Investment Trends Quarterly

Transcription

1 Second Quarter 2009 Report Vol. 5, No. 2 Spotlight on Nashville Sponsored by:

2 InThisVolume Now Available! National Overview In Search of Bottom Economic Background and Investment Environment How Is Commercial Real Estate Affected? A Focus on Real Estate Cap Rate & Yield Rate Expectations National Market Analysis & Property Sector Highlights Nashville Tunes in New Economic Growth...Beyond the Music Contributors Scope & Methodology Regional and Metro-Level Analyses Coming Soon! East Region Baltimore, Boston, Charlotte, Hartford, Norfolk, Northern New Jersey, New York City, Pittsburgh, Philadelphia, Raleigh, Richmond, Washington, D.C. South Region Atlanta, Austin, Dallas/Ft. Worth, Houston, Memphis, Miami, Nashville, New Orleans/Baton Rouge, Oklahoma City, Orlando, San Antonio, Tampa Midwest Region Chicago, Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, Kansas City, Milwaukee, Minneapolis, Omaha, St. Louis, Toledo West Region Denver, Honolulu, Las Vegas, Los Angeles, Phoenix, Portland, Sacramento, Salt Lake City, San Diego, San Francisco, Seattle, Tucson

3 Foreword May 2009 Dear Readers, Although the sense of optimism that we usually have during the spring season is being overshadowed by the recession, there are news flashes here and there that indicate the economic freefall may be slowing. However, first quarter 2009 GDP contraction was nearly as low as that for fourth quarter 2008, and while not as many people in April lost jobs as did people in March, the unemployment rate increased from 8.5 percent in March to 8.9 percent in April. We were reminded that while it appears economic stabilization is underway, there will be many more ups and downs ahead of us before we see anything resembling economic recovery. As for commercial real estate, a lagging indicator to the economy, we have yet to reach the bottom of this down cycle. For those of you who thought we would never again see anything like the real estate crisis in the early 1990s, it appears that the losses in this recession may be even more severe. In the 1990s, prices declined 30 to 35 percent over 5 years, which was bad enough. However, the crisis we find ourselves in today is happening at an accelerated pace, and real estate prices have fallen 20 to 25 percent on a free and clear basis in just the last 3 quarters! Beyond price adjustments, reduced returns, and continued lack of credit availability, property fundamentals are declining throughout the industry. On a national basis, vacancy rates are up at least a half percentage point for each property type. Prices and rents are declining, absorption is negative, and capitalization rates are increasing. RERC s analysis of this information, along with the views contributed by many CCIM Institute designees and candidates, is provided in the second quarter 2008 RERC/CCIM. We thank all who responded to and completed RERC s surveys when encouraged by the CCIM Institute. Your contributions to the information available to the commercial real estate industry are needed and appreciated now more than ever. Sincerely, Kenneth P. Riggs, Jr., CCIM, CRE, MAI President & CEO Real Estate Research Corporation (RERC) Charles Mac McClure, CCIM 2009 CCIM Institute President Chairman, The McClure Group, Inc.

4 InSearchofBottom The recent Chapter 11 bankruptcy of General Growth Properties, Inc. was a particularly sad day for anyone associated with this real estate investment trust (REIT) or with the Bucksbaum family. Like many other real estate owners who have overleveraged, General Growth was caught in the worst credit and capital markets crisis since the 1930s and was not able to work its way through it without reorganizing. While we understand and appreciate the difficulty General Growth is going through, it is important to also take note of how quickly the financial situation of the nation s second largest mall owner deteriorated, and how the challenges they have and are going through are also occurring in countless other businesses. The speed at which this recession has deepened and the severity of its damage have shocked us all, from the federal government on down. Still, in the long run, there may be more hope for General Growth to come back from bankruptcy and to preserve the majority of its assets than it will for many other industries. Although we are seeing some progress in the housing industry, there is much unraveling yet to be done at Fannie Mae and Freddie Mac, with more home foreclosures and further price declines, at least in some regions, still ahead. In addition, the stress tests administered to the large investment houses have not reflected well on the banks overall health, and despite some first quarter profits, there are still worrisome piles of legacy/toxic assets on the banks books that must somehow be disposed of. The auto industry is at a breaking point, and with the bankruptcy of Chrysler, there are fears that the bankruptcy of General Motors cannot be far behind. An average of 45 percent fewer cars and light trucks were sold by the Big Three last year than in the previous year, and it is no wonder that lower sales volume, added to their other high costs of doing business, may mean the end of this industry as we know it. When we consider the ripple effect on auto parts suppliers of steel, rubber, tech items like CD players or GPS systems, besides the leathers and fabrics that are included in the production of a car or truck, one can get an idea of the additional jobs that are likely to be lost before this is over. Other industries, including insurance, retailing, manufacturing, airlines, hotels and lodging, education, state and local governments, and even healthcare continue to see increased unemployment as well. As always, it is the loss of jobs that will have the longest-lasting impact on commercial real estate. With unemployment expected to increase at least throughout 2009, the damage to real estate fundamentals will increase accordingly, with higher vacancy, negative absorption, declining rents, and decreased values. It will be some time before we see the bottom of the commercial real estate market and know exactly what it is we have to deal with, but the majority of real estate investors remain determined to work through and overcome the new depths associated with this crisis.

