HOUSTON OFFICE MARKET

Transcription

1 REAL ESTATE OUTLOOK HOUSTON OFFICE MARKET YEAR-END 07 Office Market Signals Recovery The Rise of Co-Working in Houston OVERVIEW Availability Continues to Decline as Co-Working Rises The Houston office market ended 07 on a strong note, as total availability declined for the second straight quarter, the investment market remained hot, and WTI crude prices settled above $60 per barrel. Despite absorption remaining negative for the fourth quarter, citywide availability declined by 0.5%, ending the year at.8%. This change was largely attributable to the reduction in sublease supply (-900k square feet) as tenants Motiva (Saudi Aramco), Stewart Title, Empyrean Benefits Solutions, and several others opted for sublease alternatives. At the end of the year, sublease space totaled 8.9 M SF with. M SF set to expire over the next months. Late year activity also saw the rise of co-working space throughout the market. Several providers such as WeWork, Spaces, The Cannon and The Work Lodge announced or opened locations, pushing co-working space totals past 500k SF with both urban and suburban alternatives. The quick expansion of co-working space has both providers and landlords taking notice. In December, Brookfield Properties and Onex made an indicative proposal on IGW, the holding company of Regus and Spaces, as Brookfield Asset Management looks to gain a foothold in the coworking market. Additionally, Servcorp, announced that they will pivot into a co-working strategy in order to capitalize on the trend. NET ABSORPTION Quarterly Absorption Flat After Down Year Cumulative annual absorption totals of negative.9 million square feet highlight the delayed impacts of the energy downturn. However, the NET ABSORPTION AND RATE TRENDS HOUSTON METRO AREA Note: Delivery of preleased space counts as positive net absorption SOURCE CoStar, Transwestern *Through Q4 07 CONTIGUOUS BLOCKS OF AVAILABLE SPACE HOUSTON METRO Net Absorption Class A Direct 5,000 SF 09 Direct Vacancy 0 Class A Sublet 50,000 SF Total Availability 4 5 Class B Direct 00,000 SF ,000 SF 5% 0% 5% 0% 5% Class B Sublet SOURCE CoStar, Transwestern *Through Q4 07 Notable Q4 Leases TENANT SF LEASE TYPE BUILDING Motiva (Saudi Aramco) 7,000 Sublease Two Allen Center CBD Stewart Title 56,5 Sublease 60 Post Oak Galleria/Uptown Empyrean Benefits* 06,904 Sublease 00 Briarpark Dr Westchase Talos Energy 98,000 Relocation/Expansion Three Allen Center CBD TransCanada 8,96 Expansion Bank of America Center CBD * Empyrean leveraged sublease alternative with minimal remaining term to execute direct deal.

2 HOUSTON METRO MARKET YEAR-END 07 fourth quarter saw negative absorption of only 5,68 SF. This represents a marked improved over the recent quarter totals of -.M SF (Q 07), -. M SF (Q 07), and -0.6 M SF (Q 07). Class A absorption for the fourth quarter totaled -86,067 SF, bringing the 07 annual absorption for the property class to -. M SF. Class B absorption for the fourth quarter was positive 8,959 SF with Class B annual absorption totaling negative 79,000 SF. DIRECT & TOTAL AVAILABILITY Total Availability Declines, Vacancy Increases The overall office availability rate (all space marketed as available for lease, both direct and sublet) decreased 0.5% over the quarter, ending the year at.8%. The fourth quarter saw several tenants (Stewart Title, Empyrean Benefits Solutions and Saudi Aramco) opt to leverage sublease alternatives. In total, sublease supply decreased by 894,000 SF over the quarter. Class A availability finished the year at 4.0%, down by 0.4% over the quarter. Class B availability decreased by 0.7% over the period, ending the year at.%. While decreases in sublease space triggered declines in availability, vacancy continued to rise over the quarter. Overall direct vacancy ended 07 at 5.5%, increasing by.7% year-over-year. Class A direct vacancy ended the year at 5.%, up.% annually and 0.% over the quarter. Class B direct vacancy increased by.% year-over-year, ending 07 at 6.7%. With. million SF of sublease space set to expire over the next months, direct vacancy is anticipated to continue increasing through the first half of 08. This is especially pronounced in the North Houston District where 868,845 SF is set to expire by end of year 08. RENTAL RATES Asking Rates Level Off Overall asking rates for the Houston metro area decreased marginally over the quarter, finishing 07 at $0.59 PSF full service. Class A rates declined by.9% over the year, closing at $5.8 PSF full service, while Class B asking rates declined by 4.0%, ending at $.78 PSF full service. Though there are signs of improvement, the market remains firmly in the tenants favor with credit grade tenants able to attain generous concession packages. The submarkets with the highest gross asking rents are the Central Business District (Class A - $45.7 PSF), the Katy Fwy East (Class A, $4.4 PSF), and Galleria/Uptown (Class A - $9.6 PSF). SUPPLY AND DEVELOPMENT Construction Pipeline After the delivery of.0m SF over the past seven years, construction activity has slowed greatly. Considering the number of large blocks and total space available for lease, developers are wary of additional speculative construction. Still, as tenants strive to retain talent and attain efficiency both in their space footprint as well as their operating expenses, the potential for additional construction tethered to a lead tenant or build-to-suit remains in play. At year end, the Houston area Total Available Space Houston Metro Q4 07 AVERAGE OFFICE RENTS HOUSTON METRO AREA Note: All classes of office space Office Under Construction Houston Metro Q4 07 SUBLEASE SPACE (SF) NUMBER OF BLDGS % OF SUPPLY SF % TOTAL AVAILABLE CBD,067, % 8.4% Katy Fwy West,94,69 7.% 6.% Westchase,445,5 8.% 8.0% West Loop 9,700.7%.8% N Houston District 905,67 7.0% 4.% All of Houston 8,95,79.7% 6.% $40 $5 $0 $5 $0 $5 Overall 09 0 Class A Class B SOURCE CoStar, Transwestern *Through Q4 07 % PRE- LEASED CBD 778,44 % Woodlands 704,800 97% South 00,000 7% West Loop 04,579 70% Kingwood 00,000 0% FM 960 7,000 00% Katy 7,045 5% Total 7,0,768 67% REAL ESTATE OUTLOOK HOUSTON METRO Q4 07

3 construction pipeline totaled. M SF with.0% available for lease. Houston's largest office developments currently under construction are Capitol Tower (CBD, 778,000 SF - 7% leased to Bank of America), CityPlace (The Woodlands, 6,000 SF - 00% Leased to ABS) and HP's Build-to-Suit Campus (The Woodlands, two-89,000 SF buildings). Notable fourth quarter deliveries include The Kirby Collection, a mixed-use project with a significant office component (Greenway Plaza, 88,547 SF, % leased) and Members Choice Credit Union (Katy Fwy West, 86,65 SF, 6% leased). INVESTMENT MARKET Investments Rebound Sharply Over 07 Houston investment activity rebounded sharply in 07, as annual sales totaled $.8 billion, marking the highest total since registering $4.6 billion in 0. Regardless of elevated vacancy figures, the strength in the underlying fundamentals of the market have investors buying into Houston's future. Of particular interest to investors are well located urban infill properties with upside available through renovation and lobby/service activation. Notable properties that traded over the course of 07 include Greenway Plaza (4.9 M SF, $0 PSF), Houston Center (4. M SF, $8 PSF) and Greenspoint Place (.0 M SF, undisclosed). Sales for the quarter totaled $. billion, bolstered by the closing of Houston Center, as Brookfield Properties officially acquired the 4. M SF Class A property portfolio for $875 million. The fourth quarter saw another iconic property trade hands, as M-M Properties and Baupost Group were reported as having acquired Marathon Oil Tower, a 4-story. M SF Class A office building for $75.0 M from CBRE Global Investors. These figures represent assets for which pricing information could be obtained. COMPARATIVE OFFICE INVESTMENT SALES VOLUME SELECT METRO AREAS Sales Volume in Billions Atlanta Dallas Denver Houston $8 $7 $6 $5 $4 $ $ $ $ * SOURCE Real Capital Analytics, Transwestern,*Through Q4 07 AVERAGE OFFICE SALE PRICE HOUSTON METRO AREA Average Sale Price Per SF $50 $00 $50 $00 $50 $ SOURCE Real Capital Analytics, Transwestern,*Through Q4 07 Notable Q4 Transactions BUILDING SF SALE PRICE SELLER BUYER Marathon Oil Tower Galleria/Uptown,97,00 $75.0 million CBRE Global Investors M-M Properties/Baupost Group Westchase Park Plaza Westchase,08 $4.0 million Parmenter Realty Partners Hertz Group Nitya Tower (FKA Norfolk Tower) Greenway Plaza 07,56 Undisclosed TA Realty Nitya 5757 Woodway San Felipe/Voss 6,888 Undisclosed Fuller Realty Braun Enterprises/ Harbert Mgmt SOURCE Real Capital Analytics, HFF, Transwestern REAL ESTATE OUTLOOK HOUSTON METRO Q4 07

4 HOUSTON METRO MARKET YEAR-END 07 OUTLOOK A Return To Normal or More of the Same in 08? After suffering through the worst of the effects of the energy downturn, the Houston office market appears poised to begin a tangible recovery in 08 as WTI prices have settled over $60 per barrel, more favorable corporate tax rates are set to kick in and a strong national economy has consumer confidence near 0-yr highs. Diversification in industries such as healthcare, petrochemical, distribution and retail/ hospitality have helped offset many of the jobs lost through the energy downturn; however, there is little doubt that the market needs a return to form for energy or the emergence to help alleviate the vacant and available supply. As such, the late year surge in crude prices is especially notable. Still, job growth in the sector will require prices to maintain in the $60's for the balance of 08. Considering current market conditions, overall market activity is projected to remain light over the first half of 08 with the second quarter seeing direct vacancy crest. Tangible improvement should begin in the second half of 08, as job growth stimulates absorption. All core metrics are forecast to improve, with availability and vacancy deceasing, while absorption returns to positive absorption. Additionally, the quick rise of co-working should continue to benefit landlords (in the short-run) as their demand for space increases coworking market totals significantly and helps to reduce direct available supply. With all signs pointing up, the only headwinds remaining for the Houston office market center around the energy sector and the highly unpredictable nature of crude prices. OFFICE ABSORPTION AND EMPLOYMENT HOUSTON METRO AREA Net Absorption (Thousands of SF) *-month job growth through Nov 07, net absorption YTD through Q Multi-tenant market vs Transwestern comprehensive market coverage 0 MULTI-TENANT ENTIRE MARKET Inventory 00.4 MSF 4.8 MSF Overall Vacancy 0.7% 7.0% SOURCE Bureau of Labor Statistics, Transwestern 07 Net Absorption (,05,970) SF (,990,948) SF Payroll Job Growth (in Thousands) WHY OUR METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS We include owner occupied and single-tenant buildings in our inventory, vacancy and absorption statistics to capture more market activity than many of our competitors. This allows us to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. The inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than some of our competitors results, but our coverage of the market is more comprehensive. 4 REAL ESTATE OUTLOOK HOUSTON METRO Q4 07

5 Houston Office Market Indicators - All Space TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q4 07 W/ SUBLET Q4 07 TOTAL AVAILABILITY Q4 07 UNDER CONSTRUCTION NET ABSORPTION Q4 07 NET ABSORPTION YTD 07 Conroe 90,8 46, % 5.5% 0.9%,85 5,0 Central Business District 6 4,786,69 7,045,57 6.% 8.% 5.6% 778,44 (,095) (,497,47) Midtown 5,664,75 596,49 0.5%.0% 5.% - 4,4 95,984 Downtown 94 49,450,644 7,64, % 7.% 4.5% 778,44,046 (,40,44) FM 960 / Champions,900,8,55 6.4% 6.4% 9.% - 4,690 6,09 FM 960 / Highway ,48,79 506,6 9.8% 0.% 4.8% - (,7) (,8) FM 960 / I-45 North 5,5,458 59,898 7.% 7.4%.8% -,096 (,870) FM ,74,559,77,79 4.% 4.% 8.8% - 4,54 (9,65) Greenway Plaza 48,095,766,45,6.9%.4% 9.% 88,547 (,878) (,88) Gulf Freeway/Pasadena,64,57 406, % 5.4% 9.8% -,7 8,56 Katy Far West 7,0,554 55,57.8%.% 6.% - 7,045 7,57 0,4 Katy Freeway East 59 9,59,9 85,89 8.7% 9.5% 5.% - 08,44 (8,75) Katy Freeway West 4 6,65,98 4,7, % 8.9% 7.5% 86,55 68,590 (506,4) Katy Frwy / Energy Corridor 00 6,47,7 5,07,79 4.4% 6.4% 4.% 86,55 76,74 (54,99) Kingwood / Humble *,4,89 6,74.0%.0%.% - (6,544) (,70) NASA / Clear Lake 5 5,6,060,08,46 9.% 9.6%.4% - (75,664) (05,05) North District / IAH 0,759, ,98 7.5% 7.9% 9.7% - 8,687 (68,05) North District / North Belt W 75 0,64,68 4,74,9 4.0% 45.8% 54.5% - (9,75) (59,04) North District / North Belt 95,94,478 5,,77 9.7% 4.9% 49.% - (8,065) (707,077) Northeast,70,8 66,75 4.9% 4.9% 8.7% 5,60 4,05,04 North Loop West 9,95,58 65, 6.% 6.% 5.6% - 8,644 (0,745) Northwest Near 0,04,50 7,98.6%.6%.9% - (9,04) (9,99) Northwest Far 0,9,50 788,09.6%.9% 6.% - (48,4) 7,74 Northwest 69 8,06,08,46,4 7.6% 7.7%.% - (48,8) (4,00) South Main / Medical Center 47 0,60,56 64,46 6.% 6.% 5.4% - (6,907) (0,467) E Fort Bend Co / Sugar Land 45 6,097, ,6 6.7% 7.9%.9% 87,00 49,58 0,664 Southwest Beltway 8 4 5,5, 875,97 5.9% 6.0%.0% 60,000 (6,484) (75,884) Southwest / Hillcroft 6 4,,807 78,4 8.% 8.4%.8% - (97,68) (5,444) Southwest Fwy / Sugar Land 5,9,446,065,467.0%.5% 8.% 47,00 (09,4) (90,664) The Woodlands 96 6,50,878,58,86 9.% 9.6%.% 55,800 90,46 45,806 West Belt 7 5,98,069 79,8.7% 9.5%.5% - 55,489 0,767 Bellaire 8 4,98,0 45,85 9.7% 0.0% 4.% -,5 (40,0) Galleria / Uptown 58 6,760,79,6,099.% 5.9% 0.0% 04,579 (,78) (474,5) Post Oak Park 7 4,58,00,08,758.6% 6.0%.% - (55,975) (45,980) Richmond / Fountainview 89,98 40,44 6.9% 6.9% 9.% - 6,778 45,748 Riverway 6,868,5 586, %.4%.6% - 8,96 (48,59) San Felipe / Voss 5,060,57 904,58 7.9% 8.%.% -,586 (79,) West Loop 7 4,98,00 5,55, % 7.%.% 04,579 (7,780) (,4,5) Westchase 89 7,588,55,004,95 7.% 0.4% 9.% 87,0 (9,655) (40,0) TOTAL - Houston,9 4,99,988 7,76,68 5.5% 7.0%.8%,95,8 (5,68) (,990,948) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government REAL ESTATE OUTLOOK HOUSTON METRO Q4 07 5

6 HOUSTON METRO MARKET YEAR-END 07 Houston Office Market Indicators - Class A TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q4 07 W/ SUBLET Q4 07 TOTAL AVAILABILITY Q4 07 UNDER CONSTRUCTION NET ABSORPTION Q4 07 NET ABSORPTION YTD 07 Conroe 8,8,0 0.% 0.% 4.% - (,76) Central Business District 7 4,6,465 4,408,7.9% 5.%.% 778,44 (5,59) (,04,46) Midtown 8,486,094 74,9 5.0% 5.9%.7% - 0,66 (,64) Downtown 45 6,6,559 4,78,84.% 5.4%.% 778,44 (,876) (,07,04) FM 960 / Champions 50, % 0.0% 0.0% - FM 960 / Highway 49 7,79,4 04,77 8.% 8.% 0.5% - (8,06) 4,64 FM 960 / I-45 North 06,705 54,5 6.4% 6.4% 6.4% - (5,87) FM ,086,7 58, % 8.9% 0.9% - (8,06) (0,745) Greenway Plaza 0 7,56,944,040,9 4.% 4.7%.6% 88,547 (49,0) (7,47) Gulf Freeway/Pasadena - Katy Far West 5,68,04 5,4.7%.6% 9.7% 7,045 7,57 9,09 Katy Freeway East 4 5,76,894 6,84 0.8%.8% 7.7% - 4,75 (9,76) Katy Freeway West 7 8,77,78,86,56 5.% 8.5% 7.5% 86,55 8,490 (7,95) Katy Frwy / Energy Corridor 96 4,54,07,459,404 4.% 6.9% 5.% 86,55 5,665 (66,56) Kingwood / Humble 44, 9,9 6.5% 6.5% 6.5% - (,97) NASA / Clear Lake 5,08,6,5 6.% 6.9%.4% - (0,574) (7,640) North District / IAH 8,, ,9 46.% 46.% 47.7% -,44 (6,606) North District / North Belt W 7 4,4,80,06,80 5.% 58.8% 68.9% - (9,80) (4,865) North District / North Belt 5 5,548,487,867, % 56.0% 64.% - (90,657) (404,47) Northeast 640,700 6,757.6%.6%.6% - 5,708 (6,757) North Loop West 6,40,544 8,966.7%.7% 45.% - 7,60 44,64 Northwest Near 7, % 0.0% 0.0% - 0 Northwest Far 4 797,7 6,8 4.0% 4.5% 45.% - (587) 8,9 Northwest,75,65 608, % 6.9% 40.4% - 7,67 5,546 South Main / Medical Center 6 4,80,99 99,54 4.% 4.% 7.0% - (9,979) (5,74) E Fort Bend Co / Sugar Land 0,77, 6,55 7.0% 7.9%.% 94,00 5,40 (4,789) Southwest Beltway 8 566,699 04,89 8.5% 8.5% 8.5% - (,864) (56,9) Southwest / Hillcroft 6,487,9,4.7%.5% 9.0% - (59,6) (94,964) Southwest Fwy / Sugar Land 9 5,87,49 690,587.9%.6% 6.4% 94,00 (65,678) (85,97) The Woodlands 44,788,46,7, % 0.0%.% 704,800 9,7 59,8 West Belt 4,095, ,4 4.4% 0.%.5% - 54,6 84,60 Bellaire 8,470,67 7,7.7%.4% 9.8% - (4,67),4 Galleria / Uptown 5,47,845,87,6 4.0% 7.%.% 04,579 (47,87) (48,6) Post Oak Park 9,67,868 8,58.0% 5.% 40.% - (,057) (6,) Richmond / Fountainview - Riverway 5,885,8 4,7.4%.8% 5.% - (,97) (46,6) San Felipe / Voss,70,79 80,589.%.% 8.6% - 6,70 8,580 West Loop 60,,956,66,085 7.% 0.0% 4.4% 04,579 (5,98) (967,590) Westchase 9,96,74,78, %.5%.4% 87,0 (07,75) (5,45) TOTAL - Houston 459 4,580,66,685,07 5.% 7.5% 4.0%,06,78 (86,067) (,5,86) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government 6 REAL ESTATE OUTLOOK HOUSTON METRO Q4 07

7 Houston Office Market Indicators - Class B TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q4 07 W/ SUBLET Q4 07 TOTAL AVAILABILITY Q4 07 UNDER CONSTRUCTION NET ABSORPTION Q4 07 NET ABSORPTION YTD 07 Conroe 0 688,859,06 4.8% 5.5%.8% -,85 57,065 Central Business District 9,49,750,6, % 8.6% 5.% - 0,444 (84,454) Midtown 0,955,580 66, % 5.8% 8.% -,478 04,99 Downtown 4,95,0,779,655.4%.% 8.8% - 4,9 (79,55) FM 960 / Champions 0,60,86 0,5 8.5% 8.5%.9% - 4,690 9,69 FM 960 / Highway 49 8,5,795 98,049 5.% 5.5% 7.% - (7,00) (5,0) FM 960 / I-45 North 968,76 54,57 6.% 6.6% 5.4% -,096 (,87) FM ,94,77 75,4 9.% 9.5% 7.0% - 9,785 (4,) Greenway Plaza 6,598,55 46,78 9.6% 9.9%.7% -,846 (6,7) Gulf Freeway/Pasadena 7,79,49 5,77 4.9% 4.9% 0.% - (6,88) 0,7 Katy Far West,75,88, 0.% 0.% 0.7% - 0 7,0 Katy Freeway East 6,879,96 9,46 6.7% 7.4% 4.% - 90,94 56,998 Katy Freeway West 66 7,640,90,58,56 0.0% 0.% 7.9% - 50,00 (,89) Katy Frwy / Energy Corridor 9 0,59,486,7, % 6.7% 4.% - 4,04 (76,8) Kingwood / Humble 9,090,077 7,4.5%.5%.7% - (4,67) (,70) NASA / Clear Lake 7,50, , 7.% 7.% 8.9% - (55,090) (67,465) North District / IAH,49,858 98,69.% 4.0% 6.% - 5,54 (5,49) North District / North Belt W 46 4,8,988,85,57 7.9% 8.6% 47.7% - (80,040) (7,404) North District / North Belt 57 6,05,846,0,74.%.8% 40.% - (74,497) (77,8) Northeast 6 554,09 44,990 8.% 8.%.7% 5,60 8,45,749 North Loop West,566,87 48,7.6%.6% 6.7% - (60,7) (7,80) Northwest Near 7 6,5 7,98 6.% 6.% 6.5% - (9,04) (9,99) Northwest Far,94,586 46,76 0.% 0.%.4% - (47,846) (,88) Northwest 5 5,484,99 847, % 5.6% 7.9% - (7,04) (9,60) South Main / Medical Center 9 4,00, 408,89 0.% 0.% 4.5% -, 6,705 E Fort Bend Co / Sugar Land 4,50,77 45,96 6.5% 8.%.6% - (60,7) 55,45 Southwest Beltway 8 4,588,548 7, % 6.%.% 60,000 (,84) (4,07) Southwest / Hillcroft 9,794,770 7,7 0.8% 0.9%.0% (4,980) (6,56) Southwest Fwy / Sugar Land 76 8,6,495,5,4 4.5% 5.0% 0.5% 5,000 (,48) 5,05 The Woodlands 50 4,45,70 9, % 9.%.5% - (,676) (,577) West Belt 4,0,65 50,75.5% 7.4% 5.7% -,8 46,407 Bellaire 6,44,987, % 8.8%.8% - 0,766 (57,6) Galleria / Uptown,66,74 5,77 0.8%.% 5.6% - 5,099 7,496 Post Oak Park 6,80,0 69,0 4.9% 4.9%.4% - (5,98) (84,849) Richmond / Fountainview 7 570,70 5,568.8%.8%.% -,990 6,598 Riverway 9 870,5 6,58 8.8% 9.%.% - 9,49 (,) San Felipe / Voss 0,9,64 5,99 5.7% 6.% 0.% - (4,4) (87,7) West Loop 00,9,66,657,57.5%.8% 7.% - (694) (08,060) Westchase 5 7,,965,90,9 6.7% 7.% 6.6% - 4,50 (779) TOTAL - Houston 79 89,7,40 4,9,79 6.7% 7.%.% 68,60 8,959 (79,5) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government REAL ESTATE OUTLOOK HOUSTON METRO Q4 07 7

