HFF, Inc. Q2 2008 Earnings Call Transcript

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 |  About: HFF, Inc. (HF)
by: SA Transcripts

HFF, Inc. (NYSE:HF)

Q2 2008 Earnings Call Transcript

August 5, 2008 8:30 am ET

Executives

Myra Moren – Director of IR

John Pelusi – CEO

Greg Conley – CFO

Nancy Goodson – COO

Analysts

Sloan Bohlen – Goldman Sachs

Vance Edelson – Morgan Stanley

Ben Simmons [ph] – Petersburg Times [ph]

Operator

Good morning, and welcome to HFF, Inc.’s second quarter 2008 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with the instructions being given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Myra Moren, our Director of Investor Relations. Please go ahead.

Myra Moren

Thank you, and welcome to HFF, Inc.’s earnings conference call to review the company’s second quarter 2008 results. Last night, we issued a press release announcing our financial results for the second quarter of ’08. This release is available on our Investor Relations Web site at hfflp.com. This conference call is being webcast live and is being recorded. Also available on our Web site is a related presentation, which you may use to follow along with our prepared remarks. A PDF version of the presentation along with the transcript of this call will be archived on our Web site.

In addition to the slides we discuss during today’s conference call, we’ve compiled an additional objective slide that gives a more detailed picture of what has and is occurring in the capital market. This presentation will not be discussed on today’s call, but is being made available to provide additional information on trends on our industry to our investors and potential investors. This presentation will be posted to our Web site later today, and will be provided in PDF format.

Before we start, let me let me offer the cautionary note that this call contains forward-looking statements within the meaning of the Federal Securities laws. Statements about our beliefs and expectations and statements containing the words may, could, would, should, believe, expect, anticipate, plan, estimate, target, project, intend, and similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors, which could cause actual results that differ materially from those contained in any forward-looking statement.

For a more detailed discussion of these risks and other factors that could cause results to differ, please refer to our second quarter 2008 earnings release dated August 4th, 2008 and filed on Form 8-K, and our most recent annual report on Form 10-K, all of which are filed with the SEC and available at the SEC Web site at www.sec.gov.

Investors, potential investors, and other readers are urged to consider these factors carefully in evaluating the forward-looking statements, and are cautioned not to place undue reliance on such forward-looking statements. Except as required by applicable law, including the Securities laws of the United States and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements after the date of this conference call. We may make certain statements during today's call, which will refer to certain non-GAAP financial measures, and we have provided reconciliations of these measures to GAAP figures in our earnings release. Again, that’s available on our Web site.

With that in mind, I will introduce our senior management team. Conducting the call today will be John Pelusi, Chief Executive Officer; Greg Conley, Chief Financial Officer; and, Nancy Goodson, Chief Operating Officer.

I will now turn the call over to our CEO, John Pelusi.

John Pelusi

Thank you, Myra, and good morning, everyone. Our second quarter and year-to-date results were clearly impacted by the continuing adverse conditions in the global and domestic capital markets, which have seen a continuing and unprecedented level of write offs and loan loss reserves by both domestic and international financial institutions; as well as the continued weakening of the US economy at the consumer level, which is now starting to impact other parts of the economy. These conditions continue to erode the already tepid investor confidence in nearly every aspect of the fixed income debt markets resulting in further negative pressures on the re-pricing of debt and equity risk.

These conditions, coupled with a continued weakening in the US economy as well as weakening in the global economy has caused a number of capital sources to cease or significantly curtail their lending in all lines of business, including their lending to the US commercial real estate markets, which had a significant adverse impact on the company's production volumes, revenues, net income, and EBITDA for the second quarter and for the first six months. Despite these volatile and unprecedented financial and economic conditions, we remain focused on our strategic business expansion plan to position the company for the future by taking advantage of our strong balance sheet, our solid cash and liquidity positions, and our fully integrated capital markets services platform by adding high quality production personnel through both organic advancements and external recruitment.

We have a very full agenda in light of the above, and during this call, we are going to focus on the following topics, report of the second quarter and first six months’ operating results, an update on the capital markets for all asset classes, followed by an update of the US commercial real estate markets. We are not going to spend a great deal of time on these conditions other than attempt to highlight the issues and concerns that we believe are relevant to today's calls.

Some of the highlights we will touch on are as follows, continued strong headwinds in the global and domestic capital markets for all asset classes since our last call; the lack of any meaningful improvements during the quarter as well as the continued stubborn liquidity and credit concerns in the global capital markets; highlights of where we believe US commercial real estate market fundamentals are as well as where the debt and equity markets are today, versus where they were at the end of 2007 and the first quarter of 2008. Due to requests from a number of our shareholders and analysts that follow our firm, we’re going to include the full presentation slides that we used for the year-end earnings call as well as the first quarter. However, we are only going to highlight certain slides during our call today. And we would be willing to review these supplemental slides in detail with any of our stockholders and analysts after the call.

Our strategy in recent organic growth recruitments as well as our past experience in previous downturns, most recently during 1998, '99 as well as during 2001 and ’02, why we were undertaking these strategic growth initiatives, we are also going to touch on the depth and experience of our transaction professionals, our senior management. Almost all of which are transaction professionals, which we believe is key in today's challenging environments. We’re also going to touch on our pay-for-performance business model and how we believe we are appropriately aligned with our shareholders related to our strategic growth initiatives and the investments we are making, which we believe will lead to future earnings growth and shareholder value whenever the issues and concerns facing all of global capital markets and current economic conditions in the US and other parts of the world recover from the unprecedented economic hits they have taken from the current financial crisis that started well over 15 months ago.

Following these presentations, we will then open the call to answer any questions. Before turning this call over to Greg and Nancy, I would like to express our appreciation to our clients who have continued to show their confidence in our ability to perform value-added services for their commercial real estate and capital market needs as evidenced by the nearly $12 billion in consummated transaction volumes during the first six months in these demanding and challenging times. I would also like to thank each of our associates who have continually demonstrated their ability to quickly adapt to this challenging environment by sharing their collective knowledge from each of the transactions that they’re involved in with their fellow associates to provide superior value-added service and knowledge to our clients.

I’d like now turn this call over to Greg and Nancy who will report on our financial and operational results in these challenging times, which we believe started back in late February 2007, as we have reported on each of the previous earnings calls during 2007 and 2008. I will now ask Greg to discuss our second quarter and six-month financial results in more detail.

