Will 2016 Be the Last Hurrah for Commercial Real Estate? Presented By: John Chang First Vice-President Marcus & Millichap Research Services

Will 2016 Be the Last Hurrah for Commercial Real Estate? Presented By: John Chang First Vice-President Marcus & Millichap Research Services

Rising Uncertainty Creating Headwinds for Commercial Real Estate

Expansion Periods (Months) Current Expansion Longer Than Average Growth Cycle Is the End Near? 120 90 60 Average: 58 Months 30 0 1945-1948 1949-1953 1954-1957 1958-1960 1961-1969 1970-1973 1975-1980 1980-1981 1982-1990 1991-2001 2001-2007 2009-Current* * Through March 2016, 82 Months Sources: Marcus & Millichap Research Services, National Bureau of Economic Research

Annualized Quarterly Percent Change U.S. GDP Enters Seventh Year of Growth; 2016 Outlook Positive but Still Choppy GDP Growth Consumer Confidence 10% 140 5% 0% -5% -10% 2001 2002 * Through 1Q Sources: Marcus & Millichap Research Services, BEA, The Conference Board 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 105 70 35 0 Consumer Confidence Index

Price per Barrel (Mar. 2016 Dollars) Inflation-Adjusted Crude Oil Prices Tumble Good for Consumers, but Risks Reemerge $160 Annual Gas Savings per Driver: $540 Arab Spring $120 $80 Iraq Invaded Kuwait Long-Term Average: $54.23 $40 Great Recession $0 Asian Financial Crisis Invasion of Iraq 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016* * Through April 22, 2016 ** Since 2014 trough Oil prices for West Texas Intermediate crude Sources: Marcus & Millichap Research Services, Oil Price Information Service, BLS, Federal Reserve

Dollar Volume (Bil.) Bay Area Venture Capital Steps Back But Still Elevated by Long-Term Measures $10.0 Dollar Volume Deals 600 $7.5 $5.0 $2.5 $0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* * Through 1Q Sources: Marcus & Millichap Research Services, PwC/NVCA Money Tree Report, Thomson Reuters 450 300 150 0 Number of Deals

Dow Jones Index International Forces Collide with Wall Street Stock Prices Increasingly Volatile 19,000 18,000 Dow Jones Fell 1954 Points (11.0%) in 14 Days 17,000 16,000 Dow Jones Fell 1879 Points (10.7%) in 5 Days 15,000 2014 2015 2016* * Through April 22, 2016 Sources: Marcus & Millichap Research Services, Dow Jones

Economic Momentum Still Has Strength

Quarterly Job Growth (Millions) Employment Growth Durable and Remarkably Stable 0.9 0.0-0.9-8.7 Million +8.2 Million +14.0 Million* -1.8-2.7 2015 Total: 2,744,000 2016 Forecast: 2,500,000 66 Months of Continuous Gains Monthly Average: 203,000 Jobs 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* * Through 1Q Sources: Marcus & Millichap Research Services, BLS, economy.com

National Employment Rank by Metro Y-O-Y Percent Change Through March 2016 Top 10 Metros Absolute Change Percent Change Bottom 10 Metros Absolute Change Percent Change San Francisco 44,000 4.3% Orlando 47,900 4.2% Austin 39,600 4.2% Dallas-Fort Worth 128,500 3.8% Salt Lake City 40,900 3.6% Nashville 32,300 3.6% San Jose 36,100 3.5% Jacksonville 22,500 3.5% Phoenix 65,600 3.5% Portland 36,800 3.3% U.S. Total 2,802,000 2.0% Houston 10,400 0.3% Cleveland 9,500 0.9% Indianapolis 12,100 1.2% Kansas City 13,300 1.3% Northern New Jersey 27,200 1.3% Milwaukee 11,800 1.4% St. Louis 22,300 1.7% Minneapolis 34,100 1.8% Miami 20,300 1.8% Chicago 85,400 1.9% U.S. Total 2,802,000 2.0% Oakland: (25,400, 2.3%) Sources: Marcus & Millichap Research Services, BLS

Recession Year-Over-Year Change Retail Sales (Billions) U.S. Core Retail Sales Building Steady Momentum - Growth Supporting Economy 8% 20-Year Average: 4.1% $350 $1,001/person 4% $310 +23% 0% $270 $866/person -4% $230 07 08 09 10 11 12 13 14 15-8% 16* $190 02 04 06 08 10 12 14 16* * Through March Core retail sales excludes auto and gasoline sales Sources: Marcus & Millichap Research Services, U.S. Census Bureau

