戴德梁行+2023美国资本市场报告

1Questions

TodayFinancial

Markets•

WhenwilltheFedpivot?•

Wherewillthe10-year

Treasuryyieldsettle?•

Whatdoesthismean

forCREyields?•

Whenwillthedebtmarketsunfreeze?CRE

Capital

Markets•

Howfarwillproperty

valuesfall?•

Whataboutoncoming

debtmaturities?•

Howmuchdistressshould

weexpect?•

Whenwilldealvolume

pickup?Macroeconomy•

Arewegoingintorecession?•

Whatwillthedepth

andduration

be?•

Willtherebejob

losses?

When?•

Howshouldwethinkaboutthebankingsectoranditsrelation

toCRE?2C&W’s

Baseline

Glide

PathGlide

path

timeline

for

key

indicatorsMacroeconomicIndicatorFinancial

MarketsIndicatorCREFundamentals

IndicatorCREDebtMarketsIndicatorCRECapital

MarketsIndicatorConsumer

Spending

EasesCRE

Credit

Starts

to

Thaw

and

FlowCRE

Supply

Pipeline

SubsidesAmid

Uncertain

Environment

and

Constrained

LendingWage

Growth

Starts

CoolingCapital

Markets

Transactions

Gain

MomentumCRE

Demand

Formation

Slows

AcrossConsumer,

Business

Confidence

Gradually

Improve2.5

Million

Job

Losses

Hit

Labor

MarketOFC,

IND,

RET,

MF

SectorsCore

Inflation

Improves

to

3%RECESSIONARY

CONDITIONS

TAKE

HOLDExcess

Savings

DwindlesCredit

Tightening

ContinuesProperty

ValuesAdjust

~25-50%

Peak-to-Trough10Y

Trends

Towards

4.0%

(High

3s%

Thereafter

)Values

Start

to

Rebound

Core

Inflation

Hovers

Atthe

5%-RangeFed

Pivots

and

Starts

Rate

Cutting

Cycle2023

Q3

/

Q42024

Q12024

Q22024

Q32024

Q43Source:Cushman

&WakefieldResearchThis

period

of

dislocation

and

challenge

offers

a

critical

opportunity

to

proactively

shape

portfolios

andinvestment

strategies

for

both

the

present

and

the

future.

Thepath

ahead

willnot

be

without

turbulence;itistherefore

just

asimportant

toaddress

the

near-term

challenges

as

itisto

conceptualize

theopportunities

that

lieahead.010203Inflation

Remains

Stubborn:Recession

Still

on

Horizon:Capital

Markets

Poised

to

Thaw:Progress

hasbeenmadeonreigningininflation,

but

keycomponentsremainsticky.

Thepathto

the

Fed’sTarget

will

take

moretimeto

achieveandwill

continue

to

strain

creditconditions.The

U.S.

economy

remains

resilientdespite

facing

one

of

the

mostMuchof

the

outlookrests

ontheshouldersof

monetary

policyandthe

path

towardsamorestableinterest

rate

environment;

oncethatstabilizes,

flowswill

improve.dramatic

rate

hiking

cycles

in

modernhistory.

We

now

expect

a

recession

totake

hold

later

in

2023.

Fed

pivots

aslabor

markets

ease,

wage

growthcools,

and

inflation

approaches

target.Glide

Path

toClearer

Skies:Key

Takeaways0405Crux

of

Story

-

Higher

for

Longer:Implications

for

Investment

Strategy:Interest

rates

will

haveboth

stabilizedandnormalizedhigher,

whichmeanscaprates

will

continue

tofaceupwardpressure.

Property

valueswill

declineinthe

25%to

50%rangepeak-to-trough,

withsignificantvariationdependingonproperty

type,

qualityandgeography.With

historic

amounts

of

debt

and

equity

capital

on

thesidelines,

the

next

chapter

offers

ample

deploymentopportunities

across

the

risk

spectrum.

As

macro

and

financialmarket

conditions

inflect,

fundamentals

and

capital

markets

formost

sectors

will

rebound

swiftly

thereafter.

