Fourth Quarter 2009 Report Investment Trends Vol. 5, No. 4 ... · ket is given to the first-time homebuyer tax credit program (projected to be extended until April 30, 2010), we are

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Fourth Quarter 2009 ReportVol. 5, No. 4Investment Trends

Quarterly

1Investment TrendsQuarterly

Copyright© 2009 by Real Estate Research Corporation (RERC) and the CCIM Institute.

InThisVolume

Regional and Metro-Level AnalysesComing Soon!

East RegionBaltimore, Boston, Charlotte, Hartford, Norfolk, Northern New Jersey, New York City, Pittsburgh, Philadelphia, Raleigh, Richmond, Washington, D.C.

South RegionAtlanta, Austin, Dallas/Ft. Worth, Houston, Memphis, Miami, Nashville, New Orleans/Baton Rouge, Oklahoma City, Orlando, San Antonio, Tampa

Midwest RegionChicago, Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, Kansas City, Milwaukee, Minneapolis, Omaha, St. Louis, Toledo

West RegionDenver, Honolulu, Las Vegas, Los Angeles, Phoenix, Portland, Sacramento, Salt Lake City, San Diego, San Francisco, Seattle, Tucson

Now Available!National OverviewStaying the Course

Economic Background and Investment Environment

How Is Commercial Real Estate Affected?

Economic and Real Estate Performance IndicatorsNational Market Analysis & Property Sector HighlightsContributorsScope & Methodology



Foreword

November 2009

Dear Readers,

When one looks back over the past year and considers all that has happened to the U.S. economy, the financial system, the residential real estate market, and several other key industries, it is no wonder that the nation re-mains disheartened. As consumers, we worry about job loss (our own or that of our family and friends), the ability to pay our bills, and about saving for future needs. As businesses, we worry about getting the credit we need to keep our doors open, about future tax increases, and holding onto our current customers and clients. And even though it appears we have climbed out of the recession, we know the recovery will be long and arduous, and the economy remains under a great deal of stress.

For those of us involved in the business of commercial real estate, stress has turned to distress. Reports of fore-closures on high-quality properties and failed banks are occurring almost daily. Property values continue to de-cline, along with occupancy rates and rents. Our industry has much to work through, and while we are optimistic that most will survive, others are throwing in the towel.

As demonstrated in the fall issue of the RERC / CCIM Investment Trends Quarterly, we are starting to see some interesting trends. Transaction volume is starting to increase on a quarter-to-quarter basis for some prop-erty types, although it is still declining overall on a 12-month trailing basis. Third quarter 2009 volume increases are reported in the office, retail, apartment, and hotel sectors; industrial sector volume is the only property type where quarter-to-quarter volume declined. In addition, while 12-month trailing prices declined slightly across the board during third quarter, we are starting to see pricing begin to inch up for a couple property types on a quarter-to-quarter basis.

As always, we extend our appreciation to those of you who responded to our investment survey. More of you responded this quarter, and we greatly value your insights and raw data. As you know, your contributions are critical to the ongoing research that the industry and our fellow CCIM members need so much in today’s invest-ment world.

Sincerely,

Kenneth P. Riggs, Jr., CCIM, CRE, MAIPresident & CEOReal Estate Research Corporation (RERC)

Charles “Mac” McClure, CCIM2009 CCIM Institute PresidentChairman, The McClure Group, Inc.



StayingtheCourse

The 3.5-percent growth rate in gross domestic product (GDP) for third quarter 2009 was exciting news indeed. Even when it became clear that much of the growth was due to government spending in the “cash for clunkers” program and the $8,000 tax credit for first-time homebuyers, we were relieved that some of the stimulus funds directed earlier this year were bearing fruit. In addition, stock market returns have been increasing and a few investors are returning to the fold. Although the housing market remains weak, we are seeing signs of stability.

But typical to most recovery periods, it seems that for every positive sign we see, there are other indicators that detract from the progress and remind us that all is not well. The $1.4 trillion federal deficit, still-increasing unemployment rates, and hundreds more regional banks at risk of failure due to the commercial real estate loans on their books are just a few of the difficulties ahead. But for those with the stamina, means, and vision to persevere in this environment, the rewards may be worth the effort.

Although the situation today is not as dire as the one this nation was facing during the Great Depression, most econ-omists agree that had the government not intervened last fall by loosening monetary policy, bailing out the investment banks, and incorporating various stimulus packages during the past year, the U.S. economy could very well have fallen into a second depression. However, doubt remains and the fear is that as these government programs are phased out, the recovery may stumble. With many of the problems in the investment banks still unresolved, more than a million residential real estate mortgages nearing delinquencies or foreclosures, the national unemployment rate still increas-ing, and the national debt continuing to expand, the eco-nomic environment is still looking for its legs.