5 Economic Background and Investment Environment It seems that most watchers of the economy have spent the majority of first quarter 2009 downgrading their expectations for the rest of this year. We have seen some indications of improvement during the last month or two, but hopes for an early end to the recession were dashed when the Commerce Department reported first quarter gross domestic product (GDP) growth grew at a seasonally-adjusted annual rate of 6.1 percent for first quarter, not much better than the 6.3 percent rate for fourth quarter In addition to witnessing the worst 6-month economic performance since the 1950s, this is the first time since the mid-1970s that we have seen the economy contract for 3 consecutive quarters. With the loss of another 674,000 jobs in March 2009 and 539,000 jobs in April, unemployment increased to 8.9 percent. Recent losses were higher than most economists had expected, and came from a broad array of companies like United Technologies, Nortel Networks, Pioneer, Goodyear, Smithfield Foods, Nissan Motor, Panasonic, Estee Lauder, PNC Financial Services, and others. Many economists are now predicting that the unemployment rate will reach double digits by the end of this year. On a local level, 18 of the 372 metros tracked by the Bureau of Labor Statistics (BLS) have jobless rates of at least 15 percent, and 109 metros have jobless rates of at least 10 percent, with El Centro, Calif., reporting an unemployment rate of 25.1 percent, the highest unemployment rate among these metros. The pressure remains on consumers, but consumers have less to spend and they are saving more of what they do have during this recession. It is no wonder they are keeping their pocketbooks closed they have lost retirement savings, lost value in their homes, and are worried about losing their jobs. This loss is real, and it is immense. According to the Federal Reserve, the drop in household net worth, including home values, mutual funds, life insurance, and college and pension funds, dropped by $11 trillion, a decline of nearly 18 percent, during Although consumer spending increased 2.2 percent in first quarter 2009, personal consumption fell at a seasonallyadjusted rate of 0.2 percent during the month of March, the fourth such decline during the last 6 months. In addition, retail sales inched upward during the first part of the quarter, with a 1.9 percent jump in January and a 0.3 percent increase in February, but March retail sales declined 1.1 percent. Personal income fell 0.3 percent in March, the fifth decrease in the last 6 months, while personal savings increased 4.2 percent in March, reports the Commerce Department. As second quarter 2009 gets underway, however, there have been a few signs that the economy could be starting to stabilize. Consumer confidence increased to 39.2 in April, up from 26.9 in March. Although this jump was considerable, the index reading overall was approximately two-thirds lower than it was 2 years ago. Still, it is a sign that consumers may be starting to think about loosening up on the purse strings. According to the Conference Board, the Present Situation Index and the Expectations Index also rose in April. The Commerce Department reported that housing starts increased 17.2 percent in February 2009 to 572,000 homes, although starts fell 10.8 percent in March to a seasonally-adjusted 510,000 homes. With the inventory for homes remaining high, this decrease is considered a positive factor for the housing market overall in that it helps to keep overall supply from increasing further. Home prices fell 2.2 percent in February, according to the Standard & Poor s/case-shiller Index, but it is important to note that the pace of deterioration has slowed and that a period of leveling off may be underway. Perhaps the most encouraging flicker of improvement in the economy is the stock market s brief market rally that we enjoyed this April. Although we have a long way to go before we can even imagine recovering what was lost in last fall s crash, since the stock market generally serves as a leading indicator regarding improvement in the economy, there is legitimate hope that things may slowly start to turn around, barring any new calamities. With respect to the economic landscape, CCIM members who responded to RERC s survey rated the U.S. economy s first quarter 2009 performance at 3.5 on a scale of 1 to 10, with 10 being excellent. While low, this rating is up from last quarter s rating of 2.6. The East and Midwest regional economies received slightly higher ratings than the West and South regions.

6 How Is Commercial Real Estate Affected? Although some parts of the commercial real estate industry have been suffering through the credit crisis from the beginning (commercial mortgage-backed securities, for example), the private equity arena has only over the past 2 quarters experienced the kind of damage that other investments have endured. But how quickly this damage has occurred! Declining prices and values have accelerated during this recession much more rapidly than that seen during the 1990s real estate crisis. In the current recession, institutional real estate prices have dropped 20 to 25 percent on a free and clear basis in just a few quarters. Compare this to the price declines in the 1990s, when prices declined 30 to 35 percent over 5 years, and one can see the rapid pace the commercial real estate industry is undergoing today. CCIM members rated commercial real estate at 6.2 on a scale of 1 to 10, with 10 being high, the highest rating among the various investment alternatives during first quarter 2009, and this is the first time since second quarter 2008 that commercial real estate was ranked higher than cash. As shown in Exhibit 1, CCIM respondents rated cash second highest at 5.8, followed by stocks and bonds at 4.8 and 4.4, respectively. Exhibit 1. CCIM Respondents Rate Investments 1Q Q 2008 Commercial Real Estate Stocks Bonds Cash *Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent. Source: RERC/CCIM Survey, 1Q RERC s institutional survey r e s p o n d e n t s still recommend holding commercial real estate assets, although interestingly, this rating (7.2 on a scale of 1 to 10, with 10 being high) is down slightly from last quarter. Further, an increasing number of respondents thought it may be a good time to buy, indicating that investors believe prices may be close to the bottom. Exhibit 2 demonstrates that although the recommendation to buy increased, the recommendation for selling properties remains quite low. As shown in Exhibit 3, investment conditions ratings increased during first quarter 2009 for every major property type, except apartments. However, the apartment sector once again received the highest investment conditions rating 5.5 on a scale of 1 to 10, with 10 being high and was the only sector Exhibit 2. RERC Historical Buy, Sell, Hold Recommendations Rating Q 2000 Hold Sell Buy 1Q 2001 Exhibit 3. Investment Conditions Ratings * - 1Q Q Q Q Q Q Q Q Q Q 2007 *Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent. Source: RERC Institutional Investment Survey, 1Q Q Q Q 2008 Office Industrial Retail Apartment Hotel *Ratings are averages based on responses to surveys from CCIM designees and candidates for first quarter Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent. 1Q

7 to receive a rating higher than 5. The retail sector once again received the lowest investment conditions rating. As demonstrated in Exhibit 4, CCIM members who responded to RERC s survey rated the overall return versus risk for commercial real estate at 5.3 on a scale of 1 to 10, with 10 being high, during first quarter This is up slightly from the previous 3 quarters, and is a positive sign indicating that respondents feel the return for commercial real estate does outweigh the risk. While the score does not invoke great confidence, it does show that sentiment has improved. The apartment sector was again the highest ranked performer for the return versus risk rating, with a score of 6.3 on a scale of 1 to 10, with 10 being high, for first quarter At 5.3, the industrial sector received the next highest rating. With the exception of these two sectors, nothing else had a return that outweighed the amount of risk taken. Exhibit 4. Historical Return/Risk and Value/Price Ratings Return vs. Risk 1Q Q Q Q Q 2008 Overall Office Industrial Retail Apartment Hotel Value vs. Price Overall Office Industrial Retail Apartment Hotel *Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent. Source: RERC/CCIM Survey, 1Q CCIM members rated value versus price for the commercial real estate market at 5.1 on a scale of 1 to 10, with 10 being high, during first quarter This increase from the 4.5 rating in fourth quarter 2008 indicates that respondents are a little more optimistic than last quarter about this asset class, and on average, they feel the value of commercial real estate slightly outweighs the price. At 5.4 and 5.2, respectively, the industrial and apartment markets were the only sectors that received a value versus price rating higher than 5.0 on a scale of 1 to 10, with 10 being high. Although the value versus price ratings are up for every property type, the price is perceived to be higher than the value of office, retail, and hotel properties. Commercial real estate investors lost another 7.33 percent during first quarter 2009, according to the National Council of Real Estate Investment Fiduciaries (NCREIF), which was still less than most stock market losses for this time period, as reflected in Exhibit 5. There have been recent improvements to the stock market, but commercial real estate still has a lot of pain in store. Exhibit 5. What Do the Financial Markets Tell Us? Compounded Annual Rates of Return as of 3/31/2009 Market Indices YTD 1-Year (2008) 3-Year 5-Year 10-Year 15-Year Consumer Price Index % -0.28% 2.14% 2.60% 2.59% 2.49% 10-Year Treasury Bond % 3.44% 4.36% 4.27% 4.65% 5.21% Dow Jones Industrial Average % % -9.52% -3.64% -0.36% 7.34% NASDAQ Composite % % % -5.18% -4.65% 4.92% NYSE Composite % % % -5.48% -2.45% 4.39% S&P % % % -4.77% -3.00% 5.91% NCREIF Index -7.33% % 4.16% 9.43% 9.37% 9.94% NAREIT Index (Equity REITS) % % % -8.64% 3.89% 5.24% 1 Based on the published data from the Bureau of Labor Statistics (Seasonally Adjusted). 2 Based on Average End of Day T-Bond Rates. 3 Based on Price Index, and does not include the dividend yield. Sources: BLS, Federal Reserve Board, S&P, Dow Jones, NCREIF, NAREIT, compiled by RERC.

