The State of the Commercial Real Estate Industry: Mid-Year 2011 Retail Review & Outlook Copyright 2011 CoStar Realty Information, Inc. No reproduction or distribution without permission. The following information includes projections and analyses that are based on various assumptions by CoStar concerning future events and circumstances, as well as historical and current data maintained in CoStar s database, obtained from public sources or provided by proprietary sources. Actual results may vary materially from the projections presented. The information in this presentation speaks only as of the date(s) referenced and is provided as is. CoStar expressly disclaims any guarantees, representations or warranties of any kind, including those of merchantability and fitness for a particular purpose. You should not construe any of the information herein as investment, tax, accounting or legal advice. 1331 L Street, NW, Washington, DC 20005, USA (800) 204-5960 www.costar.com NASDAQ: CSGP
Today Economy Leasing Fundamentals Capital Markets Sales Trends Summary and Q&A
Economy
Leading Indicators Still Generally Positive 15% Leading Economic Indicators (LEI) GDP Growth 10% 10% 8% 6% 5% 4% 0% 2% (5%) 0% (2%) (10%) (4%) (15%) 60 62 65 67 70 72 75 77 80 82 85 87 90 92 95 97 00 02 05 07 10 LEI GDP Sources: Conference Board; BEA (6%)
Government Job Losses Weighing On Labor Market 1,000 Jobs 500 0 (500) (1,000) (1,500) (2,000) (2,500) 2006 2007 2008 2009 2010 2011 Private Government Total Sources: BLS
A Double Dip in Housing 220 Index 200 180 160 140 120 100 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 NAR FHFA (Purchase Only) Case-Shiller 20-City Sources: NAR; FHFA; Case-Shiller
Inflation is Killing Consumer Spending 8% Consumption Retail Sales 20% 6% 15% 4% 10% 2% 5% 0% (2%) (4%) (6%) 0% (5%) (10%) (15%) (20%) (8%) (25%) (10%) (30%) (12%) 2007 2008 2009 2010 2011 (35%) Sources: BEA; Census Bureau Real Consumption Inflation Nominal Consumption Nominal Retail Sales
Federal Debt is Ballooning 4% Deficit (% of GDP) Debt (% of GDP) 80% 2% 70% 0% (2%) 60% (4%) 50% (6%) 40% (8%) (10%) 30% (12%) 1970 1975 1980 1985 1990 1995 2000 2005 2010 20% Sources: Bureau of the Public Debt; BEA; Moody s Analytics Deficit Debt
Housing Shortage 2,500 Household Formation and Housing Stock Change (Thousands) Housing (Units/Household) 1.135 1.130 2,000 1.125 1.120 1,500 1.115 1,000 1.110 1.105 500 1.100 1.095 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Household Formation Housing Stock Change Housing/Household Historical Average 1.090 Sources: Census Bureau; Moody s Analytics; PPR
Global Growth Will Drive Exports 5% World ex U.S. GDP Growth Export Growth 20% 4% 15% 3% 10% 2% 5% 1% 0% 0% (5%) (1%) (10%) (2%) 75 80 85 90 95 00 05 10 15 (15%) Sources: BEA; Global Insight; Moody s Analytics World ex U.S. GDP Growth Exports
There Are Risks To The Outlook 4.5% GDP Growth Job Creation (Millions) 4.5 4.0% 4.0 3.5% 3.5 3.0% 3.0 2.5% 2.5 2.0% 2.0 1.5% 1.5 1.0% 1.0 0.5% 0.5 0.0% 2010 2011 2012 2013 2014 2015 Average (2011-2015) GDP (Base) GDP (Slow Growth) New Jobs (Base) New Jobs (Slow Growth) 0.0 Sources: Moody s Analytics
Leasing Fundamentals
Retail Sales Push Forward page 15 Source: U.S. Census Bureau
A Recovery For Most page 16 Source: U.S. Census Bureau
Vacancy Forecast
Vacancy Trending Down, More Space Becoming Available
To The Victor Goes The Spoils Retail Vacancy Index page 19 Source: U.S. CoStar Census GroupBureau
Construction Still Muted RBA Under Construction By Subtype
Leasing Activity Heating Up 70 Leasing Activity by Quarter 60 Millions of Square Feet 50 40 30 20 10 0 Source: CoStar Group 06 07 08 09 10 11
Demand Growth Remains Cautiously Positive Net Absorption by Quarter
Demand Gathering Momentum Net Absorption (Percent of Inventory)