Government Spending Spurs Growth, but at What Cost?

Large outlays of government spending, while intended to jumpstart the economy, have not come without a cost, both politically and to the nation’s future economic growth. Fiscal year 2009 closed out with an all-time high budget deficit of $1.4 trillion. What’s more, the national debt is approximate-ly $11.9 trillion this year, or an estimated 90.4 percent of GDP. According to an analysis of this data in the Wall Street Journal, the national debt will reach the 100-percent mark in 2011. Our federal debt will continue to equal or exceed the

nation’s entire annual economic output through 2019, even-tually reaching an estimated $23.3 trillion. The question re-mains as to whether the amount or direction of government spending was worth the cost with respect to the increase in debt, the lower value of the dollar, and future U.S. tax policy.

The Value of the Dollar Declines

The dollar fell to a 14-month low of 75.48 in October 2009, according to reports from the International Exchange Dol-lar Index, which compares the dollar against six other major currencies. The index has tumbled more than 15 percent since March, and the concern is that this perceived weak-ness could force the Federal Reserve to raise interest rates earlier than planned.

The need for the U.S. to raise capital has weakened the value of the dollar. Net capital outflows have occurred in 5 of the past 6 months, according to Treasury International Capital (TIC) data. However, borrowing overseas has been positive because of demand for U.S. debt. Stocks have risen faster, and government debts yield more, in other parts of the world. The dollar’s direction is clear based on the U.S. Dollar Index (a measure of the dollar’s strength against a basket of major currencies), yet the value remains in doubt due to future uncertainty.

Economic Background andInvestment Environment



Many complex factors, including trade balances, government spending, interest rates, inflation, and economic growth are affecting the dollar’s value. According to the Bank for Inter-national Settlements (BIS) Index, the dollar may be stronger than the market is giving it credit for. However this should be taken with a grain of salt because purchasing power is so difficult to measure accurately. The dollar is underpriced in comparison to some currencies like the euro, while it is overpriced compared to China’s yuan.

Business and Consumer Spending Needed

Beyond government spending, however, businesses and consumers must begin to spend more before meaningful economic growth can occur. We are seeing increasing prof-its in some businesses, but for the most part, profits have come at the expense of aggressive cost cutting, such as additional layoffs, reduced investment in research and de-velopment (R&D), or delayed spending on equipment. In-creased demand from consumers for the goods and servic-es that businesses provide is needed to spur companies to rehire, to prompt wage increases, and to eventually restore confidence.

One important measure of demand is provided by manu-facturing activity and the Institute of Supply Management

(ISM) reading. Although the ISM Manu-facturing Index declined slightly to 52.6 in September 2009, this was after 8 consecutive months of gain, and with a reading above 50, is still signaling growth in the sector. The ISM-Chicago Index declined to 46.1 in September from 50.0 in August. Inventories rose in September, with the pace of liquidation slowing.

Further, consumer spending, which generally comprises about two-thirds of GDP, declined in October. It appears consumers are willing to loosen their purse strings on one-time incentives like the cash for clunkers program in August and September, or the first-time homebuyer tax credit programs, partic-ularly if they were planning to purchase these items anyway. But in general, job

and wage insecurity, the deficit, and probable tax increases are deterring consumer confidence.

Housing Market Showing Signs of Recovery

Although much of the improvement in the housing mar-ket is given to the first-time homebuyer tax credit program (projected to be extended until April 30, 2010), we are see-ing continued stabilization and even some signs of recov-ery. According to the National Association of REALTORS® (NAR), existing home sales increased 9.4 percent in Sep-tember 2009, and generally have been trending upward since March. In addition, the median home price was up 2.5 percent in September after declining 0.2 percent in August, and housing inventory decreased to 7.8 months in Septem-ber from 9.3 months in August. Besides the first-time home-buyer tax credit, home sales have been spurred on by low home prices, plenty of houses on the market, and low inter-est rates.

However, due to the number of homes facing foreclosure, the inventory of existing homes is likely to increase. In a study prepared for the Wall Street Journal by LPS Applied Analytics, as of July 2009, mortgage companies are holding 1.2 million home loans for which payment has not been re-ceived for 90 days or more. Another 1.5 million home loans



Global Economic Recovery Underway?

