CohnReznick Washington Commercial Real Estate Update - Q1 2015

WASHINGTON AREA COMMERCIAL REAL ESTATE MARKET UPDATE

A CohnReznick LLP Report First Quarter 2015

TABLE OF CONTENTS EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ECONOMY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 APARTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 CONDOMINIUMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 RETAIL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 HOUSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 COMMERCIAL REAL ESTATE IN 2015: ADAPTING TO THE CHALLENGES OF SUCCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ABOUT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

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EXECUTIVE SUMMARY Despite below-average growth in 2014, the latest metro area employment report points to an improving regional economy in 2015. Together with the waning effects of federal government right-sizing, strengthening job growth will bode well for the major real estate asset types in the region. The private sector will also increasingly become the driver of Washington’s economic activity. As the national economy strengthens – thanks to sturdy job growth and high consumer confidence levels – the regional economy will likely gain more traction, creating more optimism for the local real estate markets in the year ahead.

The Washington office market is beginning to show small

Together with the waning effects of federal government right-sizing, strengthening job growth will bode well for the major real estate asset types in the region.

but positive improvements early in 2015. Net absorption is positive and rents are up, albeit modestly. Investment activity is strong with high volume and record prices, and the demand for quality space is fueling leasing activity. The office market, however, will need to continue adjusting to the new reality of lower aggregate demand as consolidations, shorter lease terms, and shadow space remain prevalent in the near term.

The regional apartment market continues to be resilient despite increased competition. Rents and vacancy experienced softness this quarter, but absorption has been record-setting. While a high volume of new units will still be delivering over the next 12 months, the improving regional job market and trends toward demographic and lifestyles changes that favor rental apartment living are good signs for the apartment market. In the near-term, however, region-wide vacancy for stabilized apartment properties will likely edge upward and rents will decline due to the robust delivery schedule of new properties and moderating (but still historically strong) projected absorption.

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EXECUTIVE SUMMARY Despite persistent rental apartment absorption, the Washington condominium market remained on a positive track during the first quarter of 2015.

A shortage of new condos continues to fuel price appreciation while larger condominiums are now being planned (and built) as the market begins to catch up with demand. Still, the current limitation on supply has kept sales volume from growing more meaningfully.

Meanwhile, the retail real estate market is showing consistent, if modest improvements.

Shopping center vacancy rates continue to decline and rents have been rising steadily since 2010. The retail market will likely gather momentum through the rest of 2015 and into 2016 as national consumer confidence and spending continue to improve and spur local retail spending.

Momentum has slowed in the Washington area for-sale housing market. Average prices increased year-over-year but at a much slower pace, while average days on market rose above the longterm average during the first quarter of 2015.

Buyers in the Washington metro area have taken advantage of moderating price growth, leading to higher sales volume. Price increases will likely remain at modest levels in the short term.

In summary, the Washington area’s commercial real estate markets are likely to experience a mixed 2015, with strengthening condominium and retail markets, and muted but still healthy apartment, office, and single-family housing markets.

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ECONOMY NATIONAL ECONOMY The national economy is off to a healthy start in 2015. Job growth remains robust, the unemployment rate continues to decline, GDP growth has been steady for the past three quarters, and the S&P 500 has set record highs numerous times. Improved employment growth during recent months and declines in energy prices are keeping consumer confidence and spending near pre-recession levels. We expect the momentum from the past year to continue in 2015 and through approximately 2018. Global economic and geo-political events could cause some fluctuations or even a derailment, but the overall trend should be positive.

The national economy added 3.3 million new payroll jobs (not seasonally adjusted) during the 12 months ending February 2015. This compares to the 25-year annual average of 1.2 million jobs. The private sector accounted for nearly all of the recent net additions while the public sector added 91,000 positions. Recent month-to-month gains (seasonally adjusted) were robust at the end of 2014 and showed continued strength at the start of 2015: • October 2014: 221,000 • November 2014: 423,000 • December 2014: 329,000 • January 2015: 239,000 (Preliminary) • February 2015: 295,000 (Preliminary) As of the 12 months ending February 2015, the top four sectors in job gains were Professional/Business Services, Education/Health Services, Leisure/Hospitality, and Mining/Construction/Manufacturing – adding 2.1 million new jobs, or 63% of total new employment. The public sector has added jobs for nine consecutive months after shedding jobs during the previous 44, and nearly all of this growth stems from state and local governments. For the first time in 47 months, the federal government sector also contributed to job growth, adding 4,000 jobs on a 12 month net basis.

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ECONOMY The unemployment rate (seasonally adjusted) declined to 5.5% as of February 2015 from 6.7% one year earlier. This decline occurred despite the labor force increasing 0.8% during the same time period. In general, the unemployment rate will likely edge down over the next year as the economic expansion continues, hiring accelerates, and uncertainty dissipates. In the short term, unemployment may increase slightly as an improving economy encourages even more people to rejoin the labor force.

The public sector has added jobs for nine consecutive months after shedding jobs during the previous 44, and nearly all of this growth stems from state and local governments.

Real GDP has now recorded strong growth for three consecutive quarters. Real GDP increased by an annualized rate of 4.6% during the second quarter of 2014, 5.0% during the third quarter of 2014, and 2.2% (the government’s second estimate) in the fourth quarter of 2014. The increase in real GDP growth during the fourth quarter stemmed from a rise in personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment. According to the most recent report from the Federal Reserve Bank of Philadelphia, real GDP growth is forecasted to be 2.7% in the first quarter of 2015 and 3.2% in 2015 overall. Looking further ahead, real GDP is predicted to average 2.9% in 2016, 2.7% in 2017, and 2.7% in 2018.

The housing market is slowing nationally on a year-over-year basis and is now more in line with the pace of overall economic growth. Inventory, which had been very low in some metro areas, is gradually normalizing, easing pricing pressure. Home prices in the 20 major metro areas rose 4.5% during the 12 months ending December 2014, according to the most recent data available from S&P/Case-Shiller.

