U.S. Commercial Real EstateOverview and Outlook

U.S. Economic PerspectiveSince 2007 – The Height of the Last Cycle

25.5 Million

10.6 Million

12.2 Million

100 bps

3.2 Million

$6.2 Trillion

170 bps

140 bps

Increase in Population Since 2007

More Households Than 2007

More Jobs Than 2007

Decline of Unemployment Rate to 4.0%

More Job Openings Than 2007 (7.3M)

GDP Growth Since 2007 (2x UK Total)

Decline in Inflation Rate (PCE) to 1.7%

Decrease in 10-Yr. Treasury Yield to 2.7% Sources: Marcus & Millichap Research Services, BEA, BLS, U.S. Census Bureau, Federal Reserve

* Through January 2019Sources: Marcus & Millichap Research Services, BLS

-2.7

-1.8

-0.9

0.0

0.9

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Qua

rterly

Job

Gro

wth

(Mill

ions

)

+8.3 Million +20.9 Million*

-8.7 Million

100 Months of Continuous Gains*Monthly Average: 202,000 Jobs

Employment Growth Durable and Remarkably Stable

2017 Total: 2,153,0002018 Total: 2,674,0002019 Forecast: 2,000,000

National Employment Rank by MetroY-O-Y Absolute Change Through December 2018

Top 10Metros

Absolute Change

PercentChange

Dallas-Fort Worth 117,900 3.2%

Houston 111,100 3.6%

Phoenix 79,700 3.9%

Atlanta 69,900 2.5%

Seattle-Tacoma 67,200 3.3%

New York 67,100 1.5%

Chicago 59,000 1.3%

Los Angeles 55,500 1.2%

Philadelphia 54,400 1.9%

Washington, D.C. 54,300 1.6%

U.S. Total 2,674,000 1.8%

Bottom 10Metros

Absolute Change

PercentChange

Orange County -4,300 -0.3%

Milwaukee 6,400 0.7%

San Antonio 8,500 0.8%

Detroit 13,400 0.7%

Jacksonville 13,800 2.0%

Sacramento 15,900 1.6%

Kansas City 16,200 1.5%

Fort Lauderdale 16,500 2.0%

West Palm Beach 16,500 2.7%

St. Louis 18,700 1.4%

U.S. Total 2,674,000 1.8%

Sources: Marcus & Millichap Research Services, BLS

Impact of Tax Reform

Significant reduction of corporate and personal tax rate should spur investment and expansion = More Inflation Pressure

Key tax provisions critical to commercial real estate retained 1031 Exchange, Mortgage Interest Deduction, Depreciation

Pass-through entity 20% deduction increases after tax yield, could boost market liquidity

Reduced corporate taxes and accelerated depreciation could boost commercial real estate space demand

Unfavorable for residential housing and high-tax states

Opportunity Zone program has potential to bring influx of new investment capital to commercial real estate

There Are Risks – Despite Favorable Economic Backdrop

* Unemployed through January 2019; job openings through December 2018Sources: Marcus & Millichap Research Services, BLS

0

4

8

12

16

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18* 19*

Job Openings Unemployed

Job

Ope

ning

s/Un

empl

oyed

(Mill

ions

)U.S. Has More Job Openings Than People

Seeking Work – Challenge of Skills Mismatch

* Through March 06Sources: Marcus & Millichap Research Services, Federal Reserve

-500

-250

0

250

500

55 59 63 67 71 75 79 83 87 91 95 99 03 07 11 15 19*Spre

ad: 1

0yr N

ote

and

3mth

Bill

(Bps

)Long-Term Yield Spread –

An Indication of Recession?

Rece

ssio

ns

Exports: Major Force in the U.S. EconomyAs Measured by Contribution to GDP

0%

4%

8%

12%

16%

50 54 58 62 66 70 74 78 82 86 90 94 98 02 06 10 14 18

Con

tribu

tion

to G

DP

Long-Term Average: 7.0%

13.6%

Sources: Marcus & Millichap Research Services, BEA

Offsetting Strengths Hard to Ignore

Months

Expa

nsio

n C

ycle

Per

iods

Expansion Cycle Duration Percent Job Growth

Percent Growth

Average Average

* Through JanuarySources: Marcus & Millichap Research Services, BLS

Current Employment Expansion Cycle Longer Than Average But Still not Record-Setting

