Vacancy Continues to Decrease; Tenants Flocking to Space that Dovetails Recent Office Trends

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1 Q office minneapolis-st. paul office market report Vacancy Continues to Decrease; Tenants Flocking to Space that Dovetails Recent Office Trends market indicators Q VACANCY NET ABSORPTION rental rate vacancy 25% VACANCY AND ABSORPTION TRENDS Vacancy in the Minneapolis-St. Paul office market continues to slowly decrease and is currently at 14.2 percent, down from 14.7 percent at Quarter Two. Overall, vacancy is lowest in the West submarket at 11 percent, compared to 18.9 percent in the St. Paul CBD, where vacancy is the highest. Vacancy among Class A properties in the West submarket is low at 8.1 percent. In the Minneapolis CBD, Class A vacancy went below 10 percent to 9.6 percent, the lowest in more than ten years, and a reduction from from 10.1 percent in Quarter One. MARKET trends Many companies are seeking quality Class A or renovated Class B space in well-located properties. Driving tenant space preferences is the desire to create efficient, collaborative spaces that appeal to top talent for recruiting and retaining the best employees. This is in contrast to a few years earlier, when economics played a larger role in decision-making even at premiere properties. Percent Vacant 20% 16.3% 16.8% 17.2% 16.7% 16.1% 15.6% 15.2% 14.9% 14.2% 15% 10% 5% Q3 The following property types are seeing concessions decreasing and rental rates increasing on both new leases and renewals: > Downtown properties in the Warehouse and North Loop areas > Well-leased Class A properties along Nicollet Mall in the Minneapolis CBD > Properties along the I-394 Corridor in the West submarket > Along I-494, Class A properties such as Normandale Lake Office Park and Centennial Lakes Office Park are beginning to increase rental rates SF Absorbed net absorption 2,000,000 1,500, , , , ,841 1,000, , , , , ,756 0 (500,000) (312,099) (1,000,000) (1,500,000) (1,661,963) (2,000,000) YTD There are still tenants shopping for space with an emphasis on keeping costs down, and there are still many options to look to. Even among Class A properties in the CBD and along I-494, there are properties with significant vacancies remaining where landlords must compete to renew existing tenants and attract new tenants. Class B properties with fewer upgrades are also offering attractive rental rates and concessions.

2 Q3 absorption Q3 vacancy SF Absorbed 200, ,000 0 (23,528) (100,000) 82,315 77,020 14,450 93,356 53,009 48,230 % Vacant % 12.7% 14.4% 18.9% 14.6% 11% 18% (200,000) Airport/South of the River Minneapolis CBD Southwest St. Paul CBD St. Paul Suburban West Northwest 5 Airport/South of the River Minneapolis CBD Southwest St. Paul CBD St. Paul Suburban West Northwest Construction We continue to track the corporate campuses under construction in the market including Target, UnitedHealth Group, Xcel, Kraus Anderson, Be the Match, and Wells Fargo. The Ackerberg Group is finalizing plans to go forward with Mozaic East, the second phase of its office development in Uptown. Code 42, a cloud-backup IT firm, is negotiating to lease space there. The company had strong demand for the 65,000-squarefoot office building it built in At the Mall of America, owners Triple Five Group plan to begin construction on a speculative basis this year on The MOA with a planned completion date of August Transaction Highlights: > After purchasing Normandale Lake Office Park in Bloomington in 2012, Equity Group Investments and GEM Realty Capital Inc. are selling the property. They purchased it for $157 per square foot and are likely to sell it at a premium of potentially more than $250 per square foot. > 50 South 10th sold for $164,500,000, or $330 per square foot. Target signed a master lease there in 2012, but did not occupy the entire property. As other tenants leases expire in the future, Target will take over those spaces to make way for internal growth. > We saw a significant number of sale transactions occur this quarter where investors have plans to renovate or convert the property to alternative uses: - Shorenstein Properties purchased Washington Square and plan to renovate the three-building campus, which includes a parking ramp. Plans include taking advantage of the open space and high ceilings to attract technology-oriented tenants. - Heartland Realty Advisors also plan to renovate The 15 Building, which they purchased along with South 5th for $10 million. - Heartland Realty Advisors also purchased the Plymouth building, and plan to convert that property to a hotel. > Macy s is selling their building at 700 Nicollet Mall. It is likely to be converted to office and/or residential space. > Hillcrest Development purchased the Minneapolis Public Schools former headquarters in Minneapolis. They are converting the building into office space, and are seeing strong leasing interest. The building s high ceilings, large windows, and brick structure appeals to creative office space users. Forecast Skyrocketing construction costs will be a factor for both tenants and landlords in coming months, as they will increase tenant improvement costs. There are a significant number of construction projects, including active multifamily development and construction on the new Vikings stadium, that are draining resources. In addition to a labor shortage for many positions, materials are expensive and becoming time-consuming to source. Future construction will be limited and mainly focused on development for corporate-owned campuses. Due to the very limited options and rapidly increasing rents for tenants seeking space along the 394 corridor and/or in the North Loop, these areas would be the most likely locations for multi-tenant development. Potential sites exist, but are dwindling, as land previously slated for office development is being used for residential construction. Uncertainty remains in both the Minneapolis CBD and Southwest submarket as construction is completed for corporations including Wells Fargo, Be the Match, and Xcel Energy in the Minneapolis CBD, and UnitedHealth in the Southwest. This activity will result in increasing vacancy at multi-tenant space as these users leave existing facilities. We expect steady activity over the fourth quarter of 2014, with absorption totaling approximately 1 million square feet for the year France Avenue South, an office building in Edina, was purchased, and the new owners are planning an apartment and retail development.

