Investment Trends Quarterly

Transcription

1 First Quarter 2009 Report Vol. 5, No. 1 Spotlight on Columbus Sponsored by:

2 InThisVolume Now Available! National Overview Hunkering Down for the Long Haul 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 Columbus Thrives in the Center of It All 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 February 2009 Dear Readers, Although most of us had hoped to put 2008 behind us, last year s carnage in the financial markets and banking industry has followed us into Additional revelations recently from Bank of America, Citigroup, and State Street Bank have re-ignited fears that the financial turmoil continues and that the economy will get worse before it gets better. With respect to the financial crisis, there is still no transparency, still little movement of credit (except to those who don t really need it), still no accountability, and as a result, still no trust. For the most part, commercial real estate investors have not seen losses as large as those experienced by the financial sector and the stock market. While we expect this trend to continue (so long as the recession is not more severe than forecast) however, there will be difficult days, weeks, months, and maybe years ahead for those involved in the business of real estate. As noted in the first quarter 2009 issue of the RERC/CCIM, investors are facing the brutal realities of the economic decline, hunkering down for the long haul, and making the decisions necessary to survive in this down cycle. As we reported last quarter, with respect to property transactions, RERC has been looking more closely at current quarter pricing averages in addition to the 12-month trailing pricing averages, so that we can get a clearer measure of some of the repricing issues that are occurring. We are seeing reductions in pricing, as well as reduced overall transaction volume. In fact, as we look at transaction activity in 2008 analyzed by RERC for the RERC/CCIM, sales volume was down 76.1 percent in fourth quarter 2008 from year-ago volume, and fourth quarter 2008 pricing (capital only) was down an average of 21.4 percent. As always, thank you for sharing your information through the RERC surveys requested by and issued through the CCIM Institute. We appreciate your commitment to your profession and to the industry, particularly during these days when we need all the research and other information we can get in order to make the best investment decisions possible. 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 HunkeringDownfortheLongHaul The year 2008 was a year like few of us have ever experienced. Beginning with Bear Stearns problems a year ago, and followed by the difficulties with Bank of America, Merrill Lynch, JP Morgan Chase, Wachovia, and others late last summer, we were shocked when one after another of these financial figureheads threatened bankruptcy. As fall progressed, Fannie Mae and Freddie Mac entered the foray, and as the government picked up their pieces, AIG and several other insurance firms sought government funds to keep them in business. Around the holidays, we watched the auto industry come to Washington with their hands out. And to top it off, even as a new administration and a much-desired fresh start to resolving this crisis was kicked off, bank stocks experienced their worst-ever inauguration day selloff. It appears sentiment has caught up with reality, and as a result, confidence in our capital markets is still lacking. There is some consolation in the fact that commercial real estate did not overbuild during this crisis and that fundamentals are not expected to collapse, although there will be further deterioration. But as time goes on and buyers continue to hold out for lower pricing, many investors will be facing some hard decisions. Investors are scrambling to try anything and everything they can to preserve assets, including selling some properties at a loss to raise cash to protect others. Those who are hunkering down and trying to stick it out in this new investment environment will be bloodied and beaten, and while they will have had to sacrifice much to stay in the game, there will be a place at the table for commercial real estate. Economic Background and Investment Environment As 2009 gets underway, the economic news just keeps getting worse and worse. Growth in gross domestic product (GDP) was estimated at -3.8 percent for fourth quarter, the lowest growth that the U.S. economy has seen since While first and second quarter 2009 GDP growth percentages are also expected to be negative, with projected growth at -3.3 percent and -0.8 percent, respectively, according to the Commerce Department, at least for the present, there is hope that we will begin digging out of negative territory in third quarter Employment will continue to deteriorate for some time, however. This is not good news for the commercial real estate industry. In recent weeks, thousands of jobs have been cut at major corporations in many diverse industries Microsoft, Home Depot, AT&T, Caterpillar, Motorola, Target, Boeing, Alcoa, Macy s, Kodak, and Pfizer are just a few of the bigname companies whose job cuts extend way beyond those associated with the financial sector. Job loss picked up momentum in fourth quarter 2008, with 1.5 million jobs lost, with nearly 600,000 more jobs eliminated in January 2009, the worst monthly job loss in 35 years. According to the Labor Department, unemployment is expected to increase to 8.1 percent by mid-year 2009 and to 8.5 percent by the end of the year, even taking into account new jobs provided through a stimulus package (many economists believe unemployment could reach close to 10 percent by year s end). Job loss is increasing in each of the 50 states as well, with the unemployment rate already topping 10 percent in Michigan and Rhode Island, and 9 percent or higher in South Carolina, California, Nevada, and Oregon. No wonder consumer confidence continues to plummet, reaching a historic low of 37.7 in January 2009 from a revised 38.6 in December, according to the Conference Board. The present situation index, as well as the expectations index, also declined. This pessimism is expected to worsen as job losses continue to be announced, and will affect consumer behavior with respect to future retail sales. The National Retail Federation is predicting that U.S. retail sales in 2009 will fall 0.5 percent below 2008 levels. This forecast one of the more optimistic forecasts available is also based on the Government s stimulus package kicking in and strengthening the economy. As expected, residential real estate and construction activity is continuing to decline in most regions. Cautious developers are reluctant to move forward, and even though December 2008 sales of existing homes increased 6.5 percent from November, according to the National Association of REAL- TORS, the increase was attributed in great part to the sale of foreclosed or distressed homes. The December increase was 3.5 percent less than year-ago sales, and for 2008 as a whole, sales dropped 13 percent.