The severe effects of last year’s setbacks to the global financial system look to be contained, but the recovery process will be slow and painful with detours and pitfalls along the way. However, the Organization for Economic Cooperation and Development (OECD) composite leading indicator is starting to show recovery in all markets. The indicator measures the economic conditions of seven different geographic zones and 30 different countries, including the U.S., Canada, China, Japan, Australia, France, Germany, Italy, Britain, Austria, Belgium, Finland, Denmark, Sweden, Norway, Switzerland, Turkey, Czech Republic, Hungary, Poland, and others.

There has been a steady, consistent increase in all of the OECD indicators since February 2009, which shows that at the very least, the major markets are stabilizing. Additionally, France and Italy’s numbers indicate that these two countries may see potential expansion this quarter, and are likely further along in the recovery process than the other countries in the OECD. Each country has faced different challenges throughout this recession, and the recovery processes therefore diverge.

are considered seriously delinquent and are somewhere in the foreclosure process, and approximately another quarter-million loans have not had payments made on them in more than a year but the lender had not begun the foreclosure process. In all, nearly 3 million new foreclosures could occur over the next year.

Unemployment Worsens

Employment continues to deteriorate. The unemployment rate rose to 9.8 percent in September 2009 from 9.7 per-cent in August, according to the Bureau of Labor Statistics (BLS). The average duration of unemployment rose from 24.9 weeks to 26.2 weeks, and since the start of the reces-sion in December 2007, payroll employment has fallen by 7.2 million.

As the number of workers who have given up looking for work and those unemployed for more than 26 weeks in-creases, the U-6 unemployment rate becomes more impor-tant to monitor. U-6 unemployment is comprised of the total unemployed workforce, plus all marginally attached workers and part-time workers, and grew to 17.0 percent in Septem-ber.

On a more positive note, the pace of the increases in unem-ployment has slowed to approximately 263,000 in Septem-ber from around 700,000 a month in early 2009. According to the BLS, natural resources, construction and maintenance occupations saw the most job losses, with unemployment in these industries at 14.3 percent in September, followed by production and transportation unemployment at 13.1 per-cent. Service occupations unemployment was 9.4 percent, and sales and office occupations unemployment was 9.2 percent.

CCIM Members’ Take on the Economy

CCIM designees and candidates are seeing improvement in the U.S. economy as well, and rated the economy at 3.9 on a scale of 1 to 10, with 10 being high, for third quarter 2009. This is up from the 3.5 rating for the previous 2 quarters.

In addition, each of the four regional economies received higher ratings. At 4.8, the South and East regions received the highest ratings. The Midwest economy was rated at 4.3, and the West regional economy was rated at 4.0.

It has been said that everything is relative. For example, if we have lost $7 trillion in stock values since the bottom of the market dropped out last fall, and $6 trillion in housing wealth since home values started falling, then the $2 trillion in com-mercial real estate write-downs, as reported by CBRE Econo-metric Advisors (formerly Torto Wheaton Research), does not seem so huge or so hard to take.

Relatively speaking, this may be true. But for real people and real investors, this loss in value is immense. The industry has much pain in store before this loss is settled. According to the Oct. 21, 2009 Beige Book, commercial real estate is de-scribed as weak or worsening in all districts. In addition, the banking industry is reported as weak due in large part to the credit issues associated with commercial real estate loans. As the challenges for commercial real estate investments in-tensify—and they will intensify—expect credit to remain tight, more commercial real estate foreclosures to occur, and more banks to fail.

Commercial Real Estate Loans and Bank Risk

The delinquency rates on commercial real estate loans at commercial banks rose to 7.9 percent during second quar-ter 2009, according to the Federal Reserve. This is the 13th consecutive quarter of increases in commercial delinquency rates, and the highest these rates have been since second quarter 1993.

Credit remains tight, although it is loosening slightly. The Fed-eral Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices showed that 45 percent of respondents reported tightening standards on commercial real estate loans in July 2009 as compared to 65 percent in April. Tight credit was due to the uncertain economic outlook, reduced tolerance for risk, worsening of industry-specific issues, de-creased loan demand, and deteriorating credit quality.

The primary concern for existing loans is that a high propor-tion of commercial real estate whole loans will be reaching maturity in the next few years and will have a hard time get-ting refinancing due to the sharply decreasing values since most of the loans were made between 2005 and 2007. Higher

vacancy rates, lower rents, and higher risk are bringing down commercial real estate values. Now that loans are coming due, more equity needs to be added to make the new loan-to-value (LTV) ratio.

