Santa Clara County Retail Report

Santa Clara County Retail Report Mid-Year 2011 Offices in Burlingame, Capitola, Monterey, Oakland, Palo Alto, Pleasanton, Sacramento, Salinas, San Francisco, San Jose, San Rafael, Santa Clara, Santa Rosa, Walnut Creek www.terranomics.com www.ctbt.com Broker Lic #00825241

San Mateo C TREND REVIEW Market Summary Office Report First Quarter 2010 Vacancy Rate As of the mid-year mark of 2011, shopping center vacancy within the Santa Clara County retail market stood at 6.1%, down from the 6.7% mark that was recorded as of the close of 2010. One year ago this number stood at 7.0%. While we are tracking asking rents as low as $7.20 and as high as $54.00 per square foot, the average asking rent for shop space currently stands at $24.95 per square foot (on an annual, triple net basis). The market continues to record modest overall rental rate growth, thanks mostly to gains posted by first-tier and second-tier shopping centers. Six months ago, the average asking rate for shop space was $24.89 per square foot. Asking Rents Anchor Vacancy Shop Vacancy New Construction West County vacancy dropped from 5.4% to 4.1% over the first half of 2011. One year ago vacancy stood at 5.5%. This trade area accounts for over 6.1 million square feet of inventory and includes the communities of Cupertino, Los Altos, Los Gatos, Mountain View, Palo Alto, Saratoga and Sunnyvale. Asking rents currently range from $12.00 to $47.40 per square foot, with an average asking rate for shop space of $32.07. This number actually decreased slightly over the past six months from $32.29 per square foot. The Central County trade area, with its inventory of over 19.7 million square feet of space, is Santa Clara County s largest retail marketplace. This includes the Campbell, Milpitas, San Jose and Santa Clara submarkets. Vacancy levels here dropped from 6.9% to 6.6% over the past six months. One year ago, vacancy here stood at 7.3%. The average asking shop rent here is $26.52 per square foot, up slightly from $26.27 as of the close of 2010. Throughout this trade area we are currently tracking asking rents as low as $9.75 and as high as $54.00 per square foot. The South County trade area, consists of the cities of Gilroy and Morgan Hill, and accounts for over 5.4 million square feet of gross leasable area. Vacancy here climbed dropped 7.6% to 6.8% over the first half of 2011. Asking rents here range from $7.20 to $36.00 per square foot, but the marketwide average asking rate for shop space stands at $16.63. Six months ago this number stood at $16.41 per square foot. Retail Review If one were to just look at the vacancy numbers, it would be easy to assume that the market had reached its high-water mark (in terms of retailer demand) as of the close of 2010. The Alameda, Contra Costa, Marin, Napa and San Mateo County retail markets all recorded modest increases in vacancy over the first six months of 2011. None of these were huge jumps and, indeed, the trends were not even within these trade areas. While overall vacancy at the county level may have notched up a few basis points, many of the individual submarkets within these trade areas still recorded decreased vacancy. Only the Santa Clara, Solano and Sonoma County markets recorded overall decreased vacancy levels. Yet, despite these numbers, retailer demand was up substantially over the past six months. Especially against the backdrop of the ongoing economic turmoil, it may be hard for anyone to believe that there has been some good news to report, but there actually is. In terms of retailer demand, the market has only seen continued improvement over the past six months. This quarter s Terranomics/Chainlinks National Retailer Demand Index places the current retailer demand level at seven, indicating a level of retailer demand that is slightly above average. At the same time last year, this reading stood at four, indicating a level of demand that is slightly below average. Only six of the 57 markets we surveyed failed to see increased demand levels over the past twelve months.