Although these key indicators point to healthy economic growth, underemployment and stagnant wages are issues where the national economy has room for improvement. We expect progress in these areas to be slow and steady but most importantly positive over the next few years. Despite these current shortcomings, the national economy is likely to continue experiencing sturdy growth over the next few years. It will be spurred by supportive monetary policy, increasing home prices and equity values (despite some volatility), and a decreasing drag from fiscal policy. This growth cycle likely will proceed as it has for more than five years now: on a bumpy – but upward – trajectory.

Specifically, we believe the economic outlook is as follows: • Real GDP growth: 3.0% in 2015.

• Payroll jobs: 2.6 million added in 2014; modestly stronger growth in 2015.

• Housing: Price appreciation of 3% to 5% in 2015.

• Unemployment rate: 5.2% to 5.6% in 2015.

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ECONOMY REGIONAL ECONOMY

PAYROLL JOB GROWTH

Selected Metro Areas | 12 Months Ending January 2015 Figure 1

For the 12 months ending January 2015, the Washington metro area economy added 46,300 jobs. This compares

THOUSANDS OF NEW PAYROLL JOBS

250

favorably with the 20-year average of 41,700 net new

200

jobs (although the growth is modest for a post-recession recovery cycle). This is welcome news after weak growth in

150

calendar year 2014. Growth in the private sector combined

100

with pent-up demand for goods and services will help 46.3

50 0

sustain the positive job growth trend for the balance of the recovery cycle, likely through 2018. See Figure 1.

LA Basin NY

DFW SF Bay Hou

Atl South FL Chi

Phx Denver Bos

Was

As of the 12 months ending January 2015, the top four

Source: Bureau of Labor Statistics, Delta Associates; April 2015.

sectors for job growth in the Washington metro area are Professional/Business Services, Leisure/Hospitality, Education/Health, and State/Local Government. In these four sectors alone, a total of 36,300 new jobs were added to the regional economy. The federal government also experienced its first year-over-year positive (albeit modest) job gain since December 2012. See Figure 2.

The recent regional job growth numbers helped keep the region’s unemployment rate low. The Washington metro area had the fourth-lowest unemployment rate among the nation’s largest metro areas. The unemployment rate was 4.9% in January 2015, down 40 basis points from 5.3% one year prior. This compares to the national (seasonally adjusted) rate of 5.7% in January 2015, which is down 90 basis points from January 2014. We expect the Washington metro area’s unemployment rate to hold in the 5% range during 2015, as new jobs are created while the labor force

PAYROLL JOB GROWTH

also continues to grow.

Washington Metro Area | 12 Months Ending January 2015 Figure 2

The Gross Regional Product (GRP) for Washington is

Professional/Business Services

expected to grow to $501.7 billion in 2015 – a 5.5% increase

Leisure/Hospitality Education/Health

from the estimated $475.5 billion in 2014. The federal

State and Local Government Construction/Mining

Retail Trade

+50,400

government is the largest component of the Washington

Transportation/Utilities

area economy, as its spending touches every job sector.

Other Services Wholesale Trade

However, this share of spending is shrinking. Federal

Federal Government Manufacturing

government spending currently accounts for approximately

-4,100

Information

Financial Activities

-6,000

-2,000

2,000

6,000

JOB CHANGE Source: Bureau of Labor Statistics, Delta Associates; April 2015.

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10,000

14,000

35% of GRP. By 2018, we expect this share to shrink to 29%, as the federal government continues to control spending and the private sector picks up the slack.

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ECONOMY The Washington metro area economy should continue to build momentum as the region progresses through 2015 and especially as we approach 2016. Federal spending will remain tight, and we expect private sector firms to be the cornerstone of employment growth in the period ahead.

Creating a supportive environment for new companies, especially tech companies, will be critical in order to spur future growth. We estimate an annual average of 47,300 payroll jobs will be added to the metro area economy during the five-year period from 2015 to 2019. This is sufficient to support a healthy commercial real estate industry, but below the levels experienced in most recent expansion cycles.

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ECONOMY HIGHLIGHTS GDP PERCENT CHANGE

PAYROLL JOB GROWTH PAYROLL JOB GROWTH United States | Year-Over-Year

United States CHANGE GDP PERCENT

United States | Year-Over-Year 3,500

6%

2.2%

4%

Public Sector

2,500

500

Q4 10

Q2 11

Q4 11

Q2 12

Q4 12

Q2 13

Q4 13

Q2 14

Q4 14

Note: Annualized.

Source: Bureau of Economic Analysis, Delta Associates; April 2015.

Note: Data are not seasonally adjusted.

Source: Bureau of Labor Statistics, Delta Associates; April 2015.

SHARE OF GRP

PAYROLL JOB GROWTH

Washington Metro Area | 2015 Projection

Washington Metro Area

Federal Spending 34%

35%

Technology Building Industry

$502 Billion

International Business Health/Education

3% 15%

5% 5%

5%

Hospitality Other

Source: Dr. Fuller, Delta Associates; October Source: Dr.Stephen Stephen Fuller, U.S. Conference of2014.

Mayors, Delta Associates; April 2015.

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Washington MetroGROWTH Area PAYROLL JOB

THOUSANDS OF NEW PAYROLL JOBS

Washington SHARE OF Metro GRP Area | 2015 Projection

Jan. 15

Q2 10

Nov. 14

Q4 09

Sep. 14

Q2 09

Jul. 14

Q4 08

May. 14

Q2 08

Mar. 14

Q4 07

Jan. 14

-500 Q2 07

Nov. 13

0

-8%

Sep. 13

-6%

1,000

Jul. 13

-4%

1,500

May. 13

-2%

2,000

Mar. 13

0%

Jan. 13

2%

-10%

Private Sector

3,000

% OF TOTAL

ANNUAL GDP CHANGE IN 2009 CONSTANT DOLLARS

United States

150 5-Year Projected Average = 47,300/Year

100

50

0

-50

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Source: Bureau of Labor Statistics, Dr. Stephen Fuller, Delta Associates; April 2015.