As for the banks, holders of about half of the $3.4 trillion in outstanding commercial real estate debt, the Federal Deposit Insurance Corporation’s (FDIC’s) number of “problem” insti-tutions rose to 416 at the end of June 2009, and is expected to continue to grow through 2010. (The number of problem institutions has not been this high since 1994.) In addition, more than 120 banks have already failed in 2009, nearly de-pleting the FDIC’s insurance fund. Some of the smaller re-gional banks are more highly leveraged with commercial real estate and construction loans, and as such, are at a much greater risk than the large institutional banks. In many cases, banks have been holding off writing down their commercial real estate assets, waiting and hoping for the market to re-turn. Meanwhile, the FDIC is working on guidelines to help banks modify commercial real estate loans which are close to default or foreclosure.

CCIM Member Investment Survey Ratings

Commercial real estate regained its top rating as best invest-ment opportunity, according to CCIM designees and candi-dates in thrid quarter 2009. As shown in Exhibit 1, commercial real estate earned a rating of 5.6 on a scale of 1 to 10, with 10 being high. Cash had been the highest rated investment for the previous few quarters, but with a rating of only 5.1 for third



How Is Commercial Real Estate Affected?

Exhibit 1. CCIM Respondents Rate Investments

3Q 2009 2Q 2009

Commercial Real Estate 5.6 5.3

Stocks 5.4 4.6

Bonds 4.6 4.7

Cash 5.1 5.6

Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent.Source: RERC/CCIM Investment Trends Quarterly Survey, 3Q 2009.



quarter, it was surpassed by both commercial real estate and stocks. Bonds earned the lowest rating of 4.6.

Even so, as shown in Exhibit 2, RERC’s survey respondents show that it is definitely not a time to sell commercial real estate. But with prices low, commercial real estate received a strong buy or hold recommendation at this time for those with the means to do so.

The investment conditions rating increased for the office, re-tail, apartment, and hotel sectors and remained the same for industrial properties during third quarter 2009. As shown in Exhibit 3, apartments remained the highest-rated property type with a score of 5.5 on a score of 1 to 10, with 10 being high. At 4.3, the industrial sector earned the second highest rating.

As shown in Exhibit 4, CCIM members rated the overall return versus risk for commercial real estate at 5.0 on a scale of 1 to 10, with 10 being high, during third quarter 2009. This is up 6.0 percent from the second quarter rating, indicating that re-spondents are feeling a little more optimistic and that at least the return on commercial real estate is equal to the risk.

The apartment sector continues to be the highest ranked per-former with respect to return versus risk for the third quarter 2009, with a score of 5.8 on a scale of 1 to 10, with 10 being high. The industrial sector received the second-highest rat-ing, with a score of 4.9. The lowest rated sector was hotels, with a return versus risk rating of 3.8. All sector ratings are up during third quarter, with the exception of the industrial sector.

CCIM members rated value versus price for the commercial real estate market at 4.8 on a scale of 1 to 10, with 10 being high, for third quarter 2009. This is down slightly from the pre-vious quarter, indicating that respondents believe that in gen-eral, price still outweighs the value of commercial real estate.

Unlike second quarter, two properties received value versus price ratings of 5.0 or higher. This is encouraging, particularly for investors in the apartment and industrial sectors, which earned ratings of 5.3 and 5.0, respectively. According to

Exhibit 4. Historical Return/Risk and Value/Price Ratings3Q 2009 2Q 2009 1Q 2009 4Q 2008 3Q 2008

Return vs. RiskOverall 5.0 4.7 5.3 4.6 5.1

Office 4.2 4.0 4.6 3.8 4.5

Industrial 4.9 5.0 5.3 4.6 5.1

Retail 4.0 3.6 4.0 3.3 4.6

Apartment 5.8 5.2 6.3 5.8 6.1

Hotel 3.8 3.4 4.6 4.1 4.5

Value vs. PriceOverall 4.8 4.9 5.1 4.5 4.5

Office 4.4 4.5 4.8 4.3 4.2

Industrial 5.0 4.9 5.4 4.7 4.6

Retail 4.4 4.3 4.5 3.8 4.2

Apartment 5.3 4.8 5.2 4.8 5.0

Hotel 4.1 3.9 4.7 4.1 4.1Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent.Source: RERC/CCIM Investment Trends Quarterly Survey, 3Q 2009.

