Integra Realty Resources-Mpls/St. Paul Viewpoint 2012 Outlook

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Introduction

Real estate markets in the United States continued to improve throughout 2011. Notable news for 2011 includes:

– Continued bifurcation of many sectors• “Trophy” assets vs. Class B and C properties

– Positive Economic News• Strong performance in the Multifamily sector• Early signs of stabilization in home values• Even lower interest rates• Continued decline in cap rates• Improving Consumer Confidence & Spending although

consumer borrowing is up

– Negative Economic News• Persistent high unemployment and underemployment• European debt issues create uncertainty

A Look Into 2012 and Beyond

Values are likely to increase slowly due to a combination of improved fundamentals and a slight decrease in cap rates

High construction costs combined with sluggish demand will result in Constrained New Supply- Multi-family likely to see the majority of new construction- Continued strong commodity prices and energy costs keep

construction costs high

Properties that do not become functionally obsolete generally rebound to their depreciated replacement cost at some point in the cycle

New Completions

25-Year Average: 2.1%

Supply growth this low barely exceeds

obsolescence

Outline

• Tom Stinson, Minnesota State Economist

• Office Market Update• Retail Market Update• Multi-Family Market Update• Industrial Market Update

Office Market Update•Mitch Simonson, MAI – Moderator

– Steve Chirhart, TaTonka Real Estate Advisors

– Scott Pollock, Cushman & Wakefield/NorthMarq

– Mike Salmen, Transwestern

Office Cap Rates Decrease Slightly in 2010 and 2011

Office – CBD The Best, The Worst and The Local Markets

Top Three Markets By Vacancy…Charlotte, NC – 7.60%Boise, ID – 8.41%Philadelphia, PA – 9.20%

Local Markets…Minneapolis, MN – 15.9%St. Paul, MN – 21.3%Combined CBDs – 17.0% - (Source: NAIOP)

…and the Bottom Three MarketsDallas, TX – 25.7%Syracuse, NY – 29.0%Dayton, OH – 29.0%

Office – Suburban The Best, The Worst and The Local Market

Top Three Markets By Vacancy…Nashville, TN – 8.94%Pittsburgh, PA – 9.35%Greenville, SC – 10.50%

Local Market…Minneapolis/St. Paul, MN – 19.85%

…and the Bottom Three MarketsSacramento, CA – 24.37%Las Vegas, NV– 25.93%Chicago, IL – 26.23%

Office Absorption

Submarket Name

Avg. Annual Net

Absorption (SF)

(2008-2011)

Forecast Avg. Annual

Net Absorption

(SF) (2012-2014)

Annual Net Absorption

as % of Office

Universe

Downtown (Mpls CBD) -150,000 418,000 1.5%

Suburban Totals -291,000 828,333 1.7%

REIS forecasts 2012 Absorption at 985,000 square feet, or 1.3% of Office Universe of 75,583,000 square feet

Minneapolis CBD Office Market Cycle

Suburban Office Market Cycle

December 2011 Class A Office Sales

West End Towers, St. Louis ParkTwo Buildings, 484,104 SF, $147/SF

Two Marketpointe, Bloomington236,000 SF Building and 5.75 acre vacant land parcel, About $240/SF building area plus vacant land

December 2011 Class A Office Sales

Cargill Building, Hopkins254,915 SF, $273/SF

The Colonnade, Golden Valley359,655 SF, $140/SF

Retail Market Update•Michelle D. M. Koeller, MAI, MRICS – Moderator

– Jen Helm, Cushman & Wakefield/NorthMarq

– James McComb, McComb Group Ltd.– Herb Tousley IV, Exeter Realty

Retail Cap Rates Decrease Slightly in 2010 and 2011

Retail The Best, The Worst and The Local Markets

Top Three Markets By Vacancy…San Francisco/Oakland, CA – 3.83%Los Angeles, CA – 4.78%Washington, D.C. – 4.88%

Local Market…Minneapolis/St. Paul, MN – 8.29%

…and the Bottom Three MarketsHouston, TX – 16.23%Dayton, OH – 18.31%Providence, RI – 20.00%

Retail Absorption

Minneapolis/St. Paul Market

Avg. Annual Net

Absorption (SF)

(2008-2011)

Forecast Avg. Annual

Net Absorption

(SF) (2012-2014)

Annual NetAbsorption

as % of Retail

Universe

Metro Area Totals -351,000 435,667 0.66%

REIS forecasts 2012 Absorption at 332,000 square feet, or 0.5% of Retail Universe of 66,184,664 square feet

Retail Market Cycle

Retail Market Cycle

Apartment Market Update•Dan Mueller, MAI – Moderator

– Abe Appert, CBRE– Gina Dingman, Everest Real Estate

Advisors – Steve Schachtman, Steven Scott

Management

Apartment Cap Rates Decrease in 2010 and 2011

ApartmentsThe Best, The Worst and The Local Market

Top Three Markets By Vacancy…Minneapolis/St. Paul, MN – 2.46%San Jose, CA – 3.09%New York, NY – 3.10%

Local Market…Minneapolis/St. Paul, MN – 2.46% Mpls./St. Paul has the lowest vacancy of

surveyed markets22 of 59 markets have vacancy at or below 5.0%

…and the Bottom Three MarketsSarasota, FL – 9.50%Columbia, SC – 11.00%Houston, TX – 11.88%

Apartment Absorption

Minneapolis/St. Paul Market

Avg. Annual Net

Absorption (Units)

(2008-2011)

Forecast Avg. Annual

Net Absorption

(Units) (2012-2014)

Annual NetAbsorption

as % of Multi-family

Universe

Metro Area Totals 1,559 1,122 0.72%

REIS forecasts 2012 Absorption at 1,057 units, or 0.68% of Apartment Universe of 155,270 units

Apartment Market Cycle

Industrial Market Update•Jeffrey A. Johnson, MAI – Moderator

– Ben Applebaum, WelshInvest– Dave Jellison, Liberty Property Trust– Greg Miller, Interstate Partners– Arvid Povilaitis, Meritex

Industrial Cap Rates Decrease in 2010 and 2011

IndustrialThe Best, The Worst and The Local Markets

Top Three Markets By Vacancy…Los Angeles, CA – 5.04%Houston, TX – 5.77%Orange County, CA – 5.91%

Local Market…Minneapolis/St. Paul, MN – 12.23%

…and the Bottom Three MarketsLouisville, KY – 18.47%Raleigh/Greensboro, NC – 20.03%Boston, MA – 20.77%

Industrial Absorption

Minneapolis/St. Paul Market

Avg. Annual Net

Absorption (SF)

(2008-2011)

Forecast Avg. Annual

Net Absorption

(SF) (2012-2014)

Annual NetAbsorption

as % of Industrial Universe

Metro Area Totals 548,000 2,115,000 1.88%

REIS forecasts 2012 Absorption at 1,528,000 square feet, or 1.3% of Industrial Universe of 112,256,490 square feet

Industrial Market Cycle

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