8 Houston Office Market Indicators - Asking Rental Rates CONTACT Stuart Showers Director of Research stuart.showers@transwestern.com Q4 06 CLASS A Q4 06 CLASS B % CHANGE Y-O-Y CLASS A % CHANGE Y-O-Y CLASS B Rachel Hornbeak Research Analyst rachel.hornbeak@transwestern.com Q 07 CLASS A Q 07 CLASS B Jennifer Woodruff Research Analyst jennifer.woodruff@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on office, industrial, retail, multifamily and healthcare properties located in the Houston metropolitan area. This report includes single-tenant, multi-tenant and owner-user properties and excludes properties owned and occupied by a government agency. % CHANGE OVER QUARTER CLASS A % CHANGE OVER QUARTER CLASS B Q4 07 CLASS A Conroe $.05 $.5 0.% -6.8% $.05 $.9 0.% -4.4% $.09 $.9 Central Business District $45.00 $.0 0.4% -.% $45.6 $ %.7% $45.7 $0.08 Midtown $4. $ % -.9% $4.49 $.65-0.% -.5% $4.44 $.8 Downtown $44.7 $.58 0.% -.6% $44.9 $0.8 0.% 0.8% $44.5 $0.4 FM 960 / Champions - $ % - $ % - $4.4 FM 960 / Highway 49 $7.84 $.74-0.% -.9% $7.94 $ % -.7% $7.78 $9.5 FM 960 / I-45 North $.69 $7. 5.5% 5.9% $5.00 $ %.6% $5.00 $8.6 FM 960 $7.09 $7.9.0% -.0% $7.44 $7.0-0.%.% $7.5 $7. Greenway Plaza $7.89 $6. -.9%.% $8. $ % 0.6% $7.9 $7.08 Gulf Freeway/Pasadena - $ % - $.8-0.% - $.89 Katy Far West $8.7-0.% - $8.8 - Katy Freeway East $4.9 $7.0.% -.% $4.80 $ % -5.% $4.4 $6.6 Katy Freeway West $9.4 $. -6.5% -0.5% $6.7 $.5-0.% -0.7% $6.68 $.0 Katy Frwy / Energy Corridor $9.49 $ % -.6% $7.8 $.9-0.5% -.9% $7.64 $.46 Kingwood / Humble $.7 $0.6 0.%.8% $.94 $ % 4.% $.8 $.5 NASA / Clear Lake $4.80 $ % -6.% $4.50 $ % 0.6% $4.49 $8.6 North District / IAH $.8 $6.57.8% -6.4% $.09 $5.7 0.%.5% $. $5.5 North District / North Belt W $5. $ % -.5% $5.7 $6.4 -.% 0.9% $4.85 $6.55 North District / North Belt $4.67 $ % -.0% $4.9 $ % 0.9% $4.5 $6.45 Northeast - $.7-0.0% - $.7-0.0% - $.7 North Loop West $6.7 $.77.5% -.6% $6.84 $.84 -.% 0.4% $6.56 $.94 Northwest Near $9.6 $5.69.5% -.% $9.48 $5.5 0.% -0.4% $9.54 $5.9 Northwest Far - $8.8-7.% - $9.7-0.% - $9.7 Northwest $.8 $ % -.9% $.4 $7.8.% 0.8% $.8 $7.98 South Main / Medical Center $.4 $6.99.9% -.9% $4.7 $ % -5.7% $.59 $.50 E Fort Bend Co / Sugar Land $0.70 $.7.%.0% $.5 $ % 4.5% $.4 $.4 Southwest Beltway 8 $.8 $5.9 -.% 6.5% $.5 $ % -.0% $0.9 $8.54 Southwest / Hillcroft $ % - $9.58 $ % -.% $9.76 $6.7 Southwest Fwy / Sugar Land $7.0 $ % -0.% $4.07 $9.0 0.% -.% $4.0 $8.60 The Woodlands $6.55 $ % 9.5% $. $ %.9% $.6 $5.90 West Belt $7. $ % 47.7% $.58 $ %.4% $.4 $4.58 Bellaire $7.68 $.5 0.5%.5% $7.67 $ %.% $7.8 $4. Galleria / Uptown $8.6 $9.6.9% -.7% $9.4 $8.5 0.%.% $9.6 $8.66 Post Oak Park $9.70 $8.4-7.% -7.8% $8.75 $ % -0.5% $6.79 $6.0 Richmond / Fountainview - $ % - $ % - $9.5 Riverway $4.74 $ % -.6% $.0 $5.0 0.%.% $. $5.65 San Felipe / Voss $5.90 $ % 0.% $6.50 $5. -.8%.% $5.8 $5.79 West Loop $7. $ % 0.% $7.6 $ %.7% $7. $6.00 Westchase $6.45 $ % -0.7% $6.79 $ %.% $6. $9.87 TOTAL - Houston $6.66 $ % -4.0% $6.0 $ % -0.% $5.94 $.78 Q4 07 CLASS B Copyright 07 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

9 REAL ESTATE OUTLOOK HOUSTON OFFICE MARKET THIRD QUARTER 07 Hurricane Harvey Takes a Toll on Houston Sublease space decreases by 90K SF OVERVIEW Harvey Delays Office Recovery Slightly While the office market has been under storm clouds for several quarters, the third quarter saw Hurricane Harvey eclipse the sun and pour over five feet of water on the Houston Metro area. Initial reports on the storm's capital impacts were significantly exaggerated as they were tethered to estimates based upon flood maps. However, a detailed review indicated that the storm damaged just under 70 office buildings with a net rentable area impact of.0 million square feet, or 0.8% of total supply, significantly less than initially anticipated. A lack of strong winds spared most office buildings from significant harm, leaving property damages mostly to parking garages, first and subfloors as well as minor roof leaks. Of the properties damaged, over 75% were fully operational within two weeks of the event. The most tangible impact that Harvey had upon the Houston office market was essentially delaying the sectors recovery for an additional quarter. SF In Thousands NET ABSORPTION AND RATE TRENDS HOUSTON METRO AREA Note: Delivery of preleased space counts as positive net absorption SOURCE CoStar, Transwestern *Through Q 07 CONTIGUOUS BLOCKS OF AVAILABLE SPACE HOUSTON METRO Net Absorption 07 Class A Direct Net Absorption Class A Sublet Vacancy Rate 4 Class B Direct 5 6 7* Class B Sublet NET ABSORPTION 07 Year-to-Date Absorption Totals Negative.9M SF Year-to-date absorption totals of negative.9 million square feet continue to highlight the delayed impacts of the energy downturn as well as the trend of companies striving for efficiency and reducing their space footprint. Absorption for the quarter totaled negative 7,000 square feet and was equally distributed among classes. Class A properties totaled negative 60,000 square feet with the West Loop ,000 SF 50,000 SF 00,000 SF 00,000 SF SOURCE CoStar, Transwestern *Through Q 07 Notable Q Leases TENANT SF LEASE TYPE BUILDING NRG Energy 4,07 Sublease One Shell Plaza CBD McDermott 86,000 Sublease Westway Plaza II West Belt USCIS 00,00 Renewal Northpoint Plaza North District EDF Trading 60,000 New Lease 60 Travis CBD

10 HOUSTON METRO MARKET THIRD QUARTER 07 and Central Business District primarily accounting for the negative absorption. Class B finished the third quarter with negative 98,000 square feet of absorption, due to space give backs in the Houston North District and the West Loop submarkets. DIRECT & TOTAL AVAILABILITY Total Availability Declines While Vacancy Rises The overall office availability rate (all space marketed as available for lease, both direct and sublet) decreased 0.% over the quarter, ending at.%. Class A properties drove the decrease, declining by 0.5% to finish the period at 4.4%. While Class B properties ticked up marginally, finishing at.0%. Direct vacancy rose for the twelfth consecutive quarter, up 0.% and closing at 5.4% overall. Class A properties saw vacancy increase by 0.%, ending at 5.%, while Class B properties were up 0.4% to 6.7%. Currently, over.5 million SF of sublease space is set to expire over the next months, equating to roughly 0% of total sublease supply. This is especially pronounced in the North Houston District where 868,845 SF is set to expire by end of year 08. As more sublease space expires city-wide, vacancy rates will continue to trend up. Total Available Space Houston Metro Q 07 SUBLEASE SPACE (SF) % OF SUPPLY AVERAGE OFFICE RENTS HOUSTON METRO AREA % TOTAL AVAILABLE Energy Corridor,86,77 6.6% 5.% CBD,78, % 5.8% Westchase,54, % 9.0% Galleria 84,64 5.0%.% North District 877, % 48.8% All of Houston 9,89,4 4.%.% $40 $5 Overall Class A Class B RENTAL RATES Asking Rates Continue to Ascend Overall asking rates for the Houston Metro area increased by.5% over the quarter and.0% over the year, finishing the period at $0.9 PSF full service. Despite the increase in asking rates, concessions remain elevated throughout the market with generous concession packages and tenant improvement allowances being offered in order to maintain the highest rent figures. $0 $5 $0 $ Note: All classes of office space * SOURCE CoStar, Transwestern *Through Q 07 Class A rates closed the quarter up 0.6% (+$0.0), ending at $5.8 PSF full service, while Class B asking rates declined by.%, ending at $.97 PSF full service. The submarkets with the highest asking rents are the Katy Fwy East ($45.00 PSF), the Central Business District ($44.5 PSF) and Galleria/Uptown ($8.8 PSF). SUPPLY AND DEVELOPMENT Development Pipeline Remains in Check Houston area construction activity has slowed greatly due to both the delivery of over.0m SF in the past seven years and the downturn in the energy sector. Given the ample amount of space currently on the market for lease, developers are wary of additional speculative construction. Still, as tenants strive to retain talent and attain efficiency both in their space footprint as well as their operating expenses, the potential for additional construction tethered to a lead tenant remains high. Specifically, in core office submarkets such as the CBD, the Woodlands and West Loop. At the close of the third quarter, the Houston construction pipeline totaled. million square feet and is currently 5.5% preleased. Office Under Construction Houston Metro Q 07 NUMBER OF BLDGS SF % PRE- LEASED CBD 778,44 7.0% Woodlands 55, % E Fort Bend Co/Sugar Land 47,00 0.% Greenway Plaza 88, % Westchase 87,0 80.9% Northeast 5, % West Loop 04, % Energy Corridor 86,55 6.5% Katy 7, % Total,95,8 5.5% REAL ESTATE OUTLOOK HOUSTON METRO Q 07

11 The largest projects currently under construction are Capitol Tower (CBD, 778,000 SF - 7% leased to Bank of America), CityPlace (The Woodlands, 8,000 SF - 00% Leased to HP), CityPlace (The Woodlands, 6,000 SF - 00% Leased to ABS) and The Kirby Collection, a mixed-use project with a significant office component (Greenway Plaza,,000 SF, 0% preleased). INVESTMENT MARKET Houston Investment Market is Red-Hot Harvey had little impact on Houston's investment market as a flurry of activity took place throughout the quarter. The underlying fundamentals of the market are strong and stabilization in the energy sector should begin to avail itself over the next 9- months, keeping sentiment positive amongst the investor community. Sales for the quarter (including the under contract Houston Center), totaled $.4 billion and were comprised of 5 transactions. The most significant transaction of the third quarter was Brookfield Properties acquisition of Houston Center from JPMorgan Asset Management. The four building portfolio located in Houston's Central Business District totals over 4.0 million square feet and is under contract for approximately $875 million. Additionally, Bank of America corporation acquired Energy Center IV from Trammell Crow Company for $75 million or $46.00 PSF (6.0% cap rate). The 597,000 square foot Class A facility is located in the Katy Fwy West submarket and is under long-term lease to ConocoPhillips. The market remains full of potential with a plethora of well located infill properties representing value add opportunities to investors. As such, investment activity should remain strong through the balance of 07. These figures represent assets for which pricing information could be obtained. COMPARATIVE OFFICE INVESTMENT SALES VOLUME SELECT METRO AREAS Sales Volume in Billions Atlanta Dallas Denver Houston $8 $7 $6 $5 $4 $ $ $ $ * SOURCE Real Capital Analytics, Transwestern,*Through Q 07 AVERAGE OFFICE SALE PRICE HOUSTON METRO AREA Average Sale Price Per SF $50 $00 $50 $00 $50 $ * SOURCE Real Capital Analytics, Transwestern,*Through Q 07 Notable Q Transactions BUILDING SF SALE PRICE SELLER BUYER Houston Center CBD 4,00,000 $875.0 million (under contract) JPMorgan Asset Management Greenspoint Plaza North District,080,000 N/A Northwestern Mutual Brookfield Asset Management Lincoln Property Co & H.I.G. Realty Partners joint venture Energy Center IV Katy Freeway West 597,000 $75.0 million Trammell Crow Company Bank of America Corporation 700 W Loop S Galleria/Uptown 7,94 $5.0 million Bridge Investment Group Lingerfelt Commonwealth Partners SOURCE Real Capital Analytics, HFF, Transwestern REAL ESTATE OUTLOOK HOUSTON METRO Q 07

12 HOUSTON METRO MARKET THIRD QUARTER 07 OUTLOOK Light at the End of the Tunnel? The Houston office market has been in limbo for several quarters as office using job growth has been all but nonexistent following the energy sector downturn. Large swaths of expiring sublease space compete head-to-head with direct vacant blocks and recent activity has been a shuffling of tenants as opposed to expansionary. While diversification in industries such as healthcare, petrochemical, distribution and retail/hospitality have helped offset many of the jobs lost in the energy sector, there is little doubt that the market needs a return to form for crude prices or the emergence of an alternative industry to help alleviate the vacant and available supply. As such, eyes will continue to focus upon Houston's strategy to support Tech growth, North American crude inventories, OPEC s willingness to maintain production cuts, and the resulting impacts to the spot price of WTI. Overall market activity is projected to remain flat through the remainder of the year as leasing activity continues to fall below historical averages. Tenants with near term expirations are in a favorable market to extend early and lock in favorable terms. The energy sector will continue to see Mergers and acquisitions at a rapid pace leaving the potential for additional blocks of space to be brought online due to redundancies. OFFICE ABSORPTION AND EMPLOYMENT HOUSTON METRO AREA Net Absorption (Thousands of SF) *-month job growth through May 07, net absorption YTD through Q 07 Multi-tenant market vs Transwestern comprehensive market coverage 0 MULTI-TENANT ENTIRE MARKET Inventory 99. MSF 4.8 MSF Overall Vacancy.0% 7.% SOURCE Bureau of Labor Statistics, Transwestern Q Net Absorption (9,7) SF (,99,708) SF Payroll Job Growth (in Thousands) * WHY OUR METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS We include owner occupied and single-tenant buildings in our inventory, vacancy and absorption statistics to capture more market activity than many of our competitors. This allows us to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. The inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than some of our competitors results, but our coverage of the market is more comprehensive. 4 REAL ESTATE OUTLOOK HOUSTON METRO Q 07

13 Houston Office Market Indicators - All Space TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 07 W/ SUBLET Q 07 TOTAL AVAILABILITY Q 07 UNDER CONSTRUCTION NET ABSORPTION Q 07 NET ABSORPTION YTD 07 Conroe 90,8 49, % 5.9% 9.8% 6 49,45 Central Business District 6 4,69,078 7,0,49 6.% 7.9% 5.8% 778,44 (6,54) (,47,646) Midtown 5,664,75 69,580.%.8% 7.% - (,479) 5,84 Downtown 94 49,57,45 7,66,07 5.5% 7.% 4.8% 778,44 (94,6) (,40,80) FM 960 / Champions,900,8 5, % 7.7%.5% - (6,40),9 FM 960 / Highway ,48,79 48, %.% 5.9% - (9,97) (9,59) FM 960 / I-45 North 5,5,458 6,994 7.% 7.8% 4.% - (48,8) (5,966) FM ,74,559,8,69 4.% 5.% 0.0% - (84,55) (44,66) Greenway Plaza 48,095,766,4,8.7%.% 9.4% 88,547 4,90 (,005) Gulf Freeway/Pasadena,64,57 94,85.%.% 7.4% -,04 6,4 Katy Far West 7,954,7 60,4.%.7% 6.7% - 7,045 5,4 7,85 Katy Freeway East 60 9,674,69 95,0 9.7% 0.% 6.4% - (8,86) (6,869) Katy Freeway West 4 6,654,5 4,484, % 0.5% 8.5% 86,55 (95,8) (540,87) Katy Frwy / Energy Corridor 0 6,9,006 5,40,4 4.9% 7.7% 5.% 86,55 (77,68) (677,056) Kingwood / Humble *,4,89 0,90.4%.4%.6% - 6,497,74 NASA / Clear Lake 5 5,6,74,006, % 8.8%.6% - 5,788 (0,95) North District / IAH 0,759, , % 8.0% 0.6% - (6,46) (76,7) North District / North Belt W 75 0,84,568 4,90,48 4.% 44.8% 5.7% - (55,687) (44,90) North District / North Belt 95,944,48 5,057, 9.% 4.% 48.8% - (7,0) (6,6) Northeast,70,8 85,67 6.% 6.% 0.0% 5,60 (,465) (,09) North Loop West 9,955,85 67,6 7.0% 7.% 0.9% -,46 (9,89) Northwest Far 0,9,50 79,776.%.% 7.9% - 0,76 56,67 Northwest Near,90,80 8,959.%.5%.4% -,5 (0,968) Northwest 7 8,585,8,44,57 6.8% 6.9%.0% - 5,50 5,80 South Main / Medical Center 47 0,8,94 66, % 6.% 7.9% - 9,648 6,440 E Fort Bend Co / Sugar Land 47 6,84, ,84 7.% 8.9% 5.9% 87,00 (46,54) (8,854) Southwest Beltway 8 4 5,546,947 84,4 4.7% 4.8%.9% 60,000 6,56 (4,400) Southwest / Hillcroft 6 4,,807 6,46 4.% 4.9%.7% - 5,889 (9,67) Southwest Fwy / Sugar Land 4 6,5,46,884,79.7%.5% 0.4% 47,00 (4,9) (7,96) The Woodlands 96 6,485,5,609,44 9.8% 0.%.4% 55,800,886 (44,655) West Belt 7 5,87, , % 9.% 6.7% - 6,90 75,78 Bellaire 8 4,0,857 4,9 0.% 0.% 4.9% - (75,4) (5,86) Galleria / Uptown 58 6,8,99,66,94.5% 6.6%.% 04,579 (8,6) (44,47) Post Oak Park 7 4,58,00,05,78.4%.8% 8.5% - (76,997) (90,005) Richmond / Fountainview 89,98 57,0 8.9% 8.9% 0.7% -,88 8,970 Riverway 6,868,5 594, %.% 4.4% - (0,78) (56,789) San Felipe / Voss 5,060,57 97,68 8.% 8.0% 4.5% - (74,48) (9,78) West Loop 7 4,476,487 5,95,9 5.7% 7.5%.9% 04,579 (6,579) (,04,45) Westchase 89 7,585,648,87,7 6.% 0.5% 9.0% 87,0 55,68 (47,67) TOTAL - Houston,98 4,850,469 7,69, % 7.%.%,95,8 (7,) (,99,708) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government REAL ESTATE OUTLOOK HOUSTON METRO Q 07 5

14 HOUSTON METRO MARKET THIRD QUARTER 07 Houston Office Market Indicators - Class A TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 07 W/ SUBLET Q 07 TOTAL AVAILABILITY Q 07 UNDER CONSTRUCTION NET ABSORPTION Q 07 NET ABSORPTION YTD 07 Conroe 8,8,0 0.% 0.% 4.% - (,76) (,76) Central Business District 7 4,0,74 4,66,44.8% 4.9%.% 778,44 (99,59) (,60,7) Midtown 8,486,094 94,78 5.9% 6.8% 5.0% - (0,58) (,05) Downtown 45 6,59,68 4,76,06.0% 5.%.4% 778,44 (9,95) (,8,54) FM 960 / Champions 50, % 0.0% 0.0% - FM 960 / Highway 49 7,79,4 96,4 7.9% 8.4% 0.5% - 9,0,705 FM 960 / I-45 North 06,705 54,5 6.4% 6.4% 6.4% - (5,87) FM ,086,7 50,86 8.6% 9.0% 0.9% - 9,0 (,68) Greenway Plaza 0 7,56,944 99,9.5%.9%.4% 88,547 5,460 (,46) Gulf Freeway/Pasadena Katy Far West 5,560,8 58,08.9%.8%.% 7,045 5,4 0,78 Katy Freeway East 4 5,76, ,74.%.6% 8.4% - (56,676) (7,96) Katy Freeway West 7 8,77,5,846,60 5.% 0.% 8.% 86,55 (0,40) (90,885) Katy Frwy / Energy Corridor 96 4,54,405,494,975 4.% 8.% 5.8% 86,55 (67,079) (48,8) Kingwood / Humble 44, 7,466 5.% 5.% 6.5% -,97,97 NASA / Clear Lake 5,08,6 0,56 5.% 7.%.6% -,699 (7,066) North District / IAH 8,,677 56,7 46.4% 46.9% 48.6% - (,657) (65,750) North District / North Belt W 7 4,4,80,,09 5.% 56.7% 66.5% - 4,09 (48,064) North District / North Belt 5 5,548,487,776, % 54.5% 6.6% -,44 (,84) Northeast 640,700,465 5.% 5.% 5.% - (,465) (,465) North Loop West 6,40,544 55,6 8.6% 8.8% 0.% - 0,76 (8,66) Northwest Near 4 797,7 6, % 4.4% 4.7% - (0,57) 9,509 Northwest Far 7,84-0.0% 0.0% 0.0% - Northwest,75,65 68,47 0.0% 0.%.4% (9,7) South Main / Medical Center 6 4,80,99 79,545.7%.9% 6.% - 8,88 (5,745) E Fort Bend Co / Sugar Land,867,5 77,757 7.% 9.4% 4.8% 94,00 (44,458) (50,9) Southwest Beltway 8 566,699 8, % 4.6% 6.% - (4,000) (4,55) Southwest / Hillcroft 6,487,9 5,79 5.% 7.% 5.% - (,9),656 Southwest Fwy / Sugar Land 0 5,9, , %.9% 0.% 94,00 (79,850) (8,890) The Woodlands 44,75,90,9, % 0.8%.% 704,800 (5,665) (,754) West Belt 4,085, 6,8 5.5% 9.9% 4.8% - 6,90 9,999 Bellaire 8,470,67 67,64.4%.9%.% - (,88) 7,85 Galleria / Uptown 5,49,405,899,069 4.% 8.0%.8% 04,579 (06,68) (4,84) Post Oak Park 9,67,868 80,47.0%.5% 7.9% - (7,07) (59,074) Riverway Richmond / Fountainview 5,885,8 408,974.7%.6% 5.6% - (9,644) (,5) San Felipe / Voss,70,79 97,99.%.%.7% - (9,79) (8,0) West Loop 60,86,56,68, % 0.% 5.5% 04,579 (04,460) (96,9) Westchase 9,958,80,67, %.4%.4% 87,0 40,94 (8,60) TOTAL - Houston 460 4,58,777,50,657 5.% 7.7% 4.5%,06,78 (60,8) (,06,09) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government 6 REAL ESTATE OUTLOOK HOUSTON METRO Q 07

