THE NATIONAL ECONOMY AT A GLANCE

DECEMBER 2014

the BRIEFING

THE ECONOMYDespite a global slowdown, the U.S. economy seems to be showing signs of acceleration, and expectations for the holiday season remain strong.

� U.S. Q3 GDP revised up to 3.9% from 3.5%

� Growth averaged 3.5% in three of the last four quarters

� 321,000 jobs added in November on top of 214,000 in October

� Weekly jobless claims up slightly to 292,000 the week ending Nov. 15

� Unemployment down to 5.8%

� November labor force participation rate up to 62.8% from 62.7% in September, which was the lowest rate since 1978

� Quantitative easing ended on Oct. 29

� Wage growth a sluggish 2.0% in October but finally showing some gains

� Oil supply has risen 2.2% while demand has been slowing, causing oil prices to tumble from $107 to around $56 a barrel

GLOBAL OUTLOOKWith the Eurozone and emerging markets deteriorating and the danger of deflation rising, the world economy is in its worst shape in two years, according to a Bloomberg Global Poll of international investors. The news of these slowing economies and the economic stimulus has raised global stock prices, opposite of previous announcements of slowing world growth. The consensus is that this will postpone the increase of rates by the U.S. Federal Reserve.

� Russian interest rate up 6.5 points to 17% to offset Ruble’s collapse in value

� The Eurozone continues to grapple with low investment, soaring unemployment and low to nonexistent inflation, foreshadowing its third recession in six years

� 3Q Eurozone GDP just 0.2% with Italy at -0.1%

� 2015 GDP expectations dropped to just 0.8% from 1.2%

� 2016 spring GDP expected to be 1.1%

� Inflation at a marginal 0.4%

� European Central Bank started charging for deposits in June and raised fees in September

� Growth remains sluggish in France

� 47% of industry executives say the current environment has a lack of demand

� Japan’s Q3 GDP was at -1.6% from -7.3% in Q2

� Fourth official recession in six years

� China’s Q3 GDP was 7.3%, below its 7.5% official target

� Its benchmark one-year lending rate was reduced to 5.6% and the deposit rate to 2.7%

� Chinese central bank is advancing $65 bn to 20 national and regional banks to stimulate more lending and expansion

U.S. BUSINESS � Manufacturing remains strong – factory output

climbed 1.1% in November, now above pre-recession peak

� Cyber Monday e-commerce sales up 15.6%

� Core inflation rose by just 0.2% in October or 1.7% YOY

� Retail sales climbed 0.7% in November

� Radio Shack appears headed for bankruptcy and liquidation

� Energy prices down over 48% since July

� November U.S. oil production reached 9.1 m barrels a day, the highest level since 1983

� U.S. rig count down 13% in December to 1,575

� Energy companies are re-evaluating large capital projects

U.S. MANUFACTURING INDEXES

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PURC

HASI

NG M

ANAG

ERS

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NOVEMBER 2014

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COMPANIES DRIVING PROFITSTHROUGH TRIMMING JOBS

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TOP 10 FUNDS(BILLIONS)

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LONE STAR RE FUND III $7BN

BROOKFIELD STRATEGICRE PARTNERS $4.4 BN

STARWOOD DISTRESSEDOPP FUND IX $4.2 BN

COLONY AM HOMESHOLDINGS $4.2 BN

ROCKPOINT RE FUND IV $1.9 BN

BLACKSTONE RE DEBTSTRATEGIES II $1.7 BN

ALPHA ASIA MACROTRENDS FUND X $1.6 BNTA ASSOC REALTYFUND X $1.6 BN

KKR RE PARTNERSAM $1.5 BN

LONE STAR REFUND VIII $5.1 BN

the BRIEFING is an aggregation by Tom McNearney, Transwestern chief investment officer, of other articles and reports. Tom leads Transwestern’s capital market efforts for development and investment nationwide. Tom also serves on the firm’s investment committee and board of directors, and he directs the execution and expansion of the firm’s principal investment activities across the country.

the BRIEFING | December 2014 transwestern.com

DISCLAIMERCopyright © 2014 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

� Earnings impact expected to be neutral since energy company losses are offset by gains in other sectors

� Economists see this as positive since a $30 decline in oil adds about 1% growth over a couple of years

� Gas station sales down 1.5% as gasoline drops to an average price of $2.75 per gallon

� Average family savings $350 to $750

� Consumer sentiment up to 88.8 in November from 86.4 in October

� Q3 was the best quarter for banks since the crisis, with revenue up 4.8% to $171.3 bn

� Profits up 7.3% YOY to $38.7 bn

� 25% rise in trading income

� Freddie and Fannie have lowered home mortgage down payments to 3% for some borrowers with weak credit

CAPITAL MARKETS After 30 years of declining interest rates, fixed-income investors are worried about potentially rising interest rates. In April, 67 economists surveyed by Bloomberg all predicted rates would be higher by year-end 2014. Fear of deflation and faltering growth in the EU, Japan and China caused the Fed to take a more cautious approach. These same economic conditions that depressed the U.S. equity markets in the previous years of the recovery have resulted in a significant upturn in equities around the globe. Rising rates appear to be feared more than falling GDPs and potential deflation. There seems to be a collective sigh of relief and belief that the Fed will now postpone raising rates until mid- to late 2015.

� In April, the 10-year U.S. Treasury bond was at 2.73%, compared to 2.07% the second week in December

� Fed seems now to be signaling a mid-year rate increase

� U.S. banks relaxed underwriting standards for third straight year

� Investors pulled $1.9 bn from low-rated corporate bonds in the second week of December

� Values have fallen 8% since July and average spreads have risen from 323 bps to 528 bps

COMMERCIAL REAL ESTATECommercial real estate should perform well in the current market with its relatively high yields and income protection provided by longer term leases and hard assets.

� 70% of institutional property investments reside within the top six metropolitan statistical areas

� Asian insurers are playing a bigger role in U.S. commercial real estate

� Indirect and direct CRE investments are expected to increase from $130 bn in 2013 to $205 bn by 2018

� Megafunds are doing well while new funds are struggling, according to Institutional Real Estate FundTracker

� 67% of funds raised were in 12 megafunds in the first half of 2014

� Collectively 385 funds are actively raising in the U.S. and 315 in Europe, chasing $546 bn with $221 bn targeting North America

� The Terrorism Risk Insurance Program due to expire, as Senate fails confirmation of a six-year extension by Congress

� Mezzanine market getting more competitive and stretching for deals

� Competitive market analysis reveals 67 firms actively providing high-yield financing

� WeWork Raises $355 m at nearly $5 bn valuation

� Blackstone announces sale of industrial platform, Indcor Properties, to GIC, Singapore’s sovereign wealth fund, for $8.1 bn

� CalPERS dumps hedge funds in favor of real estate – the target allocation for 2016 is 11% of $295 bn or $32.4 bn

“ The ability to improve property-level operating income has become increasingly important given the specter of higher interest rates.”

– JAMIE SHENSenior Vice President

Callan Associates