SOUTHERN CALIFORNIA INDUSTRIAL Prepared for NCREIF

Transcription

1 SOUTHERN CALIFORNIA INDUSTRIAL Prepared for NCREIF Prepared by: Barbara Emmons Perrier Vice Chairman (213)

2 NATIONAL FUNDAMENTAL SUMMARY Industrial market conditions will remain favorable through Stats: National Occupancy 95.1% Rent Growth - Net asking rents grew 6.3% Completions 185 MSF Nationwide Absorption 257 MSF Top 5 markets in absorption DFW MSF Central/East PA 20.2 MSF Chicago 19.7 MSF Inland Empire 17.1 MSF Atlanta 17.0 MSF

3 LARGEST 30 INDUSTRIAL MARKETS The U.S. industrial market is the largest in the world, with approximately 13.3 B sf of space.

4 WHY U.S. INDUSTRIAL INVESTMENT? Compelling Market Factors 1. Supply/demand balance favorable 2. Rent and NOI growth above historic norms 3. Strong returns NCREIF returns above historical averages 4. Space demand is healthy short-term and longer term One Challenge 1. Pricing Competitive, especially for bulk assets Opportunities 1. Portfolio and platform opportunities exist in the market

5 U.S. INDUSTRIAL RENT GROWTH Rents grew 6.3% year-over-year The largest annual growth since 2007! Source: CBRE Econometric Advisors, Q

6 U.S. SUPPLY IS GROWING BUT MUCH SLOWER THEN IN THE PAST Deliveries (MSF) % of Stock 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: CBRE Econometric Advisors Deliveries (MSF) % of Stock

7 U.S. MARKET FUNDAMENTALS: SUPPLY New Deliveries (MSF) Development Headwinds 1. Capital Markets 2. Consolidation of Developers 3. Institutional Developers - More Cautious 4. Availability of Land 5. Entitlement Issues YTD Source: CBRE Econometric Advisors, Q Actual Avg ('00-'15)

8 WHERE IS THE CONSTRUCTION? 71% OF PIPELINE IN JUST EIGHT MARKETS CENTRAL NEW JERSEY 9 21 INLAND EMPIRE 8 KANSAS CITY CHICAGO PHILADELPHIA (Measured MSF) Source: CBRE Research, Q DALLAS/FT. WORTH 19 7 HOUSTON ATLANTA 13

9 TOP TEN LARGEST U.S. INDUSTRIAL MARKETS U.S. Rank Metropolitan Statistical Area Inventory (SF x 1000) YTD Completions (SF x 1000) YTD Net Absorption (SF x 1000) Availability (%) Net Asking Rent ($) 1 Chicago 1,234,071 15,937 19, % $ Los Angeles 1,002,082 3,249 3, % $ Dallas/Ft. Worth 744,001 23,733 25, % $ Atlanta 574,381 20,874 17, % $ Detroit 506,347 2,283 4, % $ Houston 504,373 13,600 10, % $ Inland Empire 485,530 20,560 13, % $ Philadelphia 470,132 21,920 20, % $ New Jersey Central New Jersey Northern 405,739 3,756 4, % $ , (1,416) 7.5% $0.57

10 IS OVERSUPPLY A RISK? IF NONE OF THE 195 MSF PIPELINE LEASED? 4.9% Current Vacancy 6.3% Worst-case Vacancy 15% Below 10 Year Average

11 WHO IS DRIVING THE DEMAND NATIONALLY? E-Commerce 3PL 50% of largest deals Food/Bev Consumer Goods Source: CBRE Research Top 25 Deals,

12 E-COMMERCE HIGHLIGHTS E-COMMERCE HAS CREATED AN UNPARALLELED DRIVER OF DEMAND FOR INFILL INDUSTRIAL REAL ESTATE IN RECENT YEARS 33% AMAZON $87.6B GROWTH IN E-COMMERCE SALES FROM 2014 TO % REMAINING TOP 100 E-TAILERS $64.6 INCREASE FORECASTED OVER THE NEXT 5 YEARS 12

