U.S. Capital Markets Glide Path to Clearer Skies

1

Questions Today

Financial Markets • When will the Fed pivot? • Where will the 10-year Treasury yield settle? • What does this mean for CRE yields? • When will the debt markets unfreeze?

CRE Capital Markets • How far will property values fall? • What about oncoming debt maturities? • How much distress should we expect? • When will deal volume pick up?

Macroeconomy • Are we going into recession? • What will the depth and duration be? • Will there be job losses? When? • How should we think about the banking sector and its relation to CRE?

2

C&W’s Baseline Glide Path Glide path timeline for key indicators

Macroeconomic Indicator Financial Markets Indicator CRE Fundamentals Indicator CRE Debt Markets Indicator CRE Capital Markets Indicator

CRE Credit Starts to Thaw and Flow

CRE Supply Pipeline Subsides Amid Uncertain Environment and Constrained Lending Consumer Spending Eases

Wage Growth Starts Cooling

Capital Markets Transactions Gain Momentum

CRE Demand Formation Slows Across OFC, IND, RET, MF Sectors

Consumer, Business Confidence Gradually Improve

2.5 Million Job Losses Hit Labor Market

Core Inflation Improves to 3%

Excess Savings Dwindles RECESSIONARY CONDITIONS TAKE HOLD

10Y Trends Towards 4.0% (High 3s% Thereafter  ) Values Start to Rebound 

Credit Tightening Continues

Property Values Adjust ~25-50% Peak-to-Trough

Fed Pivots and Starts Rate Cutting Cycle

Core Inflation Hovers At the 5%-Range

2023 Q3 / Q4

2024 Q1

2024 Q2

2024 Q3

2024 Q4

3

Source: Cushman & Wakefield Research

This period of dislocation and challenge offers a critical opportunity to proactively shape portfolios and investment strategies for both the present and the future. The path ahead will not be without turbulence; it is therefore just as important to address the near-term challenges as it is to conceptualize the opportunities that lie ahead.

02

03

01

Recession Still on Horizon: The U.S. economy remains resilient despite facing one of the most dramatic rate hiking cycles in modern history. We now expect a recession to take hold later in 2023. Fed pivots as labor markets ease, wage growth cools, and inflation approaches target.

Capital Markets Poised to Thaw: Much of the outlook rests on the shoulders of monetary policy and the path towards a more stable interest rate environment; once that stabilizes, flows will improve.

Inflation Remains Stubborn: Progress has been made on reigning in inflation, but key components remain sticky. The path to the Fed’s Target will take more time to achieve and will continue to strain credit conditions.

Glide Path to Clearer Skies: Key Takeaways

04

05

Crux of Story - Higher for Longer: Interest rates will have both stabilized and normalized higher, which means cap rates will continue to face upward pressure. Property values will decline in the 25% to 50% range peak-to-trough, with significant variation depending on property type, quality and geography.

Implications for Investment Strategy: With historic amounts of debt and equity capital on the sidelines, the next chapter offers ample deployment opportunities across the risk spectrum. As macro and financial market conditions inflect, fundamentals and capital markets for most sectors will rebound swiftly thereafter. The office sector will face protracted weakness unwinding over the next 10 years, particularly in the Lower Quality Tier.

4

Market positives to keep in mind

Prospects for Investment Ahead

Timing for Rebound Is Near

Underlying Fundamentals CRE fundamentals (outside of office) are strong going into this downturn.

Tremendous capital on the sidelines. Investors need to see more clarity before it deploys, but it's there and poised to fuel strong bounce-back for most sectors.

Historically, property values inflect once the Fed begins cutting rates. Expect a pivot in H1 2024 but could come sooner. Either way, a rebound is not far off..

Sound Lending Cycle The lending environment has remained more disciplined since the GFC. Underwriting standards have been grounded to fundamentals.

Progress & Timing The correction in CRE started mid-2022; this is not the first inning.

Portfolio Allocations Denominator effect – soon to be working in CRE’s favor as equities and fixed income recover.

5

01 MACROVIEWS&GLIDEPATHTO RECOVERY 02 DEBTMARKET&LENDING CONDITIONS 03 OUTLOOKONPROPERTYVALUES 04 FORWARDLOOKINGDEBT&CAPITAL MARKETPERSPECTIVES

Macroeconomy Laying out the glide path to clearer skies…

7

Inflation must cool to allow the Fed to pause & pivot Headline CPI, Y/Y change

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

• The Fed is gradually making progress on its effort to bring down inflation. • Headline inflation has receded from its June 2022 peak of 8.9% y/y. however, still obscure a big part of the story. • Now that supply chain and energy-related • Recent headlines,

8.9%

6.4%

4.0%

inflationary pressures have eased, stickier elements of inflation are left to contend with.

