Office vacancy rates are down sharply, but further near-term gains may be limited by slower job growth

1

• Office vacancy rates are down sharply, but
  further near-term gains may be limited by slower
  job growth

Office Vacancy Rate ()
Office Vacancy
Current 1Q06 ()
Chg from Peak (bp)
Forecast 1Q08 ()
Peak 2Q 2003
MSA
Orange County Ventura Salt Lake City Phoenix San
Francisco Honolulu Riverside San Jose Las
Vegas Los Angeles San Diego Portland Seattle Tucso
n Oakland Sacramento Nation 12th District
8.0 8.0 12.4 12.9 12.9 7.6 9.9 15.2 10.8 11.4 10.2
14.5 11.8 9.7 14.6 15.2 13.3 12.0
7.1 10.0 15.1 15.0 10.9 14.1 7.5 13.5 15.0 11.5 15
.9 14.3 11.1 7.0 9.9 14.5 13.9 12.0
-980 -930 -890 -830 -790 -700 -560 -550 -530 -530
-440 -440 -380 -370 -210 -190 -340 -520
Low 2Q 2000
Forecast
5-year peak vacancy rates Peaks occurred
between 2002 and 2003 in most markets occurred
Source TWR 4Q05 Office Outlook XL / 1Q06 Flash
Report
2

• Multi-housing vacancy rates also are down, but
  may reverse course based on new apartment supply

Multi-housing Vacancy Rate ()
Multi-housing Vacancy
Current 1Q06 ()
Chg from Peak (bp)
Forecast 1Q08 ()
MSA
Peak 4Q 2003
Phoenix Honolulu San Jose Portland Las
Vegas Seattle Tucson San Francisco Orange
County Oakland Sacramento San Diego Salt Lake
City Los Angeles Riverside Nation 12th District
3.6 3.9 2.5 4.5 3.9 4.1 6.7 3.2 2.8 3.0 4.4 3.0 6.
1 2.6 3.7 4.6 3.4
6.3 5.0 2.6 7.1 7.4 3.4 5.4 4.2 4.7 5.1 5.0 4.8 3.
5 3.7 4.5 5.5 4.6
-600 -410 -400 -360 -350 -340 -310 -310 -260 -260
-260 -180 -130 -120 -40 -210 -220
Low 3Q 2000
Forecast
5-year peak vacancy rates Peaks occurred
between 2002 and 2003 in most markets occurred
Source TWR 4Q05 M-H Outlook XL / 1Q06 Flash
Report
3

• Condo construction now outpacing apartments,
  especially in Portland, San Diego and Orange
  County

Units Started
Units started (2005)
Condo () 3,383 3,067 1,864 3,517 1,989 1,516 1,87
7 4,744 1,620 3,869 977 1,202 29,625
Apts () 1,071 1,008 785 1,652 1,261 989 1,322 5,
897 2,035 5,489 1,388 2,051 24,948
Condo () 76 75 70 68 61 61 59 45 44 41
41 37 54
MSA Portland San Diego Orange County Las
Vegas Oakland Salt Lake City San
Jose Phoenix Seattle Los Angeles San
Francisco Riverside 12th District
Source Torto Wheaton Research Dodge Pipeline.
Number of units started each year in 12th
District MSAs with available data.
4

• Construction lending at record levels as a share
  of loan portfolios, particularly among community
  banks

CLD / Gross Loans ()
Aggregate CLD (B)
Source 12th District Bank Call Reports Median
Values
Among 12th District banks w/ assets under 250MM.
5

• Banking supervision professionals forecast a
  significant drop in California home price
  appreciation

Annual Price Increase ()
25
Experts Forecast
21
20
10.1
5.7
Supervision Professionals Forecast
-6
Source OFHEO Home Price Index Single Family
Detached Homes
6

• Histogram shows wide variation in home price
  forecasts among banking supervision professionals

Number of forecasts
Median Forecast 5.7
Only 8 Expect Prices to Rise by 16 or More
19 Expected Prices to Decline
Range of forecasts in percent change of median
house price