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OFFICE SUMMARY AND FORECAST During the first quarter of 2015, indicators show small but positive improvements for the Washington metro area’s office market. Net absorption is positive, rents are up, and investment sales volume remains strong while sale prices hit new records. There is optimism for the market in 2015 as many of the challenges that were holding back the local economy are having less of an impact. For example, contractors have shifted a large percentage of business to the private sector, minimizing the impacts from federal austerity. Additionally, regional job growth is showing promise and expected to steadily improve over the next few years, supporting the need for more office space. The market will need to continue adjusting to the new reality of lower demand that is increasingly focused on higher quality space. Pressure from shorter lease terms, densification of space, and shadow space is still keeping effective rents from rising more emphatically. This expansion cycle will likely stay modest compared with recent growth periods, but will be an improvement nonetheless from the last few years. We look for meaningful market momentum by 2016, with greater traction in 2017.

There is optimism for the market in 2015 as many of the challenges that were holding back the local economy are having less of an impact.

NET ABSORPTION Despite numerous factors putting downward pressure on demand for office space, net absorption remained positive in the first quarter of 2015. Net absorption in the Washington metro area totaled positive 424,000 SF in the first quarter of 2015 compared to negative 292,000 SF in the fourth quarter of 2014. This compares to a quarterly average of positive 458,000 SF in 2013. While first quarter office absorption was below the long term historic rate, the positive results are viewed as a good sign given that regional job growth remains muted, federal austerity continues to impact contractors, and densification is lowering the demand for office space.

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OFFICE net absorption totaling 488,000 SF during the first quarter of 2015, up from 397,000 SF last quarter. With tenants continuing to consolidate operations, demand over the next two years will likely gain more momentum in 2016. See Figure 1.

VACANCY The Washington metro area’s direct vacancy rate (for multi-tenant and single-tenant buildings) at the end of the first quarter of 2015 is 11.1%, unchanged from year-end

OFFICE NET ABSORPTION

Washington Metro Area | 2011 – First Quarter 2015 Figure 1 2,000

NET ABSORPTION (THOUSANDS OF SF)

The flight to quality office space also continues with Class A

1,000 500 0 -500 -1,000

2014 and one year prior. The metro-wide direct vacancy rate for all classes of multi-tenant office space was 14.5%

1,500

2011

2012

2013

2014

Q1 2015

Source: Delta Associates; April 2015.

at the end of the first quarter of 2015. (The multi-tenant vacancy rate is higher because the single-tenant market properties.) Meanwhile, the metro area’s direct Class A vacancy rate at first quarter is 13.1%. As tenants remain hesitant to make significant commitments for future space, we expect the direct vacancy rate to continue edging slightly upward. Still, the Washington metro area office market has one of the lowest vacancy rates among large markets in the United States. New York City has the lowest vacancy rate at 6.1% (exclusive of Northern New Jersey and Long Island). If job growth picks up and densification moderates as most expect, the metro-wide vacancy rate will likely edge down to 10.5% at March 2017. See Figure 2.

OFFICE VACANCY RATES

Select Markets | First Quarter 2015 Figure 2 DIRECT VACANCY RATE

tends to be more stable and includes many fully occupied

25% 20% 15%

11.1% 10% 5% 0%

NYC SF

Bos Hou Was LA

Mia Den OC Chi

Atl

Dal Phx

Note: Includes owner-occupied and single-tenant space.

Source: Delta Associates; April 2015.

PIPELINE There was 4.9 million SF of office space under construction in the Washington metro area at first quarter 2015. A significant portion of office space under construction is the result of Metrorail’s Silver Line. Northern Virginia accounts for 58% of total construction throughout the metro area with about 2.8 million SF of space currently under construction. There will be few groundbreakings during the rest of 2015 that have little or no pre-leasing in place – unless the developer starts the work using internal resources or the project is adjacent to rail service. Furthermore, tenants in the market will continue seeking more modern, environmentally-efficient office space. This will likely make renovations of vacated Class B/C buildings more common.

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OFFICE As of March 2015, there was 31.5 million SF of office space planned in the Washington metro area and 67.7 million SF proposed. Given current market conditions, we expect few, if any, of the planned projects to deliver within the next two years.

Competition for large tenants is likely to remain fierce in the near-term and concession packages are expected to remain elevated in 2015.

EFFECTIVE RENTS The average effective office rent increased to $29.46/SF during the first quarter of 2015, up 1.2% from year-end 2014.

Competition for large tenants is likely to remain fierce in the near-term and concession packages are expected to remain elevated in 2015.

With little organic growth likely in 2015, concessions offer owners a way to poach tenants from other buildings while keeping face rents intact. The Washington region will not likely experience material gains in rent until 2016. However, newly-constructed office buildings are likely to experience rent growth in the near-term as tenant demand for Class A space, especially at Metrorail-served locations, has been relatively strong. As mentioned, Class B buildings that are renovated to Class A status also may support rent increases.

INVESTMENT SALES VOLUME Investment sales totaled $2.4 billion during the first quarter of 2015, compared to $2.7 billion during the first quarter of 2014. Sales prices averaged $446/SF in the Washington metro area during the past 12 months. This compares to $380/ SF one year prior. Transactions during this quarter include two office buildings in the metro area that traded for record prices of more than $1,000/SF. This signifies that, despite its challenges, investors remain confident in the future of the Washington metro area office market.

CAP RATES The average cap rate for core office assets in the Washington metro area, on a 12-month trailing basis, was 5.5% at the end of the fourth quarter of 2014, according to Real Capital Analytics. The average cap rate is down 70 basis points from one year earlier. We believe the 12-month trailing average cap rate will be in the low-6% range in 2015. However, trophy assets will likely continue to trade at lower cap rates. Cap rates for recent Class A/Trophy trades have been in the high-4% to mid-5% range.

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OFFICE HIGHLIGHTS SUMMARY OF OFFICE MARKET INDICATORS

OFFICE PROJECTS IN THE PIPELINE OFFICE PROJECTS IN | THE PIPELINE Washington Metro Area First Quarter 2015 Washington Metro Area | First Quarter 2015

Washington Metro Area | First Quarter 2015 ALL CLASSES

CLASS A

406,024,526

174,761,187

Vacant Available (SF)

45,091,644

22,877,405

Direct Vacancy Rate

11.1%

13.1%

Rentable Building Area (SF)2

424,000

488,000

2014

357,000

3,204,000

2013

1,831,000

822,000

1.2%

--

Net Absorption (SF) - Q1 2015

% Rent Change Q4 2014 - Q1 2015

INVESTMENT SALES YTD

ALL CLASSES $2,368,000,000

Total Sales

$446

Average Price per SF

Under Construction (SF)3

ALL CLASSES

CLASS A 1

4,908,074

4,846,574

PROJECTIONS FOR MAR 2017 Direct Available Space (SF) After Proj. Demand Direct Vacancy Rate

Proposed

35,000

No VA

Sub MD

The District

Source: REIS, Delta Associates; April 2015.

