CMBS Market Trends and Outlook

Presentation to CREW CT -- REX

Thomas A. Fink Senior Vice President March 23, 2011

CMBS Background

Parties in a CMBS Deal

Issuer: Owns the loans and owes the bonds Master Servicer: Collects loan payments and manages reporting Special Servicer: Deals with troubled assets Trustee: Represents investors and handles cash for the bonds B-Piece Investor: Owns riskiest CMBS bonds and has consultation rights Senior Investor: Owns the AAA bonds
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Data Reporting Structure

Idealized Data Flow Borrowers Borrowers Borrowers

Subservicer Master Servicer Special Servicer Investor Reports Trepp Investors Investors Investors
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Trustee

CMBS Market Trends

CMBS Market Trends

CMBS Secondary Market Spreads Balance Sheet Lender Spreads CMBS Primary Market

Spread (bps 1,000 1,200 1,400 1,600 200 400 600 800 7/2/2007 9/2/2007 11/2/2007 1/2/2008 3/2/2008 5/2/2008 7/2/2008 9/2/2008 11/2/2008 1/2/2009 3/2/2009 5/2/2009 7/2/2009 9/2/2009 11/2/2009 1/2/2010 3/2/2010 5/2/2010 7/2/2010 9/2/2010 11/2/2010 1/2/2011 Pricing D ate

U.S. CMBS Secondary Market Spreads

CMBS Cash Spreads H ave Stabilized

AAA 5Yr AAA 10Yr

Source: Trepp, LLC

Spreads for New Commercial Real Estate Loans

Rates for New CRE Loans Have Dropped

Trepp Real Estate Portfolio Pricing Index (TREPP-i)*
600

550

500

450 S re d (b s p a p

400

350

300

250

200

150 3 /2 0 /7 0 8 5 /2 0 /7 0 8 7 /2 0 /7 0 8 9 /2 0 /7 0 8 1 /2 0 /7 0 9 3 /2 0 /7 0 9 5 /2 0 /7 0 9 7 /2 0 /7 0 9 9 /2 0 /7 0 9 1 /2 1 /7 0 0 3 /2 1 /7 0 0 5 /2 1 /7 0 0 7 /2 1 /7 0 0 9 /2 1 /7 0 0 1 /7 0 8 1 /2 0 1 /7 0 9 1 /2 0 1 /7 0 0 1 /2 1 1 /2 1 /7 0 1

W eek E nding Industrial M F ily ulti am O ffice R etail

*Compiled from a survey of institutional lenders. Indicative Spreads for Commercial Real Estate Loans vs. Treasury (50-59% Leverage, Amortizing, 10 year, fixed rate) Source: Trepp, LLC

Increasing Leverage from Balance Sheet Lenders

Trepp-i Results for 3/11/2011 Show More Tolerance for Leverage

Than Trepp-i Results for January 2, 2009

Property Type Multi Family <50% Amortizing IO Amortizing IO Amortizing IO Amortizing IO 546 564 546 50%-59% 564 LTV Range 60%- 65% 66%-70% 71%-75% >75%

Office

559

576

Retail

Industrial/Warehouse

CMBS Primary Market Activity for 2010

$5.7 billion in Conduit

(8 deals)

$7.0 billion in Single Borrower / Single Asset

(8 deals)

$6.4 billion in Freddie Mac

(6 deals)

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Source: Trepp, LLC

CMBS 2.0

Back to the Future Addressing Risk

Increased subordination levels Lower Loan to Value Higher Debt Service Coverage More amortization Certificate Administrator Operating Advisor Excess Fee Reserves Voting Rights
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Source: Trepp, LLC

The New New Thing Addressing Conflicts

Loan Performance in Outstanding CMBS

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U.S. CMBS Collateral Performance Deteriorates across all Metrics

100,000 90,000 80,000 70,000

180,000

160,000

140,000

120,000 Volum e ($m il Volum e ($m il 60,000 100,000 50,000 80,000 40,000 60,000 30,000 20,000 10,000 200801 200804 200807 200810 200901 200904 200907 200910 201001 201004 201007 201010 201101 40,000