Exhibit 3. Real Estate Investment Conditions Ratings3Q

20092Q

20091Q

20094Q

20083Q

2008

Office 3.8 3.5 3.7 3.2 4.2

Industrial 4.3 4.3 4.4 4.2 4.6

Retail 3.8 3.4 3.4 3.0 4.2

Apartment 5.5 5.1 5.5 5.7 6.2

Hotel 3.6 3.4 3.7 3.5 4.6Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent.Source: RERC/CCIM Investment Trends Quarterly Survey, 3Q 2009.

2

4

6

8

10

2

4

6

8

10HoldSell

Buy

3Q 2009

3Q 2008

3Q 2007

3Q 2006

3Q 2005

3Q 2004

3Q 2003

3Q 2002

3Q 2001

3Q 2000

Exhibit 2. RERC Historical Buy, Sell, Hold Recommendations

Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent.Source: RERC Institutional Investment Survey, 3Q 2009.

Rat

ing



CCIM respondents, the price of office, retail, and hotel prop-erties still outweighs their value.

CCIM members offered mixed views of the market overall. Although apartments were mentioned as the best investment opportunity due to their stable cash flow, respondents are also looking at the retail sector because many properties in this sector are avail-able at distressed pricing.

Interestingly, while some survey respondents hinted that distressed retail may be a good investment, others overwhelmingly suggested avoiding investment in the retail sector altogether due to the dif-ficulty in finding anchor tenants, poor economic conditions that will continue to hinder consumer spending, and high retail supply.

As for investment returns over-all, commercial real estate is still losing ground, as reflected by

the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index in Exhibit 5. However, real estate involved in the stock market is showing positive returns, as noted in the National Association of Real Estate Investment Trusts (NAREIT) Index.

What are PPIP and TALF about?

The distress in the commercial real estate market is expected to get worse before it gets better, but the government-sponsored programs described briefly below may be able to provide a little assistance:

The Term Asset-backed Securities Loan Facility (TALF) was established by the Federal Reserve for the purpose of increasing credit availability and to support economic activity by facilitating renewed issuance of consumer and business asset-backed securities (ABS) at more normal interest rate spreads. TALF recently was extended through March 31, 2010 for newly-issued ABS and legacy commercial mortgage-backed securities (CMBS), and to June 30, 2010 for newly-issued CMBS. Although the program got off to a slow start, it is starting to pick up. Specifically, TALF can help increase liquidity to commercial real estate by unfreezing the credit markets. When an investor wants to purchase new ABS, they borrow from the Federal Reserve. TALF is limited to lending against only top rated securities.

The Public-Private Investment Program (PPIP) was designed to improve affordability for homeowners, open the credit markets, provide capital assistance to banks, and help repair balance sheets, according to the U.S. Treasury. The PPIP is working towards addressing legacy loans and legacy securities, which are clogging the balance sheets of financial firms. Financing for the program will come in part from the Troubled-Asset Relief Program (TARP), TALF, and private investors.

As of October 22, 2009, there is slightly more than $12 billion in purchasing power for these troubled assets. Most deals are not expected to start closing until 2010, so it might be a very slow process. Many investors seem to be very skeptical of this program, in part because the amount of TARP money available for PPIP may be capped at $30 billion, which is much lower than the initial amount of $75 to $100 billion that was proposed.

Exhibit 5. What Do the Financial Markets Tell Us?

Compounded Annual Rates of Return as of 9/30/2009

Market Indices YTD 1-Year(2008) 3-Year 5-Year 10-Year 15-Year

Consumer Price Index1 2.04% -1.38% 2.08% 2.60% 2.55% 2.49%

10-Year Treasury Bond2 3.20% 3.21% 3.95% 4.16% 4.53% 5.06%

Dow Jones Industrial Average 13.49% -7.38% -3.33% 1.85% 1.62% 8.71%

NASDAQ Composite3 34.58% 1.46% -2.05% 2.27% -2.54% 7.05%

NYSE Composite3 20.04% -8.26% -6.56% 1.02% 0.98% 6.46%

S&P 500 19.26% -6.91% -5.43% 1.01% -0.15% 7.62%

NCREIF Index -10.40% -22.09% -1.28% 6.16% 7.84% 9.08%

NAREIT Index (Equity REITS) 31.07% -28.40% -12.39% 1.40% 9.53% 9.12%1Based on the published data from the Bureau of Labor Statistics (Seasonally Adjusted).2Based on Average End of Day T-Bond Rates.3Based on Price Index, and does not include the dividend yield.Sources: BLS, Federal Reserve Board, S&P, Dow Jones, NCREIF, NAREIT, compiled by RERC.



