WFC - 2014 Cmbs Outlook

December 5, 2013
Structured Products Research CMBS & Commercial Real Estate

Marielle Jan de Beur, Senior Analyst
marielle.jandebeur@wellsfargo.com
212-214-8047
Chris van Heerden, CFA, Analyst
chris.vanheerden@wellsfargo.com
704-410-3079 Lad Duncan, Analyst
lad.duncan@wellsfargo.com
704-410-3082 Landon Frerich, Analyst
landon.frerich@wellsfargo.com
704-410-3083
2014 CMBS Outlook

The CMBS market moves into 2014 on firm footing. First, property market fundamentals are maintaining an upward trajectory. For 2014, we expect moderate but positive GDP growth and employment gains to support the ongoing recovery. Second, CMBS collateral performance continues to improve as evidenced by a 130-bp decline in the 30+ day delinquency rate to 7.91% for the fixed-rate conduit universe in 2013. Third, demand for CMBS continues to impress as a roughly 90% increase in issuance, and the transfer of more than $30 billion of multifamily CMBS out of GSEs has been readily absorbed by investors to date in 2013. Fourth, CMBS remains conservatively structured by historical standards. Credit enhancement at the Baa3 level for 2013 deals stands at 2.4x the average cumulative loss rate for the 19952003 vintages. The certificate LTV ratio for conduit Baa3 tranches issued in 2013 averages 59%. Fifth, term funding sources outside of conduit CMBS are increasing. Transitional properties and non-traditional collateral types are finding financing outside of conduit deals.
Table of Contents
2013 Forecast Recap .................................................... 2 Relative Value in 2014 ................................................. 3 Issuance Forecast ......................................................... 6 CMBS Buyer Base.......................................................... 7 Public Markets Funding Real Estate ....................... 8 Real Estate Credit Cycle .............................................. 9 CMBS Collateral Performance ................................. 11 New Issue Collateral Trends.....................................17 Single-Borrower CMBS Issuance ........................... 19 Property Market Fundamentals ............................. 21 Property Sales and Pricing....................................... 22 New Supply Concerns in Apartment ..................... 25 Large Retailers in CMBS ........................................... 27 Property Market Score Summaries....................... 29
Please see the disclosure appendix of this publication for certification and disclosure information. All estimates/forecasts are as of 12/5/13 unless otherwise stated.
This report is available on wellsfargoresearch.com and on Bloomberg WFRE
CMBS Weekly December 5, 2013
WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH
2013 Forecast Recap: Issuance Surprised to the Upside

As we review our calls from 2013, the biggest surprise came from non-agency issuance, which is on track to beat our forecast by 70%. AAA spreads failed to tighten year over year, in line with our expectation, although the spread rally in the spring provided upside for investors that decided to lighten up on exposure. Exhibit 1: A Recap of Our 2013 Recommendations
Trade Recom mendations 2013 w ill be tough for returns on new issue AAAs; Pair new issue AAAs w ith IO strips. Buy legacy AM tranches for credit and shorter average life exposure. Strong credit legacy LCF are fair value buy w eaker credit legacy LCF. We like AA and single-A CMBS over comparable corporates. CMBS new issue credit curve has flattened. We see more value in AA and single-A rated CMBS versus BBB new issue. New issue CMBS AAs w ere trading at sw aps +135, single-As w ere sw aps +180 bps and BBBs w ere sw aps +300 bps. Buy new issue AAA AS tranches for rising enhancement and credit proxy play. We anticipate spreads to tighten 10 bps to sw aps +90 bps. Reiterate buy on new issue AAA AS tranches, trading at sw aps +110 bps. Buy w ider trading legacy LCF off of 2006-2007 transactions. Buy legacy AM tranches versus new issue AS tranches based on recent w idening. We anticipate legacy AM tranches to tighten 40 bps by year end. AM tranches w ere trading at sw aps +225 bps. Buy agency CMBS based on positive technicals for low er supply in 2014 and inclusion in the Aggregate Fixed Income Index in mid-2014. Legacy A1A tranches also look attractive as a proxy for Agency CMBS. Tim ing of Recom m endation Result Year to date new issue super-senior 30% tranches are trading about 10 bps w ide of w here they w ere in December of last year. IO tranches are about 30 bps tighter than a year ago. Weaker credit 2007 LCF rallied into the spring tightening about 20 bps. CMBS rated AA is a trade w e liked all year but spreads are currently flat versus December of last year. We w ere off in this call as all credit spreads are now w ider than in February. Currently spreads are about 30 bps w ider for AAs, 70 bps w ider for single-As and 70 bps w ider for BBBs compared to February levels.
Dec-12
Feb-13
Feb-13
Spreads tightened to sw aps +95 but w idened through the summer. Currently, AS spreads are at sw aps +117 bps. Spreads on AS tranches are about 7 bps w ider than they w ere in June w hen w e reiterated our call. Legacy LCF paper is about 20 bps w ider than June levels. Legacy AM tranches have tightened about 3 bps tighter on average since mid August. Spreads on AS tranches are 5-10 bps tighter now than mid-August.
Jun-13
Aug-13
Nov-13
Spreads are flat since w e made this call. We anticipate this w ill be more of a 2014 trade.
Market Predictions/Forecasts Non-agency issuance w ill be $50 billion, Agency issuance should total $65 billion.
Tim ing of Forecast
Result We raised our non-agency issuance forecast to $75 billion mid-year; w e underestimated the strength of the new issue machine. Non-agency issuance w ill end the year at $85 billion. Agency issuance ended the year on top of our original forecast at $65 billion. As of November total delinquencies for all non-agency CMBS w as 7.91%, all pre-2010 deals had 9.8% delinquencies. Liquidations of problem loans w ere not as prevalent as expected. How ever, there is currently a large portfolio in the liquidation process. Maturity defaults declined 50% year over year. Modifications are dow n about 20% year over year. Extensions declined also 25% year over year. All property types posted positive effective revenue grow th; how ever, hotels w ere the outperforming sector instead of apartments. Hotel occupancies are 67% versus 66% a year ago, in line w ith our forecast. Property prices have appreciated significantly more than w e forecast. According to the Moody's CPPI data, valuations are up 12-23% depending on the property type.
Dec-12
In aggregate delinquencies should decline to close to 9%.
Dec-12
Liquidations of problem loans should be prevalent in 2013 as fundamentals improve. Maturity defaults should decline. We anticipate modifications to moderate and extensions to decline substantially over 2012. We forecast continued improvement across all property sectors w ith apartments positioned to outperform. Hotel occupancy gains w ill slow in 2013.
Dec-12
Dec-12
Dec-12
Dec-12
Property prices in aggregate w ill increase 3% on average.
Dec-12
Source: Wells Fargo Securities, LLC.
Relative Value in 2014

As in 2013, we expect retail investors to respond to a potential scale back of Fed bond purchases by selling fixed-income mutual fund holdings. Based on the significant money manager participation in three-year and five-year CMBS tranches, we believe spreads on these bonds may widen when retail investors move for the exit. Heading into 2014 we dont see significant upside in the near term for new issue senior 10-year CMBS. Our view is based on flat trading levels in 2013 and the lack of a catalyst for longer dated bonds near term until more clarity or actual action comes from the Fed on QE. Legacy multifamily directed classes may be the net beneficiary of the addition of multifamily to fixed-income benchmark indices after the rally in spreads on Fannie Mae and Freddie Mae structured deals in November. The approximately four-year difference in duration favors the shorter A1A bonds in a curve steepening environment. We expect new issue Aa3 spreads to tighten further, moving closer toward Baa2 REIT debt. Because these tranches rely more on insurance company sponsorship, getting the deal credit right matters. Retail Investors Put New Issue Three-Year and Five-Year Bond Spreads at Risk One of the changes to the CMBS market since 2008 is the increased ownership share of money managers in new issue product, which comes at the expense of buy-and-hold investors such as banks and insurers. To date in 2013, money managers have purchased 44.5% of the conduit CMBS bonds issued by Wells Fargo. Although this is down from 55.2% in 2012 and 53.5% in 2011, the current money manager share still represents a significant increase over the 26% owned by this part of the buyer base in 2004-2007. The money manager label is admittedly broad, including not only mutual funds, but also thirdparty managers of institutional funds and hedge funds. So while the increase in this category of buyers does not correspond directly with an increase in retail investors, at the very least it gives insight into market segments where other buy-and-hold investors are less involved. Understanding where in the capital structure retail investors rent helps understand CMBS spread action in May and June. After Fed Chairman Bernanke suggested that tapering may be at hand in his May 22 testimony to Congress, retail investors rushed for the exit. Taxable bond funds experienced outflows of $43.3 billion in Junea sharp reversal from the trend of inflows averaging $16.2 billion a month in the first part of the year. Retail investors buying has been focused on short-duration bonds with yield, making three-year and five-year CMBS a natural fit. So when mutual fund redemptions ramped up in June, threeand five-year CMBS bond spreads gapped wider even though short-duration bonds would normally be a safe haven when the yield curve steepens. New issue three-year bonds sold off 32 bps in June, swinging wider to a spread of 60 bps to swaps. Similarly, new issue five-year tranches widened 24 bps to a spread of 70 bps to swaps (Exhibit 2).
Exhibit 2: Short-Duration Classes Suffered in the June Selloff

Year-End 2012 bps to swaps 24 44 65 70 113 150 205 380 Dec. 2, 2013 bps to swaps 57 80 92 92 120 170 220 380 YTD Change 33 36 27 22 7 20 15 0 MayJune Selloff (bps) 32 24 41 48 53 80 92 170
New New New New New New New New
Issue Issue Issue Issue Issue Issue Issue Issue
3-Yr. AAA 5-Yr. AAA 7-Yr. AAA 30% 10-Yr. AAA 20% 10-Yr. AAA Aa2 A2 Baa3
Conduit three-year and five-year classes are largely sold to money managers at new issue. For conduit deals issued by Wells Fargo in 2013, 59% of the three-year (A1) bonds sold to money managers, and 63% of five-year (A2) tranches traded to this buyer base (Exhibit 3). Exhibit 3: Conduit Buyer Type by AAA Tranche2013 Wells Fargo Deals A1 A2 A3 A3FL A4FL Money Manager 58.6% 63.0% 30.1% 11.3% 0.0% Bank 17.4% 13.3% 11.2% 58.5% 100.0% Insurance 10.7% 17.6% 54.4% 30.2% 0.0% Pension Fund 3.2% 3.0% 1.3% 0.0% 0.0% Opp. Fund 0.2% 1.8% 2.3% 0.0% 0.0% State Gov 9.8% 1.3% 0.6% 0.0% 0.0%
A5 44.6% 17.9% 19.2% 8.6% 9.5% 0.2%
AAB/ASB 40.7% 21.7% 30.8% 0.0% 1.3% 5.5%
AS 30.3% 4.2% 47.1% 8.4% 8.5% 1.6%
As in 2013, we expect retail investors to respond to a potential scale back of Fed bond purchases by selling fixed-income mutual fund holdings. Based on the significant money manager participation in three-year and five-year CMBS tranches, we see spreads on these bonds as exposed to such a move for the exit. On the other hand, new issue conduit seven-year (A3) tranches and A-S tranches (AAA-rated bonds with 20% credit support) have relied less on sponsorship from money managers, a factor that we expect to stabilize spreads in these bonds in 2014. Along the same lines, the floating-rate classes are largely sold to banks (Exhibit 3), and have limited exposure to retail investor behavior. Multifamily CMBS Multifamily CMBS moves into 2014 with sound long-term property fundamentals in place, the prospect of reduced issuance and a likely boost to demand as the product type is added to the fixed-income benchmark indices. This outlook has not been lost on spreads. The news of the addition of these products to the Barclays Indices drove spreads in significantly in mid-November. The five-year tranches of 10year K Certificate deals tightened in 7 bps to a spread of swaps plus 49 bps, and 10-year tranches rallied in 5 bps to swaps plus 53 bps. Similarly, spreads on the five-year tranches of Fannie Mae 10-year GEMS deals tightened 5 bps to swaps Multifamily directed classes from legacy deals were little changed, however, holding steady at an average 88 bps to swaps (albeit with significant variation in spread depending on the collateral credit quality). Over the course of 2014, these classes may benefit the most from the addition of multifamily bonds to the indices because (1) wider spreads make these classes a more attractive way for indexed investors to add multifamily exposure, (2) GSE sales of the bonds should subside 4
as Fannie Mae has cleared out the bulk of its multifamily CMBS holdings, and (3) the duration difference of four years makes the shorter A1A tranches more attractive in a steepening yieldcurve scenario. New Issue Aa3 SpreadsPlaying Catch Up to REITs New issue Aa3 bonds are still recovering ground from the mid-year selloff. The bonds now stand 33 bps wide of Baa2 REIT debt, after entering the year at 28 bps inside of REITs (Exhibit 4). These bonds rely significantly on insurance company buyers and, therefore, getting the deal right matters (Exhibit 5). Bonds from deals that raise credit concerns for insurers are likely to struggle for lack of sponsorship. We expect Aa3 classes to tighten against its REIT counterpart. Exhibit 4: CMBS New Issue Aa3 Well Wide of REITs
250 200
basis points to swaps
170 150 100 50 33 0 -50 137
11/12
12/12
10/13
CMBS Aa3 to REIT Spread New Issue Aa3 CMBS Bloomberg 10 Yr. BBB REIT Index
Source: Bloomberg, LP, and Wells Fargo Securities, LLC.
Exhibit 5: Conduit Buyers by Investment-Grade Tranche2013 Wells Fargo Deals Aa3 A3 Baa3 Money Manager 41.6% 44.3% 55.9% Bank 1.4% 1.2% 3.3% Insurance 45.5% 48.6% 4.0% Pension Fund 3.0% 0.0% 3.7% Opp. Fund 8.5% 6.0% 33.0% State Gov 0.0% 0.0% 0.0%
Within the CMBS capital stack, investors are getting paid 50 bps to move to the Aa3 tranche from A-S class, which translates to around 8 bps of spread pick-up per 1% of credit enhancement giveup (Exhibit 6). Put in context, in January 2013, investors were being compensated with around 6 bps of incremental spread for every 1% of credit enhancement conceded to migrate to the Aa3 class from the A-S class, and that number dipped to a low of 3 bps in April.
11/13
1/13
2/13
3/13
4/13
5/13
6/13
7/13
8/13
9/13
Exhibit 6: Moving Down the StackSpread Pickup per 1% of Credit Support