13 E-COMMERCE HIGHLIGHTS U.S. E-COMMERCE SALES ($ BILLIONS) AND PERCENT OF TOTAL RETAIL SALES 8.8% $ % % Retail Sales E-Commerce Sales $ % $ % $ % Q Q Q Q Q Q Q Q $70.0 Source: U.S. Census Bureau, December HOLIDAY SPENDING BY CHANNEL Online In Store Other Source: Deloitte 2016 Holiday Survey 13

14 INDUSTRIAL CAPITAL MARKETS 14

15 TOTAL U.S. INDUSTRIAL ACQUISITIONS ANNUAL INDUSTRIAL VOLUME WAS UP $59.2 BILLION IN SECOND HIGHEST VOLUME SINCE 2007 Source: CBRE Research, Real Capital Analytics, Q Source: RCA. Excluding Entity Level Transactions Including Entity Level Transactions 2007 $60.8 B $64.6 B 2014 $49.8 B $53.1 B 2015 (peak) $77.5 B $98.0 B 2016 $58.9 B $62.0 B 2015 vs % -36.7%

16 TOTAL U.S. INDUSTRIAL ACQUISITIONS NATIONAL PARTNERS IS A GOOD PROXY FOR INDUSTRIAL TRANSACTION VOLUME ACROSS THE COUNTRY No. Of Transactions Square Feet (in millions) Consideration (in billions) $ $10.1 Closed Due Diligence or In Escrow Marketing Packaging 2017 $1.5 B $1.3 B in DD $935 escrow $980 M $1.1 B

17 SURETY OF CLOSE/RE-TRADE ACTIVITY CBRE RECENT PRICING POST ELECTION AS OF JANUARY 11, 2017 Awarded Stretch Pricing Target Below Expectation Purchaser Waived Due Diligence Retrade Due to Debt Repricing Northeast Southeast North Central Southwest West Multi-market Portfolios Total PERCENT OF TOTAL 46% 46% 8% 10%

18 SURETY OF CLOSE/RE-TRADE ACTIVITY CBRE RECENT PRICING LAST 30 DAYS AS OF FEBRUARY 27, 2017 Awarded Stretch Pricing Target Below Expectation Purchaser Waived Due Diligence Retrade Due to Debt Repricing Northeast Southeast North Central Southwest West Multi-market Portfolios Total PERCENT OF TOTAL 45% 55% 0% 0%

19 TRENDS Expected continued rise in interest rates, however cap rate increases muted by strong capital flows Significant capital targeting industrial product including new capital previously allocated to other product types Open Ended Funds redemption requests are being balanced by new investment queues Capital chasing new Operator / Development partners & development deals Class A in high demand and widening cap rates between Class A and Class B that is on the margin U.S. real estate remains attractive to foreign buyer and smaller deals are getting traction Moderated new construction with continued rise in construction costs Replacement cost is a moving target and infill land is very difficult to purchase

20 CLASS A CAP RATE SURVEY (Q416)

21 CLASS B CAP RATE SURVEY (Q416)

22 CBRE AMERICAS INVESTOR INTENTIONS SURVEY ,000 INVESTORS FOCUSED ON THE AMERICAS IN 2017 Among the 5 different asset types by strategy, value-add remains the preferred strategy (39%), similar to 2016 levels Reversing 2016 trends, industrial is the most attractive property type for investment in 2017, replacing multifamily L.A. is the top-ranked metro for property investment, followed by Dallas/Ft. Worth and New York. Washington, D.C. moved up to 4th place in 2017 from 8th in 2016 Concern that property is overpriced and a bubble waiting to burst is a distant third among the list of potential threats Slow global economic growth undermining occupier demand was identified as the greatest risk factor, followed by rising interest rates

23 . Western U.S 23

24 COMMON THEMES WEST COAST Demand is Strong Lack of Land & Record Pricing Rents & Sale Prices Rising - continue to appreciate 5-10% in most markets Tenant concessions going away for quality product Development and construction costs increasing Industrial is the new retail - Last Mile & E- Commerce value location over building functionality 24