8 Summary While the U.S. economy continues to suffer the ill effects of the post-credit market extremes, there is evidence that the decline is slowing and we are starting to see a few signs of entering into a period (potentially protracted) of stabilization. Warning: This is not to suggest a recovery is on the horizon. We have much yet to work through, and there will be many more ups and downs before we can expect anything resembling a recovery in jobs and the housing market. But first, we need to stabilize from the worst shocks to our economy and financial markets since the Great Depression. Despite the Federal Reserve s extremely accommodative monetary policy and the influx of capital targeted at the investment banks, many of the same issues that threatened the capital markets remain unresolved. Lack of credit continues as a drain on the economy, as we saw recently with the second consecutive 6-percent contraction in GDP, which was attributed mostly to the continued reduction in business investment (which fell 38 percent in first quarter 2009). Although we are seeing some stabilization in the housing market overall, there are many areas that will see additional price declines. In addition, the stress tests the banks have undergone have indicated that the health of the banks remains somewhat precarious, with many of them needing additional funds to continue to operate. With respect to commercial real estate, the difficulties associated with overleveraging continue to drag down the market, and there is much more pain in store for investors. The economic stresses causing commercial real estate fundamentals to deteriorate, particularly additional job losses, are expected to continue throughout the year. With consumers remaining cautious, concentrating on expanding their savings and replenishing their retirement accounts, investors also should expect slow consumer spending to continue. These factors will further negatively impact the office, industrial, retail, apartment, and hotel property sectors. Since commercial real estate is a lagging indicator to the economy, RERC estimates stabilization in the economy to occur before year-end 2009 with strong signs of this in the second quarter, and commercial real estate following suit approximately 12 months after stabilization occurs in the economy. That means stabilization in the commercial real estate industry will not begin until mid Until then and as the commercial real estate market continues to struggle with new depths, watch for: Lack of credit availability in the near term. Fundamentals to continue to deteriorate throughout Vacancy/availability rates to increase in all property sectors. Capitalization rate increases to begin leveling off. Property sale prices and rents to continue to decrease. Concessions and terms favoring buyers to continue. Buy opportunities in CMBS or with distressed debt properties.

9 Annual Growth Rate OFFICE NAR Commercial Forecast: February I II III IV I II III Vacancy Rate (%) Net Absorption ( 000 sq. ft.) 3,192 5,206 4,800-6,893-15,091-17,537-20,336 57,265 12,271-77,406 Completions ( 000 sq. ft.) 15,701 17,637 21,961 12,888 15,733 16,900 19,306 61,102 68,187 71,356 Inventory (millions sq. ft.) 3,427 3,445 3,467 3,480 3,495 3,512 3,532 3,409 3,480 3,551 Rent Growth (%) INDUSTRIAL Vacancy Rate (%) Net Absorption ( 000 sq. ft.) -12,678-30,441-8,327-5,795-18,540-32,552-44, ,231-57, ,062 Completions ( 000 sq. ft.) 34,847 42,847 44,639 57,280 12,214 17,249 35, , ,613 69,553 Inventory (millions sq. ft.) 12,778 12,821 12,866 12,923 12,935 12,953 12,988 12,399 12,923 12,993 Rent Growth (%) RETAIL Vacancy Rate (%) Net Absorption ( 000 sq. ft.) ,157-8,784-12,397-12,503-12,250 11,081-7,315-49,754 Completions ( 000 sq. ft.) 5,070 6,296 6,246 8,674 3, ,733 26,286 5,858 Inventory (millions sq. ft.) 1,598 1,606 1,612 1,621 1,624 1,625 1,626 1,580 1,621 1,627 Rent Growth (%) MULTIFAMILY Vacancy Rate (%) Net Absorption (Units) -52,603 37,680 27,303 12,001 60,112 57,808 56, ,399 24, ,523 Completions (Units) 56,275 54,573 53,999 55,926 53,894 58,157 55, , , ,027 Inventory (Units in Millions) Rent Growth (%) Sources: NAR, CBRE/Torto Wheaton Research. NAR U.S. Economic Outlook: May Annual Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Real GDP Nonfarm Payroll Employment Consumer Prices Real Disposable Income Consumer Confidence Unemployment Interest Rates, Percent Fed Funds Rate Month T-Bill Rate Prime Rate Corporate Aaa Bond Yield Year Government Bond Year Government Bond Source: Forecast produced using Macroeconomic Advisers quarterly model of the U.S. economy. figures are seasonally-adjusted annual rates. Assumptions and simulations by NAR's Dr. Lawrence Yun.

10 Snapshot of Real Estate Space and Market Performance 1Q 2009 Office Vacancy Rate Retail Availability Rate Vacancy Rates Percent Percent Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2005 Source: Torto Wheaton Research. Industrial Availability Rate Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2005 Source: Torto Wheaton Research. Apartment Vacancy Rate Percent Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Percent Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: Torto Wheaton Research. Source: Reis. Performance Indicator Recent Data Impact on Commercial Real Estate Rental Rates (RERC s surveyed rent growth expectations) Office: 0.7% to 0.9% Industrial: 0.8% Retail: 0.5% to 0.9% Apartment: 1.7% Hotel: 0.7% RERC s rental rate expectations for first quarter 2009 were relatively stable when compared to last quarter. Perhaps it is a sign that things are leveling out even though they remain very low during the recession. The only significant moves were a reduction in the average for office and a slight increase for apartments. Real Estate Returns RERC Required Returns: Office: 9.4% to 10.0% Industrial: 9.6% to 10.4% Retail: 9.7% to 10.3% Apartment: 9.0% Hotel: 12.7% NCREIF Realized Returns: Office: -18.5% to -15.0% Industrial: -19.5% to -13.9% Retail: -14.1% to -8.2% Apartment: -16.4% Hotel: -18.2% RERC s first quarter 2009 required returns were again up for all property sectors because investors want more return if they are to invest in these troubling times. NCREIF s realized returns slipped further into negative territory for every sector of commercial real estate. Capitalization Rates RERC Realized Cap Rates: Office: 7.1% Industrial: 7.5% Retail: 7.2% Apartment: 5.9% Hotel: 7.5% NCREIF Implied Cap Rates: Office: 4.6% to 5.4% Industrial: 5.4% to 6.2% Retail: 5.5% to 6.4% Apartment: 4.6% Hotel: 5.2% RERC s required going in capitalization rates continued their move upward for all property types during first quarter 2009, which is expected until the economy picks up. The implied capitalization rates for NCREIF remained steady for the first quarter There were no major changes to mention from the prior quarter.