San Mateo C Office Report First Quarter 2010 The San Francisco retail market recorded a current retailer demand level of eight (indicating above average demand), compared to last year s reading of five (indicating the low end of average demand levels). For both the Oakland/East Bay and San Jose/Silicon Valley markets, these numbers translated into a current retailer demand level of seven (indicating slightly above average demand levels), up from last year s reading of five. Higher retailer demand and increased deal activity has also led to a strengthening position for landlords. This quarter s Terranomics/Chainlinks National Market Equilibrium Index reading was three, indicating that conditions currently favor tenants. One year ago this number stood at two, reflecting a marketplace where conditions heavily favored tenants. The numbers were much better for the Bay Area. The San Francisco retail market recorded a current equilibrium level of five (indicating equilibrium with a slight edge for tenants), compared to last year s reading of four (indicating that conditions slightly favor tenants). Both the Oakland/East Bay and San Jose/Silicon Valley markets also recorded current equilibrium index level of five, up from last year s reading of three (indicating conditions that favor tenants). Of course, considering the current economic storm clouds it is unclear if this trend will continue. There is a lag time in most real estate decisions, particularly for retailers. The expansion plans laid out in January might not result in deals being done until June with new stores possibly not opening until December. We have been watching retailer growth plans increase since the midyear point of 2010. As of Spring 2011 they stood at levels 40% above those recorded one year earlier. Heading into May s International Council of Shopping Centers event most retailers were still upping growth plans for late 2011 and early 2012. We have yet to see many backing away from those plans yet. However, should the current crisis of confidence worsen into a real recession, demand levels will almost certainly drop quickly. Of course, this does not fully explain why vacancy crept up (even if only by a modest amount) in five of the eight Bay Area markets that we track. How could demand and leasing activity be up, yet vacancy not drop? Certainly there is the issue of space being returned to the marketplace. The collapse of Blockbuster and Borders has translated into millions of square feet of space being returned to the market across the nation. But throughout the Bay Area, this has equated into just under 500,000 square feet of space being returned to the marketplace. This has been one factor mitigating growth over the first half of 2011. However, there is one other factor to consider. There is a disparity in trends that emerges when you break any given marketplace down by class. First-tier shopping centers in every market, even those with the highest levels of current vacancy, are posting improvement. They remain in high demand, are seeing the highest levels of deal activity and, in most cases, are already posting rental rate growth. We would define these properties as those that are within vibrant urban marketplaces, or located on top suburban intersections or trade corridors. They boast successful anchor tenants that help drive traffic to their centers and they have strong existing tenant mixes. There is a shortage of available space at these centers. We are also seeing improvement in second-tier shopping centers. Deal activity is spilling over from first-tier location to these centers. We define second-tier centers as being those that may be situated within vibrant urban marketplaces or even located on top suburban intersections or trade corridors, but if so, they are lacking either in terms of strong anchor tenants or tenant mix. More often, however, in built-out markets they are in secondary locations not on the main drag, but

San Mateo C Office Report First Quarter 2010 around the corner. They tend to be near the action, but near it. They also can be in primary locations in small trade areas, such as being the only supermarket-anchored shopping center in a small, bedroom community. Meanwhile, third-tier shopping centers remain challenged in nearly every single Bay Area market. These would be defined as the weakest locations within the urban or suburban core or weaker centers in smaller or rural areas. Unanchored strip retail, with a few exceptions, would largely fall into this category. This category also includes aging shopping centers challenged by obsolescence issues or in dire need of upgrades. The lack of small retail start-ups in the marketplace is having a particularly profound impact on these shopping centers. They uniformly boast the highest vacancy levels and rents remain under extreme downward pressure as owners of these properties are in fierce competition with one another to land tenants. Retailer demand remains strongly focused on first-tier centers. Our brokers report to us that in most of the Bay Area s markets that there is a shortage of this type of space. Many of these space users have opted to sign deals at second-tier centers. However, many other retailers have opted instead to sign deals at strong freestanding or urban retail locations. Because our survey only covers shopping centers, the occupancy growth being reflected by these property types are not reflected in our statistics. Lease Rate Trends Just as we are seeing a division in demand between first-tier, second-tier and third tier shopping centers, we are also seeing a divergence in lease rate trends for all of these properties throughout the Bay Area. First-tier properties throughout the region are recording rental rate growth and are succeeding in commanding top dollar for their spaces. However, vacancy for these centers is extremely tight. The region now has a shortage of premium space available and this is starting to impact deal flow. Developers are beginning to be active again, with multiple projects in the final pre-development stages, but it will likely be 2012 before we begin to see most of the projects in the pipeline moving dirt. With first-tier space increasingly hard to find, much of this activity has spilled over to stronger freestanding or urban retail locations (which our statistics do not track) or second-tier shopping centers. Rents have largely stabilized for second-tier shopping centers, with most of these posting rental rate growth, however, the strength of these gains are almost entirely dependent upon local submarket vacancy levels. For some second-tier centers, the growth has been strong. For others, it has been modest at best. Third-tier centers, however, continue to face challenges. Competition for tenants remains fierce for these projects and downward pressure on rents continue to be the norm. With both first and second-tier shopping centers recording rental rate growth, it may come as a surprise that a good number of the markets that we track recorded a decline in average asking rents over the first half of 2011. The average asking rent for shop space in Alameda, Marin, Napa, San Mateo and Sonoma Counties all posted modest overall decreases. This would seem counter-intuitive considering that some of these trade areas are where vacancy levels remain extremely low. There is a simple explanation for this. Our average asking rent numbers are based upon spaces that are currently available and being marketed for lease. They are not based on actual completed deals. In many of these markets (such as San Mateo County), vacancy levels are now so low that what is still left on the market is often the most challenged space. In other words, it is not unlike the clearance rack that has been picked over at a bargain sale what little remains continues to see price reductions. This is also why we saw modest increases in the asking rates for some of the trade areas in the region where vacancy is slightly higher. The Contra Costa, Santa Clara and Solano County