25 VACANCY RATE SUMMARY WESTERN U.S. 27 SUBMARKETS <2% < 4% <6% <8% Central Valley Commerce/Vernon DTLA Greater Airport Area Greater SFV Mid-Counties North OC San Gabriel Valley SF East Bay Silicon Valley South Bay West OC Inland Empire West Portland Reno South OC Salt Lake City Ventura 6 Central San Diego Denver Las Vegas North San Diego Seattle 5 Inland Empire East Phoenix Sacramento South San Diego

26 RENT GROWTH - % INCREASE FROM WESTERN U.S. (2.9%) 4% 4% - 6% 7% - 11% 11% - 19% Denver Central San Diego Sacramento South OC Ventura 5 Greater SFV Reno Salt Lake City Seattle 4 Commerce/Vernon DTLA Las Vegas North OC Phoenix Portland San Gabriel Valley 7 Central Valley Greater Airport Area Inland Empire East Inland Empire West Mid-Counties North San Diego SF East Bay Silicon Valley South Bay South San Diego West OC 11 26

27 COMMON OPPORTUNITIES WEST COAST Purchase older and functionally obsolete industrial product and redevelop to a higher and better uses Redevelopment of infill sites as land prices continue to rise Consider raising roofs on highly functional Class B & C buildings? Reconfiguring Class B and C space to meet market demand Focus on industrial properties in secondary markets Acquire buildings under 300,000 due to anticipated rent growth

28 COMMON ACTIVE INDUSTRIES E-Commerce 21% Other 37% Western US 27 Markets Food/ Beverage/ Grocery 29% Consumer Goods 11% 3PLs 21% Source: Based on Brokers assumptions in this presentation. 28

29 Southern California 29

30 SOUTHERN CALIFORNIA SNAPSHOT 2017 Forecast Base 1.93 Billion SF 1.90 Billion SF Availability 5.1% 5.9% Vacancy 2.3% 2.7% Net Absorption Amount Under Construction Amount of New Completed Construction 22.8 Million SF 35.3 Million SF 26.9 Million SF 25.8 Million SF 24.8 Million SF 26.6 Million SF 30

31 FUNDAMENTAL DRIVERS OF SOCAL MARKET 1) Ports of LA and Long Beach 40-50% of goods stay in California 2) Strong Infrastructure Freeways Rail Alameda Corridor Intermodal Yards 3) Population 22.5 Million* People in SoCal 39.5 Million People in California 5) Barriers to Entry 6) E-Commerce *includes Santa Barbara, Ventura, Los Angeles, San Bernardino, Riverside, Orange, San Diego and Imperial Counties

32 GLA/IE/OC E-COMMERCE HIGHLIGHTS SF OF E-COMMERCE RELATED TRANSACTIONS VS. TOTAL ACTIVITY (TOTAL SF TRANSACTED) 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 29.2% 35.1% 39.3% 37.7% 0.0% Source: CBRE Research, Oct/Nov

33 GLA/IE/OC E-COMMERCE HIGHLIGHTS NUMBER OF E-COMMERCE RELATED TRANSACTIONS VS. TOTAL ACTIVITY (TOTAL # OF TRANSACTIONS) 20% 18% 16% 17% 19% 19% 14% 12% 10% 8% 12% Greater LA Orange County Inland Empire 6% 4% 2% 3% 3% 4% 4% 4% 5% 4% 5% 0% Source: CBRE Research, Oct/Nov

34 GLA/IE/OC E-COMMERCE HIGHLIGHTS SF OF E-COMMERCE RELATED TRANSACTIONS VS. TOTAL ACTIVITY (TOTAL SF TRANSACTED) 70% 60% 50% 51% 56% 59% 58% 40% 30% 20% 15% 15% 23% 17% 17% 30% 19% 16% 10% 0% Source: CBRE Research, Oct/Nov

35 SOUTH BAY 35

36 SOUTH BAY BASE 218 Million SF Forecast MARKET OVERVIEW Availability 2.7% 4.5% Vacancy 0.8% 0.9% Avg. Asking Lease Rate $0.75 NNN $0.65 NNN Net Absorption Gross Activity 1.13 MSF 1.44 MSF 9.75 MSF MSF 36

