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2012 Houston

Presentation available to download: www.transwestern.net www.DeltaAssociates.com

AGENDA 1. MegaTrends 2. National Economy 3. Regional Economy 4. Houston’s Commercial Real Estate Markets Office • • Industrial Apartment • • Retail 5. Capital Markets 6. Finding Opportunities Source: Delta Associates, November 2012.

2012 Houston MEGATRENDS

MEGATRENDS AFFECTING HOUSTON’S COMMERCIAL REAL ESTATE MARKETS • Uncertainty • Drive to Efficiency • Flight to Quality • Houston’s Strong Economy Source: Delta Associates, November 2012.

MEGATREND: UNCERTAINTY The Fiscal Cliff and Projected U.S. Economic Growth Assuming No Fiscal Cliff 10% 9% 8.0% 8% 7% 6% Percentage 5% 4% 3% 1.7% 2% 1% 0% GDP Change in 2013 Unemployment Rate at Year-End 2013 -1% -2% Source: Congressional Budget Office, Delta Associates; November 2012.

MEGATREND: UNCERTAINTY The Fiscal Cliff and Projected U.S. Economic Growth Assuming No Fiscal Cliff 10% 9.0% 9% Assuming Fiscal Cliff 8.0% 8% 7% 6% Percentage 5% 4% 3% 1.7% 2% 1% -0.5% 0% GDP Change in 2013 Unemployment Rate at Year-End 2013 -1% -2% Source: Congressional Budget Office, Delta Associates; November 2012.

MEGATREND: DRIVE TO EFFICIENCY Doing More With Less | U.S. Corporate Profits | 2000 - 2012 $2.5 $2.0 Corporate Profits in Trillions $1.5 $1.0 $0.5 $0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* Source: Bureau of Economic Analysis, Delta Associates; November 2012. *12 months ending June 2012 .

MEGATREND: FLIGHT TO QUALITY Metro Houston Office Absorption: YTD 2012 3 Class A Millions of SF Absorbed 2 1 Class B 0 Source: Delta Associates’ analysis of CoStar data; November 2012.

MEGATREND: HOUSTON’S STRONG ECONOMY Payroll Job Growth: Houston #1 Since 2000 600 505 500 Payroll Jobs in Thousands 400 300 200 100 0 Hou Was NY Phx DFW Den Atl S. Fla Bos LA Basin SF Bay Chi -100 -200 Source: Bureau of Labor Statistics, Delta Associates; November 2012.

2012 NATIONAL Houston ECONOMY

U.S. ECONOMIC TRENDS AND FORECAST 15% 51 months: 32 months: 32 months: 72 months: Recession + Recession + Recession + Recession + Unemployment Rate and Annualized GDP Change Recovery Recovery Recovery Recovery 10% 5% 0% 81 82 83 84 85 86 87 88 89 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 -5% Percent Change in GDP Unemployment Rate Recession Recovery -10% Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.

NATIONAL ECONOMY Recovery Patterns of GDP | Past Four Recessions 20% 18% 1982 16% Cumulative % Change in GDP 14% 12% 10% 8% 1991 6% 4% 2001 2% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 Quarters After Trough / Year Recovery Started Source: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.

NATIONAL ECONOMY Recovery Patterns of GDP | Past Four Recessions 20% 18% 1982 16% Cumulative % Change in GDP 14% 12% 10% 8% 1991 6% 2009 4% 2001 2% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 Quarters After Trough / Year Recovery Started Source: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.

CONTRIBUTORS TO THE NATIONAL ECONOMY Business/ Government 30% Consumers 70% Source: Bureau of Economic Analysis, Delta Associates; November 2012.

U.S. MEDIAN HOUSEHOLD INCOME $50,831 Dropped $777 in 2011 $50,054 Source: Census Bureau, Delta Associates; November 2012.

CHANGE IN U.S. HOUSEHOLD NET WORTH Total Gained = $11.9 trillion $3 $2 Change in Net Worth (in trillions) $1 $0 -$1 -$2 -$3 Total Lost = $17.4 trillion -$4 -$5 -$6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2011 2012 2007 2008 2010 2009 Source: Federal Reserve, Delta Associates; November 2012.

U.S. CONSUMER SENTIMENT 110 20-Year Average = 88.2 100 90 Index 80 70 60 50 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012* Source: University of Michigan, Delta Associates; November 2012. *Preliminary data for September 2012.

U.S. PERSONAL SAVINGS RATE 7% 6% 6% 6% 5% 5% Personal Savings Rate 5% 4% 4% 4% 3% 3% 3% 2% 2% 2% 1% 1% 1% 0% 0% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2008 2010 2007 2009 2011 2012 Source: Bureau of Economic Analysis, Delta Associates; November 2012.

U.S. PERSONAL SAVINGS RATE Compared to CD Interest Rates 7% 7% 6% 6% Personal Savings Rate 5% 5% CD Interest Rates 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2008 2010 2007 2009 2011 2012 Source: Bureau of Economic Analysis, Delta Associates; November 2012.