Jul-21

Jul-22

Apr-21

Oct-21

Apr-22

Oct-22

Apr-23

Jan-21

Jun-21

Jan-22

Jun-22

Jan-23

Mar-21

Mar-22

Mar-23

Feb-21

Feb-22

Feb-23

Nov-21

Dec-21

Nov-22

Dec-22

Aug-21

Sep-21

Aug-22

Sep-22

May-21

May-22

May-23

Headline CPI Inflation, Y/Y

Estimated Fed Target

8

Source: U.S. Bureau of Labor Statistics

Key measures of inflation are still running too hot

Core Inflation (Less Food & Energy)

Supercore Inflation (Core Services Excluding Shelter)

7%

7%

6%

6%

5%

5%

4%

4%

3%

3%

2%

2%

1%

1%

0%

0%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Supercore CPI Y/Y

Estimated Fed Target

Core CPI Y/Y

Estimated Fed Target

Source: U.S. Bureau of Labor Statistics. Note: Shelter costs lag in terms of their impact on CPI inflation. *The Fed’s estimated target for Core CPI is 2.5%; an estimated target for supercore is not widely or formally noted from the Fed, but 3.0% is provided as a reference point.

9

Wage growth must cool to bring inflation down

BLS Employment Cost Index

Atlanta Fed Wage Growth Tracker

8%

8%

7%

7%

6%

6%

5%

5%

4%

4%

3%

3%

2%

2%

1%

1%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2016

2017

2018

2019

2020

2021

2022

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Employment Cost Index

Estimated Fed Target

Overall

College Degree Prime-age Workers (ages 25 to 54)

10

Source: U.S. Bureau of Labor Statistics, Federal Reserve Bank of Atlanta, Cushman & Wakefield Research

We probably need a recession to cool wage growth

5.5%

5.0%

Recession, wage growth falls

Recession, wage growth falls

4.5%

4.0%

Recession, wage growth falls

Recession, wage growth falls

3.5%

3.0%

2.0% 2.5%

1.5%

1.0%

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

2019

2022

Recession Dates

Employment Cost Index

Estimated Fed Target

11

Source: U.S. Bureau of Labor Statistics, National Bureau of Economic Research

Odds are high a recession is imminent

0 10 20 30 40 50 60 70 80 90

Implied Probability of Recession, %

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07 Recession

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

Jan-21

Jan-22

Jan-23

Implied Probability (Based on 10-Year/3-Month, %)

12

Source: Moody’s Analytics, National Bureau of Economic Research

And this is what it will look like Job losses likely to be moderate from historical perspective

-10,000 -8,000 -6,000 -4,000 -2,000 0 2,000 4,000 6,000 8,000 10,000

6.0%

4.0%

2.0%

0.0%

-2.0%

1990-91: 1.6 million (-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 (-1.6%)

-4.0%

1981-82: 2.8 million (-3.1%)

2007-09: 8.7 million (-6.3%)

job losses peak-to-trough

-6.0%

-8.0%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Job Growth, 000's

% Change (RHS)

13

Source: U.S. Bureau of Labor Statistics, C&W Research Baseline Scenario. Note: Figure depicts the change in nonfarm employment from December of one year to December of the next year.

This is when it will be over

Real GDP Growth, Annualized Rate (%)

Job Growth (000’s)

1,500

4

3

1,000

2

500

1

Recession is over after Q3 2024

Recession is over after Q3 2024

0

0

-1

-500

-2

-3

-1,000

2022Q3

2022Q4

2023Q1

2023Q2

2023Q3

2023Q4

2024Q1

2024Q2

2024Q3

2024Q4

2025Q1

2025Q2

2022Q3

2022Q4

2023Q1

2023Q2

2023Q3

2023Q4

2024Q1

2024Q2

2024Q3

2024Q4

2025Q1

2025Q2

14

Source: U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, Cushman & Wakefield Research Baseline Scenario

In case you didn’t get the memo… …CRE is already in a recession from a volume perspective

Sales Volume Downturn

Leasing Volume Downturn

250%

80%

200%

60%

150%

40%

100%

20%

50%

0%

0%

-20%

-50%

-40%

-100%

-60%

2006 Q1

2007 Q1

2008 Q1

2009 Q1

2010 Q1

2011 Q1

2012 Q1

2013 Q1

2014 Q1

2015 Q1

2016 Q1

2017 Q1

2018 Q1

2019 Q1

2020 Q1

2021 Q1

2022 Q1

2023 Q1

2007 Q1

2008 Q1

2009 Q1

2010 Q1

2011 Q1

2012 Q1

2013 Q1

2014 Q1

2015 Q1

2016 Q1

2017 Q1

2018 Q1

2019 Q1

2020 Q1

2021 Q1

2022 Q1

2023 Q1

Total Leasing (Industrial + Office + Retail*), Y/Y % Chg.

Sales Volume, Y/Y % Chg.