37 SOUTH BAY Size Class A Class B 10, ,000 SF $0.83 NNN $0.73 NNN MARKET DYNAMICS 100,000 SF & Above $0.78 NNN $0.67 NNN Gross absorption down due to lack of available product Rental Rates for Class A continue to increase due to lack of product Tenants forced to absorb high OPEX Development of 1.8 MSF under construction Land Values High $40.00/SF Mid $30.00/SF 37

38 SOUTH BAY TENANCY OVERVIEW Active Industries E-Commerce 3PL Food Retailers - Garment Strengths Class A & B lease rates increase 15% in 2016 Weakness Lack of functional 2 nd generation product Continued growth of TEU import counts at the Ports of LA and Long Beach 38

39 SOUTH BAY Seller: S. Normandie Avenue Torrance, CA Farmer Brothers INVESTMENT SALE Buyer: Bridge Development Purchase Price: $42,582,816 PSF: Cap Rate: SF: $48 LAND SALE N/A Acres Status: Closed 8/16 Comments: Plans to build a 512,490 SF Class A Industrial Building (58% coverage).

40 DOWNTOWN LOS ANGELES 40

41 DOWNTOWN LOS ANGELES BASE 32 Million SF Forecast MARKET OVERVIEW Availability 5.6% 5.8% Vacancy 1.9% 2.2% Avg. Asking Lease Rate $0.86 NNN $0.78 NNN Net Absorption 195,135 SF (21,170 SF) Gross Activity 1,586,914 SF 3,071,017 MSF 41

42 DOWNTOWN LOS ANGELES MARKET DYNAMICS Size Built Post 1980 s Built Pre 1980 s 10, ,000 SF $0.87 NNN $0.73 NNN 100,000 SF & Above NONE $0.41 NNN Diminishing industrial gross base Will continue to see rental growth Tenants are competing for limited space Industrial buildings are being redeveloped for higher and better uses Flight to quality in a market where the majority of product was built pre-1980s Land Values $ $350.00/SF $ $250.00/SF 42

43 DOWNTOWN LOS ANGELES TENANCY OVERVIEW Active Industries Produce Garment E-Commerce Self-Storage Strengths Ideal Last Mile location for servicing LA Basin. All major freeways connect to Downtown Los Angeles All metro lines lead to Downtown Los Angeles (Convenient public transportation) Weakness Increase in minimum wage Lack of functional product City of Los Angeles gross receipts tax and utilities continue to rise 43

44 DOWNTOWN LOS ANGELES INVESTMENT SALE Seller: Buyer: 2008 E. 8 th Street Los Angeles, CA Tribune Media Harridge Development Group Purchase Price: $120,000,000 PSF: $175 Cap Rate: 3.2% SF: 684,491 Status: Sold 03/2016 Comments: Additional parking income for front 5 acre parcel not included 3.2% Cap Rate 44

45 COMMERCE/VERNON 45

46 COMMERCE/VERNON BASE 162 Million SF Forecast MARKET OVERVIEW Availability 4.5% 4.7% Vacancy.9% 1.3% Avg. Asking Lease Rate $0.68 NNN $0.63 NNN Net Absorption Gross Activity (274,808) SF 288,020 SF 8.6 MSF 10.4 MSF 46

47 COMMERCE/VERNON MARKET DYNAMICS Size Class A Class B 10, ,000 SF $0.75 NNN $0.65 NNN 100,000 SF & Above $0.72 NNN $0.60 NNN Vacancy is at an all time low Rental Rates are at an all time high Tenant s are very active on Class A product Development has slowed down in 2016 Minimal land sites available Land Values $ $45.00/SF $ $37.00/SF 47

48 COMMERCE/VERNON TENANCY OVERVIEW Active Industries E-Commerce Food Processing Logistics Strengths Increased Rental Rates Attractive Location Vernon- Lower Power Costs Weakness Limited Product Available Old Buildings 48

49 COMMERCE/VERNON INVESTMENT SALE Seller: Buyer: 6130 Sheila Street Commerce, CA Guardian Life Church of Scientology Purchase Price: $32,500,000 PSF: $ Cap Rate: 3.9% SF: 184,772 Status: Closed 6/16 Comments: Class A industrial building. 100% leased to the Church of Scientology through 6/ % Cap Rate 49