The

office

sectorwill

face

protracted

weakness

unwinding

over

the

next

10years,

particularly

in

the

Lower

Quality

Tier.4Market

positives

to

keep

in

mindProspects

forInvestment

AheadTiming

forRebound

Is

NearUnderlying

FundamentalsCRE

fundamentals

(outside

ofoffice)

arestrong

goingintothisdownturn.Tremendouscapitalonthe

sidelines.Historically,property

valuesinflectoncethe

Fedbeginscutting

rates.Investors

needto

seemoreclaritybefore

it

deploys,but

it'sthere

andpoisedto

fuelstrong

bounce-backfor

most

sectors.ExpectapivotinH12024but

couldcomesooner.Eitherway,areboundisnot

far

off..Sound

Lending

CycleProgress

&

TimingPortfolio

AllocationsThelendingenvironmenthas

remained

moredisciplinedsincethe

GFC.Thecorrection

inCRE

startedmid-2022;this

isnotthe

firstinning.Denominatoreffect

–soonto

beworkinginCRE’s

favor

asequitiesandfixedincomerecover.Underwritingstandards

havebeengroundedto

fundamentals.501MACRO

VIEWS

&

GLIDE

PATH

TORECOVERY02DEBT

MARKET

&

LENDINGCONDITIONS03OUTLOOK

ON

PROPERTY

VALUES04FORWARD

LOOKING

DEBT

&

CAPITALMARKET

PERSPECTIVESMacroeconomyLayingoutthe

glide

pathto

clearerskies…7Inflation

must

cool

to

allow

the

Fed

to

pause

&

pivotHeadline

CPI,

Y/Y

change10.0%•TheFedisgraduallymakingprogressonitseffort

tobringdowninflation.8.9%9.0%8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%6.4%•••Headlineinflationhasrecededfrom

itsJune2022peakof8.9%y/y.4.0%Recent

headlines,however,stillobscureabigpartofthestory.Nowthatsupply

chainandenergy-relatedinflationarypressureshaveeased,stickierelementsofinflationarelefttocontendwith.HeadlineCPIInflation,Y/YEstimatedFedTarget8Source:U.S.BureauofLabor

StatisticsKey

measures

of

inflation

are

still

running

too

hotCoreInflation

(LessFood&Energy)SupercoreInflation

(CoreServicesExcluding

Shelter)7%6%5%4%3%2%1%0%7%6%5%4%3%2%1%0%SupercoreCPIY/YEstimatedFedTargetCoreCPIY/YEstimatedFedTargetSource:

U.S.

Bureau

of

Labor

Statistics.Note:

Shelter

costs

lag

in

terms

of

their

impact

on

CPI

inflation.

*The

Fed’sestimated

target

for

Core

CPI

is2.5%;

an

estimated

target

for

supercore

isnot

widely

orformallynoted

fromtheFed,

but

3.0%

isprovided

as

areference

point.9Wage

growth

must

cool

to

bring

inflation

downBLSEmploymentCostIndexAtlantaFedWage

Growth

Tracker8%7%6%5%4%3%2%1%8%7%6%5%4%3%2%1%EmploymentCostIndexEstimatedFedTargetOverallCollegeDegreePrime-ageWorkers(ages25to54)10Source:U.S.BureauofLabor

Statistics,FederalReserveBankofAtlanta,Cushman&WakefieldResearchWe

probably

need

a

recession

to

cool

wage

growth5.5%5.0%4.5%4.0%3.5%3.0%2.5%2.0%1.5%1.0%Recession,

wagegrowth

fallsRecession,

wagegrowth

fallsRecession,

wagegrowth

fallsRecession,

wagegrowth

falls1986198919921995199820012004200720102013201620192022RecessionDatesEmploymentCostIndexEstimatedFedTarget11Source:U.S.BureauofLabor

Statistics,NationalBureauofEconomic

ResearchOdds

are

high

a

recession

is

imminent9080706050403020100RecessionImpliedProbability(Basedon10-Year/3-Month,%)12Source:Moody’s