5 However, mortgage rates also dropped to around 5 percent, the lowest level in decades, and low single-family home prices are making houses more affordable. According to the S&P/Case-Shiller home price index, the mortgage payment on a median-priced home fell to about 17 percent of the average family income, more in line with historic norms. Despite these positive elements about home mortgages, however, so long as consumers worry about the possibility of losing their jobs, do not expect the number of homes built or sold to increase greatly. CCIM members who responded to RERC s survey had a very similar view of the national economy during fourth quarter 2008, rating it at 2.6 on a scale from 1 to 10, with 10 being excellent. East regional respondents rated their area s economy at 4.1, while South regional respondents rated their economy at 4.0 and West regional respondents rated their economy at 3.9. Midwestern regional respondents rated their economy at 3.1, quite a bit lower than the rating of 4.5 rating in the previous quarter. How Is Commercial Real Estate Affected? The collapse in the credit market, along with the economic recession, has presented the commercial real estate markets with their greatest challenge in many years. Transaction volume has been decreasing throughout 2008, investment capital continues to be hard to access, job loss is increasing, real estate fundamentals are deteriorating, and properties are being repriced. Sales volume in 2008, as analyzed by RERC for the RERC/CCIM, was down 76.1 percent in fourth quarter 2008 from year-ago volume; fourth quarter 2008 size-weighted average pricing (capital only) was down 21.4 percent from fourth quarter Despite the worsening picture for this asset class, CCIM members rated commercial real estate at 5.7 on a scale of 1 to 10, with 10 being high, second highest only to cash, which was rated at 6.2. As shown in Exhibit 1, respondents showed little confidence in bonds, and even less in stocks. Exhibit 1. CCIM Respondents Rate Investments properties, lowering the sell recommendation to 2.1 during fourth quarter 2008 from 3.2 in third quarter, given that we have swung from a priced-for-perfection mode with historically high prices, to a priced-for-major-correction mode, especially in the securitized debt markets. Interestingly, however, for investors with the means to do so, it may also be a better time to buy, with survey respondents increasing their buy recommendation to 5.9, the highest buy recommendation during the last few years, as demonstrated in Exhibit 2. One respondent noted that distressed or motivated sales will begin in 2009, thereby offering excellent opportunities for buying during the next 4 quarters, with buyers once again appreciating the long-term attractiveness of real estate at prices similar to those during the early stages of recovery in past recessions. Exhibit 2. RERC Historical Buy, Sell, Hold Recommendations 10 8 Hold Sell Buy Q Q 2008 Commercial Real Estate Rating 6 6 Stocks Bonds Cash Source: RERC Institutional Investment Survey, 4Q Q 1999 Source: RERC. 4Q Q Q Q Q Q Q Q Q As reflected in Exhibit 2, RERC s institutional survey respondents generally recommend continuing to hold commercial real estate assets during the upcoming quarter. Respondents also suggest that it is not a good time to sell With commercial real estate fundamentals, along with the investment environment overall and the economy in general, continuing to deteriorate, investment conditions are lower during fourth quarter 2008 for each property type. As one would expect, apartments continued to earn the highest