Credit Suport 30% 22% 15% 11% 7% Spread 92 120 170 220 380 Credit Enhancement Concession 0% 8% 6% 4% 4% Spread Pickup (bps) 0 28 50 50 160 bps Spread Pickup per 1% of CE 0.0 3.4 7.8 13.0 36.3 Effect of Moving Down a Class Give Give Give Give 8% 6% 4% 4% CE, CE, CE, CE, gain gain gain gain 3 bps per 1% of CE 8 bps per 1% of CE 13 bps per 1% of CE 36 bps per 1% of CE
AAADuper AAAA-S Aa3 A3 Baa3
Issuance Forecast
CMBS issuance handily exceeded our expectations for the year, mainly due to a significant increase in non-agency issuance. Year-to-date agency CMBS issuance stands at about $64.8 billion, in line with our original forecast. Through November, investors have purchased $78.2 billion of non-agency transactions and another $6.1 billion is scheduled to market by year-end. We expect total 2013 non-agency issuance to reach $85 billion. The higher 2013 issuance number than our original forecast begs the question: Why has nonagency CMBS issuance been so strong this year in spite of fairly high AAA CMBS spread volatility and lack luster AAA (in some cases negative) returns relative to the past several years? In our opinion, the robust 2013 originations are attributable to the following factors: Fed bond purchases is suppressing interest rates and pushing private capital into spread products. Commercial real estate prices are improving, allowing more debt in aggregate to fund property transactions. The CMBS investor base has broadened, particularly in Asia. Investors with seasoned portfolios (mainly insurance companies) experienced significant CMBS runoff, providing capital for reinvestment into new issue CMBS. The REIT equity market is providing significant capital to fund private-to-public real estate transactions, which gives comfort to CMBS investors who invested in some of the same transactions but from the debt side. Our 2014 forecast calls for continued growth in the non-agency CMBS market. We anticipate nonagency CMBS issuance will total about $95 billion. Our estimate is based on activity in our lending pipeline, 2014 CMBS maturities, combined with our interest-rate and property valuation forecast.
CMBS Weekly December 5, 2013 Exhibit 7: Non-Agency CMBS Issuance

250 230.2 225 203.7 200 169.0
Issuance ($Billions)
175 150 125 100 75 50 26.6 25 17.115.8 16.2 0 74.3 37.1 67.7 57.4 51.6 47.5
93.9 77.8
95.0 85.0 44.5 30.5 12.1 2.6 12.7
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 E
Note:Includes floating-rate and single asset/single borrower transactions and excludes agency deals and resecuritizations. Totals for 2013 and 2014 are forecasts . Source: CMA, Intex Solutions, Inc. and Wells Fargo Securities, LLC.
We expect GSEs will continue to be active in the securitization market in 2014. For 2013, Fannie Mae and Freddie Mac were required to reduce multifamily business 10%. We believe a similar mandate for 2014 is likely; therefore, we expect $56 billion of agency CMBS issuance in 2014. Exhibit 8: Agency CMBS Issuance
70 62.4 60 52.6 64.8 56.0
Issuance ($Billions)
50 40 30 22.1 20 10 8.3 9.2 6.9 4.7
33.9
Note: 2013 data is through November. 2014 is a forecast. Source: Fannie Mae, Intex Solutions, Inc. and Wells Fargo Securities, LLC.
The CMBS Buyer Base is Shifting Away from Money Managers

Based on Wells Fargo sponsored transactions, money managers continue to dominate the buyer base for agency and non-agency CMBS. In 2013, however, the money manager market share has decreased for agency and non-agency CMBS transactions.
2013 YTD
2014 E
2005
2006
2007
2008
2009
2010
2011
2012
2014 E
Non-agency Buyers Money managers accounted for 44% of the buyers of our non-agency deals, down from about 55% in 2012. Insurance companies were more active in the non-agency market this year accounting for 30% of the buyers, compared to 20% in 2012. Banks, state governments and pension funds were also more active in the non-agency CMBS market this year. In our opinion, this shift in buyers toward life companies, banks and pension funds and away from money managers may contribute to more stable AAA spreads in the long term because life insurance companies and banks tend to be more buy-and-hold oriented investors. Exhibit 9: Investor Base for Non-Agency CMBS (Wells Fargo Transactions Only)
2012
O pportunity Funds, 7.0% P e nsion Funds, 2.8% Sta te Govts., 0.1% Bank s, 14.4% O pportunity Funds, 6.9%
2013
P e nsion Funds, 4.6% Sta te Govts., Bank s, 11.8% 2.2%
Mone y Ma nagers, 55.2%

S ourc e: Wells F argo S ecurities, L LC.
Insura nce C om panies, 20.5%
Money Ma na gers, 44.5%
Insura nce C om panies, 30.0%
Agency Buyers Within agency CMBS we also see a shift away from money manager buyers. In 2013, money managers have accounted for 42% of the buyers of our agency CMBS transactions, versus 46% in 2012. Insurance companies were less active in the agency CMBS market, purchasing about 11% of deals versus 14% in 2012. The GSEs and opportunity funds have been more active buyers. Exhibit 10: Investor Base for Agency CMBS (Wells Fargo Transactions Only)
2012
Pension Funds, 1.1% GSEs, 5% O the r, 0.5% Pe nsion Funds, 1.2% O pportunity Funds, 5.8%
2013
GSEs, 8.4% O ther, 2.2%
O ppo rtunity Funds, 2.5%
Bank s, 30.1%
Ba nk s, 28.2%
Mo ney Mana gers, 46.8%
Insurance C om panies, 14.3%
Mo ney Managers, 42.7%
Insurance Co m panies, 11.5%
S ourc e: Wells Fargo Securities, L LC.
Public Markets Funding Real Estate

In 2013, the equity market has provided consistent and significant capital to commercial real estate through the IPO market. In aggregate, we estimate about $13 billion was raised in the equity markets for IPOs tied to commercial or residential real estate. This funding from the public equity markets encouraged CMBS investors to provide capital through the securitization market.
In addition to the new capital from the equity markets, we estimate the debt markets provided about $100 billion of capital to commercial real estate above scheduled maturities in 2013. In 2014, we estimate that banks, insurance companies and CMBS will provide about $435 billion of capital to the markets, which is about $80 billion more than is maturing from those same sources. Although the pace of releveraging is measured, we watch these aggregate numbers of capital to the commercial real estate markets for signs that leverage may creep up and valuations may become inflated against a lackluster macro-economic back drop. Exhibit 11: Estimated Commercial Mortgage Maturities ($billion) 2014E 2015E Banks 274.0 301.4 Insurance Companies 28.1 33.4 CMBS Total 45.5 90.2 TOTAL 351.7 424.8
2016E 331.6 37.6 128.1 498.7
Source: AC LI, Federal Reserve and Wells Fargo Securities, LLC 's estimates.
Exhibit 12: Source of CRE Mortgage Capital for 2014

Sources Banks Insurance Companies CMBS Private Label CMBS GSE Transactions ($billion) 220-240 40-50 95 56
Source: Wells Fargo Securities, LLC 's estimates.
The Credit Cycle: Leverage on the Rise While NOI Growth Rate Gains
In a competitive market, lenders win mandates with incremental concessions on pricing or underwriting termscredit deterioration is inevitable. Taking stock of the CMBS market, we see the market as somewhere between the consolidation and deterioration phases of the credit cycle, borrowing from the framework of our Credit Strategist colleague George Bory. Although leverage is on the rise, our overall assessment is that the pace of releveraging is measured and supported by improving fundamentals. The multifamily sector is likely further along in the cycle than the other major property groups. Multifamily rent growth is slowing, and the outlook for new construction is beginning to pick up. On the other hand, we expect office and retail effective revenue growth to accelerate. On average 13% of 2013 conduit deal collateral had additional subordinate debt, up from 11% in 2012. Another measure of leverage, rating agency LTV ratios continues to drift higher.
WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Exhibit 13: Leverage Is Rising While Property Income Is Growing
CMBS Market
10
CMBS Collateral Performance

Overall, it has been an encouraging year for collateral performance in CMBS. Delinquency trends have steadily improved and we expect a similar experience in 2014 given the limited pipeline of maturing loans and the further decline in term defaults, as property fundamentals improve. Heavy issuance in 2014 should also drive down the delinquency rate. The 30+ day delinquency rate for multiborrower transactions is currently at 7.91%, about 130 bps lower than where it was at the beginning of 2013. The percentage of loans in special servicing has fallen to 9.50% from 11.49% at the beginning of 2013. Currently, about $48.1 billion of loans from multiborrower transactions remain in special servicing. A substantial amount of issuance in 2013 has helped push the delinquency rate lower as has the continued liquidation and modification activity. Net issuance has remained negative in 2013, with paydowns outpacing new issuance, but the gap is narrowing. The decline in the delinquency rate can also be largely attributed to the subsiding amount of newly delinquent loans. In 2013, the amount of loans becoming newly delinquent per month has fallen to $2.0 billion on average, down from $3.3 billion on average in 2012. Exhibit 14: CMBS Delinquency Trends
16.0 14.0 12.0 10.0 8.0 6.0
$Billions
10% 8% 6% 4% 2% 0% -2% -4% -6%