20,000

Special Servicer $ (Left axis)

Delinquent $ (Left axis)

Watchlist $ (Right axis)

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Source: Trepp, LLC

U.S. CMBS Delinquency Rates: Significance of Regional Variation

5.67% 7.44% 17.39% 7.32% 10.46% 8.73

12.23 9.64%

9.90%

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Source: Trepp, LLC

Middle Atlantic and New England CMBS Delinquency Rates

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Source: Trepp, LLC

Growth in Defaults
Cumulative N ew D efaults Since January 1, 2009 (60+ D ays Since Last Payment)

9000 8000 7000 6000 5000 4000 3000 2000 1000 0 200901 200902 200903 200904 200905 200906 200907 200908 200909 200910 200911 200912 201001 201002 201003 201004 201005 201006 201007 201008 201009 201010 201011 201012 201101 201102 443 660 951 8110 7804 7508 7198 6929 6633 6317 6020 5732 5426 5075 4688 4351 3969 3558 3168 2819 2520 2188 1894 1589 1301 225

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Source: Trepp, LLC

Increased Backlog of Matured Loans

Refinancing Backlog of Matured CMBS Loans (Hard Maturities Only)

2,000 1,800 1,600 1,400 Balance ($mi 1,200 1,000 800 600 400 200 -

11 /1 /2 00 9 12 /1 /2 00 9

9/ 1/ 20 10 10 /1 /2 01 0 11 /1 /2 01 0 12 /1 /2 01 0

Month Matured

1/ 1/ 20 11

1/ 1/ 20 10

2/ 1/ 20 10

3/ 1/ 20 10

4/ 1/ 20 10

5/ 1/ 20 10

6/ 1/ 20 10

7/ 1/ 20 10

8/ 1/ 20 10

2/ 1/ 20 11

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Source: Trepp, LLC

Cumulative Size of Matured Loan Backlog

Cumulative Refinancing Backlog (Hard Maturities Only)

18,000

16,222
16,000 14,000 12,000 Balance ($mi 10,000

14,413 13,324 12,553 11,512 10,703 9,461 8,329 7,333 6,260 5,185 3,518 2,877 1,624 4,058

8,000 6,000 4,000 2,000 1,021 -

11 /1 /2 00 9 12 /1 /2 00 9 1/ 1/ 20 10 2/ 1/ 20 10 3/ 1/ 20 10 4/ 1/ 20 10 5/ 1/ 20 10 6/ 1/ 20 10 7/ 1/ 20 10 8/ 1/ 20 10 9/ 1/ 20 10 10 /1 /2 01 0 11 /1 /2 01 0 12 /1 /2 01 0 1/ 1/ 20 11 2/ 1/ 20 11

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Source: Trepp, LLC

Fixed Rate US Conduit Loan Modifications Cumulative since January, 2010

Types of Loan Modification

Loan Modification Type Maturity Date Extension Other/Unknown Amortization Change Combination Temporary Rate Reduction Principal Write-Off Loan Balance Modified 7,420,606,926 3,761,716,023 3,170,685,471 5,080,056,452 696,674,226 219,423,063 20,349,162,162 % of Total 36.5% 18.5% 15.6% 25.0% 3.4% 1.1% 100.0%

Modification by Property Type

Property Type RT Other* OF MF LO IN Loan Balance Modified 9,092,8976,085 2,819,243,268 4,624,241,154 2,022,893,596 1,414,664,156 373,590,608 20,347,508,866 % of Total 44.7% 13.9% 22.7% 9.9% 7.0% 1.8% 100.0%

Note: $1.9 billion of Other was Mixed Use property type; primarily the result of the Ala Moana loan modification in Feb 2010.