San Mateo C Office Report First Quarter 2010 markets all posted modest overall increases. All of these markets have vacancy levels that remain above the 5% mark. Though vacancy ticked up slightly over the first half of the year in the Contra Costa marketplace, Santa Clara and Solano Counties both recorded occupancy growth. Yet, in all of these cases, there remains enough premium space available in the marketplace that rental rate growth being recorded by first and second-tier properties is being reflected in average asking rate totals. Here there still remains quality space available for lease, though, like everywhere else in the Bay Area, it is moving relatively quickly. Looking Forward As this report went to press, the entire U.S. economy stood at a crossroads. Revised numbers from the Commerce Department painted a picture of a weakening economy during the first half of 2011. First quarter GDP growth was downgraded to just 0.4% and second quarter numbers came in at just 1.3%. Meanwhile, consumer spending, which had held its own even in the face of rising gas prices, finally fell in June the first decline since September of 2009. Job cuts reached a 16- month high in July. But all of this bad news was overshadowed by the circus of the debt ceiling debate, a fiasco that unnecessarily damaged confidence in the U.S. economy at a time in which it was already fragile. The damage in confidence was enough that, even with a last minute deal in place, stocks plummeted throughout the week in Wall Street s worst performance since the height of the Great Recession. This was followed by the announcement from Standard & Poor s that they were lowering the United States long-term sovereign credit rating from AAA to AA+. In explaining their announcement, Standard & Poor explained, We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria. For the past year, we have been warning that a lack of governmental policy clarity was one of the factors holding back the economic recovery. We now have reached a painful point at which governmental dysfunction itself may now be the biggest threat to the economy. Sadly, if the debate over the debt ceiling is the blueprint for our political discourse until the next election, it appears that we may have fifteen more months of contention. Considering the impact on investor confidence that we are now seeing over this one, the signs are foreboding. It is still uncertain what the full impact of S&P s downgrade will be. Most analysts believe it will almost certainly result in increased borrowing costs for the government and higher interest rates on most consumer loans, ranging from credit cards and auto loans to variable rate mortgages. This, of course, is coming at a time in which the economy needs it least. But there is no doubt as to what the short-term impact of all of this news is. As this report went to press, the stock market had plummeted and had yet to stabilize. Ironically, though the debt ceiling debate and S&P s ensuing downgrade of U.S. credit were the touchstones of these events, little else has actually changed in the U.S. economy. The underlying fundamentals are those of a fragile economy struggling to find footing in a weak recovery not those of a recessionary economy. Corporate profits and balance sheets are up. Employment growth, though exceedingly weak, has remained in modestly positive territory. Energy prices the culprit behind much of the economic weakness recorded over the first half of the year are retreating. The problem is not

San Mateo C Office Report First Quarter 2010 that the economic picture worsened that much. It is that the nation currently finds itself in the midst of a politically self-inflicted crisis of confidence. Ironically, even in the panicked selloff of stocks, what did many investors turn to? Bonds, backed by the full faith and credit of you guessed it, the United States of America the one asset that actually was directly impacted by S&P s downgrade. It is unclear what the impact of this ongoing crisis of confidence will be. Should the stock market stabilize quickly, much of the damage we have seen in early August can be undone. But, if cooler heads do not prevail quickly, there could be dire consequences. We would not have made this statement a month ago, but the threat of a double-dip recession is now real, although we still think unlikely. Wells Fargo and Bank of America economists put the current chances at about one in three. Other analysts estimate the chances ranging from 50/50 to one in four. The economy is clearly at a crossroads. If cooler heads prevail, this crisis of confidence will fade. With the exception of June s weak numbers, consumer spending has been one of the few bright spots of the recovery. Despite all of the recent bad economic news, retail sales actually increased by 0.5% in July. This is the biggest increase that the market has seen in four months. Yet, on the same day that this good news broke, there also came foreboding news regarding consumer sentiment. The Thomsen Reuters/University of Michigan preliminary index of consumer sentiment dropped from 63.7 in June to 54.9 in July. This marks the lowest level that this survey has recorded since May 1980. The relationship between consumer confidence and consumer spending is a loose one. Throughout the recession we saw months where confidence surged as sales fell and vice versa. But, in the long run, consumer spending patterns almost always follow consumer confidence ratings. It just sometimes takes a few months for low sentiment to translate into depressed spending or for improved confidence to play out as increased sales activity. That being said, the real question ahead of us now is whether consumers will continue to spend and keep this fragile economy afloat. While retailer demand has been up across the board, it is difficult to imagine a scenario in which it is not impacted in the immediate future. Should the stock market stabilize, consumer sentiment improve and consumer sales hold up, we will avert a double-dip recession. The jitters of August would then likely just translate into another delay on the road to a more robust recovery. In this case, we would expect the impact on retail demand to be minimal. This would especially be the case in the Bay Area thanks to its current strength as one of the top retail markets in the U.S. and because moves made by well-funded tech companies in the region (the San Francisco, San Mateo and Silicon Valley Office and R&D markets are currently experiencing a massive boom in leasing activity), point to strong job growth in the region in 2012. Should, however, the economy fall into a double-dip recession, many retailers will pull back from planned growth for 2012. Worse yet, should the current crisis of confidence turn into another recession, it is a certainty that there will be more retailer bankruptcies and more space returned to the market.