11 GDP FOMC Policy Decisions Percent Change Quarter Ago Q Q Q 2001 Source: Bureau of Economic Analysis. 3Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2009 Real gross domestic product (GDP) fell by 6.1 percent during first quarter 2009, making it the second straight quarter in which there was a drop of more than 6 percent and the third consecutive quarter in which the index contracted Percent Feb-00 Oct-00 Apr-01 Source: Federal Reserve. Discount Rate Fed Funds Rate Oct-01 May-02 Dec-02 Aug-03 Mar-04 Nov-04 Jun-05 Jan-06 Sep-06 May-07 Dec-07 Aug-08 Apr-09 The Federal Open Market Committee (FOMC) left the federal funds rate in the 0.0 to 0.25 percent range and the discount rate at 0.50 percent, and stated that these rates would remain low for the foreseeable future Percent Jan-00 Jun-00 Source: Bureau of Labor Statistics. Unemployment Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Apr-09 The unemployment rate skyrocketed to 8.9 percent in April, and is expected to continue to climb throughout the year. The manufacturing, service, and construction industries have been hit the hardest Percent Jan-00 Source: Federal Reserve. Manufacturing Utilization Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Manufacturing utilization has dropped sharply, and remains lower than the levels reached during the 1980s Percent Change Month Ago Apr-08 May-08 Jun-08 Source: Bureau of Labor Statistics. Consumer Price Index Jul-08 Aug-08 Sep-08 The Consumer Price Index (CPI) contracted slightly during March 2009, although overall it gained for the quarter. CPI has been relatively steady, with energy prices remaining relatively stable for the quarter. Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar Year To Year Percent Change Jul-07 Aug-07 Sep-07 Oct-07 Source: Census Bureau. Retail Sales Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Retail sales improved in January and February 2009, marking the first time since mid that there was a month-to-month improvement in retail sales. However, consumers pulled back in March, and sales dropped from February levels

12 Consumer Confidence New Residential Construction Index May-01 Oct-01 Mar-02 Source: The Conference Board. Aug-02 Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Consumer confidence increased more than expected in April, reaching its highest mark in 5 months. Only 2 short months ago, however, the index marked the worst consumer confidence number in the history of the index Millions Mar-01 Sep-01 Source: Census Bureau. Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 New residential construction declined to its second lowest level ever. Industry watchers are hoping that housing crisis has reached bottom, and that a period of leveling off is underway Beginning of Month Adjusted Closing Price 1,600 1,500 1,400 1,300 1,200 1,100 1, Source: S&P. Mar-07 Apr-07 S&P 500 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 After working its way to an abysmal at the end of February, the S&P 500 has increased 18 percent to its current mark of , indicating that investors may be testing the waters. 1,600 1,500 1,400 1,300 1,200 1,100 1, Millions Source: NAR. Mar-01 Sep-01 Existing Home Sales Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Existing home sales fell by 3 percent in March after increasing nearly 5 percent in February. There is hope that the industry has reached its low point, and that stabilization is starting to occur. Mar Commercial Leading Indicator Single Family Home Supply Percent Change Quarter Ago Source: NAR. 2Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2008 The preliminary data for the fourth quarter 2008 Commercial Leading Indicator (CLI) shows a drop of 6.0 percent, the largest decline for this index. The National Association of REALTORS (NAR) points to the lack of credit in the commercial real estate market as the main reason for the poor numbers Months Source: NAR. Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 The February housing supply declined to 9.1 months, slightly less than the January supply and lower than its 12-month average of Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec

13 Commercial Real Estate Activity Continuing to Decline A sustained lack of credit and the economic slump will depress the commercial real estate market this year, according to a forward-looking index and forecast for the commercial real estate sectors published by the National Association of REALTORS (NAR). Lawrence Yun, NAR chief economist, said all components of the index declined. The credit crunch has especially hammered down some components of NAR s commercial leading indicator, he said. A lack of commercial credit is a serious threat to the overall economy. The Federal Reserve needs to use the Term Asset-Backed Securities Loan Facility (TALF) to provide liquidity and support for commercial mortgage-backed securities. The Commercial Leading Indicator (CLI) for Brokerage Activity fell 6.0 percent to an index of in the fourth quarter 2008 from a downwardly revised reading of in the third quarter, and is 9.1 percent lower than an index of in fourth quarter NAR s track of the CLI dates back to The slowing index means commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, is likely to weaken further over the next 6 to 9 months. Given the freeze in commercial credit, investment activity in the commercial real estate sectors has essentially halted, while continuing job losses are reducing the demand for space, according to NAR s latest COMMERCIAL REAL ESTATE OUTLOOK. 3 Realtors Commercial Alliance Committee chair Robert Toothaker said all sectors are down except for multifamily. The apartment rental market is more stable simply because home sales are depressed, he said. The stimulus package is designed to create jobs, and that would eventually lead to an upturn in the commercial market, Toothaker said. However, we need to quickly restore liquidity to commercial real estate lending so transactions can move forward, and debt on existing properties can be rolled over. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail, and multifamily markets. Historic data were provided by Torto Wheaton Research. According to NAR s findings, vacancy rates are increasing in all property sectors, and annual rent is declining in all property types except for the apartment market The COMMERCIAL REAL ESTATE OUTLOOK is published by the NAR Research Division for the Realtors Commercial Alliance (RCA). The RCA, formed by NAR in 1999, serves the needs of the commercial market and the commercial constituency within NAR, including commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and NAR affiliate organizations. Organizations in the RCA include the CCIM Institute, the Institute of Real Estate Management, the Realtors Land Institute, the Society of Industrial and Office Realtors, and the Counselors of Real Estate. The RCA also provides commercial products and services. More than 81,000 NAR members offer commercial services, and 60,000 of those are currently members of the RCA. NAR s CLI is a tool to assess market behavior in the major commercial real estate sectors. That index incorporates 13 variables that reflect future commercial real estate activity, weighted appropriately to produce a single indicator of future market performance, and is designed to provide early signals of turning points between expansions 115 and slowdowns in commercial real estate. 110 The 13 series in the index are industrial production, the NAREIT (National Association Index Source: NAR of Real Estate Investment Trust) price index, NCREIF (National Council of Real Estate Investment Fiduciaries) total return, personal income minus transfer payments, jobs in financial activities, jobs in professional business service, jobs in temporary help, jobs in retail trade, jobs in wholesale trade, initial claims for unemployment insurance, manufacturers durable goods shipment, wholesale merchant sales, and retail sales and food service. NAR reviewed a wide variety of indicators, examined the relationships of indicators that demonstrated a historical impact on commercial real estate, and modeled a forward-looking index based on historic trends. Although individual indicators sometimes move in opposite directions, together they offer a better indication of future market activity. data for 13 selected series were reviewed back through the first quarter of The modeling demonstrated a change in commercial brokerage activity that could be seen two quarters later as measured by net absorption in the industrial and office sectors, and the completion of new commercial buildings as measured by the value of building construction put-in-place of office, warehouse, retail and lodging structures. An index of 100 is defined as the level of commercial real estate market activity during the first quarter of 1990, the first period to be analyzed. This information is reproduced in part from the Feb. 19, 2009 press release issued by Realtors Commercial Alliance and with their permission. Commercial Leading Indicator

