1999 YEAR E ND M ARKET R EPORT

Transcription

1 1999 YEAR E ND M ARKET R EPORT COLLIERS INTERNATIONAL C OLLIERS I NTERNATIONAL commercial real estate O A K L A N D O V E R V I E W

2 T ABLE OF C ONTENTS COLLIERS PARRISH INTERNATIONAL IN OAKLAND...1 OFFICE OVERVIEW...2 OAKLAND CBD...3 BERKELEY...4 EMERYVILLE...5 ALAMEDA...6 INDUSTRIAL OVERVIEW...7 RICHMOND...8 OAKLAND...9 HAYWARD...10 UNION CITY...12 SAN LEANDRO...13 INVESTMENT OVERVIEW YEAR END MARKET STATISTICS...16 GLOSSARY OF TERMS...13

3 C O L L I E R S I N T E R N A T I O N A L O A K L A N D O F F I C E B R O K E R S A N D S T A F F 1999 HARRISON ST., SUITE 1750 OAKLAND CA Colliers International is committed to providing consistently superior commercial real estate services, wherever and whenever needed. We believe local market knowledge augmented by a global network of service providers enables us to excel in our individual markets and disciplines. We are pleased to introduce you to our quarterly market overview which covers market highlights throughout the I-880 and I-80 corridor. The report is organized by submarket and product type and provides comprehensive market statistics. We have also included market highlights and industry projections. We hope you find this report useful and look forward to continued success in serving your commercial real estate needs. Thank you for helping us grow. We need you and appreciate your business. BRANCH MANAGER Kenneth W. Meyersieck (510) kmeyersieck@colliersparrish.com OFFICE James Avery (510) javery@colliersparrish.com Aileen Dolby (510) adolby@colliersparrish.com Kenneth W. Meyersieck (510) kmeyersieck@colliersparrish.com Al Musante (510) amusante@colliersparrish.com Anthony Stratton (510) astratton@colliersparrish.com INVESTMENT Gregory L. Hugo (510) ghugo@colliersparrish.com Louis J. Scarpa (510) lscarpa@colliersparrish.com J. Michael Speers, CCIM (510) jmspeers@colliersparrish.com Doug Miller Marketing Manager (510) dmiller@colliersparrish.com Chris Trapani Director of Client Services (510) ctrapani@colliersparrish.com ADMINISTRATIVE Patrice Page, Administrative Asst. (510) ppage@colliersparrish.com Patricia Folks, Receptionist (510) pfolks@colliersparrish.com GRAPHIC DESIGN Damian Diaz (510) ddiaz@colliersparrish.com INDUSTRIAL James B. Bohar (510) jbohar@colliersparrish.com Gary M. Breen, SIOR (510) gbreen@colliersparrish.com Gabe Burke (510) gburke@colliersparrish.com Norman J. Eggen, SIOR (925) remote office neggen@colliersparrish.com David Henderson (510) dhenderson@colliersparrish.com Richard P. Keely (510) rkeely@colliersparrish.com Greig F. Lagomarsino, SIOR (510) glago@colliersparrish.com James E. Morris (510) jmorris@colliersparrish.com Casey Ricksen (510) cricksen@colliersparrish.com Tim W. Rolston (510) trolston@colliersparrish.com Todd O. Severson, SIOR (510) tseverson@colliersparrish.com Lane B. Stephens (510) lstephens@colliersparrish.com RESEARCH Jim Scotland, Research Mgr. (510) jscotland@colliersparrish.com Glenda Cheng (510) gcheng@colliersparrish.com 1

4 O F F I C E O V E R V I E W Speculative construction, plunging vacancy rates and skyrocketing rents San Francisco? No, that's Oakland. The Oakland Metropolitan office market took off in Overall Class A absorption of 637,546 square feet dropped the vacancy rate to 6.7%. In response, full service rental rates on Class A space jumped 16.8% from $2.08 per square foot per month (psf/mo) to $2.43 psf/mo. At year-end, asking rents in the top tier of the Class A market were all pushing toward $3.00 psf/mo and were showing no sign of slowing down. Declining vacancy and rising rents - sounds like its time to build. Wareham Development kicked off the construction activity when they gambled on a Class A office building near the Emeryville Amtrak station. Their 247,000 square foot EmeryStation project stood out as the first speculative Class A construction in this market in almost 10 years. By year end, only 2,660 square feet remained available at Phase I of EmeryStation, and Wareham was breaking ground on Phase II. After watching Emeryville's Class A vacancy rates fall from 8.3% to a staggering 0.2% in the past year, Spieker Properties joined the construction fray. They broke ground on a fourth office tower at Watergate in December of Emeryville based Siebel Systems has already pre-leased nearly half of this ±368,000 square foot Class A tower. In Downtown Oakland, the Shorenstein Company has entitled over 2.5 million square feet of new space at City Center and will most likely break ground on its first 450,000 square foot office building at the corner of 11th and Clay Street during the coming year. Though rumor has it that Shorenstein is in discussions with several potential anchor tenants for the project, we expect construction to commence without a pre-commitment. Demand from the San Francisco market and internal growth within the East Bay continue to fuel activity in the East Bay. The Oakland Metropolitan area welcomed several San Francisco transplants in Providian Financial Corporation stands out as one of the largest. Providian leased 146,000 square feet at 1333 Broadway in Downtown Oakland. Northpoint Communications, UCSF/Gallo and Chevy's all crossed the Bay to take a total of 200,000 square feet of Class A space in Emeryville. Internally, Siebel Systems pre-leased ±200,000 square feet in the new Watergate IV tower. Berkeley's AskJeeves relocated to Emeryville, taking ±70,000 square feet at EmeryStation. Lawrence Berkeley Laboratories expanded their presence in Downtown Berkeley and leased 28,150 square feet in Downtown Oakland for a computer center. They plan to expand into a total of ±87,000 square feet in Oakland as they refurbish the building. In the Office/Flex market, tenants scrambled for space in newly completed conversion projects. Emeryville actually saw flex vacancy decline from 0.5% to, and most of the scheduled construction deliveries for early 2000 are already pre-leased. The same holds true for much of Berkeley's new flex space. Emeryville and Berkeley are converting nearly their entire industrial base to make room for high-tech companies. At Oakland's recent Technology Summit, Dr. Ross DeVol, director of regional studies at the Milken Institute in Santa Monica, claimed that Oakland is a "gold mine," being the lowest cost area in a high-cost region, with its communications and fiber-optics infrastructure, access to transit and the fact that it is surrounded by the densest concentration of high technology anywhere in the world. These factors are influencing tenants like Lawrence Berkeley Labs as they evaluate locating in Oakland. In addition to LBL, Zhone Technologies acquired 17 acres near the Oakland Airport for the construction of a multiphase 300,000 square foot R&D campus. Zhone plans to take occupancy by mid-year and expects to employ 1,000 people at the site by year-end. In West Oakland, Opus West Corporation has plans to build 3 million square feet of industrial and R&D facilities at the former Oakland Army Base. Opus is currently in exclusive negotiations to purchase acres of land and is scheduled to close in the next 18 months. Expect to see more creative redevelopment projects in the next year as this area takes its place as a major center for high-tech industry. D O W N T O W N O A K L A N D 2

