TRENDS IN HOUSING YEAR-END

AT Welcome to Trends in Housing, a joint publication of MRIS and Delta Associates. This report provides a regular indepth look at the statistics and issues that shape the Mid-Atlantic housing market. Following are highlights of market activity at year-end 2009. Of note, most major market indicators have improved compared to one year earlier. The Washington area housing market is in the early phases of the recovery cycle: Prices are showing signs of a moderate recovery: 4th quarter prices in the metro are up from the same quarter in 2008, with the Outer jurisdictions outperforming the Core and Inner jurisdictions. Prices will likely gain traction in 2010, as buyer and seller expectations continue to move closer to a balance, facilitating an increase in transaction volume. This is the first time prices have risen on a trailing 12-month basis since the 4th quarter of 2007. Days on market continue to decline compared to both last quarter and a year ago. Properties in the Outer jurisdictions (Loudoun, Prince William and Frederick Counties) have experienced the sharpest decline, but across the region, time on market is at or below the region s long-term average. The ratio of inventory to sales continues to decline in most jurisdictions from one year ago. The metro-wide ratio of 5.3 months worth of listings is below the normal, healthy standard of 6 months, signaling that demand is beginning to outpace supply. The gap between buyer and seller demands is closing with the average sales price in the 4th quarter of 2009 at 93.7% of list price, the highest share in more than two years. We hope you find this publication valuable and we welcome your feedback. Jonathan Hill VP, Business Development MRIS 2 INSIDE THIS ISSUE 1. The Washington Metro Area For-Sale Housing Market 3 2. The Baltimore Metro Area For-Sale Housing Market 10 3. Policy Spotlight: Extension & Expansion of the Federal Home Buyer Credit 11 4. Ask Delta 12 5. Summary Data on the Mid-Atlantic Housing Market 13 6. Local Spotlight: The District 17 7. Regional Spotlight: Montgomery County 18 8. The Washington Regional Economy and Outlook 19 9. The Baltimore Regional Economy and Outlook 22 10. The Condominium Market 23 11. The Apartment Market 24 12. The Commercial Real Estate Market 26 Methodology 29 About MRIS and Delta Associates 30

SECTION ONE THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET The Washington housing market in the 4th quarter of 2009 continued to show signs of recovery, as prices rose modestly from the previous year and homes sold more quickly. Volume continued to pick up due to near-record low interest rates, Federal incentives, reduced prices and an improving economy. Although unit sales volume is down 12.3% from the previous quarter, it is up 18.9% from one year ago. Sales volume in the 4th quarter has contracted compared to the 3rd quarter s sales volume, likely due to the expected expiration of the Federal tax credit for first-time homebuyers as well as seasonality. The Washington region continues to add high-paying jobs, which is fostering housing demand, even as it loses lower-paying jobs. As the national economy gains traction, Washington will see burgeoning strength in the region s housing market. As of year-end 2009, all four major market indicators have improved compared to one year earlier. (See Figures 1 and 2) The average price of a Washington-area home is $376,188 in the 4th quarter of 2009. The metro-wide price of homes sold in the 4th quarter of 2009 was down 2.7% from the 3rd quarter of 2009, but it was 2.2% higher than in the 4th quarter of 2008. This is the first time metro-wide prices have risen on a trailing 12- month basis since the 4th quarter of 2007. Prices remain highest in the Core jurisdictions of the District, Arlington and Alexandria. The average sales price of a Core home in the 4th quarter of 2009 is $486,328, up 2.2% from the 3rd quarter and 2.2% lower than one year ago. In the District, the average price in December 2009 was up 14.6% from one year earlier. In Alexandria, the average sales price in December 2009 was up 3.0% compared with December 2008; Arlington posted price increases of 14.5% for the same 12-month period. (See Figure 3) The area s Inner ring of Fairfax, Montgomery and Prince George s counties (and Falls Church and Fairfax cities) experienced price declines of 5.4% from the 3rd quarter; the average price in the 4th quarter of 2009 was $374,044, which is down 5.1% from one year ago. Fairfax County home prices rose 12.0% from December 2008 to December 2009. In Montgomery County, prices climbed 4.6% over the same period; Prince George s home prices fell 18.1%. Figure 1 * Sales pace as of December 2009. Pace is ratio of total for-sale inventory to current month s sales. Figure 2 Source: Delta Associates; January 2010. Figure 3 MARKET INDICATORS WASHINGTON METRO AREA AT MARKET CONDITIONS WASHINGTON METRO AREA AT HOME PRICES BY SUB-AREA* WASHINGTON METRO AREA SECTION ONE THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET 3 The Outer suburbs of Loudoun, Prince William and *Core: DC, Arlington, Alexandria. Inner: Fairfax, Montgomery, Prince George s; Fairfax City and Falls Church. Outer: Loudoun, Prince William, Frederick.

THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET Frederick counties where foreclosures led to the region s steepest price declines in 2006 through 2008 showed a slight drop over the quarter, but had the strongest yearly price gain of the sub-areas. The average sales price of an Outer home in the 4th quarter is $297,544, down 0.5% from the 3rd quarter and up 11.9% from one year ago. In Prince William County, the average sales price in December 2009 increased 22.4% from one year earlier. In Loudoun, home prices rose 10.8% from December 2008 to December 2009; Frederick posted declines of 9.2% year-over-year. (See Figure 4) In 2009 the number of homes sold metro-wide is up 11.4% from 2008, indicating a return of buyers to the market. (See Figure 5) Home prices at the metro level in the 4th quarter of 2009 were higher than one year earlier, with Outer jurisdictions showing the most improvement as the only sub-area with a price increase. The Core and the Inner suburbs continue to experience a drop in prices after a bounce in the 2nd quarter; prices in the Outer suburbs approximate those seen in the 3rd quarter of 2008. Given this mixed performance, it is too early to tell whether this market has passed the bottom, but rising unit volume and declining days on market bode well for recovery. We think that in the Washington metro, the bottom has likely passed. (See Figure 6) As buyer activity has increased, properties are selling more quickly. For the Washington region, homes sold in an average of 72 days, down from 81 days in the 3rd quarter and 104 days one year ago. In the Core, time on market fell to 73 days, down from 79 days in the 3rd quarter and 75 days one year ago. Properties in the Core are selling at a rate slightly below the region s long-term average of 76 days. Time on market in the Outer suburbs now averages 59 days, down 11 days from the previous quarter and down 51 days from one year ago. Homes are taking the longest to sell in the Inner suburbs 76 days down from 86 days in the previous quarter and 109 days one year ago. Figure 4 HOME SALES AVERAGE PRICE CHANGE WASHINGTON METRO BY SUB-AREA* 2003-2009 *Core: DC, Arlington, Alexandria. Inner: Fairfax, Montgomery, Prince George s; Fairfax City and Falls Church. Outer: Loudoun, Prince William, Frederick. AVERAGE SALES PRICE FOR EXISTING HOUSES WASHINGTON METRO BY SUB-AREA* Figure 5 2002-2009 *Core: DC, Arlington, Alexandria. Inner: Fairfax, Montgomery, Prince George s; Fairfax City and Falls Church. Outer: Loudoun, Prince William, Frederick. AVERAGE DAYS ON MARKET - EXISTING HOUSES WASHINGTON METRO AREA BY SUB-AREA* Figure 6 2002-2009 SECTION ONE THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET 4 *Core: DC, Arlington, Alexandria Inner: Fairfax, Montgomery, Prince George s; Fairfax City and Falls Church. Outer: Loudoun, Prince William, Frederick.

THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET According to Freddie Mac, the average 30-year fixedrate mortgage at the end of December 2009 was 5.14%, exactly the same as one year earlier. Rates bottomed at 4.71% in the first week of December before rising again, though they still remain low by historical standards. The rate for a 15-year fixed-rate mortgage was 4.45%. A combination of low rates and the Federal $8,000 tax credit for first-time home buyers has helped lure many buyers from the sidelines. Although some buyers are facing higher lending thresholds larger down payments, better cash reserves buyer activity picked up in 2009 compared to 2008. Recent market statistics indicate that buyer and seller expectations are moving toward each other, helping to bring the market into balance. The average time on market in the Washington area is 72 days. This duration is slightly below the long-term average of 76 days, and it is the lowest time on market since the 3rd quarter of 2006. However, sellers remain disconnected from market conditions on pricing. The average selling price in the 4th quarter of 2009 is 93.7% of list price, up 50 basis points from the 3rd quarter but indicating that sellers are still making generous concessions to facilitate sales. In November, the national pending-home sales index, a forward-looking indicator of contracts signed (but not settled) for previously owned homes, fell 16.0% from the October reading after a surge of activity in the preceding months as homebuyers attempted to beat the original deadline for the federal first-time homebuyer tax credit. The November 2009 index, which is published by the National Association of REALTORS, was 15.5% higher than the November 2008 reading. Pending home sales signal optimism in the market; however, some contracts are taking longer than normal to settle as appraisers and lenders are grappling with a recalibrating market. The National Association of REALTORS affordability index rose 23.4 points from November 2008 to November 2009. The affordability index incorporates median home prices, median incomes and average mortgage rates to broadly gauge the national homebuying climate. Lower prices continue to propel sales volume, and the region persists in working through its inventory overhang. The Washington area has an average of 5.3 months of for-sale inventory at December 2009, down from 7.3 months worth one year ago. In recent years, Washington area average prices tend to rise when the ratio of inventory to sales is below 6 months worth. Lender constraints may hinder a quick rise in prices, but the gap between supply and demand is closing in the Washington area. (See Figure 7) In most jurisdictions the ratio of inventory to sales fell in the 4th quarter of 2009 compared to one year ago. Fauquier County has the highest ratio in the region at 9.0 months worth of inventory at December 2009. Jurisdictions with ratios higher than last year at this time include Prince William County, Alexandria and Fairfax City. Falls Church has just 3.1 months worth of inventory at December 2009, the lowest in the region. (See Figure 8) SECTION ONE THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET 5 Figure 7 PRICE CHANGE AND INVENTORY WASHINGTON METRO 2003-2009 Figure 8 MONTHS OF FOR-SALE INVENTORY WASHINGTON METRO AREA DECEMBER 2008 vs. DECEMBER 2009 *Months of inventory at current sales pace for last month in each quarter. *Pace is ratio of total for-sale inventory to current month s sales.

THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET NAVIGATING THE MARKET The Washington area housing market appears to be in recovery. Home prices in the metro are slightly higher than they were one year ago, and the 4th quarter shows increased volume from last year. The Federal $8,000 tax credit for first-time homebuyers has been successful at luring reluctant buyers off the sidelines. This tax credit, coupled with near-record-low interest rates, has continued to spur buyer activity. Steady buyer activity especially in the lower price brackets has helped the region work through its excess inventory. As a result, the ratio of inventory to sales is now 5.3 months and is approaching a healthy balance between buyers and sellers. Well-priced properties in desirable neighborhoods are seeing multiple offers, another indication of the slowly shifting market. As demand and supply come into balance, we should see continued price traction in coming quarters. (See Figure 9) A healthy apartment market is helping to facilitate housing demand, particularly among first-time buyers. The region s stabilized vacancy rate for investmentgrade apartments (Class A and B) is 4.3% in the 4th quarter of 2009, down from 4.9% in the 3rd quarter and at the same level as one year ago. With a national vacancy rate of 7.6%, Washington boasts one of the lowest apartment vacancy rates in the nation. Seller expectations remain loftier than the market, but the gap between buyer and seller demands is closing. The average sales price in the 4th quarter of 2009 is 93.7% of list price, the highest share in more than two years. Sellers continue to make concessions to buyers to facilitate sales, but those concessions are shrinking. Building activity in the region remains tight, as the market is not yet expanding and lending activity is still constrained by the national Credit Crunch. According to the Census, the annualized number of permits for new housing nationally in November 2009 (the most recent data available) was 584,000, up 6.0% from the October number and up from the record low of 498,000 set in April 2009. The number of permits issued in November 2009 was down 7.3% from the number issued in November 2008. (See Figures 10 and 11) The number of housing starts fell 12.4% from November 2008 to November 2009, as oversupply remains a concern in many metropolitan areas. In the near term, new-home buyers will help to work through the excess inventory of existing newly built homes. Concerns about the economy and job security continue to affect builder confidence. The National Association of Home Builders/Wells Fargo Housing Market Index of builder confidence was 16 in December 2009, down one point from November and its lowest point since June of 2009. An index below 50 indicates that more builders view sales conditions as poor than SECTION ONE THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET 6 TOTAL ACTIVE LISTINGS WASHINGTON METRO AREA, ALL HOUSING TYPES Figure 9 2003 THROUGH 2009 CONSTRUCTION STARTS AND BUILDING PERMITS* UNITED STATES Figure 10 2000 THROUGH NOVEMBER 2009 *For privately owned housing units, seasonally adjusted and annualized. Source: Census Bureau, Delta Associates; January 2010.

THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET good. The index is based on three components. Two of them measuring current sales conditions and the sales expectations for the next six months fell from November; the measure gauging traffic of prospective buyers remained unchanged for the third month in a row. Home refinancings continued to surge in the 3rd quarter with record low interest rates, although tough credit standards are still stifling volume. According to Freddie Mac s Quarterly Refinance Review, homeowners cashed out $20 billion in home equity in the 3rd quarter of 2009. The aggregate amount of $60 billion that was cashed out during the first three quarters of the year is the smallest volume of equity extraction over the first three quarters of a year since 2000. The likely cause of the decline is that homeowners have a smaller equity cushion. Half of those refinancing in the 3rd quarter of 2009 lowered their annual mortgage interest rate by an average of 110 basis points below the previous rate. Freddie Mac reports that among those who refinanced, 64% of prime borrowers who refinanced a conventional, second-lien mortgage either kept the same principal balance or reduced it. This figure is the highest such share in six years. Conversely, the share of refinancing resulting in higher loan amounts fell to a new six-year low of 36% in the 3rd quarter from 38% last quarter. The Mortgage Bankers Association reported a small increase of 1% in seasonally adjusted refinancing applications from October to November. We expect refinancings to slow dramatically in 2010-11 as long-term interest rates rise in the aftermath of heavy deficit spending by the Federal government. CONSUMER SPENDING GETS A BOOST AS INCOMES RISE U.S. personal incomes rose in November for the fifth month in a row, providing some confidence as consumers began the holiday season. Consumer spending increased in November following a rise in overall personal income, according to the Commerce Department. Spending rose 0.5% from October, after increasing 0.6% the previous month and falling 0.6% from August to September. The Commerce report also showed that personal income increased 0.4% from October after increasing 0.3% for three months in a row. As the recession moderates consumers are spending more; however, gains continue to be measured. Retail sales continue to be a barometer of consumer sentiment; slow improvement will not help bring about a robust recovery. We expect this same pattern to hold true for housing a slow but steady increase in home sales as the recession gives way to recovery. WASHINGTON OUTPERFORMS THE NATION By most measures, the Washington metro area housing market is performing better than most other metro areas. SECTION ONE THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET 7 CONSTRUCTION BUILDING PERMITS BY STATE SELECTED MID-ATLANTIC JURISDICTIONS Figure 11 2000 THROUGH NOVEMBER 2009 *For privately owned housing units. Through November 2009, annualized. Source: Census Bureau, Delta Associates; January 2010.

THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET In the Washington metro area, the Federal Housing Finance Agency (formerly OFHEO) reported a 0.3% annual decline in home prices for the 12 months ending September 2009, compared to a decrease of 12.2% for all of 2008. FHFA reported a national average home price decline of 3.8% for the 12 months ending September 2009. In contrast, the National Association of REALTORS reported a national average home decline of 11.2%, and a Washington area decline of 2.5% for the 12 months ending in the 3rd quarter of 2009. (FHFA and NAR use different methodologies to calculate price changes.) (See Figure 12) From October 2008 to October 2009, Washington home prices fell 2.8%, according to the Case-Shiller index, placing 5th in a tie with Boston among major metro areas for 12-month performance. Washington placed 9th for seasonally-adjusted monthly price gains, tied with Minneapolis, with a 0.2% price increase from September to October. By contrast, Phoenix, Las Vegas and Detroit saw annual price declines in excess of 15%. WASHINGTON HOUSING OUTLOOK The Washington housing market has entered the recovery phase of the cycle. We expect that a combination of continued Federal impact on the Washington housing market and a recovering labor market will continue to bring gains to the Washington housing market. The pace of the recovery may be uneven; however, in 2010, we expect that renewed demand will continue to yield yearly price gains, with gains first apparent in the Outer suburbs, but extending to the other sub-areas by late 2010/early 2011. THE APPRAISAL QUESTION: CONTINUED DEBATE Appraisals are a key component of any home sales involving a mortgage. The appraisal ordered by the lender sets the market value of the house. During the housing boom, appraisers came under fire for lax standards, leading to overvalued mortgages. As the national housing market declined, parties on all sides of transactions raised concerns that it was difficult to accurately assess the market value of homes. In an effort to increase transparency and accountability among lenders, buyers and appraisers, the Home Valuation Code of Conduct (HVCC) was established between Freddie Mac, the Federal Housing Finance Agency and the New York State Attorney General. It took effect on May 1, 2009; Freddie Mac and Fannie Mae will no longer purchase mortgages that do not comply with the HVCC. The code applies to 1- to 4-unit single-family loans sold to Fannie Mae or Freddie Mac. The HVCC aims to establish independence of appraisers from lenders or other third parties who might influence the development, result or review of an appraisal. SECTION ONE THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET 8 Figure 12 ANNUAL ESCALATION OF EXISTING HOME SALE PRICES *12-Month change through 3rd quarter. Source: National Association of Realtors, Delta Associates; January 2010.

THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET The Federal Housing Administration has recently changed its policy to include modification to its appraisal requirements as well. The FHA will reaffirm its current policy regarding appraiser independence and geographic competence. In addition, brokers and bank employees who earn commissions on mortgages will be barred from ordering appraisals and appraisals older than four months will not be valid. Since the HVCC has gone into effect many lenders are choosing to work with appraisal management companies (AMCs) to select appraisers. Many in the industry have found fault with the increased use of AMCs saying that the resulting reduction in appraiser fees and increase in the time it takes to complete an appraisal have negatively impacted the market. In addition, real estate professionals have argued that the process for appealing valuations is too lengthy, causing deals to collapse before an appeal can be considered. Although the HVCC is due to expire at the end of 2010, government-sponsored entities such as Fannie Mae and Freddie Mac may continue to require that mortgages comply with all or part of the code. RESPA UPDATES TAKE EFFECT In early January new Federal rules governing mortgages took effect with a new standard form for Good Faith Estimates. The update of the Real Estate Settlement Procedures Act (Respa) was announced in November 2008 by the Department of Housing and Urban Development and took effect January 1, 2010. The new rules mandate a new standard Good Faith Estimate that will assist consumers in comparing loan offers from multiple lenders. The new estimate form requires lenders to combine all the fees charged into one origination charge. Consumers may then compare the interest rate as well as the adjusted origination charge, which includes points used to lower the interest rate and other fees charged. SECTION ONE THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET 9 Good Faith Estimates have always existed, however there was no standard format, making it difficult for consumers to compare lenders equally. The Respa update will require that lenders and mortgage brokers give consumers the estimate form within three days of receiving a loan application. Lenders are not allowed to increase the origination fee from the estimate and are also restricted from increasing other charges not included in the origination fee such as recording charges or title insurance by more than 10%.

SECTION TWO THE BALTIMORE METRO AREA FOR-SALE HOUSING MARKET The Baltimore market showed a mixed result in the 4th quarter of 2009 after optimistic performance during the 2nd and 3rd quarters. Since the 3rd quarter, prices and sales volume have fallen, despite a drop in days on market. Yearly statistics also show a drop in prices since the 4th quarter of 2008, but improvement in both volume and days on market are observed as well. Despite increases in sales volume, the Baltimore market is still weaker than a year ago; Baltimore s housing market may be in the very early phases of a recovery, but it is uneven compared to Washington. Baltimore City hit a bump in the road this quarter compared to its superior performance in the past two quarters: prices fell 12.3% in the 4th quarter of 2009 from the previous quarter. Baltimore City also clocked the most severe yearly declines; prices in the 4th quarter are 13.3% lower than a year ago. The city s low average sales price of $154,133 tends to contribute to volatility in percentage changes. The Northern suburbs posted the least negative price decline in the region; prices fell by 3.0% from the 3rd quarter. Prices in this area were down 7.5% from one year ago. The average sales price in the Northern suburbs for the 4th quarter is $265,740. The Southern suburbs showed a drop of 3.9% in the 4th quarter. Prices are down 7.5% from the 4th quarter of 2008, the same level of annual decline as the Northern suburbs. The average sales price in the Southern suburbs in the 4th quarter is $357,383. As a whole, Baltimore metro prices are down 6.1% from 3rd quarter 2009 and fell 7.5% from one year earlier. The ratio of inventory to sales ticked up by 1.2 months to 10.0 months at December 2009. Unit sales volume in 2009 surpassed 2008 total volume by 39.0%. (See Figure 13) For more detail on the Baltimore housing market, please see the graphs in Section 5. SECTION TWO THE BALTIMORE METRO AREA FOR-SALE HOUSING MARKET 10 Figure 13 MARKET INDICATORS BALTIMORE METRO AREA AT *Sales pace as of December 2009. Pace is ratio of total for-sale inventory to current month s sales.