San Mateo C Notable Lease Transactions at Mid-Year 2011 Tenant Address City Rentable SF Office Report First Quarter 2010 1 Home Goods Cupertino Crossroads Cupertino 70,300 2 Grocery Outlet 333 E 10 th St Gilroy 10,000 3 Aaron s Rents Orchard Center Gilroy 5,280 4 BabyBuzz 35 W. Main St Los Gatos 1,170 5 4 Boys & A Girl Clothing 222 N. Santa Cruz Ave Los Gatos 1,176 6 Purple Onion Vasona Station Los Gatos 1,560 7 Workshop Burger 124 Castro Mountain View 2,490 8 Kumon Learning Center Blossom Valley Shopping Center Mountain View 1,150 9 Sunflower Farmer s Market 630 S. San Antonio Rd Mountain View 23,880 10 Coupa Café 3457 El Camino Real Palo Alto 3,800 11 Petsmart Almaden Plaza San Jose 26,400 12 Play It Again Sports Blossom Hill Plaza San Jose 2,525 13 Union Bank Pueblo Plaza San Jose 3,022 14 Orchard Supply Hardware Princeton Plaza Mall San Jose 53,477 15 Harbor Freight Tools Hillview Plaza San Jose 16,646 16 Sunflower Farmer s Market Branham Square San Jose 31,827 17 Verizon Wireless Camden Park San Jose 1,301 18 Bay Area Fitness Centers Gould Plaza San Jose 38,133 19 L&L Hawaiian BBQ San Jose MarketCenter San Jose 1,786 20 Chase Bank San Jose MarketCenter San Jose 3,762 21 T-Mobile San Jose MarketCenter San Jose 2,038 22 Supercuts San Jose MarketCenter San Jose 1,161 23 Chase Bank @ First Shopping Center San Jose 5,000 24 Coffee Bean & Tea Leaf @ First Shopping Center San Jose 1,500 25 Fresh & Easy @ First Shopping Center San Jose 23,043 26 Pasta Pomodoro @ First Shopping Center San Jose 4,591 27 Which Wich The Plant San Jose 1,593 28 Massage Envy The Plant San Jose 3,061 29 Yogurtland 125 E San Carlos San Jose 1,500 30 Sleep Train 5241 Stevens Creek Blvd San Jose 6,374 31 Union Bank Argonaut Shopping Center Saratoga 3,708 32 Verizon Wireless Toys R Us Center Sunnyvale 1,250 33 Comcast Cable Amber Circle Sunnyvale 3,114