15

Source: MSCI Real Capital Analytics, Cushman and Wakefield Research, CoStar/Cushman & Wakefield Research*

Glide path to inflation approaching Fed target Inflation gets “close enough” to target by year-end 2023

7

6.3

6.3

Supply chain issues continue resolving

6

5.6

Base effects kicking in

4.8

5

4.1

Recession demand destruction

3.7

4

Lagging housing impact

Wage growth cools

3.0

2.7

3

2.4

2

2.1 2.0 2.1 2.2 2.2

1

0

2020Q1

2020Q2

2020Q3

2020Q4

2021Q1

2021Q2

2021Q3

2021Q4

2022Q1

2022Q2

2022Q3

2022Q4

2023Q1

2023Q2

2023Q3

2023Q4

2024Q1

2024Q2

2024Q3

2024Q4

2025Q1

2025Q2

2025Q3

2025Q4

Core CPI (Y/Y % Change)

Estimated Fed Target

16

Source: U.S. Bureau of Labor Statistics, Moody’s Analytics, Cushman & Wakefield Research

Allowing the Fed to pivot in Q1 2024

6.0

Fed starts to lower rates as core inflation comes down and unemployment rises

5.0

4.0

3.0

2.0

1.0

0.0

2020Q1

2020Q2

2020Q3

2020Q4

2021Q1

2021Q2

2021Q3

2021Q4 Fed Funds Rate (%) 2022Q1 2022Q2

2022Q3

2022Q4

2023Q1

2023Q2

2023Q3

2023Q4

2024Q1

2024Q2

2024Q3

2024Q4

2025Q1

2025Q2

2025Q3

2025Q4

Estimated Neutral Fed Funds Rate

17

Source: Federal Reserve, Cushman & Wakefield Research

Historically, buy property when Fed starts cutting

Property Values to Inflect Q4 2024

7

120

+200%

Fed cuts

6

100

Fed cuts

Fed cuts

5

+26%

80

4

60

3

+86%

40

2

20

1

0

0

1999Q1

2000Q1

2001Q1

2002Q1

2003Q1

2004Q1

2005Q1

2006Q1

2007Q1 Fed Funds Rate (%) 2008Q1 2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

2017Q1

2018Q1

2019Q1

2020Q1

2021Q1

2022Q1

2023Q1

2024Q1

2025Q1

2026Q1

2027Q1

C&W All-Property Value Index (21Q4 = 100, RHS)

18

Source: Federal Reserve, Cushman & Wakefield Research

Assuming the Fed pauses rate hikes later in 2023, holds and then cuts in early 2024, how should we think about the ongoing challenges facing the banking sector?

19

Banks are an important lender for CRE

Bank Originations as Share of Total CRE

Share of CRE Debt Outstanding* ~ of $4.5 Trillion in Total

15% 20% 25% 30% 35% 40% 45% 50%

Top 25 Banks "Large" 12%

Others 12%

CMBS, CDO and ABS 13%

Regional Banks 14%

Commuity Banks 10%

Life Insurance Cos 15%

Small Banks 3%

Agency, GSE Portfolio & MBS 21%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

• Banks typically account for around 40% to 45% of total CRE financing in any given year. • Throughout 2022, banks played an even larger role in CRE financing as CMBS and GSE activity retreated. • Banks also account for about 40% of outstanding income producing debt throughout the CRE universe which totals $4.5 trillion. • So, any conversation on broader CRE debt and lending should start with a deeper dive into the conditions facing banks leading up to today and heading into the next chapter.

20

Source: MSCI Real Capital Analytics, Mortgage Banker’s Association, Cushman & Wakefield Research. Note: *Figures based on CRE debt on income-producing properties.

SVB wasn’t the only bank with explosive deposit growth Banks had a lot of deposits they needed to invest following the COVID-stimulus

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000

• Total bank deposits

swelled in the wake of the pandemic, as the U.S. passed massive stimulus equating to 25% of pre pandemic GDP.

16% annual growth

8% annual growth

• Much of the stimulus

ended up in individual and bank deposit accounts.

• Total deposits grew by

35% from February 2020 to the peak in April 2022,

reflecting an annual growth rate of 16 %.

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

Deposits at Commercial Banks (Billions)

21

Source: Federal Reserve

Many banks loaded up on treasuries and MBS Funding risk depends on how each bank invested/managed these and on their concentrations

$5,000

10 12 14 16 18

58% growth in Treasuries and mortgage-backed agency securities since Jan 2020

Rapidly rising interest rates (that began in March 2022) triggered an abrupt decline in the underlying value of these securities

$4,000

$3,000

0 2 4 6 8

$2,000

$1,000

$0

Jan-73

Jan-75

Jan-77

Jan-79

Jan-81

Jan-83

Jan-85

Jan-87

Jan-89

Jan-91

Jan-93

Jan-95

Jan-97

Jan-99

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Jan-15

Jan-17

Jan-19

Jan-21

Jan-23

Commercial Bank Assets: Treasury and Agency Securities, (Billions, LHS)

10-Yr Treasury Yield (%, RHS)

• Although the banking system at large increased holdings of Treasury and MBS securities, they represented 17% of assets prior to the pandemic and reached only 21% at their peak. Since then, they have receded to about 19% of assets. • In the case of SVB, for context, these securities represented ~55% of assets – this level is widely considered a gross over-concentration and representative of mismanagement. • Most banks have significantly less exposure relative to their total assets.