50 MID-COUNTIES 50

51 MID-COUNTIES BASE 134,554,932 SF Forecast MARKET OVERVIEW Availability 2.3% 2.0% Vacancy 0.74% 0.94% Avg. Asking Lease Rate $0.71 NNN $0.62 NNN Net Absorption Gross Activity -87,921 1,956,000 5,684,665 7,595,037 51

52 MID-COUNTIES MARKET DYNAMICS Size Class A Class B 100,000 SF & Above $ $0.75 NNN $ $0.63 NNN Effective NNN lease rates still trending upward Previous Peak: $0.64 Trough: $ $0.69 surpassed previous peak Asking lease rates and sale prices are at historic highs and continue to increase in all size ranges Concessions have evaporated due to extremely limited supply and strong demand Land Values $ $50.00/SF $ $33.00/SF 52

53 MID-COUNTIES TENANCY OVERVIEW Active Industries Third Party Logistics Packaging Manufacturing & Distribution E-Commerce Consumer Goods & Household Products Food & Beverage Strengths Center of So. Cal. Pulling from L.A. and O.C. 17M Consumers with 60 Miles Lack of Land Weakness Close Proximity to Ports Strong & Diverse Labor Pool 53

54 MID-COUNTIES INVESTMENT SALE Seller: Buyer: Cerritos Corporate Center Cerritos, CA Crowsnest Black Equities Purchase Price: $61,625,000 PSF: $ Cap Rate: 5.2% SF: 452,588 Status: Closed 9/16 Comments: Multi-tenant industrial 5.2% \R&D flex park includes 7 buildings 96% leased to 14 tenants. Cap Rate 54

55 SAN GABRIEL VALLEY 55

56 SAN GABRIEL VALLEY BASE 151 Million SF Forecast MARKET OVERVIEW Availability 3.2% 3.2% Vacancy 0.9% 0.8% Avg. Asking Lease Rate $0.70 NNN $0.65 NNN Net Absorption Gross Activity 2.19 MSF 2.52 MSF 6.39 MSF 7.56 MSF 56

57 SAN GABRIEL VALLEY MARKET DYNAMICS Size Class A Class B 10, ,000 SF $0.68 NNN $0.65 NNN 100,000 SF & Above $0.65 NNN $0.60 NNN Continued low vacancy for all sizes causing rise in lease rates and sales prices Land prices exceeding all historical values (City of Industry redevelopment land) New construction absorbed prior to completion Record low cap rates (sub 4%) Increase renewals due to lack of available product Land Values $ $40.00/SF $ $30.00/SF 57

58 SAN GABRIEL VALLEY TENANCY OVERVIEW Active Industries 3PL E-Commerce/ fulfillment Warehouse/Distribution electronics, furniture, consumer products Food-related companies Strengths Continued user/tenant demand for Class A & Class B product Weakness Lack of product for smaller buildings under 50K SF Immediate absorption of available space in all sizes Lack of solid investment opportunities Few remaining land sites 5+ acres 58

59 SAN GABRIEL VALLEY INVESTMENT SALE Seller: Buyer: Louden Lane City of Industry, California CT Realty AFL-CIO Bldg. Investment Trust Purchase Price: $29,050,560 PSF: $ Cap Rate: 4.45% SF: 168,000 Status: Sold 08/ % Comments: 100% Leased to Single Tenant (Wayfair.com), Divisible into 2 units Cap Rate 59

60 INLAND EMPIRE WEST 60

61 INLAND EMPIRE WEST BASE 278 Million SF Forecast MARKET OVERVIEW Availability 5.7% 5.9% Vacancy 2.1% 1.7% Avg. Asking Lease Rate $0.57 NNN $0.48 NNN Net Absorption Gross Activity 8.84 MSF MSF MSF MSF 61