3 SIGNIFICANT sale and lease activity sales Building address city buyer seller submarket price price PSF size 50 South 10th (2F-12F) Washington Square Lafayette Office Park Northland 50 S Tenth St Minneapolis Union Investment RE Washington Ave S Minneapolis Shorenstein Properties 443 Lafayette Rd 444 Lafayette Rd 500 Lafayette Rd 520 Lafayette Rd American Blvd W Saint Paul Ladder Capital 180 East Fifth 180 E 5th St Saint Paul Talon Real Estate 600 Stinson Boulevard Northeast Valley Creek Office Park Unity Professional Building Roseville Corporate 600 Stinson Blvd Ne 8301 Golden Valley Rd Franklin Street Properties CommonWealth Partners OBO CalPERS NGP Capital LLC & Meritex Enterprises Minneapolis CBD $164,500,000 $ ,768 Minneapolis CBD $103,000,000 $ ,004 St. Paul CBD $62,300,000 $91 683,186 Bloomington KBS Realty Advisors United Properties Southwest $51,000,000 $ ,000 Swervo Development Corporation JV 4330 LLC/ LLC JV Fairfield Apartments LLC/ Lakes Area Properties LLC St. Paul CBD $40,000,000 $59 675,130 Minneapolis UCare Five Mile Capital St. Paul Suburban $19,000,000 $76 250,000 Golden Valley 500 Osborne Rd Fridley Frauenshuh Cos Unity Ventures LLC JV Bernardi Family Limited Partnership 2700 Snelling Ave Roseville Schadegg Property Plymouth Building 12 S 6th St Minneapolis Future CityPlace The 15 Building & South 5th 7200 France Avenue South Future Vintage on Selby Wirth Corporate City West Financial 55 West Financial Burnsville Financial 8500 State Farm Way 15 S 5th St., South 5th 7200 France Ave S Woodbury Minneapolis Edina Heartland Realty Investors Elion RE Invts JV Kraus-Anderson Heartland Realty Investors Boisclair Corporation JV NHH Properties JV DJR Architecture Inc LNR Partners OBO GMAC 2000-C3 Excel Realty Holdings Westport Capital Partners West $14,450,000 $ ,185 Northwest $14,026,471 $214 65,518 St. Paul Suburban $13,545,000 $58 231,685 GLC Enterprises Minneapolis CBD $13,250,000 $51 260,000 State Farm Corp St. Paul Suburban $12,000,000 $26 458,946 CCT Building LLC/25-33 Building LLC Minneapolis CBD $10,000,000 $48 207,228 Wayne Rice Southwest $5,500,000 $163 33, Selby Ave Saint Paul Ryan Companies Associated Bank St. Paul Suburban $5,250,000 $119 44, Olson Memorial Hwy 6500 City West Pkwy Golden Valley Eden Prairie Mortenson Development Onward Investors th Ave N Plymouth Onward Investors Nicollet Court Burnsville Blake and Doug Bonjean Investors Real Estate Trust GE Real Estate Finance GE Real Estate Finance Simpson REO, LLC 2130 Cliff Road 2130 Cliff Rd Eagan Duane Lund Steve Selchow Quadrant Building Four Paramount Plaza 7100 Northland Cir N Brooklyn Park Hempel Properties Gramercy Property Trust JV Garrison Investment Group West $4,525,000 $60 75,000 Southwest $4,250,000 $74 57,191 West $3,250,000 $64 51,019 Airport/South of the River Airport/South of the River $3,000,000 $57 52,400 $2,700,000 $178 15,155 Northwest $2,525,000 $24 107, Glenroy Rd Bloomington Doran Companies Paramount IV LLC Southwest $2,215,000 $64 34,659