36

Number of Transactions

DEVELOPMENT PIPELINE

Planned

70,000

0

ALL CLASSES 43,320,770 10.5%

1 Class A is defined as properties that tend to be the best in the market, have above-average design, construction and finish, minimal or no deferred maintenance, superior locations, achieve the highest rents, and have tenants of strong credit quality. Class A RBA per REIS. 2 Does not include buildings under construction or buildings owned by the government.

3 Source: REIS.

Source: Delta Associates; April 2015.

OFFICE DEMAND AND DELIVERIES IN NEXT TWO YEARS

OFFICE DEMAND AND DELIVERIES IN NEXT2015 TWO YEARS Washington Metro Area | First Quarter Washington Metro Area | First Quarter 2015 8.0

IN MILLIONS OF SF

CURRENT INDICATORS

IN THOUSANDS OF SF

Under Construction 1

Demand

Under Construction

Planned

7.1 6.0

0.7 4.9

4.0

2.0

0.0

Source: Delta Associates; April 2015.

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APARTMENTS SUMMARY AND FORECAST The Washington metro area apartment market experienced softness in rents and vacancy during the first quarter of 2015 as competition remains tight. Still, the market’s resilience was apparent as the region broke yet another absorption record. A large slate of scheduled deliveries could hinder positive rent growth over the next 12 months, but several niche-specific opportunities will likely keep market performance up to par in the near term. For example, prospects remain bright for developers looking to upgrade welllocated Class B and Class C apartment buildings especially as Washington metro area renters become more concerned about affordability. By 2016, rents will likely begin to rise as the volume of new apartment deliveries tapers off; we expect rent growth recovering to the 2.0% - 3.0% range into 2017. Growth by 2018 will begin to approach long-term average rates.

ANNUAL CLASS A APARTMENT NET ABSORPTION Washington Metro Area | First Quarter 2015 Figure 1 14,000

ABSORPTION The Washington apartment market has been able to

12,623

maintain record levels of absorption due in part to recent demographic and lifestyle changes that indicate a

10,000

preference for rental living. The region is also experiencing

NET ABSORPTION OF UNITS

12,000

8,000

gains in jobs at income levels that support renting

6,000

rather than owning. At first quarter 2015, the metro area

4,000

experienced another record setting Class A absorption,

2,000

as 12,623 Class A units were absorbed during the past 12

0

months – almost double the region’s 10-year average of 6,379 units. Unlike past trends, this record-setting absorption

Source: Delta Associates; April 2015.

was not at the expense of the Class B market, which also experienced positive absorption of 3,781 units. See Figure 1.

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APARTMENTS APARTMENT VACANCY RATES

VACANCY The Washington metro area stabilized vacancy rates for all

Major Apartment Markets | All Classes of Apartments Figure 2 7.0%

national rate. Class A vacancy, however, rose slightly to 4.6%

6.0%

from 4.5% in March 2014 as a high volume of new product became available throughout the metro area. Notably, lowrise Class A vacancy rate in the metro area is unchanged from a year ago. Given the large slate of scheduled deliveries, the region-wide vacancy rate for stabilized Class A

VACANCY RATE

classes of apartments at first quarter 2015 is 4.2%, similar to the

apartment properties will likely edge upward from 4.6% today to near 6% before declining to approximately 4.2% by the first quarter of 2018. See Figure 2.

5.0%

4.2%

4.0% 3.0% 2.0% 1.0% 0.0%

LA

NY

Chi Wash* Phx

DFW

Atl

Hou

Phi

Balt

*Fourth quarter data except for Washington, which is as of First Quarter 2015.

Source: REIS, Delta Associates; April 2015.

RENTS Metro area effective rents for all classes of investment grade apartments rose by 0.4% over the past year. Class A rents declined by 0.6% while Class B rents rose by 1.9%. Rent performance for low-rise product in both asset classes outperformed mid- and high-rise product. Low-rise Class A rents were unchanged while mid- and high-rise rents decreased by 1.4%. Class B low-rise rents increased by 2.5% and mid- and high-rise rents increased by 1.0%. Class A rents will likely decline due to a robust delivery schedule of new product and lower (but still historically strong) projected absorption.

PIPELINE

APARTMENT DEVELOPMENT PIPELINE Washington Metro Area | First Quarter 2015 Figure 3 MARKET RATE UNITS PLANNED AND U/C

45,000

The pipeline of planned deliveries over the next 36 months 38,943

edged down during the first quarter of 2015, to 38,943 units.

Since 2013, the 36-month pipeline has hovered between 38,000 and 40,000 units, but the pipeline is expected to

30,000

shrink to a more healthy level over the next 12 to 24 months as financial feasibility becomes more difficult in the face of

15,000

rising construction costs and relatively flat rents. Most of the pipeline decline will come from projects that delay starting

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Source: Delta Associates; April 2015.

construction, as only 6% of the 24,130 units currently under construction (but not yet leasing) metro-wide are of a scale suitable for switching to condominiums before delivery. Twelve projects with approximately 3,159 units started construction in the first quarter of 2015. The long-term quarterly starts average throughout the metro area is 2,275 units. See Figure 3.

We expect the pipeline to shrink to a more healthy level over the next 12 to 24 months as financial feasibility becomes more difficult in the face of rising construction costs and relatively flat rents.