14 NationalMarketAnalysis < $2 Million National Transaction Breakdown 12-Month Trailing Averages (04/01/08-03/31/09) Office Industrial Retail Apartment Hotel Volume (Mil) $1,793 $3,089 $3,423 $1,261 $81 Size Weighted Avg. $90 $52 $86 $50,769 $24,943 Price Weighted Avg. $130 $88 $130 $75,977 $33,233 Median $96 $62 $90 $59,083 $25,658 $2 - $5 Million Volume (Mil) $2,819 $4,440 $4,941 $3,012 $388 Size Weighted Avg. $125 $64 $136 $65,714 $38,088 Price Weighted Avg. $201 $111 $235 $111,613 $51,902 Median $168 $87 $197 $97,059 $41,993 > $5 Million Volume (Mil) $47,846 $15,386 $17,165 $24,544 $7,471 Size Weighted Avg. $262 $79 $164 $97,087 $162,341 Price Weighted Avg. $508 $143 $301 $195,837 $308,654 Median $193 $94 $220 $90,689 $104,651 All Transactions Volume (Mil) $52,458 $22,914 $25,529 $28,816 $7,940 Size Weighted Avg. $233 $71 $141 $89,086 $133,574 Price Weighted Avg. $479 $130 $265 $181,791 $293,316 Median $134 $73 $121 $80,771 $72,715 Capitalization Rates (All Transactions) Range Weighted Avg Median Source: RERC. 13

15 NationalMarketAnalysis < $2 Million National Transaction Breakdown Current Quarter Rates (01/01/09-03/31/09) Office Industrial Retail Apartment Hotel Volume (Mil) $244 $364 $348 $50 $7 Size Weighted Avg. $80 $55 $71 $51,362 $22,118 Price Weighted Avg. $120 $98 $113 $76,163 $28,024 Median $83 $68 $76 $50,000 $21,154 $2 - $5 Million Volume (Mil) $339 $662 $514 $192 $6 Size Weighted Avg. $105 $69 $120 $68,311 $26,000 Price Weighted Avg. $205 $129 $218 $108,656 $32,868 Median $149 $99 $169 $88,300 $34,929 > $5 Million Volume (Mil) $3,107 $2,783 $3,500 $1,184 $213 Size Weighted Avg. $211 $127 $169 $81,778 $108,317 Price Weighted Avg. $302 $258 $394 $135,042 $161,875 Median $169 $122 $153 $93,760 $97,814 All Transactions Volume (Mil) $3,690 $3,809 $4,362 $1,426 $226 Size Weighted Avg. $176 $100 $146 $78,076 $89,914 Price Weighted Avg. $281 $220 $351 $129,412 $154,320 Median $114 $89 $111 $84,298 $57,323 Capitalization Rates (All Transactions) Range Weighted Avg Median Source: RERC. 14

16 NationalOfficePropertySector During first quarter 2009, CCIM designees and candidates who responded to RERC s survey rated the office sector s investment conditions rating at 3.7 on a scale of 1 to 10, with 10 being high. The office sector s rating had been declining since fourth quarter 2007, until this quarter s increase reversed trend. RERC s transaction analysis of the 12-month trailing averages showed continuing declines in the office sector during first quarter The volume of transactions continued to slow, while the size-weighted average and median price per square foot fell from last quarter. The weighted average and median capitalization rates increased by 120 basis points and 40 basis points, respectively. The return versus risk rating in the office sector increased to 4.6 on a scale of 1 to 10, with 10 being high, during first quarter This rating tied for the second lowest rating with the hotel sector. The value versus price rating increased to 4.8, up from 4.3 during the previous quarter. RERC Weighted Average Capitalization Rate (12-Month Trailing Average) 9% 8% 7% 6% 5% 4% South East 1Q08 2Q08 West Midwest 3Q08 National 4Q08 1Q09 9% 8% 7% 6% 5% 4% According to Torto Wheaton Research, the overall vacancy rate for the office sector increased by 70 basis points to 14.7 percent during first quarter The office market posted negative net absorption at a level not seen since fourth quarter Most respondents suggested avoiding office property investments for the next year due to overbuilding, downward pressure on rents, increasing vacancy, and general oversupply. However, several respondents noted that there are some small and midsized office properties available at great prices in some areas, and if financing becomes available, these kinds of office properties will be a good value. $400 $350 RERC Size-Weighted Average PPSF (12-Month Trailing Average) South East West Midwest National $400 $350 $800 $700 RERC Price-Weighted Average PPSF (12-Month Trailing Average) $800 East South Midwest West $700 National $300 $300 $600 $600 $250 $200 $250 $200 $500 $400 $300 $500 $400 $300 $150 $150 $200 $200 $100 1Q08 2Q08 3Q08 4Q08 1Q09 $100 $100 1Q08 2Q08 3Q08 4Q08 1Q09 $100 15

17 NationalIndustrialPropertySector 10% RERC Weighted Average Capitalization Rate (12-Month Trailing Average) 9% 8% 7% 6% 1Q08 South East 2Q08 West Midwest 3Q08 National 4Q08 1Q09 10% 9% 8% 7% 6% CCIM survey respondents rated the investment conditions of the industrial sector at 4.4 on a scale of 1 to 10, with 10 being high, during first quarter The industrial sector received the second highest rating among the property types. RERC s transaction analysis for the industrial sector posted mixed results during first quarter The 12-month trailing size-weighted average price per square foot increased slightly from the previous quarter, while the median price per square foot remained about the same as last quarter. The weighted average capitalization rate increased by 80 basis points to 7.5 percent, while the median capitalization rate increased by 20 basis points. The industrial sector received a return versus risk rating of 5.3 on a scale of 1 to 10, with 10 being high, during first quarter 2009, tying for the second highest rating among the property types. The value versus price for the industrial sector was rated at 5.4, indicating the value of the properties outweighs the price. The overall availability rate for industrial space increased by 80 basis points to 12.2 percent during first quarter According to Torto Wheaton Research, this is a higher availability rate than that noted during the last two recessions, and is the highest since Torto Wheaton began tracking data for the industrial sector in Industrial may be a good sector in which to invest due to pent-up demand in some areas, and more focus from Congress on U.S. manufacturing and less on off-shore manufacturing. Longterm industrial may offer good opportunities because the sector has the shortest ramp-up time and requires little capital, high going-in cap rates=instant returns, and a more stable tenant base. However, in some areas, industrial still seems to be flatlining. $140 $120 RERC Size-Weighted Average PPSF (12-Month Trailing Average) South East West Midwest National $140 $120 $200 $150 RERC Price-Weighted Average PPSF (12-Month Trailing Average) South East West Midwest National $200 $150 $100 $100 $100 $100 $80 $80 $60 $60 $50 $50 $40 1Q08 2Q08 3Q08 4Q08 1Q09 $40 $0 1Q08 2Q08 3Q08 4Q08 1Q09 $0 16