6 rating, but the sector s rating of 5.7 on a scale of 1 to 10, with 10 being high, during fourth quarter is down from the previous quarter s rating of 6.2, and perhaps more importantly, was the only property type with an investment conditions rating above 5.0. The second highest rated property type was the industrial sector at 4.2. The retail sector earned the lowest rating, at 3.0. As demonstrated in Exhibit 3, CCIM survey respondents rated the overall return versus risk for commercial real estate at 4.6 on a scale of 1 to 10, with 10 being high. This fourth quarter 2008 rating is less than the midpoint of 5.0, the ratings in the previous quarters, indicating that respondents believe that the risk of commercial real estate now outweighs the return. Exhibit 3. Historical Return/Risk and Value/Price Ratings Return vs. Risk 4Q Q Q Q Q 2007 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, 4Q The apartment sector continues to be the top performer in the return versus risk rating, with a score of 5.8 on a scale of 1 to 10, with 10 being high, for fourth quarter The industrial property sector earned the next highest rating at 4.6. CCIM survey respondents rated the overall value versus price for commercial real estate at 4.5 on a scale of 1 to 10, with 10 being high. The fourth quarter 2008 rating is the same as last quarter s rating, and tells the same story as last quarter investors simply do not believe that the value of commercial real estate overall is worth the price being asked. The apartment sector earned the highest value versus price rating, but at 4.8, reflects that the value is still not equal to the price of apartment properties. The other sectors are seeing an even wider gap between value and price. Not surprisingly, the retail sector earned the lowest value versus price rating at 3.8. Commercial real estate investors lost nearly 7 percent in fourth quarter 2008, according to the National Council of Real Estate Investment Fiduciaries (NCREIF). Still, as reflected by the NCREIF Index listed in Exhibit 4, losses with private commercial real estate are much lower than the losses reflected by the stock market, including the nearly 48-percent average loss in real estate stocks, as reflected by the National Association of Real Estate Investment Trusts (NAREIT) Index. Exhibit 4. What Do the Financial Markets Tell Us? Compounded Annual Rates of Return as of 12/31/2008 Market Indices 1-Year (2008) 3-Year 5-Year 10-Year 15-Year Consumer Price Index % 2.19% 2.66% 2.55% 2.49% 10-Year Treasury Bond % 4.36% 4.33% 4.70% 5.25% Dow Jones Industrial Average % -4.09% -1.12% 1.66% 8.11% NASDAQ Composite % % -4.67% -3.24% 4.83 NYSE Composite % -9.45% -2.29% -0.09% 5.08% S&P % -8.36% -2.19% -1.38% 6.46% NCREIF Index -6.93% 7.93% 11.56% 10.43% 10.56% NAREIT Index % % 0.91% 7.42% 8.21% 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. Still, as noted previously, hope is not lost for the commercial real estate market. Most CCIM survey respondents noted that the best investment at present is apartment properties. People still need to live someplace, and with foreclosures, fear of job loss, and tighter credit keeping people away from home purchases, apartments should hold their value better than the other property sectors. CCIM respondents generally noted that the retail sector was the property type with the least investment potential. Little consumer confidence, continued low consumer spending, and Americans worried about job loss are causing more and more retail stores to close their doors. Respondents also saw little investment opportunity in the hotel sector, given that decreased leisure and business travel trigger greatly reduced occupancy rates and returns.

7 Summary Despite the urgency associated with passing the Government s second stimulus package, there remains significant doubt about improvement in the economy in the near term. RERC expects the credit markets to see continued challenges throughout And with the current recession expected to be the longest we have seen since at least 1982, things will get worse before they get better. With respect to commercial real estate, wise investors are hunkering down for the long haul and preparing for the difficulties ahead. Many of the changes that result will be structural, or long-term, rather than cyclical, or temporary. To summarize the economic and capital markets environment for 2009, RERC expects: Negative GDP growth for much of the year; Negative job growth, with unemployment rates reaching 8.5 to 9 percent; Home price declines of another 8 to 10 percent from current levels. Home prices will hopefully bottom out in mid to late 2009, if job losses slow; Continued negative consumer spending throughout most of 2009, or until job loss slows and the housing market stabilizes; Continuation of highly-accommodative monetary policy (low rates until economy improves); Increasing numbers of foreclosures and personal and business bankruptcies; and Government intervention and regulations that may hamper the dynamics associated with a free market. Keep in mind that commercial real estate will be competing for scarce capital with other parts of the financial system that are also deleveraging, thus making capital difficult to access. We already are seeing higher required discount rates, upward pressure on capitalization rates, and major price corrections. Wide bid-ask spreads continue, as buyers do not want to overpay for property that has a high probability of decreasing in value. Eventually the gap will narrow, but expect continued downward pressure on valuation levels and pricing as real estate fundamentals decline. Unfortunately, even when the economy and capital markets start to stabilize, commercial real estate fundamentals will continue to suffer for a period of time. In 2009, RERC expects: Demand to decline for all property types as businesses continue to reduce staff and space; Absorption to continue to decrease in the near term; Vacancy rates to increase; Continuing downward pressure on prices and upward pressure on cap rates; Flat to negative rental growth; and Landlord concessions. Although it will be some time before we get through the current down cycle and the problems associated with it, including declining fundamentals and reduced property prices, there will be some good opportunities. Low property pricing hurts sellers, but provides a good opportunity for investors who have done their homework, are using sound investment principles, and see this as a good buying environment.

8 Annual Growth Rate OFFICE NAR Commercial Forecast (December 2008) I II III IV I II III Vacancy Rate (%) Net Absorption ( 000 sq. ft.) 3,192 5,206 4,800-6,893-11,503-13,945-16,735 57,265 12,271-63,002 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.) -12,678-30,441-8,327-5,795-15,361-29,282-41, ,231-57, ,859 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.) ,157-8,784-8,890-8,996-8,749 11,081-7,315-35,734 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 66,873 64,317 63, ,399 24, ,028 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: December Annual Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 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.