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APARTMENTS The Washington investment sales market experienced an increase in Class A sales activity in 2014, with $1.78 billion of multifamily Class A building sales (seven lowrise properties and 11 mid-/high-rise properties), up 6% from 2013. The average per unit price for 2014 sales was 1.0% lower than 2013 for low-rise units (at $230,880), meanwhile high-rise prices were up 7.7% from 2013 (at $459,060). Through March 2015, we noted $324 million of multifamily Class A building transaction volume in three trades. Meanwhile, a total of 14 multifamily land sales closed in 2014, totaling $217 million, with the capacity for more than 3,800 multifamily units, compared with

TOTAL APARTMENT INVESTOR RETURNS Washington Metro Area vs. United States 2005 – Fourth Quarter 2014 Figure 4 TOTAL RETURN ( IN C OM E AN D AP P REC IATION )

INVESTMENT SALES

40

U.S.

Washington Metro

30 20 10 0 -10 -20 -30 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: NCREIF, Delta Associates; April 2015.

$282 million in sales during 2013 with the capacity for more than 4,200 units. So far in 2015, no multifamily land sales have been recorded.

Of note, the Washington market was early to recover from the 2009 recession and was also early to peak in investment returns. We expect total return on apartment investment (cash flow plus appreciation, as reported

by NCREIF) in the Washington market to likely continue tracking below the national average and lower than recent quarters as rent growth slows. See Figure 4.

CAP RATES Apartment cap rates held steady at cyclical lows in 2014 due to record absorption counterbalancing a near-record level of pipeline. Based on Delta Associates’ annual yearend Market Maker Survey, apartments have been and will remain in favor as an asset class. Cap rates, however, will likely edge up in the future due to macro-economic conditions and a robust pipeline set to deliver in 2015, increasing competition among property owners.

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APARTMENTS HIGHLIGHTS SUMMARY OF APARTMENT MARKET INDICATORS

CLASS A APARTMENT DEMAND AND DELIVERIES IN NEXT THREE YEARS

CLASS A APARTMENT DEMAND DELIVERIES IN NEXT Washington Metro Area AND | First Quarter 2015THREE YEARS

Washington Metro Area | First Quarter 2015 CLASS A

CLASS B

$1,874

$1,573

$1,867

$1,556

Rent Increase/Annum Since Mar 2014¹

-0.6%

1.9%

Vacancy Rate

4.6%

3.4%

4.5%

5.1%

Effective Rents Comparison at 3/14

Comparison at 3/14 Net Absorption Q1 2015

16,404

Q1 2014

7,720

DEVELOPMENT PIPELINE

CLASS A

Demand

Under Construction

Planned

5,820 33,123

30

9,167 / year 15

0

Source: Delta Associates; April 2015.

Q2 2014 - Q1 2015

12,353

Projected Deliveries Q2 15 - Q1 16

16,907

Q2 16 - Q1 17

10,220

Q2 17 - Q1 18

2,867

Starts

Q1 2015

3,159

Q2 2014 - Q1 2015

10,712

36-Month Pipeline

At 3/2015

38,943

At 3/2014

40,120

PROJECTIONS FOR MAR 2018

ALL CLASSES

ANNUAL CLASS A APARTMENT RENT GROWTH

ANNUAL CLASS APARTMENT RENT CHANGE Washington MetroA Area Washington Metro Area 10%

PERCENT EFFECTIVE RENT CHANGE

Deliveries

8% 6% 4% 2% 0% -2% -4%

44,101

Available Units

4.2%

Stabilized Vacancy 1

45

MARKET RATE UNITS IN THOUSANDS

CURRENT INDICATORS

Washington Metro Area | First Quarter 2015

*Annual rent change at First Quarter 2015 is -0.6%.

Source: Delta Associates; April 2015.

“Same-store” (comparable unit) rent comparison.

Source: Delta Associates; April 2015.

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CONDOMINIUMS SUMMARY AND FORECAST A shortage of new condos continues to fuel price appreciation in the Washington metro area market. The limited condominium supply has also kept sales volume from growing more meaningfully. Net sales in the first quarter 2015 are down slightly from year-end 2014 while prices rose by 7.6% metro-wide. The anticipated tapering of quantitative easing by the Federal Reserve will likely increase mortgage rates and, in effect, spur sales activity as buyers jump into the market before rates get too high. The extent to which this affects the condominium market, however, depends on how fast the rates rise. Conversions, on the other hand, are not likely to play a significant role in this cycle as they did in the last, especially in suburban jurisdictions. The eventual ramping up of new condo supply will be largely built from scratch, taking a longer period of time, supplemented with smaller conversions of older apartment buildings, mostly inside the Beltway.

NEW CONDOMINIUM SALES ACTIVITY

SALES VOLUME

Washington Metro Area | First Quarter 2015 Figure 1

During the first quarter of 2015, there were 370 net sales metro-wide. Over the past 12 months, however, sales are

NET SALES

800

down 13% from the prior 12-month period. It should be

600

noted that the new condo sales activity early in 2015 is 370

400

on-par with market performance during the first quarter of 2014. Limited supply, rather than concerns over demand, is largely suppressing sales volume throughout

200

0

the region. There will likely be 1,600 to 2,000 new unit Q1 Q2 Q3 Q4

2010

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2011

2012

2013

Q1 Q2 Q3 Q4 Q1

2014

2015

sales in 2015 and higher in 2016 as more condominium product is brought to market. See Figure 1.

Source: Delta Associates; April 2015.

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CONDOMINIUMS EFFECTIVE NEW CONDOMINIUM SALES PRICE CHANGE

PRICES The average effective price per square foot for “same-store”

Washington Metro Area | First Quarter 2015 Figure 2

new condominium sales in the metro area rose by 7.6% over

10%

7.6%

price increases will remain temperate because fewer newly built, desirable units are equipped to dilute the effect of “dog” units (those that face the dumpster or have poor floor plans) on price. Percentage price increases is expected to be in the mid-

% CHANGE

the past 12 months. As the inventory of fresh units stabilizes, 4%

-2%

single digits over the next 24 to 36 months. See Figure 2.

-8%

CONCESSIONS

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014 2015

Source: Delta Associates; April 2015.

Concession rates have decreased by 50 basis points metrowide since March 2014, with concessions remaining lowest in the inner areas of the region. Concessions now average approximately below 1.4% of asking price.