22

Source: Federal Reserve

All banks are on a mission to shore up their balance sheets

$100 $120 $140 $160 $180

$120

• The Bank Term Funding Program (BTFP) acted as

a backstop for banks facing these unique

$100

liquidity challenges, and it shored up confidence so that deposit outflow didn’t continue in a more systemic way. situation from becoming a full-blown larger “run on banks.” • Apart from monitoring bank liquidity, it’s important not to get too hung up on the SVB bank event…as the big picture conditions are what really matter for CRE. • The BTFP kept the

$80

$60

$0 $20 $40 $60 $80

$40

$20

$0

1/4/23

2/1/23

2/8/23

3/1/23

3/8/23

4/5/23

5/3/23

6/7/23

1/11/23

1/18/23

1/25/23

2/15/23

2/22/23

3/15/23

3/22/23

3/29/23

4/12/23

4/19/23

4/26/23

5/10/23

5/17/23

5/24/23

5/31/23

6/14/23

Primary Credit (Billions, LHS)

BTFP (Billions, RHS)

23

Source: Federal Reserve

Taking a step back…. ….this isn’t the GFC all over again

5 Reasons This Is NOT the GFC

Large Banks Well-Capitalized to Weather Potential Stress

Banks’ capital ratios have dramatically improved since the GFC, which will help to provide added layers of resilience to potential stress

15

1. Bank liquidity is tight, but this is not a banking crisis in the sense that failures were idiosyncratic and acute stress is relatively more isolated

14

2. Current economy is MUCH stronger vs. the GFC

13

12

3. Financial system is MUCH stronger (and additional oversight/rules borne out of this are likely to strengthen banking system further)*

The Fed’s ‘23 Annual Stress Test confirmed that Large Banks are “well positioned” to weather oncoming stress and possess the capital to lend even during a range of scenarios and shocks.

11

4. Policymakers had MUCH faster response

10

5. GFC was a housing crisis – which hit everywhere – this one is not

9

To read more on the banking sector – recent turmoil and what it means for CRE – see our Bank FAQ.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Tier 1 Capital Ratio

Source: FDIC, Federal Research, Cushman & Wakefield Research. *Additional regulatory requirements following the Fed’s Annual Stress Test and Basel III Endgame requirements may require further oversight and capital buffers, which would further buttress banking system foundations.

24

Bigger-picture perspectives to keep in mind as we monitor bank credit risk

25

CRE exposure is manageable for most banks

Total Assets vs. CRE Loans (Billions)

CRE Loans as % of Total Assets

$25,000

16%

GFC

14.9%

15%

$20,000

14%

$15,000

12.6% Today

13%

$10,000

12%

$5,000

11%

$0

10%

2004

2005

2006

2007

2008

2009 2010 CRE Loans 2011

2012

2013

2014

2015

2016 Total Assets 2017 2018

2019

2020

2021

2022

2023

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

CRE Loans as % of total assets

26

Source: Federal Reserve. Note: CRE loans include farm lending, although this is a small proportion of CRE loans.

Small & community banks have more exposure … but their shares of outstanding CRE debt is relatively low

CRE Loans % of Total Assets

Share of CRE Debt Outstanding

Large Banks (>$250B)

Regional Banks ($10B - $250B) Small Banks ($100M - $1B)

Community Banks ($1 -$10B)

Small Banks

3%

Smallest (<$100M)

35

32%

30

Commuity Banks

10%

26%

25

20

Top 25 Banks "Large"

12%

15

10

Regional Banks

14%

5

0

Other Lending Vehicles

61%

0% 10% 20% 30% 40% 50% 60% 70%

27

Source: FDIC, Mortgage Bankers Association. Note: Share of Total Debt Outstanding does not equate to 100% because other non-bank lender types were excluded from the visualization.

Lenders were more disciplined this go around

Share of CRE Loans Over 65% LTV by Time Frame CMBS Underwriting: Better Buffers for Debt-service Post-GFC

40% 45% 50% 55% 60% 65% 70% 75%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

1.0 1.4 1.8 2.2 2.6 3.0

Pre-GFC (2000 2007)

GFC Recovery (2010-2017)

Past 5 Years

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Banks CMBS Life Cos

LTV DSCR (RHS)

• Leading up to the GFC, LTVs were upwards of 73% for Banks and in the mid- to high-60s% for Life Cos and CMBS. More than 60% of loans were made above 65% LTV across lender types. • Owners now have more skin in the game, with LTVs trending lower at high-50s to mid-60s%, helping to insulate them from facing underwater circumstances as values reset.