9 Snapshot of Real Estate Space and Market Performance 4Q 2008 Office Vacancy Rate Retail Availability Rate Vacancy Rates Percent Percent Q Q Q Q Q Q Q Q Q 2007 Source: Torto Wheaton Research. Industrial Availability Rate 2Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2006 Source: Torto Wheaton Research. Apartment Vacancy Rate 1Q Q Q Q Q Q Q Percent Q Q Q Q Q Q Q Q Q Q Q Q Q Q Percent 6.0 3Q 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: 0.8% to 1.7% Industrial: 0.9% to 1.3% Retail: 0.6% to 1.0% Apartment: 1.9% Hotel: 0.7% RERC s rental growth expectations for fourth quarter 2008 dropped significantly from the previous quarter, and investors anticipate little growth in Real Estate Returns RERC Required Returns: Office: 8.9% to 9.8% Industrial: 9.3% to 9.8% Retail: 9.5% to 9.6% Apartment: 8.7% Hotel: 11.2% NCREIF Realized Returns: Office: -8.4% to -6.6% Industrial: -11.9% to -5.4% Retail: -7.8% to -2.9% Apartment: -7.3% Hotel: -9.4% RERC s fourth quarter 2008 required returns increased for all property sectors, indicating investors are requiring higher returns if they choose to invest. NCREIF s realized returns decreased dramatically for every sector. Capitalization Rates RERC Realized Cap Rates: Office: 5.9% Industrial: 6.7% Retail: 6.4% Apartment: 5.6% Hotel: 7.0% NCREIF Implied Cap Rates: Office: 4.4% to 5.3% Industrial: 5.7% to 6.0% Retail: 5.3% to 6.4% Apartment: 4.5% Hotel: 5.6% RERC s 12-month trailing realized capitalization rates decreased for each property sector during fourth quarter The NCREIF implied capitalization rates fremained fairly stable, with the only change of note being in the hotel sector, which dropped nearly a percent from third quarter 2008 cap rates.

10 Percent Change Quarter Ago Q Q Q 2001 Source: Bureau of Economic Analysis. GDP 3Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2008 Real gross domestic product (GDP) plummeted -3.8 percent during fourth quarter Although negative, the decline was better than the -5 percent that was expected. This is the biggest decline since Percent Feb-00 Aug-00 Source: Federal Reserve. FOMC Policy Decisions Jan-01 Jun-01 Nov-01 May-02 Discount Rate Fed Funds Rate Nov-02 May-03 Oct-03 May-04 Nov-04 Apr-05 Nov-05 May-06 Oct-06 May-07 Oct-07 Apr Dec-08 The Federal Open Market Committee (FOMC) reduced the target range for the federal funds rate to 0.0 to 0.25 percent, and lowered the discount rate to 0.50 percent. The FOMC also assured investors they would keep rates low until some economic recovery is apparent. Percent Jan-00 Sep-00 May-01 Jan-02 Source: Bureau of Labor Statistics. Sep-02 Unemployment May-03 Jan-04 The unemployment rate breached the 7-percent barrier for the first time since the early 1990s, and many economists are predicting the rate to rise above 9 percent in 2009 as layoffs continue. Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep Percent Jan-00 Aug-00 Mar-01 Source: Federal Reserve. Manufacturing Utilization Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 With the exception of a mild gain in November, manufacturing utilization has been in a steep decline for nearly a year. Manuafcturing utilization has dropped below its post-sept. 11 level and is similar to levels not seen since the early 1980s Percent Change Month Ago Jan-08 Feb-08 Mar-08 Source: Bureau of Labor Statistics. Consumer Price Index Apr-08 May-08 Jun-08 The Consumer Price Index (CPI) is down for the third straight month and is about even with its December 2007 level. Spending is down significantly, with energy costs leading the decline. The food and beverage set has also succumbed to the down economy, and has flattened. Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec Year To Year Percent Change Jul-07 Aug-07 Sep-07 Source: Census Bureau. Retail Sales 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 Retail sales were abysmal in fourth quarter 2008, with drug stores the only key retail sector to make gains in December. With the onslaught of economic bad news, expect consumers to keep spending to a minimum for most of

11 Consumer Confidence New Residential Construction Index Millions May-01 Jan-02 Sep-02 Source: The Conference Board. May-03 Jan-04 Sep-04 Consumer confidence continues to dip, as one would expect as consumers worry about the economy and possible job loss. However, with mortgage rates low and gas prices low, consumers are said to be considering purchases of automobiles, appliances, and homes. May-05 Jan-06 Sep-06 May-07 Jan-08 Sep Mar-01 Oct-01 Source: Census Bureau. May-02 Dec-02 Jul-03 Feb-04 Sep-04 New residential construction decreased by more than 15 percent from November to December, and 45 percent from year-ago numbers. Construction reported in December 2008 is the lowest since the Census Bureau started tracking this information in Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct Beginning of Month Adjusted Closing Price 1,600 1,500 1,400 1,300 1,200 1,100 1, Source: S&P. Aug-07 Sep-07 Oct-07 S&P 500 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 The decline of the S&P 500 throughout 2008 is continuing into Earnings are down, bankruptcies and store closings are increasing, layoffs are up, uncertainty about the government stimulus package continues, and as a result, we are seeing further volatility in the stock market Millions Mar-01 Source: NAR. Oct-01 May-02 Dec-02 Existing Home Sales Jul-03 Feb-04 Sep-04 Existing home sales were up more than 6 percent in December, raising hopes for the housing market, although much of this increase was due to the purchase of distressed properties. It is hoped that with low interest rates and reduced home prices, this positive movement may help to stabilize the market. Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct Commercial Leading Indicator Housing Supply Percent Change Quarter Ago Q 2000 Source: NAR. 3Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2008 The Commercial Leading Indicator (CLI) preliminary numbers for third quarter 2008 decreased 1.7 percent, one of the largest declines on record. The National Association of REALTORS (NAR) expects commercial real estate to deteriorate into The index factors in 13 variables affecting commercial real estate, such as unemployment, retail sales, and the NAREIT Price Index Months Source: NAR. Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 The housing supply for December declined to 9.3 months, the lowest level of Although the housing market has a long way to go before it stabilizes, it is moving in the right direction. Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec

