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2012 Broker Forum

2012 Broker Forum. September 12, 2012 Hosted by Larry Heath Paradise Valley Country Club. 2012 Office Overview. Prepared By: Michael R. McQuaid Principal. Absorption, Vacancy & Unemployment. Information collected from US Bureau of Labor Statistics and Co-Star. * Year to Date 2012.

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2012 Broker Forum

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  1. 2012 Broker Forum September 12, 2012Hosted by Larry HeathParadise Valley Country Club

  2. 2012 Office Overview Prepared By: Michael R. McQuaid Principal

  3. Absorption, Vacancy & Unemployment • Information collected from US Bureau of Labor Statistics and Co-Star

  4. * Year to Date 2012

  5. * Year to Date 2012

  6. * Year to Date 2012

  7. 2012 Investment Sales As reported by Co-Star

  8. Distressed To Success As reported by Co-Star

  9. Encouraging Leases (Past 12 Months)

  10. Year End 2012 The Next 12 Months

  11. Metropolitan Phoenix Industrial Market Overview Presented By Bo Mills SIOR, CCIMExecutive Director 602-229-5970 bo.mills@cushwake.com September 2012

  12. Metropolitan PhoenixPopulation Growth 1995-2014 Forecast In Thousands Source: Moody’s Analytics

  13. Metropolitan PhoenixTotal Employment – Non-Farm Jobs Count from 1990 – 2012 In Thousands Source: Cushman & Wakefield Research, Arizona Department of Commerce

  14. Metropolitan PhoenixAnnual Change 1995-2016 Projection with National Recessions In Thousands Projection Source: Arizona Department of Commerce. 2012-2016 figures are projections based on data from Moody’s Analytics as of June 2012

  15. Metropolitan PhoenixArea Employment – Total Non-Farm Jobs: 1,726,300 (June 2012) Durable Goods Non-Durable Goods Federal State (incl Education) Local Buildings Heavy Specialty Trades Arts, Entertainment and Recreation Accommodation Food Services Retail and Wholesale Trade Transportation Warehousing Utilities Educational Services Health Care Services Social Assistance Publishing Telecommunications Finance Insurance Real Estate Professional, Scientific and Technical Source: Cushman & Wakefield Research, Arizona Department of Commerce

  16. Metropolitan Phoenix TTM Employment Data: Month-over-Month January 1990 – June 2012 In Thousands Source: Cushman & Wakefield Research, Arizona Department of Commerce

  17. Metropolitan Phoenix Unemployment Rate 1996 - June 2012 Source: Cushman & Wakefield Research, Bureau of Labor Statistics

  18. Metropolitan Phoenix • Housing Affordability Pct of Families that can afford the Median Priced Resale Home 133.0% 50% - the Median Income can afford the Median priced home Source: National Association of Realtors; U.S. Census Bureau; Bureau of Economic Analysis; Moody's Analytics

  19. Metropolitan Phoenix • Housing SalesMedian Home Price vs. Single Family Sales Market Peak - 52% +90% +8% +12% - 19% Source: Cushman & Wakefield Research, Moody’s Analytics

  20. Metropolitan Phoenix Single Family Permits Issued 1975 – 2011 25.1Average Source: Phoenix Metropolitan Housing Study Committee, Arizona Real Estate Center

  21. Metropolitan Phoenix • 2Q12 Industrial Statistics

  22. Metropolitan Phoenix • Industrial Market Overview Completions and Net Absorption vs. Market Vacancy and Annual Job Growth Projection Period 16.3% 11.0% 9.9% 7.3% Square Feet in 000’s (1.6%) (6.2%) Source: Cushman & Wakefield Research, Moody’s Analytics

  23. Metropolitan Phoenix • Industrial Market Overview Historical Industrial Asking Rents vs. Direct Vacancy – All Product Types -11% +0% +0% +3% +3% +15% +10% +16% +12% +4% -10% +4% -2% +2% +13% +11% +10% -11% -16% +0% +2% +2% Source: Cushman & Wakefield Research

  24. Metropolitan Phoenix • Industrial Market Overview and ProjectionHistorical Vacancy and Overall Rental Rate Recovery 4-yr post-recession: 12% average annual rental rate increase 3-yr post-recession: 10% average annual rental rate increase Projection Period Aggressive Growth 10% Avg Market Growth 7.3% Avg Conservative Growth 3% Avg Source: Cushman & Wakefield Research

  25. Metropolitan Phoenix • Industrial Market Overview Industrial Sales Transactions 1990 – YTD 2012 ($5.0M+) Source: Cushman & Wakefield Research