Analytics,

NationalBureauofEconomic

ResearchAnd

this

is

what

it

will

look

likeJob

losses

likely

to

be

moderate

from

historical

perspective10,0008,0006,0004,0002,00006.0%4.0%2.0%0.0%-2.0%1990-91:

1.6

million-2,000(-1.5%)2001:

2.6

million(-2.0%)1980:

1.2

million(-1.3%)2020:

21.9

million(-14.4%)2023-24:

2.5

million-4,000-4.0%-6.0%-8.0%(-1.6%)-6,000

1981-82:

2.8

millionjob

lossespeak-to-trough2007-09:

8.7

million(-6.3%)(-3.1%)-8,000-10,000JobGrowth,000's%Change(RHS)13Source:U.S.BureauofLabor

Statistics,C&WResearch

BaselineScenario.

Note:Figuredepicts

thechangeinnonfarm

employment

fromDecemberofoneyear

toDecemberofthenext

year.This

is

when

it

will

be

overRealGDP

Growth,

Annualized

Rate(%)JobGrowth(000’s)41,500321,0005001Recession

isoverRecession

isoverafterQ32024afterQ3202400-1-2-3-500-1,000Source:U.S.BureauofEconomic

Analysis,

U.S.BureauofLabor

Statistics,Cushman

&WakefieldResearch

BaselineScenario14In

case

you

didn’t

get

the

memo……CRE

is

already

in

a

recession

from

a

volume

perspectiveSalesVolume

DownturnLeasingVolume

Downturn250%200%150%100%50%80%60%40%20%0%0%-20%-40%-60%-50%-100%TotalLeasing(Industrial+Office+Retail*),Y/Y%Chg.SalesVolume,Y/Y%Chg.15Source:MSCIRealCapitalAnalytics,

CushmanandWakefieldResearch,

CoStar/Cushman&WakefieldResearch*Glide

path

to

inflation

approaching

Fed

targetInflation

gets

“close

enough”

to

target

by

year-end

202376.36.3Supply

chain

issues

continue

resolvingBase

effects

kicking

in65432105.64.84.1Recession

demand

destructionLagging

housing

impact3.7Wage

growth

cools3.02.72.42.22.12.22.12.0CoreCPI(Y/Y%Change)EstimatedFedTarget16Source:U.S.BureauofLabor

Statistics,Moody’s

Analytics,

Cushman&WakefieldResearchAllowing

the

Fed

to

pivot

in

Q1

20246.05.04.03.02.01.00.0Fedstartstolowerratesascoreinflation

comesdownandunemploymentrisesFedFundsRate(%)EstimatedNeutralFedFundsRate17Source:FederalReserve,

Cushman&WakefieldResearchHistorically,

buy

property

when

Fed

starts

cuttingProperty

ValuestoInflectQ420247120100806040200+200%Fedcuts6543210FedcutsFedcuts+26%+86%FedFundsRate(%)C&WAll-PropertyValueIndex(21Q4=100,RHS)18Source:FederalReserve,

Cushman&WakefieldResearchAssuming

theFedpauses

ratehikes

laterin2023,

holds

and

thencutsinearly

2024,

how

should

wethinkabout

theongoingchallenges

facingthebankingsector?19Banks

are

an

important

lender

for

CREBankOriginationsasShareof

Total

CREShareof

CRE

DebtOutstanding*

~of

$4.5

Trillionin

Total50%45%40%35%30%25%20%15%Top25Banks"Large"Others12%12%CMBS,CDOandABS13%Regional

Banks14%CommuityBanksLifeInsuranceCos10%15%SmallBanks3%Agency,GSEPortfolio&MBS21%••••Bankstypicallyaccountforaround

40%to45%oftotalCREfinancing

inanygivenyear.Throughout

2022,banksplayed

anevenlargerrole

inCREfinancingas

CMBSandGSEactivityretreated.Banksalsoaccountforabout40%ofoutstandingincomeproducing

debtthroughouttheCREuniverse

whichtotals$4.5

trillion.So,anyconversation

onbroaderCREdebtandlendingshould

startwithadeeper

diveintotheconditionsfacing

banksleading

uptotodayandheadingintothe

nextchapter.20Source:MSCIRealCapitalAnalytics,

MortgageBanker’s

Association,

Cushman&WakefieldResearch.