62 INLAND EMPIRE WEST MARKET DYNAMICS Current Asking Lease Rates Size Class A Class B 10, ,000 SF $0.61 NNN $0.51 NNN 100,000 SF & Above $0.49 NNN $0.41 NNN 2.1% current vacancy rate - Third lowest vacancy rate since 4 th quarter 2007 The combination of an active pipeline, low vacancy and new construction typically leads to higher rents Difficulty finding quality land sites for development Approximately 70% of all transactions are for buildings 100,000 square feet and below Land Values $ $25.00/SF $ $21.00/SF 62

63 INLAND EMPIRE WEST TENANCY OVERVIEW Active Industries Consumer Products (Durable and Non-Durable) E-Commerce 3 PLS Food and Beverage Strengths The Inland Empire West is comparable to what Orange County was years ago due to its transition into an infill market 28 consecutive quarters of positive net absorption Weakness Difficult to find sites that can accommodate buildings above 500,000 SF More time and increasing costs to process entitlements 63

64 INLAND EMPIRE WEST INVESTMENT SALE Oakmont IE Portfolio Pomona, Fontana, Rancho Cucamonga CA Seller: Buyer: Oakmont Duke Purchase Price: $89,790,000 PSF: $ Cap Rate: 3.9% SF: 751,935 Status: March 2017 Comments: Four newly constructed industrial buildings; 68% leased; 5.9% all cash IRR. 3.9% Cap Rate 64

65 INLAND EMPIRE EAST 65

66 INLAND EMPIRE EAST BASE 207 Million SF Forecast MARKET OVERVIEW Availability 10.1% 8.6% Vacancy 6.5% 5.5% Avg. Asking Lease Rate $0.49 NNN $0.44 NNN Net Absorption Gross Activity 8.29 MSF 9.35 MSF MSF MSF 66

67 INLAND EMPIRE EAST MARKET DYNAMICS Size Class A Class B 10, ,000 SF $0.50 NNN $0.46 NNN 100,000 SF & Above $0.45 NNN $0.39 NNN The recent uptick in the vacancy rate was due to new completions rather then occupancy losses Rents continue to rise for smaller product Strong demand from users for space above 1M square feet Obtaining entitlements is becoming increasingly difficult and costly Land prices affected due to increased development cost 11.4M square feet currently under construction in the IE East Land Values $ $15.00/SF $ $12.00/SF 67

68 INLAND EMPIRE EAST Active Industries TENANCY OVERVIEW Consumer Products (Durable and Non-Durable) E-Commerce 3 PLS Strengths Entitled land sites are becoming very valuable Rents will continue to see growth but slightly lower than the last 12 months Demand for existing product is still very high Weakness Development costs are increasing (LIUNA) which is impacting land values negatively 68

69 INLAND EMPIRE EAST INVESTMENT SALE Seller: Buyer: Mt. Vernon Business Park Riverside, CA Barings DCT Industrial Trust Purchase Price: $24,500,000 PSF: $96.04 Cap Rate: 4.1% SF: 255,106 Status: Closed - 8/16 Comments: Two Class A industrial 4.1% buildings 100% leased to three tenants. Cap Rate 69

70 INLAND EMPIRE EAST INVESTMENT SALE Seller: Buyer: 3900 Indian Avenue Perris, CA Sares Regis Clarion Partners Purchase Price: $51,304,158 PSF: $88.49 Cap Rate: 4.7% SF: 579,780 Status: Closed - 4/16 Comments: Class A industrial 4.7% building 100% leased to National Stores Inc./FP Stores through 11/2025. Cap Rate 70

71 GREATER SAN FERNANDO VALLEY INCLUDING SANTA CLARITA & CONEJO VALLEYS 71

72 GREATER SAN FERNANDO VALLEY BASE 173 Million SF Forecast MARKET OVERVIEW Availability 4.9% 5.7% Vacancy 1.2% 1.2% Avg. Asking Lease Rate $0.77 NNN $0.73 NNN Net Absorption Gross Activity -52, , MSF 4.82 MSF 72

73 GREATER SAN FERNANDO VALLEY MARKET DYNAMICS Size Class A Class B 10, ,000 SF $ $1.00 NNN $ $0.80 NNN 100,000 SF & Above $ $0.89 NNN $ $0.70NNN Historically low vacancy rates Peak market rents due to supply & demand Class A product is difficult to find New developments in Santa Clarita (720,000 SF under construction) and San Fernando Valley (350,000 SF under construction) will help relieve pressure; however, land is limited overall Land Values $ $40.00/SF $ $35.00/SF 73