Greg Conley

Thank you, John, and good morning, everyone. I would like to go through our second quarter 2008 results. I just want to highlight that the financial results presented in the earnings press release reflect the consolidated financial position and results of operations of Holliday GP, HFF Partnership Holdings, the operating partnerships, and HFF, Inc. for all periods presented. The minority interest line item included in the financial statements relates to the ownership interest of HFF Holdings in the operating partnerships following the offering, which approximates 55%. HFF, Inc.'s consolidated operating results and balance sheets for all periods presented give effect to the reorganization transactions made in connection with our initial public offering.

Revenue for the second quarter of 2008 was $43.6 million, compared to $79.8 million in the second quarter of 2007. This is a decrease of $36.2 million or 45.4% from the second quarter last year. This decrease was due to the conditions briefly described earlier by John. For the first six months of 2008, revenue was $75.8 million as compared to $135.3 million for the first six months of 2007. This represents a year-over-year decrease for the first six months of $59.6 million or 44%.

The company had net – it had an operating income of $3.4 million for the second quarter of 2008, compared to an operating income of $19.4 million in the comparable period of 2007, a decrease of $16 million. For the first six months of 2008, operating income was $1.9 million as compared to $27.1 million for the first six months of 2007, representing a year-over-year decrease of $25.2 million or 93%. The decrease in the second quarter and year-to-date operating income is attributable to the decrease in production volumes and related revenue from the prior year in a majority of the company's capital markets services platforms.

Offsetting this decrease in revenue is a reduction in total operating expenses of approximately $20.2 million in the second quarter of 2008, and $34.4 million for the first six months of 2008, as compared to the same periods in the prior year. This reduction in operating expenses is a result of a decrease in cost of services and other operating costs, which is primarily due to the decrease in commissions and incentive compensation in other performance-based accruals.

As you know, the largest portion of our expenses is cost of services. A majority of the costs in this category are the commissions paid to transaction professionals and the salary and discretionary bonuses paid to analysts who support transaction professionals in executing transactions. As we have discussed numerous times in prior calls, a significant portion of this cost category is variable. There are, however, fluctuations in this category quarter-to-quarter, depending on the reported revenue amounts, the timing of certain payroll and other benefit costs as well as fluctuations that occur from time to time in the fixed cost portion of this cost category. As such, a longer term comparison such as a year-over-year basis of this cost category is the most representative measure and is evidenced in part when comparing the second quarter of 2008 results to the results for the second quarter of 2007.

Cost of services for the second quarter of 2008 decreased $17.3 million or 39% from the second quarter of 2007. As previously stated, this decrease is primarily attributable to the decrease in commissions and in other incentive compensation directly related to the lower capital markets services revenue. However, second quarter cost of services as a percentage of revenue increased from 55.6% in 2007 to 62% in 2008. This increase in the cost as a percentage of revenue is attributable in part to a year-over-year increase in the fixed cost component of this category, which is primarily related to salaries of the production support personnel and other payroll-related items.

This year-over-year percentage increase was further impacted in the second quarter of 2008 as a result of the increased fixed cost amount spread over a lower revenue base than in the second quarter of 2007. It's important to note that we continued to support our strategic growth initiatives by expanding in the second quarter of 2008 with the addition of six transaction professionals and four production support personnel, bringing total employment to 491, which is a 9% net increase from the second quarter of 2007 employment level of 450.

Operating, administrative, and other expenses decreased approximately $2.8 million from $15.2 million in the second quarter of 2007 to $12.4 million in the second quarter of 2008. These costs also decreased approximately $5.6 million from $28.7 million for the first six months of 2007 to $23.1 million in the first six months of 2008. These year-over-year decreases can primarily be attributable to a reduction in certain performance-based accruals as a result of the decrease in the capital market services revenue. These decreases were partially offset by certain normal increases in other operating expenses and increased costs associated with the increase in personnel.

The company’s net income reported for the second quarter of 2008 was $1.1 million. This compares to the second quarter of 2007 net income of $5.1 million. Net income for the first six months of 2008 was approximately $100,000, compared to $6.4 million for the first six months of 2007. Net income attributable to Class A common stockholders for the second quarter of 2008 was $0.06 per diluted share, as compared to $0.31 per diluted share for the same period in 2007. Net income attributable to Class A common stockholders for the first six months of 2008 was approximately $0.01 per diluted share, as compared to $0.48 per diluted share for the same period in 2007.

EBITDA for the second quarter of 2008 was $5.1 million. This is a decrease of $16.2 million or 76.1% compared to the same period last year. EBITDA for the first six months of 2008 was $5.3 million, which is a decrease of $25.6 million or 82.9% as compared to the first six months of 2007. These decreases are primarily attributable to the decreases in our operating income as discussed above.

I would now like to make some comments concerning our liquidity as well as certain balance sheet items. Our cash and short term investments balance at June 30th, 2008 was $40.9 million, which was $3.2 million less than the balance at December 31st, 2007. The company's use of cash is typically related to the limited working capital needs during the year and the payment of taxes. The company has limited capital expenditure and virtually no debt-to-service.

I'd like to make a couple of key points regarding our use of cash during the first six months of 2008. The company purchased a six-month treasury bill during the second quarter of 2008 for approximately $9.9 million. This is included in investments on the consolidated balance sheet and is identified as a purchase investment on our cash flow statement. The company had a net use of cash of $2.8 million from operating activities during the first six months of the year, which included the payment of certain performance and other incentive-based compensation relating to the 2007 performance. This is reflected on the balance sheet as the accrued compensation and other current liability account was reduced from $17.4 million as of December 31st, 2007, to $12.6 million as of June 30, 2008, for a total reduction of $4.8 million.

As such, when adjusting for the payment of 2007 performance-based compensation, the company generated cash in the first six months of 2008 from 2008 operating activities. And despite the reduced level of revenue in the first six months of 2008, the company generated EBITDA of $5.3 million or 7% of revenue.

As of June 30 of 2008, we had no outstanding borrowings on our $40 million line of credit facility nor did we borrow in the line of credit at any time since our inception in February of 2007. We had $101 million of outstanding borrowings under our warehouse credit facility to support our Freddie Mac Multifamily business, and we also had a corresponding asset recorded in the same amount for the related mortgage note receivable.

The June 30 of 2008 balance sheet also reflects a net deferred tax asset amount of $123.9 million, and a payable to the minority interest holder under the tax receivable agreement of $113.8 million related to the step-up in tax basis of the operating partnership assets to their fair market value from the initial sale of the partnership units as a result of the offering and the exercise of the over-allotment option. The balance sheet also reflects a minority interest balance of $24.5 million, which represents HFF Holdings' approximate 55% ownership in the operating partnerships.