Note:*Figures

basedonCRE

debt

onincome-producing

properties.SVB

wasn’t

the

only

bank

with

explosive

deposit

growthBanks

had

a

lot

of

deposits

they

needed

to

invest

following

the

COVID-stimulus$20,000•Total

bankdepositsswelledinthewakeofthepandemic,

astheU.S.passed

massive

stimulusequating

to25%ofpre-pandemic

GDP.$18,00016%annual

growth$16,000$14,000$12,0008%annualgrowth$10,000••Muchofthestimulusended

upinindividual

andbankdeposit

accounts.$8,000$6,000$4,000$2,000$0Total

depositsgrew

by35%fromFebruary2020tothepeakin

April2022,reflecting

anannualgrowth

rateof16%.DepositsatCommercialBanks(Billions)21Source:FederalReserveMany

banks

loaded

up

on

treasuries

and

MBSFunding

risk

depends

on

how

each

bank

invested/managed

these

and

on

their

concentrations$5,000$4,000$3,000$2,000$1,000$058%growth

in

Treasuriesandmortgage-backed

agencysecuritiessinceJan202018161412108Rapidlyrising

interestrates(thatbegan

inMarch

2022)triggeredan

abruptdecline

intheunderlying

valueofthesesecurities6420CommercialBankAssets:TreasuryandAgencySecurities,(Billions,LHS)10-YrTreasuryYield(%,RHS)•••Although

thebanking

systematlarge

increased

holdings

of

TreasuryandMBSsecurities,theyrepresented

17%ofassetspriortothepandemicandreachedonly21%attheirpeak.Sincethen,theyhave

receded

toabout19%ofassets.InthecaseofSVB,

forcontext,

these

securitiesrepresented

~55%ofassets–thisleveliswidelyconsidereda

grossover-concentration

andrepresentative

ofmismanagement.Mostbankshavesignificantly

lessexposure

relative

totheirtotalassets.22Source:FederalReserveAll

banks

are

on

a

mission

to

shore

up

their

balance

sheets$180$160$140$120$100$80$120•TheBank

Term

FundingProgram(BTFP)

actedasabackstop

forbanksfacingthese

uniqueliquiditychallenges,

anditshored

upconfidence

sothatdepositoutflow

didn’tcontinue

inamore$100$80$60$40$20$0systemicway.••TheBTFPkeptthesituation

frombecoming

afull-blown

larger

“runonbanks.”$60$40$20Apartfrommonitoringbankliquidity,it’s$0importantnottogettoohungupontheSVB

bankevent…asthebigpictureconditions

arewhatreallymatterforCRE.PrimaryCredit(Billions,LHS)BTFP(Billions,RHS)23Source:FederalReserveTaking

a

step

back….….this

isn’t

the

GFC

all

over

again5Reasons

ThisIs

NOT

the

GFCLargeBanksWell-Capitalized

to

Weather

PotentialStressBanks’

capital

ratioshave151.

Bankliquidity

istight,

but

this

isnot

abanking

crisis

inthe

sensethat

failures

were

idiosyncratic

and

acute

stress

isrelatively

moreisolateddramatically

improvedsincetheGFC,

whichwilelptoprovide

addedlayersofresilience

topotential

stress2.

Current

economy

isMUCH

stronger

vs.

the

GFC3.

Financial

system

isMUCH

stronger

(and

additional

oversight/rulesborne

out

of

this

are

likelyto

strengthen

banking

system

further)*TheFed’s

‘23

Annual

Stress

Testconfirmed

thatLarge

Banksare“wellpositioned”

toweatheroncoming

stressandpossessthecapital

tolendevenduring

arange

ofscenarios

andshocks.4.

Policymakers

had

MUCH

faster

response5.

GFCwasahousing

crisis

–

whichhit

everywhere

–this

one

isnotToread

moreonthe

bankingsector

–recent

turmoilandwhatitmeansfor

CRE

–seeourBank

FAQ.Tier1CapitalRatioSource:FDIC,FederalResearch,

Cushman&WakefieldResearch.

