THIS IS YOUR PRESENTATION TITLE

CRE MARKET UPDATEDDD Boston

By: Dianne Crocker, Principal AnalystEDR InsightNovember 16, 2016

SURVEY44% characterize Boston as a growing market.

Your commentary on the Boston due diligence market:Steady and extremely competitive.Active and opportunistic, yet prudent environmental due diligence is valued in transactions.Up and down Seems to be leveling out a bit based on past years

US Economy and CRE2016 looks much like it did in 2015with somewhat less impressive numbers

CRE TRANSACTIONS: Small Is BigRate of growth is tapering off.Fewer portfolios hurt large cap deals but individual deals up 2% YonY.Secondary metros in vogue

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3QYTD Fastest-Growing Metros: Phase I ESAs2016 RankMetroVolume YonY Growth1San Antonio, TX1,43019%2Nashville, TN1,51612%3Milwaukee, WI1,02512%4Austin, TX1,14610%5Raleigh, NC1,63810%6Portland, OR2,365 8%7Oklahoma City, OK 857 8%8Denver, CO2,207 5%9St. Louis, MO1,535 5%10Boston, MA5,758 3%

Investors are looking to smaller, up-and-coming cities that still offer good values. Cities like Austin, San Antonio, Raleigh and Portland. ~Ryan Severino, REIS at PRISM 16

3QYTD Most Active Metros: CRE Deals2016 RankMetroVolume (M$)YonY Growth1NYC$31,217-18%2LA$19,587 5%3Chicago$13,579- 8%4Dallas$13,213- 1%5Atlanta$11,370- 6%6Boston$10,57718%7Seattle$ 9,627-16%8Denver$ 8,940 40%9San Francisco$ 8,643-16%10NYC Boroughs$ 8,592- 7%

Trends Working in Bostons FavorTop spot for foreign investment in the U.S.Boston ranks 12th in the U.S. for investment/development in 20176th most promising office marketRanked as most promising hotel marketIn a knowledge-based economy, investors really like to stay in the brain hub markets like Boston. Growing industries such as technology, financial, and health care services are the key job creators in Boston. Strong draw for corporate relocations

in Bostons Favor

Boston is ranked #1 for growth in New England regionMajor port and metro distribution markets, including South Bay/Los Angeles, the Inland Empire, Chicago/OHare, Boston, the San Francisco Bay area, and northern New Jersey, are at the top end of the industrial stack. Properties in these markets are highly coveted, even in a downturn.

Data Centers: A New Class of CREUp 14.6% over 201523 states now have incentives specifically to attract data centersOld properties are being retrofitted as data centersCore markets: Northern Virginia outside DCSilicon Valley ChicagoOutside Dallas

Warehouses-An Explosive Asset ClassOnce-familiar stores have been closing at their fastest rate since 2010 Triggered a major data/warehouse boom in CREAmazon is the heavyweight, accounts for over 50% of fulfillment centersTraditional retailers voraciously adding more warehouse space to accommodate online business:Home DepotWalmart Macy's Will boost annual demand for industrial space by 20 percent in the next few years

Its at this stage of the cycle that we also see strong loan growth combined with easing underwriting to result in increased credit risk.~Thomas Curry, U.S. Comptroller of the Currency

Pullback in CMBSShifting sand in lending sourcesCaution rulesLENDING CLIMATE in 2016

A significant net fraction of banks reported tightening standards for construction and land development loans and loans secured by multifamily residential properties." ~Federal Reserve Survey for 3rd quarter 2016Banks Tightening Standards

CMBS: Tough Market to LoveMid-year issuance was $37BCY2016 forecast: $70B (vs. $97B in 15)Recover to $80B in 2017

Top Lenders1. Wells Fargo2. JP Morgan3. Citigroup4. CBRE5. Deutsche Bank6. Morgan Stanley7. Bank of America8. Met Life9. Walker Dunlop10. Goldman Sachs

1H1611. Berkadia12. Key Corp.13. PGM Real Estate14. Capital One15. Berkeley Point16. PNC17. US Bancorp18. NY Community Bank19. Signature Bank20. Bank of China

Who Are the Top Lenders This Year?

NREIs October survey:- 53 percent expect underwriting standards to tighten over the next 12 months- Only 7 percent loosen

3.40Risk aversion of your LENDER clients?

1= very tolerant of red flags 5 = very risk averse

How risk-averse are your LENDER clients?

2.93

How risk-averse are your INVESTOR clients?

Risk aversion of your INVESTOR clients?

1= very tolerant of red flags 5 = very risk averse

2.The Phase I ESA Marketin the context of CRE market trends

Progressing Along Long Top of Recovery

MASSACHUSETTS: Phase I ESA Trend Line

MA volume up 5% in 2016

Area Metros in U.S. Top 50

MORE TECHNOLOGY

MORE PRESSURETHE ERA OF NOWEfficiency Is the Name of the Game3.

Pressures on efficiency in the lending sector are all moving in the same direction. How can you conduct underwriting faster and cheaper, and yet better than in the past? Technology and using data in new ways will be part of the solution.

~Michael Berman, former CEO of CW Capital and past Chairman of the Mortgage Bankers Association

Your Top Challenges

Name the top 3 challenges you face in today's market.

INTENSE COMPETITION

Name the top 3 challenges you face in today's market:

INTENSE COMPETITIONFINDING NEW BUSINESS

Name the top 3 challenges you face in today's market:

INTENSE COMPETITIONFINDING NEW BUSINESS PRICING PRESSURE

How sensitive are your clients to price in selecting a Phase I ESA provider?

How sensitive are your clients to price in selecting a Phase I ESA provider? One out of three respondents picked 5.

The Boston market is very cost-driven.

How sensitive are your clients to TAT in selecting a Phase I ESA provider?

How sensitive are your clients to TAT in selecting a Phase I ESA provider?

4.Market Forecastpreparing for the next phase

NEAR-TERM FORECAST:Transactions to decline over next 2 years

NEAR-TERM FORECASTForeign investment: what makes US markets attractive to foreign investors also appeals to domestic investors.Capital likely to be plentiful for real estate companies taking on new projects.High activity in growing secondary markets like Denver, Seattle and Austin.Interest rates will creep up slowly.Modest CRE lending growth (3%), strong competitionInvestors are recalibrating their expectations. Property transactions market unlikely to suffer as long as core fundamentals remain strong.

Investors are growing cautious about the longevity of the current expansion cycle and, as a result, are taking steps to de-risk their portfolios.

On a scale of 1-5, what is your outlook for the Boston due diligence market just one year from now?

1 = Very pessimistic 5 = Very confident2.8MARKET OUTLOOK