SECTION THREE POLICY SPOTLIGHT: EXTENSION & EXPANSION OF THE FEDERAL HOME BUYER CREDIT Congress passed legislation in early November 2009 that extended and expanded the $8,000 Federal firsttime home buyer tax credit introduced in the Housing and Economic Recovery Act of 2008. The $24 billion bill expanded unemployment benefits, provided tax benefits to businesses with operating losses, and expanded the housing program to more buyers while extending the original deadline to April 2010. The tax credit portion of the bill is expected to cost $10.8 billion. Under this new legislation first-time buyers will receive the same $8,000 tax credit previously offered, but will have until April 30, 2010 to enter into a contract on a home and until June 30, 2010 to close on that home. The new bill also extends the tax credit to existing homeowners. Current homeowners who are purchasing a new primary residence were eligible for a $6,500 tax credit as of December 1, 2009 if they have lived in their home for at least five consecutive years during the previous eight years. Both provisions are limited to homes with a purchase price of less than $800,000. In addition, individuals making more than $125,000 per year and couples making more than $225,000 per year are not eligible. These new income limits represent a substantial increase from the previous tax credit legislation income limits of $75,000 for individuals and $150,000 for joint income tax filers. Anyone who collects the tax credit but sells their home within three years must return the credit. The Federal home buyer tax credit has had a noticeable impact on the housing market since its inception. The National Association of REALTORS (NAR) has estimated that 350,000 transactions may not have occurred nationally without the tax credit. This figure represents approximately 7.0% of NAR s estimated 2009 total of 5.01 million existing home sales. Locally, we estimate that 1,900 transactions may not have occurred in 2009 if not for the Federal tax credit. NAR s annual Profile of Home Buyers and Sellers for 2009 showed first-time buyers accounting for a record 47% of national home sales, up from 41% in 2008. It is very likely that this increase can be attributed to the first-time homebuyer credit. The National Association of Home Builders estimates that the extended and expanded tax credit will generate 180,000 additional home sales nationally. SECTION THREE EXTENSION & EXPANSION OF THE FEDERAL HOME BUYER CREDIT 11

SECTION FOUR ASK DELTA Q How will rising mortgage interest rates affect activity in the housing market? AInterest rates on 30-year fixed rate mortgages fell to an historical low of 4.71% in December of 2009 according to Freddie Mac s weekly survey. This is the lowest rate since the survey began in 1971. The Federal Reserve s program to purchase mortgage-backed securities has helped to hold mortgage interest rates down despite turmoil in the financial markets. (See Figure 14) The Federal Reserve ramped up its purchase of mortgage-backed securities in 2008 to prevent the collapse of the mortgage finance market. As of November 2009 Federal Reserve purchase of agency mortgage-backed securities accounted for about 80% of new securities issued by Fannie Mae and Freddie Mac. The Fed s purchase program is scheduled to phase out during the first quarter of 2010, leaving government sponsored enterprises (GSEs) such as Fannie Mae, Freddie Mac and Ginnie Mae without a government buyer and reliant on private investors to purchase mortgage-backed securities. The Fed s exit and concerns about the stability of GSEs may cause an increase in the spread of mortgage rates over Treasury bonds. According to The Wall Street Journal, activity by the Federal Reserve has caused these spreads to drop from approximately 2.8 percentage points in 2008 to 1.35 percentage points currently. As the Fed withdraws its current level of support that spread will likely increase, causing mortgage interest rates to rise. The Mortgage Bankers Association s (MBA) recent MBA Mortgage Finance Forecast projects 30-year fixed rate mortgage interest rates to increase to 5.7% by the end of 2010 and 6.2% by the end of 2011. Projected increases in mortgage interest rates coupled with the expiration of the Federal tax credit will result in a decrease in sales and refinancing activity nationally. Although the Federal tax credit for first-time homebuyers was recently extended and expanded to include current homeowners who meet specific criteria, this legislation will expire by April 30, 2010. The MBA projects that mortgage originations will decrease from almost $2.0 trillion in 2009 to about $1.5 trillion in 2010. Purchase originations are expected to increase from $718 billion in 2009 to $804 billion during 2010 and refinance originations are projected to fall from $1.246 trillion to $693 billion in the next year. While an increase in mortgage interest rates may slow the turnaround in the national market, the local impact is likely to be less of a hindrance due to a more robust increase in jobs and consumer sentiment. SECTION FOUR ASK DELTA 12 Figure 14 MORTGAGE RATES 30-YEAR FIXED RATE *At December 2009. Source: Freddie Mac, Delta Associates; January 2010.

SECTION FIVE SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET CHANGE IN EXISTING HOME VALUES SELECT METRO AREAS Figure 15 Figure 16 AVERAGE DAYS ON MARKET - EXISTING HOUSES WASHINGTON METRO AREA 1996 THROUGH 2009 Source: FHFA, GMU Center for Regional Analysis, Delta Associates; January 2010. Summary: The Washington area saw a -0.3% change in existing home values for the 12 months ending September 2009 (per FHFA data), ahead of the national average of -3.8%. SALES VOLUME WASHINGTON METRO AREA, ALL HOUSING TYPES 1999 THROUGH 2009 Figure 17 Figure 18 Source: MRIS, GMU Center for Regional Analysis, Delta Associates; January 2010. Summary: The average time on the market in 4th quarter 2009 was 72 days, down from 81 days at 3rd quarter and 104 days one year earlier. SALES PRICE CHANGE - TRAILING 12 MONTHS WASHINGTON METRO AREA DECEMBER 2008 vs. DECEMBER 2009 SECTION FIVE SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET 13 Summary: The 2009 sales volume was 56,954 homes: 11.4% higher than in 2008. Sales unit volume in the 4th quarter of 2009 was 18.6% higher than in the 4th quarter of 2008, adding to the momentum gained in the 2nd and 3rd quarters at the height of the selling season and due to the anticipation of the end of the Federal tax credit for first-time homebuyers. Source: MRIS, GMU Center for Regional Analysis, Delta Associates; January 2010. Summary: Prices posted strong gains in December after showing increases in September and November. On a 12-month trailing basis, prices in December 2009 were 9.9% higher than in December 2008.

SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET DISTRICT OF COLUMBIA HOUSING MARKET INDICATORS Figure 19 2003 THROUGH 2009 Figure 20 NORTHERN VIRGINIA HOUSING MARKET INDICATORS 2003 THROUGH 2009 Summary: Prices rose 2.6% in the 4th quarter of 2009 from the previous quarter, and were 4.5% lower than one year earlier. Average time on market in the 4th quarter is 82 days, down from 89 days in the 3rd quarter but up from 77 days one year ago. Unit sales volume in 2009 is 16.7% higher than in 2008. SUBURBAN MARYLAND HOUSING MARKET INDICATORS Figure 21 2003 THROUGH 2009 Figure 22 Includes: Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities. Summary: The average price in the 4th quarter of 2009 fell 2.6% from the 3rd quarter, and is 10.5% higher than one year earlier. Time on market averaged 53 days in the 4th quarter the lowest of any sub state area and below the regional average. Unit sales volume for 2009 is 3.8% higher than 2008 volume. BALTIMORE AREA HOUSING MARKET INDICATORS 2003 THROUGH 2009 SECTION FIVE SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET 14 Includes: Frederick, Prince George s, and Montgomery Counties. Summary: Prices fell 5.5% in the 4th quarter of 2009 from the previous quarter. Year-over-year prices are down 10.5%. Average days on market fell to 95 from 107 in the previous quarter. Unit sales for 2009 are 25.6% higher than in 2008. Includes: Anne Arundel, Carroll, Harford, Howard, and Baltimore Counties; Baltimore City. Summary: The average sales price in the 4th quarter of 2009 fell 6.1% from the previous quarter and was 7.5% lower than one year earlier. Time on market averaged 113 days in the 4th quarter, down from 117 days in the previous quarter. Unit sales for 2009 are 3.0% higher than the 2008 total.

SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET DISTRICT OF COLUMBIA SINGLE-FAMILY SALES Figure 23 4TH QUARTER 2008 vs. 4TH QUARTER 2009 Figure 24 NORTHERN VIRGINIA SINGLE-FAMILY SALES 4TH QUARTER 2008 vs. 4TH QUARTER 2009 Thousands of Dollars SUBURBAN MARYLAND SINGLE-FAMILY SALES Figure 25 4TH QUARTER 2008 vs. 4TH QUARTER 2009 Figure 26 Thousands of Dollars Includes: Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities. BALTIMORE AREA SINGLE-FAMILY SALES 4TH QUARTER 2008 vs. 4TH QUARTER 2009 SECTION FIVE SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET 15 Thousands of Dollars Includes: Frederick, Prince George s, and Montgomery Counties. Thousands of Dollars Includes: Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties; Baltimore City.

SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET MEDIAN SOLD PRICE SELECTED WASHINGTON METRO AREA JURISDICTIONS MEDIAN SOLD PRICE SELECTED BALTIMORE METRO AREA JURISDICTIONS Figure 27 DECEMBER 2008 vs. DECEMBER 2009 Figure 28 DECEMBER 2008 vs. DECEMBER 2009 Figure 29 SALES BY DAYS ON MARKET 4TH QUARTER 2009 SECTION FIVE SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET 16

SECTION SIX LOCAL SPOTLIGHT: THE DISTRICT The District of Columbia was founded in 1790 and is home to all three branches of the United States government as well as numerous foreign embassies and government agencies. Many organizations such as professional associations, non-profit firms, law firms, lobbying groups and finance firms have established headquarters in the District in order to be near the Federal government. The city s resident population is nearly 600,000 and growing; however, during the work week the city s population can swell to more than 1 million as commuters from surrounding areas enter the city for work. The Washington metro area was recently ranked third on a list of 2009 Best Cities by Kiplinger s Personal Finance magazine, notably for its healthy economy, superior higher education and eclectic culture. The District continues to rank high on best of lists for walk ability, employment opportunity, and healthy living and has increasingly drawn a high number of creative class workers composed of occupations such as scientists, engineers, authors and other knowledge workers and intellectuals that are associated with a high level of economic growth. The average sales price in the District of $482,075 in the 4th quarter of 2009 represented a 2.6% increase from the 3rd quarter, and a decline of 4.5% from the 4th quarter of 2008. However, the average price for the month of December 2009 was up 14.6% from one year earlier. The 4th quarter 2009 average sales price is down 18.5% from a peak in the 2nd quarter of 2008. The District has not experienced the severe price volatility that many other jurisdictions in the metro area have during the housing crisis. (See Figure 30) Homes in this area have sold less quickly than in the Washington region as a whole, likely due to the higher average price. The average time on market in the 4th quarter of 2009 was 82 days in the District, longer than the regional average of 72 days, but far below the city s recent high of 105 days in the 1st quarter of 2009. As of mid-january 2010, there are 1,297 actively marketing properties for sale, of which 285 are in foreclosure or are being marketed as a short sale. There are an additional 375 homes under contract, of which 160, or 43%, are in foreclosure or are being marketed as a short sale. SECTION SIX LOCAL SPOTLIGHT: THE DISTRICT 17 Figure 30 AVERAGE SALES PRICE EXISTING HOUSES - DISTRICT OF COLUMBIA 1ST QUARTER 2007-4TH QUARTER 2009

SECTION SEVEN REGIONAL SPOTLIGHT: MONTGOMERY COUNTY Montgomery County is conveniently located adjacent to the District. Incorporated cities and municipalities in this jurisdiction include Bethesda, Wheaton, Rockville, Gaithersburg, Germantown, Friendship Heights, Takoma Park, Chevy Chase and Kensington. Montgomery County covers nearly 500 square miles of land area and is Maryland s most affluent and most populous county. Transportation options are plentiful due to the county s close proximity to the District. There are currently twelve Metro stations in two corridors on the red line in Montgomery County. Rail link by Amtrak and MARC train is also available. Access to the regional road network is convenient with I-95, the Capital Beltway, I-270, and several other large arteries within the county s borders. Montgomery County is a significant employment center with 26 large firms with 1,300 or more employees. The largest employer in the county is the National Institutes of Health with over 16,000 employees. Other large employers in the county include Lockheed Martin, Giant Food, Montgomery College, GEICO and IBM. The average sales price in Montgomery County of $425,636 in the 4th quarter of 2009 represented a 4.3% decline from the 3rd quarter. However, average prices climbed 4.6% from December of 2008 to De- cember of 2009. The 4th quarter 2009 average sales price is down substantially from the peak over the past three years in the 3rd quarter of 2007, by 34.2%. (See Figure 31) The average time on market in the 4th quarter of 2009 was 73 days in Montgomery County, a decrease from last quarter s average of 87 days and below a high of 118 days in the 1st quarter of 2009. (See Figure 32) As of mid-january, there are 1,876 actively marketing properties for sale, of which 161 are in foreclosure and 415 are listed as a short sale. There are an additional 621 homes under contract, of which 361, or 58.1%, are in foreclosure or are being marketed as a short sale. As of December 2009, Montgomery County has a 4.9-month ratio of inventory to sales, down from 8.1 months at December 2008. That ratio is below the regional average of 5.3 months and is one indicator of an improving housing market. However, until foreclosures and short sales abate further, meaningful price traction is not possible. Overall, Montgomery County seems to be at the cusp of a housing recovery, though the county may see further declines in the short-term. SECTION SEVEN REGIONAL SPOTLIGHT: MONTGOMERY COUNTY 18 Figure 31 AVERAGE SALES PRICE BY QUARTER EXISTING HOUSES - MONTGOMERY COUNTY 1ST QUARTER 2007-4TH QUARTER 2009 Figure 32 AVERAGE DAYS ON MARKET EXISTING HOUSES - MONTGOMERY COUNTY 1ST QUARTER 2007-4TH QUARTER 2009

SECTION EIGHT THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK We believe the Washington metro area economy is currently in recovery, as the worst of the recession s impact is behind us. Although conditions remain sluggish, a slow recovery is underway. Payroll employment declined 15,300 in the Washington metro area over the 12 months ending November 2009. This represents a decline of 0.5%, compared to the national decline of 3.5% during this period. However, the region has a relatively low unemployment rate and one of the strongest economic bases in the country, buoyed by Federal stimulus administration. (See Figure 33) Job Change With 3.0 million payroll jobs, the Washington metro area ranks the fourth largest job base among metro areas, behind New York, the LA Basin and Chicago. However, Dallas/Fort Worth follows the Washington metro area closely. Despite a net job loss of 15,300 payroll positions in the metro area, four of the twelve sectors grew jobs over the past 12 months. The region continues to grow high-end jobs even as it sheds low-end jobs. However, it is Government hiring, rather than private sector activity, that is generating most of the job creation. Washington was affected by the national recession, but it is outperforming other large metropolitan areas. Over the 12 months ending November 2009, more than 437,000 jobs were shed in the LA Basin and Chicago. Job Change by Sector The top three sectors leading job growth are Government, Education/Health, and Professional/ Business Services with a total of 27,000 new jobs added to the economy in these three sectors. The Government sector gained 17,300 jobs during the last 12 months, with 76% of these jobs created in the Federal government. The Education and Health sector gained 5,200 jobs in the previous 12 months, with most of these positions in the health field. The Professional and Business Services sector gained 4,500 jobs during the last 12 months. Unemployment Rate The Washington area unemployment rate is 6.1% at November 2009, up 180 basis points from one year earlier. The Washington metro area has the lowest unemployment rate among comparable metros and compares favorably to the national rate of 10.0% in November 2009. The U.S. rate remained at 10.0% when preliminary December data was released. (See Figure 34) SECTION EIGHT THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK 19 Figure 33 PAYROLL JOB CHANGE LARGE METRO AREAS 12 MONTHS ENDING NOVEMBER 2009 Figure 34 UNEMPLOYMENT RATES LARGE METRO AREAS NOVEMBER 2008 vs. NOVEMBER 2009 Source: BLS, Delta Associates; January 2010. Source: BLS, Delta Associates; January 2010.

THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK Coincident Index The Washington Coincident Index, which represents the current state of the Washington metro area economy, was 104.0 in September 2009, below the 20- year average of 107.9. However, the index remains above the low of 103.8 experienced in February. Although the index is lingering around the level experienced during the slowdown of 2001, it remains well above the level experienced during the early 1990s recession. (See Figure 35) The Washington Region s Core Industries The Washington area s gross regional product (GRP) was $401.3 billion in 2008, an increase of 3.1% from revised 2007 figures. We expect GRP in the metro area to have edged down 0.5% during 2009, once the numbers are finalized. Approximately one-third of the Washington metro GRP is generated by the Federal government the region s most important core industry. A core industry is one that imports capital and exports a good or service. Total Federal spending in the Washington metro area was up in 2008 to $134.8 billion (a revised figure from our prior reporting), a 7.8% increase from 2007. (See Figure 36) Procurement spending is projected to rise 13.2% in 2009, once the numbers are finalized, to $75.3 billion in current year dollars, accounting for 53% of all Federal funds flowing into the area economy. This level of procurement spending supports about 550,000 private sector jobs. Procurement funding will build upon already-established government initiatives to increase the concentration of Federal government contractors in the Washington area. While there has been some speculation about the Obama Administration tightening the rules on government contracting, it is unlikely to reduce the amount spent, in our judgment. Washington Area Economic Outlook We expect the Washington metro area economy to slowly recover during 2010. We believe the local economy hit bottom during the 1st half of 2009 and recovery is now underway. However, we expect the speed of recovery to be slow, as consumers and companies remain cautious. We expect consumer confidence will edge up moderately during 2010. Consumer confidence is currently very low and will remain challenged until healthy job growth is reported. SECTION EIGHT THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK 20 COINCIDENT INDEX WASHINGTON METRO AREA Figure 35 1988-2009 Figure 36 CORE ECONOMIC SECTORS IN CURRENT YEAR DOLLARS WASHINGTON METRO AREA * At September 2009. Source: GMU Center for Regional Analysis, Delta Associates; January 2010. Note: Figures are estimates. Procurement figures do not include US Postal Service and FAA purchases. Source: Dr. Stephen Fuller, Delta Associates; January 2010.

THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK We believe GRP declined 0.5% during 2009, once the numbers are finalized. This decline is less severe compared to the national decline of 2.5%. The decline locally is due to retail spending and construction the two hardest hit industries in the metro area, which are taking longer to recover. Conditions should stabilize in 2010 with a GRP rise of 2.7%. This compares to the national GDP rise of a projected 2.5%. Given these factors, in consultation with Dr. Stephen Fuller of George Mason University, we project that 21,000 payroll jobs were eliminated in the metro area in 2009, once the numbers are finalized, and that 23,900 jobs will be generated in 2010. (See Figure 37) Figure 37 PAYROLL JOB GROWTH WASHINGTON METRO AREA 2000 2011 SECTION EIGHT THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK Note: Data restated since 2000 consistent with redefinition of metro area in March 2005. Source: Dr. Stephen Fuller, Delta Associates; January 2010. 21

SECTION NINE THE BALTIMORE REGIONAL ECONOMY AND OUTLOOK The Baltimore metro area economy contracted during 2009, as the national recession reduced spending and eliminated jobs in the metro area. However, we believe the worst period of the recession occurred during the first part of 2009, impacting any gains experienced during the balance of this year. Although conditions remain sluggish, the worst conditions are behind us, as we believe a slow recovery is underway. Conditions, although still sluggish, have started to slowly improve in the Baltimore metro area. However, the gains experienced will not be material enough to keep the Baltimore area economy from contracting during 2009, once the numbers are finalized. Given continued stimulus funding through 2011 and a solid core economic base in the region, plus a boost from BRAC, this area will recover ahead of most metro areas and remain stable in the long-term. Job Growth by Sector Over the past 12 months, two sectors added new jobs in the metro area the Education/Health and the Leisure and Hospitality sector. The Education/Health sector created 6,000 payroll jobs over the last year in the Baltimore area. The majority of these positions were created in the health care and social assistance field. The Leisure and Hospitality sector added 1,000 payroll jobs added over the last year. Most of this gain was in food services and drinking places. Figure 38 CORE ECONOMIC SECTORS IN CURRENT YEAR DOLLARS BALTIMORE METRO AREA The Construction sector experienced the steepest job decline at 10,300 positions. Unemployment Rate The Baltimore area unemployment rate was 7.7% in November 2009, up from 5.4% one year prior. However, it was, down from a high of 7.9% in June and July 2009. Among comparable metros, Baltimore has the second lowest unemployment rate behind Pittsburgh at 7.5%, but compares favorably to the national rate of 10.0% in November 2009. The national rate remained at 10.0% in December 2009. The Baltimore Region s Core Industries The Financial Activities sector represents 18.2% of the Baltimore metro area s gross regional product (GRP). The Federal and State government closely follows, representing 18.1% of the GRP. Baltimore s GRP in 2008 totaled approximately $133.0 billion, growth of 2.2%, from $130.2 billion in 2007. We expect growth to slow in 2009, once the numbers are finalized, as the Baltimore metro area slowly climbs out of the national recession. (See Figure 38) Baltimore Area Economic Outlook We expect the Baltimore metro economy to contract during 2009, once the numbers are finalized. We believe the recession ended in 2009 in Baltimore and the local economy is currently on a path to slow recovery. The worst period of the recession occurred during the first three months of 2009, impacting any gains experienced during the balance of the year. Given these factors, we expect employment to decline by 29,000 jobs in 2009, once the numbers are finalized, as the economy suffered through one of the worst recessions since the Great Depression. Job growth should start to recover modestly during 2010 with 5,000 new jobs. However, meaningful gains will not be felt until 2011 with 15,000 new jobs, as the recovery will be slow. Although we project job growth in 2010 and 2011, growth will still be at or below the 15-year average of 14,900 jobs per annum. SECTION NINE THE BALTIMORE REGIONAL ECONOMY AND OUTLOOK 22 Source: Bureau of Economic Analysis, Delta Associates; January 2010.