*Additional

regulatory

requirements

following

theFed’sAnnual

StressTestandBaselIIIEndgamerequirements

mayrequirefurtheroversight

andcapitalbuffers,which

would

furtherbuttressbanking

system

foundations.24Bigger-picture

perspectivestokeepinmindaswemonitorbankcreditrisk25CRE

exposure

is

manageable

for

most

banksTotal

Assetsvs.CRELoans(Billions)CRELoansas

%of

Total

Assets$25,00016%15%14%13%12%11%10%GFC14.9%$20,000$15,000$10,000$5,000$0Today12.6%CRELoansTotalAssetsCRELoansas

%oftotalassets26Source:FederalReserve.

Note:CREloans

include

farmlending,

although

thisisasmallproportionofCREloans.Small

&

community

banks

have

more

exposure…but

their

shares

of

outstanding

CRE

debt

is

relatively

lowCRELoans%of

Total

AssetsShareof

CRE

DebtOutstandingLargeBanks(>$250B)RegionalBanks($10B-$250B)SmallBanks($100M-$1B)CommunityBanks($1-$10B)SmallBanksCommuityBanks3%Smallest

(<$100M)3532%26%3025201510510%Top25Banks"Large"RegionalBanks12%14%0OtherLendingVehicles61%0%

10%

20%

30%

40%

50%

60%

70%27Source:

FDIC,MortgageBankers

Association.

Note:ShareofTotalDebt

Outstandingdoesnotequateto100%becauseother

non-bank

lender

types

were

excluded

fromthevisualization.Lenders

were

more

disciplined

this

go

aroundShareof

CRE

LoansOver65%LT

Vby

Time

FrameCMBSUnderwriting:Better

Buffers

for

Debt-service

Post-GFC90%80%70%60%50%40%30%20%10%0%75%70%65%60%55%50%45%40%3.02.62.21.81.41.0Pre-GFC(2000-2007)GFCRecovery(2010-2017)Past5YearsBanksCMBSLifeCosLTVDSCR(RHS)••Leadingupto

theGFC,

LTVs

wereupwards

of73%forBanksandinthemid-tohigh-60s%

forLifeCosandCMBS.Morethan60%ofloansweremade

above

65%LTV

acrosslender

types.••DSCRs

were

veryhealthy

inrecentyears,averaging

2.5overthe2017-2022

period,

soowners

have

had

morethandouble

theNOIneeded

topaytheirmonthlymortgage

(even

ifdramatically

rising

debt

costs

willstressfloatingrateand

maturing

mortgages).Ownersnowhave

moreskininthegame,withLTVs

trendinglowerathigh-50stomid-60s%,helping

toinsulate

themfromfacingunderwater

circumstances

asvaluesreset.Keepinmindthatit’sprimarily

thelower

quality

assetsthataremoreexposed

to

weakening

NOI(thinklow

quality

office)thatwillfacethegreatestchallenges.28Source:MSCIRealCapitalAnalytics,

JPMorgan,

Trepp,Cushman&WakefieldResearchAnd

better

supply

fundamentalsOccupancy

going

into

recession

for

CRE

sector100%Better96%Better94%Same93%95%90%85%80%75%70%93%93%92%87%Worse81%IndustrialRetail*GoinginGFCMultifamily*CurrentQ12023Office29Source:Cushman

&WakefieldResearch,

*CoStar/Cushman

&WakefieldResearchWith

bank

originationsrestrained

forforeseeablefuture,whatdoes

therestoftheCRElending

landscapelook

like?

Let’s

digintothebroader

CRELendingEnvironment.30Debt

markets

down

but

still

functioningLending

volumes

by

lender

type

(billions)$300$250••CRE

can

operate

inahigh-interest

rate

environment,but

itismuchmoredifficultfor

CRE

to

operate

inahighly-uncertainandvolatilebase-rate

environment.2017–2019Average$200Uncertaintysurroundingtheeconomicoutlook,

propertyvaluesandfuture

cashflowshavecurtailedlendingflows.$150$100$50$0••YTD

2023*lendingvolumeisregistering39.3%

belowthe

2017-19average.YTD

2023

figures

stillregister

at$97billion,andarerevisedupaslendingdata

flowsin.20142015Bank20162017201820192020Insurance202120222023•Downshiftinbanklendingwill

shift

compositionacrosslendertype.CMBSFinancialGovernmentAgencyPensionFundPrivate31Source:MSCIRealCapitalAnalytics.