  26. Metropolitan Phoenix Median Cap Rates Source: Cushman & Wakefield Research, CoStar *Includes transactions $5.0MM+

  27. Southwest bulk distribution: • - Only 2 buildings larger than 300,000SF available in all of Phoenix. • - Lease rates have nearly doubled in this size range over the last 24 months. • - Spec Development is underway in SW Phoenix, 24 – 36 months for the rest of the Valley. • - Four projects between 500,000 – 600,000SF will break ground by YE 2012 • ProLogis, Seefried, Trammell Crow, and potentially Alter. • - BTS are back: TJ Maxx @ 1.5MSF, Dicks Sporting Goods @ 700,000SF, Mitek @ 260,000SF • Market as a whole: • Leasing Activity is up for all tenant sizing which is the first time in 5 years we’ve seen tenants under 100,000 SF active in the market (mom & pops and regional companies are finally back looking for space). Vacancy rates are headed towards equilibrium. • Investment Sales: Trophy or Trouble • Cap rate compression for institutional product ($20M+, new, well located, well leased). • Non traded REITS have an insatiable appetite: IIT just purchased 2 largest ind. deals ever done in Phoenix. • Non institutional deals in terms of size and quality are not trading unless it is at a high cap rate (8 – 9%) • Closing: • The industrial market is recovering led by an increase in tenant demand of all sizes and no spec development for the last five years which will lead to space constraints, pushing lease rates up, cap rates down, and values up. This is a great time to buy, the best time to sell in the last five years, and if you’re a tenant you better lock in a long term lease now because it is about to be a Landlord’s market. Metropolitan Phoenix Current Trends

  28. Metro Phoenix Market Overview • Estimated Population: • Census 2010: 4,192,887 • 2011 Estimate: 4,263,236 • Total Retail GLA: • 2nd Qtr. 2011: 215,689,308 s.f. • 2nd Qtr. 2012: 215,808,758 s.f. • Retail Vacancy: • 2nd Qtr. 2011: 13.9% • 2nd Qtr. 2012: 11.8% • Retail Market Rents: • 2nd Qtr. 2011: • Specialty Centers: $15.52 p.s.f. • Shopping Centers: $14.66 p.s.f. • Power Centers: $20.31 p.s.f. • Malls: $22.20 p.s.f. • 2nd Qtr. 2012: • Specialty Centers: $16.27 p.s.f. • Shopping Centers: $13.94 p.s.f. • Power Centers: $19.62 p.s.f. • Malls: $22.31 p.s.f.

  29. Metro Phoenix Box Vacancy • Available Box Spaces (10,000 s.f. and larger): • September 2011: 373 • September 2012: 354 • Absorption of Box Spaces (10,000 s.f. and larger) by Grade in Last Year: • A: 36% • B: 38% • C: 26%

  30. Metro Phoenix New Construction • Retail Space Under Construction: • 2nd Qtr. 2011: 190,069 s.f. • 2nd Qtr. 2012: 480,146 s.f. • Annual Absorption (year-to-date): • 2nd Qtr. 2011: - 397,446 s.f. • 2nd Qtr. 2012: + 1,210,879 s.f. • Future New Construction: • Estimated at 400,000 – 500,000 s.f. for 2013 - 2015

  31. Metro Phoenix Re-Development • Town & Country (SEC 20th St. & Camelback Rd.): • Added a 22,000 s.f. multi-tenant shop pad on Camelback Road • Added Nordstrom Rack as an anchor • Whole Foods taking over former Linens-N-Things space on 20th Street • The Pavilions at Talking Stick (NWC & SWC Loop 101 & Indian Bend Rd.): • Added two pylon signs on the freeway • Re-developed the older theatre into a dine-in UltraStar Cinemas • Gave the entire center a “facelift” • Added multiple pad restaurant buildings along Pima Road and Indian Bend Road

  32. Metro Phoenix Downsizing Retailers • Staples: • Went from a prototype of 24,000 s.f. to 16,000 s.f. • Kohl’s: • Went from a prototype of 83,000 s.f. to 68,000 s.f. • Best Buy: • Prototype was 45,000 s.f. down to 30,000 s.f. ; trying to sublease a portion of all larger format stores

  33. Brick & Mortar -vs- Internet Sales • Apple: • Apple has both strong internet sales and strong in-store sales • The location at Scottsdale Quarter (SEC Scottsdale Rd. & Greenway-Hayden Loop) is doing approximately $47.0 million in sales out of 9,858 s.f. • The location at Biltmore Fashion Park (NEC 24th St. & Camelback Rd.) is doing approximately $25.5 million out of 7,739 s.f. -vs-

  34. Metro Phoenix Investment Market • 2011 Investments: • Total Dollar Volume: $308,037,658 • Total GLA: 2,775,098 s.f. • Average Price: $89.36 p.s.f. • 2012 Investments: • Total Dollar Volume: $637,995,331 • Total GLA: 5,413,982 s.f. • Average Price: $125.48 p.s.f. • Trophy -vs- Trauma: • Trophy: grocery-anchored, well-leased, market adjusted rents • Trauma: Lender-owned (REO), Special Servicer, • Lender-owned: broadly marketed -vs- note sales • Special Servicer: fee-oriented, limited motivation, buying brokerage • : Special Servicer owned, LNR, CIII • Capital Markets: • Debt Maturities: construction loans, technical defaults • Cheap Money: refinance -vs- sale • Single-Tenant Net-Leased Retail: • Cap Rate Compression • 1031 Market • REIT Activity

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