Median Price (000s) Home Sales (000s) Single-Family Prices Exceed Prior Peak; Home Sales Maintain Momentum Median Home Prices Existing Home Sales $250 Single-Family Condo Y-O-Y Change 650 Single-Family and Condo $225 +6% +4% 550 Y-O-Y Change $200 450 +2% $175 350 $150 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 250 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* * Through March Sources: Marcus & Millichap Research Services, National Association of Realtors

Unique Dynamics Restraining Interest Rates U.S. 10-Year Treasury Yield Sources: Marcus & Millichap Research Services, Federal Reserve Board

Rate Inflation Risk Edging Higher 10-Year Treasury Range-Bound Core Inflation 10-Year Treasury 8% 6% 10-Year Treasury Long-Term Average: 4.13% 4% 2% 0% Core Inflation Long-Term Average: 2.06% 1996 2001 2006 2011 2016* * 10-Year treasury through April 20, 2016; Core inflation through March 2016 Sources: Marcus & Millichap Research Services, Federal Reserve, BLS

Positive Demographics Support Growth Outlook

Millennials: Diverse, Educated, Digital Dramatically Influencing All Real Estate 80 Million Millennials- Same as Population of Germany 10,000 Turn 21 Each Day Comprise 1 in 3 Workers $2.5T Spending Power 85% Own Smart Phones Most Educated Generation

Population (Millions) Millennials Cornerstone of Economic Outlook U.S. 2016 Population by Age 5.0 66.3 Million 20-34 Year Old 5-Year Growth: 1,400,000 23 Million Living With Parents Millennial Propensity to Rent* 68% 4.5 4.0 18 20 22 24 26 28 30 32 34 36 38 3.5 3.0 40 42 44 46 48 50 52 54 56 58 60 62 64 Age * As of 2014 Note: Total Baby Boomer Population 75 million. Total Millennial Population 80 million Sources: Marcus & Millichap Research Services, U.S. Census Bureau

Millennials: 23 Million Young Adults Untapped Potential

Apartment Investments Surpass Expectations Construction Rising

Completions (000s of Units) Apartment Construction Elevated but Demand Keeping Pace 300 Completions Vacancy Rate 10% 240 180 120 60 8% 6% 4% 2% Average Vacancy Rate 0 93 9495 96 9798 99 0001 02 0304 05 0607 08 0910 11 1213 14 1516* 0% * Forecast Sources: Marcus & Millichap Research Services, MPF Research

Average Vacancy Rate Bay Area Apartment Vacancy Rate Trends 12% 9% 6% 2004-2013 2014 2015 2016* 2016 Vacancy* San Francisco: 3.6% San Jose: 3.7% Oakland: 3.1% U.S.: 4.2% 3% 0% San Francisco San Jose Oakland U.S. * Forecast Sources: Marcus & Millichap Research Services, MPF Research

Y-O-Y Percent Change Bay Area Apartment Effective Rent Growth Outpacing Strong National Performance 15% Bay Area United States 10% 5% 0% -5% -10% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* * Forecast Bay Area includes San Francisco, San Jose, and Oakland Sources: Marcus & Millichap Research Services, MPF Research,

Total Transactions (000s) U.S. Apartment Investment Transaction Growth Pace Moderating in 2016 $1M-$10M $10M-$20M $20M+ 16 12 8 4 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16* * Preliminary estimate for trailing 12-months through 1Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Average Price per Unit (000s) Dramatic Apartment Appreciation Supported by Performance Gains $400 2004-2013 2014 2015 +39% $300 +29% +22% $200 +31% $100 $0 San Francisco San Jose Oakland U.S. Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Average Cap Rate Apartment Cap Rates Tightened Dramatically Yields Likely to Flatten 9.0% Bay Area United States 7.5% 200 bps 140 bps 6.0% 30 bps 90 bps 4.5% 3.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Includes sales $1 million and greater Bay Area includes San Francisco, San Jose, and Oakland Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Office Investments Mount Slower Recovery, but Momentum Building

Completions (Mil. of Sq. Ft.) Office Construction Limited but Rising Supports Office Sector Recovery 160 Completions Vacancy Rate 20% 120 80 40 18% 16% 14% Average Vacancy Rate 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16* 12% * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