U.S. ECONOMIC TRENDS AND FORECAST 15% 51 months: 32 months: 32 months: 72 months: Recession + Recession + Recession + Recession + Unemployment Rate and Annualized GDP Change Recovery Recovery Recovery Recovery 10% 5% 0% 81 82 83 84 85 86 87 88 89 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 -5% Percent Change in GDP Unemployment Rate Recession Recovery -10% Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.

2012 HOUSTON Houston ECONOMY

PAYROLL JOB GROWTH: HOUSTON A LEADER Large Metro Areas | 12 Months Ending September 2012 140 120 96.6 100 Payroll Jobs in 000’s 80 60 40 20 0 NY LA Basin Hou SF Bay DFW Bos Phx Was Chi Denver Atl S. Fla Source: Bureau of Labor Statistics, Delta Associates; November 2012.

INCREASING PRESENCE IN HOUSTON

CORE INDUSTRIES Houston Metro Area | 2011 Core Industries $ (Bil) % GRP Energy $108 27% Financial, Professional, Tech $52 13% Construction $36 9% Federal & State Government $32 8% Manufacturing $24 6% Medical/Educational $16 4% Trade/Transportation $16 4% Total Core Industries: $283 71% Other $116 29% Total GRP: $399 100% Source: BEA, BLS, GMU Center for Regional Analysis, Delta Associates; November 2012. GRP = Gross Regional Product.

CORE INDUSTRY: ENERGY U.S. Rotary Rig Count | 1990 – 2012 2,000 1,800 1,600 Annual Average Working Rigs 1,400 1,200 1,000 800 600 400 200 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12* *Count as of 10/26/12. Source: Baker Hughes, Delta Associates; November 2012.

CORE INDUSTRY: ENERGY Top Wind Energy Producing States | September 2012 12,000 10,929 10,000 Wind Capacity (Megawatts) 8,000 6,000 4,570 4,536 4,000 3,153 3,055 2,717 2,699 2,000 0 Texas California Iowa Oregon Illinois Minnesota Washington Source: American Wind Energy Association, Delta Associates; November 2012.

CORE INDUSTRY: MEDICAL/EDUCATIONAL Houston Health And Medical Sector Employment | 2005-2012 530 Up 5.9% in 2012 510 Metro Area Employment (Thousands) 490 470 450 430 410 390 370 350 2005 2006 2007 2008 2009 2010 2011 2012* Source: BLS, Delta Associates; November 2012. *Through September

CORE INDUSTRY: TRADE/TRANSPORTATION Top Planned Port Infrastructure Investments to Prepare for Canal Expansion $5.0 $4.5 $4.0 $3.5 $3.0 Billions $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 Houston Tampa Charleston Norfolk* Savannah Everglades Gulfport Mobile Miami Jacksonville Source: National Real Estate Investor, Delta Associates; November 2012. *Includes ports of Portsmouth and Newport News.

PAYROLL JOB GROWTH Houston Metro Area | 1991 –2012 120 100 22-Year Average Job Growth = Annual Job Growth (in 000’s) 80 39,600/Year 60 40 20 0 -20 -40 -60 -80 Source: Bureau of Labor Statistics, Delta Associates; November 2012. *12-month job growth through September 2012.

PAYROLL JOB GROWTH Houston Metro Area | 1991 –2012 120 100 22-Year Average Job Growth = Annual Job Growth (in 000’s) 80 39,600/Year 60 40 20 0 -20 -40 -60 -80 Source: Bureau of Labor Statistics, Delta Associates; November 2012. *12-month job growth through September 2012.

JOB FORECAST Houston Metro Area | 2012 – 2014 Projected Avg. Annual Growth 2012-14 = 89,000/annum 120,000 22-Year Annual Growth = 39,600/annum 100,000 80,000 Annual Job Growth 60,000 40,000 20,000 0 -20,000 -40,000 -60,000 -80,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Bureau of Labor Statistics, Delta Associates; November 2012.

2012 THE Houston HOUSTON OFFICE MARKET

OFFICE VACANCY RATES Select Metro Areas | 3 rd Quarter 2012 25% 20.3% National 20% Vacancy Rate: 13.7% 16.9% 16.1% Overall Vacancy Rate 14.7% 15% 13.1% 13.4% 13.6% 10.6% 10.9% 11.2% 11.6% 12.5% 12.9% 10% 5% 0% Bos Hou NY SF Bay Den LA Was OC Chi S Fla Atl DFW Phx Source: Delta Associates’ analysis of CoStar data; November 2012.

NET ABSORPTION OF OFFICE SPACE Select Metro Areas | January Through September 2012 6 5 4 2.9 3 2 1 0 -1 -2 -3 SF Bay Atl Hou LA/OC Bos Phx Den Chi DFW S Fla NY Was Source: Delta Associates’ analysis of CoStar data; November 2012.