74 TENANCY OVERVIEW GREATER SAN FERNANDO VALLEY Active Industries Entertainment E-Commerce Aerospace Regional Distribution Strengths Rents are up 11% and sale prices are up 35% since 2011 Multiple large users absorbing large buildings Consumer Goods 3 PLS Movie / Production Companies Weakness Limited Class A product available. Waiting for projects to deliver product. Must relocate to East Valley or Santa Clarita for new product Limited land for redevelopment in core markets. All new product is from expansion markets or East Valley. 74

75 GREATER SAN FERNANDO VALLEY INVESTMENT SALE Seller: Buyer: Conejo Spectrum Thousand Oaks, CA American General Life Insurance Co Majestic Asset Mgmt Purchase Price: $37,000,000 PSF: $ Cap Rate: 6.70% SF: 347,119 Status: Sale Date 09/ % Comments: 100% Leased - Quality Tenants w/ staggered expiration dates Cap Rate 75

76 VENTURA COUNTY 76

77 VENTURA BASE 65 Million SF Forecast MARKET OVERVIEW Availability 5.9% 7.7% Vacancy 3.5% 3.2% Avg. Asking Lease Rate $0.66 NNN $0.68 NNN Net Absorption Gross Activity -168K SF +559K SF 1.95M SF 2.48M SF 77

78 VENTURA Size Class A Class B 10, ,000 SF $0.72 NNN $0.66 NNN MARKET DYNAMICS 100,000 SF & Above $0.64 NNN $0.60 NNN Steady growth in occupancy Lowest vacancy rate (in order): Thousand Oaks at 0.2%, Oxnard at 2.5%, Ventura at 2.8%, Simi Valley at 2.9% Highest rental rate (in order): Westlake Village at $1.22 NNN, Thousand Oaks at $0.97 NNN, Simi Valley at $0.75 NNN Employment in Transportation & Warehousing sector outpaced the County Construction Levels are expected to remain low Limited available Land for Development 78

79 VENTURA TENANCY OVERVIEW Active Industries Manufacturing Technology Packaging Agricultural Processing Job creation Stable demand Strengths Strong User/Sale interest Weaknesses Political Uncertainty Technological Displacement Lack of Class A product 79

80 VENTURA INVESTMENT SALE Seller: Buyer: Ventura County Industrial Portfolio Camarillo & Oxnard, CA BLT Enterprises ZDI Purchase Price: $29,150,000 PSF: $108 Cap Rate: SF: 269, % (weighted on purchase price Status: Closed 2/16 5.7% Comments: 5 building portfolio. 62% leased in Camarillo and Oxnard. Cap Rate 80

81 ORANGE COUNTY 81

82 ORANGE COUNTY BASE MSF Forecast MARKET OVERVIEW Availability 3.4% 4.4% Vacancy 1.6% 1.9% Avg. Asking Lease Rate $0.84 NNN $0.75 NNN Net Absorption Gross Activity +907K SF +2.7 MSF MSF MSF 82

83 ORANGE COUNTY Size Class A Class B 10, ,000 SF $ NNN $ NNN MARKET DYNAMICS 100,000 SF & Above $ NNN $ NNN Tightening vacancy and availability with continued strong user and tenant demand will create spike in rents and sale prices had record lows for vacancy and availability. Pent up Tenant and User demand. Decrease in Tenant concessions, especially on renewal transactions. Surpassed 2007 peak levels on rents by 10% and 20% in sale prices Land Values $ $57.00/SF $ $37.00/SF 83

84 ORANGE COUNTY TENANCY OVERVIEW Active Industries 3PL Paper-Corrugated Grocery/Food Last Mile Fulfillment Strengths Continued demand due to proximity to port, availability of labor, and quality of life Low availability pushing rents and sale prices Consumer Goods Electronics/Technology (Growing) Pharmaceutical & Bio Science Advanced Engineering Weakness Land is scarce with spiking land prices ($55 PSF high) producing barriers to entry and limited redevelopment opportunities Lack of existing product hindering absorption and market activity 84