4 SIGNIFICANT sale and lease activity leases tenant building address city submarket size (SF) TCF Plymouth Corporate 1405 Xenium Ln Plymouth West 226,453 Concur 1550 Tower at West End 1550 Utica Saint Louis Park West 51,000 Aimia Butler Square 100 N. Sixth St. Minneapolis Minneapolis CBD 50,000 Supervalu Eden Prairie City 8080 Mitchell Rd Eden Prairie Southwest 40,400 Coin Tainers Elk River Business Park Bldg Industrial Cir Elk River Northwest 32,450 Martin Williams Advertising Fifth Street Towers 150 South Fifth Street Minneapolis Minneapolis CBD 31,384 SEED Partners - Sublease Ford 420 5th Street Minneapolis Minneapolis CBD 27,782 American Cancer Society Grand Oak Office IV 950 Blue Gentian Rd Eagan Airport/South of River 22,512 AudaExplore Grand Oak Office VII 2750 Blue Water Rd Eagan Airport/South of River 21,425 Walser 7700 France Ave S 7700 France Ave S Edina Southwest 20,526 JL Buchanan US Bancorp 800 Nicollet Mall Minneapolis Minneapolis CBD 20,000 Lommen Abdo PA International Centre 920 2nd Ave Minneapolis Minneapolis CBD 18,244 Bremer Bank Lawson Commons 380 St. Peter ST Saint Paul St. Paul CBD 17,611 JP Morgan Capella Tower 225 S 6th St Minneapolis Minneapolis CBD 16,078 Silver Bay Realty Trust Corp - Sublease Plymouth Woods Office 3300 Fernbrook Ln Plymouth Northwest 16,000 Regis Crosstown Corporate 6385 Shady Oak Rd Eden Prairie Southwest 15,734 BTM Global 330 S 2nd Ave 330 S 2nd Ave Minneapolis Minneapolis CBD 15,731 Arcserve Flying Cloud Corporate Campus B Columbine Eden Prairie Southwest 15,214