5 O A K L A N D O F F I C E O V E R V I E W C LASS B/C INVESTMENT A CTIVITY During Mayor Jerry Brown s first year in office, Downtown Oakland has undergone a significant transition. The overall vacancy for the office sector dropped into single digits for the first time in recent memory, closing the year at 7.6%. This equates to 514,759 square feet of net absorption and over 2,000 new jobs in the downtown core. Additionally, the Mayor s 10,000 "K" plan which calls for adding approximately 3,500 of new residential units in the downtown area started ahead of schedule with over half of the units approved or under construction. Developers are watching these events closely, ready to capitalize on Oakland s resurgence. The combination of an overheated Bay Area economy, a torrid demand for office space and a limited supply of product in the downtown core will continue to pressure rental rates. We anticipate average rents to rise by 2 over the next twelve months in the Class A sector and by 1 in the B/C sector of the market. The Shorenstein Company has entitled over 2.5 million square feet of new space at City Center and will most likely break ground on its planned 450,000 square foot office building at the corner of 11th and Clay Street during the coming year. Though rumor has it that Shorenstein is in discussions with several potential anchor tenants for the project, we expect construction to commence without a pre-commitment. In addition, the Rotunda, a 250,000 square foot rehab of the former Liberty House department store at 15th and Broadway, is under renovation and will begin to house tenants as early as December of A number of tenants have pre-leased 6 of the project and it will probably be entirely leased before the building is completed late this year. A high volume of activity has marked out the Class B/C investment market as possibly the most dynamic sector in Downtown Oakland. Investors have purchased older, smaller office buildings that require some level of capital investment such as seismic upgrades, deferred maintenance, and re-tenanting. Historically, tenants as well as the investment community overlooked these buildings and as a result they either sat vacant or had large vacancies. These factors had reduced asking rental rates and depressed building values, but 1999 marked a turning point. Local and regional real estate developers began investing in Oakland. To illustrate the rapid turnaround in this market, 1611 Telegraph sold for $47.00 per square foot (psf/mo) at the beginning of the year. The comparable Breuner Building at 2201 Broadway sold for $70.00 psf only eleven months later. We anticipate this trend of rapidly increasing values to continue well into Many Oakland office projects boast prime locations and are still valued well below replacement cost. ADDRESS SQUARE FOOTAGE SALES PRICE 1940 Webster 21,718 $2,840, Harrison 11,356 $937, Broadway 186,800 $13,050, Broadway 31,191 $1,733, Broadway 85,000 In Escrow 1212 Broadway 106,210 In Escrow th (Central Bldg.) 152,800 In Escrow th (Wakefield) 31,191 In Escrow 1611 Telegraph 107,000 $5,000,000 O AKLAND C LASS A OFFICE S PACE O AKLAND C LASS B/C OFFICE S PACE 1 1 $2.40 $2.30 $2.20 $2.10 $2.00 $1.90 $1.70 $1.65 $1.60 $1.55 $1.50 $1.45 $1.40 $1.35 Overall Vacancy Asking Full Service Rent S U M M A R Y Space Type Inventory Overall Available Space Overall Vacancy Full Service Rental Range Average Full Service Rent Class A Office 6,301, , % $ $3.00 $2.30 Class B/C Office 5,153, , % $ $1.95 $1.65 Totals 11,454, , % $ $3.00 $2.01 3

6 B E R K E L E Y O F F I C E O V E R V I E W DOWNTOWN BERKELEY Downtown Berkeley's vacancy rate remained low in Tenants quickly absorbed new spaces, with a 17,000 square foot space at 2295 Shattuck being the only large space available at year-end. When Avi Nevo first completed renovations at 2100 Shattuck during mid-year 1999, the addition of new space initially bolstered the overall vacancy rate up to 6.2%. But several tenants leased large chunks of space and pushed the vacancy rate back down to 4.1% by year-end. Erickson signed a seven-year lease deal at 2100 Shattuck for the entire 28,500 square foot building. Lawrence Berkeley Lab took the 36,000 square foot space at 2120 University Avenue. The University of California took the vacant 16,000 square feet space at 1936 University Avenue and the PowerBar sublease at 2150 Shattuck Avenue, which SRM Investments purchased in the 3rd Quarter. These leases all brought their prospective buildings to full occupancy. We expect landlords to continue to capitalize on the lack of available space by boosting rents. Downtown Berkeley won t see any new construction in the near future, so tenants needing to stay in this area will be forced to scramble for the few spaces that do come available. WEST BERKELEY West Berkeley overflowed with activity as savvy investors poured into this submarket. Developers continued to renovate older industrial facilities into office and retail spaces. Dennis Wong finished rehabbing Phase I of the former Cortaulds Aerospace site into an 87,500 square foot office/flex facility. Discovery Channel Toys moved into 45,000 square feet of this space that it pre-leased earlier in the year. Phase II, an additional 100,000 square feet at the adjoining parcel, will come onto the market in the year The City provided a height variance and a conditional use permit on this site. Bayer continues to gobble up space to expand its three-block campus. In its most recent move, Bayer purchased the 15-acre Colgate Palmolive site. The site, which is partially leased to Lawrence Berkeley Lab, has long been an eyesore in the transitioning West Berkeley submarket. While Bayer will initially use the area for storage and parking, they will eventually need to deal with the headache of redeveloping the entire site before they can start moving employees to this location. Still, the move reflects Bayer s long-term commitment to remaining in the City of Berkeley. The old Koni Kai Farms land on the corner of 4th Street and Hearst developed into several retail spaces at the entrance of the famed 4th Street retail area. Summer Homes and Erica Tanvo joined the growing numbers of specialty stores and national chains that are settling into the area. Many developers and retail tenants in the area are eagerly waiting to see who will anchor the Spengers parking lot site. The owners of the site and the City of Berkeley have been in discussions with Banana Republic, Anthropology, and Old Navy. A SMALL OFFICE BUILDING OF APPROXIMATELY 16,500 SQUARE FEET WENT UP IN WEST BERKELEY AT 2605 PARKER. THE BUILDING WAS 50% PRE-LEASED AND THE LAST TWO SPACES RENTED FOR $1.85 PSF, INDUSTRIAL GROSS. AT DENNIS WONG S RENOVATED COURTAULD S FACILITY IN WEST BERKELEY, DISCOVERY CHANNEL TOYS MOVED INTO THE 45,000 SQUARE FOOT SPACE THAT IT PRE-LEASED EARLIER IN THE YEAR. PHASE II, AN ADDITIONAL 100,000 SQUARE FEET AT THE ADJOINING PARCEL, WILL COME ONTO THE MARKET IN THE YEAR SRM INVESTMENTS PURCHASED THE 135,760 SQUARE FOOT OFFICE BUILDING ON 2150 SHATTUCK FOR $19,000,000, OR $ PSF. ERICKSON SIGNED A SEVEN-YEAR LEASE AT 2100 SHATTUCK FOR THE ENTIRE 28,500 SQUARE FOOT BUILDING THAT WAS RECENTLY RENOVATED BY AVI NEVO. LONG-TIME LOCAL TENANTS, LAWRENCE BERKELEY LABS AND THE UNIVERSITY OF CALIFORNIA BOTH SIGNED LARGE LEASES IN DOWNTOWN BERKELEY. 7.0% 3.0% 1.0% D OWNTOWN B ERKELEY O FFICE S PACE W EST B ERKELEY O FFICE & FLEX S PACE Overall Vacancy Asking Full Service Rent $2.35 $2.25 $2.15 $2.05 $1.95 $1.85 $1.75 $1.90 $1.85 $1.80 $1.75 $1.70 $1.65 $1.60 $1.55 S U M M A R Y Space Type Inventory Overall Available Space Overall Vacancy Full Service Rental Range Average Full Service Rent Berkeley Downtown 1,394,566 56, % $ $2.50 $2.30 West Berkeley 1,127, , % $ $2.40 $1.80 Totals 2,522, ,004 $ $2.50 $2.08 4