• DSCRs were very healthy in recent years, averaging 2.5 over the 2017 2022 period, so owners have had more than double the NOI needed to pay their monthly mortgage (even if dramatically rising debt costs will stress floating rate and maturing mortgages). • Keep in mind that it’s primarily the lower quality assets that are more exposed to weakening NOI (think low quality office) that will face the greatest challenges.

28

Source: MSCI Real Capital Analytics, JP Morgan, Trepp, Cushman & Wakefield Research

And better supply fundamentals Occupancy going into recession for CRE sector

100%

Better

Better

96%

Same

94%

95%

93%

93%

93%

92%

90%

87%

85%

81% Worse

80%

75%

70%

Industrial

Retail*

Multifamily*

Office

Going in GFC Current Q1 2023

29

Source: Cushman & Wakefield Research, *CoStar/Cushman & Wakefield Research

With bank originations restrained for foreseeable future, what does the rest of the CRE lending landscape look like? Let’s dig into the broader CRE Lending Environment.

30

Debt markets down but still functioning Lending volumes by lender type (billions)

$300

• CRE can operate in a high interest rate environment, but it is much more difficult for CRE to operate in a highly-uncertain and volatile base-rate environment. • Uncertainty surrounding the economic outlook, property values and future cash flows have curtailed lending flows. • YTD 2023* lending volume is registering 39.3% below the 2017-19 average. • YTD 2023 figures still register at $97 billion, and are revised up as lending data flows in. • Downshift in bank lending will shift composition across lender type.

$250

2017 – 2019 Average

$200

$150

$100

$50

$0

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Bank CMBS Financial

Government Agency Insurance Pension Fund Private

31

Source: MSCI Real Capital Analytics. Note: *Data extend YTD through June 2023, but recent data are often revised upward.

CMBS issuance volume also constrained …troublesome because CMBS is one of the key pillars in CRE debt markets

Non-Agency CMBS Issuance Has Sharply Retreated

Agency CMBS Acting as Primary CMBS Originator Source

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

$250

$200

$150

$100

$50

$0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2006 2023 Agency Conduit Large Loan / Floaters Single Borrower CRE CLO 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Non-Agency CMBS Issuance (Billions)

2023 YTD

Source: Trepp, Green Street

32

Conduit spreads still very volatile and elevated … reflecting increased lender risk premiums

Highest-Rated Spreads Showing Significant Expansion Spreads (bps), Widening Across Quality Spectrum

Week Earlier 52-wk Avg.

210

Avg. Life 5/17

AAA

5

P+182 P+183 P+157

190

AAA

10 10

P+183 P+183 P+168 P+370 P+375 P+297

170

183

AA

150

A

10

P+541 P+543 P+412

BBB-

10

P+958 P+958 P+742

130

110

• In the aftermath of the regional banking event, CMBS conduit credit spreads widened across the board (particularly at the lower end of the credit stack). • The confluence of a volatile interest rate environment and broader macroeconomic uncertainty continues to impact investor sentiment and risk aversion. • Spreads have since settled around ~30 bps off their 2023 lows, reflecting the widening in perceived risk of CRE products. • Looking ahead, as the Fed pivots and rates move down, shorter and floating-rate product will improve (even as spreads may remain wide due to uncertainty and recession).

90

Jul-22

Apr-22

Oct-22

Apr-23

Jan-22

Jun-22

Jan-23

Mar-22

Mar-23

Feb-22

Feb-23

Dec-21

Nov-22

Dec-22

Aug-22

Sep-22

May-22

May-23

CMBS AAA Spreads over Swaps (bps)

33

Source: Green Street, Cushman & Wakefield Research

It’s time for debt, distressed & opportunistic capital to step In Debt and opportunistic comprise 75% of YTD fundraising

Fundraising by Strategy (Billions)

Lots of Dry Powder Still Available for These Strategies

Debt, Distressed and Opportunistic All Other Strategies Debt, Distressed, Opportunistic % of Total

Opportunistic Debt

Distressed

$100 $120 $140 $160

$100 $120

0% 10% 20% 30% 40% 50% 60% 70% 80%

$0 $20 $40 $60 $80

$0 $20 $40 $60 $80

• Investor interest in debt-oriented profiles has increased as sentiment has shifted towards more conservative strategies within the capital stack. Amid such conservatism, some investors are shifting their capital deployment strategies higher up the capital stack towards either preferred equity, mezzanine debt or senior debt, which will help to fill (a portion of) the funding gaps for owners that need to recapitalize as their loans are maturing and as they need additional capital. • Private credit can achieve equity-like returns in the debt capital structure. Given the continued lack of liquidity with banks, the allocation limits facing life insurers, and the anemic CMBS market, private credit should balloon. • The issue now becomes how many deals, business plans, etc., can stomach a largely floating rate index plus a spread that equates to an 8% plus coupon….

34

Source: Preqin, Cushman & Wakefield Research

Lending Conditions & Terms …are rapidly shifting, tightening and requiring more capital...