The course for commercial real estate is lined with obstacles that will cause many to stumble and fall. Loans are coming due, and values remain low so additional equity is required to renew loans. With demand down due to high unemployment, vacancy rates are continuing to increase and rents are declining. This situation is widespread, and is expected to continue throughout 2010.

Although there is no mistaking the difficulty ahead for the commercial real estate industry from a credit as well as a fundamentals perspective, it is important to remember that low prices and higher vacancy rates can also bring good buying or leasing opportunities for those with the willingness to pursue them. As we prepare to close the door on 2009, watch for:

• Credit to remain tight.

• Bank foreclosures to increase as more commercial loans come due.

• Consumer spending to remain relatively sluggish, despite the upcoming holiday season.

• Unemployment to continue to increase for a couple more quarters, followed by a jobless recovery.

• Vacancy rates for all major commercial real estate sectors to continue to increase throughout most of 2010.

• Capitalization rates continue to move slightly.

• Commercial property sale prices and rents to remain mostly flat or decline further.

• Commercial real estate construction to remain slow.

• Sales volume and transactions to start to increase.

• More entrepreneurs and opportunistic funds looking more closely at real estate.

Summary



NAR Commercial Forecast: August 20092008 2009 2010

2008 2009 2010 IV I II III IV I II

OFFICE

Vacancy Rate (%) 13.9 14.7 15.5 16.5 17.4 18.2 18.8 13.4 16.0 18.9

Net Absorption (’000 sq. ft.) -6,893 -16,563 -15,668 -21,788 -21,004 -19,102 -15,133 12,271 -75,023 -47,229

Completions (’000 sq. ft.) 12,888 12,746 15,040 15,988 13,916 12,315 7,792 68,187 57,690 27,197

Inventory (millions sq. ft.) 3,480 3,523 3,547 3,563 3,577 3,589 3,597 3,480 3,577 3,605

Rent Growth (%) -0.6 -3.0 -6.3 -2.3 -2.5 -2.4 -2.5 -0.4 -14.1 -10.0

INDUSTRIAL

Vacancy Rate (%) 11.1 12.2 13.0 13.6 14.2 14.7 15.0 10.4 13.3 15.1

Net Absorption (’000 sq. ft.) -5,795 -89,886 -80,296 -64,399 -64,939 -51,847 -35,766 -57,241 -299,520 -111,987

Completions (’000 sq. ft.) 57,280 24,199 16,151 13,703 22,345 4,094 15,771 179,613 76,398 48,751


Rent Growth (%) -0.8 -3.7 -2.6 -2.3 -2.8 -2.8 -2.9 -0.8 -11.4 -11.7

RETAIL

Vacancy Rate (%) 10.8 11.1 11.7 12.2 12.6 12.8 12.9 9.7 11.9 13.0

Net Absorption (’000 sq. ft.) -8,784 -10,723 -5,456 -4,949 -4,768 -2,295 -1,371 -7,315 -25,896 -3,620

Completions (’000 sq. ft.) 8,674 2,908 3,025 3,562 3,272 558 306 26,286 12,767 6,454


Rent Growth (%) -4.2 -0.6 -0.5 -2.4 -2.6 -1.9 -1.3 -2.0 -6.1 -4.9

MULTIFAMILY

Vacancy Rate (%) 6.1 6.6 7.4 7.4 7.9 7.6 7.1 5.7 7.3 6.9

Net Absorption (Units) 12,001 -1,028 37,535 41,663 -48,104 59,030 95,516 24,390 30,066 246,432

Completions (Units) 55,926 43,031 55,638 40,032 29,578 20,917 15,156 220,773 168,279 64,634

Inventory (Units in Millions) 14.2 14.3 14.3 14.4 14.4 14.4 14.4 14.2 14.4 14.4

Rent Growth (%) 0.6 -0.6 -1.2 -0.1 0.4 0.2 0.2 2.9 -1.5 0.8

Sources: NAR, CBRE/Torto Wheaton Research.