7 E M E R Y V I L L E O F F I C E O V E R V I E W Emeryville continued its explosive growth during Three new projects, totaling 448,000 square feet, were completed and are now all fully leased. These projects were: EmeryStation, 247,000 square feet; EmeryTech, 147,000 square feet and Westvaco, 54,000 square feet. Developers announced four additional projects during the last few months, and three are already under construction. Spieker Properties broke ground on Watergate IV. Siebel Systems has pre-leased over 200,000 square feet of this new ±368,000 square foot Class A tower. Wareham Development began construction on Phase II, a 170,000 square foot Class A building, at its highly successful EmeryStation project. Lastly, Simeon Properties is under construction on ±200,000 square feet at the Hollis Business Center, with over 130,000 square feet rumored to be pre-leased to Gymboree. Leases completed in the new 1999 buildings hovered around $3.00 per rentable square foot, full service, and asking rents for newly announced projects should exceed that amount. The Emeryville Class A market absorbed over 350,000 square feet of space in 1999 dropping vacancy from 8.3% to a record low 0.2%. With the market this tight, expect most spaces to lease before they become vacant. The growth of Emeryville tenants and migrations from outside of the city have driven this fast paced activity. Three San Francisco tenants, Northpoint Communications, UCSF/Gallo, and Chevy s, combined to take over 200,000 square feet of Class A space. Ask Jeeves relocated from Berkeley to take 70,000 square feet in EmeryStation. Siebel Systems (±62,000 square feet); Matsco (±23,000 square feet) and Extensity (±23,000 square feet) all renewed or expanded in Watergate Towers. Spieker Properties is now asking and getting $3.00 or more per rentable square foot in its three Watergate Towers. WAREHAM DEVELOPMENT COMPLETED ITS SPECULATIVE EMERYSTATION DEVEL- OPMENT. THE 247,000 SQUARE FOOT CLASS A BUILDING IS NOW 99.0% OCCU- PIED, AND WAREHAM HAS BEGUN CONSTRUCTION ON PHASE II. SPIEKER PROPERTIES BROKE GROUND ON WATERGATE IV. SIEBEL SYSTEMS HAS ALREADY PRE-LEASED 200,000 SQUARE FEET IN THE 368,000 SQUARE FOOT CLASS A TOWER. NORTHPOINT COMMUNICATIONS OUT OF SAN FRANCISCO LEASED 130,000 SQUARE FEET AT WAREHAM S NEW CLASS A EMERYSTATION PROJECT. UCSF/GALLO AND ASK.JEEVES EACH LEASED 70,000 SQUARE FEET AT WAREHAM S EMERYSTATION PROJECT. SIEBEL SYSTEMS RENEWED ITS LEASE ON 62,000 SQUARE FEET AT SPIEKER PROPERTIES WATERGATE TOWERS COMPLEX. 1 1 E MERYVILLE C LASS A OFFICE S PACE $3.20 $3.00 $2.80 $2.60 $2.40 $2.20 $2.00 The Emeryville office/flex market exploded in 1999 as many dot.com companies sought out an Emeryville address. Evolve Systems leased ±51,000 square feet at the renovated EmeryTech facility. Reel.com, Colo.com, Leapfrog/Knowledge Kids and State Farm leased the remaining 100,000 square feet. The last transactions at EmeryTech were completed at over $2.00 per square foot on a net basis. Three other flex projects, Westvaco, Hollis Street Project and Heritage Square, all leased 30,000 square feet or more. The flex segment absorbed 123,421 square feet in 1999, actually dropping vacancy from 0.5% to. Lack of supply coupled with its growing popularity will lead Emeryville to historically high rents during This should prompt ever more creative redevelopment projects in this perfectly positioned submarket. Tenants will be fortunate to secure space and will be clamoring for the delivery of new product over the next year. 7.0% 3.0% 1.0% E MERYVILLE C LASS B FLEX S PACE Overall Vacancy Asking Full Service Rent $2.30 $2.20 $2.10 $2.00 $1.90 $1.80 $1.70 $1.60 $1.50 S U M M A R Y Space Type Inventory Overall Available Space Overall Vacancy Full Service Rental Range Average Full Service Rent Class A 1,562,682 2, % $ $3.50 $3.00 Class B & Flex 1,145,480 0 $ $2.35 $2.25 Totals 2,708,162 2, % $ $2.45 $2.68 5