12 Third Quarter Commercial Real Estate Index Continues to Contract The economic downturn has slowed commercial real estate markets into 2009 according to a forward-looking index for the commercial real estate sectors published by the National Association of REALTORS (NAR). Lawrence Yun, NAR chief economist, said all components of the Commercial Leading Indicator (CLI) for Brokerage Activity were down, with the exception of personal income. Aside from weakening conditions in the index variables, the commercial mortgage-backed securities market is all but frozen, making it very difficult to roll-over existing debt that is coming due, he said. It is encouraging to hear the Treasury Department is considering using the Troubled Asset Relief Program to help revive the commercial real estate debt market, but time is of the essence, and it must be implemented immediately. The CLI slowed 1.7 percent to an index of in the third quarter from an upwardly revised reading of in the second quarter, and is 3.1 percent lower than a level of in the third quarter of 2007, which was the second highest index on record. NAR s track of the commercial leading indicator dates back to The decline in the index means commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, is projected to weaken over the next 6 to 9 months. NAR Commercial Forecast (December 2008) Time Period 2008 Commercial Leading Indicator % Change from 1 Quarter Ago % Change from 1 Year Ago 3Q Q Q Q Q Q Q Q Q Q Q Q Q The Society of Industrial and Office REALTORS (SIOR), in its SIOR Commercial Real Estate Index, a separate attitudinal survey of approximately 600 local market experts, also expects a lower level of business activity in upcoming quarters. The SIOR index has declined for 7 consecutive quarters and is 33.6 percentage points below the 100 point criteria that represents a balanced marketplace. NAR s commercial leading indicator 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 and slowdowns in commercial real estate. The 13 series in the index are industrial production, the NAREIT (National Association 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. 2Q Q Q Q Q Q Q Q Source: NAR. Commercial Leading Indicator More than 80,000 NAR members offer commercial services, and 60,000 of those are currently members of the REALTORS Commercial Alliance, NAR s commercial division. Index This information is reproduced in part from the December 2008 Commercial Real Estate outlook, a newsletter published by the REALTORS Commercial Alliance and with their permission Source: NAR. 11

13 NationalMarketAnalysis < $2 Million National Transaction Breakdown 12-Month Trailing Averages (01/01/08-12/31/08) Office Industrial Retail Apartment Hotel Volume (Mil) $1,887 $3,303 $3,647 $1,556 $94 Size Weighted Avg. ($ per sf/unit) $97 $53 $90 $51,952 $25,995 Price Weighted Avg. ($ per sf/unit) $135 $86 $133 $76,651 $33,466 Median ($ per sf/unit) $102 $63 $91 $59,950 $27,273 $2 - $5 Million Volume (Mil) $3,346 $4,873 $5,600 $3,758 $589 Size Weighted Avg. ($ per sf/unit) $132 $63 $143 $66,439 $39,804 Price Weighted Avg. ($ per sf/unit) $202 $107 $246 $110,531 $53,453 Median ($ per sf/unit) $173 $84 $210 $96,739 $43,085 > $5 Million Volume (Mil) $62,089 $18,035 $18,375 $36,307 $11,517 Size Weighted Avg. ($ per sf/unit) $261 $72 $177 $97,220 $166,087 Price Weighted Avg. ($ per sf/unit) $493 $116 $335 $184,207 $278,896 Median ($ per sf/unit) $199 $85 $228 $90,689 $113,636 All Transactions Volume (Mil) $67,322 $26,211 $27,622 $41,621 $12,201 Size Weighted Avg. ($ per sf/unit) $238 $67 $151 $90,487 $139,015 Price Weighted Avg. ($ per sf/unit) $468 $111 $290 $173,534 $266,116 Median ($ per sf/unit) $144 $72 $127 $81,432 $74,074 Capitalization Rates (All Transactions) Range (%) Weighted Avg. (%) Median (%) Source: RERC. Investment Conditions Ratings * - 4Q Q Q Q Q Q 2007 Office Industrial Retail Apartment Hotel *Ratings are averages based on responses to surveys from CCIM designees and candidates for fourth quarter Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent. 12