Now I'll turn the call over to Nancy to discuss our production volume and loan servicing business, Nancy.

Nancy Goodson

Thanks, Greg, and good morning, everyone. I'd like to review with you our production volume by platform services and our loan servicing business for the second quarter and the first six months of 2008, and compare these results with the second quarter and first six months of 2007. As mentioned earlier, in the face of the continuing difficult and challenging conditions mentioned earlier by John, the company's production volume for the second quarter of 2008 totaled approximately $7.5 billion on 192 transactions, compared to the second quarter of 2007 production volume of approximately $14.3 billion on 344 transactions. This represents a 47.5% decrease in production volume, and a decrease of 44.2% in the number of transactions.

The average transaction size for the second quarter of 2008 was approximately $39.1 million or 6% lower than the comparable figure in the second quarter of 2007 of $41.5 million. It should be noted that a portion of this 47.5% decrease in production volume was due to two extraordinarily large portfolio transactions, which closed during the second quarter of 2007. If these large portfolio transactions were excluded, our second quarter 2008 production volume would have increased by approximately 36%. In addition, our adjusted average deal size for the second quarter of 2007 would have been approximately $34.2 million, compared to the $39.1 million for the second quarter of 2008, resulting in an increase of $4.9 million or 14%.

Debt placement production volume was approximately $4.6 billion in the second quarter of 2008, representing a 42.4% decrease from the second quarter of 2007 volume of approximately $8 billion.

Investment sales production volume was approximately $2.1 billion in the second quarter of 2008, representing a 61.7% decrease from the second quarter of 2007 volume of approximately $5.6 billion.

Structured finance production volume was approximately $178 million in the second quarter of 2008, decreasing 59.4% over the second quarter of 2007 volume of approximately $438 million.

Net sales and net sale advisory services production volume was approximately $547.4 million for the second quarter of 2008, an increase of 149% over the second quarter of 2007 volume of approximately $219 million.

The amount of active private equity discretionary fund transactions, on which HFF Securities has been engaged and may recognize future revenue at the end of the second quarter of 2008, is approximately $2 billion, compared to the approximately $1.9 billion at the end of the second quarter of 2007, representing an 8.3% increase. The principal balance of HFF's loan servicing portfolio increased 14.3% to approximately $23.7 billion at the end of the second quarter of 2008 from approximately $20.8 billion at the end of the second quarter of 2007.

Production volume for the six months ended June 30th, 2008 totaled more than $11.5 billion on 350 transactions, which represents a decrease of approximately 52.8% in dollar volume and a 47.4% decrease in the number of transactions, when compared to the production volumes of approximately $24.4 billion on 680 transactions for the comparable period in 2007.

The average transaction size for the six months ended June 30th, 2008 was $32.2 million, approximately 10.3% lower than the comparable figure of $39.9 million during the first six months of 2007. It should be noted that a portion of this decrease in production volume was due to three large investment sales portfolio transactions, which closed during the six months ended June 30th, 2007. If these large portfolio transactions were excluded, our production volume would have decreased by approximately 41%. In addition, our average transaction size for the six months ended June 30th, 2007 would have been approximately $28.9 million, compared to the $32.2million for the first six months of 2008, resulting in an increase of $3.3 million or 11.3%.

As we stated in past calls, as part of our strategic growth initiatives, we continue to build the firm through organic measures as well as to recruit with a focus on hiring the associates with the highest integrity and best reputation so we that can serve our clients by putting the best team on the field. During the second quarter of 2008, we’ve continued to expand with the addition of six transaction professionals and four production support personnel, bringing total employment to 491, a 9.1% net increase from the second quarter of 2007 employment level of 450.

I’ll now turn the call back over to John for his presentation on capital markets and his concluding remarks.

John Pelusi

Thank you, Nancy. I will now attempt to highlight some of the more relevant issues and concerns since our first quarter call at the beginning of May. I think all would agree that we have seen an unprecedented level of loan losses, write-downs, and equity capital raised from the global financial community, and that the US economy has slowed as have most of the international economies. In my opinion, until the US housing sector hits bottom, it will be difficult for the global fixed income debt markets to stabilize. And until the global debt markets stabilize, it will be difficult for the international and domestic debt markets supplying the US commercial real estate markets with the historical level of risk award profile of leverage funds, i.e. loan to value debt service coverage and spread commensurate with the strong fundamentals currently seen in most commercial real estate property markets in the US.

I would now like to refer you to the PowerPoint presentation we made available to you prior to the call, and I would ask you to go to slides four through six titled, “Continued Strong Headwinds, The New Headlines Remain Negative”. Please keep in mind as I review these headlines that they are targeted towards class assets and values, not just real estate. Also please keep in mind that while these are certainly trying times in terms of attempting to strategically navigate through them, one thing I am certain of is that these times will pass. And those businesses that remain focused on their business plans who continue to retain and hire the best people will be uniquely positioned to take advantage of the many opportunities that will present themselves in these challenging times as well as the numerous opportunities that will abound these markets correct.

I believe that HFF is uniquely positioned to take advantage of these current challenging times. But more importantly, is building at its platform and structure with high quality people to prosper in the future. Our pay-for-performance structure and constant evaluation of our people, our experienced and long-tenured transaction professionals who have been through tough times before, and the fact that current management ownership own approximately 55% of the enterprise value, provides a unique and solid foundation that we believe will allow us to provide superior added-value results for our clients in these difficult times. And create opportunities to build additional market sharing clients in the future. As one of my partners is fond of saying, “Tough times never last, but tough people do.” And I think HFF is very long on tough people and are up for whatever the challenges may be.

Getting to the slides, “Continued Strong Headwinds, The New Headlines Remain Negative”, it is important to note since April 22nd, we have seen a further increase of nearly $180 billion in asset write-downs, credit losses from the global financial institutions, with the total as of July 24th reaching $468 billion since the beginning of 2007. These same firms have raised nearly $350 billion of fresh equity capital as of July 24th, which is another $150 billion since April 22nd.

As of July 9th, Europe’s banks have raised almost $145 billion to replace losses and write-downs totaling $202 billion since the start of the credit crisis, and are paying the highest costs in at least a decade to raise capital reserves required by regulators.

As of July 29th, the large insurers in the US and Bermuda have posted more than $77 billion in write-downs on mortgage-related holdings as the subprime home borrowers fail to repay their debts, and are battling lower returns to investments with profit drops or losses being reported by 11 of the 13 the companies in the KBW index that have already announced second quarter results.