8 A L A M E D A O F F I C E O V E R V I E W Alameda continued its steady performance as one of the greater Oakland area s best office markets during The end of the year vacancy was 7.2% compared to 11.1% in More importantly, Alameda s two major business parks both slipped below vacancy for the first time in over 5 years. The vacancy for direct space in Marina Village fell from 11.6% to 5.3% during Harbor Bay has also made dramatic strides in the last two years. Vacancy for direct space hit at a historic low of 9.7%, sinking into single digits for the first time in recent memory. Asking rental rates in both business parks rose dramatically at the close of Marina Village rates are now averaging $2.05 per square foot, full service. Harbor Bay is now at its highest asking rental rate in a decade, $1.70 per square foot, full service. Alameda s existing tenants continue to display their confidence in this vibrant submarket. Many Alameda based firms renewed leases or expanded into additional space in the last year. TheraSense moved into a new ±54,000 square foot facility in Harbor Bay. Pilot Network Systems took the last 31,000 square foot office/flex building at Lincoln s Alameda Center project in Marina Village. Notable renewals included Wink Communications, ±37,000 square feet, and Mosaix, ±33,000 square feet, both at Marina Village. Anacom renewed for 19,000 square feet at Harbor Bay. Major relocations also contributed to the strong activity in Alameda. Resource Phoenix, a San Rafael software company, committed to sublease the ±68,000 square foot Peoplesoft building at Harbor Bay. Several major companies also entered the Alameda office market. Hitachi, Farmer s Insurance, and Pitney Bowes all signed leases for 15,000 square feet or more. The disposition of Legacy s Alameda portfolio topped the major investment news. Legacy split its 10-building, ±590,300 square foot investment opportunity into three packages. Brookwood Harbor Bay Investors purchased 1420 Harbor Bay Parkway, a ±120,000 square foot, two-story office building. The four-building Alameda Center complex closed at the end of the year for approximately $ psf. Landmark will close on the fivebuilding Parkway Centre package early in Lenar Partners will start Phase I (two buildings, ±117,000square feet) at Harbor Bay in the 2nd Quarter of Catellus Development Corporation will begin its Phase I development at Alameda Point next to Marina Village in the 3rd Quarter. Rents will continue their steady rise and tenants will be hard pressed to find space as Alameda s single digit vacancy continues to decline in Larger spaces will be especially difficult to find. Currently, Alameda s business parks offer only one available space over 30,000 square feet. BROOKWOOD HARBOR BAY INVESTORS PURCHASED 1420 HARBOR BAY PARKWAY, A ±120,000 SQUARE FOOT TWO-STORY OFFICE BUILDING, FROM LEGACY PARTNERS. RESOURCE PHOENIX SUBLEASED 68,000 SQUARE FEET OF PEOPLESOFT S FORMER SPACE AT HARBOR BAY BUSINESS PARK. THERASENSE LEASED 54,475 SQUARE FEET OF R&D/LAB SPACE AT 1360 SOUTH LOOP ROAD IN HARBOR BAY. WINK COMMUNICATIONS RENEWED ITS LEASE ON 37,000 SQUARE FEET AT 1001 MARINA VILLAGE PARKWAY. MOSAIX RENEWED ITS LEASE ON 33,000 SQUARE FEET IN MARINA VILLAGE. PILOT NETWORK SYSTEMS TOOK THE LAST 31,000 SQUARE FOOT OFFICE/FLEX BUILDING AT LINCOLN S ALAMEDA CENTER PROJECT IN MARINA VILLAGE. M ARINA V ILLAGE O FFICE & FLEX S PACE Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 H ARBOR B AY O FFICE & FLEX S PACE 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 $2.10 $2.05 $2.00 $1.95 $1.90 $1.85 $1.80 $1.75 $1.70 $1.75 $1.70 $1.65 $1.60 $1.55 $1.50 Overall Vacancy Asking Full Service Rent S U M M A R Y Space Type Inventory Overall Available Space Overall Vacancy Full Service Rental Range Average Full Service Rent Marina Village 1,513,596 80, % $ $2.15 $2.05 Harbor Bay 1,134, , % $ $2.00 $1.70 Totals 2,648, , % $ $2.15 $1.90 6

9 I N D U S T R I A L O V E R V I E W OVERVIEW The East Bay industrial market continued to tighten in Over 1.1 million square feet (msf) of net absorption trimmed the overall vacancy rate from 5.7% to. The market welcomed the addition of more than 800,000 square feet of new construction. Strong demand has prompted developers to start construction on an additional 400,000 plus square feet at year-end. The overall asking rental rate edged up to $0.48 per square foot per month (psf/mo), an increase of over from last year. Tight market conditions should push rental rates even higher. Many companies moving from the San Francisco and Peninsula markets are accustomed to paying $0.80 psf/mo or more for industrial space. We expect vacancy rates to remain in equilibrium for the next several months as moderate levels of construction feed the steady demand for new space. Diminishing land availabilities and higher land prices have placed serious limits on development in the East Bay. Much of the activity that will occur will involve the conversion/rehabilitation of older industrial buildings to higher office and R&D uses. WAREHOUSE/DISTRIBUTION Values of warehouse/distribution facilities continued to climb in Singledigit vacancy rates remained the rule throughout the I-80/880 Corridor. In spite of several large blocks of space coming on to the market, strong leasing activity kept the warehouse vacancy rate at 5.1%. This market segment recorded 646,000 square feet of net absorption and added 555,120 square feet of new inventory over the past year. Overall asking rents on distribution space rose to close the year at $0.42 psf/mo. Limited opportunities for new development and steady demand should drive rents even higher in the next year. The thriving Bay Area economy and emerging e-commerce industry will increase the need for quality distribution space. In the Internet grocery market for example, HomeGrocer.com is searching for distribution space in several Bay Area markets, and Internet pet food providers alone leased over 250,000 square feet in the past year. The growth of e-commerce bodes well for the centrally located warehouse markets of the I-80/880 Corridor. 101 Rafael 1 San Francisco San Mateo 80 Redwood City O A K L A N D 80 RICHMOND Berkeley OAKLAND Martinez 680 Pittsburg Ant Walnut Creek SAN LEANDRO Danville 680 Dublin 580 HAYWARD UNION CITY 84 Pleasant Fremont Newark Palo Milpitas Alto Mt View Sunnyvale I N D U S T R I A L LIGHT INDUSTRIAL The light industrial sector held strong in The overall vacancy rate dropped slightly from 5.2% to 4.4% in the past year. Limited availabilities pushed asking rental rates higher, particularly for institutional grade product. Average asking rental rates for light-industrial space climbed to $0.49 psf/mo over the last year, an increase of 16.6%. Light industrial users can expect to face an ongoing scenario of rising rents and limited space choices. Only 100,000 square feet of new product is currently under construction. This space should be rapidly absorbed as industrial users in neighboring markets are pressured out by conversions and soaring rents. R&D/FLEX The R&D/Flex exploded with activity in second half of This segment recorded over 300,000 square feet of net absorption with leasing activity of more than 500,000 square feet. In addition, two major high-tech companies decided to locate corporate campuses in the East Bay. Berkeley based Dicon Fiberoptics acquired 27 acres of land in Richmond for the eventual construction of a 600,000 square foot campus. In Oakland, Zhone Technologies negotiated a deal on 17 acres on Oakport Street. They have already begun construction on Phase I of their 300,000 square foot multi-phased campus and plan to employ 1,000 people at the site by year-end. The R&D market currently makes up only 6.1% of the East Bay industrial inventory, but it accounted for 27.1% of the area's net absorption in This trend should continue over the next year as conversions and new construction focus on high-tech users. This regions excellent location, well-trained workforce and lower operating costs make it a highly attractive area for R&D development. 7