% Delinquent
4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0
Source: Intex Solutions, Inc. and Wells Fargo Securities, LLC.
Maturity defaults and term defaults have experienced significant declines in 2013. Maturity defaults have declined more than 50% compared to 2012, averaging around $530 million per month in 2013. Of the maturing loans in 2013, 86% have been able to pay off on time, which is up from a payoff rate of 59% for the loans that matured in 2012. The payoff rate has improved in 2013 because the bulk of the maturing loans (almost 70%) have been from the 2003 vintage, which had fairly conservative underwriting. In addition, there have been far fewer loans from the 2005-2008 vintages maturing this year. We expect the payoff rate in 2014 to be slightly lower than 2013, given the mix of loans that are maturing. The 2004 vintage will account for the largest share (about 60%) of the maturing loans in 2014 and should perform well. What may bring the payoff rate down in 2014 is the higher concentration of maturing loans from the 2005 and 2007 vintages. Term defaults have dropped about 28% percent in 2013 compared to 2012. This is in line with the previous two years, which experienced declines of about 30%. Term defaults totaled $1.7 billion in November, the highest one-month total since May, but we do not expect this to be the beginning of an increasing trend. With property fundamentals continuing to improve, we anticipate a further decline in term defaults in 2014. 11
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13
Newly Delinquent ($) 30+ Delinquency (%) Newly Current ($) 60+ Delinquency (%) Change in CMBS Bal ($)
WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Exhibit 15: Term Defaults and Maturity Defaults
500 450 400 350 300 250 200 150 100 50 0
Loan Count
Note: Maturity defaults include loans that defaulted up to six months prior to the maturity date. Source: Intex Solutions, Inc. and Wells Fargo Securities, LLC.
Among the 2004-2008 vintages, the delinquency rates are currently all lower than at the beginning of 2013. Although the 2004 and 2008 vintages are currently only slightly lower after experiencing increases the past few months. The delinquency rate for the 2007 vintage remains the highest at 13.10%, but is 64 bps lower than at the beginning of 2013. The delinquency rate for the 2006 vintage has declined 206 bps since the beginning of 2013 to 8.76%. The 2005 vintage continues to perform well, falling 81 bps since the beginning of 2013. Looking to 2014, we do not expect term defaults to increase for any of the vintages, but we may see a slight rise in maturity defaults for the 2005 and 2007 vintages. Exhibit 16: 30+ Day Delinquency Rates by Vintage
Date Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 Apr-13 Mar-13 Feb-13 Jan-13 2004 2005 2006 2007 2008 2010 2011 2012 2013
4.36% 4.26% 3.78% 3.97% 3.87% 4.03% 4.16% 4.32% 4.19% 4.58% 4.56%
Sources: Intex Solutions, Inc. and Wells Fargo Securities, LLC.
To date, there have been few serious credit issues among the loans in the 2.0 and 3.0 transactions. A considerable number of loans have been placed on servicer watch lists and a few loans have become delinquent. Currently, six loans with a total balance of $64.2 million are delinquent from the 2010 to 2013 vintages. There are currently 183 loans totaling $3.3 billion on the servicer watch lists, up from 76 loans totaling $2.1 billion at the beginning of the year.
12
Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13
Term Default Maturity Default
6.18% 5.99% 5.86% 5.98% 6.09% 6.32% 6.74% 6.57% 6.81% 6.81% 6.99%
8.76% 9.17% 9.53% 9.62% 9.47% 9.38% 9.71% 9.87% 10.92% 10.92% 10.82%
13.10% 13.42% 13.54% 13.70% 13.69% 13.91% 14.59% 13.77% 14.03% 13.65% 13.74%
9.56% 9.15% 8.98% 8.83% 10.90% 10.57% 11.04% 11.23% 11.20% 10.41% 9.63%
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
0.06% 0.06% 0.12% 0.13% 0.12% 0.12% 0.05% 0.02% 0.21% 0.07% 0.04%
0.12% 0.11% 0.03% 0.03% 0.03% 0.07% 0.01% 0.01% 0.01% 0.09% 0.00%
0.03% 0.03% 0.01% 0.02% 0.00% 0.00% 0.00% 0.13% 0.00% 0.00%
Exhibit 17: Total Loan Balance on Servicer Watch Lists (2010-2013 Transactions)
3.5 3.0 2.5 2.5 2.4 2.5 2.6 2.1 2.2 2.7 2.7 3.3
$Billions
2.1
2.0 1.5 1.0 0.5 0.0
1.9
Mar-13
May-13
All of the major property types have experienced declining delinquency rates in 2013. The delinquency rate for multifamily-backed loans is 205 bps lower than at the beginning of 2013 and the delinquency rate for hotel-backed loans is 202 bps lower. The delinquency rate for officebacked loans has improved 102 bps since the beginning of the year, with most of the decline occurring in the second half of the year. Retail-backed loans continue to have the lowest delinquency rate among the major property types at 6.45%. Based on our revenue forecasts for 2014, we expect the delinquency rates to continue to improve across all of the property types. Exhibit 18: 30+ Day Delinquency Rates by Property Type
Date Nov-13 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 Apr-13 Mar-13 Feb-13 Jan-13 Multifamily Retail Office Industrial Hotel Self-Storage
10.61% 10.48% 10.55% 10.64% 10.67% 11.02% 11.06% 11.01% 11.93% 12.58% 12.66%
6.45% 6.49% 6.57% 6.68% 6.80% 6.94% 7.23% 7.27% 7.53% 7.40% 7.42%
8.74% 9.16% 9.28% 9.47% 9.50% 9.58% 10.34% 9.92% 10.42% 10.06% 9.86%
10.39% 11.08% 11.25% 11.06% 11.17% 11.53% 11.87% 11.10% 11.38% 11.08% 11.14%
8.08% 8.40% 8.63% 8.83% 9.06% 9.22% 9.49% 9.26% 9.64% 9.69% 10.10%
1.76% 1.84% 1.93% 2.13% 2.27% 2.20% 2.25% 2.30% 2.36% 2.43% 2.42%
Sources: Intex Solutions, Inc. and W ells Fargo Securities, LLC.
Liquidation and Modification Activity The amount of loans in special servicing has steadily declined in 2013. There is currently around $48.1 billion of loans from multiborrower transactions in special servicing down from $60.7 billion at the beginning of the year. The number of liquidations has been lower in 2013, but the total amount of losses has been on pace with 2012. Losses have remained on pace with 2012 because the loans being liquidated have been larger and severity rates have been higher. Through November remittances, 1,048 loans from multiborrower transactions had been liquidated with losses totaling $5.9 billion. Losses should total about $7.0 billion by year-end. We do not expect to see a slowdown in liquidations in 2014 given the $48.1 billion of loans that remain in special servicing. Also similar to 2013, we should continue to see special servicers using bulk loan sales in 2014. 13
Nov-13
Jun-13
Aug-13
Sep-13
Feb-13
Apr-13
Oct-13
Jan-13
Jul-13
WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Modification activity in 2013 has declined considerably compared to 2012. Through November, 195 loans with a total balance of $7.1 billion had been modified. Over the same time period in 2012, modifications totaled more than $9.0 billion. We expect modification activity to continue to decline in 2014. Of the modifications in 2013, the 2007 vintage has accounted for about 50% and the 2006 vintage has accounted for about 30%. The average size of the loans modified in 2013 has been $36 million, which is similar to 2012. For the loans that have received maturity extensions in 2013, the average extension period was 18 months, down from 20 months on average in 2012. Exhibit 19: Liquidations and Severity Trends by Month
1,200.0 70% 60% 50% 40% 600.0 30% 400.0 200.0 0.0 20% 10% 0%
Total Losses ($Millions)
1,000.0 800.0
Losses ($)
* This only includes loans that suffered loss severities greater than 2%. Source: Intex Solutions, Inc. and Wells Fargo Securities, LLC.
The average loss severity rate for liquidated loans in 2013 has been 41.6%, up from 38.0% in 2012. Severity rates have been on the decline recently. In Q3, the average severity rate was 39%, down from 45% in Q2. Improving market conditions should lead to an improvement in severity rates, but the pipeline of stale loans, those that have been with the special servicers longer than 24 months, will continue to place upward pressure on severities. Bulk loan sales have proven to be an efficient means for liquidating CMBS loans. Orix Capital Markets offered a $1.5 billion portfolio of loans in May. At around 40%, the average severity rate on those loans was in line with typical liquidations. Exhibit 20: Severity Trends by Property Type (Based on Year of Liquidation)
70%
Weighted Average Loss Severity %
60%
49.9% 46.9% 50% 43.1% 40% 30% 20% 10% 0% Retail 38.1%
Note: 2013 data is as of November. Source: Intex Solutions, Inc. and Wells Fargo Securities, LLC.
14
Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13
Severity - 6 Mo. Avg (All)
Severity - 6 Mo. Avg (>2%)*
56.0% 50.0% 46.1% 39.9% 34.3% 32.4% 31.0% 46.7% 39.8% 37.4% 45.8% 38.0% 36.9% 35.6%
33.3% 31.5%
Office
2010
Multifamily
2011 2012
Hotel
2013 YTD
Industrial
CMBS Severity %
In 2013, we have seen the first transactions from the 2004-2008 vintages to realize losses at the originally rated AAA level. To date, two transactions (CSFB 2005-C2 and LBUBS 2007-C2) have had losses reach the originally rated AAA level (AJ tranche). We expect more losses to reach the AJ tranches in 2014. The cumulative loss rate for the 2007 vintage has climbed 79 bps since the beginning of the year to 3.90%. Currently, 55% of the 2007 vintage transactions have had losses hit the originally rated Baa3 tranches. The cumulative loss rate for the 2006 vintage is now at 4.49%, up 107 bps on the year. Nearly 70% of the 2006 vintage transactions have had losses reach the Baa3 tranches. For the year, the cumulative loss rates for the 2004 and 2005 vintages have climbed 59 bps and 65 bps, respectively. Exhibit 21: Cumulative Loss Rates by Vintage
6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 1 16 31 46 61 76 91 106 121 136 151 166 181 Months Since Issuance
2008 2006 2007 2005 2002 2004 2003 2000 2001 1999 1998
Prepayment Activity In 2013, the number of prepayments during the yield maintenance and penalty point periods has been on pace with 2012. To date, 305 loans have prepaid compared to 340 loans for all of 2012. On average, the loans that have prepaid in 2013 have been larger than those in 2012. Prepayments have totaled nearly $1.9 billion in 2013, up from $1.5 billion for all of 2012. Based on loan balance, the 2006 vintage has accounted for the largest share of prepayments in 2013 at 24%. Seven loans totaling $114 million from 2.0/3.0 transactions have prepaid in 2013. All seven of the loans were from the 2011 vintage. We expect to see a pickup in prepay activity among the more recent vintages in 2014, as property investors look to take advantage of price appreciation.
15
WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Exhibit 22: Prepayments during Yield Maintenance or Penalty Points (Loan Count)
1,400 1,200
Penalty Points Yield Maintenance
136
81
1,000
64
Loan Count
800
95
600
120 1,086
1,120 894 598 315 61 102 53 233 99 86 49 128 200 202 140 103
400
47
200
10
28 126 216
103
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
457
Note: 2013 data is as of November. Source: Trepp, LLC and Wells Fargo Securities, LLC.
Defeasance activity has spiked in 2013, with 798 loans having already defeased, up from 457 loans during 2012. The 2004 and 2005 vintages have accounted for the bulk of the defeasance activity in 2013, representing more than 60%. There has been some activity among the more recent transactions, as five loans from the 2010 vintage have defeased and two loans from the 2011 vintage have defeased. With market conditions continuing to improve, we expect defeasance activity to increase in 2014. Exhibit 23: Defeasance Activity (Loan Count)
3,500
3,067
3,000
2,531
2,500
Loan Count
2,000 1,500 1,000

601
1,880
944
798 351
500
17 58 110
188
206
208
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Note: 2013 data is as of November. Source: Intex Solutions, Inc. and Wells Fargo Securities, LLC.
16
2013
2013
CMBS Weekly December 5, 2013 Rating Action Trends
Downgrades outnumbered upgrades again in 2013, but the ratio is steadily declining. Through November, the rating agencies downgraded 1,603 tranches and upgraded 612 tranches from multiborrower transactions, a ratio of less than 3:1. When we last looked at the downgrade to upgrade ratio in May of this year, it was at 5:1 and for all of 2012 it was 7:1. Tranches previously rated investment grade have accounted for about 20% of the downgrades in 2013. There have been 51 tranches downgraded in the 2013 that were previously rated AAA. Among the rating agencies, Fitch has the highest downgrade-to-upgrade ratio in 2013 at 14:1 compared to S&P and Moodys, which are both at around 2:1. With collateral performance expected to improve in 2014, the downgrade-to-upgrade ratio should move closer to 1:1. Exhibit 24: 2013 Rating Actions Matrix (Multiborrower Transactions)
AAA AA+ AA AA- A+ AAA 0 1 22 3 1 AA+ 32 0 1 1 1 AA 26 14 0 1 5 AA13 12 4 0 3 A+ 15 2 13 6 0 A 14 4 10 10 9 A6 4 3 7 10 BBB+ 9 3 3 5 14 BBB 7 1 1 5 4 BBB2 0 0 0 4 BB+ 6 1 6 2 0 BB 5 1 0 2 0 BB2 1 0 2 2 B+ 2 1 0 2 0 B 1 0 0 0 1 B1 0 0 1 0 CCC+ 0 0 0 0 0 CCC 0 0 0 0 0 CCC0 0 0 0 0 CC 0 0 0 1 0 C 0 0 0 0 0 Total 141 45 63 48 54 A 21 0 10 6 6 0 12 7 8 9 1 3 0 3 1 0 0 2 0 0 1 90 A- BBB+ BBB BBB- BB+ BB BB- B+ B 0 0 1 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 1 0 0 0 5 0 3 0 0 0 0 0 0 3 3 4 8 1 0 0 0 0 2 2 17 3 1 9 0 0 0 0 2 6 5 2 0 0 0 0 11 0 2 9 7 2 1 0 0 8 6 0 9 9 12 5 3 8 7 10 6 0 11 28 3 1 8 3 5 8 7 0 3 13 11 7 1 3 5 8 7 0 1 6 31 0 4 3 4 7 2 0 18 18 1 7 0 4 6 4 5 0 6 2 0 0 3 7 2 2 7 0 0 3 0 1 6 1 1 9 3 0 0 0 0 0 0 1 9 7 0 0 0 0 0 2 0 4 6 0 0 0 0 2 0 0 1 2 0 0 0 1 0 0 0 0 1 0 0 0 0 0 0 0 0 0 43 46 56 64 66 66 32 69 97 B- CCC+ CCC CCC- CC C D 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 1 0 0 2 0 0 1 1 0 1 2 0 3 1 0 0 1 5 0 1 1 2 0 0 11 4 22 1 2 1 0 17 12 11 13 1 0 1 18 7 9 10 1 1 1 19 10 48 7 3 0 5 0 16 43 15 4 3 6 4 0 30 23 1 8 14 3 3 0 53 109 36 28 9 2 5 0 9 55 130 2 1 2 1 0 162 4 0 1 1 2 1 0 189 92 56 176 129 136 266 380 Total 51 35 59 46 62 82 58 74 91 96 82 114 118 88 118 113 97 246 215 175 195 2215
Rating actions are as of November 30, 2013. Source: Bloomberg, LP., DBRS, Fitch, Moody's and S&P.
New Issue Collateral Trends