Average Vacancy Rate Bay Area Office Vacancy Among Tightest in the Country 32% 24% 2007-2013 2014 2015 2016* 2016 Vacancy* San Francisco: 8.6% San Jose: 8.1% Oakland: 9.9% U.S.: 14.8% 16% 8% 0% San Francisco San Jose Oakland U.S. * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

Y-O-Y Percent Change Bay Area Office Demand Supporting Outsized Asking Rent Growth 15.0% Bay Area United States 7.5% 0.0% -7.5% -15.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016* * Forecast Bay Area includes San Francisco, San Jose, and Oakland Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

Total Transactions (000s) U.S. Office Transaction Velocity Elevated but Likely to Flatten $1M-$10M $10M-$20M $20M+ 10 8 5 3 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16* * Trailing 12-months through 1Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Average Price per Sq. Ft. Bay Area Office Pricing Achieving Dramatic Increases $500 +10% 2004-2013 2014 2015 $375 +24% $250-15% -5% $125 $0 San Francisco San Jose Oakland U.S. Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Average Cap Rate Office Cap Rate Still Higher Than Last Cycle 10.0% Bay Area United States 80 bps 8.5% 7.0% 5.5% 4.0% 2000 Includes sales $1 million and greater Bay Area includes San Francisco, San Jose, and Oakland Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics 180 bps 150 bps 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Industrial Sector Being Reinvented New Drivers Spark Big Changes

Trillions of Dollars Strong Dollar Pressuring U.S. Exports but Import Containers Rising on Purchasing Power $6.0 Imports Exports $4.5 $3.0 $1.5 $0.0 Sources: Marcus & Millichap Research Services, BEA, IHS Maritime & Trade 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Monthly ecommerce Sales (Billions) ecommerce Reshaping Industrial Investments; Internet Retailers Focus on Proximity $40 ecommerce now 11.4% of Total Retail $30 $20 $10 $0 1993 1994 1995 * Through February Sources: Marcus & Millichap Research Services, U.S. Census Bureau 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Completions (Mil. of Sq. Ft.) Industrial Construction Still Short of Last Cycle; Facilitates Record Vacancy Levels 300 Completions Vacancy Rate 12% 225 150 75 10% 8% 6% Average Vacancy Rate 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16* 4% * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

Average Vacancy Rate Bay Area Industrial Vacancy Rates Exceptionally Tight 20% 15% 2007-2013 2014 2015 2016* 2016 Vacancy* San Francisco: 3.7% San Jose: 7.0% Oakland: 4.8% U.S.: 6.0% 10% 5% 0% San Francisco San Jose Oakland U.S. * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

Y-O-Y Percent Change Bay Area vs. U.S. Industrial Average Asking Rent Growth Trends 20% Bay Area United States 10% 0% -10% -20% 2008 2009 2010 2011 2012 2013 2014 2015 2016* * Forecast Bay Area includes San Francisco, San Jose, and Oakland Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

Total Transactions (000s) U.S. Industrial Investment Activity Elevated Trends Point to Flattening Growth Pace $1M-$10M $10M-$20M $20M+ 14.0 10.5 7.0 3.5 0.0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16* * Trailing 12-months through 1Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Average Price per Sq. Ft. Bay Area Industrial Pricing Elevated, Oakland Getting a Boost $320 2004-2013 2014 2015 +36% $240 +33% $160-4% $80 +4% $0 San Francisco San Jose Oakland U.S. Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Average Cap Rate Bay Area Industrial Cap Rates Break Through Peak of Last Cycle 12% Bay Area United States 10% 120 bps 40 bps 8% 120 bps 190 bps 6% 4% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Includes sales $1 million and greater Bay Area includes San Francisco, San Jose, and Oakland Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics

Will 2016 Be the Last Hurrah for Commercial Real Estate?

Average Rate 580 bps 460 bps 430 bps 480 bps 480 bps 440 bps Commercial Real Estate Yields Remain Exceptional; Long-Term Investment Outlook Positive Commercial Real Estate 10-Year Treasury Rate 12% Cap Rate Long-Term Avg. 9% 6% 3% 0% 10-Yr Treasury Long-Term Avg. 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 200 bps 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 * Through April 27 Includes all apartment, office, retail and industrial sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics 2012 2013 2014 2015 2016*

2016: Paradise or Pandemonium?

Will 2016 Be the Last Hurrah for Commercial Real Estate? Presented By: John Chang First Vice-President Marcus & Millichap Research Services