18 NationalRetailPropertySector CCIM designees and candidates who responded to RERC s investment survey gave the retail sector an investment conditions rating of 3.4 on a scale of 1 to 10, with 10 being high, during first quarter 2009, which was the lowest rating among the property types. According to RERC s transaction analysis, the decline in volume for retail transactions is beginning to slow. The 12-month size- and price-weighted averages and median price per square foot declined from the previous quarter, while the weighted average capitalization rate increased by 80 basis points to 7.2 percent. The retail availability rate increased by 50 basis points to 10.4 percent during fourth quarter 2008, according to Torto Wheaton Research. This was the ninth consecutive quarter of increased availability in the retail sector. Net absorption was negative for the second quarter in a row. 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% RERC Weighted Average Capitalization Rate (12-Month Trailing Average) 1Q08 South East West Midwest 2Q08 3Q08 National 4Q08 1Q09 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% The retail sector received a return versus risk rating of 4.0 on a scale of 1 to 10, with 10 being high, during first quarter Even though this rating was the lowest of all the property types, it was an increase from the previous quarter s rating of 3.3. The value versus price rating increased to 4.5, and indicates that investors still believe the value of the properties is lower than the price being asked. Most survey respondents remarked that the retail sector should be avoided during the next year because tenants have not seen the bottom yet for their retail businesses and even the big tenants are weak. However, there are opportunities, particularly in areas with properties available at 50 to 70 cents on the dollar or with owners with cash flow problems who will be forced to sell. $250 $200 RERC Size-Weighted Average PPSF (12-Month Trailing Average) South East West Midwest National $250 $200 $400 $350 $300 RERC Price-Weighted Average PPSF (12-Month Trailing Average) South East West Midwest National $400 $350 $300 $150 $150 $250 $250 $100 $100 $200 $150 $200 $150 $50 1Q08 2Q08 3Q08 4Q08 1Q09 $50 $100 1Q08 2Q08 3Q08 4Q08 1Q09 $100 17

19 NationalApartmentPropertySector 8.5% 7.5% RERC Weighted Average Capitalization Rate (12-Month Trailing Average) South East West Midwest National 8.5% 7.5% CCIM survey respondents gave the apartment sector an investment conditions rating of 5.5 on a scale of 1 to 10, with 10 being high, during first quarter While the apartment sector was the only property type to be rated lower than the previous quarter, it still received the highest rating among the property types during first quarter. RERC s 12-month trailing transaction analysis for first quarter 2009 showed a 30-percent decrease in the volume of transactions from the previous quarter. The size-weighted average and median prices per unit decreased slightly. The weighted average capitalization rate increased by 30 basis points to 5.9 percent, while the median capitalization rate increased 20 basis points to 6.2 percent. According to Reis, Inc., the average vacancy rate for the apartment sector increased by 60 basis points to 7.2 percent during first quarter This is the fifth consecutive quarterly increase in apartment vacancy rates. Net absorption was negative for the second consecutive quarter. CCIM survey respondents gave the apartment sector a return versus risk rating of 6.3 on a scale of 1 to 10, with 10 being high, which was up from the previous quarter s rating of 5.8. This rating indicates the respondents believe the return on apartment properties is greater than the risk involved. The value versus price was rated at 5.2, indicating respondents feel the value of apartment properties only slightly outweighs the price paid. 6.5% 5.5% 4.5% 1Q08 2Q08 3Q08 4Q08 1Q09 6.5% 5.5% 4.5% Apartments will do well because the home foreclosure market will drive rents up and because of their overall stability, occupancy, and NOI. Apartments are expected to lead the pack if prices come into line with lenders requirements. However, in some areas, like Phoenix, too much shadow space from single-family homes is affecting occupancy. $150,000 $125,000 RERC Size-Weighted Average PPU (12-Month Trailing Average) South East West Midwest National $150,000 $125,000 RERC Price-Weighted Average PPU (12-Month Trailing Average) $350,000 $350,000 South West National $300,000 $300,000 East Midwest $250,000 $250,000 $100,000 $100,000 $200,000 $150,000 $200,000 $150,000 $75,000 $75,000 $100,000 $100,000 $50,000 $50,000 $50,000 1Q08 2Q08 3Q08 4Q08 1Q09 $50,000 $0 1Q08 2Q08 3Q08 4Q08 1Q09 $0 18

20 NationalHotelPropertySector RERC Weighted Average Capitalization Rate (12-Month Trailing Average) 9.5% 9.0% 8.5% South East West Midwest National 9.5% 9.0% 8.5% CCIM designees and candidates gave the hotel sector an investment conditions rating of 3.7 on a scale of 1 to 10, with 10 being high, during first quarter The hotel sector s rating was the second lowest, behind retail. The hotel occupancy rate was 56.6 percent as of March 28, 2009, down 12.3 percent from year-ago rates, according to Smith Travel Research. The average daily rate (ADR) declined 8.8 percent from year-ago rates, while revenue per available room (RevPAR) declined 20.0 percent. The hotel sector s 12-month trailing transaction activity continued to slow, with a 35 percent decline in transaction volume during first quarter The size-weighted average and the median prices per unit dropped, while the priceweighted average showed an increase. The weighted average capitalization rate increased by 50 basis points to 7.5 percent, while the median capitalization rate decreased by 40 basis points. The hotel sector received a return versus risk rating of 4.6 on a scale of 1 to 10, with 10 being high, which was an increase from the previous quarter. This rating indicates that respondents feel the return on hotel properties is still lower than the risk involved. The value versus price rating for hotels was 4.7, indicating respondents believe the value of hotel properties is less than the price paid. 8.0% 7.5% 7.0% 6.5% 6.0% 1Q08 2Q08 3Q08 4Q08 1Q09 8.0% 7.5% 7.0% 6.5% 6.0% Some respondents suggest avoiding hotels due to less business travel this season. Others suggest buying hotels cheap, because they will bounce back the quickest in a recovering economy and because they have seen a drastic reduction in price in the last 12 months and there is lots of upside. $350,000 $300,000 $250,000 $200,000 $150,000 RERC Size-Weighted Average PPU (12-Month Trailing Average) South East West Midwest National $350,000 $300,000 $250,000 $200,000 $150,000 $1,000,000 $800,000 $600,000 $400,000 RERC Price-Weighted Average PPU (12-Month Trailing Average) National West Midwest South East $1,000,000 $800,000 $600,000 $400,000 $100,000 $100,000 $200,000 $200,000 $50,000 1Q08 2Q08 3Q08 4Q08 1Q09 $50,000 $0 1Q08 2Q08 3Q08 4Q08 1Q09 $0 19