12

22

32

43

44

53

59

90

107

109117

0 35 70 105 140

1980 to 1981

1958 to 1960

1954 to 1957

1950 to 1953

1970 to 1974

2003 to 2008

1975 to 1980

1983 to 1990

2010 to 2019*

1961 to 1970

1991 to 2001

2%

6%

8%

9%

12%

16%

16%

19%

23%

24%

33%

0% 10% 20% 30% 40%

1980 to 1981

2003 to 2008

1958 to 1960

1954 to 1957

1970 to 1974

2010 to 2019*

1950 to 1953

1975 to 1980

1991 to 2001

1983 to 1990

1961 to 1970

* Corporate profits through 3Q; Fixed investment in equipment through 4Q** Trailing 12-month averageSources: Marcus & Millichap Research Services, BEA

Corporate Profits ElevatedInvestment Growth Positive

-40%

-20%

0%

20%

40%

$0

$150

$300

$450

$600

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18*

Corporate Profits** Fixed Invesment in Equipment

Y-O-Y C

hange in Investment

Cor

pora

te P

rofit

s ($

Bil.

)

+5.8%

U.S. Core Retail Sales Building SteadyMomentum - Growth Supporting Economy

Trailing 12-month average; adjusted for inflation using core PCECore retail sales excludes auto and gasoline salesSources: Marcus & Millichap Research Services, U.S. Census Bureau, BEA

$250

$280

$310

$340

$370

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Reta

il Sa

les

(Bil.

Dec

. 201

8 Do

llars

)

+17%

* Through March 06Sources: Marcus & Millichap Research Services, Federal Reserve

0%

4%

8%

12%

16%

1875 1887 1899 1911 1923 1935 1947 1959 1971 1983 1995 2007 2019*

10-Y

ear T

reas

ury

Rate

Long-Term 10-Year Treasury Trends

0.0

0.5

1.0

1.5

2.0

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19*

Single-Family Completions Multifamily Completions Household Growth

Com

plet

ions

/Hou

seho

ld G

row

th (M

il.)

Housing Market Provides Solid Economic Support Due to Drop in New Construction

* ForecastTrailing 24-month average for household growthSources: Marcus & Millichap Research Services, U.S. Census Bureau, RealPage, Inc.

2000-2007 Oversupply: 2.6M2008-2019* Undersupply: 2.0M

0%

5%

10%

15%

20%

* ForecastSources: Marcus & Millichap Research Services, RealPage, Inc., CoStar Group, Inc., STR, Inc., Union Realtime LLC, NIC MAP® Data Service

Vaca

ncy

Rate

Apartment

U.S. Commercial Real Estate: Healthy Supply/Demand Despite 9th Year of Recovery

Retail Office Industrial

4.7% 4.7%

13.3%

4.5%

0%

25%

50%

75%

100%

Occ

upan

cy R

ate

Seniors Housing HotelSelf-Storage

10.3%

88.5%

66.5%

$0

$40

$80

$120

$160

$0

$75

$150

$225

$300

Includes sales $1 million and greater; $2.5 million and greater for hotels; ST=Single Tenant; MT=Multi-TenantSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Avg

. Pric

e pe

r Uni

t (00

0s)

Apartment

U.S. Average Price Trends

ST-RetailSeniors Housing

Self-Storage

Avg

. Pric

e pe

r Sq.

Ft.

Industrial

+45%

+23%

+11%

+10%

+25%

+12%

MT-Retail OfficeHotel

+52%

+23%

0%

2%

4%

6%

8%

U.S. CREYield

U.S.Treasury

S&P 500Dividend

CanadianTreasury

UK Treasury FrenchTreasury

GermanTreasury

JapaneseTreasury

As of March 06, 2019Treasury rates for 10-year treasuriesApartment yield (cap rate) includes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Standard & Poor’s, Federal Reserve

Ave

rage

Yie

ld (C

ap R

ate)

U.S. Commercial Real Estate Offers Competitive Yields Compared to Alternatives

Ave

rage

Rat

e

* Through DecemberIncludes apartment, retail, office, and industrial sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve

430 bps

480 bps 480 bps200 bps

580 bps 350 bps

Commercial Real Estate Avg. Yield vs10-Year Treasury – Spread Indicates “Buy” Window