15 Houston Office Market Indicators - Class B TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 07 W/ SUBLET Q 07 TOTAL AVAILABILITY Q 07 UNDER CONSTRUCTION NET ABSORPTION Q 07 NET ABSORPTION YTD 07 Conroe 0 688,859 6, % 6.0% 0.4% -,879 5,4 Central Business District 9,49,750,64,09 7.9% 8.7% 5.% - 7,49 (04,898) Midtown 0,955,580 88, % 6.5% 0.% - (,) 8,46 Downtown 4,95,0,8,577.8%.4% 9.% - 5,8 (,47) FM 960 / Champions 0,60,86 5, % 0.% 4.4% - (6,400) 4,99 FM 960 / Highway 49 8,5,795 8,048.8% 9.0%.% - (9,458) (4,0) FM 960 / I-45 North 968,76 56,5 6.5% 7.% 5.9% - (48,8) (4,9) FM ,94,77 76,06 9.5%.4% 9.6% - (94,096) (44,06) Greenway Plaza 6,598,55 70,69 0.% 0.8%.6% - (0,540) (87,06) Gulf Freeway / Pasadena 7,79,49 0,99 9.4% 9.4% 6.9% -,95 7,59 Katy Far West,75,88, 0.% 0.% 0.7% - 7,0 Katy Freeway East 6,879,96 84,87 9.9% 0.6% 7.4% - (6,8) (,94) Katy Freeway West 66 7,640,90,6,46.4%.8% 0.% - (85,49) (49,0) Katy Fwy / Energy Corridor 9 0,59,486,95,7 8.% 8.7% 6.6% - (,0) (8,45) Kingwood / Humble 9,090,077,74.%.%.% - 4,570,47 NASA / Clear Lake 7,5,0 904,5 5.6% 5.6% 8.% -,089 (,75) North District / IAH 0,4,858 0,7 5.% 5.% 8.9% - (,689) (0,97) North District / North Belt W 46 4,8,98,85, % 9.0% 47.4% - (9,747) (79,975) North District / North Belt 56 6,75,796,056,806.%.8% 4.% - (97,46) (90,947) Northeast * 6 554,09 47,74 8.6% 8.6%.% 5,60 4,404 North Loop West,596,60 7,89.%.% 6.8% - (8,47) (,009) Northwest Near,94,586 4,50 8.0% 8.0% 5.8% - 40,98 46,658 Northwest Far 9 87,086 8,959.%.6% 5.% -,5 (0,968) Northwest 5 5,764,9 760,8.%.% 8.6% -,64 4,68 South Main / Medical Center 9 4,05, ,60 0.% 0.%.5% ,49 E Fort Bend Co / Sugar Land 5,4,77 80, % 8.% 8.% 9,000 (,076),7 Southwest Beltway 8 4,6,64 709,68 5.4% 5.5% 4.7% 60,000 5,6 8, Southwest / Hillcroft 9,794,770 5,7 7.6% 7.7% 0.9% 7,8 (,76) Southwest Fwy / Sugar Land 77 8,760,,05,095.8% 4.0%.% 5,000 58,467 8,7 The Woodlands 50 4,45,70 89,84 8.7% 9.0%.% - 9,55 (,90) West Belt 4,0,65 5,0.6% 7.4% 4.4% ,79 Bellaire 6,448,74 7,568 9.% 9.4%.9% - (7,46) (68,7) Galleria,66,74 67,87.%.6% 5.7% - (,48) (7,60) Post Oak Park 6,80,0 5,.9%.9% 7.% - (9,960) (0,9) Riverway 7 570,70 47, % 5.9%.9% - (969) 4,608 Richmond / Fountainview 9 870,5 8,0.0%.% 4.6% - (54) (,75) San Felipe / Voss 0,9,64 59, % 5.8% 0.8% - (4,699) (8,588) West Loop 00,98,6,66,90.5%.7% 7.0% - (7,77) (07,66) Westchase 5 7,,965,04,7 6.9% 7.5% 5.7% - 4,47 (5,99) TOTAL - Houston 7 89,659,89 4,98, % 7.%.0% 68,60 (98,57) (957,486) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government REAL ESTATE OUTLOOK HOUSTON METRO Q 07 7

16 Houston Office Market Indicators - Asking Rental Rates Q 06 CLASS A Q 06 CLASS B % CHANGE Y-O-Y CLASS A % CHANGE Y-O-Y CLASS B Q 07 CLASS A Q 07 CLASS B % CHANGE OVER QUARTER CLASS A % CHANGE OVER QUARTER CLASS B Q 07 CLASS A Conroe $.05 $ % -6.4% $.05 $ % 0.% $.05 $.9 Central Business District $45.5 $.9 -.6% -5.5% $44.9 $ % -.8% $44.5 $9.58 Midtown $4.47 $.08 0.% 4.4% $4.49 $ % -.% $4.49 $4.54 Downtown $44.7 $ % -4.% $4.5 $.9-0.% -.6% $4.47 $0.6 FM 960 / Champions - $ % - $.75 -.% - $4.04 FM 960 / Highway 49 $7.59 $.6.% -9.9% $7.9 $ % -.% $7.94 $9.48 FM 960 / I-45 North $.69 $ %.% $4. $8.7.6% -0.6% $5.00 $8.07 FM 960 $6.9 $7..9% -.7% $7. $7.00.% 0.% $7.44 $7.0 Greenway Plaza $6.8 $5.97.9%.6% $6.97 $6.4.5%.8% $7.50 $6.9 Gulf Freeway/Pasadena - $. -.9% - $.7-0.5% - $.8 Katy Far West $ % - $ Katy Freeway East $4.90 $ %.8% $4.67 $7.54.%.9% $45.00 $8.06 Katy Freeway West $9.4 $.0-6.0% 4.4% $6.0 $5.4.0% -4.0% $7.05 $4. Katy Frwy / Energy Corridor $9.75 $ %.7% $6.8 $5.65.8% -.% $7.85 $4.84 Kingwood / Humble $0.94 $8.75.% 8.6% $.94 $ % -.8% $.94 $0.6 NASA / Clear Lake $4.59 $9..9% -5.8% $5. $ %.5% $5.9 $8. North District / IAH $.7 $6.86.7% -9.4% $.9 $6. 5.4% -5.9% $.09 $5.7 North District / North Belt W $6.0 $ % -.0% $5.48 $ % -.% $5.7 $6.4 North District / North Belt $5.44 $ % -.9% $4.79 $ % -.7% $4.9 $6.9 Northeast - $.7-0.0% - $.7 0.0% $.7 North Loop West $6. $..4% -.7% $6.55 $.08.% -.% $6.84 $.84 Northwest Near $9.9 $ % -0.% $8.9 $4.80.0%.0% $9.48 $5.5 Northwest Far - $ % - $ % - $9.45 Northwest $.94 $9.46.8% -8.4% $.9 $7.70.9% 0.7% $.4 $7.8 South Main / Medical Center $.09 $ % 4.% $.86 $7.80.% 0.% $4.7 $7.87 E Fort Bend Co / Sugar Land $0.4 $.0.% -.% $. $ %.4% $.06 $.40 Southwest Beltway 8 - $ % $0.0 $ %.6% $0.8 $9.05 Southwest / Hillcroft $ % - $9.57 $7.4 0.% -0.8% $9.58 $7.7 Southwest Fwy / Sugar Land $7.0 $.6 -.8% -9.7% $.66 $ %.% $.80 $9.0 The Woodlands $6.5 $.80.% 8.6% $6.70 $4.9 0.% -0.7% $6.8 $4.75 West Belt $7. $ %.0% $.8 $ % -9.6% $.58 $.86 Bellaire $7.70 $.6-0.% -0.% $7.79 $.9-0.4%.% $7.67 $.56 Galleria / Uptown $8.8 $ % 0.7% $8.77 $ % -0.9% $8.8 $8.5 Post Oak Park $9.59 $ % -5.8% $7.95 $ % -0.7% $7.6 $6. Riverway - $7.7 -.% - $ % - $9.70 Richmond / Fountainview $4.74 $ % -.8% $.5 $ % -0.% $.0 $5.0 San Felipe / Voss $6. $ % -0.% $6.54 $5.0-0.% 0.5% $6.50 $5. West Loop $7.44 $ %.9% $7.4 $5.0-0.%.4% $7.0 $5.56 Westchase $6.68 $ % -.7% $6.9 $ % -0.6% $6.79 $9. TOTAL - Houston $6.95 $ % -.6% $5.6 $.4 0.6% -.% $5.8 $.97 Q 07 CLASS B CONTACT Stuart Showers Director of Research stuart.showers@transwestern.com Rachel Hornbeak Research Analyst rachel.hornbeak@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on office, industrial, retail, multifamily and healthcare properties located in the Houston metropolitan area. This report includes single-tenant, multi-tenant and owner-user properties and excludes properties owned and occupied by a government agency. Copyright 07 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

17 REAL ESTATE OUTLOOK HOUSTON OFFICE MARKET MID-YEAR 07 One Step Forward, Two Steps Back Office market working to find way back up OVERVIEW Rising Crude Inventories Slow Recovery After a promising start to the year, the Houston office market encountered additional headwinds during the second quarter as the burgeoning oil recovery slowed due to rising North American crude inventories. For the second consecutive period, negative absorption surpassed one million square feet with overall year to date totals just under negative.5m SF. Direct vacancy rates and total availability increased by 0.4% over the period, ending at 5.% and.6%, respectively. On a positive note, sublease supply continued to decline and now stands at 0.8M SF for the market area. Despite the temporary set back, investor sentiment for the Houston market remains positive as long term fundamentals including population growth, industry diversification, pro-business environment and low cost of living remain in place. Driven by the delivery of over.0m SF since 00, many well located second generation buildings are undergoing renovations in order to remain competitive with newer options and appealing to a changing workforce that contains five generations. NET ABSORPTION Year-to-Date Absorption a Negative.5M SF Through the second quarter, the office sector continued to experience negative absorption due to slow leasing activity, expiring sublease listings, and companies continuing to reduce their space footprint. Class A properties drove negative absorption for the quarter, totaling a negative.5m SF. Class B properties seemed to find their footing this quarter, after three consecutive periods in the red, absorption totaled SF In Thousands NET ABSORPTION AND RATE TRENDS HOUSTON METRO AREA Note: Delivery of preleased space counts as positive net absorption SOURCE CoStar, Transwestern *Through Q 07 CONTIGUOUS BLOCKS OF AVAILABLE SPACE HOUSTON METRO Net Absorption 07 Class A Direct 5,000 SF Net Absorption 0 Class A Sublet 50,000 SF Vacancy Rate 4 Class B Direct 00,000 SF ,000 SF 7* Class B Sublet SOURCE CoStar, Transwestern *Through Q 07 Notable Q Leases TENANT SF LEASE TYPE BUILDING Apache 54,000 Renewal/Extension 000 Post Oak Blvd Galleria/Uptown Bank of America 09,000 Prelease Capitol Tower Central Business District Motiva Enterprises 04,500 Renewal/Expansion One Allen Center Central Business District Winstead PC 66,000 Renewal/Contraction JPMorgan Chase Tower Central Business District

18 HOUSTON METRO MARKET MID-YEAR 07 a positive 0,000 SF, lowering direct vacancy by 0.5%. The Central Business District was the most heavily impacted submarket this quarter with absorption totaling a negative 90,000 SF as impacts from the energy downturn continue to present themselves. DIRECT & TOTAL AVAILABILITY Class A Stumbles, Class B Improves The overall office availability rate (all space marketed as available for lease) increased 0.4% over the quarter, closing mid-year at.6%. Total availability trended up across the board, with Class A and B properties recording 5.% and.9%, respectively. Direct vacancy increased by 0.4% over the period, finishing at 5.%. Class A properties saw vacancy increase by 0.9%, ending at 4.9%, while Class B properties reversed course with vacancy decreasing from 6.5% to 6.%. Until the energy sector finds it's balance between supply and demand, total availability and direct vacancy are projected to continue to rise over the short-term. RENTAL RATES Asking Rates Soften Overall asking rates declined by 0.6% over the quarter, but are still up.8% year-over-year, currently $9.9 PSF full service. Class A rates closed the quarter down.7% (-$0.60), ending at $5.86 PSF full service. Class B asking rates dropped by.%, ending at $.8 PSF full service. Considering the large amount of supply that still needs to be absorbed, asking rates should continue to decrease over the near-to-mid term as more exposure hits the market. Financial concessions continue to play a significant role in large user lease transactions. SUPPLY AND DEVELOPMENT Construction Ticks Up The delivery of over.0m SF over the past seven years hasn't dampened tenants appetite for new construction. The challenge of becoming more efficient from a space use perspective combined with recruiting and engaging five generations in the workforce has kept new construction a valid alternative for large tenants, even in this down market. This has also put pressure on landlords of existing product, to look to enhance their features, amenities and service offerings in order to remain competitive. Early this quarter, both Bank of America and HP looked to new construction to fill their space requirement's. Bank of America inked a lease as the lead tenant in Skanska's Capitol Tower, gaining naming rights and taking 0,00 SF of the 778,000 SF Class A building located in the Central Business District. HP leased a two building, build-to-suit, totaling 78,000 SF in Springwoods Village. Springwoods Village also includes the Exxon Mobil headquarters, Southwestern Energy and CHI St Lukes. Additional construction is underway for ABS as they follow Exxon north from Greenspoint. Total Available Space Houston Metro Q 07 AVERAGE OFFICE RENTS HOUSTON METRO AREA Note: All classes of office space Office Under Construction Houston Metro Q 07 SUBLEASE SPACE (SF) NUMBER OF BLDGS % OF SUPPLY SF % TOTAL AVAILABLE Energy Corridor,480, % 4.7% CBD,504,80 5.7% 7.0% Westchase,50,8 8.7% 8.9% Galleria,00,69 6.0%.4% North District 890, % 46.9% All of Houston 0,77, %.6% $40 $5 $0 $5 $0 $ Overall Class A Class B * SOURCE CoStar, Transwestern *Through Q 07 % PRE- LEASED CBD 778,44 7% The Woodlands 704,800 97% South Main/Med Ctr 50,000 00% SW Fwy/Sugar Land 47,00 0% Greenway Plaza 88,547 0% Westchase 04,579 78% West Loop 04,579 6% Kingwood/Humble 00,000 00% Energy Corridor 86,55 55% Northeast 85,000 6% Katy Far West 7,045 5% Total,80,78 57% REAL ESTATE OUTLOOK HOUSTON METRO Q 07

19 The largest projects currently under construction are Capitol Tower (CBD, 778,000 SF - 7% leased to Bank of America), CityPlace (The Woodlands, 8,000 SF - 00% leased to HP), CityPlace (The Woodlands, 6,000 SF - 00% Leased to ABS) and The Kirby Collection, a new mixed-use project with a large office component (Greenway Plaza,,000 SF). The current preleased percentage of properties currently under construction is 57%. INVESTMENT MARKET Interest in Houston continues to increase Investment activity continues to pick up throughout the Houston metro, regardless of the setback in the energy sector. The underlying fundamentals of the market are strong and stabilization in the energy sector should avail itself over the next 9- months, creating positive sentiment amongst investors. Sales for the quarter totaled $946 million, comprised of 0 transactions, up 408% year-overyear, when there was just $86. million in investment sales. Early in the quarter, Canada Pension Plan Investment Board (CPPIB) and TH Real Estate/Silverpeak Real estate completed a transaction to acquire a 49.5% stake in Greenway Plaza & Phoenix Tower (5.0 MSF) from Parkway Inc. Shortly thereafter, CPPIB doubled down and acquired the remainder of Greenway Plaza along with Parkway's outright operations and remaining portfolio in Houston (8.7 MSF). The size and nature of these transactions underscore the belief in the long term viability of the Houston office market. As market activity continues to trend up, so to have price per square foot trade averages. Office sales averaged $7/SF, an increase of % quarter-over-quarter. Cap rates also compressed slightly, down 0.% and settling at 7.9% for the period. These figures represent assets for which pricing information could be obtained. COMPARATIVE OFFICE INVESTMENT SALES VOLUME SELECT METRO AREAS Sales Volume in Billions Atlanta Dallas Denver Houston $8 $7 $6 $5 $4 $ $ $ $ * SOURCE Real Capital Analytics, Transwestern,*Through Q 07 AVERAGE OFFICE SALE PRICE HOUSTON METRO AREA Average Sale Price Per SF $50 $00 $50 $00 $50 $ * SOURCE Real Capital Analytics, Transwestern,*Through Q 07 Notable Q Transactions BUILDING SF SELLER BUYER Greenway Plaza Portfolio Greenway Plaza 5,0,05 Parkway TH Real Estate/CPPIB Noble Energy Center II FM ,6 Trammel Crow CalSTRS 700 West Loop South Galleria/Uptown 7,94 The ROC Fund Lingerfelt Commonwealth Partners Bellaire Atrium I & II Bellaire 50,000 Braun Properties SLS Properties SOURCE Real Capital Analytics, HFF, Transwestern REAL ESTATE OUTLOOK HOUSTON METRO Q 07

20 HOUSTON METRO MARKET MID-YEAR 07 OUTLOOK Patience and Energy The Houston metro area has been lauded for how diversification has helped to mitigate the effects of the energy downturn. Growth in industries such as healthcare, petrochemical, distribution and retail/hospitality have helped offset many of the jobs lost in the energy sector. However, as those sectors wind down their growth cycles, it leaves little doubt that a true recovery for office will be tethered to stabilization and return to form in the energy sector. As such, continued focus will be placed upon North American crude inventories, OPEC s willingness to maintain production cuts, and the resulting impacts to the spot price of WTI. Overall market activity is projected to remain muted through the third quarter with rising vacancy and falling asking rates. Insulated suburban submarkets such as Sugar Land and The Woodlands will continue to perform above market standards, while areas such as the Energy Corridor and Central Business District face the majority of the headwinds left to navigate. OFFICE ABSORPTION AND EMPLOYMENT HOUSTON METRO AREA *-month job growth through May 07, net absorption YTD through Q 07 Net Absorption (Thousands of SF) Multi-tenant market vs Transwestern comprehensive market coverage 0 Payroll Job Growth (in Thousands) * SOURCE Bureau of Labor Statistics, Transwestern MULTI-TENANT ENTIRE MARKET Inventory 98.8 MSF 4.4 MSF Overall Vacancy 8.5% 5.% Q Net Absorption (,749,99 SF) (,47,884) SF WHY OUR METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS We include owner occupied and single-tenant buildings in our inventory, vacancy and absorption statistics to capture more market activity than many of our competitors. This allows us to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. The inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than some of our competitors results, but our coverage of the market is more comprehensive. 4 REAL ESTATE OUTLOOK HOUSTON METRO Q 07

21 Houston Office Market Indicators - All Space TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 07 W/ SUBLET Q 07 TOTAL AVAILABILITY Q 07 UNDER CONSTRUCTION NET ABSORPTION Q 07 NET ABSORPTION YTD 07 Conroe 90,8 50,0 5.4% 5.9% 9.8%,05 49,55 Central Business District 6 4,80,444 7,00,99 6.0% 7.6% 7.0% 778,44 (87,) (85,88) Midtown 5,7, ,0 0.6% 0.7% 8.5% - 0,57 85, Downtown 96 49,54,9 7,609, % 6.8% 6.0% 778,44 (8,594) (767,56) FM 960 / Champions,90,678 09,505 6.% 6.7% 0.% - 5,009 7,679 FM 960 / Highway ,48,79 47,97 9.% 0.8% 5.7% - (0,00) 98 FM 960 / I-45 North 5,5,558,756.7%.9%.% - 9,6,7 FM ,76,955,097,78.% 4.% 9.5% - 54,69 40,49 Greenway Plaza 48,095,766,48,58.8%.0% 0.% 88,547 (48,7) (,6) Gulf Freeway/Pasadena,69,79 86,89 0.9% 0.9% 7.4% -,659 4,8 Katy Far West,6,69 405,475.%.%.5% - 7,045 9,55,58 Katy Freeway East 59 9,579,99 85, % 9.% 4.4% - 6,6 (55,05) Katy Freeway West 4 6,74,80 4,455, % 0.0% 8.4% 86,55 (88,09) (589,050) Katy Frwy / Energy Corridor 0 6,,749 5,09,8 4.6% 7.% 4.7% 86,55 (5,965) (644,0) Kingwood / Humble * 0,4,89 6,687.%.%.% 00,000 (748) (,) NASA / Clear Lake 59 6,090,505,06,48 7.4% 8.%.6% -,869 (8,74) North District / IAH 0,05, ,79 4.8% 5.0% 8.0% - (69,784) (60,76) North District / North Belt W 74 0,09,59 4,08, % 45.% 5.6% - (54,09) (64,94) North District / North Belt 94,8,47 4,859,4 7.0% 40.4% 46.9% - (5,877) (44,670) Northeast,5,0 5,70.9%.9%.% 85,000 9,46 9,46 North Loop West 9,955,9 677,058 7.% 7.% 0.7% -,856 (4,85) Northwest Far 0,9,50 770,57.%.% 8.% - 0,40 5,406 Northwest Near,70,907 0,.4%.6% 4.0% - (8,460) (,) Northwest 7 8,565,49,477,707 7.% 7.4%.% - 4,56 (9,540) South Main / Medical Center 48 0,508,94 66,04 6.% 6.% 7.8% 50,000 98,95 (,08) E Fort Bend Co / Sugar Land 47 6,84,708 4,00 6.5% 8.% 5.5% 87,00 (0,5) 7,680 Southwest Beltway 8 4 5,546, ,96 5.4% 5.6%.9% 60,000 (9,47) (,67) Southwest / Hillcroft 6 4,9,940 66,9 4.% 4.% 4.% - (,9) (,50) Southwest Fwy / Sugar Land 4 6,5,595,884,58.7%.% 0.7% 47,00 (5,97) (47,449) The Woodlands 95 6,95,66,6,0 0.0% 0.4%.% 704,800 (79,0) (68,54) West Belt 7 5,85,858 8,594 5.% 0.5%.9% - 9,87 48,68 Bellaire 9 4,5,857 58,590 8.% 8.6% 4.7% - 4,05,957 Galleria / Uptown 58 6,75,995,8,65.8% 6.%.4% 04,579 (88,54) (,0) Post Oak Park 7 4,58,00 948, %.5% 6.4% - (,69) 66,99 Richmond / Fountainview 89,98 70, % 0.5%.0% - 0,00 6,087 Riverway 6,868,5 574, % 0.9%.7% - (08,456) (6,4) San Felipe / Voss 5,060,57 88, % 7.6% 4.% - (,8) (7,90) West Loop 74 4,445,54 5,074,05 4.7% 6.7%.% 04,579 (46,585) (6,766) Westchase 89 7,585,648,99,08 6.7% 0.7% 8.9% 87,0 (8,786) (0,75) TOTAL - Houston,09 4,84, 6,6,505 5.% 6.8%.6%,80,78 (,0,48) (,47,884) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government REAL ESTATE OUTLOOK HOUSTON METRO Q 07 5

22 HOUSTON METRO MARKET MID-YEAR 07 Houston Office Market Indicators - Class A TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 07 W/ SUBLET Q 07 TOTAL AVAILABILITY Q 07 UNDER CONSTRUCTION NET ABSORPTION Q 07 NET ABSORPTION YTD 07 Conroe 8,8 9,46 7.% 7.%.4% Central Business District 7 4,09,40 4,66,65.5% 4.% 4.7% 778,44 (74,656) (504,95) Midtown 8,486,094 74,44 5.% 5.% 8.7% - 9,69 (,947) Downtown 45 6,55,504 4,64,075.7% 4.4% 5.0% 778,44 (65,07) (507,87) FM 960 / Champions 50, % 0.0% 0.0% FM 960 / Highway 49 7,79,4 5,7 8.5% 8.9% 0.9% - (7,648) (6,08) FM 960 / I-45 North 06,705 54,5 6.4% 6.4% 7.% - (5,87) (5,87) FM ,086,7 69,89 9.% 9.4%.8% - (,05) (,695) Greenway Plaza 0 7,56,944,07,8.8% 4.0%.% 88,547 (6,8) (47,876) Gulf Freeway/Pasadena Katy Far West 6,647,4 40,5 4.5% 4.5%.6% 7,045,49 05,548 Katy Freeway East 4 5,76,894 59,698 0.% 0.4% 4.8% - 55,744 (7,60) Katy Freeway West 7 8,77,5,88,069 5.% 9.7% 8.% 86,55 (476,677) (49,55) Katy Frwy / Energy Corridor 96 4,54,405,49, % 7.5% 5.0% 86,55 (40,9) (50,785) Kingwood / Humble 44, 9,9 6.5% 6.5% 6.5% NASA / Clear Lake 5,06,658 5,60 5.7% 8.0%.8% - (,8) (9,765) North District / IAH 8,, , % 45.9% 49.% - (6,50) (5,09) North District / North Belt W 7 4,4,80,7,0 5.4% 57.0% 66.8% - (9,55) (6,55) North District / North Belt 5 5,548,487,777,86 50.% 54.5% 6.0% - (9,06) (5,48) Northeast 640, % 0.0% 5.% 85, North Loop West 6,40,544 65,96 9.5% 0.0%.% - (6,8) (9,7) Northwest Near 4 797,7 6, % 40.% 4.8% -,47 9,666 Northwest Far 7,84-0.0% 0.0% 0.0% Northwest,75,65 68,05 0.0% 0.4%.% - (,95) (9,706) South Main / Medical Center 6 4,80,99 98,6 4.% 4.% 6.4% 50,000 88,90 (4,56) E Fort Bend Co / Sugar Land,867,5,99 6.0% 8.% 4.% 94,00 (7,8) (5,7) Southwest Beltway 8 566,699 48, % 8.6% 6.% - 0 (55) Southwest / Hillcroft 6,485,5,4 5.0% 5.0% 4.4% - (,57) 6,07 Southwest Fwy / Sugar Land 0 5,99,58 504, % 0.0% 9.4% 94,00 (8,90) 9 The Woodlands 4,56,90,04,95 0.4% 0.8%.% 704,800 (76,6) (7,089) West Belt 4,085, 660,9 6.% 0.7% 4.% - (8,85),089 Bellaire 8,470,67 65,75.%.%.7% - (68) 9,7 Galleria / Uptown 5,40,46,79,90.4% 7.7% 4.% 04,579 (99,58) (7,646) Post Oak Park 9,67,868 77,44 9.5% 0.9% 5.5% - (5,766) 57,96 Riverway 5,885,8 89,0 0.6%.7% 4.7% Richmond / Fountainview (87,84) (,58) San Felipe / Voss,70,79 98,89.%.%.0% -,68,599 West Loop 60,05,57,59, % 9.8% 6.% 04,579 (400,450) (,9) Westchase 9,958,80,678,67 6.9%.8%.4% 87,0 (8,5) (59,0) TOTAL - Houston 460 4,46,566,0, % 7.% 5.%,550,78 (,547,89) (,897,076) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government 6 REAL ESTATE OUTLOOK HOUSTON METRO Q 07