SECTION TEN THE CONDOMINIUM MARKET THE WASHINGTON METRO CONDOMINIUM MARKET The state of the Washington condo market at Year-End 2009: Sales volume: New unit sales volume (defined as net binding contracts written with security deposits up) during the 4th quarter was 732 units, higher than the third quarter total, and 2,350 units for the year. Prices: Down, but the decline is moderating in Northern Virginia. Effective new condo prices were down 5.8% metro-wide from 12 months ago, with Arlington/Alexandria up 0.9%. Resale prices declined by 2.8% during the past 12 months. Prices are up in all Northern Virginia jurisdictions, while Suburban Maryland suffers from double-digit price declines. Concessions: Metro-wide, concessions are down, averaging 3.6% of the purchase price at Year-End 2009 (down 60 basis points from one year ago). Pipeline: There are currently 6,071 unsold new condominium units that are actively marketing in the metro area, a decline of about 40% from a year ago. As a result, there now is 2.6 years worth of inventory of product on the market at current rates of sales velocity in the metro area. Arlington/Alexandria and the District are below the metro average and are approaching levels considered product shortage. Sales pace: Projects that have sold out in the past two years have averaged about three sales per month. During the 4th quarter, there were 732 net new unit sales in the metro area. In 2009, there were a total of 2,350 sales, which is an increase of 34% from 2008. But in Suburban Maryland, the number of sales is down by the same percentage from a year ago. Lower sales figures in Suburban Maryland have to do with the lack of job growth in that sub-state area compared to the District or Northern Virginia. The most sales during the year have occurred in Loudoun/ Prince William (attributable to first-time buyers) and the District (thanks to government job growth). Concession rates declined everywhere from a year ago except in Northern Virginia. The lowest concession rate in the metro area is in Arlington/Alexandria at 2.3%. Conversely, the highest concession rate in the metro area is in the District at 4.8%. The Washington metro area currently has an inventory of 6,071 new units to sell perhaps a 2.6-year inventory at current rates of net sales velocity. While prices declined 5.8% for new units in 2009, we believe prices will trend higher in select submarkets in 2010. THE BALTIMORE AREA CONDOMINIUM MARKET There were 198 net sales in the Baltimore metro area during the 4th quarter. For the year, there were 414 sales metro-wide, an increase of 188% from 2008. Effective new condo prices are down 7.4% metrowide in 2009. Price declines in the Northern Suburbs are over 10%, while in Baltimore City, prices have declined by only 4.9%. Concessions are down 160 basis points metrowide from last year. Currently, projects in the Northern Suburbs are offering the most concessions. There are 2,083 unsold units currently marketing in the metro area. In addition, there are 1,111 units planned with probable sales within the next 36 months. There are an additional 2,900 units in the long-term pipeline in the Baltimore metro area, as well as 6,100 multifamily units planned as either condominiums or rental units. There are 5.0 years of inventory in the Baltimore metro area at current sales rates, whereas in Baltimore City, there exists 7.4 years of inventory. The inventory-to-sales ratio of condos in the Baltimore metro area has dropped dramatically in 2009, due to a limited amount of new entrants to the market and improved sales performance in Baltimore City. We look to mid to late-2011 as the period when price traction could return to the market. Until then, either convert to rental or pursue niche condo deals at exceptional locations of extraordinary design and small scale. SECTION TEN THE CONDOMINIUM MARKET 23

SECTION ELEVEN THE APARTMENT MARKET THE WASHINGTON AREA APARTMENT MARKET The Washington metro area continues to be one of the best apartment markets in the nation due to: 1. A job market, that while losing lower wage earners, is still adding higher wage earners those who occupy Class A apartments. 2. A transient work force that has produced a large pool of Class A renters by choice. 3. A demographic trend that is turning would-be purchasers into renters. However, we are in the midst of a more competitive apartment market due to deliveries outpacing demand for the past 18 months. While several quarters of weaker performance are ahead for the Washington metro, the groundwork is being laid for stronger market conditions in 2011 and 2012, and an emerging product shortage by 2012 in select submarkets and widespread shortages in 2013. The pipeline of supply continues to decline from its peak in the fourth quarter of 2007. Annualized Class A absorption exceeds 7,900 the highest of any metro market in the nation. Highlights of market performance as of Year-End 2009: The region s stabilized vacancy rate for investment grade apartments (Class A and B) is 4.3%, the same as a year ago. With the national rate at 7.6%, this is one of the lowest vacancy rates of any metro area in the nation. Rents edged down over the past twelve months for all investment grade product down 2.0% since December 2008. Class A rents declined by 1.7% during this period, compared to growth of 0.1% during the preceding year. Annual Net Absorption, at 6,061 Class A and B apartments combined, rebounded from the third quarter due to a deceleration in dis-absorption of Class B apartments. Class A absorption continued at a strong pace with 7,955 units absorbed, maintaining a nation-leading pace. Average monthly ab sorption at new projects slipped to 14 units per project per month, as the cumulative effects of product delivered in 2009 impact lease-up pace. However, several projects are stabilizing: over the last year projects in lease-up have declined from 51 to 37. Concessions at Class A projects continued to edge higher. This quarter concessions were 7.2% of face rent compared to 5.7% of face rent at year-end. This upward trend began in the first quarter of 2007, as the market became more competitive. Pipeline: After rising from a historically low 18,000 units in 2005, the pipeline ballooned to 36,951 units in December 2007, largely driven by the reversion of condominium projects. In the first quarter of 2008, the pipeline began its cyclical decline, and has continued downward to a new historical low of 16,606 as of year-end 2009.We believe this downward trend will continue over the next year due to the difficulty of obtaining development credit. THE BALTIMORE AREA APARTMENT MARKET Demand for rental housing in the Baltimore area has moderated as year-over-year job growth has remained negative, though the fundamentals are looking up as supply comes into line with demand. Apartment Market Highlights at Year-End 2009: Stabilized Class A vacancy is up 50 basis points from last year at this time across the metro area, at 5.1%. Vacancy in Baltimore s southern submarkets is up to 5.3% from 4.7% a year ago. Vacancy in Baltimore s northern submarkets is up to 4.0% from 3.7% last year. The Baltimore region s vacancy rate continues to outperform the national average of 7.6%. Average effective rents in the metro area are $1,375 ($1.36 per SF). Rent growth in this metro area is negative over the year by 1.3%. Rents in the Baltimore suburbs fell very slightly by 0.1% since year-end 2008. Effective rents in the southern suburbs dropped 0.4% from fourth quarter 2008 and the northern suburbs grew effective rents by 0.2% during the same period. Effective rent growth in the Baltimore City submarkets was negative over the year, falling 6.1% in both the Fells Point/Inner Harbor and Downtown submarkets. SECTION ELEVEN THE APARTMENT MARKET 24

THE APARTMENT MARKET Concessions in the Baltimore metro area remain elevated compared to the same time last year at 6.1% compared to 4.1%. The supply pipeline metro-wide has resumed its downward trend after ticking up slightly last quarter. Some 2,955 units are planned to deliver in the next 36 months in the Baltimore metro area (down from the 3,338 units planned this time last year). These counts exclude Baltimore s southernmost suburbs, Anne Arundel and Howard Counties, whose units are also counted in the Washington metro pipeline and do not account for attrition. Lease-up pace for the four actively marketing projects in the Baltimore area currently averages ten units per month per project. Projects that have recently stabilized have average lease-up paces of eight per month for garden properties and nine per month for high-rise properties. Five properties stabilized during 2009, totaling 1,027 units. The pipeline has continued its downward trend in recent quarters. As a result, we project that the 36 month supply will be slightly less than the number of units that will be absorbed in the Baltimore area over the next 36 months. This imbalance indicates that occupancy will improve and rent growth is likely to return over the next three years, though the situation will still warrant close monitoring. SECTION ELEVEN THE APARTMENT MARKET 25