The issuer underwriting metrics for the 2013 transactions still remain fairly conservative when compared to the transactions issued prior to 2009. However, there has been some decline in underwriting quality particularly when examined on a quarterly basis. With issuance expected to climb in 2014, the increased competition to originate those loans should result in further deterioration in underwriting. In addition, the growing number of b-piece buyers may lead to fewer undesirable loans being removed from transactions before they are issued. Looking at underwriting metrics on a quarterly basis reveals that DSCRs have been declining in 2013. For the loans in the transactions issued in Q1 2013, the average DSCR was 2.04. As rates have increased, the average DSCR has fallen to a low of 1.60 for the loans in the Q4 transactions issued to date. Issuer LTVs remain low on a historical basis, but the Q4 2013 average of 64.3% ties the highest quarterly average since 2010. The average debt yield in 2013 at 11.4% has changed little compared to 2012 at 11.5%. However, the percentage of loans with debt yields below 10% has risen considerably. In 2013, almost 37% of the loans have had debt yields below 10%, up from 26% in 2012 and 19% in 2011. The amount of full and partial interest-only loans has also increased in 2013 compared to 2012. So far for 2013, 17% of the loans have been full-term IO compared to 12% in 2012. Meanwhile, 32% of the loans have been partial-term IO, up from 22% in 2012.
17
WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Exhibit 25: Underwriting Metrics on a Quarterly Basis (Multiborrower Transactions)
Quarter 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 Deal Bal ($Bil) 7.9 6.9 3.9 5.8 3.2 8.3 8.6 12.0 11.8 12.3 15.1 10.7 Deal Count 5 5 3 5 3 7 7 10 9 10 13 10 Loan Count 237 272 163 295 161 454 473 631 609 696 903 657 Avg Loan Size ($Mil) 33.4 25.3 24.0 19.6 19.8 18.4 18.2 19.1 19.4 17.7 16.7 16.2 Orig LTV 62.5 63.8 60.7 62.7 60.8 64.3 63.7 63.5 61.2 63.9 63.7 64.3 Orig NCF Orig NOI Avg DSCR Debt Yield Coupon % 1.60 12.0% 5.60 1.59 11.5% 5.53 1.74 12.3% 5.47 1.62 11.7% 5.53 1.66 12.4% 5.69 1.58 11.4% 5.46 1.70 11.2% 4.90 1.78 11.3% 4.64 2.04 11.4% 4.26 1.88 10.9% 4.24 1.86 11.5% 4.55 1.60 11.5% 5.07 Full IO % 2.6% 11.0% 17.1% 8.6% 4.4% 7.8% 13.2% 15.6% 21.9% 14.1% 16.2% 15.7% Part IO % 21.7% 10.0% 18.7% 14.5% 14.2% 22.4% 21.4% 24.1% 26.6% 35.9% 29.5% 37.7% No IO % 75.7% 79.0% 64.2% 77.0% 81.4% 69.8% 65.4% 60.3% 51.4% 49.9% 54.3% 46.6%
Note: 2013Q4 data is through November. Source: Intex Solutions, Inc . and Wells Fargo Securities, LLC.
Further highlighting the trend in underwriting is the rising trend in Moodys LTV ratios. Of the multiborrower transactions Moodys has rated in 2013, 63% have had an average Moodys LTV ratio above 100% compared to 32% in 2012. No transactions from the 2010 and 2011 vintages had average Moodys LTV ratios above 100%. Exhibit 26: Average Moodys LTV by Transaction
110%
MSBAM 2013-C10 JPMCC 2013-C16
105%
MSBAM 2013-C13
100%
WFRBS 2013-C16 COMM 2013-CCRE11
95%
WFRBS 2013-UBS1
90%
10/12
The property type mix in multiborrower transactions has continued to shift around in 2013. The percentage of retail-backed loans is still on the decline. Retail-backed loans have accounted for 32% of the 2013 transactions issued to date, down from 36% in 2012 and 45% in 2011. Officebacked loans have been on the decline as well falling to 22% so far in 2013 from 26% in 2012. In a handful of 2013 transactions, the exposure to the office sector has been less than 10%. The property types with an increasing share of the market in 2013 have been multifamily, manufactured housing, hotel, mixed use and self-storage. Multifamily exposure has grown to more than 10% in 2013 from less than 7% of the market in 2012. In several recent transactions, multifamily exposure has been around 20%. Hotel properties have represented about 15% of the
18
11/13
2/11
9/11
4/12
5/13
collateral in 2013 transactions, up from 13% in 2012. Manufactured housing-backed loans have accounted for nearly 6% of the market in 2013 compared to 3% in 2012. In our view, the current mix of property types in CMBS is not ideal. The percentage of retail has now hit an optimal level at around 30%, but we would like see more exposure to the office sector. While we are currently positive on the hotel sector, it can be a volatile asset class and it is somewhat concerning that it has accounted for a higher percentage of the 2013 vintage than any other vintage historically. Exhibit 27: Property Type Percentage of Vintage (Multiborrower Transactions)
60.0% 55.0% 50.0% 45.0%
2010 2011 2012 2013
% of Vintage
40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

Retail Office Hotel Multifamily Mixed Use Manuf. Housing Industrial Self Storage
Note: 2013 data is through November. Source: Intex Solutions, Inc. and Wells Fargo Securities, LLC.
Single-Borrower Issuance
More than $22.0 billion of single-borrower transactions have priced in 2013. Issuance was most active through late May when tighter spreads allowed CMBS lenders to compete with life insurance companies on large assets. In early June, spreads widened in tandem with a sell-off in Treasuries. The re-pricing in loan coupons made CMBS less competitive to fund large transactions. Recent activity demonstrates continued investor appetite for large loans.
19
WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Exhibit 28: 2013 Single-Borrower Deal Summary
Deal Name CGWF 2013-RKWH SCGT 2013-SRP1 VNDO 2013-PENN HILT 2013-HLT BAMLL 2013-DSNY MAD 2013-650M JPMCC 2013-INN BHP 2013-BOCA BBCMS 2013-TYSN COMM 2013-300P JPMCC 2013-WT JPMCC 2013-ALC STWD 2013-FV1 CGBAM 2013-BREH COMM 2013-THL CGCMT 2013-375P JPMCC 2013-JWRZ ICOT 2013-IRV WFCM 2013-BTC GSMS 2013-PEMB BAMLL 2013-WBRK COMM 2013-SFS DEL 2013-HDC COMM 2013-WWP CGRBS 2013-VNO5 WFCM 2013-120B GSMS 2013-NYC5 COMM 2013-GAM LCCM 2013-GCP CGCMT 2013-SMP MSC 2013-ALTM BWAY 2013-1515 MSC 2013-WLSR GSMS 2013-KING RBSCF 2013-SMV GSMS 2013-KYO ESA 2013-ESH7 ESA 2013-ESH5 ESA 2013-ESFL QCMT 2013-QC Closing Orig Deal Top Top Top Prop Date Balanc e ($) State % Type 12/20/2013 295,000,000 FL 58.3 Hotel 12/20/2013 760,000,000 CA 45.5 Retail 12/18/2013 450,000,000 NY 100.0 Office 12/12/2013 3,500,000,000 HI 19.4 Hotel 11/21/2013 345,000,000 FL 100.0 Hotel 10/21/2013 675,000,000 NY 100.0 Mixed Use 10/22/2013 575,000,000 CA 31.7 Hotel 9/26/2013 425,000,000 FL 50.0 Hotel 8/29/2013 325,000,000 VA 100.0 Retail 8/27/2013 485,000,000 NY 100.0 Office 8/22/2013 91,834,644 IL 100.0 Office 8/21/2013 250,000,000 Multi 25.0 Healthc are 8/8/2013 199,040,632 PA 10.3 Hotel 7/25/2013 600,000,000 OR 14.6 Hotel 6/27/2013 775,000,000 CA 23.3 Hotel 5/29/2013 782,750,000 NY 100.0 Office 5/29/2013 510,000,000 FL 61.1 Hotel 5/16/2013 874,949,000 CA 100.0 Office 4/25/2013 300,000,000 NJ 100.0 Retail 4/23/2013 260,000,000 FL 100.0 Retail 4/18/2013 360,000,000 NJ 100.0 Retail 4/11/2013 525,000,000 AZ 100.0 Retail 4/11/2013 285,000,000 CA 100.0 Hotel 3/28/2013 710,000,000 NY 100.0 Office 3/28/2013 390,000,000 NY 100.0 Retail 3/28/2013 310,000,000 NY 100.0 Office 3/28/2013 410,000,000 NY 100.0 Hotel 3/21/2013 324,420,483 NY 100.0 Retail 3/21/2013 275,000,000 NY 100.0 Office 3/20/2013 239,147,293 CA 100.0 Retail 3/14/2013 160,000,000 FL 100.0 Retail 3/6/2013 900,000,000 NY 100.0 Mixed Use 2/27/2013 193,000,000 CA 100.0 Office 2/25/2013 498,503,359 NY 100.0 Retail 2/21/2013 295,000,000 CA 100.0 Retail 2/15/2013 1,100,000,000 HI 95.3 Hotel 2/12/2013 1,820,000,000 CA 22.2 Hotel 2/12/2013 350,000,000 CA 22.2 Hotel 2/12/2013 350,000,000 CA 22.2 Hotel 1/29/2013 600,000,000 NY 100.0 Retail Top % 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 92.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 WAC Secur 3.50 2.60 3.95 4.05 2.84 4.04 3.18 3.28 4.05 4.41 6.27 3.70 3.94 3.53 2.24 3.53 2.68 3.18 3.56 3.56 3.55 3.00 2.25 4.00 3.61 2.72 3.67 3.43 5.11 2.94 3.72 3.93 3.53 3.44 3.61 4.85 4.05 3.40 2.26 3.49 WAM Secur 23 35 84 50 24 84 23 23 85 120 42 23 24 34 36 120 23 120 120 143 143 120 24 120 120 84 58 95 179 58 143 144 83 82 120 57 82 58 22 144 WA LTV Secur 52.6 63.6 53.9 51.2 54.1 50.0 45.5 39.2 52.7 48.5 41.4 45.3 62.5 53.7 46.5 48.9 46.2 49.7 68.2 60.9 57.6 49.5 42.7 52.6 54.9 51.7 47.0 63.1 43.7 49.5 58.2 64.3 45.7 65.6 54.3 40.1 52.2 52.2 52.2 55.6 WA DSCR WA DY Sec ur Secur 4.09 13.4 4.19 11.1 2.24 9.3 2.91 12.5 3.87 11.9 2.01 8.2 4.74 15.6 4.24 14.2 1.39 8.0 2.80 12.5 4.83 17.5 2.60 19.1 3.72 13.5 6.49 14.7 2.54 7.2 4.61 13.5 1.84 11.4 2.44 8.8 2.74 9.9 2.66 9.6 2.03 10.3 5.37 13.7 1.79 10.0 2.30 8.4 4.30 11.9 3.66 13.6 1.71 9.1 1.69 11.0 1.82 9.1 1.76 9.7 1.45 8.2 3.19 11.4 1.45 7.8 2.60 9.5 2.92 11.8 4.48 16.9 4.48 16.9 4.48 16.9 2.70 9.7
Sourc e: Intex Solutions, Inc., Trepp, LLC and Wells Fargo Sec urities, LLC.
In addition to single-borrower transactions, 2013 saw an increase in off-the-run transactions in the form of floating-rate deals, CRE CLOs, non-performing loan deals, and deals backed by seasoned loans. In total, about $6.1 billion of capital was provided to these types of assets. We anticipate the market will remain open for large loan and off-the-run transactions in 2014 as long as the transactions are well enhanced and offer value to more credit-oriented buyers. Exhibit 29: Other Commercial Real Estate Securitizations
Deal Name SLKN 2013-1 SLKN 2013-2 COMM 2013- RIAL4 COMM 2013- FL3 ACRE 2013-FL1 A10 2013-2 IHSFR 2013-SFR1 PRIMA 2013- 3 VFC 2013- 1 NSTAR 2013- 1 ORES 2013- LV2 RAIT 2013-FL1 RREF 2013- LT3 JPMCC 2013-FL3 A10 2013-1 RREF 2013- LT2 GSMS 2013- G1 ARBOR 2013-1 Closing Date 12/12/2013 12/12/2013 11/26/2013 11/20/2013 11/19/2013 11/6/2013 11/19/2013 9/25/2013 9/23/2013 8/27/2013 8/20/2013 7/31/2013 5/29/2013 5/8/2013 4/11/2013 4/4/2013 3/12/2013 1/28/2013 Deal Type Seasoned Loans Seasoned Loans Non-Performing Floating Rate Floating Rate Small Balance Single-Family Rental CRE CLO Non-Performing CRE CLO Non-Performing CRE CLO Non-Performing Floating Rate Small Balance Non-Performing Large Loans CRE CLO Orig Deal Balanc e ($) 920,360,998 452,680,154 156,553,715 485,000,000 493,782,965 156,703,000 479,137,000 290,890,000 185,500,000 531,535,670 201,477,000 135,000,000 57,217,000 505,000,000 103,163,000 213,596,000 568,965,073 259,987,000 Top State CA NY TX NY TX FL CA FL CA GA TX TX CA CO FL MI TX Top % 24.1 24.7 20.7 47.4 21.3 17.8 40.1 11.0 17.1 18.9 14.6 26.2 24.8 18.2 17.6 41.3 16.7 Top Prop Type Office Office Hotel Hotel Multifamily Retail Single-Family Spec ial Purpose Office Spec ial Purpose Mixed Use Retail Hotel Office Spec ial Purpose Retail Multifamily Top % 34.0 33.8 27.8 90.7 69.3 43.5 100.0 53.9 28.7 37.7 61.4 19.4 64.2 57.5 30.8 100.0 79.3 WAC Sec ur 6.07 6.07 2.63 3.66 5.33 6.69 1.64 6.51 1.14 5.95 1.70 3.31 7.91 0.70 3.61 4.88 WAM Sec ur 91 68 38 29 28 46 25 30 48 19 33 34 29 38 27 119 21 WA LTV Sec ur 58.0 64.7 138.4 48.3 72.0 72.2 65.6 77.3 175.0 45.1 77.9 51.9 70.0 WA DSCR WA DY Secur Secur 1.64 12.0 1.59 12.1 16.6 1.77 8.2 1.89 8.7 4.70 15.0 1.44 9.1 4.64 15.5 10.6 2.64 12.3 1.63 10.8
Note: DSCR and debt yield figures are based on NCF unless unavailable. NOI is used if NCF data is unavailable. Source: Intex Solutions, Inc ., Trepp, LLC and Wells Fargo Sec urities, LLC.
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Property Market Fundamentals