23 Houston Office Market Indicators - Class B TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 07 W/ SUBLET Q 07 TOTAL AVAILABILITY Q 07 UNDER CONSTRUCTION NET ABSORPTION Q 07 NET ABSORPTION YTD 07 Conroe 0 688,859 40, % 6.6% 0.9% -,05 49,55 Central Business District 9,47,998,7, 8.6% 9.4% 5.8% - (,954) (9,40) Midtown,04,080 76,64 5.8% 6.0% 9.6% - 9,908 94,58 Downtown 44,498,078,888,495.%.7% 9.5% - 89,954 (44,80) FM 960 / Champions 0,6,48 09, % 9.5%.7% - 8,669,9 FM 960 / Highway 49 8,5,795 5,590.5% 6.7% 9.7% - (8,406) (4,574) FM 960 / I-45 North 968,86 08,05.5%.8%.% - 50,675,5 FM ,97, 669,0 7.% 9.% 7.8% - 70,98 50,080 Greenway Plaza 6,598,55 50, % 0.0%.9% - (,54) (6,96) Gulf Freeway / Pasadena 7,86,695 07, % 9.5% 7.% -,587,588 Katy Far West 4,570,88, 0.% 0.%.5% - 7,0 7,0 Katy Freeway East 6,865,94 57, % 9.7% 7.8% - (,70) (7,) Katy Freeway West 67 7,77,805,6,0 0.8%.% 9.4% - 88,586 (49,55) Katy Fwy / Energy Corridor 9 0,59,79,868, % 8.% 6.% - 76,866 (56,657) Kingwood / Humble 8 990,077 7,94.8%.8%.8% 00,000 (748) (,) NASA / Clear Lake 4,9,40 94,45 4.% 4.% 7.9% - 8,64 (50,49) North District / IAH 0,4,858 00,0 4.9% 4.9% 8.7% - (7,8) (7,8) North District / North Belt W 45 4,79,79,6,48 4.5% 8.6% 44.0% - (0,65) (7,08) North District / North Belt 55 6,08,587,8,504 0.%.4% 8.4% - (09,96) (78,59) Northeast * 5 48,708 47,74 0.9% 0.9% 7.8% - 4,404 4,404 North Loop West,596,57 09,456.9%.0% 5.8% - 5,8 (,57) Northwest Near,94, , % 9.8% 5.7% - 7,89 5,740 Northwest Far 9 87,086 0,.4%.8% 5.9% - (8,460) (,) Northwest 5 5,764,99 794,06.8%.8% 8.% - 4,67 (8,95) South Main / Medical Center 9 4,05,606 40,4 0.% 0.%.6% - 0,098 4,66 E Fort Bend Co / Sugar Land 5,4,77 78,00 7.6% 8.% 8.4% 9,000 6,806,4 Southwest Beltway 8 4,6,64 788,90 7.% 7.% 5.9% 60,000 (7,) (5,65) Southwest / Hillcroft 9,794,770,68 8.0% 8.%.8% (0,890) (8,657) Southwest Fwy / Sugar Land 77 8,760,,89,59 4.7% 4.9%.% 5,000 (,97) (40,895) The Woodlands 50 4,45,074 48,95 9.6% 0.0% 4.4% - (,94) (5,45) West Belt 4,00,57 5,0.6% 9.8% 9.0% - 8,0 45,79 Bellaire 7,498,74 54,07 6.% 6.% 0.0% -,658 5,4 Galleria,66,74 45,74 0.6% 0.9% 5.7% -,04 4,545 Post Oak Park 6,80,0 75,5 9.7% 9.7% 5.6% - (5,50) 9,09 Riverway 7 570,70 46, % 5.7% 7.6% - 7,70 5,577 Richmond / Fountainview 9 870,5 8,477.0%.7% 4.5% - (,7) (,9) San Felipe / Voss 0,9,64 485,70 4.5% 4.7% 0.5% - (5,54) (48,889) West Loop 0,48,6,489,49.%.% 7.0% - (0,66) (5,595) Westchase 5 7,,965,9,40 7.% 7.% 5.5% -,9 (9,76) TOTAL - Houston 79 90,6,754 4,660,90 6.% 6.9%.9% 5,000 0,69 (548,6) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government REAL ESTATE OUTLOOK HOUSTON METRO Q 07 7

24 Houston Office Market Indicators - Asking Rental Rates Q 06 CLASS A Q 06 CLASS B % CHANGE Y-O-Y CLASS A % CHANGE Y-O-Y CLASS B Q 07 CLASS A Q 07 CLASS B % CHANGE OVER QUARTER CLASS A % CHANGE OVER QUARTER CLASS B Q 07 CLASS A Q 07 CLASS B Conroe $.05 $4. 0.0% -5.7% $.05 $ % -4.5% $.05 $0.49 Central Business District $4.46 $.9.9% -7.7% $45.49 $ % -4.6% $45.4 $8.97 Midtown $5. $.55 -.% -0.9% $4.49 $.5-0.5% -0.8% $4. $.5 Downtown $4. $ % -6.7% $44.6 $ % -4.% $44.6 $9.6 FM 960 / Champions - $ % - $.4-0.% - $.44 FM 960 / Highway 49 $7. $8.9.% -0.% $7.95 $ % 0.% $7.95 $8.8 FM 960 / I-45 North $5.00 $ % -0.8% $5.00 $ % -0.4% $5.00 $6.94 FM 960 $6.9 $5.47.%.% $7.66 $ % 0.0% $7.47 $5.67 Greenway Plaza $6.9 $7..6% -0.8% $6.6 $6.8.8%.4% $7.5 $6.9 Gulf Freeway/Pasadena - $ % - $.0-0.% - $.08 Katy Far West $ % - $ % - $ Katy Freeway East $4.8 $ % 6.% $4.56 $ % -0.% $4. $8. Katy Freeway West $8. $ % -.0% $7.70 $ % -.6% $6.67 $.58 Katy Frwy / Energy Corridor $8.64 $ % -.% $8.09 $ % -.% $7.08 $4.7 Kingwood / Humble $0.94 $8.75.%.% $.94 $ % 6.7% $.94 $4.6 NASA / Clear Lake $4.5 $ %.7% $5. $7.7 5.% 0.9% $6.50 $7.87 North District / IAH $. $5.0 -.% 7.0% $0.48 $ % -.0% $.98 $6.7 North District / North Belt W $0.66 $6.4 0.% 4.6% $6.54 $ % -4.0% $4.86 $6.87 North District / North Belt $0.9 $ % 4.8% $5.54 $ % -.9% $4.9 $6.8 Northeast - $.7-0.0% - $.7-0.0% - $.7 North Loop West $6.7 $..% 6.4% $6.9 $ % -.8% $6.5 $.46 Northwest Near $9.7 $ % -9.% $8.90 $5. -0.% -8.5% $8.86 $4.0 Northwest Far - $ % - $ % - $9.5 Northwest $.70 $8.40.0% -5.0% $.7 $ % -7.8% $.9 $7.48 South Main / Medical Center $.9 $ %.9% $4.6 $7. -.7%.8% $.69 $7.6 E Fort Bend Co / Sugar Land $0. $.0.9%.0% $.08 $. -0.8% 0.% $0.8 $. Southwest Beltway 8 $0.9 $ %.5% $0.7 $ % -.% $8.57 $7.8 Southwest / Hillcroft $9.4 $6.0.5% 6.5% $9.49 $ %.6% $9.6 $7.07 Southwest Fwy / Sugar Land $4.0 $ %.% $5. $7.6-0.%.7% $5.0 $8.00 The Woodlands $4.64 $4.0 7.%.8% $6.8 $ % 0.8% $7. $4.7 West Belt $.96 $ %.0% $.59 $9.8.4% 5.6% $.04 $.0 Bellaire $8.69 $.0 -.9%.4% $7.87 $.9.0% 0.% $8.5 $.95 Galleria / Uptown $8. $4.8.% 7.0% $7.8 $9.0.5% 0.% $8.76 $9.04 Post Oak Park $9.0 $ % -0.6% $40.57 $7.4-5.% -0.5% $8.5 $7.8 Riverway - $ % - $ % - $8.0 Richmond / Fountainview $.57 $6. -.4% -.% $.87 $ % -5.7% $.09 $5.6 San Felipe / Voss $5.0 $4.4.7%.0% $5.58 $ % -.0% $5.70 $4.66 West Loop $7.0 $ % 4.4% $7.5 $5.9-0.% -0.7% $7.0 $5. Westchase $9.65 $ % -.7% $7.6 $ % -0.% $7.9 $9.9 TOTAL - Houston $4.59 $.77.7% 0.% $6.46 $ % -.% $5.86 $.8 CONTACT Stuart Showers Director of Research stuart.showers@transwestern.com Rachel Hornbeak Research Analyst rachel.hornbeak@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on office, industrial, retail, multifamily and healthcare properties located in the Houston metropolitan area. This report includes single-tenant, multi-tenant and owner-user properties and excludes properties owned and occupied by a government agency. Copyright 07 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

25 REAL ESTATE OUTLOOK HOUSTON OFFICE MARKET YEAR-END 06 Office Market Beginning to Show Signs of Improvement Sublet Supply Decreases OVERVIEW Sublease space on the decline for first time since 0 As the long and grinding year of 06 came to a close, sentiment surrounding the Houston office sector took a positive turn as several indicators point to the beginnings of a market rebound. Unfortunately, these indicators occurred primarily on the economic side with factors such as oil, jobs and PMI gaining ground, whereas office metrics have generally continued to weaken following the recent downturn. One core metric that showed visible improvement was total available sublease space. The decline in the fourth quarter, marked the first decrease since 0, and sublease space closed the year at.6m SF available after peaking with over.5m SF available in the third quarter. Sublease space reductions were triggered through various scenarios making it difficult to determine if the decline is the beginning of a trend or simply a short-term break from an endless supply of space. ConocoPhillips represented the largest reduction in sublease availability (597k SF) as they opted to retain their Energy Corridor listing in order to consolidate operations from an aging multi-building campus. Alternatively, tenants such as Thompson & Knight and Breitburn Energy looked to leverage sublease availability to lock in favorable terms at high-quality Class A locations. A trend that will continue given the extended term, credit worthy nature and desirable locations of many sublease offerings. NET ABSORPTION Absorption continues to fall short In the fourth quarter, impacts of the energy downturn are still being realized as quarterly net absorption for all classes of office was again negative, posting -77,000 SF, with Class A coming in at -0,000 SF. NET ABSORPTION AND RATE TRENDS HOUSTON METRO AREA Net Absorption (Thousands of SF) Direct Vacancy Rate Total Availability 8,000 7,000 6,000 5,000 4,000,000,000, , Note: Delivery of preleased space counts as positive net absorption SOURCE CoStar, Transwestern *Through Q4 06 CONTIGUOUS BLOCKS OF AVAILABLE SPACE HOUSTON METRO % % 9% 7% 5% % % 9% 7% 5% Class A Direct Class A Sublet Class B Direct Class B Sublet 5,000 SF 50,000 SF 00,000 SF 00,000 SF SOURCE CoStar, Transwestern *Through Q4 06 Notable Q4 Leases TENANT SF LEASE TYPE BUILDING Breitburn Energy Partners 09,476 Sublease Heritage Plaza CBD ABM Industries, Inc. 6,000 New 44 Southwest Fwy East Fort Bend Co/Sugar Land Thompson & Knight 60,68 Sublease 8 Main St CBD Diamond McCarthy, LLP 46,840 New Houston Center CBD

26 HOUSTON METRO MARKET YEAR-END 06 For the year, absorption managed to post positive totals with the broad market absorbing a total of 588,000 SF driven by preleased deliveries earlier in the year. The Class A market recorded.4m SF of positive absorption for the year, while Class B felt the impacts of flights to quality and posted negative absorption of -.0 M SF year end 06. Leasing activity is beginning to ramp up throughout the market, but quarterly absorption for the next -6 months will lag this activity, leading way to negative absorption totals in early 07. & AVAILABILITY Total availability decreases The overall office availability rate (all space marketed as available for lease) declined modestly over the quarter, down -0.%, to finish the year at.9% - a direct result of the decrease in available sublease supply. Total availability for Class A & B properties closed the year at.% and.%, respectively. Direct vacancy increased by 0.%, finishing at 4.%, and should continue to rise as sublease space and more efficient new construction serve as desirable alternatives for leasing activity, leaving vacant direct space in its wake. Overall vacancy was 6.% at year end, up 0.% from the previous quarter and.% year-over-year. Class A overall vacancy closed up 0.% to end the year at 6.4%, while Class B followed suit, increasing by 0.4% over the quarter and ending the year at 6.4% vacant. As the market moves forward in stabilization mode, vacancy rates are projected to rise as overall availability decreases. RENTAL RATES Face rates don't tell the full story Asking rates for the office market continued their familiar ascent over 06, displaying increases across both Class A & B properties. These increases were generated through a combination of new high-quality buildings being added to supply in addition to landlords attempting to hold on to face rates in-spite of market conditions. Regardless of the situation, concessions play a significant part in deal activity and are particularly impactful in large lease transactions where tenant improvement allowances and rent abatements are core negotiations. Class A rents increased 0.5% year-over-year to $5.50 per SF gross, while Class B rents increased by.% to $.95 per SF gross from the close of the year. SUPPLY AND DEVELOPMENT Development cycle continues to shift downward There were no new office buildings delivered in the fourth quarter as Houston continues to wind down its most recent construction cycle with a total of.9 million SF of office space under construction. All properties currently under development are anticipated to deliver in 07. This level of activity is a stark contrast from the 7. million SF under construction in the fourth quarter of 05 and even further from the 6.6 million SF ending 04. In total, Houston has delivered approximately 5.0 million SF of office since the beginning of 04. Total Available Space Houston Metro Q4 06 AVERAGE OFFICE RENTS HOUSTON METRO AREA Note: All classes of office space Office Under Construction Houston Metro Q4 06 SUBLEASE SPACE (SF) NUMBER OF BLDGS SF % SUBLEASE Energy Corridor,0,7 8.4% CBD,469,0 5.% Westchase,406,05 8.0% Galleria,58, % North District,47,54 8.7% All of Houston,649,89 4.6% Asking Rents ($/SF Gross) Class A Class B $6 $5.50 $4 $ $0 $8 $6 $4 $.95 $ $0 $8 $ * SOURCE CoStar, Transwestern *At Q4 06 % PRE- LEASED CBD,056,658 8% West Loop 484,579 7% Energy Corridor 4,48 4% Katy 4,58 0% Greenway Plaza,878 % Sugar Land 87,00 7% Westchase 86,000 00% Kingwood 00,000 00% Northeast 85,000 9% Gulf Frwy/Pasadena 8,800 00% Total 4,954,08 46% REAL ESTATE OUTLOOK HOUSTON METRO YE 06

27 While the construction rate is slowing precipitously, the demand for efficient new construction continues, but will require anchor tenants such as HP and Bank of America who are both looking at new facilities and more efficient space utilization. The largest projects currently under construction are 609 Main (CBD,. million SF) and Amegy Bank s new headquarters located at 77 West Loop South (Post Oak Park, 80,000 SF). The preleased percentage of properties currently under construction is 45% and is anticipated to increase further prior to delivery through the 07 calendar year. INVESTMENT MARKET Investment activity picks up Investment activity turned up in the final quarter of 06 as deal volume in the metro recorded $85.0 million in office sales, more than doubling the total from the third quarter, while down 48% on a year-over-year basis. In October, the previously announced Cousins merger/acquisition/spin-off of Parkway Properties and their Galleria, Greenway Plaza, and Westchase assets was made final (~8.7M RSF). While this was a portion of a larger 5 property portfolio trade, the Houston properties will be spun off into their own local REIT, HoustonCo, that is positioned for additional acquisitions. Additionally, the Columbia Portfolio traded over the quarter as Spear Street Capital acquired 5 Houston Center, 5 Post Oak Park and Energy Center I for approximately $7 million, or $ per SF. These Class A assets are strategically located in core Houston submarkets and offer Spear Street a value add opportunity through enhancing building features and amenities, elevating the offerings. This strategy will continue to be emulated throughout the market. Pricing per square foot averages acted in line with deal activity as quarter over quarter averages were up (6%) while year-over-year averages declined (-6%), coming in at $/SF. Cap rates were flat over the quarter, currently averaging 8.0%. These figures represent assets for which pricing information could be obtained. Notable Q4 Transactions COMPARATIVE OFFICE INVESTMENT SALES VOLUME SELECT METRO AREAS Sales Volume in Billions Atl Dal Den Hou * SOURCE Real Capital Analytics, Transwestern,*Through Q4 06 AVERAGE OFFICE SALE PRICE HOUSTON METRO AREA * SOURCE Real Capital Analytics, Transwestern,*Through Q4 06 BUILDING SF SELLER BUYER 5 Houston Center CBD 580,875 Columbia Property Trust Spear Street Capital, LLC $6.0 $5.0 $4.0 $.0 $.0 $.0 $0.0 $50 $00 $50 $00 $50 $0 Average Sale Price Per SF $0 5 Post Oak Park Post Oak Park 567,64 Columbia Property Trust Spear Street Capital, LLC Energy Center I Katy Fwy / Energy Corridor,000 Columbia Property Trust Spear Street Capital, LLC SOURCE Real Capital Analytics, HFF, Transwestern REAL ESTATE OUTLOOK HOUSTON METRO YE 06

28 HOUSTON METRO MARKET YEAR-END 06 OUTLOOK Steady as she goes Sentiment in the Houston office market is becoming positively optimistic as more signs point to having reached the bottom of the energy downturn and beginning a recovery. Factors such as positive job creation through a challenging 06, crude prices stabilizing as OPEC agreed to production limits, and a pro-energy/business friendly administration being elected to office have resulted in an upbeat market. That being said, enthusiasm should be tempered as recovery will be a slow process that won t always move in an upward trajectory. There are still several areas limiting the speed of recovery; overall job growth for 07 is projected to be well below healthy market norms (~0k in 07), the Petrochemical boom on the east side is waning, and while stabilizing in the high $40 s to low $50 s - short term energy forecasts show limited potential for additional increases through 07. Additionally, the market has a total of 54 million SF of space marketed as available with million occurring in Class A properties a 4 to 5 year supply with job creation at typical levels of 60k per year. Simply put, the recovery will be slow and measured until once again, the energy engine moves into high gear. OFFICE ABSORPTION AND EMPLOYMENT HOUSTON METRO AREA 8,000 7,000 6,000 5,000 4,000,000,000, , *-month job growth through November 06, net absorption through Q4 06 Net Absorption (Thousands of SF) Multi-tenant market vs Transwestern comprehensive market coverage MULTI-TENANT ENTIRE MARKET Inventory 96.8 MSF 48.4 MSF Overall Vacancy 8.9% 5.4% Payroll Job Growth (in Thousands) SOURCE Bureau of Labor Statistics, Transwestern Q4 Net Absorption 94,0 SF (8,000) SF WHY OUR METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS We include owner occupied and single-tenant buildings in our inventory, vacancy and absorption statistics to capture more market activity than many of our competitors. This allows us to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. The inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than some of our competitors results, but our coverage of the market is more comprehensive. 4 REAL ESTATE OUTLOOK HOUSTON METRO YE 06

29 Houston Office Market Indicators - All Space TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT 05 DIRECT Q4 06 W/ SUBLET Q4 06 **TOTAL AVAILABILITY Q4 06 UNDER CONSTRUCTION ***NET ABSORPTION Q4 06 NET ABSORPTION YTD 06 Central Business District 87 48,49,909 6,066,889.5%.6% 5.0% 0.6%,056,658 (48,000) (6,000) Midtown 5,759,744 86,96 4.9% 5.0% 5.4% 7.6% - (4,000) 0 Downtown 0 5,909,65 6,90,850.8%.9% 5.0% 0.%,056,658 (5,000) (6,000) FM 960 / I-45 North 5,7,988 6,4 7.4% 9.% 4.8%.% - (5,000) (69,000) FM 960 / Champions,850,05 46, % 8.7% 9.% 0.5% -,000 69,000 FM 960 / Highway ,480,77 6, %.%.% 7.8% - (8,000) 78,000 FM ,70,470,,09.7% 4.% 6.% 0.7% - (,000) 78,000 North Belt Wst / North District 75 0,46,7,65, % 6.0% 4.0% 5.0% - (5,000) (490,000) North District / IAH,05, , % 9.% 9.% 9.% - (,000) (6,000) North District / North Belt 97,7,6 4,0,60.%.% 7.6% 46.0% - (7,000) (66,000) Greenway Plaza 5 0,97,7,98,947.%.8%.0%.4%,878 48,000 (,000) Gulf Freeway/Pasadena 5,556,99 0,78 0.0%.8%.9% 7.6% 8,800 (46,000) 5,000 Katy Far West 44,4, ,70.6%.7%.7% 6.% 4,58 (,000) 5,000 Katy Freeway East 64 9,607,6 900,0 9.% 9.4% 0.5% 5.% 8,7 (8,000) 44,000 Katy Freeway West 44 6,98,44 4,0,06 6.% 6.% 7.6% 8.% 86,55 7,000 (479,000) Katy Frwy / Energy Corridor 08 6,55,607 5,0,7 4.% 4.% 5.7% 4.7% 4,48 (,000) (45,000) Kingwood / Humble * 9,08,8,908.8%.%.%.4% 00,000 6,000 9,000 NASA / Clear Lake 6 7,986,99,77,99 5.4% 6.0% 6.5% 0.% - (48,000) (4,000) Northeast 7,75,048 67,90 5.% 5.% 5.% 7.5% 85, ,000 North Loop West 9,955,9 707, % 7.9% 9.0% 0.% - 4,000 (4,000) Northwest Near,70,907 7,79 0.6%.4%.4%.% - (0,000) (8,000) Northwest Far,57,88 79,545.% 4.% 5.% 8.% - (6,000) (5,000) Northwest 7 8,48,487,57,7 7.4% 7.9% 8.8% 0.6% - (4,000) (94,000) South Main / Medical Center 49 0,85,96 874,05 7.9% 8.5% 8.5% 8.5% - (6,000) (0,000) Southwest / Hillcroft 5 4,7,06 59,58 5.9% 4.% 4.%.9% - 70,000 7,000 Southwest Beltway 8 4 5,54, ,57 5.% 6.0% 6.0%.4% - (50,000) 44,000 E Fort Bend Co / Sugar Land 45 6,098,0 500,044 8.% 8.% 9.4%.5% 87,00 (6,000) 79,000 Southwest Fwy / Sugar Land 5,8,77,979,96.6%.5%.0% 9.% 87,00 4,000 50,000 West Belt 7 5,7,564 90,59 6.% 6.8%.% 7.% - (7,000) 8,000 Bellaire 9 4,56,078 8,5 8.4% 8.8% 9.0%.0% - (9,000) (04,000) Post Oak Park 9 4,0,00 78,9 8.% 8.6% 9.% 8.% 80,000 (,000) (80,000) Galleria 57 6,67,76,70,04 9.8% 0.%.%.8% 04,579 (78,000) 48,000 Riverway 6,868,495 5,85.6%.%.9%.9% - 9,000 (,000) Richmond / Fountainview 89,760 8,77.8%.9%.9%.% - 7,000 (0,000) San Felipe / Voss 5,060,57 656,808.7%.0%.% 0.9% - (6,000) (7,000) West Loop 75,95,8 4,058,0.5%.0%.6%.4% 484,579 (65,000),000 Westchase 89 7,400,76,86,4 5.% 6.% 0.% 6.% 86,000 (9,000) 6,000 The Woodlands 94 6,040,49,690,65 0.9% 0.5%.%.8% - 6, ,000 Conroe 97,477 99,9 8.7% 0.% 0.% 0.6% - (5,000) (4,000) TOTAL - Houston,75 48,50,9 5,9,76.9% 4.% 5.9%.9%,954,08 (77,000) 588,000 SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government * Inventory and number of buildings amended per changes in CoStar ** Total availability reflects all space being marketed as available for lease regardless of current occupancy status ** *Absorption methodology has been updated for existing buildings to reflect tenant occupancies REAL ESTATE OUTLOOK HOUSTON METRO YE 06 5