NAR U.S. Economic Outlook: October 20092008 Quarterly 2009 Quarterly 2010 Quarterly Annual

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2007 2008 2009 2010

Annual Growth Rate

Real GDP -2.7 -5.4 -6.4 -0.7 2.5 1.9 3.2 2.8 3.0 2.9 2.7 0.4 -2.7 2.4

Nonfarm Payroll Employment -1.5 -3.7 -5.9 -4.6 -4.2 -2.4 -0.4 0.1 0.8 1.5 1.1 -0.4 -3.9 -1.2

Consumer Prices 6.2 -8.3 -2.4 1.3 2.3 2.5 2.3 2.0 2.1 2.7 2.9 3.8 -0.6 2.2

Real Disposable Income -8.5 2.9 6.0 -1.5 -4.4 4.1 3.6 2.8 3.1 3.0 2.8 1.3 1.0 3.0

Consumer Confidence 57 41 30 48 52 52 51 53 56 63 103 58 46 56

Unemployment 6.0 6.9 8.1 9.3 10.0 10.4 10.1 9.8 9.5 9.3 4.6 5.8 9.4 9.7

Interest Rates, Percent

Fed Funds Rate 1.9 0.5 0.2 0.1 0.1 0.1 0.1 0.8 1.5 2.0 5.0 1.9 0.1 1.1

3-Month T-Bill Rate 1.5 0.3 0.2 0.3 0.3 0.3 0.3 0.9 1.6 2.1 4.4 1.4 0.3 1.2

Prime Rate 5.0 4.1 3.3 2.9 2.9 3.0 3.0 3.3 4.0 4.8 8.1 5.1 3.1 4.1

Corporate Aaa Bond Yield 5.7 5.8 5.3 5.5 5.9 5.9 5.9 5.8 5.7 5.7 5.6 5.6 5.7 5.8

10-Year Government Bond 3.9 3.3 2.7 3.3 3.4 3.5 3.8 3.8 3.9 3.9 4.6 3.7 3.2 3.9

30-Year Government Bond 4.4 3.7 3.5 4.5 4.5 4.6 4.6 4.6 4.7 4.8 4.8 4.3 4.2 4.7

Source: Forecast produced using Macroeconomic Advisers quarterly model of the U.S. economy. Quarterly figures are seasonally-adjusted annual rates. Assumptions and simulations by NAR's Dr. Lawrence Yun.



Snapshot of Real Estate Space and Market Performance – 3Q 2009

Vacancy Rates

Performance Indicator Recent Data Impact on Commercial Real Estate

Rental Rates(RERC’s surveyed rent growth expectations)

Office: 0.7% to 1.0%Industrial: 1.1 to 1.2%Retail: 0.7% to 1.1%Apartment: 1.2%Hotel: -0.4%

RERC’s third quarter 2009 rental rate expectations were lower in every sector compared to second quarter. The outlook for commercial real es-tate is poor, and that is reflected in investor expectations. Hotel rental growth expectations were negative due to reduced business and leisure travel.

Real Estate Returns

RERC Required Returns:Office: 9.4% to 9.9%Industrial: 9.9% to 10.5%Retail: 9.6% to 10.2%Apartment: 8.9%Hotel: 11.8%

NCREIF Realized Returns:Office: -27.5% to -22.7%Industrial: -23.4% to -20.0%Retail: -20.9% to -15.2%Apartment: -23.0%Hotel: -26.4%

RERC’s third quarter 2009 required return expectations were higher for office, industrial, and retail properties, and lower for apartment and hotel sectors. NCREIF’s realized returns fell further into negative territory for all sectors of commercial real estate.

Capitalization Rates

RERC Realized Cap Rates:Office: 7.4%Industrial: 8.1%Retail: 7.3%Apartment: 6.7%Hotel: 9.5%

NCREIF Implied Cap Rates:Office: 5.5% to 6.1%Industrial: 6.1% to 6.8%Retail: 6.0% to 7.0%Apartment: 5.0%Hotel: 4.3%

RERC’s realized capitalization rates for third quarter 2009 increased over second quarter rates. NCREIF’s third quarter implied capitalization rates were higher in each sector, except for hotels, which was lower than last quarter.