21 Nashville Tunes in New Economic Growth... Beyond the Music By Edward M. Bury, APR The first verse from an old hit song called Nashville Cats starts this way: Well, there s thirteen hundred and fifty two guitar pickers in Nashville. Recorded by the Lovin Spoonful in 1966, the country-themed tune was a somewhat tongue-in-cheek tribute to the Tennessee capitol city and its tremendous output of live and recorded country music. Above: Nashville Music District Home to the legendary Grand Ole Opry, Nashville has been the undisputed seat of country and its various musical offshoots for decades. In the years following World War II, music pioneers opened small studios along Sixteenth Avenue South on what would be later dubbed Music Row. Major record companies like RCA, Decca, and Columbia followed, as did publishing houses, music licensing firms, and other business that served the music industry. Radio networks and radio stations began broadcasts. Giants like Elvis Presley, Chet Atkins, and the Everly Brothers recorded seminal tracks there. Music City was born, and it still lives. Today, Nashville remains one of the nation s three music industry meccas, and the vibrant scene draws thousands of music fans and professionals from coast to coast, thus contributing to the local economy and preserving a big part of the city s character. Beyond Right: Tennessee State Capitol the studios and honky tonks, there s a lot more going on in this progressive, mid-south metropolis. The seat of Tennessee government, Nashville benefits economically from steady state jobs as well as travel/ tourism dollars. Thanks to a strong central city-county government, effective economic development practices, dynamic economic drivers through healthcare, technology, and educa- 20

22 Above: Grand Old Opry tional institutions (there are seven major colleges and universities), overall affordability, and a central location, Music City dances to a lot of tunes these days and has evolved into a diverse business center. According to national publications, Nashville and the state of Tennessee are great places for business. Forbes ranked Nashville as the 25th best U.S. market for career and business growth, and Site Selection magazine, a leading economic development journal, ranked Tennessee as having the second-best business climate in the nation. And, Expansion Management ranked Nashville number one in its 50 Hottest Cities poll for business expansion for the second consecutive year. Solid local government is a key reason for the region s economic success. The metro area of 1.5 million is under the administration of the Metropolitan Government of Nashville and Davidson County, which is comprised of an elected mayor and Metropolitan Council. Formed in 1963, the government is a consolidation of the two bodies city and county into a new form of elected administration. According to an excerpt from an online history published by the Nashville Public Library, Nashville became the national pioneer in metropolitan organization. Although other cities had partial consolidation, Nashville was the first city in the country to achieve true consolidation. This consolidation helped the burgeoning area manage growth and provide needed services as the population shifted to the suburbs in the 1950s. The local economic development engine, the Nashville Area Chamber of Commerce, also is credited with being a catalyst for sound and smart growth. We have a truly outstanding chamber of commerce, said Jim Dunn, CCIM, president of Keystone Realty Services of Madison, Tenn., and a 40-year Nashville commercial real estate veteran. Back in the 1970s, the chamber concentrated on luring the smokestack-type of industries, and we got some of those. But one of the leaders had the foresight to say that those really aren t the kind of jobs we need < $5 Million in the future not that we would turn them down. Dunn, president of the Middle Tennessee CCIM Chapter, said new minds on the Chamber later crafted a 10- year plan to bring a wider range of businesses to energize the economy. Their efforts paid off handsomely over the past decade. Dell Computers built its first manufacturing and distribution facility outside of Texas in Nashville, bringing 3,200 jobs. Caremark Pharmacy Services, the parent of the CVS pharmacy retailer, opened its world headquarters in Nashville. The publicly-traded Louisiana Pacific Building Materials Company, one of the nation s largest, relocated its corporate headquarters to the city in 2004 from Portland. And, in 2005, automaker Nissan moved its North American headquarters to Franklin, part of the metro area, along with 1,300 jobs. According to Expansion Management, Nashville Transaction Breakdown (04/01/08-03/31/09) Office Industrial Retail Apartment Hotel Volume (Mil) $57 $78 $100 $25 $10 Size Weighted Avg. ($ per sf/unit) $106 $41 $134 $48,655 $27,778 Price Weighted Avg. ($ per sf/unit) $139 $54 $185 $57,453 $30,459 Median ($ per sf/unit) $110 $43 $120 $41,500 $24,230 > $5 Million Volume (Mil) $179 $17 $142 $233 $41 Size Weighted Avg. ($ per sf/unit) $179 $188 $66,018 Price Weighted Avg. ($ per sf/unit) $183 $249 $83,980 Median ($ per sf/unit) $168 $239 $45,746 All Transactions Volume (Mil) $236 $95 $242 $258 $51 Size Weighted Avg. ($ per sf/unit) $154 $40 $161 $63,846 $51,066 Price Weighted Avg. ($ per sf/unit) $172 $51 $222 $81,452 $69,592 Median ($ per sf/unit) $126 $42 $121 $44,030 $47,414 Capitalization Rates (All Transactions) Weighted Average (%) Median (%) Source: RERC. 21

23 Above: Nashville Skyline Nissan s decision marks the 17th corporate headquarters announcement in Tennessee since January In May, the Chamber reported that 74 companies relocated to or expanded operations in the metro area since late 2008, creating 5,722 new jobs. And, the group is negotiating with 26 other companies on job relocation or retention. Healthcare is widely considered a sought-after economic driver, and the city has emerged as a leader in that field. Healthcare companies based in the Nashville area employ an estimated 430,000 workers globally and more than 94,000 in middle Tennessee alone. The Hospital Corporation of America (HCA), the largest private operator of health care facilities in the world, was founded in and remains headquartered there. A key factor also paramount to Nashville s boom is its geographic location. Just about in the center of Tennessee, the market can boast six Interstate highway routes that link Nashville with major distribution points nationwide. Dunn pointed out that from a demographic perspective, the market is within a 24-hour drive of 75 percent of the U.S. population; and, from a climatic perspective, Nashville enjoys four seasons but avoids the extremes the average low in January is 28 degrees, and the average high in August is 88 degrees. Much of Nashville s economic success in terms of corporate relocations has taken place outside the city s downtown core. But there is also lots going on downtown on the banks of the Cumberland River. In April 2009, the Metropolitan Council approved a land acquisition bill to borrow up to $75 million for land to build a new convention center, a project pushed by Mayor Karl Dean. Dunn noted that federal stimulus funds should help with major infrastructure projects, like improvements to an existing commuter rail system and some significant bridge enhancements. A 24-hour city is emerging as multifamily residential properties are open or being developed along Church Street and in pocket neighborhoods like North Capitol, SoBro, and the Gulch. The Nashville Downtown Partnership reports: More condos were sold in downtown Nashville during the first 2 quarters of 2008 than in all of Over 900 condos more than in the 5 previous years combined are expected to close by the end of Over 400 more condos will close in Nashvillians seeking a downtown address have a lot of options at prices far below comparable properties in other major metro markets. Home seekers can opt for a home at The Viridian, a new, luxury 31-story condo property with unit prices ranging from $214,000 to $1.4 million, or a renovated unit at the Lofts of Werthann Mills, where a condominium home developed in a century-old factory building starts at $134,500 and jumps to $429,900. These and other multifamily homes are within walking distance of the growing arts and entertainment options downtown options beyond country music, of course. But rest assured, in Music City the music rarely stops. 22