30 HOUSTON METRO MARKET YEAR-END 06 Houston Office Market Indicators - Class A TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q4 06 W/ SUBLET Q4 06 **TOTAL AVAILABILITY Q4 06 UNDER CONSTRUCTION ***NET ABSORPTION Q4 06 NET ABSORPTION YTD 06 Central Business District 4,09,408,95,560 0.%.% 9.7%,056,658 (65,000) (04,000) Midtown 7,494, , % 9.%.7% -,000 88,000 Downtown 4 4,804,04,74,58 0.8%.5% 0.0%,056,658 (44,000) (6,000) FM 960 / I-45 North 06,705,69 6.% 6.% 5.0% - 0,000 FM 960 / Champions 50, % 0.0% 0.0% -,000 0 FM 960 / Highway 49 8,88,4 4,9 0.9%.7%.% - (,000) 95,000 FM 960 4,40,6 456, %.5%.% - (0,000) 96,000 North Belt Wst / North District 7 4,5,8,750, % 50.8% 68.9% -,000 (4,000) North District / IAH 8,,677 99,00.9%.9% 5.7% - (9,000) (69,000) North District / North Belt 5 5,564,959,50,56 8.6% 46.9% 65.4% - (6,000) (8,000) Greenway Plaza 8 7,,5,0, % 4.% 0.6%,878 0,000 54,000 Gulf Freeway/Pasadena % 0.0% 0.0% Katy,599,646 46,70 7.% 7.%.% 7,58 (,000) 40,000 Katy Freeway East 5,497, ,46 0.%.6% 6.% 8,7 (5,000) 70,000 Katy Freeway West 74 9,046,855,08, % 0.% 7.7% 86,55 9,000 (468,000) Katy Frwy / Energy Corridor 97 4,544,850,587, % 8.% 5.% 4,48 4,000 (98,000) Kingwood / Humble 44, 9,80 6.5% 6.5% 6.5% -,000 0,000 NASA / Clear Lake 6,85,96 9,90 6.4% 8.0% 0.7% - 4,000 (75,000) Northeast 555, % 0.0% 0.0% 85, ,000 North Loop West 6,40,544 6,6 6.% 9.5%.% - (0,000) (8,000) Northwest Near 7, % 0.0% 0.0% Northwest Far 6 797,8, % 40.9% 44.9% - 0 (6,000) Northwest,75, ,07 8.5% 0.4%.9% - (0,000) (79,000) South Main / Medical Center 6 4,560,99 8,98 4.8% 5.0% 5.4% - (,000) (6,000) Southwest / Hillcroft 6,485,5 7,59 5.% 5.%.% - (4,000) 6,000 Southwest Beltway 8 566,699 48,76 8.6% 8.6% 6.0% - (49,000),000 East Ft Bend Co. / Sugar Land,77,96 94,66 7.8% 9.4%.% 94,00 (,000) (5,000) Southwest Fwy / Sugar Land 0 5,85, ,6 9.8% 0.8% 6.7% 94,00 (74,000),000 West Belt 4,07,80 679, % 0.% 7.% - (4,000) 8,000 Bellaire 7,94,04 46,899.%.0%.7% - 4,000 (66,000) Post Oak Park 8,7, , 6.% 8.6% 9.9% 80,000 (,000) (9,000) Galleria,95,7,90,68 0.5%.8%.8% 04,579 (64,000) 489,000 Riverway 5,885,8 98,00 0.5%.7%.6% -,000 (0,000) Richmond / Fountainview % 0.0% 0.0% San Felipe / Voss,70,79 69,04 5.7% 6.% 9.9% - (,000) (,000) West Loop 55 0,4,005,59,6.7% 4.% 6.% 484,579 (64,000) 98,000 Westchase 9,77,089,57,06 6.%.% 0.% 86,000 (88,000) 868,000 The Woodlands 4,06,590,8,98.4%.8%.% - 69,000 6,000 Conroe 8,8 9,76 7.% 7.% 7.% - 7,000,000 TOTAL - Houston 46 9,47,705 9,,4.7% 6.4%.%,65,8 (0,000),469,000 SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government * Inventory and number of buildings adjusted per changes in CoStar ** Total availability reflects all space being marketed as available for lease regardless of current occupancy status ** *Absorption methodology has been updated for existing buildings to reflect tenant occupancies 6 REAL ESTATE OUTLOOK HOUSTON METRO YE 06

31 Houston Office Market Indicators - Class B TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q4 06 W/ SUBLET Q4 06 **TOTAL AVAILABILITY Q4 06 UNDER CONSTRUCTION ***NET ABSORPTION Q4 06 NET ABSORPTION YTD 06 Central Business District 8 4,766,77,584,85 7.5% 9.%.0% - 5,000 (59,000) Midtown 9,77,47 90,64 6.0% 6.0% 0.% - (5,000) (9,000) Downtown 57 7,944,9,774,86 5.5% 6.9% 0.7% - (0,000) (78,000) FM 960 / I-45 North,06,44 48, % 4.5%.% - (,000) (60,000) FM 960 / Champions 0,6,5 46,055.%.7%.5% - 8,000 69,000 FM 960 / Highway 49 0,444,70 69,00.7% 6.% 9.7% - (9,000) (4,000) FM ,09,80 764, % 0.5% 8.% - (,000) (5,000) North Belt Wst / North District 45 4,776,90,77, % 4.% 40.% - (55,000) 5,000 North District / IAH,4,858 9,7 4.% 4.% 6.4% - (78,000) (74,000) North District / North Belt 56 6,0,48,570, 5.7% 9.9% 4.9% - (,000) (9,000) Greenway Plaza 7,598,55 4,8 6.7% 7.0%.% - 7,000 (50,000) Gulf Freeway / Pasadena 9,556,99 0,78.8%.9% 7.6% 8,800 (46,000) 5,000 Katy 0,6,79,475.0%.0%.0% 6,000 (,000) 9,000 Katy Freeway East 9,990,865 57,4 8.6% 9.6% 8.4% - (,000) (,000) Katy Freeway West 7 7,957,48,58,50 9.9%.4% 9.6% - 0 (55,000) Katy Fwy / Energy Corridor 0 0,948,0,840, % 8.% 6.5% - (,000) (67,000) Kingwood / Humble 7 884,070,870.7%.7%.0% 00,000 4,000 9,000 NASA / Clear Lake 4 5,05,7,40,64.5%.%.% - (5,000) (,000) Northeast * 0 86,77 0,6.5%.5% 5.4% - 0 (57,000) North Loop West 0,596,57 79,09 4.6% 4.8% 4.9% - 8,000 8,000 Northwest Near 8 87,086 8,5.%.%.% - (0,000) (8,000) Northwest Far 4,,8 50,.7%.5% 5.% - (,000) 4,000 Northwest 5 5,68,46 899,79.% 6.% 7.% - (5,000) 4,000 South Main / Medical Center 8 4,05,606 67, % 5.7% 5.7% - (6,000) 4,000 Southwest / Hillcroft 6,647,96 94,98 7.9% 7.9%.% - 84,000 7,000 Southwest Beltway 8 4,66,485 79,77 7.% 7.0% 4.4% - (4,000) 9,000 East Ft Bend Co. / Sugar Land 4,50,77 04,766 9.% 9.9% 7.8% 9,000,000 6,000 Southwest Fwy / Sugar Land 7 8,54,598,9,474 5.% 5.%.% 9,000 8,000 6,000 West Belt 4,0,84 7,74 7.5% 4.4% 6.8% - (7,000) (4,000) Bellaire 8,78, 00,48 7.% 7.% 8.9% - (0,000) (58,000) Post Oak Park 8,80,0 87,54 0.4% 0.7% 6.0% -,000 8,000 Galleria,66,74 8, % 0.0% 4.% - (6,000) (76,000) Riverway 9 870,6 5,40 7.4% 7.9%.0% - (,000) (,000) Richmond / Fountainview 7 570,048 6, % 8.5% 9.% -,000 (,000) San Felipe / Voss 0,9,64 4,448.0%.% 6.% - (60,000) (50,000) West Loop 04,60,6,45,59.5%.7% 5.% - (94,000) (7,000) Westchase 5 7,4,8,48, % 7.6%.5% - (00,000) (64,000) The Woodlands 5 4,45,074 4,89 9.7% 0.9% 6.0% - (7,000) 8,000 Conroe 9 688,859 90,4.%.%.6% - (,000) (5,000) TOTAL - Houston ,67,998 5,64,0 5.4% 6.4%.% 8,800 (497,000) (,0,000) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government * Inventory and number of buildings adjusted per changes in CoStar ** Total availability reflects all space being marketed as available for lease regardless of current occupancy status ** *Absorption methodology has been updated for existing buildings to reflect tenant occupancies REAL ESTATE OUTLOOK HOUSTON METRO YE 06 7

32 Houston Office Market Indicators - Asking Rental Rates 0 CLASS A 0 CLASS B 04 CLASS A 04 CLASS B 05 CLASS A 05 CLASS B 06 CLASS A 06 CLASS B % CHANGE /5-/6 CLASS A % CHANGE /5-/6 CLASS B Central Business District $9. $5.99 $4.7 $8. $4.87 $8.66 $4.47 $ %.4% Midtown $0. $6.0 $4.6 $7.7 $4.7 $7.9 $4.09 $ % 0.7% Downtown $8.47 $5.99 $4.6 $8.0 $4.8 $8.57 $4.5 $9.4 0.%.% FM 960 / I-45 North - $ $8.0 $5.00 $7.65 $.69 $ % 0.% FM 960 / Champions - $.9 - $.55 - $.80 $0.00 $ % FM 960 / Highway 49 $5.67 $0.80 $6.56 $0.6 $6.87 $0.7 $7.09 $ % 0.% FM 960 $5.7 $5.5 $6.56 $5.74 $6.7 $5.99 $6.84 $ %.7% North Belt West / Greenspoint $9.5 $5.6 $0.6 $5.59 $8.9 $4.9 $8.8 $ % -.9% Greenspoint / IAH $.6 $6.4 $.65 $5.80 $.77 $5.97 $.75 $ % -.% Greenspoint / North Belt $8.7 $5.7 $8.85 $5.6 $7. $5.0 $7.5 $ % -.6% Greenway Plaza $. $.7 $5.04 $5.4 $5.9 $5.89 $5.44 $ % 0.7% Gulf Freeway / Pasadena - $.6 - $.5 - $.5 $0.00 $ % Katy $.58 $.0 $.6 $.7 $.94 $4.0 $.89 $.94-0.% -0.% Katy Freeway East $5.5 $.79 $6.65 $.6 $8.0 $.89 $7.78 $.8-0.6% -4.5% Katy Freeway West $.69 $0.5 $5.98 $.7 $7.9 $. $6.66 $ % -0.6% Katy Fwy / Energy Corridor $.9 $. $6.5 $.90 $7.40 $.5 $6.8 $ % -.% Kingwood / Humble $. $9.00 $. $9.54 $.55 $8.75 $.09 $ % 0.7% NASA / Clear Lake $.58 $8. $5.0 $8.6 $5.0 $8.8 $4.58 $8. -.7% -.7% Northeast - $ $7. - $7.9 $0.00 $ % North Loop West $.8 $8.5 $6.76 $0.50 $6.97 $0.8 $6.90 $. -0.%.4% Northwest Near - $ $ $6.6 $0.00 $7. -.9% Northwest Far $9.04 $5. $9.9 $6.66 $9.8 $6.70 $9.4 $6.6 -.% -0.5% Northwest $.8 $6.7 $.0 $8.50 $.44 $8. $.05 $8.60.7%.5% South Main / Medical Center $8.54 $4.00 $9.09 $5.09 $9.9 $5.6 $9.40 $5. 0.7% -0.% Southwest / Hillcroft $.75 $4.8 $.98 $.8 $.04 $4.0 $.6 $ %.% Southwest Beltway 8 $.4 $6.68 $.45 $6.4 $.45 $6. $.60 $ %.4% East Ft Bend Co. / Sugar Land $8.5 $. $8.4 $.60 $9. $.49 $9.50 $.68.% 0.9% Southwest Fwy / Sugar Land $4.95 $6.67 $4.57 $6.56 $5.05 $6. $5.77 $6.9.9% 4.9% West Belt $0.5 $. $.4 $.8 $.0 $.89 $.86 $ % -0.% Bellaire $5.86 $.08 $6.80 $.09 $6.96 $.4 $6.9 $.9-0.%.% Post Oak Park $5.4 $6.6 $5.94 $7.4 $6.5 $7.76 $7. $8.08.6%.% Galleria $5.70 $6.70 $7.04 $7.49 $8.00 $7.40 $7.5 $ % 0.0% Riverway $0.8 $.7 $.0 $5. $.4 $5.66 $.4 $ % 0.% Richmond / Fountainview - $ $ $7.8 - $ % San Felipe / Voss $.44 $.40 $4.54 $.4 $5.9 $.50 $4.9 $ %.% West Loop $4.4 $.68 $5.6 $4.4 $6.44 $4.46 $6. $ % 0.0% Westchase $5.8 $9.75 $8.70 $.5 $8.98 $. $8.08 $. -.% 0.0% The Woodlands $5.95 $.8 $9.56 $5.6 $40.56 $5.9 $9.98 $ % 0.4% Conroe $8.4 $5.7 $8.40 $5.08 $9.5 $4.77 $9. $ % -.7% TOTAL - Houston $.7 $9.96 $4.49 $0.88 $5. $.8 $5.50 $ %.% SOURCE CoStar, Transwestern NOTE Rents for properties using triple net terms have been grossed up to full service with operating expense data, rents reflect full service equivalent CONTACT Stuart Showers Director of Research stuart.showers@transwestern.com Rachel Andrae Research Analyst rachel.andrae@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on office, industrial, retail, multifamily and healthcare properties located in the Houston metropolitan area. This report includes single-tenant, multi-tenant and owner-user properties and excludes properties owned and occupied by a government agency. Copyright 06 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

33 REAL ESTATE OUTLOOK HOUSTON OFFICE MARKET THIRD QUARTER 06 Office Market Struggling to Gain Traction in Down Economy Sublease space continues to impact vacancy OVERVIEW Office sector scuffles to find footing after downturn The Houston office market continues to struggle as the local economy remains uncertain, pinned to the turmoil in the energy sector and ambiguity surrounding the pending election cycle. Currently, tenants are hesitant to make long-term leasing decisions until clarity avails itself in both the energy markets and governmental policy. Vacancy is on an upward trajectory as sublease space continues to be added to the market, particularly in submarkets traditionally occupied by the energy tenants. The significant decline in leasing activity paired with the increasing supply of available sublease space pushed net absorption into the red during the third quarter. Market conditions currently favor the tenant as landlords must leverage significant concession packages to compete in a sea of available space alternatives, especially for large users 0,000 SF and up. NET ABSORPTION AND RATE TRENDS HOUSTON METRO AREA 8,000 7,000 6,000 5,000 4,000,000,000, ,000 Net Absorption (Thousands of SF) Direct Vacancy Rate 5% 4% % % % 0% 9% 8% 7% * 6% Note: Delivery of preleased space counts as positive net absorption SOURCE CoStar, Transwestern *Through Q 06 CONTIGUOUS BLOCKS OF AVAILABLE SPACE HOUSTON METRO NET ABSORPTION Absorption pushes red in the ledger Net absorption for all classes of office ran red for the third quarter totaling a net negative 97,000 SF. Year-to-date totals were more favorable coming in at. million SF, but are still well below historical averages. The Class A market recorded 49,000 SF of positive absorption for the quarter, while Class B recorded a sixth consecutive quarter of negative absorption at 795,000 SF. Following several quarters of positive absorption driven by preleased deliveries, the office market experienced its first quarter of overall negative absorption since mid-year 05. Absorption over the final quarter of 06 is anticipated to be minimal to slightly negative as true recovery appears most likely to begin in mid-07 at the earliest. Notable Q Leases Class A Direct Class A Sublet Class B Direct Class B Sublet 5,000 SF 50,000 SF 00,000 SF 00,000 SF SOURCE CoStar, Transwestern *Through Q 06 TENANT SF LEASE TYPE BUILDING Lloyd's Register 86,89 Renewal 0 Enclave Parkway Katy Freeway West Orrick, Herrington & Sutcliffe 56,7 Prelease 609 Main at Texas CBD Hogan Lovells 4,000 Prelease 609 Main at Texas CBD Lockheed Martin Corporation 40,74 Renewal Two Corporate Plaza NASA/Clear Lake

34 HOUSTON METRO MARKET THIRD QUARTER 06 Sublease space nearly reaches.0 million SF The overall office vacancy rate (including sublet) was 5.6% at third quarter, up from 4.7% at second quarter. Direct vacancy was.8%, up from.% last quarter. Total available sublease space grew by. million SF this quarter to.9 million SF on the market. Also, in the third quarter, Shell announced they were vacating their entire space in One Shell Plaza, which totals approximately 800,000 SF, after initially only marketing 50,000 SF of space. FMC Technologies, WorleyParsons, NOV, and Freeport-McMoRan also put over 900,000 SF of combined sublease space on the market. With the continuation of space reductions through a slow market, sublease space will likely exceed.0 million SF by year-end. The submarkets that will continue to be affected by large amounts of sublease space are the Energy Corridor, CBD, Westchase, and the Galleria due to the strong oil and gas presence in those markets. Class A overall vacancy was 5.5% at third quarter, up from 4.6% at second quarter, and Class A direct was.0%, up from.4% over the same period. Class B overall vacancy was 6.%, a jump from 5.% at mid-year, and Class B direct vacancy rose to 5.0%, from 4.% over the same period. Looking ahead, vacancies are anticipated to increase further as leasing velocity remains low and companies continue to put sublease space on the market. RENTAL RATES Concession packages increasing While overall face rents increased modestly year-over-year, the underlying value of concession packages being offered foretells a different story. Class A rents declined 0.% year-over-year to $5.4 per SF gross, and Class B rents carried the increase in face rents, rising by.% to $.5 per SF gross from the close of the year. In the current, tenant-favored market, landlords are offering significant concession packages with generous tenant improvement packages and free rent in order to entice prospective tenants. Rental rates have not seen a sharp decline, as rate decreases typically lag behind other indicators due to landlords maintaining face rents for as long as possible. As competitive spaces grow in number throughout the market, the value of the concessions in nearing its ceiling and declines in rates will begin to show through most areas. SUPPLY AND DEVELOPMENT Development cycle comes to a close Houston is nearing the completion of its most recent development phase as there was a total of.6 million SF of office space under construction in the third quarter, as compared to.7 million SF just three months earlier. This space was 48% preleased, a metric that remains unchanged from the second quarter. There are no other buildings anticipated to deliver in 06, with all.6 million SF anticipated to deliver by the end of 07. The CBD is the only remaining submarket with over.0 million SF in the pipeline. Total Available Space Houston Metro Q 06 AVERAGE OFFICE RENTS HOUSTON METRO AREA Note: All classes of office space Office Under Construction Houston Metro Q 06 SUBLEASE SPACE (SF) NUMBER OF BLDGS SOURCE CoStar, Transwestern *At Q 06 SF % SUBLEASE Energy Corridor,575, % CBD,757, % Westchase,485,6 8.5% Galleria,09,67 8.% Greenspoint 98,67 5.9% All of Houston,868, % Asking Rents ($/SF Gross) $0 $8.60 $8 $6 $4 $ $0 $8 $ * % PRE- LEASED CBD,056,658 8% West Loop 50,000 75% Energy Corridor 4,48 40% Katy 85,465 8% Greenway Plaza 9,80 48% Westchase 86,000 00% Total 9,564,56 48% REAL ESTATE OUTLOOK HOUSTON METRO Q 06

35 The largest projects under construction are 609 Main (CBD,. million SF) and Amegy Bank s new headquarters located at 77 West Loop South (Post Oak Park, 80,000 SF). There were.4 million SF of deliveries at 6% preleased in the third quarter. The preleased percentage is significantly lower than the first quarter s 9% due to only one owneroccupied project delivering. The largest project deliveries include BHP s new headquarters (Galleria, 600,000 SF) and West Memorial Place II (Katy Freeway West, 85,5 SF). INVESTMENT MARKET Investment opportunities feeling the burn The investment landscape is changing quickly as the metro recorded $.4 million in office sales during the third quarter, a decline of 7% over the previous quarter. Small or mid-size assets accounted for most of the sales activity, as large transaction sales have declined dramatically over the past year. Pricing per square foot averages took a major hit for the period, averaging $56 per SF as compared to $58 per SF at second quarter due mainly to the quality and size of assets traded. The majority of single-property sales were smaller, Class B and C assets. The average cap rate was 7.8%, up from the second quarter average of 7.6%. These figures represent assets for which pricing information could be obtained. Owners are still hesitant to market their properties through the changing scope of the office market and the disparity in pricing expectations. The number of listings in 06 has been lower than historical averages as owners are sourcing deals off market to keep lower pricing from being advertised. Additionally, investors are exercising more conservative underwriting projections throughout the office sector in order to maintain financial viability. However, the long-term outlook for Houston remains bright as it still remains one of the nation s largest economies. COMPARATIVE OFFICE INVESTMENT SALES VOLUME SELECT METRO AREAS Sales Volume in Billions Atl Dal Den Hou $6.0 $5.0 $4.0 $.0 $.0 $.0 $ * SOURCE Real Capital Analytics, Transwestern,*Through Q 06 AVERAGE OFFICE SALE PRICE HOUSTON METRO AREA $50 $00 $50 $00 $50 $0 Average Sale Price Per SF $ * SOURCE Real Capital Analytics, Transwestern,*Through Q 06 Notable Q Transactions BUILDING SF SELLER BUYER 970 Cypresswood FM 960/Hwy 49 8,077 Torchlight Loan Services, LLC Vista Equities Group, Inc Savoy Southwest/Hillcroft 8,658 Younan Properties Ridgepoint Jr LLC SOURCE Real Capital Analytics, HFF, Transwestern REAL ESTATE OUTLOOK HOUSTON METRO Q 06

36 HOUSTON METRO MARKET THIRD QUARTER 06 OUTLOOK Baby steps on a soft floor The combination of the downturn in the energy sector and the over-zealous nature of our most recent development cycle, the Houston office market is in a transition state as signs begin to point that we may have hit our floor. Availability from the new deliveries along with blocks of space being added via the sublease market present lingering reminders as their impact on market fundamentals displays itself. The current energy market has reached the bottom with job cuts and even found a floor in price per barrel; however, it may still take the office market an additional to 8 months to see the return of office demand. Job growth for Houston is anticipated to remain flat or slightly positive for the year with impacts from the Super Bowl having little impact on office leasing. The metro s current development is 48% preleased and these projects are all anticipated to deliver by the end of 07. Looking ahead, tenants will continue to adopt a wait-and-see approach as they debate the impacts of the upcoming Presidential election and policies that follow the winning candidate coupled with the continued volatility in the oil markets. Rental rates will likely remain flat or decline as a large abundance of space needs to be absorbed. Development activity will taper off as developers hold off on new projects and wait for the next development upcycle to break ground. With more sublease space hitting the market, vacancy rates will continue to impacted and trend upward. OFFICE ABSORPTION AND EMPLOYMENT HOUSTON METRO AREA 8,000 7,000 6,000 5,000 4,000,000,000, ,000 Net Absorption (Thousands of SF) Payroll Job Growth (in Thousands) * -00 *-month job growth through August 06, net absorption through Q 06 Multi-tenant market vs Transwestern comprehensive market coverage MULTI-TENANT ENTIRE MARKET Inventory 09.5 MSF 48.4 MSF Overall Vacancy 7.6% 5.6% SOURCE Bureau of Labor Statistics, Transwestern Q Net Absorption,7,49 SF (97,000) SF WHY OUR METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS We include owner occupied and single-tenant buildings in our inventory, vacancy and absorption statistics to capture more market activity than many of our competitors. This allows us to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. The inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than some of our competitors results, but our coverage of the market is more comprehensive. 4 REAL ESTATE OUTLOOK HOUSTON METRO Q 06