SECTION TWELVE THE COMMERCIAL REAL ESTATE MARKET The Washington metro area office market finished the year with modest positive absorption, as government, health care, and contractors boosted absorption with notable lease deals. Although overall vacancy increased 240 basis points during the past year, it remains lower than most large metro areas due to the stabilizing influence of the Federal government. Given rising vacancy, rents declined 6.9% in 2009. Construction levels have declined notably, but remain elevated at this point in the cycle particularly in the District. THE WASHINGTON AREA OFFICE MARKET Despite weak conditions, the metro area remains one of the top performing markets in the nation. Year-End 2009 Washington office market highlights: Net absorption: 630,000 SF, compared 3.4 million SF in 2008. Overall vacancy rate: 13.0%, up from 10.6% one year ago. Fourth lowest rate in the nation. (See Figure 39) Space under construction: 5.7 million SF, down from 15.4 million SF one year ago. Space U/C is 48% preleased, compared to 26% a year ago. Effective Rents: Down 6.9%, compared to an increase of 0.1% in 2008. Investment sales: $2.0 billion compared to $3.7 billion in 2008. Average sale price: $276/SF. The Washington metro area market should remain one of the best performing office markets in the nation. We believe the recession bottomed out locally during the first half of 2009 and a recovery is underway. Recovery will be slow during 2010, as the Federal government s oversight activities begin to ramp up hiring and office leasing. However, meaningful growth will not be felt until 2011. We expect vacancy will decline to 12.6% in the Washington metro area over the next two years rising through 2010 and part of 2011 but declining during the 2nd half of 2011. THE BALTIMORE AREA OFFICE MARKET The Baltimore metro area office market ended the year on soft terms. Vacancy increased 230 basis points during the past year, putting downward pressure on rents. Although BRAC has created leasing demand from contractors, most tenants remain frozen in leasing decisions, as they wait for an improving economic climate. BRAC fueled construction starts this year, as a handful of projects broke ground in anticipation of future contractor demand. Rents declined 5.2%, as property owners with available space struggle to obtain tenants. However, this has allowed some tenants to trade up into better space. Although the Baltimore metro area should experience sluggish conditions in the near-term, the market should stabilize quicker than many other metro areas due to the expanding health care industry and the onslaught of BRAC relocations to the area. SECTION TWELVE THE COMMERCIAL REAL ESTATE MARKET 26 Figure 39 OFFICE VACANCY RATES SELECTED METRO AREAS Source: CoStar, Delta Associates; January 2010.

THE COMMERCIAL REAL ESTATE MARKET Year-End 2009 Baltimore office market highlights: Net absorption: negative 15,000 SF, compared to 1.4 million SF during 2008. Overall vacancy rate: 14.4%, up from 12.1% one year ago. Space under construction: 870,000 SF, down from 2.3 million SF one year ago. Rents: down 5.2%, compared to a decline of 0.5% in 2008. Investment sales: $266 million. Average sales price: $236/SF. We expect the Baltimore area office market to remain sluggish during 2010, with modest improvements late in the year. Although the impact of stimulus spending has not yet been significantly felt in the Baltimore metro area, we expect a greater impact to occur during 2010, with the growth of the Education/Health sector. We expect vacancy to edge down by December 2011, as the economy improves and tenants relocate here due to the BRAC decision. We believe the construction volume will rise, particularly around Ft. Meade and Aberdeen Proving Ground during 2010, as banks regain confidence in lending. We anticipate rents will edge down during 2010 by an average of 2.5% to 3.5%, as vacancy remains elevated. THE WASHINGTON AREA RETAIL MARKET Incomes in the Washington metro area grew by 27.5% from 2000 to 2008, compared to 19.9% nationally. By 2013, the Washington metro area s average household income is projected to rise 15.2%, compared to a rise of 11.6% nationally, and enough to support future retail growth. The Washington metro area has over 118 million SF of retail space, inclusive of all types of retail, in over 1,000 shopping centers. Northern Virginia is home to over half of the total metro retail inventory. Of the total retail inventory in the Washington metro area, 55.9 million SF is located in 319 grocery-anchored shopping centers, which is almost half of the total retail inventory in the metro area. (See Figure 40) The metro-wide vacancy rate for grocery-anchored shopping centers increased over the past year to 5.3% at year-end 2009, from 3.7% one year ago. The Suburban Maryland vacancy rate at yearend 2009 was 5.4%, a rise of 160 basis points over the past year. The Northern Virginia vacancy rate was 5.3%, a rise of 170 basis points since year-end 2008. (See Figure 41) SECTION TWELVE THE COMMERCIAL REAL ESTATE MARKET 27 Figure 40 GROCERY-ANCHORED SHOPPING CENTERS WASHINGTON METRO AREA - 2009 (MILLIONS OF SQUARE FEET) Figure 41 GROCERY-ANCHORED SHOPPING CENTER VACANCY RATES WASHINGTON METRO AREA 1999-2009 Note: Estimate Source: CoStar, Delta Associates; January 2010. Source: Delta Associates; January 2010.

THE COMMERCIAL REAL ESTATE MARKET The core submarkets experienced the least decline in asking rates during 2009, as there continues to be demand within the core and this area has limited availability. The inner and outer rings experienced steeper rent declines at 5.4% and 7.4%, respectively, as these submarkets have less demand and a greater amount of available inventory. (See Figure 42) The metro area has 25.0 SF of retail space per capita, compared to the national average of 23.4. Although Northern Virginia and Suburban Maryland are above the national average, the District remains underserved at just 8.5 SF of retail space per capita. (See Figure 43) We believe retail is poised for a stronger recovery in the metro area, given high incomes and a projected 23,900 new jobs added to the local economy in 2010. However, we believe retail sales will remain soft through most of 2010, with a modest rise late in the year. We expect tenants to control the market through 2011 a period of increased competition. We anticipate owners who have the cash to make substantial upgrades, particularly at strong locations. Renovating is likely to attract higher-caliber tenants and generate additional cash flow. SECTION TWELVE THE COMMERCIAL REAL ESTATE MARKET 28 Figure 42 GROCERY-ANCHORED SHOPPING CENTER ASKING RENTS WASHINGTON METRO AREA 1999-2009 Figure 43 RETAIL SPACE PER CAPITA WASHINGTON METRO AREA 2009 Source: Delta Associates; January 2010. Source: CoStar, Delta Associates; January 2010.

METHODOLOGY SINGLE-FAMILY HOUSING DATA Northern Virginia is defined as Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities. Suburban Maryland is defined as Frederick, Montgomery, and Prince George s Counties. The Washington Metro Area describes all of the jurisdictions listed above and the District of Columbia. The Baltimore Metro Area is defined as Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties; Baltimore City. COMMERCIAL REAL ESTATE DATA Office, Apartments, Condominiums Northern Virginia is defined as Arlington, Fairfax, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities. Suburban Maryland is defined as Frederick, Montgomery, and Prince George s Counties. The Washington Metro Area is defined by all of the jurisdictions listed above, plus the District of Columbia. The Baltimore Metro Area is defined as Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties, plus Baltimore City. Retail Northern Virginia is defined as Arlington, Fairfax, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities. Suburban Maryland is defined as Montgomery and Prince George s Counties. The Washington Metro Area is defined by all of the jurisdictions listed above, plus the District of Columbia. BUREAU OF LABOR STATISTICS METRO AREA DEFINITIONS Atlanta Atlanta-Sandy Spring-Marietta, GA Austin Austin-Round Rock, TX Boston Boston-Cambridge-Quincy, MA-NH (Metropolitan NECTA) Chicago Chicago-Naperville-Joliet, IL-IN-WI (Non-Metropolitan Division) Dallas-Fort Worth Dallas-Forth Worth-Arlington, TX Denver Denver-Aurora, CO + Boulder, CO Houston Houston-Sugar Land-Baytown, TX LA Basin Los Angeles-Long Beach-Glendale, CA (Metropolitan Division) Riverside-San Bernardino-Ontario, CA Santa Ana-Anaheim-Irvine, CA (Metropolitan Division) New York New York-Northern New Jersey-Long Island, NY-NJ-PA Phoenix Phoenix-Mesa-Scottsdale, AZ San Antonio San Antonio, TX San Francisco Bay San Francisco-Oakland-Fremont, CA + San Jose- Sunnyvale-Santa Clara, CA South Florida Fort Lauderdale-Pompano Beach-Deerfield Beach, FL Miami-Miami Beach-Kendall, FL West Palm Beach-Boca Raton-Boyton Beach, FL Washington Washington-Arlington-Alexandria, DC-VA-MD-WV (Non-Metropolitan Division) METHODOLOGY 29