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2.1 Economic and Structural Demand Drivers Absorption across the apartment, office. retail, and warehouse sectors has closely tracked the economy over time, advancing (as a share of inventory) at roughly half the pace of GDP growth (see Exhibit 2). Economists have lamented the mediocre pace of the post-financial crisis expansion, with GDP growth averaging 2% compared with 3% in the 2000s and 4% in the 1990s.3 The recovery of CRE demand has also been somewhat weaker. However, since 2013 demand has increased slightly faster than economic growth alone would imply, courtesy of a declining homeownership rate (supporting apartments), strong job growth (office). and burgeoning e-commerce distribution (industrial).'' We believe that economic and structural support for absorption could remain firm at least through 2017. 4% f 3% ilia' .11111 illiiiii S- 2% a -1% I —1 - cr 0 Correlation = 080 -2% 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Absorption %rants &JIM, a' Ex <morn,: Anallus EGOP), C PSISEA UM DautWile .tuts tYmnapentnt Aotorcbuo Don ns Mal*, :?)I!,. Ancrott, is crAual.ws),INed Pam the ApantIont Ca mel9=0:. xtsi ftetp..ect.t. ott..r.% 8% 6% 4% 2% 0% 2% -4% tilmoJO dC10 The U.S. economy has weathered multiple headwinds over the past year, including weaker Chinese growth, a surging dollar, and financial-market volatility. The economy decelerated in late-2015 and early-2016 as manufacturing (about 15% of GDP) slipped into recession. ,'• A soft global economy and strong dollar wil€ likely continue to weigh on exports, manufacturing, and corporate profits. However, housing and consumer spending, which together constitute about 70% of GDP, are resilient and may receive additional support from lower interest rates in the wake of the UK's "Brexit" vole! Home sales, prices, and construction are rising at a solid but sustainable rale of about 5% annually and household finances are in pristine condition, with balance sheets, debt service levels, and savings rates at their healthiest levels in decades.3 A note of caution: The yield curve has flattened in recent months, a move that has historically signaled economic slowdown, Some observers have discounted [his indicator, arguing that quantitative easing and a flight to quality around the world have artificially suppressed long-term bond yields. While there may be some truth to Ihis assertion, we are cautious about drawing too much comfort from it. Formidable global headwinds will likely cap GDP growth at a moderate 2% pace through 2017. Resurgent financial volatility, prompted by concerns around China, Brexit, Italian banks, geopolitics, or other factors, represents an enduring risk to the U.S. economy. Bureau of ECOONTIC Analysis Onto es of March 2016. 5 COREA-EA. Crdles as a woo, 2016. ettfeliti 01 Econonac Analysis and Duluth's Atom Manias:meet. Dole as of Jot* 2016 &damp of Eca-tomb Amaysis. Data as of March 2016. National Aseociation of Realtors Nalool: Catto-SNlier (prices). Data as of May 2016. U.S. Real Estate Strategic Oillook I September 2016 5 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0092291 CONFIDENTIAL SDNY_GM_00238475 EFTA01388629