Getting Healthier Percentage of Submarkets With Declining Vacancy Rates
Housing Bust Metros Fighting Excessive Vacancies Average Vacancy Rate (2006-2011Q2) Source: CoStar Group Current Vacancy Rate
Power Centers Pulling Back From The Peak Retail Vacancy Rates by Shopping Center Type (2006-2011Q2) Source: CoStar Group
Rent Forecast
Rents Still in the Red Dallas/Ft Worth Boston Long Island (New York) Houston Cleveland Northern New Jersey Philadelphia Minneapolis Detroit Chicago Washington Westchester/So Connecticut Los Angeles Seattle/Puget Sound Denver Atlanta San Francisco Bay Area Tampa/St Petersburg Inland Empire (California) Phoenix Source: CoStar Group Annual Change in Average Quoted Rental Rate -6.5% -7.0% -7.2% -7.7% -3.6% -3.6% -3.9% -4.2% -4.3% -4.6% -4.9% -0.5% -0.8% -1.0% -1.0% -1.4% -1.6% -2.2% -2.3% -2.9% -9% -8% -7% -6% -5% -4% -3% -2% -1% 0%
But Approaching an Inflection Point Quarterly Change in Average Quoted Rental Rate Source: CoStar Group
Capital Markets and Sales
Removing Leverage From the System Source: Federal Reserve, Moody s Analytics
True Modifications Are Beginning To Ramp Up Special Servicer Modifications By Quarter Source: Trepp
CRE Lenders Have Turned the Corner CRE Lending Index by Source of Capital Source: ACLI, Moody s Analytics, Commercial Mortgage Alert, MBA
Can Lenders Handle the Tidal Wave of Maturing Loans? CRE Maturing Loans By Year Sources: PPR; Federal Reserve; Trepp; ACLI Source: PPR, Federal Reserve, Trepp, ACLI
Capital Flowing Back to Real Estate Cheap Trigger = 6/95 End Trigger = 9/99 Cheap Trigger = 3/01 End Trigger = 12/05 Pricey Trigger = 9/99 End Trigger = 3/01 Pricey Trigger = 12/05 End Trigger = 3/10 Source: Federal Reserve, NCREIF, NAREIT page 35 Source: Federal Reserve, NCREIF, NREIT
Retail Real Estate Relatively Attractive Cap Rate Spread Over 10-Year Treasuries (Basis Points) Source: CoStar Group, Moody s Analytics
Sales Transactions
Retail Sales Volume Has Picked Up Source: CoStar Group
Year-to-Date Sales Volume in 20 Largest Markets Source: CoStar Group
Retail Not The Worst Offender Office Industrial Retail Multifamily Hospitality Distressed Sales Volume (%of Total Transaction Volume) 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: CoStar Group
Percentage of Dollar Volume Sold That's Part of a Portfolio 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: CoStar Group
REITs Were Sellers $10,000,000,000 Ins tu onal Retail Net Buying in 2011 $5,000,000,000 $0 -$5,000,000,000 -$10,000,000,000 -$15,000,000,000 Institutional Private Equity User Private REIT/Public Source: CoStar Group
Top Retail Deals Closed 2Q2011 Centro Portfolio 39 States Centro Property Group 585 community/neighborhood shopping centers to The Blackstone Group for $9 billion. 92.1 million square feet. Mayflower Portfolio-New England, VA JP Morgan sold 36.9% interest to Canada Pension Plan Investment Board for $350 million. 10.1 million square feet Charter Hall REIT-Portfolio 28 properties Charter Hall REIT sold it s JV Interest of 60% to The Desco Group for $168 million. Prime Outlets- Jefferson, OH Simon Property Group sold to Tanger Factory Outlet Centers for $134 million. 410,000 square feet Lincoln Square-Arlington, TX Lincoln Square LTD sold to JV of Dunhill Partners and RioCan REIT for $70.7 million 444,500 square feet Source: CoStar Group
Properties Still Sitting 500 450 400 Days on Market 350 300 250 200 150 Source: CoStar Group 05 06 07 08 09 10
Cap Rates On Bigger Deals Compressing 12.0 Average Cap Rate Weighted Average Cap Rate 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 1996 2q 1997 2q 1998 2q 1999 2q 2000 2q 2001 2q 2002 2q 2003 2q 2004 2q 2005 2q 2006 2q 2007 2q 2008 2q 2009 2q 2010 2q 2011 2q Source: CoStar Group
CoStar's Quarterly Repeat Sale Index Source: CoStar Group
Summary