As of July 15th, more than $13 trillion has been wiped out off of the value of global equity since October 2007. As of July 21st, except for Canada, all 23 of the developed markets in the MSCI World Index experienced their plunges of at least 20% this year. As of July 9th, the S&P 500 has declined 19% from October of 2007 record.

According to data compiled by Hedge Fund Research, Inc. hedge fund turned in their worst first half performance in almost two decades. This is the worst start of the year since the Chicago-based firm began tracking returns in 1990. The $1.9 trillion industry has posted only one losing year that was in 2002.

Sales of previously owned homes fell in June to the lowest level in a decade as tumbling real estate prices, consumer confidence signaled no end in sight to a housing recession now in its third year. Home prices nationwide have fallen 18% on average from their July 2006 peak according to the S&P/Case-Shiller index of 20 metropolitan areas.

Dues and labor report brought the drop in payrolls for the first half of 2008 to 238,000 with weakness in most industries. The Tempe, Arizona, ISM said its index of non-manufacturing business, which makes up almost 90% of the economy, decreased to 48.2, the lowest since January from 51.7 in May. The survey’s employment index was the lowest since began in 1997.

It’s hard to make sense of a lot of sectors in the – “It’s hard to make a lot of sectors in the economy work when oil’s at a $135 a barrel”, said David Heupel who manages $60 billion at the Minneapolis Thrivent Financial for Lutherans. That’s playing a primary role here and raising concern about inflation, the economy, and financial markets. I think he would have the same comments with oil at $100 to $125 a barrel, which is where it is today.

Consumer sentiment dropped in June to its lowest level in 28 years according to Reuters/University of Michigan survey. And the economy has lost jobs for six straight months adding reasons homebuyers are sidelined.

“A total of $5 trillion of mortgage loans have belonged to the riskiest asset categories”, said Mr. Gross, manager of the largest world bond fund, PIMCO, on its commentary posted on the firm’s Web site. His $1 trillion forecast in price and credit market losses are less than halfway over.

Despite more than $400 billion of liquidity dumped into the markets by the Fed and other central banks, and a 325 basis points reduction in the Federal Reserve target rate, we believe there has only been marginal improvement in credit conditions. There are still some serious liquidity and credit concerns, especially in the financial sector, which are very clearly highlighted on slides 7 through 11, which were pulled directly from Bloomberg on July 31st, 2008.

As you could see, while short term LIBOR rates, 30 and 90 days, have dropped by approximately 50% to roughly 2.5% and 2.8%, respectively, from a year ago, spreads relative to the Federal Reserve target rate are well above historical norms, 46 basis points and 79 basis points, respectively. While a ten-year AAA banking and finance rate has actually increased from 5.68% to nearly 6% from a year ago, and the spread between the ten-year and the Federal Reserve target rate continues to widen almost daily to nearly 400 basis points from approximately 45 basis points a year ago. And up nearly 50 basis points since our last call.

The five-year AAA banking and finance rate has dropped marginally to approximately 5.10% from 5.23% a year ago. However, the spread between the five-year and the Federal Reserve target rate continues to widen almost daily to nearly 310 basis points from a point where it was trading on top of that rate a year ago, and is likewise, up 50 basis points since our last call. We have graphed this out on slides 8 through 11, and you can see it both in the short term and from a historical perspective over the last 20 years. These metrics are in Excel of the S&L collapse, the mortgage meltdown, the long term credit capital as well as 9-11 and the corporate credit squeeze.

Therefore, while many are stating that most serious risks are behind us, in my opinion, we are still facing many of the same global and domestic capital market issues and concerns that we were facing some 85 days ago and over a year ago, which are highlighted on slides 12 and 13. I believe that the international and domestic financial institutions will be faced with further losses and write-downs, and their balance sheets are in need of additional equity just to keep their doors open, and even more, to start lending when situations stabilize.

FEAR, which we – what we thought was abating is still prevalent. There’s still lack of confidence and collateral past financial engineering such as CDO’s, SIVs, Asset Backed Commercial Paper, and the ability to leverage at a leverage, i.e. leverage square, is gone for now. De-leveraging of the leverage square will take some time to fully in line, maybe as long as the end of 2009, or well into 2010. And this is causing an outflow of funds in all global debt markets. The saying, “It’s easy to get a loan if you don’t need one”, is very true today, especially for large, torrid loans.

There continues to be a global pricing of debt and equity risk, especially debt. There’s a serious lack of liquidity for new deals, especially large loans, but balance sheet lenders that have the capacity and balance sheets are lending on the right deals, but in a lender-friendly environment. We are in a lender-friendly environment for the foreseeable future, meaning lower leverage, less – interest only, more amortization, and higher spreads. We are back to the point where, “He who has the gold makes the rules.”

US residential markets will be a problem until mid 2009 or into 2010. US residential markets need to bottom out before recovering financials can begin. We are facing a global economic slowdown and/or recession, and we have to contend with inflation, and especially in the energy, food, and commodity sectors. With declines in global and domestic equities, and if annual pension fund total returns are less than 8% to 10%, companies may have to curb, contribute additional earnings to meet future pension fund obligations, which will be a drag on earnings.

When the US economy recovers, it will likely – base indexes will be heading higher. In the US, taxes at the Federal State and local levels are likely to be going up. Most of this is not positive for higher values for most asset classes in the near term. However, we believe assets with solid and increasing cash flow and earnings will stand out and will attract investment dollars, as is the case with commercial real estate in the US, the case we hope to make later in this presentation.

As was the case during our last earnings calls, there are some positives, which are highlighted on slides 14 through 17. If you thought rates were low last year, the Fed funds rate and prime rate are down 325%. One month and three month LIBOR are down approximately 2.6% and 2.9%, respectively. The two-year treasury is down nearly 2%. The five-year treasury is down nearly 1.3%. And the one-year – ten-year treasury is down nearly 1%, and is near a 47-year historic low.

There are large pools of capital waiting to be deployed, including sovereign wealth funds who have clearly demonstrated willingness to step up to the plate based on their investments in many global and domestic banks and security firms, which now brings us to the US commercial real estate markets, which we’ll try to cover quickly in slides 19 through 41.

Turning to slides 19 and 20, we’ll review the US commercial real estate and capital markets to touch on the following. This is a very large market with underwriting and due diligence, total US institutional commercial real estate universe today stands at $5.1 trillion. There are numerous on-book lenders that hold risk for their own account. There are underwriting standards, there is an e-buyer due diligence, there is income, there are generally tenants with their own credit, and there's always loan documentation. This is not residential. We do not do no-doc loans, and sponsorship is important. The industry tries to lend money to people who will pay them back on hard assets, which is an appropriate check and balance for oversupply issues that have beset the residential markets, but not the commercial markets. This is graphically readily apparent when you take a look at slides 21 through 23.