14 NationalMarketAnalysis < $2 Million National Transaction Breakdown Current Quarter Rates (10/01/208-12/31/08) Office Industrial Retail Apartment Hotel Volume (Mil) $353 $728 $751 $266 $11 Size Weighted Avg. ($ per sf/unit) $98 $53 $88 $54,316 $28,400 Price Weighted Avg. ($ per sf/unit) $137 $85 $131 $77,051 $32,926 Median ($ per sf/unit) $100 $63 $90 $59,781 $30,702 $2 - $5 Million Volume (Mil) $644 $969 $1,076 $668 $130 Size Weighted Avg. ($ per sf/unit) $126 $62 $138 $71,394 $35,362 Price Weighted Avg. ($ per sf/unit) $202 $96 $245 $121,166 $46,963 Median ($ per sf/unit) $174 $80 $202 $103,261 $32,800 > $5 Million Volume (Mil) $7,199 $2,620 $3,157 $4,109 $1,772 Size Weighted Avg. ($ per sf/unit) $205 $73 $167 $95,645 $167,478 Price Weighted Avg. ($ per sf/unit) $332 $124 $348 $138,259 $214,313 Median ($ per sf/unit) $174 $85 $207 $91,687 $123,495 All Transactions Volume (Mil) $8,196 $4,317 $4,985 $5,043 $1,914 Size Weighted Avg. ($ per sf/unit) $187 $66 $141 $88,145 $130,531 Price Weighted Avg. ($ per sf/unit) $314 $111 $293 $132,769 $201,859 Median ($ per sf/unit) $143 $69 $118 $79,194 $77,389 Capitalization Rates (All Transactions) Range (%) Weighted Avg. (%) Median (%) Source: RERC. 13

15 NationalOfficePropertySector CCIM designees and candidates who responded to RERC s survey rated the investment conditions for the office market at 3.2 on a scale of 1 to 10, with 10 being high, during fourth quarter This rating was a full-point drop from the previous quarter s rating, and is the second lowest rating among all property types. The office sector has continued to slow over the fourth quarter 2008, according to RERC s transaction analysis. The 12-month trailing volume and size-weighted average price per square foot both decreased, while the weighted average and median capitalization rates increased. The current quarterly size-weighted average price per square foot decreased significantly from the previous quarter. Return versus risk in the office sector was rated at 3.8 on a scale of 1 to 10, with 10 being high, during fourth quarter This was the second lowest rating among the property types. The value versus price rating was 4.3, which was a slight increase from the previous rating. The office and industrial markets were the only property types to received increased value versus price ratings during fourth quarter. 7.5% 7.0% 6.5% RERC Weighted Average Capitalization Rate South East West Midwest National 7.5% 7.0% 6.5% According to Torto Wheaton Research, the overall vacancy rate for the office sector increased by 50 basis points to 14.0 percent during fourth quarter After increasing slightly during third quarter, fourth quarter net absorption slowed to a level that has not been seen since first quarter % 6.0% 5.5% 5.0% 4.5% 5.5% 5.0% 4.5% Most survey respondents in all regions of the country see the office sector as being overbuilt, overpriced, and seeing downward pressure on rents due to high vacancies and high unemployment. Expect this trend to continue. RERC Size-Weighted Average PPSF RERC Price-Weighted Average PPSF $400 $350 South East West Midwest National $400 $350 $750 $650 East South National Midwest West $750 $650 $300 $300 $550 $550 $250 $250 $450 $350 $450 $350 $200 $200 $250 $250 $150 $150 $150 $150 $100 $100 $50 $50 14

16 NationalIndustrialPropertySector 9.0% 8.5% 8.0% RERC Weighted Average Capitalization Rate South East West Midwest National 9.0% 8.5% 8.0% CCIM respondents to RERC s survey rated the investment conditions for the industrial market at 4.2 on a scale of 1 to 10, with 10 being high, during fourth quarter This rating was a slight decrease from the previous quarter s rating of 4.6. RERC s transaction analysis during fourth quarter 2008 posted declines in the volume and size-weighted average price per square foot for 12-month trailing and quarterly results. The quarterly weighted-average capitalization rate increased by 40 basis points during fourth quarter, while the 12-month trailing weighted average capitalization rate showed a slight decline. At 4.6 on a scale of 1 to 10, with 10 being high, the industrial sector received the second highest return versus risk rating during fourth quarter This rating was down from the previous quarter s rating of 5.1, indicating the investors believe the return on industrial properties is now less than the amount of risk involved. At 4.7, the industrial sector also earned the second highest value versus price rating. The availability rate for industrial space increased by 60 basis points to 11.3 percent during fourth quarter 2008, reported Torto Wheaton Research. Net absorption in the industrial sector posted a negative number that has not been seen since second quarter % 7.5% 7.0% 6.5% 6.0% 7.0% 6.5% 6.0% For the most part, industrial is seeing long lag times on filling vacancies with tenants dependent on national production to increase. However, in some areas, industrial property is starting to stabilize. RERC Size-Weighted Average PPSF RERC Price-Weighted Average PPSF $140 $120 South East West Midwest National $140 $120 $200 $150 South East West Midwest National $200 $150 $100 $100 $100 $100 $80 $80 $60 $60 $50 $50 $40 $40 $0 $0 15