Our effective revenue forecast for the major property types continues to be positive, with all sectors likely to achieve average annual effective revenue growth greater than 2.5% through 2015. Our property market outlook forecasts 174 growth markets out of 261 total markets, compared to 128 growth markets a year ago. The number of declining markets dropped to three in our current forecast from five a year ago. We are forecasting a slight decline for the hotel markets of Long Island and Philadelphia and the industrial market of the Trenton-Ewing, N.J., metro. Exhibit 30: Effective Revenue Forecast by Property Type
Sector Apartment Industrial Office Retail (strip centers) Hotel*
Note: *Hotel based on RevPAR change. Source: REIS, Inc., Property & Portfolio Research, Smith Travel Research, Real C apital Analytics, Inc. and Wells Fargo Securities, LLC .
Market Score Q4 2013-2015 Growth Growth Growth Growth Growth
% US Metros w/ Decline or Watch Scores 0% 2% 0% 0% 4%
Annual Change in Effective Revenue 2013F 3.7% 3.5% 2.3% 1.7% 5.9% 2014F 3.0% 2.9% 3.1% 2.3% 3.0% 2015F 2.9% 2.8% 3.5% 2.9% 3.6% Current 4.2% 8.0% 16.9% 10.2% 32.5%
Vacancy Trough Vac 8.0% 10.3% 17.6% 10.7% 42.0% Trough Year 2009 2009 2010 2011 2009
Apartment. While the apartment sector has enjoyed an incredibly strong run and was the first of the four core property types to shift into growth mode, we are forecasting smaller gains in revenue over the next two years. Demand should continue to be strong for apartment units resulting in positive net absorption, but new supply coming online over the next 12-24 months could outpace demand leading to an increase in the vacancy rate. This forecast for an increase in the property sectors vacancy rate does not indicate deterioration in the sector, in our opinion, but simply justifiable new supply (based on a strong recovery in property fundamentals) initially outpacing positive demand. Rising mortgage rates and increasing home prices have made owning a home more difficult for first-time buyers making renting the only option for many. Industrial. We are forecasting average annual effective revenue growth just less than 3.0% for the industrial sector through 2015. The sector should benefit from stronger demand generated by an increase in single-family and multifamily housing starts and the resulting need for warehousing of construction materials by homebuilders over the next two years. Our economics group forecasts total housing starts increasing 18.3% in 2014 and 13.6% in 2015, according to their Nov. 1, 2013, forecast. In addition, demand for larger distribution space has been coming from online retailers like Amazon as well as traditional retailers such as Wal-Mart, as e-commerce continues to account for an increasing share of retail sales. Cyber Monday sales increased 19% from 2012, according to IBM Corp., and online holiday sales are forecast to increase 15% over the prior year, according to the National Retail Federation. Office. The office sector continues to struggle with a high vacancy rate of 16.9%, around 490 bps above its low in 2007, and as of Q3 2013 has only been able to recover approximately 37% of the total occupancy in square feet lost over the past cycle from the peak in 2007 to the trough in 2010. Modest amounts of positive absorption have been able to outpace limited new construction keeping downward pressure on the sectors vacancy rate. New construction should remain limited over the forecast, and the sector should experience increasing effective revenue over the next two years. The slow recovery thus far in the sector can be attributed to gains in efficiency, as tenants reconfigure their use of space to accommodate more employees in a smaller footprint. Growing tech companies like Google are actively signing leases planning for future growth, while more traditional tenants are looking to reduce occupancy costs. Half of the 23 million square feet of office projects currently underway are expected to be occupied by technology firms, which only represents 3.3% of private-sector jobs, according to Jones Lang LaSalle. San Francisco, San Jose, and Seattle are top markets for technology job growth and not surprisingly rank in the top four of office markets in our forecast.
21
WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Retail. The retail sector has lagged the other property types in this recovery but has finally achieved a market rating of growth (average annual effective revenue greater than 2.5%) in our current market forecast through 2015. While the annual effective revenue forecast in 2014 of 2.3% still lags the other property types, a stronger outlook in 2015 brings the average annual effective revenue forecast up to 2.5%. Pressure from e-commerce and the ability to quickly comparison shop online has taken a bite out of traditional brick-and-mortar sales. While online spending increased over the four days beginning Nov. 28 over the Thanksgiving holiday, total purchases declined 2.9% because of slumping in-store sales, according to a survey commissioned by the National Retail Federation, marking the first spending decline on a Black Friday weekend since 2009. Improved logistics and more efficient distribution channels have enabled traditional retailers to stock less inventory, thus reducing their need for space. Continued economic growth accompanied by an improving labor market and recovering housing market should help sustain this sectors recovery through our forecast. Our economics group expects economic growth to pick up in 2014 led by improving consumer spending, business fixed investment and homebuilding. Hotel. The hotel sector aided by its short overnight lease term recovered much more quickly than the four core property types. While we think the sector should continue to perform well through our 2015 forecast, we are forecasting smaller revenue growth ahead in 2014 for the sector. The major gateway markets such as Chicago, New York, Los Angeles, Boston, and San Francisco have outperformed the broader market and are likely to slow over the next 12-24 months. We have included our summary forecasts by property type for each of the 50-54 markets we cover in the appendix of this report.
Property Sales and Pricing

Our positive revenue forecast for the major property types should translate into continued yearover-year gains in the Moodys/RCA Commercial Property Price Index. We are conservatively forecasting the four core property types to register national price gains of between 5.5% and 6.5% through 2015, in line with increasing effective revenue gains in our 2013 Q4-2015 forecast. Our revenue forecasts are most likely better suited for forecasting year-end NOI performance for the various property sectors. Our positive revenue forecast should be a good indicator for determining annual NOI performance when the 2013 CMBS property financials are reported in 2014. Exhibit 31: Property Price Forecast
Moody's/ RCA CPPI Index by Prop Type Decline Since Peak Index High Date Q3 2013 Apt Ind Off Ret 187.3 171.5 186.8 193.1 2013-8 2008-1 2007-12 2007-9 187.0 133.4 159.0 155.7 -0.2% -22.2% -14.9% -19.3% WFC Forecast Delta Forecasted from High Change 2013Q3- 2015F to 2015F thru 2015 198.8 141.5 169.3 164.6 6.1% -17.5% -9.4% -14.7% 6.3% 6.1% 6.5% 5.7%
So urces: M o o dy's Investo r Services, Real Capital A nalytics, Inc., Wells Fargo Securities, LLC.
Strong Investor Appetite for Commercial Properties Investment sales volume through October 2013 totaled nearly $260 billion for a 26% increase over the year-earlier period. While the annual total for 2013 should easily surpass the 2012 total, Q4 2013 volume may fall short of the year-earlier period as investors rushed to close deals in 2012 to avoid the higher capital gains tax rate taking effect in 2013, according to Real Capital Analytics. Currently, however, sales volume data for October 2013 are approximately 15% higher year over year, according to Real Capital Analytics.
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CMBS Weekly December 5, 2013 Exhibit 32: Year over Year Property Sales Transaction Volume
$90 $80 $70 $60 $57 $47 $37 $29 $40 $74 $66 YTD Oct'13 YTD Oct'12 $81
Billions
$50 $40 $30 $20 $10 $office Industrial
$21 $16
Retail
Apartment
Hotel
Source: Real Capital Analytics, Inc., Wells Fargo Securities, LLC.
All property types are enjoying stronger volume year over year, with the apartment sector leading with approximately $81 billion in sales volume through October 2013, followed by the office sector with $74 billion. Even as interest rates increased in May 2013, with the 10-year Treasury yield rising 135 bps between May and September, property investors continued to be active, and pricing remained strong with average capitalization rates remaining stable. However, investors were paying more of a premium for commercial properties (office, retail, industrial aggregate cap rate) in the six major markets (San Francisco, Los Angeles, Chicago, Washington, DC, New York City and Boston) versus the non-major markets, particularly over the past two years. Since Q1 2011, the spread between cap rates in the major markets versus the non-major markets has increased significantly rising to 117 bps as of Q3 2013 from 48 bps. The move is even more pronounced for the major market versus non-major market apartment sector where the spread increased to 180 bps as of Q3 2013 from 60 bps as of Q2 2010.
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WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Exhibit 33: Aggregate Cap Rate Difference between Major and Non-Major Market
6 Major Markets 9.0% 8.5% 8.0% 7.5% 80 7.0% 60 6.5% 6.0% 5.5% 5.0% 40 20 0 Non-Major Markets Spread (Right Axis) 140 120 100
Mar-02
Mar-09
Dec-03
Dec-10
Jun-07
Sep-05
Sep-12
Apr-06
Feb-05
Nov-06
May-03
Note: Commercial office, Retail, Industrial aggregate Cap Rate. Spread is difference between 6 Major vs Non-Major Markets cap rates. Source: Real Capital Analytics, Inc., Wells Fargo Securities, LLC.
While the rise in rates appears not to have dampened investor enthusiasm, it could be responsible for shifting investors away from low-yielding major markets/property types to higher-yielding properties in the broader market. In our 2013 Outlook from December 2012, we noted that markets and property types that traded for higher cap rates could start to attract investors in search of higher yield and this now appears to be already underway. Exhibit 34: Apartment Cap Rate Difference between Major and Non-Major Markets
6 Major Markets 8.5% 8.0% 7.5% Non-Major Market Spread (Right Axis) 200 180 160 140 120 100 80 60 40 20 0
May-10
Aug-08
Feb-12
Apr-13
Jul-04
Oct-02
Oct-09
Jan-08
Jul-11
Basis Points
Cap Rate
7.0% 6.5% 6.0% 5.5% 5.0%
Jan-08
Mar-02
Mar-09
May-03
May-10
Dec-03
Dec-10
Jun-07
Sep-05
Sep-12
Apr-06
Aug-08
Feb-05
Nov-06
Note: Spread is difference between 6 Major vs Non-Major apartment markets cap rates. Source: Real Capital Analtyics, Inc., Wells Fargo Securities, LLC.
Investment activity in the apartment sector, while still strong, appears to be waning with sales volume in Q3 2013 down year over year. The average cap rate for the apartment sector is well below the average cap rate for the other property types, with major market apartment cap rates 24
Feb-12
Apr-13
Jul-04
Oct-02
Oct-09
Jul-11
Basis Points
Cap Rate
compressing to 5.2% as of Q3 2013 from 5.9% as of Q4 2010, according to Real Capital Analytics data. Investors appear to be rotating away from low-yielding major markets into the broader market where apartment assets can be had for higher cap rates, and moving to other property types that offer higher yields. Even though total apartment sales volume in tertiary markets declined 20% year over year, data from Real Capital Analytics show the number of apartment property sales in tertiary markets increased 27% year over year in Q3 2013 to 144 properties. Exhibit 35: Sales Transaction Volume Q3 2013 versus Q3 2012 Office Apartment Retail Industrial Hotel Major Markets 34% -47% 42% 34% -41% Secondary Markets 50% -13% 126% 78% 53% Tertiary Markets -2% -20% 162% 119% 84%
Source: Real C apital Analytics, Inc., Wells Fargo Securities, LLC .
The shift in transaction volume in Q3 2013 year over year shows how investors are reducing the amount of apartment purchases across all market tiers, while increasing activity in the secondary and tertiary markets for the other property types. The greater yield (higher cap rates) available in non-major markets is drawing investors away from the initial flight to safety strategy the major markets offered earlier in the recovery to now chasing the greater returns offered in the broader market. This would also indicate that property investors anticipate a broader fundamental commercial real estate recovery in the near future.
New Supply Concerns Limited to Apartment Sector for Now

Annual average new supply as a percentage of inventory has been declining across the core property types since the 1980s, with the overall annual average dropping to 1.4% from 2004-2008 from 4.8% from 1985-1989. An even smaller average annual increase is forecast from 2012-2015 of 0.77% (Exhibit 36). We expect a limited amount of new supply over the next 12-18 months for the office, retail and industrial sectors, while the apartment sector will likely experience a heavier amount of new supply in 2014, compared to the other property types. Coming off the downturn, lenders are cautious and are requiring significant preleasing before committing funds for a development project. Based on current demand trends, new speculative supply should be contained and not disrupt the commercial real estate recovery through 2014. Exhibit 36: New Supply as Percentage of Existing Inventory by Sector
10%
Completions as % of Inventory
Apt Off Ret Ind Aggregate
9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
Avg. '85-'89=4.8%
Avg. '97-'01=2.2%
Avg. '04-'08=1.4% Avg. '12-'15F=0.77%
Source: REIS, Inc., Property & Portfolio Research, Wells Fargo Securities, LLC.
2014F
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
-1%
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WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Apartment demand (in terms of occupied units) is at an all-time high as of Q3 2013, according to REIS data, and we expect the sector to continue to post positive absorption gains through 2014. However, new supply additions of around 1.6% of current inventory for the national apartment sector could initially outpace demand, leading to an increase in the sectors national vacancy rate in 2014. New supply levels of 1.6% of current inventory is not too significant compared to previous national levels. However, on a metro-level basis higher concentrations exist in specific markets. The top 15 apartment markets for the highest concentration of new supply likely for 2014 (as a percentage of existing inventory) range from Austin with 4.9% to Dallas with 2.2%. We forecast stronger conditions for San Francisco, Seattle, New York, San Jose, Austin, Boston, Denver and Dallas where annual average revenue gains outpace the national average. However, all of these aforementioned metros are likely to experience a smaller increase in effective revenue in 2014 compared to 2013, with New York the lone exception showing a slight increase. Palm Beach, Jacksonville, Charlotte, Raleigh-Durham, Orlando and San Antonio are currently forecast to underperform the national average apartment revenue forecast but still average annual growth in excess of 2.5% annually through 2015. Washington, D.C., falls near the bottom of our current forecast with a stable revenue outlook with an annual average effective revenue forecast of around 2.0%. Exhibit 37: Apartment Markets with Highest New Supply Estimate for 2014
5% 4% 3% 2% 1% 0%
Source: REIS, Inc., Wells Fargo Securities, LLC.
All 54 apartment markets that we cover have at least a stable revenue outlook for 2014, with the majority likely to experience average effective revenue gains of at least 2.5%. However, these metros with heavier levels of new supply could experience an increase in the metro-wide vacancy rate, as new supply initially outpaces demand, in our opinion. Markets such as San Francisco, San Jose, Seattle and the Texas markets have experienced strong job growth in the tech and energy sectors helping generate solid demand for rentals. San Francisco, San Jose, Seattle have also experienced strong home price appreciation with year-over-year increases ranging from 15.9% for Seattle up to 24% for San Francisco, according to the National Association of Realtors. The Florida markets have also enjoyed strong year-over-year increases in the median home price with Jacksonville up 29.3%, Orlando up 23.9% and Palm Beach up 21.3%.
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CMBS Weekly December 5, 2013 Exhibit 38: Median Home Price Annual Change as of Q3 2013
35% 30% 25% 20% 15% 10% 5% 0%
Source: National Association of Realtors, Wells Fargo Securities, LLC.
Home price increases outpacing gains in median incomes, tougher qualifying standards for firsttime home buyers, and rising mortgage rates make renting the only option for many. So while significant new apartment supply could initially outpace demand in 2014, we still think the sector should perform well as demand should remain positive for the rental apartments. However, markets likely to receive the heaviest amount of new units could see higher vacancy rates in 2014 and slowing effective revenue growth.
Large Retailers in CMBS