10 RICHMOND INDUSTRIAL MARKET O V E R V I E W In 1999, the Richmond industrial market continued to emerge as a new focal point for development activity in the East Bay. Richmond closed the year with a flurry of leasing activity that cut the overall vacancy rate to 5.9%! Most impressively, Catellus Development Corporation s speculative Regatta Business Park is now fully leased after sitting vacant for nearly a year. Major deals with ActionAce.com and Vicor Corporation kicked off the leasing, but Dicon Fiberoptics' major commitment to the Richmond area was particularly noteworthy. Dicon took 50,885 square feet, the balance of the available space and purchased the adjacent 27-acre land parcel. Dicon plans to build a ±600,000 square foot corporate campus at the site. Construction on Phase I, 180,000 square feet, will start later in Catellus Development Corporation also elected to sell 14 acres to Bayside Properties. They plan to build four speculative R&D/light-industrial buildings totaling ±200,000 square feet. The Richmond R&D market began the year with a 16.9% vacancy rate and rents in the area of $1.20 NNN per square foot per month (psf/mo). By year-end, rents jumped to $1.35 and vacancy plummeted to. DICON FIBEROPTICS PURCHASED A 27-ACRE LAND PARCEL WHERE IT PLANS TO BUILD A ±600,000 SQUARE FOOT CORPORATE CAMPUS OVER THE NEXT SEVERAL YEARS. DICON ALSO LEASED THE LAST REMAINING 50,885 SQUARE FEET AT CATELLUS DEVELOPMENT CORPORATION S REGATTA BUSINESS PARK. DICON JOINED ACTIONACE.COM AND VICOR CORPORATION AT THE NEW R&D FACILITY R ICHMOND R&D/FLEX S PACE $1.35 $1.30 $1.25 $1.20 $1.15 $1.10 $1.05 The R&D sector has not been 1999 s only big story in Richmond. The warehouse market began the year with a 13.4% vacancy rate. That rate has been halved over the past twelve months. Norcal Pottery leased 110,000 square feet at the Safeway Building, and Safeway decided to stay in the balance of the property removing over 200,000 square feet from the market. Alan Ritchey took occupancy of a 200,000 square foot build-to-suit facility at the new Pinole Point Business Park located at Atlas Road and Giant Highway. Pinole Point Properties broke ground on a second building of 144,000 square feet during the 4th Quarter. They have pre-leased ±27,000 square feet of this new facility to International Delicacies and have leases pending on an additional ±27,000 square feet. Lastly, Channel Lumber purchased the former Price Club facility at 3200 Regatta Boulevard. Channel Lumber paid $17.2 million for the 408,000 square foot, 24-acre project R ICHMOND WAREHOUSE S PACE $0.38 $0.36 $0.34 $0.32 $0.30 $0.28 $0.26 Developer interest in the Richmond submarket continues to rise. Industrial and R&D users in Berkeley, Emeryville and Marin County are facing shrinking available inventories and soaring rental rates. With campus projects in the works for Dicon Fiberoptics and the California Department of Health Services, Richmond is boosting its high-technology image. Forest City Development Company will be rehabbing the historic Ford Motor Plant at the Richmond Marina. The project will include a blend of livework, R&D and retail uses. Penterra Development has completed its 100,000 square foot office building near the Richmond Marina. They have plans to construct two additional 60,000 square foot buildings later in Panattoni Development also entered escrow a large land site along the Richmond Parkway. They plan to build speculative warehouse product totaling nearly 400,000 square feet. SRM also entered escrow on 24 acres for planned light-industrial/r&d development. 7.0% 3.0% 1.0% R ICHMOND I NDUSTRIAL S PACE Overall Vacancy Asking NNN Rent $0.49 $0.45 $0.41 $0.37 $0.33 $0.29 S U M M A R Y Space Type Inventory Overall Available Space Overall Vacancy NNN Rental Range Average NNN Rent Warehouse 3,990, , % $ $0.50 $.37 Industrial 4,900, , % $ $0.70 $.48 R&D/Flex 1,606,400 80,009 $ $1.45 $1.32 Totals 10,496, , % $ $1.45 $.57 8

11 OAKLAND INDUSTRIAL MARKET O V E R V I E W Interest in the Oakland submarket soared in 1999 as investors and owners seized redevelopment opportunities. Tight market conditions and high rents in surrounding markets have boosted Oakland s appeal. The overall vacancy rate for Oakland rose slightly in 1999, but much of this increase came as a result of the 500,00 square feet of short-term sublease space at the Oakland Army Base that came onto the market. Redevelopment activity at the Oakland Army Base will eventually bring more opportunities for industrial users. Opus West Corporation has plans to build 3 million square feet of industrial and R&D facilities at the former base. Opus is currently in exclusive negotiations to purchase acres of land and is scheduled to close in the next 18 months. These planned facilities will not be deliverable in the near future; however, construction is not slated to commence until 12 months after closing. The Airport area will see major development activity in the more immediate future. Zhone Technologies acquired 17 acres along Oakport Street for the construction of a multi-phase 300,000 square foot R&D campus. Zhone plans to take occupancy by mid-year and expects to employ 1,000 people at the site by year-end. Adjacent to this new campus site, Paccar Inc. has put the 406,700 square foot Grand Auto Facility on the market for sale and also has over 272,300 square feet available for immediate occupancy the largest contiguous space available in the I-880 Corridor. Catellus Development Corporation has begun grading a site for a 71,760 square foot speculative warehouse in Phase II at the Enterprise Airport Distribution Center. In 1999, Tension Envelope s purchase of the 100,954 square foot Building 2 brought Phase I to full occupancy. Catellus also signed a 147,500 square foot lease with the U.S. Postal Service for the majority of Phase II. ZHONE TECHNOLOGIES ACQUIRED 17 ACRES ALONG OAKPORT STREET FOR THE CONSTRUCTION OF A MULTI-PHASE 300,000 SQUARE FOOT R&D CAMPUS. ZHONE PLANS TO TAKE OCCUPANCY BY MID-YEAR AND EXPECTS TO EMPLOY 1,000 PEOPLE AT THE SITE BY YEAR-END. OPUS WEST CORPORATION ENTERED EXLCUSIVE NEGOTIATIONS ON ACRES OF LAND AT THE OAKLAND ARMY BASE WITH PLANS TO BUILD 3 MILLION SQUARE FEET OF INDUSTRIAL AND R&D/FLEX SPACE. ELLIS JACOBS AND PANATTONI DEVELOPMENT COMPANY PLAN TO REDEVELOP THE PACIFIC PIPE AND AMERICAN STEEL PROPERTIES INTO R&D/FLEX AND OFFICE FACILITIES. CATELLUS DEVELOPMENT CORPORATION WILL BUILD A 71,760 SQUARE FOOT WAREHOUSE IN PHASE II OF THE ENTERPRISE AIRPORT CENTER. CATELLUS HAS ALREADY COMPLETED A TEN-YEAR LEASE FOR 147,500 SQUARE FEET IN PHASE II WITH THE U.S. POSTAL SERVICE. 9.0% 7.0% 3.0% 1.0% O AKLAND WAREHOUSE S PACE O AKLAND I NDUSTRIAL S PACE $0.40 $0.38 $0.36 $0.34 $0.32 $0.30 $0.40 The landscape has also changed in West Oakland as developers convert older industrial sites to live/work, R&D and office buildings. Ellis Jacobs and Panattoni Development Company agreed to a plan to rehab the Pacific Pipe and American Steel properties into R&D and office buildings. A group of developers are also in escrow for the 22-acre parcel on Wood Street at the old Oakland train station, with at least one of the developers intending to build homes. We expect this redevelopment trend to pick up steam in 2000 as Jerry Brown pursues his vision of Oakland as a center for high-tech industry. 7.0% 3.0% 1.0% $0.35 $0.30 $0.25 Overall Vacancy Asking NNN Rent S U M M A R Y Space Type Inventory Overall Available Space Overall Vacancy NNN Rental Range Average NNN Rent Warehouse 10,791, , % $.30 - $.45 $.39 Industrial 21,909,000 1,008, % $.28 - $.68 $.35 Totals 32,700,000 1,986, % $.28 - $.68 $.36 9