37 Houston Office Market Indicators - All Space TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT 05 DIRECT Q 06 WITH SUBLET Q 06 UNDER CONSTRUCTION NET ABSORPTION Q 06 NET ABSORPTION YTD 06 Central Business District 87 47,99,574 5,804,977.%.% 4.6%,056,658 (,000) (4,000) Midtown 5,759, ,90 5.0% 4.9% 5.% - 44,000 4,000 Downtown 0 5,679,8 6,664,907.7%.4% 4.7%,056,658 (68,000) (9,000) FM 960 / I-45 North 5,7,988 8,76 4.% 7.4% 7.7% - (6,000) (44,000) FM 960 / Champions,850,05 47,40 4.0%.%.% - 0,000 7,000 FM 960 / Highway ,470,99 708,494.8%.0% 5.4% - (,000) 8,000 FM ,69,86,74, % 5.8% 7.4% -,000 56,000 North Belt West / Greenspoint 75 0,05,99,4,8 0.6%.% 6.7% -,000 (56,000) Greenspoint / IAH,076,008 50,005 6.% 6.% 6.% - 6,000 (7,000) Greenspoint / North Belt 97,8,407,744,87 7.% 8.4%.9% - 9,000 (6,000) Greenway Plaza 5,46,88,48,85.%.%.4% 9,805 6,000 70,000 Gulf Freeway/Pasadena 5,699,50 460,55 4.0% 7.% 7.% - (7,000) 5,000 Katy 44,8,89 6, % 8.% 8.% 85,465 6,000 9,000 Katy Freeway East 64 9,68,06 879,07 9.% 9.% 0.0% 8,7 (76,000) 7,000 Katy Freeway West 44 7,46,975 4,45,648.% 6.% 9.9% 86,55 (0,000) (5,000) Katy Frwy / Energy Corridor 08 7,098,00 5,04, % 4.% 7.% 4,48 (78,000) (450,000) Kingwood / Humble * 9,05,047 70,78 9.% 6.9% 6.9% - 9,000 4,000 NASA / Clear Lake 6 7,05,599 89,07.4%.7%.% - (50,000) 5,000 Northeast 7,7,6 6,8 7.9% 5.% 5.% - (5,000) 50,000 North Loop West 9 4,,495 56,95.9%.6% 4.5% - (,000),000 Northwest Near,9,0 7,94 0.8% 0.6% 0.6% - 7,000,000 Northwest Far,40,60 89,8.8% 4.% 4.7% - 48,000 (,000) Northwest 7 8,88,8,400, % 5.8% 6.4% -,000 4,000 South Main / Medical Center 49 0,469,07 944,0 9.% 9.0% 9.% - (,000) 9,000 Southwest / Hillcroft 5 4,69,9 677,65 7.% 5.9% 5.9% - 4,000 58,000 Southwest Beltway 8 4 5,60,5 864,45 6.8% 5.4% 5.4% - (,000) 80,000 E Fort Bend Co / Sugar Land 45 6,76,48 49,46 7.% 7.7% 8.9% - (64,000) (4,000) Southwest Fwy / Sugar Land 6,66,67,04,6.%.5%.0% - (7,000) 95,000 West Belt 7 4,90,57 779, % 5.9%.5% - (5,000) 9,000 Bellaire 9 4,74,99 65, % 8.4% 8.6% - (66,000) (86,000) Post Oak Park 9 4,94, ,8 6.7% 8.8% 9.7% 80,000 (,000) (9,000) Galleria 57 6,569,04,67,7 8.6% 9.8%.0% 40, ,000 50,000 Riverway 6,868,495 6,40.%.6%.0% -,000 (40,000) Richmond / Fountainview 89,689 97,545.9% 4.% 4.% - (0,000) (0,000) San Felipe / Voss 5,04,885 59,97 9.6%.7%.0% - (47,000) (08,000) West Loop 75,968,45,94,06 0.%.6%.4% 50,000 40,000 67,000 Westchase 89 7,467,49,9,80 9.%.7% 7.6% 86,000 (645,000) 6,000 The Woodlands 94 5,790,858,74,6 8.0% 0.9%.8% - 6,000,000 Conroe 90,45 78,59 8.8% 8.7% 8.7% - 0,000 TOTAL - Houston,75 48,40,50 4,64,549.%.8% 5.6%,564,56 (97,000),44,000 SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government * Inventory and number of buildings amended per changes in CoStar REAL ESTATE OUTLOOK HOUSTON METRO Q 06 5

38 HOUSTON METRO MARKET THIRD QUARTER 06 Houston Office Market Indicators - Class A TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 06 WITH SUBLET Q 06 UNDER CONSTRUCTION NET ABSORPTION Q 06 NET ABSORPTION YTD 06 Central Business District 4,85,9,857,05 9.0%.%,056,658 (96,000) 06,000 Midtown 7,494, ,00 8.8% 9.9% - 45,000 67,000 Downtown 4 4,45,887,6, %.8%,056,658 (5,000) 7,000 FM 960 / I-45 North 06,705,69 6.% 6.% - 0,000 FM 960 / Champions 50,000,00.4%.4% - 0 (,000) FM 960 / Highway 49 8,88,4 50,8.% 4.% - (,000) 0,000 FM 960 4,40,6 546,074.9%.8% - (,000) 0,000 North Belt West / Greenspoint 7 4,4,99,750, % 45.% - (,000) (7,000) Greenspoint / IAH * 8,,677 6,89 7.7% 7.7% - (,000) (4,000) Greenspoint / North Belt 5 5,557,596,086, % 4.5% - (,000) (,000) Greenway Plaza 8 7,00,68,0,8 4.4% 4.5% 9,805 4,000 45,000 Gulf Freeway/Pasadena % 0.0% Katy,58,74 506,48.0%.0%,465 8,000,000 Katy Freeway East 5,496, ,078 0.%.% 8,7 (87,000) 75,000 Katy Freeway West 74 8,980,70,80,56 4.9% 9.4% 86,55 57,000 (46,000) Katy Frwy / Energy Corridor 97 4,477,56,74,65.8% 7.5% 4,48 (0,000) (7,000) Kingwood / Humble 40,977 8,95 0.0% 0.0% - 0,000 NASA / Clear Lake 6,8,855 8,855.8%.4% - 5,000 6,000 Northeast 555, % 0.0% ,000 North Loop West 6,5,947 66,64.% 5.4% - 0,000 Northwest Near 7, % 0.0% Northwest Far 6 80,764,9 40.4% 4.6% - 0 (6,000) Northwest,9, ,555.4%.0% - 0 (49,000) South Main / Medical Center 6 4,68,94 9,4 4.% 4.% - 7,000 8,000 Southwest / Hillcroft 6,485,5, % 4.4% -,000 0,000 Southwest Beltway 8 57,500 49, 8.6% 8.6% - 0 0,000 East Ft Bend Co. / Sugar Land 4,,7 45, % 0.% - (6,000) (4,000) Southwest Fwy / Sugar Land 0 6,8, ,8 9.8%.0% - (50,000) 8,000 West Belt 4,066,0 674, % 9.9% - (8,000) 7,000 Bellaire 7,0,4 6,447.5% 4.% - (7,000) (80,000) Post Oak Park 8,,57 557,809 5.% 6.5% 80,000 (4,000) (7,000) Galleria,747,940,7,44 0.0%.% 40,000 57, ,000 Riverway 5,885,8 0, %.% - 8,000 (4,000) Richmond / Fountainview % 0.0% San Felipe / Voss,74,99 65,84 5.5% 5.9% - 4,000 (9,000) West Loop 55 9,765,5,46,98.5%.6%,0, ,000 8,000 Westchase 9,604,68,4,96.9% 9.8% - (9,000),0,000 The Woodlands 4,08,964,7,868.0%.8% 0,9,000 4,000 Conroe 8,8 6,6.7%.7% - 0 (5,000) TOTAL - Houston 46 7,779,654 7,95,069.0% 5.5%,5,56 49,000,457,000 SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government * Inventory and number of buildings adjusted per changes in CoStar 6 REAL ESTATE OUTLOOK HOUSTON METRO Q 06

39 Houston Office Market Indicators - Class B TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 06 WITH SUBLET Q 06 UNDER CONSTRUCTION NET ABSORPTION Q 06 NET ABSORPTION YTD 06 Central Business District 8 4,5,56,59,0 7.4% 8.8% - (7,000) (49,000) Midtown 9,77,47 65, 5.% 5.% -,000 6,000 Downtown 57 7,688,87,684,4 5.% 6.4% - 5,000 (4,000) FM 960 / I-45 North,06,44 7,69.4%.7% - (,000) (9,000) FM 960 / Champions 0,6,5 4,59 6.0% 6.0% - 0,000 8,000 FM 960 / Highway 49 0,444,70 56,08 0.8% 6.8% - 0 (7,000) FM ,09,80 807,57 9.7%.9% - 9,000 (8,000) North Belt West / Greenspoint 45 4,664,50,9, %.0% - 5,000 89,000 Greenspoint / IAH,69,78 48,7 8.8% 8.8% - 6,000 (,000) Greenspoint / North Belt 56 6,57,88,440,8.7% 6.6% - 4,000 86,000 Greenway Plaza 7,764,7 7,06 7.% 7.5% - 0 (70,000) Gulf Freeway / Pasadena 9,48, ,97 8.% 8.% - (7,000) 4,000 Katy 0,6,7 9,00.8%.8% 6,000 (,000) (5,000) Katy Freeway East 9,064,96 40, % 8.8% -,000,000 Katy Freeway West 7 8,94,7,600,4 9.5%.5% - (58,000) (78,000) Katy Fwy / Energy Corridor 0,59,7,840, % 8.0% - (47,000) (67,000) Kingwood / Humble 7 884,070 5,6 4.0% 4.0% - 9,000 0,000 NASA / Clear Lake 4 4,5,46 94, % 0.5% - (54,000) 6,000 Northeast * 0 86,956 0,560.5%.5% - (5,000) (57,000) North Loop West 0,56,907 66,58 4.5% 4.7% - (,000),000 Northwest Near 8 80,94 7, 0.9% 0.9% - 6,000,000 Northwest Far 4,8,49 504,86.%.5% - 48,000 5,000 Northwest 5 5,70,60 878, % 5.6% -,000 55,000 South Main / Medical Center 8,99,86 690,59 7.% 7.% - (8,000) 4,000 Southwest / Hillcroft 6,598,69 67,579.0%.0% -,000,000 Southwest Beltway 8 4,4,47 75,98 7.% 7.% - (5,000) 45,000 East Ft Bend Co. / Sugar Land 4,47,6 48, % 7.% - (,000) (,000) Southwest Fwy / Sugar Land 7 8,58,778,69,78 5.4% 5.6% - (7,000) 76,000 West Belt 4,6,89 94, 5.4% 7.% -,000,000 Bellaire 8,78, 70, 6.% 6.% - 5,000 (8,000) Post Oak Park 8,89, 8,86.%.6% - 0,000 (,000) Galleria,07,75 05,94 9.% 0.6% - (5,000) (6,000) Riverway 9 870,6 55,75 7.9% 7.9% -,000 (4,000) Richmond / Fountainview 7 559,977 48, % 6.6% - (0,000) (,000) San Felipe / Voss 0,6,956 70,956.%.% - (6,000) (90,000) West Loop 04,76,580,80,6 0.8%.% - (59,000) (7,000) Westchase 5 7,0,65,7,59 5.6% 5.9% 86,000 (55,000) (480,000) The Woodlands 5 4,566,09 46,50 9.6% 0.9% - 6,000 (9,000) Conroe 9 689,77 68,84 9.9% 9.9% - 0 7,000 TOTAL - Houston ,808,055 4,698, % 6.% 49,000 (795,000) (,005,000) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government REAL ESTATE OUTLOOK HOUSTON METRO Q 06 7

40 Houston Office Market Indicators - Asking Rental Rates 0 CLASS A 0 CLASS B 04 CLASS A 04 CLASS B 05 CLASS A 05 CLASS B Q 06 CLASS A Q 06 CLASS B % CHANGE /5-09/6 CLASS A % CHANGE /5-09/6 CLASS B Central Business District $9. $5.99 $4.7 $8. $4.87 $8.66 $4.05 $ % -.0% Midtown $0. $6.0 $4.6 $7.7 $4.7 $7.9 $4.5 $ % 0.0% Downtown $8.0 $5.99 $4.9 $8.0 $4.8 $8.57 $4.80 $8.0 -.% -.0% FM 960 / I-45 North - $ $8.0 $5.00 $7.65 $5.00 $7. 0.0% -.4% FM 960 / Champions - $.9 - $.55 - $.80 - $ % FM 960 / Highway 49 $5.67 $0.80 $6.56 $0.6 $6.87 $0.7 $7.8 $0.4.5% -.5% FM 960 $5.7 $5.5 $6.56 $5.74 $6.7 $5.99 $7.0 $6.07.% 0.5% North Belt West / Greenspoint $9.5 $5.6 $0.6 $5.59 $8.9 $4.9 $7.90 $ % -6.4% Greenspoint / IAH $.6 $6.4 $.65 $5.80 $.77 $5.97 $.87 $ % -.4% Greenspoint / North Belt $7.4 $5.7 $8.95 $5.6 $7. $5.0 $6.9 $4. -.% -6.% Greenway Plaza $. $.7 $5.04 $5.4 $5.9 $5.89 $5.95 $5.6 0.% -.0% Gulf Freeway / Pasadena - $.6 - $.5 - $.5 - $ % Katy $0.56 $.0 $.6 $.7 $.94 $4.0 $.7 $ % 0.% Katy Freeway East $5.5 $.79 $6.65 $.6 $8.0 $.89 $8.08 $ % 0.8% Katy Freeway West $.69 $0.5 $5.98 $.7 $7.9 $. $6. $.7 -.6% -.7% Katy Fwy / Energy Corridor $4.08 $. $6.06 $.90 $7.40 $.5 $6.5 $.5 -.4% -.% Kingwood / Humble $. $9.00 $. $9.54 $.55 $8.75 $.0 $ % 0.7% NASA / Clear Lake $.58 $8. $5.0 $8.6 $5.0 $8.8 $4.86 $ % -4.% Northeast - $ $7. - $7.9 - $ % North Loop West $.8 $8.5 $6.76 $0.50 $6.97 $0.8 $6.90 $ % -0.% Northwest Near - $ $ $6.6 - $ % Northwest Far $9.04 $5. $9.9 $6.66 $9.8 $6.70 $9.6 $ % -4.0% Northwest $.8 $6.7 $.67 $8.50 $.44 $8. $.79 $ % -.6% South Main / Medical Center $8.54 $4.00 $9.09 $5.09 $9.9 $5.6 $9.0 $ % -0.5% Southwest / Hillcroft $.75 $4.8 $.98 $.8 $.04 $4.0 $. $4. 0.4% 0.% Southwest Beltway 8 $.4 $6.68 $.45 $6.4 $.45 $6. $.5 $ % -.0% East Ft Bend Co. / Sugar Land $6.68 $. $7.09 $.60 $8.0 $.49 $8.46 $.9.6% -0.9% Southwest Fwy / Sugar Land $4.95 $6.67 $5.7 $6.56 $5.05 $6. $5.75 $6..8% -0.% West Belt $0.5 $. $.4 $.8 $.0 $.89 $.7 $ % -0.8% Bellaire $5.86 $.08 $6.80 $.09 $6.96 $.4 $6.97 $. 0.0% -0.% Post Oak Park $5.4 $6.6 $5.94 $7.4 $6.5 $7.76 $6.8 $ % -0.% Galleria $5.70 $6.70 $7.04 $7.49 $8.00 $7.40 $7.60 $ % -.% Riverway $0.8 $.7 $.0 $5. $.4 $5.66 $.99 $ % -.4% Richmond / Fountainview - $ $ $7.8 - $ % San Felipe / Voss $.44 $.40 $4.54 $.4 $5.9 $.50 $4.9 $ % -0.% West Loop $4.5 $.68 $5.40 $4.4 $6.44 $4.46 $5.9 $ % -0.% Westchase $5.8 $9.75 $8.70 $.5 $8.98 $. $8.4 $ % -.% The Woodlands $5.95 $.8 $9.56 $5.6 $40.56 $5.9 $40.5 $ % -.5% Conroe $8.4 $5.7 $8.40 $5.08 $9.5 $4.77 $9. $ % -0.8% TOTAL - Houston $.7 $9.96 $4.49 $0.88 $5. $.8 $5.4 $.5-0.%.% SOURCE CoStar, Transwestern NOTE Rents for properties using triple net terms have been grossed up to full service with operating expense data, rents reflect full service equivalent CONTACT Rachel Andrae Research Analyst rachel.andrae@transwestern.com Kevin Roberts President, Southwest kevin.roberts@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on office, industrial, retail, multifamily and healthcare properties located in the Houston metropolitan area. This report includes single-tenant, multi-tenant and owner-user properties and excludes properties owned and occupied by a government agency. Copyright 06 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

41 REAL ESTATE OUTLOOK HOUSTON OFFICE MARKET FIRST QUARTER 06 Energy Downturn Hits Office Market Hard Fundamentals weakening as expected OVERVIEW Leasing velocity remains down While the overall Houston economy is adding jobs, major office demand drivers like upstream energy and engineering are accruing further losses. This is in stark contrast to downstream energy which is booming on the east side of the metro with over $5 billion in construction either underway or planned. Vacancy is on the rise as upstream companies continue to reduce workforces, downsize and cut costs across the board. Net absorption stayed in the black through first quarter as deliveries were largely preleased, but rent growth finally tapered off, and concession packages remain high. Houston has firmly become a tenant's market, and conditions will become even more tenant-favorable as the year progresses. NET ABSORPTION Deliveries still driving positive absorption Net absorption for all classes of space totaled 996,000 SF at first quarter, fueled largely by preleased deliveries. Class A recorded. million SF of positive absorption for the quarter, and Class B recorded a fourth quarter in a row of negative absorption at 9,000 SF. Though Class AA demand has given way to a more value office trend recently, Class B space is still suffering the effects of the previous flight-toquality trend. Absent the volume of new deliveries, overall and Class A net absorption would have been negative 758,000 SF and negative 59,000 SF, respectively. The largest move-out by far this quarter was BMC in Westchase, while most others were in the small to mid-range. NET ABSORPTION AND RATE TRENDS HOUSTON METRO AREA 8,000 7,000 6,000 5,000 4,000,000,000, ,000 Note: Delivery of preleased space counts as positive net absorption Net Absorption (Thousands of SF) Direct Vacancy Rate 4% % % % 0% 9% 8% 7% 6% * 5% SOURCE CoStar, Transwestern *Through Q 06 CONTIGUOUS BLOCKS OF AVAILABLE SPACE HOUSTON METRO Class A Direct Class A Sublet Class B Direct Class B Sublet 5,000 SF 50,000 SF 00,000 SF 00,000 SF SOURCE CoStar, Transwestern *Through Q 06 Notable Q Leases TENANT SF LEASE TYPE BUILDING United Airlines 5,000 Prelease 609 Main at Texas CBD Linde Processing Plants 50,80 New Linde Plaza Katy Freeway West Citigroup 49,70 New Galleria Tower I Galleria USI Insurance 46,90 New Air Liquide Center Katy Freeway East Bureau Veritas 4,60 New Greenspoint Park North Belt West/Greenspoint

42 HOUSTON METRO MARKET FIRST QUARTER 06 Vacancy rises with low demand The overall office vacancy rate (including sublet) was.8% at first quarter, unchanged from year-end. Direct vacancy was.5%, up from.% last quarter. Total available sublease space continues to grow, adding more than 940,000 SF this quarter to hit 8.7 million SF on the market. Sublease space is expected to continue rising over the course of 06 and hit the 0 million SF range by the end of the year. Energy companies comprise the majority of sublease space on the market, accounting for 78% of the total. Total available space for lease in several submarkets is markedly higher than what is reported as vacant in statistics. Submarkets like the Energy Corridor and Galleria will continue to experience increasing downside pressure and rising availability rates as the energy downturn cuts deep into fundamentals. Class A overall vacancy was.9% at first quarter, down just slightly from.0% at year-end, and Class A direct was.5%, up from.% over the same period. Vacant available space declined over this period as deliveries were 9% preleased, adding.8 million SF of occupied Class A space to the existing inventory. Vacancy rates will continue trending upward in the period ahead as demand remains low and space still under construction delivers. RENTAL RATES Rents begin to slip in 06 Asking rental rates for all classes of office space have increased 0.7% from year-end to $8.9 per SF gross. Class A rents were down 0.6% to $5.09 per SF gross, and Class B rents rose 0.% to $.0 per SF gross from the close of the year. Asking rents reached a tipping point at the end of 05 and should trend downward in the period ahead. Rent declines lagged behind other indicators as landlords worked to maintain face rents as long as possible. Concessions are prevalent, especially in Class A, with free rent and improvement packages dramatically increasing. SUPPLY AND DEVELOPMENT Pipeline continues to cool There was 5.9 million SF of office space under construction at first quarter, as compared to 7. million SF at year-end. This space was 49% preleased, as compared to 6% at the end of 05. The majority of the construction pipeline, 4.8 million SF, is currently scheduled to deliver in the remaining three quarters of 06. There is no longer a standout submarket for construction activity, as the Energy Corridor, Westchase, CBD and Galleria all have around one million SF under construction. The Energy Corridor is the most vulnerable for negative performance given the current state of the oil and gas market and a construction pipeline only % preleased. The biggest projects under construction are Phillips 66's campus in Westchase at. million SF and 609 Main at Texas in the CBD at.0 million SF. Total Available Space Houston Metro Q 06 AVERAGE OFFICE RENTS HOUSTON METRO AREA * Note: All classes of office space SOURCE CoStar, Transwestern *Through Q 06 Office Under Construction Houston Metro Q 06 SUBLEASE SPACE (SF) % SUBLEASE SF % TOTAL AVAILABLE Energy Corridor,89,000 6.%.% CBD,80,000.8% 0.% Westchase,07, % 0.0% Greenspoint 684,000 5.% 4.8% Galleria 888, % 8.5% All of Houston 8,688,000.6% 0.4% $0 $8 $6 $4 $ $0 $8 $6 Asking Rents ($/SF Gross) $8.9 % PRE- LEASED West Loop,85,000 7% Energy Corridor,79,475 % Westchase,00,000 00% CBD,056,658 7% The Woodlands 5,9 0% Greenway Plaza 98,696 7% FM 960/Hwy 49 65,754 7% Katy 4,07 8% Gulf Freeway/Pasadena 0,000 8% Total 5,9,5 49% REAL ESTATE OUTLOOK HOUSTON METRO Q 06

43 Deliveries dropped off significantly in the first quarter with the metro recording just.9 million SF added to the market at 9% preleased. Of the six buildings delivered this quarter, three were owner-occupied and one was single-tenant, which was reflected in the high preleased percentage. The largest projects delivered include FMC Technologies' campus at 50,000 SF in the Northeast submarket and Millennium Tower II at 445,000 SF in Westchase. INVESTMENT MARKET Volume falls off in Q The metro recorded just $4.6 million in office sales transactions during the first quarter, further evidence that large asset transactions have tapered off. Sales for 05 totaled a revised $. billion. Pricing averaged $ per SF this quarter, as compared to $0 per SF at fourth quarter and $9 per SF for all of 05. Average prices were down sizably as sales this quarter were largely comprised of smaller Class B and C assets. The average cap rate was 7.%, down from a revised fourth quarter average of 7.6%. Cap rates for all of 05 averaged 7.% These figures represent assets for which pricing information could be obtained. The energy downturn and corresponding economic uncertainty have caused a disparity in pricing expectations, leaving some owners hesitant to list. There is a significant bid-ask spread as buyers and sellers of office assets work to adjust expectations in a down economy. Marathon Oil Tower was taken off the market in the first quarter as offers came in lower than expected. As the office sector in Houston is expected to get worse before seeing a recovery, fewer buildings are being listed for sale. Deals in 06 are more likely to be sourced off market as owners try to keep lower pricing from being advertised. COMPARATIVE OFFICE INVESTMENT SALES VOLUME SELECT METRO AREAS Sales Volume in Billions Atl Dal Den Hou $6.0 $5.0 $4.0 $.0 $.0 $.0 $ * SOURCE Real Capital Analytics, Transwestern,*Through Q 06 AVERAGE OFFICE SALE PRICE HOUSTON METRO AREA $50 $00 $50 $00 $50 $0 Average Sale Price Per SF $ * SOURCE Real Capital Analytics, Transwestern,*Through Q 06 Notable Q Transactions BUILDING SALE PRICE CAP RATE SELLER BUYER 500 Memorial Midtown $.5 million ($05/SF) 7.6% Parkway Properties Equus Capital Partners Town & Country Central I Katy Freeway East $6.0 million ($75/SF) 7.7% Parkway Properties Equus Capital Partners 54 Westheimer Galleria $5. million ($/SF) 6.4% Songy Highroads & EDENS joint venture Urban Meridian SOURCE Real Capital Analytics, HFF, Transwestern REAL ESTATE OUTLOOK HOUSTON METRO Q 06