The current commercial real estate fundamentals are relatively healthy, although the risk of a slowing economy and/or recession does have negative implications. Current delinquencies remain at all-time lows, shown on slides 26 and 27, 0.1% based on the ACLI survey. And on slide 26, 0.49% in the CMBS market as of May 28th as shown on slide 27. Although we believe there will be some increased delinquencies coming due to maturity defaults, which are expected to increase due to balance sheet and liquidity issues in all debt markets both domestic and global, we think defaults will primarily be on the short floating term rate deals that were originated over the past 12 to 18 months, and that will start to mature in the next 6 to 18 months. Or possibly, on the longer term maturities that are set to expire on 2009 and 2010, as loan matures from prior long term financings from approximately 10 years ago if the CMBS market or some replacement debt market does not materialize.

As shown on slide 28, projective slide is in check. And we think current market conditions will ensure that it remains so. As shown on slide 29, high reproduction replacements costs could also offset office and rent growth as the economy slows, as tenants will think twice about relocating or building out new space due to higher rents and costs needed to justify the new or renovated space. As shown on slides 30 and 31, recent property performance since 2004 has generally been healthy with growth and rents, and net NOIs, while projected property performance is expected to moderate and slow due to the slowing economy. However, we believe that any decreases will be from a very strong base. We believe that future fund flows in the commercial real estate will likely moderate or decline slightly, but from very high levels from a historical standpoint. And over the long term, will be sufficient to support the overall health of the market.

With that said, de-leveraging will cause net a outflow in the debt markets, and the denominator effect on equity due to decreases in overall equity portfolio values, both globally and domestically, may slow funds’ flow into commercial real estate equity, but again, from very high levels from the historical standpoint. There are clearly still stubborn liquidity and credit concerns in the US commercial real estate debt markets as we will discuss later in the presentation, and it can be found on slides 43 and 44.

It is important to note that banks make up approximately 50% of the capital that is provided to the US commercial real estate market, as evidenced on slides 32 and 34. Many of these local and regional banks have no exposure to the residential markets, LBO, SIVs, CDOs. And they have been significant players in the fourth quarter of 2007, and have continued right into the first and second quarters of 2008. And our business with this group of capital providers has increased dramatically in the first six months of 2008.

That said, we believe this group will slow as the bank regulators begin to push into the regional and local banks, having completed their due diligence on the national banks and security firms. And a number of these banks are not experiencing historical payoffs as borrowers find credit markets are not conducive to refinancing at existing debt levels, and the balance sheets of these institutions are nearing maximum capacity. We believe that historical mortgage flows, as shown on slide 33, will definitely be lower in 2008. The real question is, how much lower?

As shown on slide 35, US CMBS issuance will definitely be a lot lower. It’s basically non-existent in 2008 when the flop-over deals from 2007 are excluded. But it is off over 91% from 2007’s levels, including the flop-over deals. We do not believe the CMBS market has to get back to the $200 billion mark as it was in 2006 or 2007, as we think much of this was driven in large part by the public-to-private phenomenon. We do believe it will need to reach the $100 billion-plus range to provide necessary liquidity to support the market on a go-forward basis, or some other form of debt capital will need to be created to step into the void for the reasons outlined below. We think it is likely that one of these scenarios will happen, but it might not be the beginning of 2009 before the CMBS market begins to get its footings again as the balance sheets are still constrained, as noted earlier.

We are hopeful the life companies, see slide 36, will increase their programs in 2008. However, there is no way they can step into the void left by the CMBS market. Many have stepped up their lending, but have recently pulled back due to significant sums they have invested in the first quarter of 2008 as well as losses they have incurred, as noted earlier at the beginning of this presentation, as well as the fact that the general accounts and businesses are off due to a slowing economy. Now the Congress has passed legislation and taken the agency risk off the table for now, the agencies, see slide 37, can continue to provide the needed liquidity for the multifamily markets, but again, they cannot fill the void left by the CMBS market.

As discussed previous calls and as shown on slides 38 and 39, the US commercial real estate equity markets are vast, diversified, deep, and have provided market leading returns versus all their asset classes over the past 20 years. Also, as will be discussed later in this presentation, there’s a huge supply of equity that is raised and waiting to be deployed, and you could see that on slide 57.

As we have discussed in our previous calls, the period from 2004 through the first quarter of 2007, please refer to slides 40 and 41, saw a dramatic increase in fund flows, increasing leverage, financial leverage that when coupled with a healthy economy, strong property performance, and limited supply created what we called the perfect storm for steadily increasing valuations for commercial real estate, and frankly, for most – all valuations of all asset class. This is really highlighted on slide 41.

These conditions drove values, sales volumes, and CMBS volumes until mid 2007 when, what we like to say, the music stopped. This brings us back to the same issues we discussed back on slides 12 and 13 when we discussed the global capital markets. Commercial real estate, despite its strong fundamentals, is faced with the same issues facing the global capital markets as shown on slide 42. If it sounds familiar, it is.

With that said, as stated at the beginning of the presentation, in my opinion, until the US housing sector hits bottom, it will be difficult for the global fixed income debt markets to stabilize. And until the global fixed income debt markets stabilize, it will be difficult for the international and domestic capital markets supplying the US commercial real estate markets with capital commensurate with the strong fundamentals currently seen in most commercial real estate property markets in the US.

An example of this can be seen on slides 43 and 44. While there have been some improvements in the commercial real estate capital markets, we have a long way to go to get back to what we believe will be equilibrium. Even the sector’s strong fundamentals, strong historical performance, and we believe its current ability to generate sufficient ongoing cash flows to warrant lower risk reward premiums, are not sufficient to overcome the global issues and concerns addressed earlier. That said, we believe it is better positioned in most other asset classes. And we believe it will outperform other asset classes when the final report card is issued at the end of the current debt and liquidity crisis.

The net impact of these unprecedented events that we have talked about has been quite dramatic on commercial real estate debt and equity transactions and volumes in the first six months as evidenced on slides 44 through 53. CMBS new issuance are slightly more than $12 billion during the first six months of 2008, is down over 91% from the $137 billion during the same period in 2007; refer to slide 35. Portfolio and other lenders have picked up some of the slack, but have done so on their terms. Please refer to slides 45 through slides 48.