PIPELINE

CONDOMINIUMS ACTIVELY MARKETING OR UNDER CONSTRUCTION

The condominium pipeline has increased steadily

Washington Metro Area | First Quarter 2015 Figure 3

in recent months. In particular, the region is seeing more condominium projects with at least 100

MARKET RATE UNITS

4,500

3,226 3,000

units return to the drawing board while a few are already under construction (or will be underway in 2015). Approximately 1,886 condo units in 30 projects started construction in 2014 — the highest

1,500

0

annual total since the middle of the last decade.

An additional 1,912 units will likely start construction 3/10

3/11

Source: Delta Associates; April 2015.

3/12

3/13

3/14

3/15

in 2015, excluding conversions and switches from rentals not already announced.

Meanwhile, the number of unsold units in projects currently marketing or under construction (but not yet marketing) was 3,226 units as of March 2015, down slightly since year-end 2014. This decrease, is temporary, however. This number is expected to resume its cyclical rise over the next six months, as switches and conversions reappear in the market. See Figure 3.

Developers will likely continue to benefit from the supply-demand balance in the metro area given limited new unit supply and rising prices. Simultaneously, resale listings remain scarce. As a result, the metro area is likely to experience new unit price increases and improved development opportunities through 2017.

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CONDOMINIUMS HIGHLIGHTS SUMMARY OF CONDOMINIUM MARKET INDICATORS Washington Metro Area | First Quarter 2015

CONDOMINIUM DEMAND AND DELIVERIES IN NEXT YEARS CONDOMINIUM DEMAND ANDTHREE DELIVERIES IN Washington Metro Area | First Quarter 2015 NEXT THREE YEARS Washington Metro Area | First Quarter 2015

370

12 months ending March 2015

1,470

12 months ending March 2014

1,684

New Unit Average Price per SF

$360

% Change in Avg. Effective PSF since March 2014

7.6%

Concessions as % of Asking Price at March 2015

-1.4%

DEVELOPMENT PIPELINE

NUMBER OF UNITS

Unsold Units in Projects Currently Marketing or Under Construction

3,226

Planned to Deliver within 36 Months

3,288

Total 36 Month Pipeline

6,514

Planned/Rumored Long Term

7,541

Planned Condominium or Rental

Source: Delta Associates; April 2015.

Under Construction

Planned*

6,600 / year 2,466

3,500

3,226

*Accounts for attrition.

Source: Delta Associates; April 2015.

CONDOMINIUM UNIT DELIVERIES CONDOMINIUM UNIT DELIVERIES

Washington Metro Area | First Quarter Washington Metro Area | First Quarter 2015 2015 Column1

12,000

53,090

1 “Sold” units defined as a binding contract of sale with deposit.

Includes multifamily rental conversions, but excludes age-restricted and townhouse properties. These sales are net of contract fall-outs.

Demand

7,000

0

MARKET RATE UNITS

New Unit Sales1

MARKET RATE UNITS

CURRENT INDICATORS

8,000

4,000 Normalized Demand Range

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Delta Associates; April 2015.

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RETAIL SUMMARY AND FORECAST The Washington metro area retail market is showing consistent, if modest, improvement. The decline in vacancy rates continues, while neighborhood/community shopping center rents have been rising steadily since 2010. These trends are expected to gain more traction through the rest of 2015 and into 2016, especially as national consumer confidence and spending continue to improve and spur local retail spending. Retail tenants are seeking space in newer, higher-quality centers. This will likely further drive the demand for quality mixed-use projects in areas with a more urban feel. Furthermore, the rise of the metro area as a destination for living, working, and shopping – thanks partly to Washington’s ability to attract Millennials – will continue to attract retailers to the region.

PIPELINE OF ALL SHOPPING CENTER TYPES Washington Metro Area Suburbs | First Quarter 2015 Figure 1

THOUSANDS OF SQUARE FEET

12000

VACANCY Although the vacancy rate in neighborhood and community centers across the metro area has been

8,234

8000

6,585

declining since 2012, it remains elevated relative to prerecession averages. The vacancy rate for shopping centers in the suburbs of Washington was at 7.0%, a decline of 25 basis points from 7.25% during the first quarter of 2014.

4000

0

2,934

Under Construction

Source: REIS, Delta Associates; April 2015.

Planned

Proposed

PIPELINE There is 2.9 million SF of shopping center space under construction across all shopping center types in the Washington metro area suburbs. As of April 2015, 13 grocery-

anchored shopping centers are under construction in the metro area. There are 6.5 million SF of planned (i.e., permitting completed, awaiting groundbreaking) shopping centers throughout the region. Meanwhile, proposed centers – for which permits and financing have yet to be secured – total 8.2 million SF. See Figure 1.

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RETAIL RENTS Since 2010, effective rents at neighborhood and community centers have been climbing modestly, and they continued to do so in the first quarter of 2015.

Average effective rent rose in Washington suburban centers by 1.8% from 2013 to 2014. The average effective rent per square foot in the metro area was $24.05, compared to $23.62 at first quarter 2014.

INVESTMENT SALES Investor interest in grocery-anchored centers is rooted in this property type’s steady performance through various stages of the economic cycle. In the Washington metro area suburbs, investment sales of grocery-anchored shopping totaled $185 million (averaging $530/SF) in the first quarter, compared to $323 million ($353/SF) in all of 2014.

See Retail Highlights.