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Source: Trepp, LLC

Fixed Rate US Conduit Loan Dispositions

Loss severity is more severe than first glance

Loss Severity Stripping Out Losses < 2% of Balance* 56.16 62.55 51.57 58.68 60.40 59.54 61.49 62.59 71.04 54.04 53.20 59.25 45.61 47.70

Date
10-Jan 10-Feb 10-Mar 10-Apr 10-May 10-Jun 10-Jul 10-Aug 10-Sep 10-Oct 10-Nov 10-Dec 11-Jan 11-Feb

Loss Severity All Loans 35.81 25.73 28.84 40.67 42.62 36.39 46.16 39.62 29.44 20.63 25.02 45.71 31.39 24.06

Date
10-Jan 10-Feb 10-Mar 10-Apr 10-May 10-Jun 10-Jul 10-Aug 10-Sep 10-Oct 10-Nov 10-Dec 11-Jan 11-Feb

Total

33.74

Total

56.57

*Notes relating to the adjusted loss severity Over the course of the year, a number of large loans paid off, but the special servicer fees on the loan led to small losses on the loans. Stripping out these loans shows both a jump in the average loss severity and a more consistent monthly observation.

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Source: Trepp, LLC

Property Performance in Outstanding CMBS

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Commercial Real Estate Values

Moodys/REAL CPPI vs. NAREIT Price Index

Index, 12/2005 = 100

Peak to Current: -41% (CPPI) -37% (NAREIT)

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Sources: MIT CRE, NAREIT, Foresight Analytics

Commercial Real Estate Bear Markets

Major Value Decline Prospect is a Long Recovery

Period 1929 to 1933 1941 to 1943 1989 to 1993 1999 to 2002 2007 to Present

Decline -44% -42% -32% -4% REITs: -37% Direct: -41%

Duration 4 years 2 years 4 years 3 years 3 years

Time to Recover 8 years 2 years 10 years 2 years ????

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Sources: Foresight Analytics, Moodys, NCREIF, Bureau of Economic Analysis

Measuring Property Performance

Can the property pay the mortgage? Measured by Debt Service Coverage Ratio
DSCR = (Net Cash Flow) / (Mortgage Payments) or DSCR = (Net Operating Income) / (Mortgage Payments)

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Debt Service Coverage Ratio Rebounding Credit

Securitization DSCR Declined thru the Boom On the Rise with Stricter Lending Standards
Prop Type / Origination Year Lodging Multifamily Office Retail 2005 2.12x 1.46x 1.63x 1.62x 2006 1.98x 1.40x 1.50x 1.44x 2007 1.71x 1.30x 1.42x 1.36x 2008 1.49x 1.37x 1.37x 1.30x 2009 1.96x 2.49x 2010 2.12x 2.66x

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Source: Trepp, LLC

2011 and Into the Future

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Additional Demands of Maturing CMBS Loans

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Source: Trepp, LLC

Aggregate Commercial and Multifamily Mortgage Maturities

Loan Maturity by Year

$400 $350 $300 $250 ($Bil. $200 $150 $100 $50 $0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Commercial

Multifamily

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Source: Foresight Analytics

Underwater Mortgages
by Maturity Year $ Billions

400 350 300 250 200 150 100 50 0 2011 2012 2013 2014 2015
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Source: Trepp, LLC

LTV > 100%

LTV < 100%

Looking Forward

Dodd Frank FDIC Proposals SEC Proposals New lending platforms Covered Bonds

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Introduction to Trepp, LLC

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about Trepp, LLC

Trepp is the leading provider of analytics, information and technology to the global CMBS and commercial mortgage finance industry Foresight Analytics is a division of Trepp 30 year history in structured finance with a focus on CMBS the past 15 years Headquartered in New York City with offices in San Francisco and London Deal coverage includes North American, European, and Asian CMBS as well as Commercial Real Estate backed CDOs Largest commercially available database containing detailed information on over 1800 deals and more than 100,000 loans which support close to $800 billion in securities Trepp is a wholly-owned subsidiary of DMG Information, which is a part of the Daily Mail Group, a multi-billion pound media company in Britain.

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our Clients

Institutional Investors

Banks
Trading Research Risk Management Surveillance Portfolio Mgmt. Origination

Broker/Dealers

Rating Agencies Other Third-party partners

Insurance Companies

Over 700 firms worldwide rely on Trepp data and analytics

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