44 HOUSTON METRO MARKET FIRST QUARTER 06 OUTLOOK Market in for rough road ahead The office sector is experiencing the most fallout by far in the current economic conditions as workforce reductions, M&A activity, cost cutting and downsizing by energy companies further weakens fundamentals. Tenants and landlords must frequently adjust to changing market conditions as bankruptcy filings and sublease space steadily grows. Some of these market realities have not yet caught up with statistics as office metrics lag behind companies' real estate decisions. The office market will likely be extremely challenging for several years, and the full impact will not be realized until oil prices stabilize, and energy companies hit bottom and begin to recover. The metro s current development pipeline is 49% preleased, and a slower economy will limit further leasing activity in this space. Additionally, many of these tenants will vacate large blocks of space when they move to occupy new buildings. With tepid demand expected in the period ahead, we anticipate the overall vacancy rate for all classes of space to increase over the next two years, climbing to the high-7% range. As development activity drops off, Houston's strong net absorption will go with it allowing a different picture of the market to emerge. Asking rents will fall with better deals coming for tenants in the market. This is not the 980s, but it is arguably the toughest office market since that time. OFFICE ABSORPTION AND EMPLOYMENT HOUSTON METRO AREA 8,000 7,000 6,000 5,000 4,000,000,000, ,000 *-month job growth through February 06, net absorption through Q 06 Net Absorption (Thousands of SF) Multi-tenant market vs Transwestern comprehensive market coverage MULTI-TENANT ENTIRE MARKET Inventory 90. MSF 44.5 MSF Overall Vacancy 6.4%.8% Payroll Job Growth (in Thousands) * SOURCE Bureau of Labor Statistics, Transwestern Q Net Absorption.4 MSF 996,000 SF WHY OUR METHODOLOGY IS THE BEST INDICATOR OF CURRENT MARKET CONDITIONS We include owner occupied and single-tenant buildings in our inventory, vacancy and absorption statistics to capture more market activity than many of our competitors. This allows us to better correlate changes in the market with changes in employment. As single-tenant space does compete with multi-tenant space, we believe it is critical to understand all components of the market. The inclusion of single-tenant and owner-occupied space tends to yield lower vacancy rates and higher absorption totals than some of our competitors results, but our coverage of the market is more comprehensive. 4 REAL ESTATE OUTLOOK HOUSTON METRO Q 06

45 Houston Office Market Indicators - All Space TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT 05 DIRECT Q 06 WITH SUBLET Q 06 UNDER CONSTRUCTION NET ABSORPTION Q 06 Central Business District 87 47,99,574 5,65,758.%.7%.6%,056,658 6,000 Midtown 5,759,744 85,90 5.0% 4.8% 5.0% -,000 Downtown 0 5,679,8 6,477,048.7%.%.8%,056,658 49,000 FM 960 / I-45 North 5,7,988 5,40 4.% 5.7% 5.9% - (,000) FM 960 / Champions,850,05 45,5 4.0% 4.5% 4.5% - (9,000) FM 960 / Highway ,05,9 606,99.8%.4% 4.0% 65,754 9,000 FM ,57,5,75, % 5.0% 6.6% 65,754 (,000) North Belt West / Greenspoint 75 0,05,99,096,94 0.6% 0.6% 4.0% - (9,000) Greenspoint / IAH,076,008 59,845 6.% 6.9% 7.% - (5,000) Greenspoint / North Belt 97,8,407,66,40 7.% 7.4% 0.% - (4,000) Greenway Plaza 50,064,88,49,84.%.%.% 98,696,000 Gulf Freeway/Pasadena 4,597,50 400,05 4.0% 5.4% 5.4% 0,000 (6,000) Katy 4,59,094 54,97 5.9% 5.8% 5.9% 4,07,000 Katy Freeway East 6 9,604,6 85,57 9.% 8.7% 9.5% 6,5 8,000 Katy Freeway West 4 6,506,699,7,790.%.8% 4.5% 95,964 (,000) Katy Frwy / Energy Corridor 05 6,0,960,96,6 0.7%.0%.%,79,475 (95,000) Kingwood / Humble * 9,05,047 84,054 9.% 8.% 8.% -,000 NASA / Clear Lake 6 7,05, ,0.4%.0%.4% - 96,000 Northeast 6,665,56 06,50 7.9%.4%.4% - 50,000 North Loop West 9 4,, ,049.9%.7% 4.4% - 0,000 Northwest Near,9,0 6, % 0.5% 0.8% - 4,000 Northwest Far,40,60 864,56.8% 5.% 5.6% - (47,000) Northwest 7 8,88,8,46,60 5.8% 6.% 6.7% - (,000) South Main / Medical Center 49 0,469,07 975,78 9.% 9.% 9.% - (,000) Southwest / Hillcroft 5 4,69,9 7,075 7.% 6.7% 6.9% -,000 Southwest Beltway 8 4 5,60,5 88, % 5.7% 5.8% - 6,000 E Fort Bend Co / Sugar Land 45 6,76,48 48,99 7.% 6.6% 7.% -,000 Southwest Fwy / Sugar Land 6,66,67,05,59.%.4%.7% - 5,000 West Belt 7 4,90,57 808,95 6.5% 6.5% 7.8% - - Bellaire 9 4,74,99 0,49 6.4% 7.% 7.7% - (40,000) Post Oak Park 9 4,94, , % 7.7% 8.6% 80,000 (4,000) Galleria 55 5,804,04,408,9 8.6% 8.9% 9.9% 905,000 (54,000) Riverway 6,868,495,745.%.6%.% - (,000) Richmond / Fountainview 89,689 9,447.9%.6%.6% - (6,000) San Felipe / Voss 5,04,885 46,85 9.6% 9.% 9.4% - 0,000 West Loop 7,0,45,478,48 0.% 0.5%.%,85,000 (4,000) Westchase 88 6,67,49,74,99 9.% 0.6%.0%,00,000 78,000 The Woodlands 9 5,48,455,5,6 8.0% 8.7% 9.% 5,9 69,000 Conroe 90,45 79, % 8.8% 8.8% - - TOTAL - Houston,6 44,506,057 0,60,59.%.5%.8% 5,9,5 996,000 SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government * Inventory and number of buildings amended per changes in CoStar REAL ESTATE OUTLOOK HOUSTON METRO Q 06 5

46 HOUSTON METRO MARKET FIRST QUARTER 06 Houston Office Market Indicators - Class A TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 06 WITH SUBLET Q 06 UNDER CONSTRUCTION NET ABSORPTION Q 06 Central Business District 4,85,9,70,09 8.5% 9.7%,056,658 4,000 Midtown 7,494, ,98 0.4% 0.7% - 7,000 Downtown 4 4,45,887,9,00 9.4% 0.5%,056,658 70,000 FM 960 / I-45 North 06,705 5,40 7.0% 7.0% - - FM 960 / Champions 50,000,00.4%.4% - (,000) FM 960 / Highway 49 7,77,667 49,9.6%.4% 65,754 7,000 FM ,074,7 466,60.5%.% 65,754 5,000 North Belt West / Greenspoint 7 4,4,99,570,76 6.% 4.0% - (7,000) Greenspoint / IAH * 8,,677 48,5 8.7% 9.6% - (6,000) Greenspoint / North Belt 4 5,557,596,99, % 8.5% - (5,000) Greenway Plaza 7 6,88,68 946,47.8%.8% 98,696 9,000 Gulf Freeway/Pasadena % 0.0% - - Katy 0,457,49 4,450 8.% 8.4% 4,07,000 Katy Freeway East 5,40,04 487, % 0.0% 6,5 65,000 Katy Freeway West 7 8,070,454,75,07 9.7%.% 95,964 (87,000) Katy Frwy / Energy Corridor 94,490,495,8,8 9.5%.8%,79,475 (,000) Kingwood / Humble 40,977 8,95 0.0% 0.0% -,000 NASA / Clear Lake 6,8,855 58,97.7% 4.% - (4,000) Northeast 50, % 0.0% - 50,000 North Loop West 6,5,947 75,4 4.0% 6.% -,000 Northwest Near 7,84-0.0% 0.0% - - Northwest Far 6 80,764, % 40.0% - (49,000) Northwest,9, ,99.%.8% - (46,000) South Main / Medical Center 6 4,68,94 9,00 5.0% 5.0% - (9,000) Southwest / Hillcroft 6,485,5 0,0 5.5% 6.% -,000 Southwest Beltway 8 57,500 5,6 9.% 9.% - 6,000 East Ft Bend Co. / Sugar Land 4,,7 8,58 6.8% 7.% -,000 Southwest Fwy / Sugar Land 0 6,8, ,47 9.% 9.5% - 5,000 West Belt 4,066,0 70,87 7.% 7.8% - - Bellaire 7,0,4 90,49 7.5% 9.% - (8,000) Post Oak Park 8,,57 509,.0% 4.0% 80,000 (,000) Galleria 0,98,940,067, % 9.8% 905,000 4,000 Riverway 5,885,8 98,00 0.5%.5% - (9,000) Richmond / Fountainview % 0.0% - - San Felipe / Voss,74,99,94.0%.4% - 4,000 West Loop 5 9,000,5,087,99.0%.9%,85,000 (,000) Westchase 0 8,504,68,046,070.% 6.7%,00,000 89,000 The Woodlands 9 0,576,56 95,90 8.7% 9.% 44,40 0,000 Conroe 8,8 0,95 8.5% 8.5% - - TOTAL - Houston 45,967,46 5,4,487.5%.9% 5,75,00,5,000 SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government * Inventory and number of buildings adjusted per changes in CoStar 6 REAL ESTATE OUTLOOK HOUSTON METRO Q 06

47 Houston Office Market Indicators - Class B TOTAL BLDGS INVENTORY SF AVAILABLE IMMEDIATELY DIRECT Q 06 WITH SUBLET Q 06 UNDER CONSTRUCTION NET ABSORPTION Q 06 Central Business District 8 4,5,56,477,7 7.% 8.5% - (07,000) Midtown 9,77,47 84,86 5.8% 6.% - (,000) Downtown 57 7,688,87,66, % 6.% - (0,000) FM 960 / I-45 North,06,44 09,46 0.6%.0% - (,000) FM 960 / Champions 0,6,5 448,89 7.5% 7.5% - (7,000) FM 960 / Highway 49 0,444,70 5,80 9.4% 6.5% -,000 FM ,09,80 794, %.0% - (5,000) North Belt West / Greenspoint 45 4,664,50,4,79 8.4%.4% - 56,000 Greenspoint / IAH *,69,78 54,67 9.% 9.% - (9,000) Greenspoint / North Belt 56 6,57,88,478,986.% 5.5% - 47,000 Greenway Plaza 7,764,7, % 5.9% - (,000) Gulf Freeway / Pasadena 8,46,468 64, % 7.0% 0,000 (6,000) Katy 0,6,7,040.4%.6% -,000 Katy Freeway East 9,064,96 60, % 9.% - (9,000) Katy Freeway West 7 8,94,7,7, % 9.6% - (50,000) Katy Fwy / Energy Corridor 0,59,7,6,7 4.5% 6.8% - (59,000) Kingwood / Humble * 7 884,070 45,97 5.% 5.% - 9,000 NASA / Clear Lake 4 4,5,46 86,648 9.% 9.% - 99,000 Northeast * 0 86,956 45,67 6.9% 6.9% - - North Loop West 0,56,907 60,4 4.% 4.% - 8,000 Northwest Near 8 80,94 6,48 0.8%.% -,000 Northwest Far 4,8,49 55,90.%.5% -,000 Northwest 5 5,70,60 90,580 6.% 6.% -,000 South Main / Medical Center 8,99,86 687,798 7.% 7.% - 7,000 Southwest / Hillcroft 6,598,69 8,56 4.0% 4.0% - 6,000 Southwest Beltway 8 4,4,47 764,44 7.% 7.4% - 4,000 East Ft Bend Co. / Sugar Land * 4,47,6 9, 6.% 7.% - 9,000 Southwest Fwy / Sugar Land 7 8,58,778,87,97 5.6% 5.9% - 59,000 West Belt 4,6,89 96, % 9.% - - Bellaire 8,78, 80, % 6.5% - (9,000) Post Oak Park 8,89, 8,86.%.8% - (,000) Galleria,07,75 0,97 9.% 0.7% - (58,000) Riverway 9 870,6 0,59 5.0% 5.0% -,000 Richmond / Fountainview 7 559,977 45,04 5.9% 5.9% -,000 San Felipe / Voss 0,6,956 85,45 8.6% 8.8% - (4,000) West Loop 04,76,580,7, % 0.6% - (9,000) Westchase 5 7,0,65 676,860 9.% 9.5% - (0,000) The Woodlands 5 4,566,09 44,55 9.7% 0.7% 69,50 (4,000) Conroe 9 689,77 76,56.%.% - (,000) TOTAL - Houston ,706,055,78,057 4.% 5.% 7,50 (9,000) SOURCE CoStar, Transwestern NOTE Includes buildings 50,000 SF RBA and greater; does not include buildings under construction or owned by the government * Inventory and number of buildings amended per changes in CoStar REAL ESTATE OUTLOOK HOUSTON METRO Q 06 7

48 HOUSTON METRO MARKET FIRST QUARTER 06 Houston Office Market Indicators - Asking Rental Rates 0 CLASS A 0 CLASS B 04 CLASS A 04 CLASS B 05 CLASS A 05 CLASS B Q 06 CLASS A Q 06 CLASS B % CHANGE /5-0/6 CLASS A % CHANGE /5-0/6 CLASS B Central Business District $9. $5.99 $4.7 $8. $4.87 $8.66 $4.9 $ % 0.0% Midtown $0. $6.0 $4.6 $7.7 $4.7 $7.9 $4. $ % 0.9% Downtown $8.0 $5.99 $4.9 $8.0 $4.8 $8.57 $4.8 $ % 0.% FM 960 / I-45 North - $ $8.0 $5.00 $7.65 $5.00 $ % -0.7% FM 960 / Champions - $.9 - $.55 - $.80 - $.9-0.8% FM 960 / Highway 49 $5.67 $0.80 $6.56 $0.6 $6.87 $0.7 $7.07 $ % -.% FM 960 $5.7 $5.5 $6.56 $5.74 $6.7 $5.99 $6.9 $ % -0.% North Belt West / Greenspoint $9.5 $5.6 $0.6 $5.59 $8.9 $4.9 $8.00 $ % -5.% Greenspoint / IAH $.6 $6.4 $.65 $5.80 $.77 $5.97 $.8 $5.67.9% -.9% Greenspoint / North Belt $7.4 $5.7 $8.95 $5.6 $7. $5.0 $7.05 $ % -4.8% Greenway Plaza $. $.7 $5.04 $5.4 $5.9 $5.89 $5.90 $5.8-0.% -0.% Gulf Freeway / Pasadena - $.6 - $.5 - $.5 - $ % Katy $0.56 $.0 $.6 $.7 $.94 $4.0 $.65 $ %.% Katy Freeway East $5.5 $.79 $6.65 $.6 $8.0 $.89 $8.6 $ % 0.9% Katy Freeway West $.69 $0.5 $5.98 $.7 $7.9 $. $6.6 $ % -.6% Katy Fwy / Energy Corridor $4.08 $. $6.06 $.90 $7.40 $.5 $7.00 $.97 -.% -.% Kingwood / Humble $. $9.00 $. $9.54 $.55 $8.75 $.00 $ % 0.0% NASA / Clear Lake $.58 $8. $5.0 $8.6 $5.0 $8.8 $5.04 $8.0 0.% -4.% Northeast - $ $7. - $7.9 - $ % North Loop West $.8 $8.5 $6.76 $0.50 $6.97 $0.8 $6.84 $ % 0.0% Northwest Near - $ $ $6.6 - $ % Northwest Far $9.04 $5. $9.9 $6.66 $9.8 $6.70 $9.5 $ % -4.4% Northwest $.8 $6.7 $.67 $8.50 $.44 $8. $.7 $ % -.4% South Main / Medical Center $8.54 $4.00 $9.09 $5.09 $9.9 $5.6 $9.8 $5. 0.7% -0.% Southwest / Hillcroft $.75 $4.8 $.98 $.8 $.04 $4.0 $.00 $4.0-0.% 0.0% Southwest Beltway 8 $.4 $6.68 $.45 $6.4 $.45 $6. $.70 $6.4.% 0.7% East Ft Bend Co. / Sugar Land $6.68 $. $7.09 $.60 $8.0 $.49 $8.9 $.9.0% -.4% Southwest Fwy / Sugar Land $4.95 $6.67 $5.7 $6.56 $5.05 $6. $5.0 $ % 0.% West Belt $0.5 $. $.4 $.8 $.0 $.89 $.0 $ % 0.0% Bellaire $5.86 $.08 $6.80 $.09 $6.96 $.4 $6.98 $.0 0.% -0.5% Post Oak Park $5.4 $6.6 $5.94 $7.4 $6.5 $7.76 $6.06 $7.7 -.% -0.% Galleria $5.70 $6.70 $7.04 $7.49 $8.00 $7.40 $7.65 $ % 0.0% Riverway $0.8 $.7 $.0 $5. $.4 $5.66 $.00 $ % -0.6% Richmond / Fountainview - $ $ $7.8 - $ % San Felipe / Voss $.44 $.40 $4.54 $.4 $5.9 $.50 $5.0 $ % -0.4% West Loop $4.5 $.68 $5.40 $4.4 $6.44 $4.46 $6. $ % -0.% Westchase $5.8 $9.75 $8.70 $.5 $8.98 $. $8.86 $.5-0.% 0.6% The Woodlands $5.95 $.8 $9.56 $5.6 $40.56 $5.9 $40.80 $ % 0.% Conroe $8.4 $5.7 $8.40 $5.08 $9.5 $4.77 $9.40 $ % 0.0% TOTAL - Houston $.7 $9.96 $4.49 $0.88 $5. $.8 $5.09 $.0-0.6% 0.% SOURCE CoStar, Transwestern NOTE Rents for properties using triple net terms have been grossed up to full service with operating expense data, rents reflect full service equivalent 8 REAL ESTATE OUTLOOK HOUSTON METRO Q 06

49 Houston Office Market Indicators - Asking Rental Rates 0 CLASS AA 04 CLASS AA 05 CLASS AA 06 CLASS AA % CHANGE /5-0/6 CLASS AA Central Business District $50.04 $5.75 $54.9 $ % Galleria $46.95 $48.76 $49.44 $ % SOURCE CoStar, Transwestern NOTE Class AA asking rents have been further broken out for two submarkets due to the large differential in rental rates for Class A. assets CONTACT Rachel Alexander Director of Market Research rachel.alexander@transwestern.com Kevin Roberts President, Southwest kevin.roberts@transwestern.com METHODOLOGY The information in this report is the result of a compilation of information on office, industrial, retail, multifamily and healthcare properties located in the Houston metropolitan area. This report includes single-tenant, multi-tenant and owner-user properties and excludes properties owned and occupied by a government agency. Copyright 06 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

50 MarkET WATCH HOUSTON Office February 06 Recent office leases North Belt West/ Greenspoint :: Bureau Veritas 4,60 SF new lease at Greenspoint Park Galleria :: NGKF 8,58 SF new lease at BLVD Place North Belt West/ Greenspoint :: White Oak Operating,78 SF new lease at 4 Greenspoint Place Recent office sales Midtown :: 500 Memorial 55,79 SF, Class B Buyer: Equus Investment Partnership X Fund Seller: Parkway Properties Katy Freeway East :: Town & Country Central I 48,44 SF, Class B Buyer: Equus Investment Partnership X Fund Seller: Parkway Properties Office Market Indicators - All Space Submarket Total Bldgs INVENTORY sf available immediately Direct Vacancy rate OVERALL Vacancy rate SF Under Construction q4 05 Net Absorption Asking Rental rates (fsg) CLASS A CLASS B Downtown (CBD & Midtown) 9 5,7,78 6,8,674.7%.5%,46,58 (,85,000) $4.8 $8.57 FM 960 (FM 960/I-45 N, FM 960/ 77 8,57,5,64,8 4.8% 6.0% - 448,000 $6.7 $5.99 Champions & FM 960/Hwy 49) Greenspoint/North Belt (North Belt West/Greenspoint & Greenspoint/IAH) 97,8,407,58,47 7.% 0.4% - (,09,000) $7. $5.0 Greenway Plaza 49 0,86,0,,09.%.5% 458,75 (5,000) $5.9 $5.89 Gulf Freeway/Pasadena 4,597,50 6, % 4.0% - 65,000 - $.5 Katy 4,59,094 58,96 5.9% 6.% 4,07 46,000 $.94 $4.0 Katy Frwy/Energy Corridor (Katy Freeway East & Katy Freeway West) 05 6,0,960,869,45 0.7%.% 94,07,57,000 $7.40 $.5 Kingwood/Humble 8 789,674 7,440 9.% 9.% - (6,000) $.55 $8.75 NASA/Clear Lake 6 7,05, ,94.4%.8% - - $5.0 $8.8 Northeast 5,55,56 06, % 7.9%,000,000 (,000) - $7.9 Northwest 7 8,88,8,40,8 5.8% 6.5% - (4,000) $.44 $8. (North Loop West, Northwest Near & Northwest Far) South Main/Medical Center 49 0,469,07 96,55 9.% 9.% - (05,000) $9.9 $5.6 Southwest Frwy/Sugar Land 6,66,67,9,477.%.4% - 595,000 $5.05 $6. (SW/Hillcroft, SW Beltway 8 & E Ft Bend Co/Sugar Land) West Belt 7 4,90,57 808,95 6.5% 7.6% - 690,000 $.0 $.89 West Loop (Bellaire, Post Oak Park, Galleria, Riverway, Richmond/Fountainview & San Felipe/Voss) 7,0,45,44,5 0.%.6%,85,000 (96,000) $6.44 $4.46 Westchase 87 5,9,49,468,04 9.%.5%,545,000 76,000 $8.98 $. The Woodlands 90 5,048,455,0, % 8.7% 44,50,470,000 $40.56 $5.9 Conroe 90,45 79, % 8.8% - 7,000 $9.5 $4.77 Total - Houston,55 4,60,809 9,66,756.%.8% 7,,990,854,000 $5. $.8 Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings OFFICE LEASE STATISTICS 4% % Overall Vacancy Rates Asking Rental Rates (FSG) $9.00 $8.00 Office Sales Statistics Volume ($ Mil) Quarter to Date Houston MSA Last Quarter (q4 05) Trailing Months United States Last Quarter (q4 05) Trailing Months $78. $8.7 $,00.7 $40,80.4 $47,58.9 % $7.00 No. of Properties ,5 5,94 % $6.00 Total SF 55,8,44,9 6,45,6 76,994,65 645,94,847 0% 9% Q4 Q Q Q Q4 Q 4 Q 4 Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings Q 4 Q4 4 Q 5 Q 5 Q 5 Q4 5 $5.00 $4.00 Average Price/SF Average Cap Rate (Yield) N/A $0 $59 $9 $49 N/A 7.6% 7.% 6.6% 6.7% Source: Real Capital Analytics

51 HOUSTON Office Market FebRUARy See Inner Loop Map INNER LOOP. CBD. South Main/Medical Center. Galleria 4. Riverway 5. Midtown 6. Greenway Plaza 7. Post Oak Park 8. Bellaire 9. North Loop West southeast. Gulf Frwy/Pasadena. NASA/Clear Lake. Southeast Outlier NORthWest. Northwest Near. Northwest Far. FM 960/Hwy FM 960/Champions 5. Northwest Outlier 6. West Belt NORth. The Woodlands. FM 960/ I-45 North. North Belt West/Greenspoint WEST. San Felipe/Voss. Richmond/Fountainview. Westchase 4. Katy Freeway East 5. Katy Freeway West 6. Katy SOUTHWest. Southwest/Hillcroft. Southwest Beltway 8. E Fort Bend Co/Sugar Land 4. Southwest Outlier NORtheast. Northeast Near. Greenspoint/IAH. Kingwood/Humble 4. Northeast Outlier MARKET WATCH HOUSTON office MARKET February 06