12 H A Y W A R D I N D U S T R I A L O V E R V I E W 1999 was a strong year for the Hayward submarket. While the overall vacancy rate inched up from to 5.3%, overall asking rental rates continued to climb briskly to $.53 psf/mo. Just as we thought the market would tighten, space came available either through sublease or the closing of operations. The 212,971 square foot Publisher s Group West sublease on West Winton Avenue and the 214,172 square foot Ball Container/Reynolds Aluminum manufacturing facility on Whipple Road added a total of 427,143 square feet to the available inventory. Landlords have benefited from a great year as rents continued to rise, while tenants had a more difficult time as opportunities for space disappeared. We saw multiple offers on quality space and a bidding up of rental rates as tenants competed for these spaces. A few tenants were able to obtain sublease space at or below market rents, but they were the exception. M T E DEN B USINESS PARK B ALL C ORPORATION The industrial sector availability showed a slight increase from 3.0% to 5.1% but the activity remains strong and the lease rates continue to rise. Almost all the available space is less than 20,000 square feet and these units are leasing within 4 months of becoming available. The warehouse sector continued to show strong activity and an increase in rental rates. The overall vacancy in the warehouse market dropped from 5.1% to 4.8% at the end of the year. Spaces have received multiple offers and lease proposals before landlords have even placed their spaces on the market. Caliber Logistics subleased the 212,000 square foot space from Publisher s Group West, which it vacated to relocate to Reno, Nevada. In the fourth quarter, Pets.com leased the 84,000 square foot space at 1035 Whipple Road in Lend Lease's Whipple Business Center. Yes Entertainment had vacated the space in third quarter. Opus Development s newly completed Winton Distribution Center has strong activity and may be entirely leased by the end of first quarter Many companies bought buildings for their own operations. Primo Industrial purchased 150,000 square feet on Hayman Street for its business, and Wantech Associates purchased the 99,250 sq. ft. building it was leasing from Principal Life Insurance Company. First World Asian Trading purchased 51,600 square feet from Mygrant Glass Company on Alpine Way. The R&D/flex sector had strong activity with vacancy dropping from 12.9% at the end of 1998 to 8.1% at the end of Britannia Development s 30,000 square foot spec building, which was shell complete at the end of third quarter, was 100% leased in the fourth quarter. Half of the building was leased to Thermage, a well-financed start-up medical device company, and the other half was leased to Applied Theory, an internet services company that will invest $300 per square foot of its own improvement dollars. Legacy Partners' Bridgeview Tech Park, which consists of two buildings that were converted from industrial to R&D, completed lease transactions with Smart Mail for approximately 25,000 square feet and Bank of America for approximately 30,000 square feet. All Advantage.com leased the 45,000 square foot E/O Networks space that returned to the market in the 3rd Quarter within two months of its availability. OPUS COMPLETED CONSTRUCTION ON WINTON DISTRIBUTION CENTER, ADDING 214,320 SQUARE FEET TO THE WAREHOUSE/DISTRIBUTION INVENTORY. SIMEON PROPERTIES FINISHED CONSTRUCTION ON THE 35,900 SQUARE FOOT BUILDING E AND THE 50,400 SQUARE FOOT BUILDING F OF MT. EDEN BUSINESS PARK. PMREALTY ADVISORS ACQUIRED WINTON INDUSTRIAL PARK, WHICH TOTALED 825,808 SQUARE FEET FOR $39.9 MILLION. JOHN SHELTON COMMENCED CONSTRUCTION ON 4 INDUSTRIAL BUILDINGS ON WIEGMAN ROAD AND DELTA COURT RANGING IN SIZE FROM 18,000 SQUARE FEET TO 30,000 SQUARE FEET. SHELTON PLANS TO COMPLETE CONSTRUCTION BY SUMMER

13 H A Y W A R D I N D U S T R I A L M T. EDEN B USINESS PARK H AYWARD WAREHOUSE S PACE 7.0% $0.44 $0.42 $ % $ % $0.36 $0.34 H AYWARD I NDUSTRIAL S PACE The investment market for Hayward remained strong in PMRealty Advisors closed on the Winton Industrial Park, which totaled 825,808 square feet of Class A warehouse space. The purchase price of $39.9 million was below replacement cost, and the project was nearly 100% leased at close of escrow. McMorgan and Company purchased Delta Court Industrial Park from Divco West. The project totaled 216,400 square feet and sold for $52.45 per square foot with a cap rate of 7.7%. Again, the lease rates are under market and will have significant increases in the near future. Hayward will continue to offer investors excellent opportunities. This prime distribution center is nearly completely built out. Owners of quality distribution facilities can expect to benefit from significant rental increases as growing demand can no longer be answered with new supply. 3.0% 1.0% $0.62 $0.60 $0.58 $0.56 $0.54 $0.52 $0.50 $0.48 $0.46 $0.44 $0.42 W INTON I NDUSTRIAL PARK H AYWARD R&D/FLEX S PACE 1 $ $0.86 $0.82 $0.78 $0.74 $0.70 Overall Vacancy Asking NNN Rent S U M M A R Y Space Type Inventory Overall Available Space Overall Vacancy NNN Rental Range Average NNN Rent Warehouse 21,062,645 1,003, % $.35 - $.48 $.43 Industrial 16,380, , % $.45 - $.85 $.61 R&D/Flex 4,544, , % $.60 - $1.25 $.75 Totals 41,988,131 2,206, % $.30 - $1.20 $.53 11