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RETAIL HIGHLIGHTS NEIGHBORHOOD/COMMUNITY SHOPPING CENTER EFFECTIVE RENT NEIGHBORHOOD/COMMUNITY SHOPPING CENTER PER SQUARE FOOT EFFECTIVE RENT PER SQUARE FOOT

Washington Metro Area Suburbs| First Quarter 2015 Washington Metro Area Suburbs | First Quarter 2015

NEIGHBORHOOD/COMMUNITY SHOPPING CENTER SPACE PER NEIGHBORHOOD/COMMUNITY SHOPPING CAPITA CENTER SPACE PER CAPITA

Washington Metro Area AreaSuburbs Suburbs| |First First Quarter 2015 Washington Metro Quarter 2015 30

$23.98

$24.05

$24.00

$23.55 $23.50

$23.00

$23.39

2012

2013

2014

SF/CAPITA

EFFECTIVE RENT PER SF

$24.50

NEIGHBORHOOD/COMMUNITY NEIGHBORHOOD/COMMUNITY SHOPPING SHOPPING CENTER VACANCY RATES CENTER VACANCY Washington Metro AreaRATES Suburbs | First Quarter 2015 Washington Metro Area Suburbs | First Quarter 2015

2012

2013

2014

2015*

Washington MetroArea AreaSuburbs Suburbs Washington Metro $800

8.0% 8.0%

7.8%

7.5%

7.0%

7.0%

7.0%

2014

2015*

SALES IN MILLIONS

VACANCY RATE

16.3

GROCERY-ANCHORED SHOPPING CENTER INVESTMENT SALES GROCERY-ANCHORED SHOPPING CENTER INVESTMENT SALES

8.5%

$400

$185 M

$0

2012

*As of March 2015.

Source: REIS, Delta Associates; April 2015.

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16.5

*As of March 2015.

Source: REIS, Census Bureau, Delta Associates; April 2015.

*As of March 2015.

Source: REIS, Delta Associates; April 2015..

6.5%

27.9

15

0

2015*

27.5

2013

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

*January through March 2015. Note: Excludes properties under contract.

Source: Real Capital Analytics, Delta Associates; April 2015.

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HOUSING SUMMARY AND FORECAST Momentum has slowed in the Washington metro area housing market. Average prices during the first quarter of 2015 increased but at a much slower pace, just 2.5% year-over-year. According to the most recent home price index by S&P/Case-Shiller, home prices in Washington are rising at the slowest pace among the nation’s 20 largest metropolitan areas. Furthermore, average days on market in the metro area has risen above the 10-year average, indicating that the housing market expansion is leveling off.

Despite these indicators, there is some good news: the recent slowdown in price gains has helped improve sales activity. Meanwhile, available housing inventory in the metro area picked up during the first quarter of 2015 as optimism about the Washington economy grew and homeowners felt confident about putting their houses up for sale. As the limitations in supply continue to ease, local price growth will likely remain in the modest rage of 2% to 4% annually in the short term. Over the long term, however, owning a home in the Washington area has been a solid investment, with price growth of 169% over the past 20 years — a compound average of over 5% per year.

PRICES

HOME SALES AVERAGE PRICE CHANGE Washington Metro Area Figure 1

In the first quarter of 2015, the average sale price of a Washington-area home was $451,640 — an increase

12%

of 2.5% from one year earlier. This rate of price growth

PRICE CHANGE

8%

2.5%

4%

compares to 5.5% in the same quarter in 2014 and 9.2% in 2013. Price growth is likely to remain below the long-

0%

term average in the near term. This slowdown in price

-4%

increases, however, could boost demand for housing

-8%

this year. See Figure 1.

-12%

*As of First Quarter 2015.

Source: MRIS, Delta Associates; April 2015.

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HOUSING UNIT VOLUME Sales activity in Washington is off to a healthy start. As prices rise more slowly, unit volume sold during the first quarter of 2015 went up 8.8% from a year ago, with sales in March 2015 marking the fourth month in a row of year-over-year increase in total sales. This is in contrast to the decline in sales throughout 2014 when volume over the year dipped as low as 7.1%. Slower price gains and encouraging news on the regional economy are positive factors that will continue to support strong sales activity in the near-term.

The metro area has an average of 2.8 months of for-sale inventory at the end of first quarter 2015 with the number the number of homes actively listed at the end of first quarter 2014. Newly optimistic Washington area residents are putting their homes on the market thanks to growing consumer confidence nationwide. Although the sales pace this quarter is still below the long-term average of 3.9 months, the inventory crunch will likely continue to ease as price gains – though modest – continue, and as the regional job market improves steadily. See Figure 2.

DAYS ON MARKET The days on market average is 69 days as of first quarter

Washington Metro Area | First Quarter 2015 Figure 2 30%

15 12

15%

9 0% 6 -15%

-30%

3

04

05

06

08

09

10

11

12

13

14

15

0

ANNUAL AVERAGE DAYS ON MARKET

Existing Houses | Washington Metro Area | First Quarter 2015 Figure 3 120

105

among investors and regular homebuyers from earlier in the recovery have now waned. Homes are also lingering

80

DAYS

selection of listings at more moderate prices. See Figure 3.

07

*Months of inventory at current sales pace for last month in each quarter.

Source: MRIS, Delta Associates; April 2015.

2015, above the 10-year average of 59 days. Bidding wars

longer on the market since homebuyers now have a larger

MONTHS OF INVENTORY*

of active listings standing at 13,375, a 20.9% increase from

HOME PRICE CHANGE AND INVENTORY

12-MONTH PRICE CHANGE

MONTHS OF INVENTORY

40

0

69

45

27

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Source: MRIS, Delta Associates; April 2015.

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HOUSING HIGHLIGHTS SUMMARY OF HOUSING MARKET INDICATORS

PRICE CHANGES IN PRICE CHANGES IN PURCHASE-ONLY INDEXES PURCHASE-ONLY INDEXES Select Large | 1994 – 2014 Select LargeMetro MetroAreas Areas | 1994 – 2014

Washington Metro Area | First Quarter 2015

$451,640

Comparison at Q1 2014

$440,559 11,948

Sales (Units) Comparison at Q1 2014

8.8%

10,982 69

Average Days on Market

13

55

Comparison at Q1 2014

2.8

Sales Pace (Months)

1

169% 150%

75%

0%

0.1

2.7

Comparison at Q1 2014 For-Sale Listings

2.5%

PRICE CHANGES

CURRENT INDICATORS Average Sales Price

225%

CHANGE YEAR-OVER-YEAR

Note: Price change at fourth quarter of respective year; seasonally adjusted.

Source: FHFA, Delta Associates; April 2015.

13,735

1 Sales pace at March 2014. Pace is ratio of total for-sale inventory to current month’s sales.

Source: MRIS, Delta Associates; April 2015.