35

Even if you can get a loan, terms are increasingly onerous Commercial mortgage yield (%)

10%

9%

8%

7%

6%

5%

4%

3%

2%

2000Q1

2000Q3

2001Q1

2001Q3

2002Q1

2002Q3

2003Q1

2003Q3

2004Q1

2004Q3

2005Q1

2005Q3

2006Q1

2006Q3

2007Q1

2007Q3

2008Q1

2008Q3 ACLI All Commercial 2009Q1 2009Q3 2010Q1 2010Q3

2011Q1

2011Q3

2012Q1

2012Q3 ACLI Apartment 2013Q1 2013Q3

2014Q1

2014Q3

2015Q1

2015Q3

2016Q1

2016Q3

2017Q1

2017Q3

2018Q1

2018Q3

2019Q1

2019Q3

2020Q1

2020Q3

2021Q1

2021Q3

2022Q1

2022Q3

2023Q1

36

Source: American Council of Life Insurers (ACLI)

Key lending thresholds pressured amid rising rates

LTVs Reflecting Tightening Standards

….all as DSCR’s Contract Amid Rising Rates

75%

2.2

70%

2.0

1.8

65%

1.6

60%

1.4

55%

1.2

50%

1.0

2004

2005

2006

2007

2008

2009 2010 Commercial 2011

2012

2013

2014

2015 2016 Apartment 2017

2018

2019

2020

2021

2022

2023

2004

2005

2006

2007

2008

2009

2010 Commercial 2011 2012

2013

2014

2015

2016 Apartment 2017

2018

2019

2020

2021

2022

2023

37

Source: MSCI Real Capital Analytics

Smaller deals more likely to make it to finish line

Non-Multifamily Loan Sizes Pulling Back

Multifamily Bucking the Trend (Agency Lending Helps)

0% 10% 20% 30% 40% 50% 60% 70%

0% 10% 20% 30% 40% 50% 60% 70%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

<$10M $10M-$30M $30M+

<$10M $10M-$30M $30M+

• As lenders require more skin in the game (lower LTVs), they are also growing more conservative from a profile and loan-sizing perspective. • There is still traction in the non-multifamily (i.e., office, retail and industrial) deal space, but such traction is more limited based on certain price points; the larger the loan size (generally speaking), the greater the challenge in finding the right lending partner, particularly as uncertainty remains high through the next year or so.

38

Source: MSCI Real Capital Analytics

Higher end office product will still attract debt Pricing, vacancy and leasing performing better for top tier

Top Quality Buildings Share of Leasing

Vacancy Rates, by Building Star Rating Office Price/SF Index (2019Q4=100)

5 Star Share of Leasing, 4-Qtr Rolling

Highest-End Product Lowest-End Product

3 Star & Below 4 Star

5 Star

14%

26%

120

2023 Gap >700 bps

110

13%

22%

100

2019 Gap <250 bps

12%

18%

90

80

11%

14%

70

10%

10%

60

2015

2016

2017

2018

2019

2020

2021

2022

2023

2018 Q1

2018 Q3

2019 Q1

2019 Q3

2020 Q1

2020 Q3

2021 Q1

2021 Q3

2022 Q1

2022 Q3

2023 Q1

2001 Q1

2003 Q1

2005 Q1

2007 Q1

2009 Q1

2011 Q1

2013 Q1

2015 Q1

2017 Q1

2019 Q1

2021 Q1

2023 Q1

39

Source: CoStar, MSCI Real Capital Analytics, Cushman & Wakefield Research

Debt is expensive and tough to qualify for, and maturing debt is facing a particularly difficult environment. How should we think about impending stress and distress?

40

Triggers to stress & distress = confluence of factors Quantifying stress/distress involves overlaying several factors against the context of constrained lending conditions

• Against the context of rising interest rates, cap rates adjust upward, which leads to declines in property values. • Holding property income constant, and still accounting for recent appreciation, many recently originated loans may face underwater circumstances. • Against context of heightened uncertainty and greater lender scrutiny…. • Borrowers will be facing higher costs of capital and potential challenges in servicing their debt at new (much higher) interest rates. • Refinancing may require additional capital infusions to meet new loan thresholds (DSCR and LTV).

• Increasing vacancy leads to deteriorating cash flows that undermine debt service ability and loan performance status. • Arises as a result of either broad softening in demand

Diminution of Underlying Value

Deteriorating Cash Flows

(cyclical influences) or structural influences. • Includes the structural

adjustments occupiers are making to their space strategies to adapt to WFH – leads to increasing risk of functional and competitive obsolescence.

Floating Rate Loans, Bridge Loans and Oncoming Loan Maturities

• Lenders will be faced with decision to amend, modify or extend maturing loans. • All as they focus on conservatism and selectivity.

Constrained Lending Conditions

41

Source: Cushman & Wakefield Research, *MSCI Real Capital Analytics.