San Mateo C Retail Investment Outlook Office Report First Quarter 2010 Over the first six months of the year, just under $6 billion in commercial properties were traded throughout the Bay Area. Retail investment properties accounted for 20% of all transactions, or approximately $1.2 billion in total sales volume. We are aware of a total of 46 properties that have traded throughout the Bay Area over the first six months of the year (this total does not include user sales), with an average cap rate of 7.1%. Over the course of 2010, the average cap rate for retail investment sales was 8.3%. Over the course of last year, a total of 40 retail investment properties traded accounting for just under $1.3 billion in total volume. Through the first six months of this year we have already seen more properties traded than last year and total deal volume has almost matched last year s totals. Of the 46 properties traded so far this year, 18 were in the East Bay, 12 were in the Silicon Valley, eight were in the North Bay, five in San Francisco and three were on the San Francisco peninsula. The average price per square foot of retail investment properties sold throughout the Bay Area over the first half of 2011 is $163.48. East Bay properties have averaged $197.04 per square foot with a 6.6% cap rate. North Bay sales have averaged $111.94 per square foot and a 6.0% cap rate. San Francisco retail properties achieved an average price of $189.33 per square foot and an 8.5% cap. Peninsula investment sales averaged $162.41 per square foot and a capitalization rate of 7.6%. Silicon Valley retail investment transactions averaged $127.23 with a 7.5% cap rate. While investment activity has nearly doubled over last year s levels, activity has actually been hampered by a lack of available product for sale. REITs have been extremely active, having raised over $4 billion on Wall Street over the past couple of years. Meanwhile, the pool of buyers has also increased as equity funds, private and institutional investors have become more active. The pool of would-be buyers has increased substantially, however, investor demand remains mostly focused on just a few property types. Buyers continue to seek the most stable of assets; trophy shopping centers with high levels of occupancy and single-tenant net leased properties. As the year has progressed, we have begun to see investor interest spreading to shopping centers with occupancy issues as well as value-add properties. That being said, the current economic turmoil could change this dynamic. Should the markets return to stability and the economy successfully emerge from the current crisis of confidence, we expect this trend to be slowed somewhat in the near-term, but to escalate as we emerge from the jitters. However, should the economy sink into a double-dip recession, we expect demand for riskier investments to drop substantially. It is unclear as to how the current economic turmoil will impact the investment market. In the short term, it could result in a surge of sales activity. Investors fleeing the instability of the stock market have already shown themselves willing to buy Treasury bills at a return rate as low as 2.1%. The irony here is that government bonds were exactly the investment type that was downgrade by Standard & Poor s. Yet, where have investors gone to seek security? Government bonds. But, keep in mind that a return rate of 2.1% is below the core inflation rate. In other words, in exchange for a safe haven, investors are literally willing to pay the government to hold their money. So, is there a good chance that many investors will seek out retail investment properties? Absolutely, however, they will likely be chasing the very same investment types currently in high demand and short supply; stabilized core assets, trophy shopping centers with high occupancy levels and single-tenant net leased investments that are leased to strong national credit tenants.

San Mateo C Office Report First Quarter 2010 Santa Clara County Retail Market Notable Sale Transactions Mid-Year 2011 Property 1. Gilroy Crossing 6715 Camino Arroyo Gilroy, CA 2. Lowe s 775 Ridder Park Ln San Jose, CA 3. Hacienda Gardens 2975 Meridian Ave San Jose, CA 4. Auto Dealership 4590 Stevens Creek Blvd San Jose, CA 5. Sunnyvale Chrysler Dealer 1095 W El Camino Real Sunnyvale, CA 6. 2624/2666 S. Bascom Ave San Jose, CA 7. Trade Joe s Center 7250 Bollinger Rd Cupertino, CA 8. Michael s 2415 Charleston Rd Mountain View, CA 9. Plaza Del Rey 5885 Santa Teresa San Jose, CA 10. Service Station 10165 N De Anza Blvd Cupertino, CA Total SF Sale Date 326,220 04/2011 141,000 04/2011 141,831 04/2011 47,400 01/2011 27,000 02/2011 35,239 04/2011 19,804 05/2011 21,579 06/2011 32,353 06/2011 1,404 04/2011 Seller Buyer Sale Price Price PSF Cap Rate Lakha Investments Excel Trust $68,500,000 $209.98 Sand Hill Property Company Garrett Rajkovich Lucas Trust Properties Chrysler Group S&C Enterprises Yamanaka Family Trust & Hunter Properties 7.7% Castle Family LLC $30,500,000 $216.31 6.4% Terra Commercial Real Estate $17,000,000 $119.86 8.0% Sonic Automotive $15,000,000 $316.46 User Sale Sobrato Development Companies JP DiNapoli Companies $9,050,000 $335.19 N/A $8,700,000 $246.89 N/A Arcadia Hub $7,000,000 $353.46 7.3% Dollinger Properties AB&I Foundry $6,915,000 $320.45 7.4% Charles Reynolds Living Trust Hossain & Christine Khaziri KY Management $6,850,000 $211.73 7.5% Shashi Corp $4,800,000 $3,418.80 User Sale