14 U N I O N C I T Y I N D U S T R I A L O V E R V I E W Union City concluded 1999 with several significant transactions which resulted in continued historically low vacancies combined with upward pressure in both rental rates and land and building values. Union City has continued to benefit from the migration of firms relocating from the northern Silicon Valley and San Francisco Peninsula. Overall vacancy rates for all product types ended the year at 5.2%. Factoring out sublease space, the R&D/Flex sector boasts a meager 2.4% vacancy rate. The warehouse/distribution vacancy rate climbed to 7.5% as a result of two larger buildings (over 100,000 square feet) coming on the market. We expect that this inventory will be absorbed early in 2000 resulting in a warehouse/distribution vacancy at or below the 3.6% vacancy witnessed at mid-year The industrial segment of the market remained healthy posting a 3.5% vacancy at year end. The dot.com craze that is fueling the Bay Area economy hit Union City in Pets.com doubled their space at Dowe Avenue and now occupies ±150,000 square feet at that location. The coming year should see more distribution-oriented dot.com companies grabbing warehouse space in Union City s strategically located business parks. Also, expect to see an increase of industrial users migrating from the Peninsula to the Hayward and Union City markets. At the end of 1999, Schulz Manufacturing of Redwood City leased the former Office Depot building located at 2900 Faber Street in Catellus Development Corporation s Alvarado Business Center. The five year lease transaction for 126,144 square feet stands out as one of the largest lease transactions completed this year in Union City. Earlier in 1999, US Foods Corporation purchased the 159,384 square foot building formerly owned by Sysco Foods at Union City Boulevard. The building has been upgraded and US Foods has completed their relocation from Daly City. Several significant development projects are currently underway in Union City. The largest new project is Koll Development Company s Willowbrook Business Center. Located at 1600 Whipple Road, the two phase development totals approximately 405,000 square feet. Phase I includes the re-development of a 185,500 square foot distribution/light manufacturing complex formerly occupied by Young s Market Company. Phase II of Willowbrook Business Center includes the new construction of approximately 220,000 square feet in four buildings ranging in size from 30,000 square feet to 89,200 square feet. The project should appeal to many users as it will accommodate both distribution and manufacturing requirements and a wide range of tenant sizes. Another significant project under construction, Legacy Partners Crossroads Technology Park, is located at the corner of Whipple Road and Union City Boulevard. The project will include four buildings totaling 330,000 square feet, accommodating R&D/office and light-industrial users. PETS.COM LEASED 78,720 SQUARE FEET AT DOWE AVENUE FOR FIVE YEARS AND HAS EXPANDED INTO AN ADDITIONAL ±75,000 SQUARE FEET AT THAT SAME LOCATION. SCHULZ MANUFACTURING COMPLETED A FIVE YEAR LEASE FOR 126,144 SQUARE FEET AT 2900 FABER STREET. SCHULZ EXPANDED INTO UNION CITY FROM THEIR MAIN LOCATION IN REDWOOD CITY. KOLL DEVELOPMENT COMPANY BROKE GROUND ON WILLOWBROOK BUSINESS CENTER, A FIVE (5) BUILDING WAREHOUSE/LIGHT MANUFACTURING COMPLEX TOTALING 405,000 SQUARE FEET LOCATED AT 1600 WHIPPLE ROAD. LEGACY PARTNERS COMMENCED CONSTRUCTION ON CROSSROADS TECHNOLOGY PARK, A 330,000 SQUARE FOOT, FOUR BUILDING R&D/OFFICE COMPLEX LOCATED AT THE CORNER OF WHIPPLE ROAD AND UNION CITY BOULEVARD. THE FORMER 87,000 SQUARE FOOT SPRING AIR MATTRESS PROPERTY LOCATED AT WESTERN AVENUE WAS ACQUIRED BY AN INVESTOR GROUP FOR $3.6 MILLION AND IS NOW BEING OFFERED FOR LEASE AT $0.44 PER SQUARE FOOT PER MONTH NNN. 9.0% 7.0% 3.0% 1.0% 3.0% U NION C ITY WAREHOUSE S PACE U NION C ITY I NDUSTRIAL S PACE $0.47 $0.45 $0.43 $0.41 $0.39 $0.37 $0.35 $0.70 $0.65 $0.60 $0.55 $0.50 The continued strong demand, healthy market conditions and excellent central location will assure that Union City continues to prosper in We anticipate that vacancy rates will remain in the low single digits throughout the year and that rental rates will increase by 4%. The new construction will provide the user community with excellent opportunities to expand and/or relocate their businesses in this submarket. This well located submarket offers an excellent business climate and some of the most affordable rental rates in the Bay Area. 1.0% Overall Vacancy Asking NNN Rent $0.45 $0.40 S U M M A R Y Space Type Inventory Overall Available Space Overall Vacancy NNN Rental Range Average NNN Rent Warehouse 6,520, , % $.42 - $.46 $.45 Industrial 7,828, , % $.46 - $.70 $.59 R&D/Flex 840,472 93, % $.80 - $1.20 $.96 Totals 15,189, , % $.42 - $1.20 $.55 12

15 SAN LEANDRO INDUSTRIAL MARKET O V E R V I E W The San Leandro submarket had a remarkable year as the overall vacancy rate plummeted to 2.3% from 5.9%. This dearth of available space has prompted developers to rehab older projects and build on the last remaining land parcels to meet the high demand. As a result, average rental rates have soared in the past year from $.39 psf/mo NNN to $.48 psf/mo NNN. Expansions in the Port of Oakland and the Oakland Airport combined with San Leandro s accessible location will continue to make this one of the area s most sought after markets. The warehouse sector had a very active year as tenants leased most of the large available spaces. Cal-Pak signed a 10-year lease for the 128,000 square foot space at the old Crown Cork & Seal facility at an effective rental rate of $.37 psf/mo NNN. Cost-U- Less subleased the 81,225 square foot New Breed Trucking space on Burroughs Avenue for five years. The year ended with KP Corporation s lease at the newly constructed 140,800 square foot warehouse space on Washington Avenue. This intense activity has boosted the average asking rate to $.44 psf/mo NNN and pushed the warehouse vacancy rate down to a historically low 1.2%. San Leandro also had a couple of significant sales transactions in AMB Property purchased two industrial complexes on Burroughs and Williams Street from Legacy Partners. These facilities included four buildings for a combined total of 242,656 square feet. Salinia Hill acquired the 189,000 square foot warehouse on Grant Avenue for $7.65 million. KP GRAPHICS LEASED THE NEWLY CONSTRUCTED 140,800 SQUARE FOOT WAREHOUSE ON WASHINGTON AVENUE FROM GAHRAMAT DEVELOPMENT. CAL-PAK LEASED 128,000 SQUARE FEET AT THE FORMER CROWN CORK AND SEAL BUILDING ON 1951 FAIRWAY DRIVE. AMB PURCHASED A TOTAL OF 242,656 SQUARE FEET AT BURROUGHS AVENUE AND WILLIAMS STREET IN A PORTFOLIO SALE FROM LEGACY PARTNERS. CITATION HOMES PURCHASED A 41-ACRE SITE AT 111 SAN LEANDRO STREET FOR $25 MILLION. THEY PLAN TO RAZE THE AGING MANUFACTURING PLANT AND REPLACE IT WITH RESIDEN- TIAL DEVELOPMENT. 3.0% 1.0% S AN L EANDRO WAREHOUSE S PACE $0.46 $0.44 $0.42 $0.40 $0.38 $0.36 $0.34 $0.32 San Leandro will continue to see extensive redevelopment as investors rehab older industrial buildings into other uses. Zelman Development plans to convert the All-U-Serve site on Davis Street into a mixed-use retail facility comparable to other retail projects that have recently been developed in the vicinity. Citation Homes purchased a 41-acre site at 111 San Leandro Street for $25 million. They plan replace the existing structures with residential development. The 20-acre Hohner land parcel on Davis Street is back on the market after reportedly falling out of escrow to South Bay Construction Company. With a shortage of available space and a finite amount of developable land, tenants and landlords should expect to see rent and sale prices continue to rise in San Leandro. 1 S AN L EANDRO I NDUSTRIAL S PACE $0.53 $0.48 $0.43 $0.38 $0.33 $0.28 Overall Vacancy Asking NNN Rent S U M M A R Y Space Type Inventory Overall Available Space Overall Vacancy NNN Rental Range Average NNN Rent Warehouse 14,356, , % $.40 - $.65 $.44 Industrial 11,750, , % $.45 - $.70 $.51 R&D/Flex 798,200 59, % $.62 - $.85 $.74 Totals 26,905, , % $.40 - $.85 $

