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August, 2012: Improving Property Fundamentals.

Economic Overview:

GROWTH WITH CHALLENGES? Improving property fundamentals in a still tentative real estate recovery, hindered by uncertainty over the U.S. elections, and especially, slower-than-expected job growth and other setbacks in the ongoing saga of the US, global and European economic recoveries. Unprecedented quantitative easing by the US Federal Reserve and other global central banks has led to improvements in most sectors of the U.S. Commercial Real Estate capital markets, especially in the public markets. Although there have been minor temporary pullbacks along the way, these improved conditions, coupled with a slowly improving economy, continue to benefit certain sectors of the private debt and equity markets for select CRE transactions, especially in the major tier markets, and distressed assets in select major markets. There remain numerous headwinds which have the potential to negatively impact these improving conditions in the global economy and in the US capital and commercial real estate markets, including global concerns such as the euro zone sovereign debt crisis and European bank capital issues, Middle East unrest, the US debt and budget issues combined with continuing high unemployment levels, all of which, have the potential to derail the slowly-improving economic and capital market conditions in the US. Ultimately there has been good news for real estate investors but there are still challenges ahead.

Commercial Overview:

REAL ESTATE SALES IMPROVING? Commercial real estate pricing continued to recover despite the disappointing level of U.S. job growth and other economic factors. Gains have expanded from the best institutional-grade buildings to smaller and more general quality properties. The Commercial Repeat Sales Index which tracks investment grade and general commercial sale prices, posted gains in over year-ago levels, based on 853 repeat sales recorded and more than 100,000 repeat sales since 1996. In another promising sign for the investment market and prospects for firmer pricing, the percentage of commercial properties selling at distressed prices was the lowest since mid-2009. Rising occupancy levels in most markets and increasing rents in the multifamily sector have dampened the overall level of distressed trading, helping lift commercial property pricing.

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