440 bps

0%

3%

6%

9%

12%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18*

Average Cap Rate 10-Year Treasury

* Estimate** As of 2016; allocations for Fortune 1000 pension plans; other category includes hedge funds, derivatives, and interest rate swaps; cash category includes cash equivalents and money market instruments; debt category includes insurance instrumentsSources: Marcus & Millichap Research Services, Cornell/Hodes Weill Allocations Monitor, Willis Towers Watson

Debt 44.4%

Equity 41.2%

Other 7.9%

Real Estate 3.3% Cash 3.2%

Debt Equity Other Real Estate Cash

Real Estate Has Become Mainstream Investment Vehicle for Institutions, But Still Under-Allocated

Institutional Target Allocations to Real Estate U.S. Pension Funds Asset Allocations**

$22.5 Trillion8.9%

9.3%

9.6%

9.9%10.1%

10.3%

13 14 15 16 17 18*

Real Estate Under-Allocated by Private InvestorsPercent of Households Holding Assets High-Probability Target Market

64.8%

20.0%

8.0% 7.5%

PrimaryResidence

Stocks Other RealEstate

RentalProperty

Homeownership rate as of 4Q 2018; other data as of 2013Sources: Marcus & Millichap Research Services, U.S. Census Bureau

23.9%

10.7%

25.5%

11.4%

Net Worth $500K+ Net Worth $250K-$500K

Rental Property Other Real Estate

(21.5M Households) (15.5M Households)

$1M-$10M 32%

$10M-$20M 14%

$20M+ 54%

$1M-$10M $10M-$20M $20M+

As of 2018Includes apartment, retail, office, and industrial sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Commercial Real Estate Sales by Price TrancheMove-Up Equity from Private Investors a Key Driver

Sales Dollar Volume

$1M-$10M 84%$10M-$20M 8%

$20M+ 8%

$1M-$10M $10M-$20M $20M+

$448 Billion56,200 Deals

Navigating the Zones: Pain vs. OpportunityA Time of Profound Change

Demographic Trends Provide Triple-Wave of Opportunity

* ForecastSources: Marcus & Millichap Research Services, U.S. Census Bureau, Moody’s Analytics

40

60

80

100

120

08 12 16 20* 24* 28* 08 12 16 20* 24* 28* 08 12 16 20* 24* 28*

10-Year Forecast-966 Thousand

10-Year Forecast6.6 Million

10-Year Forecast14.8 Million

20 to 34 Year Olds 35 to 55 Year Olds 55+ Year Olds

Popu

latio

n (M

illio

ns)

Wealth Transfer, Quest For Yield = CRE Capital Flows U.S. 2019 Population by Age

Sources: Marcus & Millichap Research Services, U.S. Census Bureau

3.0

3.5

4.0

4.5

5.0

18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64

Popu

latio

n (M

illio

ns)

Age

$$$$68+ Trillion Wealth Transfer Over the Next 25 Years

$0

$16

$32

$48

$64

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Grocery Stores Bars and Restaurants

Consumers Spend More on Dining Out Than on Groceries

Tota

l Sal

es (B

illio

ns)

Sources: Marcus & Millichap Research Services, U.S. Census Bureau, “Outlook on the Millennial Consumer 2014” report, The Heartman Group, Pew Research, Morgan Stanley

Eat Out at Least Once Per Week:

35%

43%

49%

Boomers

Gen X

Millennials

Aging Baby Boomers Seeking Yield Boost CRE Investment - Single-Tenant Deals a Good Proxy

Includes sales $1 million and greaterSources: Marcus & Millichap Research Services, U.S. Census Bureau, CoStar Group, Inc., Real Capital Analytics

60

70

80

90

100

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Popu

latio

n (M

illio

ns)

55+ Year Olds

0

3

6

9

12

03040506070809101112131415161718

Tran

sact

ion

Act

ivity

(000

s)

Single-Tenant Transactions

+60%

10-Year Forecast+14.8 Million

Includes apartment, retail, office, and industrial sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Ave

rage

Cap

Rat

eCommercial Real Estate

Cap Rate Trends by Market Type

5%

6%

7%

8%

9%

10%

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Primary Secondary Tertiary

60 bps220 bps

130 bps

U.S. Commercial Real EstateOverview and Outlook