16 1999 EAST BAY INVESTMENT ACQUISITION TRENDS E A S T B A Y I N V E S T M E N T G R O U P The East Bay (Alameda and Contra Costa Counties) commercial real estate market moved forward in 1999 as a result of robust economic growth throughout the region. Employment advanced across a broad spectrum of industries including emergent strength in high tech industries such as telecommunications, software, internet and medical technologies. The resulting demand for product was evident in declining vacancies, rising rents and increasing land values. The force of these market dynamics was seen not only in traditionally strong submarkets but also in bringing long-dormant areas back to life. For this report, we focus on five primary buyer classifications and the correlating investment trends in the East Bay market during Y GNACIO P LAZA REIT ACQUISITIONS D ECLINE S IGNIFICANTLY The constraint of capital in the public markets dramatically reduced the volume of East Bay REIT acquisitions, with 1999 sales at approximately ten percent of 1998 volume. The majority of the REIT acquisitions occurred during the first half of the year, including two transactions by American Industrial Properties in January. They purchased the 170,000 square foot Bridgeway Technology Center in Newark for $20.75 million and the 199,278 square foot Centre Pointe Office Park in Walnut Creek for $21 million. BURNHAM PACIFIC PROPERTIES AND CALPERS PURCHASED TWO EAST BAY SHOPPING CENTERS, INCLUDING YGNACIO PLAZA IN WALNUT CREEK. CALPERS SUBSEQUENTLY ACQUIRED BURNHAM S INTEREST IN THE PROPERTIES. W INTON I NDUSTRIAL PARK Burnham Pacific Properties and the California Public Employees Retirement System (CalPERS) joint ventured in a multi-state bulk acquisition of retail shopping centers totaling $353 million. The transaction included two centers in Central Contra Costa County. The first, Ygnacio Plaza in Walnut Creek, is a 109,429 square foot shopping center anchored by Albertsons and Rite Aid. The second property was the Pleasant Hill Shopping Center, a 233,677 square foot community center, anchored by Target and Toys R Us. Of special note is that within five months of closing, Burnham sold its equity interest including future participation to CalPERS, but remains as the asset manager. P ENSION F UNDS F OCUS ON C ORE P ROPERTIES In line with CalPERS acquisitions mentioned previously, Pension Funds continued a conservative approach to expanding their real estate portfolios in East Bay acquisitions focused on core real estate that was strategically located relative to its product type. This strategy led to acquisitions of Class A Office in downtown Walnut Creek, warehouse distribution in Hayward and anchored shopping centers in Central Contra Costa County. In Walnut Creek, Heitman Capital Management acquired Cal Plaza, a 368,290 square foot, 10-story Class A office tower, near the Walnut Creek BART station at 2121 N. California Boulevard. The property was purchased for $71.5 million on behalf of the Florida Retirement System Trust Fund. PMRealty Advisors purchased the Winton Industrial Park in Hayward on behalf of a state pension fund. Located within the largest distribution hub in Northern California, this 825,808 square foot, five-building industrial complex sold for $39.9 million, which was the largest industrial transaction of the year in the East Bay. PMREALTY ADVISORS ACQUIRED WINTON INDUSTRIAL PARK IN HAYWARD ON BEHALF OF A STATE PENSION FUND FOR $39.9 MILLION. OPERATING PARTNERSHIPS BULLISH ON MARKET UPSIDE Operating Partnerships, equity joint ventures between an operating partner and an opportunity fund, continued aggressive acquisition of valueadded properties and development opportunities. They also surfaced as buyers for stabilized income properties in anticipation of continued increases in rental growth. Bridgeview LLC, headed by John Papini, demonstrated these acquisition trends with the purchase of two properties, utilizing a separate opportunity fund in each transaction. First, with a 65% percent occupancy at closing, 2201 Broadway, a Class B, 186,000 square foot office building in 14

17 1999 EAST BAY INVESTMENT ACQUISITION TRENDS E A S T B A Y I N V E S T M E N T G R O U P downtown Oakland was acquired for under $70.00 per square foot. The second property, with a 97% occupancy at closing, was 1420 Harbor Bay Parkway, a 120,778 square foot office building on Harbor Bay Island in Alameda that was marketed for sale at $ per square foot. S TONERIDGE C ORPORATE P LAZA Opportunity Funds were busy throughout the year providing equity to operating partnerships to acquire properties. Carlyle Realty went a step further with the direct purchase of Stoneridge Corporate Plaza, a 375,000 square foot Class A office building at Stoneridge Mall Road in Pleasanton. At an approximate sales price of $ per square foot, the acquisition is also a significant departure from acquiring distressed/valueadded or development properties, in order to achieve their high internal rates of return (IRR) of 25% or more. O PPORTUNITY F UNDS S EE M ARKET P OTENTIAL Opportunity Funds were busy throughout the year providing equity to operating partnerships to acquire properties. Carlyle Realty went a step further with the direct purchase of Stoneridge Corporate Plaza, a 375,000 square foot Class A office building at Stoneridge Mall Road in Pleasanton. At an approximate sales price of $ per square foot, the acquisition is also a significant departure from acquiring distressed/valueadded or development properties, in order to achieve their high internal rates of return (IRR) of 25% or more. CARLYLE REALTY PURCHASED STONERIDGE CORPORATE PLAZA AT A SALES PRICE OF APPROXIMATELY $ PER SQUARE FOOT SHATTUCK AVE., BERKELEY P RIVATE I NVESTORS A RE EXTREMELY A CTIVE Not to be outdone by opportunity funds and operating partnerships, private investors were quite active in 1999 for all product types under $10 million. One of the most noteworthy private investor acquisitions during the year was completed by the principals of SRM Associates in the purchase of 2150 Shattuck Avenue, a 138,500 square foot office building in Berkeley. The significance of this transaction is that a local, private investor acquired one of the largest value-added purchases in the East Bay during 1999 at a sales price approaching $20 million. EAST BAY INVESTMENT MARKET MOVING INTO 2000 The East Bay is a dynamic and growing region, and barring unforeseen economic events, it will continue to play an important role in the overall Bay Area economic structure. The expansion of this market will continue to provide new investment opportunities in 2000 and beyond. However, looking down the road, interest rates are poised to play a significant role in sales volume activity. In reviewing the 10-Year Treasury Rate, a common benchmark for setting fixed interest rate commercial loans, it has increased from its monthly average low of 4.53% in October 1998 to 6.28% in December On January 21, 2000 it went as high as 6.77%. Increases in interest rates have already pushed capitalization rates higher in order for buyers to maintain the same leveraged returns. This may influence some owners to hold property, to benefit from anticipated rental rate increases, rather than selling at a higher leveraged return for the buyer. On the other side of the equation, buyers who are utilizing debt may have to accept lower leveraged returns if faced with a reluctant seller. PRINCIPALS OF ALAMEDA-BASED SRM ASSOCIATES OBTAINED 2150 SHATTUCK AVENUE IN BERKELEY, ONE OF THE LARGEST VALUE-ADDED PURCHASES IN THE EAST BAY, FOR ALMOST $20 MILLION. For a more detailed analysis of East Bay market dynamics, Colliers East Bay Investment Group will complete its new "East Bay Investment and Economic Trends" report in April