In all cases, the lenders who are making loans are doing so on vastly different terms and conditions than they were in 2006 and 2007. Again, giving new meaning to the phrase, “He who has the gold makes the rules.” This is causing many borrowers to ask, “What happened?” As you can see, once the – the once borrower-friendly environment has dramatically and suddenly shifted to a lender-friendly environment, as shown on slide 49. While the long term base indexes treasuries have declined, spreads are dramatically wide, loan devaluations are dramatically lower, interests-only loans that once littered the landscape are a thing of the past, 25 to 30-year amortization schedules are back in vogue, and cash outs are a thing of the past, and recourses become more prevalent.

When combined, the all-in cost of debt capital, the constant, has increased approximately 75 basis points to 150 basis points, depending on the assets, sponsorship, market, and specifics of the property as well as the size of the transaction. That said, many portfolio and other lenders still have to justify making whole loans on a relative value-added basis, which is difficult to do when they can buy AAA paper at higher spreads. However, many lenders will not touch the nearly $500 billion of vintage loans made between 2005 and 2007.

In the recent write-downs on securitized paper has questioned the wisdom of past investments as evidenced by the more than $77 billion in write-downs taken by some of the largest insurance companies in the US and Bermuda. You can refer back to slide 35 if you want to review this. These conditions and significant liquidity and credit concerns as well as the re-pricing of debt and equity risk has had an equally dramatic impact on investment sales, as shown on slides 50 through 53.

According to Real Capital Analytics' report as well as information from commercial mortgage alert on the US office, industrial, retail, apartment, and hotel markets, through June 30th, 2008, sales are down 69% year-over-year, and cap rates are up almost across the board. Office sales are down 78%, industrial sales are down 50%, multifamily sales are down 46%, retail sales are down 68%, and hotel sales are down 47%, which brings us back full circle to the same position we discussed in the beginning when we talked about the global capital markets.

As was the case during our last earnings call, there are some positives, which are highlighted on slides 54 through 57. And I’m not going to go through them. They’re the same as we discussed before. But clearly, spreads and rates are down, or index rates are down.

In addition to the large sovereign wealth funds, there are large pools of private capital waiting to be deployed as shown on slide 57, $318 billion in 2008, up from $236 billion in 2007, with buying power of over $900 billion. Another positive is that the US is ranked as the country providing the most stable and secure real estate investment climate by A. Frye in its year-end 2007 study.

Slides 52 and 53 show that cap rates have begun to move up, but we believe pricing on both the debt and equity is still attractive on a historical basis as you can see by the graph. While prices are above 2007 levels, which were at historic highs, these cap rates are still at the low end of the range, dating all the way back to 1982, and the prices are still above levels in the period covering 2000 to 2005.

While all the above is interesting, we think it is important to remind everyone that HFF is in the transaction business, not in the principal business, see slide 59. Remember, in the face of one of the most difficult capital markets we have seen in over 25 years, we have consummated nearly $12 billion of equity, debt and equity transactions, in the first six months of 2008. Please remember that mortgage flows were approximately $2.1 trillion from 1998 to 2007. US sales were approximately $1.7 trillion from 2001 to 2007. CMBS mortgage flows were approximately $1 trillion from ’98 to 2007. Freddie and Fannie mortgage flows were approximately $455 billion from 1998 to 2007. Life company mortgage flows were approximately $325 billion from 1998 to 2007. Equity will be harvested. Loans did mature. Regardless of whether there is one property built, there is a great deal of business for HFF to transact on.

I would now like to refer you to slides 60 through 68 to review HFF in light of the above. Slide 61, as I’ve mentioned numerous times, is probably the most important slide in our presentation. It is our mission and vision statement. Covering less than a page, this important message clearly articulates our approach to clients, our vision for the business, and the high value we place on our people, and exemplifies our pay-for-performance philosophy, and clearly articulates why our interests are aligned with our shareholders. From a competitive standpoint, we believe on an overall basis. We are a very small part of the transactions that occur in the US capital markets, maybe 5% to 6% market share, and continue to have plenty of outside opportunity to increase our market share, regardless of the current market conditions.

That said, from an institutional standpoint, we believe we are clearly one of the select handful of commercial real estate intermediaries in the US. Our integrated capital market service platform puts us in the unique position as an independent, objective advisor to provide value-add to our clients, particularly in a volatile capital market environment, such as we are in now, as we have demonstrated in periods covering 1998 through ’99, and from 2001 to 2002.

On slides 62 and 64 clearly point out how we believe we can continue to grow our firm, both organically and through strategic recruitments, which we have demonstrated – have a demonstrated historic track record of successfully accomplishing in difficult credit and economic times, which is shown on slide 65. We can expand our geographic footprint. Again, look at slides 63 and 64, we only have 18 locations, and there are several MSAs where we would like to have an office, provided we can find the right strategic people with the right culture to open an office. We can add platform services to our existing offices, and leverage off of the current fixed income investments we have made in those offices, as shown on slide 63.

While we believe 2008 will be very challenging, we also think it will be the best time to strategically grow the firm since 1998 and 2001 where there were also significant issues, such as long term credit capital in ’98 and 9/11 in 2001, as shown on slide 65.

In these challenging times, we were able to grow the firm by opening our LA office in 1999. We opened our DC office in 1999 as well. And it is now one of our largest offices and a market leader in DC on the IS and debt side. We added a significant IS platform on our New York office in 2001. We opened our Chicago office in January of 2002, and it too has grown to be one of our larger offices with IS, debt, structured finance, note sales, and recently added, HFF securities person. We added the southeast regional (inaudible) office to our Miami office in January 2002 as well as consolidated all of our Florida operations. And today it is one of our larger offices with IS, debt, structured finance in place and covers the entire southeast region of the US as well as doing deals in the Caribbean.

We did all of these while integrating CEO, PNS Realty Partners, and Vanguard acquisitions made by AMRESCO from January 1998 through September ’98. Then we had a deal with AMRESCO selling our businesses to Lend Lease in March of 2000, and then continued to grow the firm from June 2003 when we were able to purchase the firm from Lend Lease through our first ownership reset at the end of 2006, and then the subsequent IPO in January of 2007. Therefore, we believe slide 62 through 67 are important to keep in mind when you look at our growth in high quality people from 2007 through the first six months of 2008.