17 NationalRetailPropertySector CCIM designees and candidates who responded to RERC s investment survey gave the retail sector an investment conditions rating of 3.0 on a scale of 1 to 10, with 10 being high, during fourth quarter This was the lowest rating among the property types. According to RERC s transaction analysis, the 12-month trailing and quarterly size-weighted average price per square foot of retail space decreased during fourth quarter 2008, although the quarterly price had a much larger drop. Both the 12-month trailing and quarterly weighted average capitalization rates increased from the previous quarter s rates. Retail availability increased by 50 basis points to 9.8 percent, according to Torto Wheaton Research. In addition, net absorption of retail space was negative for the first time since Torto Wheaton began tracking net absorption in % 7.0% RERC Weighted Average Capitalization Rate South East West Midwest National 7.5% 7.0% The retail sector received a return versus risk rating of 3.3 on a scale of 1 to 10, with 10 being high, during fourth quarter, down drastically from the previous quarter s rating of 4.6 and indicating that the return for retail property investment is much less than the amount of risk perceived. The value versus price rating for retail properties was 3.8, indicating that investors believe the value of retail properties is less than the price being asked. 6.5% 6.0% 5.5% 6.5% 6.0% 5.5% The retail sector is the main property type regardless of region in the country that should be avoided. Retail is continuing to get a pounding by the down economy, and no one knows what retailers will be going out of business next. RERC Size-Weighted Average PPSF RERC Price-Weighted Average PPSF $250 South East West Midwest National $250 $400 $350 South East West Midwest National $400 $350 $200 $200 $300 $300 $150 $150 $250 $250 $200 $200 $100 $100 $150 $150 $50 $50 $100 $100 16

18 NationalApartmentPropertySector CCIM members gave the apartment sector an investment conditions rating of 5.7 on a scale of 1 to 10, with 10 being high, during fourth quarter Although this was the highest rating among the various property types, it is down somewhat from the previous quarter s rating of 6.2. RERC s transaction analysis during fourth quarter 2008 posted mixed results for the apartment sector. The 12- month trailing size-weighted price per unit and the quarterly size-weighted price per unit decreased. Interestingly however, the weighted average capitalization rates decreased for the 12-month trailing and quarterly results. The transaction volume for apartments during fourth quarter decreased significantly. The 12-month trailing volume decreased almost 30 percent, while the quarterly volume decreased more than 50 percent. According to Reis, Inc., the average vacancy rate for the apartment sector increased by 40 basis points to 6.6 percent during fourth quarter The sector also saw negative net absorption for the quarter. 7.5% 6.5% 5.5% RERC Weighted Average Capitalization Rate South East West Midwest National 7.5% 6.5% 5.5% CCIM members rated return versus risk for the apartment sector at 5.8 on a scale of 1 to 10, with 10 being high, during fourth quarter 2008, indicating their view that the return on apartment properties is greater than the amount of risk involved. Value versus price was rated at 4.8 for the apartment sector, down from the previous quarter s rating of 5.0. This reflects respondents belief that the value of apartment properties is lower than the price paid. 4.5% 3.5% 4.5% 3.5% Survey respondents continue to recommend investing in apartments, stating that the housing correction will be around for awhile and this sector is the most stable. However, some areas are starting to see overbuilding in this property type. $150,000 $125,000 RERC Size-Weighted Average PPU South East West Midwest National $150,000 $125,000 $300,000 $250,000 RERC Price-Weighted Average PPU South East West Midwest National $300,000 $250,000 $200,000 $200,000 $100,000 $100,000 $150,000 $150,000 $75,000 $75,000 $100,000 $100,000 $50,000 $50,000 $50,000 $50,000 17

19 NationalHotelPropertySector CCIM designees and candidates gave the hotel sector an investment conditions rating of 3.5 on a scale of 1 to 10, with 10 being high, during fourth quarter This rating decreased from the previous quarter s rating of 4.6. According to Smith Travel Research, the 2008 hotel occupancy rate was 60.4 percent, 4.2 percent lower than the prior year s rate. December 2008 hotel occupancy ended at 45.3 percent, down 6.8 percent from December 2007 occupancy. The average daily rate (ADR) decreased to $99.42 during December from year-over-year levels. December revenue per available room (RevPAR) decreased from year-ago levels by 9.7 percent to $ The 12-month trailing transaction volume for the hotel sector decreased by more than 50 percent during fourth quarter Current quarter transaction volume also declined. The size-weighted average price per hotel unit decreased on both a 12-month trailing and a quarterly basis. However, while the quarterly weighted average capitalization rate increased, the 12-month trailing weighted average capitalization rate decreased. RERC Weighted Average Capitalization Rate 9.5% 9.5% South West National 9.0% East Midwest 9.0% 8.5% 8.5% The return versus risk for hotel properties was rated at 4.1 on a scale of 1 to 10, with 10 being high, during fourth quarter 2008, indicating that CCIM members believe the return is less than the amount of risk involved with hotel investments. The value versus price rating was also 4.1, which is unchanged from the previous quarter. 8.0% 8.0% 7.5% 7.0% 6.5% 6.0% 7.5% 7.0% 6.5% 6.0% Much like retail, the hotel sector depends on consumer spending, and there are too many negative factors in the market place for this to change anytime soon. Hotels will not recover quickly and do not offer as much downside protection as some other property types. $350,000 $300,000 RERC Size-Weighted Average PPU South East West Midwest National $350,000 $300,000 $1,000,000 $800,000 RERC Price-Weighted Average PPU South East West Midwest National $1,000,000 $800,000 $250,000 $250,000 $600,000 $600,000 $200,000 $200,000 $150,000 $150,000 $400,000 $400,000 $100,000 $100,000 $200,000 $200,000 $50,000 $50,000 $0 $0 18