52 HOUSTON Office Market February 06 ABout TRansWesteRN Transwestern is a privately held real estate firm specializing in agency leasing, property and facilities management, tenant advisory, capital markets, research and sustainability. The fully integrated global enterprise leverages competencies in office, industrial, retail, multifamily and healthcare properties to add value for investors, owners and occupiers of real estate. As a member of the Transwestern family of companies, the firm capitalizes on market insights and operational expertise of independent affiliates specializing in development, real estate investment management and research. Transwestern has 4 U.S. offices and assists clients through more than 80 offices in 7 countries as part of a strategic alliance with Paris-based BNP Paribas Real Estate. Transwestern was founded in Houston, Texas in 978, and Houston remains the corporate headquarters today. As one of the preeminent commercial real estate firms in Houston, we offer a comprehensive menu of real estate services designed to provide owners, tenants and investors with the optimum solutions for their unique requirements. Transwestern has seasoned veterans in every area of expertise with the integrity, experience and creativity to be the best partner for its clients. Transwestern s Houston office currently employs over 400 team members and has been an innovator in the Houston market for 8 years. SEATTLE MINNEAPOLIS BOSTON SAN FRANCISCO SILICON VALLEY WALNUT CREEK SALT LAKE CITY DENVER MILWAUKEE CHICAGO ST. LOUIS DETROIT BETHESDA WASHINGTON DC GREENWICH NEW YORK NEW JERSEY BALTIMORE NORTHERN VIRGINIA LOS ANGELES ORANGE COUNTY SAN DIEGO PHOENIX OKLAHOMA CITY FORT WORTH DALLAS ATLANTA TRANSWESTERN LOCATIONS AUSTIN SAN ANTONIO HOUSTON NEW ORLEANS ORLANDO FORT LAUDERDALE MIAMI-DADE HOUSTON CONTACTS Eric Anderson Executive Vice President - Office eric.anderson@transwestern.com Doug Little Senior Managing Director - Office doug.little@transwestern.com Michelle Wogan Executive Vice President - Office michelle.wogan@transwestern.com David Lee Senior Vice President - Office david.lee@transwestern.com Monte Calvert Senior Vice President - Office monte.calvert@transwestern.com Greg Tilton Vice President - Office greg.tilton@transwestern.com Justin Leighton Managing Director - Tenant Advisory justin.leighton@transwestern.com Ken Page Managing Director - Tenant Advisory ken.page@transwestern.com Margaret Ann Cook Vice President - Tenant Advisory 7.7. margaretann.cook@transwestern.com Michael Snodgrass Managing Director - Structured Finance michael.snodgrass@transwestern.com David Baker Executive Vice President - Office david.baker@transwestern.com Paul Wittorf Senior Vice President - Office paul.wittorf@transwestern.com Louann Pereira Vice President - Office louann.pereira@transwestern.com Bobbie Bozarth Senior Vice President - Tenant Advisory 7.7. bobbie.bozarth@transwestern.com Jan Sparks Managing Director - Structured Finance jan.sparks@transwestern.com Contact Rachel Alexander Director of Market Research Rachel.Alexander@transwestern.com Kevin Roberts President, Southwest Kevin.Roberts@transwestern.com Methodology The information in this report is the result of a compilation of publicly available data from a variety of commercial and government sources. 900 West Loop South, Suite 00 Houston, Texas 7707 T F Copyright 06 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from CoStar and other primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

53 MarkET WATCH HOUSTON Office December 05 Recent office leases Galleria :: Apache 54,000 SF lease extension through /09 at Post Oak Central CBD :: Bracewell & Giuliani 89,06 SF renewal at Pennzoil Place Katy Freeway West :: G&A Partners 0,065 SF new lease at Westgate I Recent office sales Katy Freeway West :: Energy Center Three 549,000 SF, Class A Buyer: ConocoPhillips Seller: Trammell Crow Co & Principal Real Estate Investors joint venture Galleria :: 00 Post Oak 6,00 SF, Class A Buyer: Corporación Masaveu Seller: Stream, TRC Capital Partners & L&B Realty Advisors joint venture Office Market Indicators - All Space Submarket Total Bldgs INVENTORY sf available immediately Direct Vacancy rate OVERALL Vacancy rate SF Under Construction q 05 Net Absorption Asking Rental rates (fsg) CLASS A CLASS B Downtown (CBD & Midtown) 9 5,7,78 6,55,676.7%.%,46,58 (,000) $4.97 $8.65 FM 960 (FM 960/I-45 N, FM 960/ 74 7,84,745,,74 4.4% 5.0% - 5,000 $6.9 $5.85 Champions & FM 960/Hwy 49) Greenspoint/North Belt (North Belt West/Greenspoint & Greenspoint/IAH) 96,,457,8,94 5.0% 8.% 68,950 (4,000) $8.07 $5.65 Greenway Plaza 48 0,46,0 946,86 9.% 9.% 858,75 74,000 $5.77 $5.94 Gulf Freeway/Pasadena 4,597,50 68,845 4.% 4.% - 6,000 - $.75 Katy,79,0 4,779 6.% 6.5% 4,07,000 $.09 $4.0 Katy Frwy/Energy Corridor (Katy Freeway East & Katy Freeway West) 07 4,76,090,66,64 0.5%.6%,88,99 (70,000) $7.49 $.5 Kingwood/Humble 8 789,674 7,440 9.% 9.% - (4,000) $. $8.75 NASA/Clear Lake 6 7,05, ,94.4%.9% - (7,000) $4.84 $8.75 Northeast 5,55,56 90, % 6.5%,000,000 (,000) - $7.4 Northwest 7 8,88,8,40,66 6.0% 6.7% - (49,000) $.57 $8.4 (North Loop West, Northwest Near & Northwest Far) South Main/Medical Center 49 0,469,07 984,09 9.4% 9.5% - 4,000 $9. $5.59 Southwest Frwy/Sugar Land 6,66,67,45,487.%.5% - 7,000 $5. $6.4 (SW/Hillcroft, SW Beltway 8 & E Ft Bend Co/Sugar Land) West Belt 6 4,70,57 564,09.0%.5% 00,000 7,000 $. $.94 West Loop (Bellaire, Post Oak Park, Galleria, Riverway, Richmond/Fountainview & San Felipe/Voss) 7,0,45,9,54 9.4% 0.%,45,000 48,000 $6.4 $4.4 Westchase 87 5,9,49,70,94 8.6%.4%,545,000 (8,000) $9.4 $.0 The Woodlands 87 4,077,76 709,57 5.0% 5.5%,4,795 5,000 $40.56 $5.0 Conroe 90,45 89,4 9.9% 9.9% - - $9.55 $4.7 Total - Houston,7 6,77,8 7,485,878.6%.0% 0,05,4 75,000 $5.5 $.7 Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings OFFICE LEASE STATISTICS % % % Overall Vacancy Rates Asking Rental Rates (FSG) $9.00 $8.00 $7.00 Office Sales Statistics Volume ($ Mil) No. of Properties Quarter to Date Houston MSA Last Quarter (q 05) Trailing Months United States Last Quarter (q 05) Trailing Months $566.6 $466.5 $,06.4 $6,0.0 $48,.5 4 4,55 5,940 Total SF,054,058,,46 6,057,58 6,4,546 6,57,48 0% $6.00 9% Q Q4 Q Q Q Q4 Q 4 Q 4 Q 4 Q4 4 Q 5 Q 5 Q 5 $5.00 Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings Average Price/SF Average Cap Rate (Yield) $47 $ $ $45 $45 N/A 7.6% 7.0% 6.7% 6.8% Source: Real Capital Analytics

54 HOUSTON Office Market December See Inner Loop Map INNER LOOP. CBD. South Main/Medical Center. Galleria 4. Riverway 5. Midtown 6. Greenway Plaza 7. Post Oak Park 8. Bellaire 9. North Loop West southeast. Gulf Frwy/Pasadena. NASA/Clear Lake. Southeast Outlier NORthWest. Northwest Near. Northwest Far. FM 960/Hwy FM 960/Champions 5. Northwest Outlier 6. West Belt NORth. The Woodlands. FM 960/ I-45 North. North Belt West/Greenspoint WEST. San Felipe/Voss. Richmond/Fountainview. Westchase 4. Katy Freeway East 5. Katy Freeway West 6. Katy SOUTHWest. Southwest/Hillcroft. Southwest Beltway 8. E Fort Bend Co/Sugar Land 4. Southwest Outlier NORtheast. Northeast Near. Greenspoint/IAH. Kingwood/Humble 4. Northeast Outlier MARKET WATCH HOUSTON office MARKET December 05

55 HOUSTON Office Market December 05 ABout TRansWesteRN Transwestern is a privately held real estate firm specializing in agency leasing, property and facilities management, tenant advisory, capital markets, research and sustainability. The fully integrated global enterprise leverages competencies in office, industrial, retail, multifamily and healthcare properties to add value for investors, owners and occupiers of real estate. As a member of the Transwestern family of companies, the firm capitalizes on market insights and operational expertise of independent affiliates specializing in development, real estate investment management and research. Transwestern has 4 U.S. offices and assists clients through more than 80 offices in 8 countries as part of a strategic alliance with Paris-based BNP Paribas Real Estate. Transwestern was founded in Houston, Texas in 978, and Houston remains the corporate headquarters today. As one of the preeminent commercial real estate firms in Houston, we offer a comprehensive menu of real estate services designed to provide owners, tenants and investors with the optimum solutions for their unique requirements. Transwestern has seasoned veterans in every area of expertise with the integrity, experience and creativity to be the best partner for its clients. Transwestern s Houston office currently employs over 400 team members and has been an innovator in the Houston market for 7 years. SEATTLE MINNEAPOLIS BOSTON SAN FRANCISCO SILICON VALLEY WALNUT CREEK SALT LAKE CITY DENVER MILWAUKEE CHICAGO ST. LOUIS DETROIT BETHESDA WASHINGTON DC GREENWICH NEW YORK NEW JERSEY BALTIMORE NORTHERN VIRGINIA LOS ANGELES ORANGE COUNTY SAN DIEGO PHOENIX OKLAHOMA CITY FORT WORTH DALLAS ATLANTA TRANSWESTERN LOCATIONS AUSTIN SAN ANTONIO HOUSTON NEW ORLEANS ORLANDO FORT LAUDERDALE MIAMI-DADE HOUSTON CONTACTS Eric Anderson Executive Vice President - Office eric.anderson@transwestern.com Doug Little Senior Managing Director - Office doug.little@transwestern.com Michelle Wogan Executive Vice President - Office michelle.wogan@transwestern.com David Lee Senior Vice President - Office david.lee@transwestern.com Monte Calvert Senior Vice President - Office monte.calvert@transwestern.com Greg Tilton Vice President - Office greg.tilton@transwestern.com Justin Leighton Managing Director - Tenant Advisory justin.leighton@transwestern.com Ken Page Managing Director - Tenant Advisory ken.page@transwestern.com Margaret Ann Cook Vice President - Tenant Advisory 7.7. margaretann.cook@transwestern.com Michael Snodgrass Managing Director - Structured Finance michael.snodgrass@transwestern.com David Baker Executive Vice President - Office david.baker@transwestern.com Paul Wittorf Senior Vice President - Office paul.wittorf@transwestern.com Louann Pereira Vice President - Office louann.pereira@transwestern.com Bobbie Bozarth Senior Vice President - Tenant Advisory 7.7. bobbie.bozarth@transwestern.com Jan Sparks Managing Director - Structured Finance jan.sparks@transwestern.com Contact Rachel Alexander Director of Market Research Rachel.Alexander@transwestern.com Kevin Roberts President, Southwest Kevin.Roberts@transwestern.com Methodology The information in this report is the result of a compilation of publicly available data from a variety of commercial and government sources. 900 West Loop South, Suite 00 Houston, Texas 7707 T F Copyright 05 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from CoStar and other primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

56 MarkET WATCH HOUSTON Office September 05 recent office leases Westchase :: EMAS 9,64 SF sublease at 0500 Richmond Ave CBD :: MRC Global 50,7 SF sublease at Fulbright Tower Post Oak Park :: Rockwater Energy,000 SF new lease at 55 Post Oak Blvd Recent office sales Galleria :: Galleria Place I & II 96,445 SF total, two building portfolio Buyer: Lincoln Property Co Seller: Songy Highroads & Carlyle Group joint venture E Fort Bend Co/Sugar Land :: Comerica Bank Building 9,988 SF, Class A Buyer: Equus Capital Partners Seller: Parkway Properties Office Market Indicators - All Space Submarket Total Bldgs INVENTORY sf available immediately Direct Vacancy rate OVERALL Vacancy rate SF Under Construction q 05 Net Absorption Asking Rental rates (fsg) CLASS A CLASS B Downtown (CBD & Midtown) 8 5,05,56 6,055,64.4%.8%,60,80 (,9,000) $4. $7.97 FM 960 (FM 960/I-45 N, FM 960/ 7 7,78,745,87,4 6.% 6.6% 456,000 5,000 $6.75 $5.96 Champions & FM 960/Hwy 49) Greenspoint/North Belt (North Belt West/Greenspoint & Greenspoint/IAH) 96,,457,859,04.8%.% 68,950 (04,000) $8.4 $5.7 Greenway Plaza 48 0,46,0,00, % 0.0% 858,75 (,000) $5.5 $5.6 Gulf Freeway/Pasadena 4,597,50 94,80 5.% 5.5% - 5,000 N/A $.49 Katy 9 99,66 56,66 5.7% 6.0% 8,47,000 $.06 $.89 Katy Frwy/Energy Corridor (Katy Freeway East & Katy Freeway West) 06 4,45,8,9, %.4%,589, ,000 $6.98 $. Kingwood/Humble 8 789,674 69,49 8.8% 8.8% - (,000) $.96 $9.70 NASA/Clear Lake 6 7,05,599 97,86.%.4% - 7,000 $5. $8.79 Northeast 5,55,56 89,5 6.4% 6.4%,000,000 (5,000) N/A $6.89 Northwest 7 8,88,8,7,40 5.4% 5.8% - (6,000) $.6 $8.4 (North Loop West, Northwest Near & Northwest Far) South Main/Medical Center 49 0,469,07,05, % 9.8% - 0,000 $9. $5.07 Southwest Frwy/Sugar Land 6,,67,40,40.9% 4.%,000 85,000 $5.49 $6.5 (SW/Hillcroft, SW Beltway 8 & E Ft Bend Co/Sugar Land) West Belt 6 4,70,57 69,78 4.7% 5.8% 00,000 4,000 $. $.95 West Loop (Bellaire, Post Oak Park, Galleria, Riverway, Richmond/Fountainview & San Felipe/Voss) 7,5,45,98,49 9.7% 0.5%,,000 (04,000) $5.95 $4. Westchase 87 5,9,49,5, %.5%,545,000,000 $9.05 $.9 The Woodlands 87 4,077,76 760,97 5.4% 5.9%,4,795 78,000 $40.4 $5.9 Conroe 90,45 89,4 9.9% 9.9% - 49,000 $8.40 $5.00 Total - Houston,9 5,6,56 6,79,59.4%.5%,44,94 (55,000) $4.95 $.04 Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings OFFICE LEASE STATISTICS % % % Overall Vacancy Rates Asking Rental Rates (FSG) $9.00 $8.00 $7.00 Office Sales Statistics Volume ($ Mil) No. of Properties Quarter to Date Houston MSA Last Quarter (q 05) Trailing Months United States Last Quarter (q 05) Trailing Months $4. $687. $,86.6 $6,07.5 $44, ,466 5,76 Total SF,,75,564,70 7,69,588 57,5, 6,9,65 0% $6.00 9% Q Q Q4 Q Q Q Q4 Q 4 Q 4 Q 4 Q4 4 Q 5 Q 5 $5.00 Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings Average Price/SF Average Cap Rate (Yield) N/A $08 $9 $9 $45 N/A 7.0% 6.9% 6.8% 6.8% Source: Real Capital Analytics

57 HOUSTON Office Market September See Inner Loop Map INNER LOOP. CBD. South Main/Medical Center. Galleria 4. Riverway 5. Midtown 6. Greenway Plaza 7. Post Oak Park 8. Bellaire 9. North Loop West southeast. Gulf Frwy/Pasadena. NASA/Clear Lake. Southeast Outlier NORTHWest. Northwest Near. Northwest Far. FM 960/Hwy FM 960/Champions 5. Northwest Outlier 6. West Belt NORTH. The Woodlands. FM 960/ I-45 North. North Belt West/Greenspoint WEST. San Felipe/Voss. Richmond/Fountainview. Westchase 4. Katy Freeway East 5. Katy Freeway West 6. Katy SOUTHWest. Southwest/Hillcroft. Southwest Beltway 8. E Fort Bend Co/Sugar Land 4. Southwest Outlier NORTHEAST. Northeast Near. Greenspoint/IAH. Kingwood/Humble 4. Northeast Outlier MARKET WATCH HOUSTON office MARKET September 05

58 HOUSTON Office Market September 05 ABout TRANSWestern Transwestern is a privately held real estate firm specializing in agency leasing, property and facilities management, tenant advisory, capital markets, research and sustainability. The fully integrated global enterprise leverages competencies in office, industrial, retail, multifamily and healthcare properties to add value for investors, owners and occupiers of real estate. As a member of the Transwestern family of companies, the firm capitalizes on market insights and operational expertise of independent affiliates specializing in development, real estate investment management and research. Transwestern has 4 U.S. offices and assists clients through more than 80 offices in 8 countries as part of a strategic alliance with Paris-based BNP Paribas Real Estate. Transwestern was founded in Houston, Texas in 978, and Houston remains the corporate headquarters today. As one of the preeminent commercial real estate firms in Houston, we offer a comprehensive menu of real estate services designed to provide owners, tenants and investors with the optimum solutions for their unique requirements. Transwestern has seasoned veterans in every area of expertise with the integrity, experience and creativity to be the best partner for its clients. Transwestern s Houston office currently employs over 400 team members and has been an innovator in the Houston market for 7 years. SEATTLE MINNEAPOLIS BOSTON SAN FRANCISCO SILICON VALLEY WALNUT CREEK SALT LAKE CITY DENVER MILWAUKEE CHICAGO ST. LOUIS DETROIT BETHESDA WASHINGTON DC GREENWICH NEW YORK NEW JERSEY BALTIMORE NORTHERN VIRGINIA LOS ANGELES ORANGE COUNTY SAN DIEGO PHOENIX OKLAHOMA CITY FORT WORTH DALLAS ATLANTA TRANSWESTERN LOCATIONS AUSTIN SAN ANTONIO HOUSTON NEW ORLEANS ORLANDO FORT LAUDERDALE MIAMI-DADE HOUSTON CONTACTS Eric Anderson Executive Vice President - Office eric.anderson@transwestern.com Doug Little Senior Managing Director - Office doug.little@transwestern.com Michelle Wogan Executive Vice President - Office michelle.wogan@transwestern.com David Lee Senior Vice President - Office david.lee@transwestern.com Monte Calvert Senior Vice President - Office monte.calvert@transwestern.com Greg Tilton Vice President - Office greg.tilton@transwestern.com Justin Leighton Managing Director - Tenant Advisory justin.leighton@transwestern.com Ken Page Managing Director - Tenant Advisory ken.page@transwestern.com Margaret Ann Cook Vice President - Tenant Advisory 7.7. margaretann.cook@transwestern.com Michael Snodgrass Managing Director - Structured Finance michael.snodgrass@transwestern.com David Baker Executive Vice President - Office david.baker@transwestern.com Paul Wittorf Senior Vice President - Office paul.wittorf@transwestern.com Louann Pereira Vice President - Office louann.pereira@transwestern.com Bobbie Bozarth Senior Vice President - Tenant Advisory 7.7. bobbie.bozarth@transwestern.com Jan Sparks Managing Director - Structured Finance jan.sparks@transwestern.com Contact Rachel Alexander Director of Market Research Rachel.Alexander@transwestern.com Kevin Roberts President, Southwest Kevin.Roberts@transwestern.com Methodology The information in this report is the result of a compilation of publicly available data from a variety of commercial and government sources. 900 West Loop South, Suite 00 Houston, Texas 7707 T F Copyright 05 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from CoStar and other primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.

59 MarkET WATCH HOUSTON Office JUne 05 recent office leases Greenway Plaza :: Transocean 55,4 SF lease renewal at 4 Greenway Plaza Post Oak Park :: Stage Stores 68,90 SF new lease at 45 West Loop South CBD :: Virtus 6,98 SF new lease at 0 Fannin Galleria :: Behavioral Recognition Software 0,76 SF new lease at 900 West Loop South recent office sales North Belt West/ Greenspoint :: 400 North Belt,000 SF, Class A Buyer: Hartman Management Seller: Parkway Properties Katy Freeway West :: Mason Creek I 5,76 SF, Class A Buyer: Nicola Crosby Seller: TA Realty Office Market Indicators - All Space Submarket Total Bldgs INVENTORY sf available immediately Direct Vacancy rate OVERALL Vacancy rate SF Under Construction Q05 Net Absorption Asking Rental rates (fsg) CLASS A CLASS B Downtown (CBD & Midtown) 7 5,8,56 4,67,60 8.% 9.%,60,80 (464,000) $4.6 $8.0 FM 960 (FM 960/I-45 N, FM 960/ 7 7,78,745,, % 6.9% 456,000 (7,000) $6.65 $5.87 Champions & FM 960/Hwy 49) Greenspoint/North Belt (North Belt West/Greenspoint & Greenspoint/IAH) 96,,457,755,.0%.6% 68,950 (45,000) $8.47 $5.69 Greenway Plaza 48 0,46,0 989,5 9.5% 9.7% 8,75 (9,000) $5.7 $5.5 Gulf Freeway/Pasadena,58,07 88,6 5.% 5.6% - (9,000) N/A $.50 Katy 8 99,66 58,6 5.9% 5.9% 8,47 69,000 $.90 $.85 Katy Frwy/Energy Corridor (Katy Freeway East & Katy Freeway West) 0,445,9,848, % 9.% 4,065,758 96,000 $6.8 $.4 Kingwood/Humble 8 789,674 58,46 7.4% 7.4% - (,000) $. $9.65 NASA/Clear Lake 6 7,05,599,00,7 4.% 4.% - 0 $5.6 $8.8 Northeast 5,55,56 84, % 6.0%,000,000 (,000) N/A $7.7 Northwest 7 8,88,8,75,6 5.5% 6.% - (6,000) $.4 $8.5 (North Loop West, Northwest Near & Northwest Far) South Main/Medical Center 49 0,469,07,06,48 9.9% 9.9% - (78,000) $9.4 $5.04 Southwest Frwy/Sugar Land 6,,67,5, % 5.%,000 67,000 $5.5 $6.59 (SW/Hillcroft, SW Beltway 8 & E Ft Bend Co/Sugar Land) West Belt 4,07, 47,48.6%.4% 89,87 97,000 $.06 $.89 West Loop (Bellaire, Post Oak Park, Galleria, Riverway, Richmond/Fountainview & San Felipe/Voss) 7,5,45,99, % 0.0%,4,98 (4,000) $5.59 $4.5 Westchase 87 5,9,49,85,44 8.7%.5%,545,000 59,000 $8.9 $.5 The Woodlands 86,577,76 665,08 4.9% 5.%,70,77,565,000 $40. $5.84 Conroe 90,45 8, 5.% 5.% - 4,000 $8.4 $5.0 Total - Houston,08,790,06 4,58,0 0.4%.4%,754,45,807,000 $5.00 $.08 Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings OFFICE LEASE STATISTICS % Overall Vacancy Rates Asking Rental Rates (NNN) $0.00 Office Sales Statistics Volume ($ Mil) Quarter to Date Houston MSA Last Quarter (Q5) Trailing Months United States Last Quarter (Q5) Trailing Months $4.6 $,00.4 $,7.8 $4,05. $0,480. % $8.00 No. of Properties 6 6,7 4,79 0% $6.00 9% Q Q Q 4Q Q Q Q 4Q Q4 Q4 Q4 4Q4 Q5 $4.00 Source: Transwestern analysis of CoStar data, includes buildings 50,000 SF RBA and greater, excluding government owned buildings Total SF,85,97,709,496 7,68,906 5,477,786 54,484,596 Average Price/SF Average Cap Rate (Yield) $68 $9 $ $85 $50 7.% 6.% 7.% 6.6% 6.8% Source: Real Capital Analytics