24 RERC~CCIM Advisory Board Members B.K. Allen, CCIM B.K. Allen Real Estate Potomac Falls, Virginia Todd Clarke, CCIM New Mexico Apartments Albuquerque, New Mexico Wayne D Amico, CCIM Property Politics Essex, Connecticut Paul Fetscher, CCIM Great American Brokerage Long Beach, New York Stephen Furnary ING Clarion Partners New York, New York Breck Hanson LaSalle Bank, N.A. Chicago, Illinois Dennis Martin RREEF/DB Real Estate New York, New York Jeff Lyon, CCIM GVA Kidder Mathews Seattle, Washington Buzz McCoy Buzz McCoy Associates, Inc. Los Angeles, California Tom Nordstrom, CCIM AEGON USA Realty Advisors, Inc. Cedar Rapids, Iowa Art Pasquerella Berwind Property Group, Inc. Philadelphia, Pennsylvania Duncan Patterson, CCIM Patterson-Woods Associates Greenville, Delaware Gary M. Ralston, CCIM, SIOR, SRS, CPM, CRE Florida Retail Development, LLC Winter Park, Florida Cynthia Shelton, CCIM Colliers Arnold Orlando, Florida Frank Simpson, CCIM The Simpson Company Gainesville, Georgia Allen Smith Prudential Investment Managment Services Parsippany, New Jersey Richard Sokolov Simon Property Group Indianapolis, Indiana John Stone, CCIM John M. Stone Company Dallas, Texas Dewey Struble, CCIM Sperry Van Ness Reno, Nevada Julien Studley Julien Studley, Inc. New York, New York Allan Sweet AMLI Residential Properties Trust Chicago, Illinois Garry Weiss, CCIM First Industrial Realty Trust Chicago, Illinois Sam Zell Equity Group Investments Chicago, Illinois Copyright Notice for RERC~CCIM All rights reserved. No part of this publication may be reproduced, duplicated, or copied in any form, including electronic forwarding or copying, xerography, microfilm, or other methods, or incorporated into any information retrieval system, without the written permission of RERC and the CCIM Institute. RERC Editorial Staff Publisher Kenneth P. Riggs, Jr. CFA, CRE, FRICS, MAI, CCIM Editor-in-Chief Barb Bush Lead Analyst Brian Velky Research Analysts Greg Philipp Cliff Carlson Charles Gohr Morgan Westpfahl Design Editor Michelle Houlgrave Data Management Ben Neil Daniel Warner Production Committee Terri Cotter Research Assistants Jeffrey Harms David Kelly Herinomena Rakotoarivelo Anthony Tholkes CCIM Institute President Charles Mac McClure, CCIM President-Elect Richard Juge, CCIM First Vice President Frank Simpson, CCIM Chief Executive Officer Jonathan Salk Director of Public Relations Edward M. Bury, APR CCIM Member Services Committee Brent Case, CCIM, Chairman Miriam Campos-Root, CCIM, Vice Chairman Immediate Past Chairman CCIM Member Services Committee Steve Moriera, CCIM Liason CCIM Member Services Committee Karl Landreneau, CCIM 23

25 Acknowledgements The RERC/CCIM is produced by Real Estate Research Corporation (RERC) in association with and for members of the CCIM Institute. The RERC/CCIM Investment Trends is sponsored by the REALTORS Commercial Alliance of the National Association of REALTORS. Real Estate Research Corporation Founded more than 75 years ago, Real Estate Research Corporation (RERC) was the nation s first independent real estate firm that specialized in both real estate research and analysis. Recognized as a pioneer in the art of real estate management and for monitoring key sectors of the economy that influence the real estate industry, RERC has retained its place as one of the industry s leading real estate investment trends analysts through the publication of such reports as Expectations & Market Realities in Real Estate and the RERC Real Estate Report. Today, RERC is known for its research publications and market studies, commercial property valuations, complex consulting assignments, portfolio management and technology services, and independent fiduciary services. The CCIM Institute The CCIM Institute, headquartered in Chicago, confers the Certified Commercial Investment Member designation through an extensive curriculum of 200 classroom hours in addition to professional experience requirements. CCIMs are recognized experts in commercial real estate brokerage, leasing, asset management, valuation, and investment analysis, and form a business network encompassing more than 1,000 markets throughout North America, Europe, Asia and the Caribbean. There currently are more than 8,600 CCIM designees, with an additional 8,200 professionals pursuing the designation. CCIM Institute is an affiliate of the National Association of REALTORS. Visit REALTORS Commercial Alliance of the National Association of REALTORS NAR President Charles McMillan, CIPS NAR Executive Vice President/CEO Dale A. Stinton RCA Committee Representative Robert Toothaker, CPM NAR Vice President of Commercial Real Estate Jan M. Hope REALTORS Commercial Alliance of the National Association of REALTORS The REALTORS Commercial Alliance (RCA) is the commercial division of the National Association of REALTORS (NAR) that connects commercial real estate professionals and exchanges valuable information that contributes to their success. RCA in partnership with NAR s commercial affiliates CCIM Institute, the Counselors of Real Estate (CRE), the Institute of Real Estate Management (IREM), the REALTORS Land Institute (RLI), and the Society of Industrial and Office REALTORS (SIOR) is dedicated to collaboration with and building on the strengths of each affiliate entity to benefit the real estate industry. RCA works to serve the needs of members, and to shape and unify the commercial real estate industry through valuable products and services, technology initiatives, public policy advocacy, education, and research. 24

26 RealEstateResearchCorporation Founded in 1931, Real Estate Research Corporation is one of the longest-serving and most recognized national firms devoted to real property research, valuation, real estate consulting, independent fiduciary services, and portfolio services. Explore our services... Specialized Research Independent Fiduciary Services Fairness Opinions Litigation Support Consulting Portfolio Services Commercial Valuation Financial Risk Management Market Research & Analysis Appraisal Management Services Independent To ensure objectivity and independence, RERC does not engage in any activity that may conflict with the best interests of our clients. As an impartial observer of the markets, RERC is able to collect and synthesize data and commentary unavailable to less independent organizations. Unique RERC brings unique and diverse skills to solving complex real estate issues. RERC s innovative approach to problem solving is fostered by the diverse education and professional backgrounds of our team members. Expertise RERC s expertise originates from a national presence and perspective, coupled with local market knowledge gained through the completion of hundreds of engagements annually in every major market. Our clients have found that RERC is relationshiporiented, focusing first and foremost on our clients and customers needs, and delivering the highest quality products and services. RERC is an SEC-registered advisor. Leadership Kenneth P. Riggs, Jr. CFA, CRE, FRICS, MAI, CCIM President & CEO Jules H. Marling, III, CRE, FRICS, MAI Managing Director Del H. Kendall, CRE, MAI Managing Director Donald A. Burns, CRE, FRICS, MAI Managing Director Gregory P. Kendall, CRE, MAI Managing Director Kent D. Steele, CRE, FRICS, MAI Managing Director William L. Corbin, MAI Managing Director Standard Publications RERC Real Estate Report RERC/CCIM Expectations & Market Realities in Real Estate Real Estate Research Corporation 980 North Michigan Avenue, Suite 1110 Chicago, IL Phone: Fax: Offices located throughout the U.S., with headquarters in Chicago 25

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