Leasing Market Summary (Centers 50,000 square feet and greater) City Total Availability Vacancy *Avg. Asking Market Rent Centers Total GLA Anchor Shop Total Rate (Shop) MY-11 MY-10 Range Palo Alto 1 136,350 0 29,500 29,500 21.6% 24.7% $45.00 $45.00-$45.00 Mountain View 16 2,432,497 0 16,491 16,491 0.7% 1.0% $33.26 $30.00-$42.00 Los Altos 4 244,504 0 0 0 0.0% 2.9% N/A N/A Sunnyvale 17 1,812,976 10,470 47,628 58,098 3.2% 3.6% $18.81 $12.00-$47.40 Cupertino 8 842,122 33,380 56,887 90,267 10.7% 18.8% $28.24 $19.80-$42.00 Saratoga 2 201,502 14,000 22,036 36,036 17.9% 15.5% $40.28 $39.00-$42.00 Los Gatos 7 509,844 0 23,582 23,582 4.6% 5.1% $32.37 $15.00-$45.00 West County Totals 55 6,179,795 57,850 196,124 253,974 4.1% 5.5% $32.07 $12.00-$47.40 Campbell 8 1,315,273 0 53,755 53,755 4.1% 8.2% $34.36 $24.00-$54.00 Santa Clara 15 1,923,901 0 140,601 140,601 7.3% 7.1% $34.37 $22.20-$48.00 San Jose 118 14,818,664 331,782 533,307 865,089 5.8% 6.7% $23.75 $9.75-$46.20 Milpitas 12 1,687,423 187,514 46,807 234,321 13.9% 12.3% $25.50 $14.40-$36.00 Central County Totals 153 19,745,261 519,296 774,470 1,293,766 6.6% 7.3% $26.52 $9.75-$54.00 Morgan Hill 9 1,836,663 25,580 105,961 131,541 7.2% 7.0% $22.72 $14.28-$24.00 Gilroy 17 3,589,924 29,258 207,489 236,747 6.6% 7.7% $13.52 $7.20-$36.00 South County Totals 26 5,426,587 54,838 313,450 368,288 6.8% 7.5% $16.63 $7.20-$36.00 Total County: 234 31,351,643 631,984 1,284,044 1,916,028 6.1% 7.0% $24.95 $7.20-$54.00 * Average Asking Rate is Annualized NNN Annual Net Absorption 300,000 Asking Rate Ranges NNN $60 0 $40-300,000 $20-600,000-900,000 2007 2008 2009 2010 YTD-11 $0 West Central South Min Avg Asking NNN Max Gross Leasable Area by Center 31.7% 34.9% 6.7% 6.0% 20.8% Center Square Feet Community 10,928,732 Neighborhood 9,948,047 Power 6,511,813 Strip 1,865,892 Other 2,097,159 Total 31,351,643 Community Neighborhood Power Strip Other The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

SANTA CLARA COUNTY YEAR-END MID-YEAR 2008 2011 Santa Clara County PERIOD MY-2009 YE-2009 MY-2010 YE-2010 MY-2011 YE-10 Total GLA 31,351,643 31,351,643 31,351,643 31,351,643 31,351,643 Total Centers 234 234 234 234 234 Availability Anchor 812,450 951,254 875,677 843,961 631,984 Shop 1,264,264 1,280,076 1,312,650 1,267,743 1,284,044 Total 2,076,714 2,231,330 2,188,327 2,111,704 1,916,028 New Construction GLA 0 0 0 0 0 New Construction (#'s) 0 0 0 0 0 Net Absorption -523,780-150,897 39,284 76,623 195,676 Vacancy 6.6% 7.1% 7.0% 6.7% 6.1% Market Rent Range $7.20-$51.00 $7.20-$51.00 $7.20-$51.00 $7.20-$50.00 $7.20-$54.00 Average Asking Rate Shop NNN $29.58 $26.08 $25.39 $24.89 $24.95 * Average Asking Rate is Annualized NNN Vacancy & Average Asking Rate Trend 10% $40 8% 6% 5.0% 6.6% 7.1% 7.0% 6.7% 6.1% $35 $30 4% 3.1% $25 2.5% 2% $20 0% YE-07 MY-08 YE-08 MY-09 YE-09 MY-10 YE-10 MY-11 $15 Vacancy Shop NNN The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