Online retailers have enjoyed a strong holiday shopping season with Cyber Monday sales surging about 20% to a record level. While online retailers reported strong year-over-year sales increases, traditional brick and mortar retailers experienced a decline, which brought overall retail sales down nearly 3.0% over the four-day holiday shopping season kick off that began over the Thanksgiving holiday, according to the National Retail Federation. Retailers Wal-Mart and Target trimmed their yearly forecasts recently citing slow wage growth, unemployment, and sliding consumer confidence, according to an article in the New York Times. With e-commerce taking a larger share of retail sales away from the traditional physical stores, investors are concerned with how some of the larger department store tenants in CMBS deals are faring. Exhibit 39: Select Retailers with Large Exposure in Multiborrower CMBS
Tenant/Anchor J.C. Penney Macys Burlington Coat Fac tory T.J. Maxx Ross Dress-for-Less Old Navy The GAP Kohls Nordstrom Deal Count 167 94 95 153 125 88 57 118 38 Loan Count 256 114 124 237 185 106 71 155 44 Current Loan Balance ($M) 15,847.1 11,030.5 5,887.9 4,647.7 4,376.1 4,356.4 4,107.6 4,074.9 3,981.3 Current Exposure Balance ($M) 2,887.0 2,648.5 844.3 987.6 753.0 342.1 660.2 1,470.9 645.9 Deal with Highest Exposure Balance GSMS 2005-GG4 JPMCC 2005-LDP5 JPMCC 2006-LDP7 WBCMT 2006-C24 MLCFC 2006-4 GECMC 2004-C2 JPMCC 2006-LDP9 MSC 2007-T27 DBUBS 2011-LC3
Source: Trepp, Wells Fargo Securities, LLC .
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WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH Our equity research department covers retailers that have some of the highest exposure in CMBS. One of the primary metrics to determine the health of a company is its return on invested capital (ROIC), which gives a sense of how well a company is using its money to generate returns. Our equity research department covering these retailers emphasizes this metric because it is a good measure for comparing the relative profitability levels of companies. For more detail and opinions on these retailers covered by our equity research department, see Retail Weekend Reading: Turkey Day Trivia, November 26, 2013. Exhibit 40: Wells Fargo Securities Equity Research Sales/Average SqFt Company 2012 Tenant/Anchor Ticker ROIC 2012 2013E 2014E J.C. Penney JCP -6% $117 $109 $122 Macys M 8% $183 $187 $192 Burlington Coat Factory BURL 6% $107 $109 $112 T.J. Maxx TJX 19% $297 $302 $308 Ross Dress-for-Less ROST 21% $288 $285 $285 Old Navy (global) GPS 13% $342 $352 $359 Gap Stores (global) GPS 13% $452 $461 $464 Kohls KSS 10% $195 $190 $189 Nordstrom JWN 15% $459 $461 $471
Source: C ompany data and Wells Fargo Securities, LLC Estimates.
Conclusion on the Property Markets

Our positive fundamental forecast bodes well for CMBS loan performance in 2014. Continued effective revenue growth across the property types should translate into declining CMBS delinquency rates, higher property values and better recovery rates for liquidated loans. Look for continued NOI growth across the major property types when 2013 and 2014 CMBS financials are reported. Increasing commercial real estate investment activity in the broader market, as investors search for higher yield, and more upside should also benefit CMBS collateral by adding upward pressure to values in secondary and tertiary markets. While we think the apartment sector should perform well in 2014, we would not be surprised to see new construction add upward pressure to the vacancy rate. However, we are still forecasting positive absorption, and see most of the new supply risk concentrated in select markets. Large-anchor retailers remain a concern for CMBS investors, particularly as e-commerce takes a greater share of retail sales from physical stores. Some of the largest retailers in CMBS are covered by our equity research department.
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Presentation of Retail Key Scoring Metrics
MARKET SCORE 1 Seattle Orlando San Francisco Charlotte Raleigh-Durham Houston Central New Jersey San Diego Philadelphia Orange County Pittsburgh Dallas Fort Worth Atlanta Cincinnati Sacramento Suburban Virginia Phoenix Austin Los Angeles Columbus Milwaukee Denver Chicago Portland Baltimore Fort Lauderdale Tampa-St. Petersburg US Metro Total Minneapolis Palm Beach San Jose Oakland-East Bay Hartford Suburban Maryland Jacksonville St. Louis Kansas City Boston Nashville San Antonio Indianapolis ANNUAL CHANGE METROS IN EFFECTIVE REVENUE 1 REVENUE VOLATILITY3 2 2014 F 2015 F 4Q13-2015 1999-2013 Quotient 3.3% 3.2% 2.7% 3.2% 2.7% 3.4% 2.2% 2.9% 2.5% 2.6% 2.6% 2.5% 2.5% 2.4% 2.6% 2.9% 2.5% 2.1% 2.4% 2.4% 2.1% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.6% 2.3% 2.4% 2.3% 2.6% 2.6% 2.4% 2.5% 2.5% 2.3% 2.3% 2.1% 2.1% 2.8% 1.2% 1.7% 1.7% 1.9% 1.3% 1.4% 1.5% 1.6% 1.3% 0.7% 0.6% 0.5% 3.2% 3.2% 3.4% 3.5% 4.1% 2.9% 4.1% 3.5% 3.3% 3.1% 3.3% 3.4% 3.1% 3.7% 3.2% 2.9% 3.3% 3.4% 2.9% 3.2% 2.5% 2.7% 2.7% 2.8% 2.9% 2.6% 2.7% 2.7% 2.9% 3.1% 2.6% 2.8% 3.0% 2.5% 2.7% 3.3% 2.6% 2.0% 2.8% 3.0% 1.9% 3.2% 2.8% 2.3% 2.4% 2.2% 1.6% 1.5% 1.4% 1.8% 1.7% 1.1% 1.0% 3.3% 3.3% 3.2% 3.2% 3.2% 3.1% 3.0% 3.0% 3.0% 2.9% 2.8% 2.8% 2.8% 2.8% 2.8% 2.7% 2.7% 2.7% 2.7% 2.7% 2.6% 2.6% 2.6% 2.6% 2.6% 2.6% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.4% 2.4% 2.4% 2.3% 2.3% 2.3% 2.3% 2.2% 2.1% 1.9% 1.8% 1.6% 1.5% 1.5% 1.4% 1.4% 1.3% 0.7% 0.7% 3.2% 4.3% 3.2% 3.0% 2.5% 2.5% 2.7% 3.2% 2.4% 3.8% 2.4% 2.5% 3.2% 2.7% 3.5% 4.8% 3.4% 3.9% 2.6% 3.5% 2.0% 2.6% 2.8% 2.6% 2.5% 2.7% 4.2% 3.9% 2.8% 2.5% 4.4% 4.0% 4.5% 3.1% 3.3% 3.9% 2.4% 2.4% 2.2% 3.1% 2.3% 2.6% 3.1% 3.7% 2.9% 2.9% 3.0% 2.9% 4.7% 2.8% 3.0% 2.6% 4.6% 1.14 1.54 1.14 1.09 0.89 0.89 0.95 1.13 0.86 1.34 0.87 0.91 1.14 0.96 1.24 1.73 1.22 1.39 0.93 1.27 0.71 0.94 1.01 0.93 0.88 0.97 1.49 1.39 1.00 0.89 1.59 1.44 1.60 1.12 1.17 1.41 0.85 0.87 0.78 1.09 0.81 0.92 1.10 1.32 1.03 1.03 1.06 1.02 1.69 0.99 1.06 0.93 1.65
CURRENT PERFORMANCE EFFECTIVE REVENUE 4 Current Average Delta $19.11 $13.22 $28.74 $14.20 $13.70 $12.38 $17.82 $24.21 $15.94 $25.76 $13.24 $12.57 $11.22 $13.00 $10.82 $15.93 $23.07 $14.29 $17.34 $24.28 $9.05 $11.75 $13.17 $14.96 $16.11 $17.92 $14.52 $11.07 $15.67 $13.75 $16.63 $25.75 $23.42 $13.94 $20.43 $10.89 $10.60 $10.68 $18.62 $12.29 $11.72 $10.68 $19.38 $11.33 $24.73 $23.63 $21.97 $12.51 $15.55 $10.50 $10.83 $13.08 $16.05 $21.63 $15.94 $32.90 $15.91 $15.91 $13.81 $20.72 $25.85 $18.14 $28.37 $15.08 $14.41 $13.13 $15.65 $12.94 $19.97 $25.73 $17.00 $18.51 $26.78 $11.22 $13.79 $15.44 $17.33 $18.14 $20.17 $16.65 $13.53 $18.12 $15.79 $19.32 $29.21 $26.43 $15.45 $23.95 $13.34 $13.33 $12.79 $20.83 $13.95 $13.04 $13.06 $21.75 $13.20 $28.02 $26.85 $24.08 $15.27 $19.94 $12.30 $14.17 $16.08 $18.96 -11.7% -17.1% -12.6% -10.7% -13.9% -10.4% -14.0% -6.3% -12.2% -9.2% -12.2% -12.8% -14.5% -16.9% -16.4% -20.2% -10.3% -15.9% -6.4% -9.3% -19.3% -14.8% -14.7% -13.7% -11.2% -11.1% -12.8% -18.2% -13.5% -12.9% -13.9% -11.8% -11.4% -9.7% -14.7% -18.3% -20.5% -16.5% -10.6% -11.9% -10.2% -18.2% -10.9% -14.2% -11.7% -12.0% -8.8% -18.1% -22.0% -14.6% -23.6% -18.6% -15.4% Rating Under Under Under Under Under Under Under Average Under Average Under Under Under Under Under Under Under Under Average Average Under Under Under Under Under Under Under Under Under Under Under Under Under Average Under Under Under Under Under Under Under Under Under Under Under Under Average Under Under Under Under Under Under
Growth-4
Stable-3 Miami
Norfolk Fairfield County Northern New Jersey Long Island Richmond Las Vegas Memphis Cleveland Detroit Inland Empire Notes:
1 . M arket Sco res are determined by 4Q1 3-201 5 average annual effective revenue fo recasts. Effective revenue is effective rent less vacancy. 2. The annual average fo r the perio d can appear disto rted relative to the o ne-year fo recasts. This can o ccur because o f histo ric quarterly changes in the current year. 3. Revenue vo latility is measured by the standard deviatio n o f annual effective revenue change o ver the cycle (1 999-201 3). The quo tient is metro vo latility / U.S. vo latility. 4. Average effective revenue (in 201 3 US do llars) thro ugh the recent real estate cycle (1 999-201 3).
So urces: Amo ng the so urces co nsidered are Bureau o f Labo r Statistics, Intex So lutio ns, Inc., Pro perty & Po rtfo lio Research, Real Capital A nalytics, M arcus & M illichap, Reis, Inc., CushmanWakefield, Co lliers, AB R, Eco no my.co m, and CB Richard Ellis.
29