As Nancy mentioned earlier, over the past year, we have brought our total employment to 491, which is a 9.1% net increase from the second quarter, when our employment level is 450. I’m not going to repeat the many producers we have recruited to the firm over the past several quarters as the majority of them have been covered in media releases, but it is suffice to say we are continuing our quest to fulfill our mission and vision statement. It is our goal to hire and retain associates throughout the firm, who have the highest ethical standards with the best reputation in the industry to preserve our culture of integrity, trust, and respect, and to promote and encourage teamwork to ensure our client’s have the best team on the field for each transaction. Simply stated, without the best people, we cannot be the best firm and achieve superior results for our clients.

We think it’s important to keep the following in mind when you look at our business and our people on slide 67 and 68. We have significant depth and experience within our transaction professional and senior management ranks. We believe this is key in today's challenging environment. Our top 25 transaction professionals by initial leads have average tenure with HFF and it predecessor companies of 13.3 years. In 2008, 57% of the initial leads by revenues were generated by owner transaction professionals. It is also noteworthy that 24% of our transaction professionals are also owners. Recall that all of our transaction professionals, for the most part, do not make money unless they are consummating deals.

We also believe our pay-for-performance business model better aligns us with our shareholders. It is important to note that 80% of our mangers are owners, and only three of our most senior managers are not transactional professionals, Greg Conley, Nancy Goodson, and David Croskery, who runs our serving platform. But all of have some form of ownership in the company. And therefore, they too have a vested interest in the performance of the firm. Recall that our managers, for the most part, are transaction professionals and make the majority of their compensation as transaction professionals. But they also participate in our profit participation pool provided they hit a 14.5% profit margin. They get 15% of the net for their office or line of business, which we believe aligns them with ownership even if they are not currently owners.

Recall that there are more than 40 transaction professionals who currently own approximately 55% of the market value of the firm, and are on equal footing with our shareholders in all investments and profits resulting there from. This group has a fiduciary responsibility to our outside shareholders. And this group currently invests $0.55 of every $1 related to strategic investments we are making, which we believe will lead to future earnings growth and future shareholder value when the issues and concerns facing all global capital markets and current economic conditions in the US and other parts of the world recover from these unprecedented hits they have taken. We believe the above currently aligns our interests with those of our shareholders, and we do not believe there are many other public companies that are so structured or so aligned.

In conclusion, we have significant free cash resources to invest in acquisitions and our people to strategically grow the business. However, we will not grow for growth's sake, as we have said repeatedly in past calls and on our road show. We will continue to actively recruit new associates to our firm as well as to continue to mentor our existing associates and grow them into producers.

We have an un-drawn $40 million unsecured line of credit to use if there is something a little bigger that we want to step into. We have our Omnibus plan in place to reward value-added performance and to strategically grow the company. We also have our stock to use as currency to strategically grow the company. This is an incredible financial base to grow with. In the 26 years I've been doing this, my partners and I have never had the access to this kind of financial power and the ammunition to grow a transaction-based firm such as HFF. Therefore, we believe we have the opportunity to repeat history. While others are focused on the disruptions and negative things going on, we intend to continue to focus strategically on growing our firm and seize upon the opportunities that come out of major disruptions such as these. We believe we have a chance to do even bigger and better things than we did from 1998 to 2007, provided we respect each other and keep all of these in perspective.

Operator, I would now like to turn this call over to questions from our callers.

Question-and-Answer Session

Operator

(Operator instructions) Your first question will be from the line of Sloan Bohlen of Goldman Sachs. Please proceed.

Sloan Bohlen – Goldman Sachs

Good morning, everyone. John, just a question with regard to the comments you made on page 65 on your presentation, just about investments you’ve made in the business in past downturns. In those time periods, was there an idea in mind about the amount of the kind of duration on EBITDA margin that you guys would be willing to accept? Or what level of minimum cash bonds you guys wanted to have on hand? And can you kind of bring that to today and what your thoughts are on about how long this downturn may last?

John Pelusi

Well I wish I could tell you how long I think the downturns are going to last because I, like many people, don’t know. I believe it is going to recover. I just don’t know when. In terms of every investment we make, Sloan. We look at each investment on its phase. And we have a targeted return that we have in mind that we want to try and get back over a three-year period. And so, I don’t relate it back to a margin that I’m trying to achieve as I do that. I look at it as a more of a return that I’m trying to get over a three-year period.

Sloan Bohlen – Goldman Sachs

Okay. And then, kind of a question about just deal flow, as you guys have talked about during or focusing on the have to business, or debt maturities, or financing issues that your clients have. Now what have you seen even anecdotally about clients practically coming to you with those type of issues?

John Pelusi

I can tell you, as I mentioned in previous calls, we’ve turned down an awful lot of business. We think we have a very good idea of what can get done and what cannot get done today. And we never sit with a client and just turn down business. We sit with the client and say, “Look this is what we think we can get transacted in today’s environment. What you’re asking for, we do not believe is achievable. So unless we can agree on some kind of break fee or unless you believe more along the lines that we do what can get transacted, we will pass on the business.” I would also tell you that, again I mentioned this on the call, we have a lot of very senior people. Our entire operating committee is sitting on our weekly production calls from – we have weekly production call in our 18 offices. So we’re sitting on these calls. We’re reviewing exactly what our producers are working on. We’re actively communicating.

As I mentioned, we have an internal electronic database. So all the deals that we’re working on, all the bids and quotes come in, are available to all the producers in our office. So I think we have a very unique perspective of what is going on in the markets, which are changing daily, sometimes from morning to afternoon. And I think we have a unique ability and platform to offer clients a real insight into what is happening in the capital markets today.

So again, I feel as good as one could feel about the current pipeline today as I have at any point in time because of the senior level focus that we’re putting on this. And I think it’s a great environment for our younger producers who have not been through this before because they are able to access face-to-face and/or on calls senior level producers who have been through this before.

Sloan Bohlen – Goldman Sachs

Okay. Thank you. That was helpful, and then just one question for Nancy. Of the producers that were added in the quarter, could you tell us what offices they are in and in what capacity?

Nancy Goodson

Sure. Of the six producers that were added, there was one debt producer in Miami. The other five came as senior investment sales, and they focused on retail property. And they are based in Atlanta and New York.

Sloan Bohlen – Goldman Sachs

All right. Thank you very much.

Operator

Your next question will come form the line of Vance Edelson of Morgan Stanley. Please proceed.

Vance Edelson – Morgan Stanley

Hi. And thanks for taking the questions. John, what are you hearing from your customers? You mentioned that it’s difficult for you to project what might happen down the road. I think you have mentioned a few months ago that some of your customers at that point were still expecting some improvement in the second half of the year versus the first half. What would you say now? Are most of them looking for improvement around the middle of 2009? Are they getting incrementally more negative as we go? How does that look?