Cross-sector loan maturities vary by magnitude

Loan Maturities by Sector (Billions)

$318B of Office Loan Maturities Through 2025

$600

Billions

2023

2024

2025

$500

$400

Total Maturities

$394

$501

$464

$300

Office Maturities

$200

$98

$117

$103

$100

Bank Maturities

$115

$171

$88

$0

2023 2024 2025 2026 2027 2028 2029 2030 Apartment Office Industrial Hotel Retail Other Seniors Housing & Care Dev Site

Bank Office Maturities

$28

$40

$33

• Loan maturities will remain a challenge and will fuel demand for rescue capital, particularly because borrowers will be facing higher capital costs, constrained lending availability, and increasingly restrictive standards and terms. • Many recently originated loans were of floating rate debt structure and will face acute challenge. As a result, loan maturity arises as a particular trigger to oncoming stress / distress. • As the wave of maturities pushes properties to adjust to today’s new environment, this will likely pave the way for price discovery and the potential for more transaction activity.

42

Source: MSCI Real Capital Analytics

Loan maturities a particular challenge for office …as the sector faces both cyclical and structural factors reducing demand formation

U.S. Office Fundamentals: Record Vacancy Since Pandemic

Office Obsolescence

6,000

Overall Net Absorption (MSF)

Vacancy Rate (RHS)

A portion of this* reflects excess vacancy, above “natural vacancy”

30

20%

1,068

18.6%

689

1,006

5,000

17.6%

17.3%

20

18%

4,000

10

16%

0

14%

3,000

MSF

-10

12%

4,730

4,617

4,554

2,000

-20

10%

1,000

-30

8%

-40

6%

0

Q4 2019 Current

2030

Occupied Space Vacant Space

2001 Q1

2002 Q1

2003 Q1

2004 Q1

2005 Q1

2006 Q1

2007 Q1

2008 Q1

2009 Q1

2010 Q1

2011 Q1

2012 Q1

2013 Q1

2014 Q1

2015 Q1

2016 Q1

2017 Q1

2018 Q1

2019 Q1

2020 Q1

2021 Q1

2022 Q1

2023 Q1

43

Source: MSCI Real Capital Analytics, Cushman & Wakefield Research. *See our Obsolescence Equals Opportunity Report for more detail.

Quantifying one layer of distress: increasing obsolescence …and drilling specifically into office…

Distress Linked Directly to Obsolescence

…Overlayed Against Historic Office Distress

$0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0

10% 12% 14%

Total

330 MSF

Obsolete SF at Risk

0% 2% 4% 6% 8%

Value Prior to Reset (average P/SF since 2014, Bottom Tier)

$130 P/SF

$42 Billion

Total Asset Value Facing Risk of Distress

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Historic Distressed Office Volume (Billions) Obsolete Distress (Billions) Distress % of Total Volume (RHS)

Average Per Year $6.0B / year

• One approach to quantifying distress is to utilize excess vacancy (330 MSF) and apply average psf value estimates prior to the pricing reset to arrive at estimated total value figures, which can be extended across a distress transaction cycle (last distress cycle unfolded over seven years during/after GFC) – See chart on the right.

• Overlaying the $42 billion estimated annual distressed volume across a seven-year forecast horizon shows that distressed volume will reach and exceed GFC-peak levels. • On a share (%) of total volume basis, obsolescence-related distress is expected to average 7.3%, and trend below the GFC prior peak of 11% recorded in 2009.

44

Source: MSCI Real Capital Analytics, Cushman & Wakefield Research

01 Distress will progress over the next seven years as lenders are faced with the decision to amend/modify/extend maturing loans (or take the keys back or do a lender-assisted sale).

02 Pockets of challenge and weakness will impact portions of the CRE credit space.

03 Exposures are concentrated and the impacts of distress are not going to be uniform across the industry.

Stress & Distress Key Points

05 Significant opportunity exists to optimize stressed/distressed assets and portfolios in response to changing market conditions; applies to multiple points within an asset/portfolio lifecycle, all as it applies to both asset management and capital/debt market opportunities.

04 This oncoming period will be painful for some borrowers and lenders, and it will create dislocations in the marketplace whereby certain equity or debt sources may need to step in to provide solutions to underwater owners, defaulting loans or distressed asset sales.

45

When will credit flow again?

46

Must pass other macroeconomic milestones first The credit-flow story extends to all types of businesses (not just the CRE sector)

Net Percent of Banks Tightening Standards (%)

• Approximately 1-2 quarters ahead of a

100%

Banks Curb Lending

Banks Curb Lending

Banks Curb Lending

recession, >40% banks report tightening lending standards.

Banks Curb Lending

80%

60%

• As standards tighten, business, consumer and investor sentiment typically falters as well. • Banks and other lenders typically begin loosening credit standards towards the end of a recession. • In the current downcycle,

40%

20%

0%

-20%

-40%

pencil in a gradual thawing in the credit

markets (both the business and CRE sectors) to start H1 2024.

