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The current stresses in the capital markets create severe challenges for investment sales activity. Newmark Knight Frank is uniquely qualified to deal both with the causes of the stress and with how to source credit and structure transactions during these periods.

During the first three quarters of 2008, only $12 billion of CMBS were brought to the market. In 2006 and for most

of 2007, the pace of issuance was close to $200 billion each year. With the CMBS market shut, financial institutions were caught with hundreds of billions of dollars of mortgages on their balance sheets. As a result, financial institutions are valuing these mortgages at prices that are dramatically below what even the most severe default and loss experience implies. Placing these mortgage assets in long-term portfolios offers investors the opportunity to achieve high rates of return while simultaneously unburdening the capital base of financial institutions.

Nationwide, investment sales are down by 75%, and the number and dollar volume of forced or distressed sales as a percentage of the transactions that are closed is rising. This logjam is beginning to push cap rates up and the logjam is likely to increase in size as the amount of refinancing needed to be done grows. Market knowledge gives us the ability to discern the intrinsic value of properties and our capacity to source long-term permanent debt and equity gives us the resources to move properties off the balance sheets of financial institutions and other property owners.

VANISHED PROFITS

These large banks have taken more in write-downs and charge-offs than all the profits made from the beginning of 2004 to the middle of 2007.

Banks Financials Since the Beginning of the Subprime Crisis

Acquisitions

Earnings 2004 through 1st half of ‘O7

Write-Downs and Losses 2nd half of ‘07 through 3rd qtr. of ‘O8

Write-downs as a percentage of earnings

Bank of America

15%

Goldman Sachs

18%

JPMorgan Chase

28%

Wells Fargo

43%

Citigroup

59%

Morgan Stanley

70%

Wachovia*

376%

Merrill Lynch

254%

Washington Mutual*

311%

*Includes write-downs of $31 billion at Washington Mutual and $7.4 billion in expected write-downs at Wachovia tied to their acquisitions.

Source: The New York Times, October 17, 2008

27

Capital Group

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