SANTA CLARA COUNTY YEAR-END MID-YEAR 2008 2011 West County (Palo Alto, Mountain View, Los Altos, Sunnyvale, Cupertino, Saratoga, Los Gatos) PERIOD MY-2009 YE-2009 MY-2010 YE-2010 MY-2011 YE-10 Total GLA 6,179,795 6,179,795 6,179,795 6,179,795 6,179,795 Total Centers 55 55 55 55 55 Availability Anchor 152,876 152,876 127,996 127,996 57,850 Shop 185,602 194,492 209,556 207,315 196,124 Total 338,478 347,368 337,552 335,311 253,974 New Construction GLA 0 0 0 0 0 New Construction (#'s) 0 0 0 0 0 Net Absorption 59,160-10,588 11,514 2,241 81,337 Vacancy 5.5% 5.6% 5.5% 5.4% 4.1% Market Rent Range $7.20-$51.00 $19.80-$48.00 $12.00-$47.40 $12.00-$47.40 $12.00-$47.40 Average Asking Rate Shop NNN $29.58 $34.71 $31.20 $32.29 $32.07 * Average Asking Rate is Annualized NNN Vacancy & Average Asking Rate Trend 10% $40 8% $35 6% 5.5% 5.5% 5.6% 5.5% 5.4% $30 4% 4.1% $25 2.2% 2.0% 2% $20 0% YE-07 MY-08 YE-08 MY-09 YE-09 MY-10 YE-10 MY-11 $15 Vacancy Shop NNN The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

SANTA ALAMEDA CLARA COUNTY YEAR-END MID-YEAR 2008 2009 2011 Central County (Campbell, Santa Clara, San Jose, Milpitas) PERIOD MY-2009 YE-2009 MY-2010 YE-2010 MY-2011 YE-10 Total GLA 19,745,261 19,745,261 19,745,261 19,745,261 19,745,261 Total Centers 153 153 153 153 153 Availability Anchor 527,156 691,540 640,843 609,127 519,296 Shop 774,096 795,795 805,217 757,096 774,470 Total 1,301,252 1,487,335 1,446,060 1,366,223 1,293,766 New Construction GLA 0 0 0 0 0 New Construction (#'s) 0 0 0 0 0 Net Absorption -520,789-179,902 35,094 79,837 72,457 Vacancy 6.6% 7.5% 7.3% 6.9% 6.6% Market Rent Range $14.40-$51.00 $9.75-$51.00 $9.75-$51.00 $9.75-$50.00 $9.75-$54.00 Average Asking Rate Shop NNN $33.73 $27.53 $27.23 $26.27 $26.52 * Average Asking Rate is Annualized NNN Vacancy & Average Asking Rate Trend 10% $40 8% 6.6% 7.5% 7.3% 6.9% 6.6% $35 6% $30 4.4% 4% $25 2.5% 2.1% 2% $20 0% YE-07 MY-08 YE-08 MY-09 YE-09 MY-10 YE-10 MY-11 $15 Vacancy Shop NNN The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

SANTA ALAMEDA CLARA COUNTY YEAR-END MID-YEAR 2008 2011 2009 South County (Morgan Hill, Gilroy) PERIOD MY-2009 YE-2009 MY-2010 YE-2010 MY-2011 YE-10 Total GLA 5,879,999 5,426,587 5,426,587 5,426,587 5,426,587 Total Centers 26 26 26 26 26 Availability Anchor 132,418 106,838 106,838 106,838 54,838 Shop 304,566 289,789 297,877 303,332 313,450 Total 436,984 396,627 404,715 410,170 368,288 New Construction GLA 0 0 0 0 0 New Construction (#'s) 0 0 0 0 0 Net Absorption -86,274-413,055-8,088-5,455 41,882 Vacancy 7.4% 7.3% 7.5% 7.6% 6.8% Market Rent Range $7.20-$39.60 $15.00-$39.60 $7.20-$36.00 $7.20-$36.00 $7.20-$36.00 Average Asking Rate Shop NNN $16.05 $16.33 $16.34 $16.41 $16.63 * Average Asking Rate is Annualized NNN Vacancy & Average Asking Rate Trend 10% $40 7.4% 8% 6.2% 7.3% 7.5% 7.6% 6.8% $30 6% 6.0% 4% 4.0% $20 2% $10 0% YE-07 MY-08 YE-08 MY-09 YE-09 MY-10 YE-10 MY-11 $0 Vacancy Shop NNN The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