Jun-91

Jun-94

Jun-97

Jun-00

Jun-03

Jun-06

Jun-09

Jun-12

Jun-15

Sep-17 CRE loans Jun-18

Jun-21

Mar-92

Mar-95

Mar-98

Mar-01

Mar-04

Mar-07

Mar-10

Mar-13

Mar-16

Mar-19

Mar-22

Dec-92

Dec-95

Dec-98

Dec-01

Dec-04

Dec-07

Dec-10

Dec-13

Dec-16

Dec-19

Dec-22

Sep-90

Sep-93

Sep-96

Sep-99

Sep-02

Sep-05

Sep-08

Sep-11

Sep-14

Sep-20

C&I loans - To large and middle-market firms

C&I loans - To small firms

47

Source: Federal Reserve Senior Loan Officer Opinion Survey (SLOOS)

Impact of tighter lending standards on CRE investment

% of Banks Report Stronger Loan Demand Alongside CRE Transaction Volume

% of Loan Officers Tightening Standards (Inverted) Alongside CRE Transaction Volume

CRE Quarterly Sales Volume (Billions, RHS) All CRE Loans

CRE Quarterly Sales Volume (Billions, RHS) All CRE Loans

Construction Commercial Multifamily

Construction Commercial Multifamily

20 40

$100 $150 $200 $250 $300 $350 $400

$100 $150 $200 $250 $300 $350 $400

20 40 60

-100 -80 -60 -40 -20 0

-80 -60 -40 -20 0

$0 $50

$0 $50

Jul-01

Jul-05

Jul-09

Jul-13

Jul-17

Jul-21

Jun-01

Jun-06

Jun-11

Jun-16

Jun-21

Mar-00

Mar-05

Mar-10

Mar-15

Mar-20

Dec-03

Dec-08

Dec-13

Dec-18

Sep-02

Sep-07

Sep-12

Sep-17

Sep-22

Mar-00

Mar-04

Mar-08

Mar-12

Mar-16

Mar-20

Nov-02

Nov-06

Nov-10

Nov-14

Nov-18

Nov-22

48

Source: Federal Reserve (SLOOS), MSCI Real Capital Analytics. Note: *Commercial denotes nonfarm nonresidential CRE lending.

What about property values? How far do they have to fall before we see healthy deal volumes again?

49

A lot more than this… Private-market CRE price correction still underway

190

-10% peak-to-current

170

150

+152% trough-to-peak

130

Down 35% peak-to-trough

110

90

70

50

Jun-01

Jun-02

Jun-03

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Jun-10

Jun-11

Jun-12

Jun-13

Jun-14

Jun-15

Jun-16

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21

Jun-22

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20

Dec-21

Dec-22

National All-Property Index

50

Source: MSCI Real Capital Analytics

REITs signaling a 20-50% price correction still on the horizon for private CRE market Total returns, across property types and instruments

-60% -50% -40% -30% -20% -10% 0% 10% 20%

• Public REIT pricing offers a real-time pulse of prevailing investor sentiment and valuation trends for private CRE. • While REIT prices and returns fluctuate and are naturally more volatile given their publicly-traded, more liquid nature, longer term valuation trends (such as trends over the last 12 months) provide a view into where private values are headed as private transaction-based and appraisal-based sector-level series adjust.

2.8%

-21.9% -21.0% -12.3%

-24.8% -22.7%

-29.5% -28.2%

-35.0% -31.9% -30.6%

-53.3%

Last month Year-to-date Peak-to-Trough

Source: Moody’s Analytics, S&P Dow Jones Indices LLC. Note: Last month = May 2023 over April 2023, Year-to-date = Jan-May 2023, Peak-to-trough = May 2023 over peak level recorded from June 2021 to present. Underlying data based on monthly, not daily, frequency.

51

It’s all about the 10-Year (Treasury) Interest rates are not going back to the zero-bound

Most economists expect the 10-year Treasury yield to settle in the 3.5-4% range on the other side of the recession as this is consistent with long-run nominal GDP growth

16

Forecast

14

12

10

8

6

4

3.5%

2

0

1953

1957

1961

1965

1969

1973

1977

1981

1985 Concensus

1989

1993

1997

2001

2005

2009

2013

2017

2021

2025

C&W's Baseline

52

Source: Federal Reserve, Moody’s Analytics, U.S. Congressional Budget Office, Cushman & Wakefield Research. Note: Figures are year-end.

If 10-Year goes to 3.5%, Baa goes to 5.0%

Comparative yields across other asset classes have already adjusted upward

Investment grade corporate bond yields are important because cap rates historically track well with this investment alternative.

18

Forecast

16

14

12

8 10

6

3.5% 5.0%

2 4

0

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

2013

2017

2021

2025

10-Year Treasury Yield

Baa Corporate Bond

53

Source: Federal Reserve, Moody’s Investor Services, Cushman & Wakefield Research