5 Market Statistics submarket total sf direct vacant sf % vacant direct sublease vacant sf % vacant w/sublease asking rate q absorption ytd absorption Airport/South of the River A 1,713, , % 10, % $ , ,251 B 3,570, , % 7, % $ ,919 67,547 C 1,248, , % 2, % $10.12 (38,354) (43,023) Totals: 6,532,559 1,012, % 19, % $11.61 (23,528) 140,775 Minneapolis CBD A 12,854,246 1,227, % 184, % $ ,246 85,446 B 10,841,133 1,823, % 175, % $ ,150 (812) C 3,773, , % 26, % $ , ,929 Totals: 27,469,164 3,475, % 386, % $ , ,563 Southwest A 9,473,521 1,212, % 86, % $ ,010 89,662 B 5,751, , % 119, % $ ,369 (38,488) C 926, , % % $ ,641 20,028 Totals: 16,152,115 2,330, % 205, % $ ,020 71,202 St. Paul CBD A 2,128, , % 28, % $ ,928 (85,834) B 5,016,179 1,140, % 9, % $10.63 (3,385) (15,457) C 831,936 43, % 4, % $8.00 2,907 28,093 Totals: 7,976,782 1,507, % 41, % $ ,450 (73,198) St. Paul Suburban A 2,895, , % 20, % $13.72 (4,108) (51,806) B 6,294, , % 77, % $ ,158 66,047 C 2,165, , % 0 7.9% $ ,306 57,346 Totals: 11,355,562 1,659, % 98, % $ ,356 71,587 West/Northwest A 5,279, , % 67, % $ , ,941 B 5,752, , % 89, % $ , ,464 C 2,077, , % 0 7.9% $ ,356 75,507 Totals: 13,109,828 1,744, % 157, % $ , ,912 West A 4,038, , % 65, % $ , ,772 B 4,013, , % 89, % $ ,724 8,932 C 761,893 56, % 0 7.4% $ ,838 Totals: 8,813, , % 155, % $ , ,542 Northwest A 1,241, , % 2, % $ ,169 B 1,738, , % % $ , ,532 C 1,315, , % 0 8.2% $ ,815 40,669 Totals: 4,295, , % 2, % $ , ,370 TOTAL ALL MARKETS A 34,345,045 4,232, % 397, % $ , ,660 B 37,227,215 6,383, % 478, % $ , ,301 C 11,023,750 1,113, % 32, % $ , ,880 Totals: 82,596,010 11,729, % 909, % $ , ,841

6 Market Statistics (Expanded Market) submarket total sf direct vacant sf % vacant direct sublease vacant sf % vacant w/sublease asking rate q absorption ytd absorption Airport/South of the River A 3,898, , % 10, % $ , ,993 B 6,470, , % 7, % $ ,222 65,850 C 2,954, , % 2, % $10.51 (39,070) (43,739) Totals: 13,323,431 2,064, % 19, % $11.79 (5,199) 159,104 Minneapolis CBD A 13,618,828 1,228, % 184, % $ ,246 85,446 B 12,191,692 1,850, % 175, % $ ,150 (812) C 5,711, , % 26, % $ , ,929 Totals: 31,521,645 3,503, % 386, % $ , ,563 Southwest A 11,321,141 1,258, % 86, % $ ,528 92,180 B 7,621,921 1,110, % 120, % $ ,951 (33,906) C 3,222, , % % $ ,641 20,028 Totals: 22,165,636 2,939, % 207, % $ ,120 78,302 St. Paul CBD A 2,773, , % 28, % $ ,878 (82,884) B 5,953,723 1,140, % 9, % $10.58 (3,385) (15,457) C 3,002,535 71, % 6, % $8.00 2,907 28,093 Totals: 11,730,218 1,539, % 44, % $ ,400 (70,248) St. Paul Suburban A 4,206,783 1,100, % 20, % $ ,111 (46,587) B 10,541,645 1,051, % 89, % $ , ,006 C 7,354, , % 0 2.9% $ ,287 50,327 Totals: 22,121,454 2,364, % 109, % $ , ,746 West/Northwest A 6,951, , % 67, % $ , ,741 B 9,148,819 1,101, % 229, % $ , ,710 C 5,149, , % 0 3.8% $ , ,867 Totals: 21,249,966 1,979, % 297, % $ , ,318 TOTAL ALL MARKETS A 42,770,519 5,129, % 397, % $ , ,889 B 51,928,720 7,228, % 631, % $ , ,391 C 27,394,648 2,033, % 35, % $ , ,505 Totals: 122,112,350 14,391, % 1,064, % $ , ,785 The above table is summarized data on multi- and single-tenant office buildings greater than 10,000 square feet. Owner-occupied properties are also included. Not included are government or medical buildings.

7 market report Q office minneapolis-st. paul

8 485 offices in 63 countries $2.1 billion USD in annual revenue 15,800 professionals and staff 1.46 billion* square feet under management $75 billion USD in total transaction value * Square footage includes office, industrial and retail property under management. Residential property is excluded from this total. All statistics are for Minneapolis-St. Paul 4350 Baker Road, Suite 400 Minnetonka, MN DIRECT Accelerating success.