PERCENT CHANGE IN HOME PRICES

Washington Metro vs. United States PERCENT CHANGE IN HOME PRICES First Quarter 2015 Washington Metro vs. United States | First Quarter 2015 Washington Metro Area

U.S. 20 MSA Composite

0%

-25%

Existing Houses | Washington Metro Area FOR-SALE LISTINGS First Quarter 2015 Existing Houses | Washington Metro Area | First Quarter 2015 40,000

LISTINGS

% CHANGE

25%

FOR-SALE LISTINGS

20,000

13,375

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

*12 months ending January 2014. Note: Seasonally adjusted purchase-only index Source: S&P/Case-Shiller, Delta Associates; April 2015.

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Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Source: MRIS, Delta Associates; April 2015.

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COMMERCIAL REAL ESTATE IN 2015: ADAPTING TO THE CHALLENGES OF SUCCESS FURTHER INSIGHTS FROM COHNREZNICK

By David Kessler Commercial Real Estate Industry Practice – National Director The first quarter of 2015 saw continued momentum in most sectors of the Commercial Real Estate arena. The industry’s slow but steady recovery has given investors the window of opportunity to implement changes in strategies necessary to seize opportunities in the marketplace. Profitable deals today mean accepting a level of complexity that would not have been appealing a short time ago, whether it’s the seller’s tax burden or a partnership structure that takes time and effort to unravel. Still, investors are adapting to the consequences of real estate’s continued success.

It is no longer enough to seek out distressed property assets for restructuring, selling or repurposing. Attractive deals are now fewer and far between, and funds and limited partnerships are accepting lower returns. With the devastating recession of 2008 still fresh in everyone’s minds, funds of all sizes are also keeping an eye toward the ever-rising bar of reporting and transparency. Readily available capital means that new funds are springing up as professionals with the connections and knowledge of the sector leave the larger funds, but some are finding it challenging. The seasoned infrastructure of a larger fund gives it a competitive advantage, allowing it to fund raise and close transactions simultaneously. As a result, the smaller funds are establishing a track record on smaller fundraises of $25M to get the deals done.

It is no longer enough to seek out distressed property assets for restructuring, selling or repurposing. Attractive deals are now fewer and far between, and funds and limited partnerships are accepting lower returns.

Rising market value also means changes for institutional investors. Tiers IV, V and VI may become more attractive for those who typically invest in Funds I, II and III. Reallocation is likely as some investors look to round out their portfolios with other asset classes, and some may determine that currently inflated prices just don’t make sense.

Most industry watchers believe current growth will continue despite some of the challenges associated with a limited pool of investors, many of whom have revisited and realigned their investment strategies and return expectations to compete in the improving climate. Further assuring the current trajectory, the millennial generation is picking up pace as the dominant force behind changes in real estate. Their taste for innovation and technology in their homes and workplaces assure new and adapted product will drive the market for the foreseeable future.

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COHNREZNICK As one of the top accounting firms in the nation, CohnReznick provides a full array of services to the commercial real estate industry. Our clients include such institutional investors as private equity funds and pension funds investing in real estate, as well as public and private real estate companies including commercial and residential property owners and operators, hotels and resorts, real estate developers, construction companies, homebuilders and land developers.

CohnReznick’s National Commercial Real Estate Industry Practice manages complex, high profile engagements employing a broad range of sophisticated financial skill sets and precise, closely coordinated teamwork. We offer the technical knowledge, sizable resources and in-depth infrastructure of a national firm, but at reasonable and competitive fee levels, consistently utilizing senior-level engagement team members who provide clients with the personal service they deserve and have come to expect.

Our real estate professionals are comprised of highly experienced thought leaders who understand the broadest range of accounting, tax and business issues across all sectors of the commercial real estate industry. From concept through development and implementation, we focus our energies into providing keen insights, proven, success-oriented strategies and close personal service.

CohnReznick provides services to a broad cross-section of the real estate industry including: • Public and Private Real Estate Companies • Private Equity Funds • Pension Funds Investing in Real Estate • Commercial and Residential Property Owners and Operators • REITs • Hotels and Resorts • Real Estate Developers • Construction Companies • Land Developers • Homebuilders • Lenders • Nonprofits • Municipalities • Community Redevelopment Groups • Local Governments For more information on CohnReznick’s National Commercial Real Estate Industry Practice, please visit www.cohnreznick.com/commercialrealestate David Kessler, CPA Commercial Real Estate Industry Practice – National Director CohnReznick LLP 7501 Wisconsin Avenue, Suite 400E Bethesda, MD 20814-6583 301-652-9100 www.cohnreznick.com

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DELTA ASSOCIATES This publication on the Washington metro area economy and commercial real estate market is a production of CohnReznick LLP in consultation with Delta Associates.

Delta Associates is a firm of experienced professionals serving the commercial real estate industry for 35 years.

The firm’s main practice areas are: 1. Consulting, research, and advisory services for all property types throughout the United States (including market feasibility studies, highest and best use analysis, market entry strategies, asset performance enhancement studies, market due diligence, white papers on special topics, valuation analysis, and litigation support); and 2. Subscription publications for selected metro areas for the apartment, condominium, office, retail, and housing markets.

For more information on Delta Associates, please visit DeltaAssociates.com.

Delta’s Washington Area Commercial Real Estate Market Update team includes: • Rachelle Sarmiento, Senior Associate: Rachelle.Sarmiento@DeltaAssociates.com or 202.778.3114 • David Weisel, CRE, Chief Executive • Sallie Drumheller, Graphic Designer © 2015. All rights reserved. You may neither copy nor disseminate this report. If quoted, proper attribution is required.

Although the information contained herein is based on sources which Delta Associates (DA) believes to be reliable, DA makes no representation or warranty that such information is accurate or complete. All prices, yields, analyses, computations, and opinions expressed are subject to change without notice. Under no circumstances should any such information be considered representations or warranties of DA of any kind. Any such information may be based on assumptions which may or may not be accurate, and any such assumption may differ from actual results. This report should not be considered investment advice.

1717 K Street, NW, Suite 1010 Washington, DC 20006 202.778.3100 Info@DeltaAssociates.com

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CohnReznick is an independent member of Nexia International

CohnReznick LLP Š 2015 This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you and anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.