20 Columbus Thrives in the Center of It All By Edward M. Bury, APR Ask someone to name the marquee city in the State of Ohio, and more than likely the answer will be Cleveland, located in the northern part of the state along Lake Erie, or Cincinnati, located in the southern part along the Ohio River. But it s that other major Ohio city that begins with the letter c Columbus that truly has emerged as the leading metropolitan center in the Buckeye state. Its neighbors may have larger market areas, but Columbus as a city emerged in the 1990s as the state s leading municipality. From a regional perspective, Left: Ohio State Capitol Building the so-called Arch City has grown to be one of the most dynamic in the Midwest. Located near the geographic center of Ohio, Columbus can boast a diversified economy that has helped the city progress while neighbors in the so-called Rust Belt of the industrial Midwest have stumbled. Much of the city s economic success centers on service-sector jobs: Columbus s economy has a high concentration in white-collar employment at 60 percent, compared to 51 percent nationwide. Smart government policies on growth Columbus has thwarted rapid suburbanization by linking water and sewer infrastructure to annexation into the city has helped the municipality grow into Ohio s largest in population and land area and preserve the all-important tax base. From a national perspective, 19

21 the city has 747,000 residents, ranking 15th in the U.S. Columbus is the fourth most populous capital in the nation. State government and education offer a tremendous economic and employment base to the city. The State of Ohio employs more than 26,000 persons in Columbus. Education is the second biggest employer, specifically The Ohio State University, a leading Big Ten school that itself employs more than 20,000. Other large non-governmental employers center on professional services, including financial giants JP Morgan Chase and Nationwide, and automaker Honda of America. One growing area of economic development centers on entrepreneurial growth and technology. Leading the charge on the high tech/research front is Battelle, an international science and technology enterprise dedicated to a wide range of research from biotechnology and supercomputing to clean energy, health care, and global security. The Ohio State University and four nationally recognized hospital systems also contribute to the Columbus technology corridor through advances in research and life sciences. The city s location puts it roughly between New York and Chicago, or within 550 miles of half the population in the U.S. In fact, being in the center of things was the key reason the site of modern Columbus was selected for Ohio s capital city in 1816, and it is one of the reasons why the city is a transportation hub. In the early 19th century, Columbus was connected to the Ohio River and Erie Canal by way of a feeder canal. Then, the railroads connected Columbus to Illinois and the western U.S. Today, the city is served by modern highway and rail networks, as well the Columbus Regional Airport Authority, which operates three airports and provides a tremendous impact: 30,000 jobs, $793.1 million in payroll, and $2.7 billion in annual economic activity. Like any vibrant metropolis, Columbus has an active downtown, one that remains a work in progress. Master planned developments like the Arena District, a 75-acre mixed-use site, has brought retail, office, entertainment, and residential properties to the site of a former penitentiary. Built in true New Urbanism style, the district as its name indicates also is the site of the new Nationwide Arena, home to the city s professional ice hockey and arena football teams. However, plans to build a streetcar line have remained unfulfilled, and iconic ties to the city s past, like the classic Union Station rail terminal, have been lost to the bulldozer. Plus, new, upscale suburban developments, especially retail malls, have played a role in inhibiting downtown growth. Still, many historic neighborhoods near downtown Short North and Victorian Village, to name a few have been rediscovered and remain hot for redevelopment. < $5 Million Columbus Transaction Breakdown (01/01/08-12/31/08) Office Industrial Retail Apartment Hotel Volume (Mil) $78 $73 $55 $36 Size Weighted Avg. ($ per sf/unit) $81 $34 $137 $34,777 Price Weighted Avg. ($ per sf/unit) $115 $43 $230 $42,988 Median ($ per sf/unit) $106 $43 $114 $32,500 > $5 Million Volume (Mil) $80 $163 $83 $455 Size Weighted Avg. ($ per sf/unit) $92 $40 $161 $63,057 Price Weighted Avg. ($ per sf/unit) $109 $43 $231 $63,841 Median ($ per sf/unit) $103 $45 $211 $64,976 All Transactions Volume (Mil) $158 $236 $138 $491 Size Weighted Avg. ($ per sf/unit) $86 $38 $150 $59,507 Price Weighted Avg. ($ per sf/unit) $112 $43 $230 $62,312 Median ($ per sf/unit) $105 $44 $123 $63,608 Capitalization Rates (All Transactions) Weighted Average (%) Median (%) Source: RERC. Above: Leveque Tower With its near 200-year history, stable economy, and prized location, expect Columbus to remain Ohio s central city for decades to come. 20

22 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 21

23 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. 22

24 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 23

25