85 ORANGE COUNTY INVESTMENT SALE Seller: Buyer: Anaheim Concourse Anaheim, CA Panattoni Bentall Kennedy Purchase Price: $188,150,827 PSF: $ Cap Rate: 3.6%. Stabilizing to 4.05% in year 2 SF: 965,255 Status: Closed 9/16 Comments: Seven Class A industrial buildings. 86% leased to seven tenants. LEED Certification. 3.6% Cap Rate 85

86 ORANGE COUNTY INVESTMENT SALE Seller: Buyer: E. Saint Andrew Place Santa Ana, CA Hart Realty Advisors Alere Property Group Purchase Price: $34,335,000 PSF: $ Cap Rate: 4.0% SF: 200,202 Status: Closed 12/16 Comments: High image, Class A 4.0% industrial building. 100% leased to two tenants. Cap Rate 86

87 SAN DIEGO 87

88 SAN DIEGO BASE MSF Forecast MARKET OVERVIEW Availability 7.4% 7.8% Vacancy 4.5% 4.3% Avg. Asking Lease Rate $1.13 NNN $1.10 NNN Net Absorption Gross Activity MSF MSF MSF MSF 88

89 NORTH & CENTRAL SAN DIEGO Size Low Finish High Finish 10, ,000 SF $ NNN $0.90 NNN MARKET DYNAMICS 100,000 SF & Above $ NNN $ NNN Total vacancy is at its lowest since year end 2007 Rental rates have passed the pre-recession peak Tenants have no existing options for Class A warehouse space over 50,000 SF Development pipeline is highest since previous peak, but still very limited Land Values $ $40.00/SF $ $35.00/SF 89

90 NORTH & CENTRAL SAN DIEGO TENANCY OVERVIEW Active Industries Food Services Action Sports Medical Device/Life Science Strengths Demand for Low Finish remains strong Larger Flex leasing activity (50,000 to 75,000 SF) was strong in PL/E-Commerce Aerospace/Defense Construction Supplies/ Home Improvements Weakness Users with near term requirements have limited options 90

91 SOUTH SAN DIEGO MARKET DYNAMICS Size Class A Class B 10,000 50,000 SF $ 0.75 NNN $0.60 NNN 50, ,000 SF $0.65 NNN $0.55 NNN 100,000 SF & Above $0.57 NNN $0.50 NNN Vacancy has decreased Rental rates have increased Cost of construction has increased 10,000 20,000 SF tenants have a difficult time finding any spaces available A small percent of spaces under construction which are in high demand Land Values $ $15.00/SF $ $12.00/SF 91

92 TENANCY OVERVIEW SOUTH SAN DIEGO Active Industries Maquiladoras 3PL s and Distribution Defense/Aerospace Food & Produce Strengths Tenant demand is on the rise along with rental rates. Weakness Limited overall availability Limited ready to build land available 92

93 SAN DIEGO INVESTMENT SALE Seller: Buyer: TA San Diego Industrial Portfolio North County, CA TA Realty Westcore Purchase Price: $75,000,000 PSF: $146 Cap Rate: 5.4% SF: 514,169 Status: Closed 10/2016 Comments: 4 separate projects, 22 buildings, 99 percent leased 5.4% Cap Rate 93

94 SAN DIEGO INVESTMENT SALE Seller: Buyer: Scenic View Business Park Poway, CA RREEF America Harsch Investment Properties Purchase Price: $25,700,000 PSF: $ Cap Rate: 5.5% SF: 147,848 Status: Sold 8/2016 Comments: Multi Tenant Business Park 5.5% Cap Rate 94

95 SOUTH SAN DIEGO INVESTMENT SALE Seller: Buyer: Three Piper Ranch Otay Mesa, CA BlackRock Realty Zurich Management Purchase Price: $31,500,000 PSF: $95.00 Cap Rate: 5.25% SF: 333,000 Status: Closed Dec Comments: Low finish warehouse 5.25% Below market leases Cap Rate 95