestern; February 2018.

OFFICE MARKET OPPORTUNITIES Washington Metro Area Success will go to assets with unique and above-average amenities and design:

Differ erentiate e Buildi ding ngs U Using ng Lobby S Space Make ke R Room for Cow

• wor
• rking,

, Lounges, a and Spec S Suites Ameni enitize w e with Unique que, T Tenant- Fo Focus used O d Offering ngs

Terrell Place, 575 7th Street, NW 80 M Street, SE

OFFICE MARKET OPPORTUNITIES Differentiate Buildings Using Lobby Space

Source: ESI Design, Slate, Columbia Property Trust; February 2018.

OFFICE MARKET OPPORTUNITIES Make Room for Coworking, Lounges, and Spec Suites

Source: MRP Realty; February 2018.

8614 Westwood Center Drive

OFFICE MARKET OPPORTUNITIES Make Room for Coworking, Lounges, and Spec Suites

Source: Boston Properties, Transwestern; February 2018.

Spec Suite: Metropolitan Square, 655 15th Street, NW 3.1 MONTHS OF DOWNTIME POST CONSTRUCTION TENANTS PAY A 3% PREMIUM AVERAGE SPEC SUITE (3,500 SF) ALIGNS WITH TENANTS IN THE MARKET

Market Square, 701/801 Pennsylvania Avenue, NW

OFFICE MARKET OPPORTUNITIES Amenitize with Unique, Tenant-Focused Offerings

Source: Blackstone Group; February 2018.

MEGATREND SIX

Barriers to Entry = Flex / Industrial Rent Spikes

Source: Federal Reserve Bank of St. Louis, Transwestern; February 2018.

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 E-Commerce Retail Sales Department Store Sales I N B I L L I O N S

RETAIL SALES United States

Source: CoStar, Amazon, Transwestern; February 2018.

1 2 3 4 5 6 7 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 L E A S E D S F I N M I L L I O N S

FLEX / INDUSTRIAL LEASED BY AMAZON Washington / Baltimore Region

Source: CoStar, RCA, Transwestern; February 2018.

$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 1998 to 2002 2003 to 2007 2008 to 2012 2013 to 2017 Last Mile Non-Last Mile A V E R A G E P R I C E P E R A C R E

INDUSTRIAL LAND SALES PRICE Washington / Baltimore Region

Source: CoStar, Transwestern; February 2018.

FLEX / INDUSTRIAL CONVERSION Washington / Baltimore Region | 2005 to 2020

29.9 Million SF

MULTIFAMILY OFFICE HOTEL RETAIL FLEX/INDUSTRIAL SELF STORAGE

10% 16% 7% 3% 1% 63%

Source: Transwestern; February 2018.

FLEX / INDUSTRIAL MARKET OPPORTUNITIES Washington / Baltimore Region

Select S t Submarkets ts with th the Be Best t Suppl ply/Demand nd Balanc nce Foc

• cus on
• n F

Fulf lfill llment a and Wareh ehouse S se Space

BUY / HOLD / SELL RECOMMENDATIONS United States | 2018

Source: Emerging Trends in Real Estate 2018 Survey, Transwestern; February 2018.

14. 14.2% 24. 24.2% 29. 29.8% 56. 56.8% 64. 64.4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Manufacturing Flex R&D Warehouse Fulfillment Buy Hold Sell S H A R E O F R E S P O N D E N T S

Source: Transwestern; February 2018.

• 0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%

Baltimore Metro Area - Non-Last Mile Baltimore Metro Area - Last Mile Northern Virginia - Non-Last Mile Suburban Maryland - Non-Last Mile Suburban Maryland - Last Mile District of Columbia - Last Mile Northern Virginia - Last Mile A N N U A L C H A N G E I N A S K I N G R E N T

FLEX / INDUSTRIAL ASKING RENT Washington / Baltimore Region | Through 2019

10-Year Historical Annual Growth 0.6% 2.1% 1.2%

• 1.1%
• 0.2%
• 0.9%
• 0.9%