John Pelusi

Vance, well, we have told our clients that the following – we believe it’s a bit of you have to transact some time in 2008 or 2009 that the earlier you do that, the more likely it is that you’re going to get better terms and conditions. Simply because we think there are continued losses that need to come through the system. And the financial institutions need to raise additional capital, as I mentioned just to keep the doors open, let alone continue to lend money.

So our view, especially those that require debt financing, were to take those transactions on earlier. I think a lot of those clients and customers were optimistic by nature as we are, and hoped that the situation would get better. I think a lot of them are coming to the realization that 2008 is going to be difficult, and it is likely that part of 2009, maybe all of 2009, are going to be difficult. So you’re seeing more and more of those folks, I think, buy into what we were saying. And a lot of them are trying to get to come to the market today, and including a number of reads who are now even willing to take on some level of recourse just to hit the proceeds. So I would say that the – I think the market has become – becoming more realistic as to what is happening in the global and domestic financial institutions.

Vance Edelson – Morgan Stanley

Okay. That makes sense. And you described a fairly bleak capital market’s environment, but on a more positive note, you did complete more transactions and deal volume in 2Q than in 1Q. Is there any seasonality that makes the year-over-year comparison much more meaningful or should we assume that the 2Q increase is indeed a healthy sign?

John Pelusi

Well I think, usually our first quarter – our first half of the year is lower than our second half of the year. But I think if you look at the end of 2007, with the disruptions in the capital markets, the increases were way off. I think we’re in an environment, Vance, that quarter-to-quarter comparison is something that I wouldn’t spend a lot of time focusing on. What I would spend a lot of time focusing is, as you mentioned, the deals that we’re announcing and consummating.

In today’s environment, what is key is picking the right clients and knowing who your client is. Your client may be the people that own the property, but in today’s environment, may likely be the debt holder of the property because the equity may potentially be wiped out in those assets on the commercial side depending on what that asset is, where it’s located.

Again, I want to stress that why I might have painted a bleak capital market’s picture. I think if you look at the market share or the business that we consummated, we believe we’re actually picking up market share. Our numbers are down less than the industry standards. I mean it’s not something we’re happy about. We don’t sit here and take any joy that we only have $5.3 million in EBITDA. We’d like that number to be closer to $25 million because that’s where we think it should be. But in today’s environment, you need to be very mindful of what you’re working on. I know a lot of our competitors are reducing staff, reducing headcount. And again, they are much bigger and much larger than we are, and what we’re doing is growing. And I think it’s going to pay major dividends not only in today’s environment, but I think it’s going to pay major dividends when and if – when this thing does turn around.

It will turn around. I’m a firm believer that it will turn around. And I think we have a great real estate fundamentals so that when this thing comes through on the other side, I think there’s going to be lots of opportunity out there.

Vance Edelson – Morgan Stanley

Okay. That’s great. And then just one last question, again at the risk of reading too much into the quarterly fluctuations, the rate of change in total employment, I think you added almost 20 heads during the first quarter, but a lot less during the second quarter. Is that an indication that you trying to right size now? Or is that just it’s going to ebb and flow with each quarter and we shouldn’t pay too much attention to that?

John Pelusi

It’s going to ebb and flow on the availability of high quality people. We are interviewing and recruiting. It’s a very high priority of our firm. And it is just simply the lack of or the availability of high quality people that we think we have a need for in our existing offices and to our offices, our markets were not in that have the right culture, the right reputation, and the highest integrity.

Vance Edelson – Morgan Stanley

Okay. That makes sense. Thanks a lot.

John Pelusi

Thank you, Vance.

Operator

(Operator instructions) Your next question will come from the line of Ben Simmons [ph] of Petersburg Times [ph]. Please proceed.

Ben Simmons – Petersburg Times

Yes. Hey, John, two quick questions for you. I just want to get your analysis of how successful you felt the HFF was carrying out its game plan. And that you’ve spoken about in the past, basically to establish a presence in key markets, and then the possibility also of expanding internationally. That was my first question.

John Pelusi

I think it’s the past, that’s never ending. It’s something that we’re very focused on. And I think, relatively speaking, I think we’ve done a good job of growing our platform services as evidenced by the growth on our firm. As for international, we have a group of approximately six to eight people, who for the last three to four years have been tending all the global conferences. We know who all the equity capital is that want to come into the US, either directly of through advisors. And most of that capital comes in through advisors, of which we are extremely very familiar with, know what their objectives and investment criteria are. So we think we’re very well covered. In terms of opening an office internationally, I don’t see us doing that anytime soon.

Ben Simmons – Petersburg Times

Great. The second question, regarded you’ve spoken previously about the residential market versus the commercial market, and just speaking in terms of the fundamentals, the commercial and real estate market holding up fairly well. I wanted to get your – essentially, your prediction for the next year or so. Do you expect those – the commercial fundamentals to continue? And then, the second part of that question, how do you expect that? If those fundamentals stay solid or if they deteriorate, either ways does that affect your firm and your stock price value?

John Pelusi

Well, I think the commercial real estate, really if you look at the numbers from beginning of 2007 through today, with just paying attention to the delinquency factor, I mean the commercial real estate delinquency from the life insurance companies is 0.01%, and CMBS is 0.49%. I would contrast that with the residential markets, which have continued to deteriorate from 2006 through 2007, well into 2008, with really no bottom in sight.

So I think if people are realistic and really understand the difference between commercial real estate and residential real estate. I think its plain as the nose on my face as to how that asset classes held up relative to residential. Where I see the market a year from today, I mean it really depends on how the economy responds. If we go into a significant recession, I think, commercial real estate’s going to get impacted. But I would tell you residential real estate will be impacted even further, as will a lot of asset classes, i.e. the S&P 500, the World Indexes that I mentioned before. Again, hedge funds were off. I think almost every single asset class was off. And when you look at commercial real estate, while values have retreated, fundamentally speaking, occupancies have remained solid. Vacancies have remained – they’ve been reducing. And when you look at where rent growths and then the (inaudible) growths have been, there has been solid performance there. So I think it’s a – it’s an asset class that has the ability to generate cash both today and in the future.

Ben Simmons – Petersburg Times

Great. Well thank you. I appreciate it.

John Pelusi

Thank you. If there are no other questions, I’ll turn it back to the operator and conclude this call, and thank everyone for their participation today.

Operator

Thank you for your participation in today’s conference. This does conclude our presentation, and you may now disconnect. Have a great day.

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