SANTA ALAMEDA CLARA COUNTY MID-YEAR 2011 2009 Santa Clara County Demographics Area: 1,298 Square Miles 2000 2010 2015 Population 1,682,150 1,767,663 1,820,834 Ethnicity Percent of Population White Population Alone 53.83% 50.39% 47.30% Black Population Alone 2.80% 2.61% 2.64% American Indian/Alaska Native Alone 0.67% 0.48% 0.48% Asian/Hawaiian/Pacific Islander 25.90% 31.27% 34.31% Other Population (Incl 2+ Races) 16.79% 15.24% 15.27% Hispanic Population 23.98% 25.73% 25.73% Non-Hispanic Population 76.02% 74.27% 74.27% Total Households 565,717 612,872 636,851 Income Median $74,524 $85,414 $86,715 Per Capita $32,383 $40,964 $43,563 Per Household $96,185 $118,150 $124,552 Household Income Range $25,000-$49,999 18.2% 14.8% 12.6% $50,000-$74,999 18.8% 18.0% 17.6% $75,000-$99,999 15.0% 23.5% 21.8% $100,000-$124,999 11.38% 12.95% 12.55% $125,000-$149,999 7.33% 9.67% 10.56% $150,000-$199,999 8.11% 6.73% 7.93% $200,000+ 7.80% 6.95% 7.40% The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

Santa Clara County Retail Report PALO ALTO NEWARK FREMONT MOUNTAIN VIEW MOFFETT FIELD MILPITAS Foothill Expwy SANTA CLARA COUNTY SUNNYVALE Lawrence Expwy Montague Expwy SANTA CLARA SAN JOSE Capital Expwy Mt. Hamilton Rd Stevens Creek Blvd MORGAN HILL CUPERTINO CAMPBELL Tully Rd SARATOGA Monterey Hwy GILROY Almaden Expwy Definitions Blossom Hill Rd LOS GATOS Shopping Center A planned group of connected retail stores, usually with an attached parking area, specially developed on a parcel of private property and managed by a single organization. Enclosed Mall A shopping center entirely inside a roofed structure, so that entrance to the mall is controlled by a limited number of entrances and most stores are accessible only via interior corridors. Open-Air Mall A shopping center in which most of the stores are directly accessible from the outside, the exterior walkways may be covered, but the center is not enclosed under a single roof. Regional Center A shopping center with 30 to 100 stores, anchored by one or more department stores, and has 350,000 to 800,000 square feet of retail space. Super-Regional Center The largest variety of shopping center, usually an enclosed mall with more than 100 stores; includes several department stores, and greater than 800,000 square feet of retail space. Neighborhood Center A shopping center with fewer than 10 stores, anchored by a supermarket, and with 30,000 to 150,000 square feet of retail space; neighborhood centers are typically open-air designs. Community Center A shopping center with 10 to 30 stores and 150,000 to 350,000 square feet of retail space, typically anchored by a discount department, drug, or home improvement store; they are commonly open, one-story, with stores arranged in a single strip, L- or U-shape. Lifestyle Center A shopping center or mall whose array of retail outlets are designed to appeal to a particular segment of the population; typically, lifestyle centers feature upscale specialty stores, services, and restaurants. Power Center A center dominated by several large anchors, including discount department stores, off-price stores, warehouse clubs, or category killers. The center typically consists of several anchors, some of which may be freestanding and only a minimum amount of small specialty tenants. Strip Center An open-air neighborhood shopping center, smaller than 10,000 square feet and with at least three stores, typically arranged in a connected row facing a parking area; strip centers may also be L- or U-shaped. Theme/Festival Centers The centers typically employ a unifying theme that is carried out by the individual shops in their architectural design and, to an extent, in the merchandise. Entertainment is often a common element of such centers, and is targeted to tourists. Outlet Mall This center type consists of manufacturers and retailers outlet stores selling brand-name goods at a discount. These centers are typically not anchored, although certain brand-name stores may serve as magnet tenants. Anchor Stores The largest retail outlets, usually located at the ends or corners of shopping centers, and chosen in part for their potential to attract customers to the shopping center generally; department stores usually anchor regional and super-regional malls and supermarkets are typical anchors in community centers. Big Box A large stand-alone store that specializes in a single line of products, such as home improvements, toys, or office supplies; no-frills discount stores that sell in volume and category killers are often big box stores. Category Killer A large national chain store specializing in one line of products, such as home improvements, office supplies, or toys, that can overwhelm both smaller and more diverse competitors because of its size, variety of merchandise, and prices. Free-Standing Store A retail outlet not associated with a shopping center, especially those at a distance from congested shopping areas and downtowns. Gross Leaseable Area (GLA) Total floor space available for retail sales, usually in square feet. Anchor GLA Total floor space available for anchor retail sales, usually in square feet. Non-Anchor GLA Total floor space available for non-anchor retail sales, usually in square feet. Average Asking Rate The rate is determined by multiplying the asking net lease rate for each building by its available square footage, summing the products, then dividing by the sum of the available square footage with net leases for all buildings. Triple net (NNN) Generally refers to the requirement for the lessee to pay for its share of the property s taxes, insurance and operating expenses.