Presentation of Industrial Key Scoring Metrics
ANNUAL CHANGE MARKET SCORE 1 METROS San Jose-Sunnyvale-Santa Clara CA Jacksonville FL Riverside-San Bernardino-Ontario CA Hartford-West Hartford-East Hartford CT Orlando-Kissimmee-Sanford FL Portland-Vancouver-Hillsboro OR-WA Boston-Cambridge-Quincy MA-NH San Francisco-San Mateo-Redwood City CA Santa Ana-Anaheim-Irvine CA West Palm Beach-Boca Raton-Boynton Beach FL Los Angeles-Long Beach-Glendale CA Atlanta-Sandy Springs-Marietta GA Newark-Union NJ-PA Phoenix-Mesa-Glendale AZ Miami-Miami Beach-Kendall FL San Diego-Carlsbad-San Marcos CA Nashville-Davidson-Murfreesboro-Franklin TN Las Vegas-Paradise NV Austin-Round Rock-San Marcos TX Philadelphia-Camden-Wilmington PA-NJ-DE-MD Minneapolis-St. Paul-Bloomington MN-WI Sacramento-Arden-Arcade-Roseville CA US Metro Total Cincinnati-Middletown OH-KY-IN Charlotte-Gastonia-Rock Hill NC-SC Washington-Arlington-Alexandria DC-VA-MD-WV Seattle-Tacoma-Bellevue WA Oakland-Fremont-Hayward CA San Antonio-New Braunfels TX Richmond VA Milwaukee-Waukesha-West Allis WI Baltimore-Towson MD Houston-Sugar Land-Baytown TX Chicago-Joliet-Naperville IL Tampa-St. Petersburg-Clearwater FL Virginia Beach-Norfolk-Newport News VA-NC St. Louis MO-IL Fort Lauderdale-Pompano Beach-Deerfield Beach FL Memphis TN-MS-AR IN EFFECTIVE REVENUE 1 REVENUE VOLATILITY3 2 2014 F 2015 F 4Q13-2015 1999-2013 Quotient 6.6% 6.9% 7.0% 6.4% 5.2% 5.0% 4.2% 4.7% 4.4% 4.3% 4.6% 4.5% 4.0% 4.7% 3.4% 3.2% 4.0% 3.8% 3.9% 3.2% 3.3% 3.5% 2.9% 2.7% 3.0% 2.9% 2.8% 1.9% 3.1% 2.1% 1.9% 2.4% 2.4% 2.3% 0.4% 1.6% 1.7% 1.1% 1.8% 1.2% 1.1% 1.2% 1.6% 0.3% 1.4% 1.6% 1.5% 0.9% 1.5% 0.0% 0.6% -1.4% 5.5% 5.1% 5.3% 6.7% 5.8% 5.3% 5.6% 5.3% 5.3% 4.4% 4.4% 4.0% 5.0% 3.8% 4.3% 4.3% 2.4% 3.1% 3.0% 3.8% 2.9% 1.9% 2.8% 2.7% 1.8% 2.4% 1.9% 2.6% 1.7% 3.1% 2.8% 1.7% 2.3% 1.9% 3.8% 2.9% 2.8% 2.6% 1.8% 2.8% 2.2% 1.2% 0.9% 2.1% 1.0% 0.6% 0.3% 0.2% -0.5% 0.9% 0.5% -0.5% 6.3% 6.3% 6.2% 6.1% 5.7% 5.3% 4.9% 4.9% 4.6% 4.6% 4.4% 4.3% 4.1% 4.1% 3.9% 3.8% 3.8% 3.5% 3.5% 3.3% 3.1% 3.1% 3.0% 2.9% 2.8% 2.7% 2.6% 2.6% 2.5% 2.4% 2.4% 2.3% 2.3% 2.2% 2.2% 2.1% 2.1% 2.0% 2.0% 1.9% 1.6% 1.5% 1.4% 1.3% 1.2% 1.2% 1.1% 1.0% 0.8% 0.7% 0.7% -1.0% 18.9% 11.1% 6.9% 3.4% 6.9% 5.5% 8.3% 19.3% 10.5% 9.3% 5.8% 5.1% 5.9% 6.6% 5.9% 5.1% 5.5% 9.8% 8.2% 5.3% 3.7% 8.3% 8.1% 4.9% 4.9% 8.1% 5.6% 9.0% 5.1% 6.6% 3.9% 4.5% 6.1% 4.3% 8.6% 4.5% 4.4% 5.7% 3.8% 7.4% 5.9% 4.2% 4.1% 3.9% 2.6% 6.1% 4.2% 3.6% 5.5% 8.6% 5.7% 9.4% 2.33 1.38 0.85 0.42 0.85 0.68 1.03 2.39 1.30 1.15 0.72 0.63 0.72 0.82 0.73 0.63 0.68 1.21 1.01 0.65 0.46 1.02 1.00 0.61 0.60 1.00 0.69 1.11 0.63 0.82 0.49 0.56 0.75 0.53 1.06 0.56 0.55 0.70 0.47 0.92 0.73 0.52 0.51 0.48 0.32 0.75 0.52 0.45 0.67 1.07 0.70 1.16
CURRENT PERFORMANCE Current $7.19 $3.38 $4.96 $3.81 $4.31 $5.30 $5.65 $9.68 $7.48 $7.51 $6.99 $3.13 $5.14 $4.92 $7.31 $8.12 $3.28 $4.97 $5.76 $4.19 $5.01 $4.06 $4.90 $3.10 $3.70 $7.16 $5.85 $5.93 $4.89 $2.74 $3.70 $4.61 $5.19 $4.44 $4.35 $4.35 $3.45 $6.73 $2.21 $3.85 $8.23 $3.46 $3.73 $4.21 $3.84 $7.42 $2.82 $3.77 $4.97 $8.15 $3.68 $3.19 EFFECTIVE REVENUE Average 4 Delta $8.93 $4.08 $5.31 $4.99 $5.25 $5.44 $6.81 $11.62 $8.62 $8.36 $7.72 $3.86 $6.25 $6.16 $7.50 $9.31 $3.71 $6.89 $6.43 $4.84 $5.69 $4.75 $5.58 $3.66 $3.90 $7.95 $6.12 $6.87 $4.89 $3.89 $4.37 $4.95 $5.23 $5.25 $5.36 $5.49 $4.49 $7.79 $2.55 $4.97 $9.19 $4.19 $4.83 $4.38 $4.06 $8.15 $3.31 $4.06 $5.24 $8.45 $4.34 $4.16 -19.5% -17.2% -6.5% -23.6% -17.8% -2.6% -16.9% -16.7% -13.3% -10.1% -9.4% -18.9% -17.8% -20.1% -2.6% -12.8% -11.6% -27.9% -10.4% -13.5% -11.9% -14.5% -12.2% -15.2% -5.0% -10.0% -4.4% -13.6% 0.0% -29.7% -15.5% -7.0% -0.7% -15.5% -18.9% -20.8% -23.1% -13.6% -13.3% -22.6% -10.4% -17.5% -22.7% -3.9% -5.4% -9.0% -15.0% -7.0% -5.2% -3.6% -15.1% -23.4% Rating Under Under Average Under Under Average Under Under Under Under Average Under Under Under Average Under Under Under Under Under Under Under Under Under Average Average Average Under Average Under Under Average Average Under Under Under Under Under Under Under Under Under Under Average Average Average Under Average Average Average Under Under
Growth-4
Stable-3
Raleigh-Cary NC Nassau-Suffolk NY Cleveland-Elyria-Mentor OH Detroit-Warren-Livonia MI Pittsburgh PA Indianapolis-Carmel IN Bridgeport-Stamford-Norwalk CT Columbus OH Dallas-Fort Worth-Arlington TX Denver-Aurora-Broomfield CO New York-White Plains-Wayne NY-NJ Kansas City MO-KS
Decline-2 Notes:
Trenton-Ewing NJ
1 . M arket Sco res are determined primarily by 4Q1 3-201 5 average annual effective revenue fo recasts. Effective revenue is effective rent less vacancy. 2. The annual average fo r the perio d can appear disto rted relative to the o ne-year fo recasts. This can o ccur because o f histo ric quarterly changes in the current year. 3. Revenue vo latility is measured by the standard deviatio n o f annual effective revenue change o ver the cycle (1 999-201 3). The quo tient is metro vo latility / U.S. vo latility. 4. A verage effective revenue (in 201 3 US do llars) thro ugh the recent real estate cycle (1 999-201 3).
So urces: A mo ng the so urces co nsidered are B ureau of Labo r Statistics, Intex So lutio ns, Inc., P ro perty & P ortfo lio Research, Real Capital A nalytics, M arcus & M illichap, Reis, Inc., Grubb & Ellis, CushmanWakefield, Co lliers, A B R, Eco no my.co m, and CB Richard Ellis.
30

Presentation of Apartment Key Scoring Metrics
MARKET SCORE1 METROS ANNUAL CHANGE IN EFFECTIVE REVENUE 1 2 2014 F 2015 F 4Q13-2015 4.1% 4.3% 3.8% 3.8% 3.4% 3.8% 3.3% 3.5% 2.6% 3.2% 3.6% 3.8% 3.3% 3.4% 2.2% 3.1% 3.2% 3.4% 3.1% 3.0% 3.4% 3.0% 3.0% 2.9% 2.8% 2.7% 2.9% 3.1% 3.1% 3.1% 2.9% 2.6% 2.9% 2.9% 3.0% 2.9% 2.7% 2.9% 2.8% 3.4% 2.7% 2.5% 2.6% 2.8% 2.5% 2.4% 2.3% 2.7% 2.6% 2.5% 2.4% 2.3% 2.1% 1.9% 2.6% 4.1% 3.5% 4.0% 4.0% 3.5% 4.0% 3.9% 3.4% 3.7% 3.2% 3.0% 2.9% 3.5% 2.8% 3.6% 2.9% 3.2% 2.6% 3.0% 2.9% 2.7% 2.8% 2.9% 2.8% 2.8% 3.0% 2.7% 2.6% 2.9% 2.7% 2.5% 3.2% 2.4% 2.6% 2.8% 3.2% 2.5% 2.3% 2.4% 2.3% 2.7% 2.5% 2.3% 2.5% 2.4% 2.4% 2.5% 1.8% 2.4% 1.9% 1.7% 2.0% 1.9% 1.7% 0.5% 4.2% 4.0% 3.9% 3.9% 3.8% 3.8% 3.7% 3.6% 3.5% 3.4% 3.4% 3.4% 3.3% 3.2% 3.2% 3.2% 3.2% 3.2% 3.1% 3.1% 3.1% 3.0% 3.0% 3.0% 3.0% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.8% 2.8% 2.8% 2.8% 2.7% 2.7% 2.7% 2.7% 2.7% 2.6% 2.6% 2.6% 2.6% 2.5% 2.5% 2.5% 2.5% 2.4% 2.2% 2.2% 2.2% 2.1% 1.9% REVENUE VOLATILITY3 1999-2013 Quotient 9.2% 3.5% 3.9% 3.1% 5.2% 2.9% 5.5% 12.7% 5.7% 5.0% 4.7% 8.3% 2.1% 2.2% 3.2% 3.0% 3.8% 3.9% 3.7% 3.4% 3.1% 3.7% 2.0% 3.3% 2.4% 2.5% 2.8% 4.3% 2.6% 3.7% 3.7% 3.4% 3.1% 4.1% 2.6% 2.6% 2.2% 3.7% 3.4% 3.9% 3.6% 3.3% 4.1% 2.7% 3.3% 2.0% 3.1% 2.9% 2.6% 1.9% 2.3% 1.8% 2.0% 3.3% 4.2% 2.71 1.03 1.16 0.90 1.52 0.84 1.62 3.75 1.66 1.47 1.38 2.45 0.62 0.64 0.95 0.88 1.12 1.15 1.10 1.00 0.90 1.10 0.58 0.96 0.71 0.74 0.82 1.26 0.75 1.10 1.10 0.99 0.90 1.20 0.78 0.76 0.65 1.09 0.99 1.14 1.05 0.97 1.20 0.80 0.98 0.58 0.90 0.84 0.77 0.57 0.68 0.53 0.60 0.96 1.22
CURRENT PERFORMANCE EFFECTIVE REVENUE 4 Rating5 Current Average Delta $1,980 $696 $851 $1,371 $1,078 $1,030 $2,976 $1,637 $852 $1,733 $870 $1,382 $1,031 $722 $759 $657 $781 $767 $1,539 $1,065 $985 $827 $694 $751 $823 $623 $793 $751 $703 $767 $810 $1,083 $750 $1,399 $669 $707 $824 $906 $1,506 $759 $1,063 $1,066 $692 $1,169 $1,027 $982 $1,503 $762 $675 $1,043 $1,291 $1,564 $874 $1,438 $1,761 $1,895 $696 $808 $1,312 $996 $1,050 $2,820 $1,631 $822 $1,739 $860 $1,382 $963 $739 $730 $664 $776 $824 $1,499 $1,052 $981 $830 $711 $745 $860 $640 $841 $752 $700 $776 $804 $1,089 $780 $1,381 $673 $685 $829 $930 $1,407 $812 $1,076 $1,070 $722 $1,170 $1,010 $977 $1,505 $763 $692 $1,021 $1,220 $1,602 $837 $1,349 $1,823 4.5% -0.1% 5.3% 4.4% 8.2% -1.9% 5.5% 0.4% 3.6% -0.4% 1.1% 0.0% 7.1% -2.2% 4.0% -1.2% 0.7% -6.8% 2.7% 1.2% 0.4% -0.4% -2.4% 0.9% -4.3% -2.7% -5.8% -0.2% 0.4% -1.2% 0.7% -0.6% -3.8% 1.3% -0.6% 3.1% -0.7% -2.5% 7.0% -6.5% -1.2% -0.3% -4.2% -0.1% 1.6% 0.5% -0.1% -0.1% -2.5% 2.2% 5.8% -2.4% 4.4% 6.6% -3.4%
San Francisco Fort Worth Portland San Diego Seattle Chicago New York San Jose Austin Boston Denver Oakland-East Bay Baltimore Cleveland Houston Indianapolis Dallas Las Vegas Orange County US Metro Total Minneapolis Orlando Growth-4 St. Louis Nashville Milwaukee Memphis Detroit Charlotte Cincinnati Raleigh-Durham Tampa-St. Petersburg Fort Lauderdale Jacksonville Los Angeles Columbus San Antonio Pittsburgh Sacramento Suburban Virginia Atlanta Miami Palm Beach Phoenix Central New Jersey Inland Empire Hartford Northern New Jersey Richmond Kansas City Philadelphia Stable-3 Suburban Maryland Long Island Norfolk District of Columbia Fairfield County
1. M a rke t Sc o re s a re de te rm ine d by 4Q13-2015 a ve ra ge a nnua l e ffe c tive re ve nue fo re c a s ts . Effe c tive re ve nue is e ffe c tive re nt le s s va c a nc y. 2. The a nnua l a ve ra ge fo r the pe rio d c a n a ppe a r dis to rte d re la tive to the o ne -ye a r fo re c a s ts . This c a n o c c ur be c a us e o f his to ric qua rte rly c ha nge s in the c urre nt ye a r. 3. R e ve nue vo la tility is m e a s ure d by the s ta nda rd de via tio n o f a nnua l e ffe c tive re ve nue c ha nge o ve r the c yc le (1999-2013). The quo tie nt is m e tro vo la tility / U.S. vo la tility. 4. Ave ra ge e ffe c tive re ve nue (in 2013 US do lla rs ) thro ugh the re c e nt re a l e s ta te c yc le (1999-2013). 5. P e rfo rm a nc e ra tings a re no t a pplie d in a pa rtm e nt s c o ring be c a us e c ha nge s in unit m ix a nd qua lity a lte r re nts o ve r tim e fo r s o m e m e tro s , m a king c o m pa ris o ns a m o ng m a rke ts diffic ult. 6. Effe c tive re ve nue s a re pre s e nte d a s a nnua l pe r SF fo r the s e m e tro s . So urc e s : Am o ng the s o urc e s c o ns ide re d a re B ure a u o f La bo r S ta tis tic s , Inte x S o lutio ns , Inc ., P ro pe rty & P o rtfo lio R e s e a rc h, R e a l C a pita l Ana lytic s , M a rc us & M illic ha p, R e is , Inc ., Grubb & Ellis , Cus hm a nWa ke fie ld, Co llie rs , AB R , Ec o no m y.c o m , a nd C B R ic ha rd Ellis .
See note #5 below.
31