Note:*Dataextend

YTDthroughJune2023,

butrecentdataareoftenrevisedupward.CMBS

issuance

volume

also

constrained…troublesome

because

CMBS

is

one

of

the

key

pillars

in

CRE

debt

marketsNon-AgencyCMBS

IssuanceHasSharplyRetreatedAgencyCMBS

ActingasPrimaryCMBSOriginator

Source$250100%90%80%70%60%50%40%30%20%10%0%$200$150$100$50$0Non-AgencyCMBSIssuance(Billions)Agency

Conduit

LargeLoan/Floaters

SingleBorrower

CRECLOSource:Trepp,GreenStreet32Conduit

spreads

still

very

volatile

and

elevated…

reflecting

increased

lender

risk

premiumsHighest-RatedSpreadsShowing

SignificantExpansionSpreads(bps),

Widening

Across

QualitySpectrumWeekEarlier210Avg.

Life5/1752-wk

Avg.190AAAAAAAA5P+182P+183P+370P+541P+958P+183P+183P+375P+543P+958P+157P+168P+297P+412P+7421010101017015013011090183ABBB-••••In

the

aftermath

of

the

regional

banking

event,

CMBS

conduit

credit

spreads

widened

acrossthe

board

(particularly

at

the

lower

end

of

the

credit

stack).The

confluence

of

avolatile

interest

rate

environment

and

broader

macroeconomic

uncertaintycontinues

toimpact

investor

sentiment

and

riskaversion.Spreads

have

since

settled

around

~30

bps

off

their

2023

lows,

reflecting

the

widening

inperceived

riskof

CRE

products.Looking

ahead,

as

the

Fed

pivots

and

rates

move

down,

shorter

and

floating-rate

product

willimprove

(even

as

spreads

mayremain

wide

due

to

uncertainty

and

recession).CMBSAAASpreadsoverSwaps(bps)33Source:GreenStreet,Cushman&WakefieldResearchIt’s

time

for

debt,

distressed

&

opportunistic

capital

to

step

InDebt

and

opportunistic

comprise

75%

of

YTD

fundraisingFundraisingbyStrategy

(Billions)Lotsof

DryPowderStill

Availablefor

TheseStrategiesDebt,DistressedandOpportunisticAllOtherStrategiesOpportunisticDebtDistressed$160$140$120$100$80Debt,Distressed,Opportunistic%ofTotal$12080%70%60%50%40%30%20%10%0%$100$80$60$40$20$0$60$40$20$0•Investor

interest

indebt-oriented

profiles

has

increased

as

sentiment

has

shifted

towards

more

conservative

strategies

within

the

capital

stack.

Amidsuch

conservatism,some

investors

are

shifting

their

capital

deployment

strategies

higher

up

the

capital

stack

towards

either

preferred

equity,

mezzanine

debt

orsenior

debt,

which

willhelp

tofill(aportion

of)the

funding

gaps

forowners

that

need

torecapitalize

as

their

loans

are

maturing

and

as

they

need

additional

capital.••Private

credit

can

achieve

equity-like

returns

inthe

debt

capital

structure.

Given

the

continued

lack

of

liquidity

withbanks,

the

allocation

limitsfacing

lifeinsurers,

and

theanemic

CMBS

market,

private

credit

should

balloon.The

issue

now

becomes

how

many

deals,

business

plans,

etc.,

can

stomach

alargely

floating

rate

index

plus

aspread

that

equates

to

an

8%

plus

coupon….34Source:Preqin,

Cushman&WakefieldResearchLendingConditions&

Terms…arerapidly

shifting,tighteningandrequiring

morecapital...35Even

if

you

can

get

a

loan,

terms

are

increasingly

onerousCommercial

mortgage

yield

(%)10%9%8%7%6%5%4%3%2%ACLIAllCommercialACLIApartment36Source:AmericanCouncil

ofLifeInsurers(ACLI)Key

lending

thresholds

pressured

amid

rising

ratesLTVs

Reflecting

TighteningStandards….allasDSCR’sContract

AmidRising

Rates75%2.22.01.81.61.41.21.070%65%60%55%50%CommercialApartmentCommercialApartment37Source:MSCIRealCapitalAnalyticsSmaller