Presentation of Hotel Scoring Metrics
Market Score 1 Metros Houston-Sugar Land-Baytown TX Indianapolis-C armel IN Bridgeport-Stamford-Norwalk CT Las Vegas-Paradise NV Richmond VA Dallas-Fort Worth-Arlington TX Baltimore-Towson MD C hicago-Joliet-Naperville IL Los Angeles-Long Beach-Glendale C A San Francisco-San Mateo-Redwood C ity C A Atlanta-Sandy Springs-Marietta GA Phoenix-Mesa-Glendale AZ Virginia Beach-Norfolk-Newport News VA-NC Tampa-St. Petersburg-C learwater FL Fort Lauderdale-Pompano Beach-Deerfield Beach FL Sacramento-Arden-Arcade-Roseville C A C harlotte-Gastonia-Rock Hill NC -SC Growth-4 Denver-Aurora-Broomfield C O US Metro Total Santa Ana-Anaheim-Irvine C A Austin-Round Rock-San Marcos TX San Diego-C arlsbad-San Marcos C A C incinnati-Middletown OH-KY-IN New York-White Plains-Wayne NY-NJ Riverside-San Bernardino-Ontario C A Seattle-Tacoma-Bellevue WA St. Louis MO-IL Raleigh-C ary NC C olumbus OH San Jose-Sunnyvale-Santa C lara C A Nashville-Davidson-Murfreesboro-Franklin TN Detroit-Warren-Livonia MI Oakland-Fremont-Hayward C A C leveland-Elyria-Mentor OH Portland-Vancouver-Hillsboro OR-WA Boston-C ambridge-Quincy MA-NH Jacksonville FL Kansas C ity MO-KS Memphis TN-MS-AR Orlando-Kissimmee-Sanford FL Minneapolis-St. Paul-Bloomington MN-WI Stable-3 Miami-Miami Beach-Kendall FL Milwaukee-Waukesha-West Allis WI Hartford-West Hartford-East Hartford C T San Antonio-New Braunfels TX Newark-Union NJ-PA Pittsburgh PA West Palm Beach-Boca Raton-Boynton Beach FL Washington-Arlington-Alexandria DC -VA-MD-WV Philadelphia-Camden-Wilmington PA-NJ-DE-MD Nassau-Suffolk NY
Annualized Change in REVPAR1 2013:4-2015:1 4.80% 4.68% 4.43% 4.40% 4.31% 4.13% 4.08% 4.02% 3.89% 3.65% 3.54% 3.54% 3.48% 3.25% 3.19% 3.19% 3.16% 3.09% 3.04% 3.04% 3.01% 3.01% 2.93% 2.88% 2.77% 2.74% 2.72% 2.71% 2.68% 2.67% 2.65% 2.64% 2.62% 2.60% 2.58% 2.49% 2.39% 2.22% 2.11% 2.05% 1.96% 1.77% 1.74% 1.68% 1.54% 1.28% 0.61% 0.16% 0.13% -0.62% -1.95%
Annualized REVPAR Change Volatility Volatility 2 11.0% 7.2% 6.1% 10.6% 8.3% 8.6% 5.6% 9.9% 8.5% 8.9% 8.2% 10.5% 4.6% 8.7% 8.1% 7.4% 10.0% 8.3% 7.9% 8.4% 9.8% 7.9% 5.0% 10.7% 7.9% 8.6% 5.2% 7.3% 6.8% 11.0% 7.8% 8.3% 10.5% 6.5% 8.3% 7.2% 7.8% 5.6% 7.1% 8.3% 7.6% 9.4% 7.6% 6.5% 7.6% 6.5% 4.8% 10.3% 5.7% 6.8% 6.7% Quotient 1.40 0.91 0.78 1.35 1.06 1.09 0.72 1.26 1.08 1.13 1.04 1.33 0.58 1.10 1.03 0.94 1.26 1.05 1.00 1.07 1.24 1.00 0.64 1.36 1.01 1.09 0.66 0.92 0.86 1.39 0.99 1.05 1.34 0.82 1.05 0.91 0.99 0.71 0.90 1.06 0.97 1.19 0.96 0.82 0.96 0.82 0.61 1.30 0.73 0.86 0.85
Current Performance Annualized Change in REVPAR 2013:3 Avg 2 14.0% 5.7% 3.1% 7.3% 3.3% 3.1% 7.8% 1.8% 9.2% 9.8% 12.9% 7.5% 3.1% 3.5% 5.5% 6.5% 7.0% 8.3% 7.2% 7.3% 10.6% 10.7% 6.3% 6.2% 6.2% 6.9% 9.4% 7.0% 3.4% 6.7% 15.0% 10.2% 8.3% 15.2% 12.3% 12.1% 5.7% 8.4% 3.9% 3.9% 5.6% 4.8% 8.4% 6.4% 2.1% 5.2% 10.0% 1.5% 8.3% -0.8% 2.8% 15.5% 3.0% 1.5% -0.8% 2.2% 4.2% 0.9% 4.3% 5.6% 7.9% 3.1% 1.8% 0.1% 3.2% 4.3% 0.4% 6.7% 5.8% 3.9% 4.8% 7.5% 2.7% 3.6% 6.5% 0.8% 5.0% 2.6% 3.2% 3.7% 6.9% 5.1% 2.5% 5.5% 3.8% 6.4% 5.6% 0.8% 2.7% 3.1% 2.9% 3.5% 7.6% 3.4% 2.1% 2.4% 3.6% 6.3% 2.6% 3.1% 3.3% 2.3% Delta 8.3% 0.1% 5.8% 4.1% 0.9% 3.6% 1.0% 4.9% 4.2% 5.0% 4.4% 1.3% 3.4% 2.3% 2.1% 6.6% 1.7% 1.4% 3.4% 5.8% 3.3% 3.7% 2.6% -0.2% 6.1% 4.4% 4.4% 0.2% 3.0% 8.1% 5.2% 5.8% 9.7% 8.4% 5.7% 0.1% 7.6% 1.3% 0.7% 2.6% 1.3% 0.8% 2.9% 0.0% 2.7% 6.4% -4.8% 5.7% -3.9% -0.5% 13.2%
Decline-2
1 . M arket Sco res are determined primarily by average annual REVP A R fo recasts o ver six quarters (1 8 mo nths). 2. Vo latilities and averages in year-o ver-year REVP A R changes are based o n 1 0 years o f REVP A R indices. So urce: P P R, Smith Travel Research, Wells Fargo Securities, LLC.
32
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Important Disclosures Relating to Conflicts of Interest and Potential Conflicts of Interest Wells Fargo Securities, LLC may sell or buy the subject securities to/from customers on a principal basis or act as a liquidity provider in such securities. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC research analysts receive compensation that is based on and affected by the overall profitability of their respective department and the firm, which includes, but is not limited to, investment banking revenue. Wells Fargo Securities, LLC Fixed Income Research analysts interact with the firms trading and sales personnel in the ordinary course of business. The firm trades or may trade as a principal in the securities or related derivatives mentioned herein. The firms interests may conflict with the interests of investors in those instruments. For additional disclosure information please go to: www.wellsfargoresearch.com. Analysts Certification The research analyst(s) principally responsible for the report certifies to the following: all views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers discussed; and no part of the research analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst(s) in this research report. This report, IDs, and passwords are available at www.wellsfargoresearch.com This report is for your information only and is not an offer to sell, or a solicitation of an offer to buy, the securities or instruments named or described in this report. Interested parties are advised to contact the entity with which they deal, or the entity that provided this report to them, if they desire further information. The information in this report has been obtained or derived from sources believed by Wells Fargo Securities, LLC, to be reliable, but Wells Fargo Securities, LLC does not represent that this information is accurate or complete. Any opinions or estimates contained in this report represent the judgment of Wells Fargo Securities, LLC, at this time, and are subject to change without notice. Performance analysis is based on certain assumptions with respect to significant factors that may prove not to be as assumed. You should understand the assumptions and evaluate whether they are appropriate for your purposes. Performance results are often based on mathematical models that use inputs to calculate results. As with all models, results may vary significantly depending upon the value of the inputs given. Models used in any analysis may be proprietary making the results difficult for any third party to reproduce. The securities referenced herein are more fully described in offering documents prepared by the issuers, which you are strongly urged to request and review. Wells Fargo Securities, LLC, and its affiliates may from time to time provide advice with respect to, acquire, hold, or sell a position in, the securities or instruments named or described in this report. If you are subject to ERISA, this report is being furnished on the condition that it will not form a primary basis for any investment decision. For the purposes of the U.K. Financial Conduct Authoritys rules, this report constitutes impartial investment research. Each of Wells Fargo Securities, LLC, and Wells Fargo Securities International Limited is a separate legal entity and distinct from affiliated banks. Copyright 2013 Wells Fargo Securities, LLC.
SECURITIES: NOT FDIC-INSURED * NOT BANK-GUARANTEED * MAY LOSE VALUE
WELLS FARGO SECURITIES, LLC FIXED INCOME RESEARCH

Diane Schumaker-Krieg, Managing Director, Global Head of Research, Economics & Strategy
diane.schumaker@wellsfargo.com
(704) 410-1801 (212) 214-5070
Structured Products Research

Marielle Jan de Beur, Managing Director Greg Reiter, Managing Director John McElravey, CFA, Director David Preston, CFA, Director Chris van Heerden, CFA, Director Mark Fontanilla, Director Lad Duncan, Vice President Landon Frerich, Vice President Randy Ahlgren, CFA, Associate Bee Sim Koh, Associate Maria Mascia, Associate Jason McNeilis, CFA, Associate Head of Structured Products Research CMBS and Real Estate Research Head of Residential Mortgage Research Head of Consumer ABS Research CDO and Commercial ABS Research CMBS and Real Estate Research Residential Mortgage Research CMBS and Real Estate Research CMBS and Real Estate Research Residential Mortgage Research Consumer ABS Research Residential Mortgage Research CDO and Commercial ABS Research marielle.jandebeur@wellsfargo.com (212) 214-8047 (704) 410-3084 gregory.j.reiter@wellsfargo.com john.mcelravey@wellsfargo.com david.preston@wellsfargo.com chris.vanheerden@wellsfargo.com mark.fontanilla@wellsfargo.com lad.duncan@wellsfargo.com landon.frerich@wellsfargo.com randy.ahlgren@wellsfargo.com beesim.koh@wellsfargo.com maria.mascia@wellsfargo.com jason.w.mcneilis@wellsfargo.com (704) 410-3492 (704) 410-3081 (704) 410-3080 (704) 410-3079 (704) 410-3085 (704) 410-3082 (704) 410-3083 (704) 410-3086 (704) 410-3078 (704) 410-3088 (704) 410-3077
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WFC - 2014 Cmbs Outlook

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WFC - 2014 Cmbs Outlook

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December 5, 2013

Structured Products Research CMBS & Commercial Real Estate

2014 CMBS Outlook

CMBS Weekly December 5, 2013

WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH

2013 Forecast Recap: Issuance Surprised to the Upside

Tim ing of Forecast

In aggregate delinquencies should decline to close to 9%.

Property prices in aggregate w ill increase 3% on average.

Source: Wells Fargo Securities, LLC.

CMBS Weekly December 5, 2013

WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH

Relative Value in 2014

CMBS Weekly December 5, 2013

WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH

Exhibit 2: Short-Duration Classes Suffered in the June Selloff

New New New New New New New New

Issue Issue Issue Issue Issue Issue Issue Issue

Source: Wells Fargo Securities, LLC.

A5 44.6% 17.9% 19.2% 8.6% 9.5% 0.2%

AAB/ASB 40.7% 21.7% 30.8% 0.0% 1.3% 5.5%

AS 30.3% 4.2% 47.1% 8.4% 8.5% 1.6%

CMBS Weekly December 5, 2013

WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH

170 150 100 50 33 0 -50 137

CMBS Weekly December 5, 2013

WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH

Exhibit 6: Moving Down the StackSpread Pickup per 1% of Credit Support

AAADuper AAAA-S Aa3 A3 Baa3

Source: Wells Fargo Securities, LLC.

CMBS Weekly December 5, 2013 Exhibit 7: Non-Agency CMBS Issuance

WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH

95.0 85.0 44.5 30.5 12.1 2.6 12.7

50 40 30 22.1 20 10 8.3 9.2 6.9 4.7

The CMBS Buyer Base is Shifting Away from Money Managers

CMBS Weekly December 5, 2013

WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH

Mone y Ma nagers, 55.2%

Insura nce C om panies, 20.5%

Money Ma na gers, 44.5%

Insura nce C om panies, 30.0%

O ppo rtunity Funds, 2.5%

Mo ney Mana gers, 46.8%

Insurance C om panies, 14.3%

Mo ney Managers, 42.7%

Insurance Co m panies, 11.5%

S ourc e: Wells Fargo Securities, L LC.

Public Markets Funding Real Estate

CMBS Weekly December 5, 2013

WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH

2016E 331.6 37.6 128.1 498.7

Exhibit 12: Source of CRE Mortgage Capital for 2014

Source: Wells Fargo Securities, LLC 's estimates.

CMBS Weekly December 5, 2013

Source: Wells Fargo Securities, LLC.

CMBS Weekly December 5, 2013

WELLS FARGO SECURITIES, LLC STRUCTURED PRODUCTS RESEARCH

CMBS Collateral Performance

10% 8% 6% 4% 2% 0% -2% -4% -6%

4.0 2.0 0.0 -2.0 -4.0 -6.0 -8.0

Source: Intex Solutions, Inc. and Wells Fargo Securities, LLC.

CMBS Weekly December 5, 2013