deals

more

likely

to

make

it

to

finish

lineNon-MultifamilyLoanSizesPulling

BackMultifamily

Bucking

the

Trend

(AgencyLendingHelps)70%60%50%40%30%20%10%0%70%60%50%40%30%20%10%0%<$10M$10M-$30M$30M+<$10M$10M-$30M$30M+••As

lenders

require

more

skininthegame

(lowerLTVs),

theyarealsogrowingmore

conservative

fromaprofile

andloan-sizingperspective.Thereisstilltraction

inthenon-multifamily

(i.e.,office,retail

andindustrial)

dealspace,butsuchtraction

ismorelimited

based

oncertain

pricepoints;thelargertheloansize(generally

speaking),thegreaterthechallenge

infinding

therightlending

partner,particularly

asuncertaintyremainshighthrough

thenext

yearorso.38Source:MSCIRealCapitalAnalyticsHigher

end

office

product

will

still

attract

debtPricing,

vacancy

and

leasing

performing

better

for

top

tierTo

pQualityBuildingsShare

of

LeasingVacancy

Rates,byBuilding

StarRating

Office

Price/SFIndex(2019Q4=100)5StarShareofLeasing,4-QtrRolling14%3Star&Below4Star5StarHighest-EndProductLowest-EndProduct26%22%18%14%10%120110100902023

Gap>700

bps13%12%11%10%2019

Gap<250

bps80706039Source:CoStar,MSCIRealCapitalAnalytics,

Cushman&WakefieldResearchDebtisexpensive

and

tough

toqualify

for,

and

maturing

debt

isfacingaparticularly

difficultenvironment.

How

should

wethinkabout

impending

stressand

distress?40Triggers

to

stress

&

distress

=

confluence

of

factorsQuantifying

stress/distress

involves

overlaying

several

factors

against

the

context

of

constrained

lending

conditions•

Againstthe

context

of

risinginterest

rates,

capratesadjustupward,whichleadsto

declinesinpropertyvalues.•

Increasing

vacancyleadstodeteriorating

cash

flowsthatunderminedebt

serviceabilityandloanperformance

status.•

Holding

property

incomeconstant,

andstillaccountingfor

recent

appreciation,manyrecently

originatedloansmayface

underwatercircumstances.•

Arisesasaresult

of

eitherbroadsoftening

indemand(cyclicalinfluences)orDiminution

ofUnderlying

ValueDeterioratingCash

Flowsstructural

influences.•

Includes

thestructuraladjustments

occupiers

aremakingto

their

spacestrategies

to

adapt

to

WFH–leadsto

increasingriskoffunctional

andcompetitiveobsolescence.•

Againstcontext

of

heighteneduncertainty

andgreater

lenderscrutiny….•

Borrowerswill

befacinghighercosts

of

capitalandpotentialchallengesinservicingtheirdebt

at

new(much

higher)interest

rates.Floating

Rate

Loans,Bridge

Loans

andOncoming

Loan

Maturities•

Lenderswill

befaced

withdecisionto

amend,modifyorextendmaturingloans.•

Refinancingmayrequireadditionalcapitalinfusionstomeetnewloanthresholds(DSCR

andLTV).ConstrainedLendingConditions•

Allastheyfocus

onconservatism

andselectivity.41Source:Cushman

&WakefieldResearch,

*MSCIRealCapital

Analytics.Cross-sector

loan

maturities

vary

by

magnitudeLoanMaturities

bySector(Billions)$318Bof

Office

LoanMaturitiesThrough2025$600$500$400$300$200$100$0Billions2023$394$982024$501$117$171$402025$464$103