12

13

14

15

16

17

12

13

14

15

16

17

3Q 2009

2Q 2009

1Q 2009

4Q 2008

3Q 2008

2Q 2008

1Q 2008

4Q 2007

3Q 2007

2Q 2007

1Q 2007

4Q 2006

3Q 2006

2Q 2006

1Q 2006

4Q 2005

3Q 2005

Perc

ent

7

8

9

10

11

12

7

8

9

10

11

12

2Q 2009

1Q 2009

4Q 2008

3Q 2008

2Q 2008

1Q 2008

4Q 2007

3Q 2007

2Q 2007

1Q 2007

4Q 2006

3Q 2006

2Q 2006

1Q 2006

4Q 2005

3Q 2005

2Q 2005

1Q 2005

Perc

ent

9

10

11

12

13

14

9

10

11

12

13

14

3Q 2009

2Q 2009

1Q 2009

4Q 2008

3Q 2008

2Q 2008

1Q 2008

4Q 2007

3Q 2007

2Q 2007

1Q 2007

4Q 2006

3Q 2006

2Q 2006

1Q 2006

4Q 2005

3Q 2005

2Q 2005

1Q 2005

Perc

ent

5.0

5.5

6.0

6.5

7.0

7.5

8.0

5.0

5.5

6.0

6.5

7.0

7.5

8.0

3Q 2009

2Q 2009

1Q 2009

4Q 2008

3Q 2008

2Q 2008

1Q 2008

4Q 2007

3Q 2007

2Q 2007

1Q 2007

4Q 2006

3Q 2006

2Q 2006

1Q 2006

4Q 2005

3Q 2005

2Q 2005

1Q 2005

Perc

ent

Source: CBRE-EA.

Source: CBRE-EA.

Source: CBRE-EA.

Source: Reis.

Office Vacancy Rate Retail Availability Rate

Industrial Availability Rate Apartment Vacancy Rate



-7

-5

-3

-1

1

3

5

7

9

-7

-5

-3

-1

1

3

5

7

9

3Q 2009

1Q 2009

3Q 2008

1Q 2008

3Q 2007

1Q 2007

3Q 2006

1Q 2006

3Q 2005

1Q 2005

3Q 2004

1Q 2004

3Q 2003

1Q 2003

3Q 2002

1Q 2002

3Q 2001

1Q 2001

3Q 2000

1Q 2000

Perc

ent C

hang

e Q

uart

er A

go

Real GDP saw its first increase in a year, and the Dow Jones Industrial Average responded with a nearly 200-point increase the day the numbers were released. Much of the increase in GDP was credited to a rise in auto sales from the cash for clunkers program and home sales from the first time homebuyer tax credit.

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Sep-09

Aug-09

Jul-0

9

Jun-0

9

May-09

Apr-09

Mar-09

Feb-09

Jan-0

9

Dec-08

Nov-08

Oct-08

Perc

ent C

hang

e M

onth

Ago

The Consumer Price Index (CPI) for 3rd quarter 2009 rose by 0.2 percent, marking this the sixth increase this year. However, CPI is still down more than a percent from where it was a year ago. Gasoline pricing and the volatility that goes with it continue to be of concern. With high unemployment rates and consumer spending down, expect inflation to remain low for now.

Source: Bureau of Labor Statistics.

Perc

ent

2

4

6

8

10

2

4

6

8

10

Sep-09

May-09

Jan-0

9

Sep-08

May-08

Jan-0

8

Sep-07

May-07

Jan-0

7

Sep-06

May-06

Jan-0

6

Sep-05

May-05

Jan-0

5

Sep-04

May-04

Jan-0

4

Sep-03

May-03

Jan-0

3

Sep-02

May-02

Jan-0

2

Sep-01

May-01

Jan-0

1

Sep-00

May-00

Jan-0

0

After some excitement in July when there was a drop in the unemployment rate from 9.5 percent to 9.4 percent, the rate increased to 9.80 percent in September. The unemployment rate is projected to rise above 10 percent, and if this occurs, it would be the first time since the early 1980s. In all likelihood, it will be years before all the unemployed workers are absorbed back into the economy.

Source: Bureau of Labor Statistics.

Source: Bureau of Economic Analysis.

Perc

ent

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

Discount Rate

Fed Funds Rate

Sep-09

Apr-09

Oct-08

Mar-08

Sep-07

Mar-07

Sep-06

Mar-06

Sep-05

Mar-05

Sep-04

Mar-04

Sep-03

Mar-03

Sep-02

Mar-02

Oct-01

May-01

Dec-00

Jun-00

The Federal Open Market Committee (FOMC) kept the federal funds rate in the 0.0 to 0.25 per-cent range and the discount rate at 0.50 percent. The FOMC believes that inflationary pressure is low to none ,and with the economy still fragile, sees no reason to raise rates at this time.

-12

-10

-8

-6

-4

-2

0

2

4

6

8

-12

-10

-8

-6

-4

-2

0

2

4

6

8

Sep-09

Aug-09

Jul-0

9

Jun-0

9

May-09

Apr-09

Mar-09

Feb-09

Jan-0

9

Dec-08

Nov-08

Oct-08

Sep-08

Aug-08

Jul-0

8

Jun-0

8

May-08

Apr-08

Mar-08

Feb-08

Jan-0

8

Dec-07

Nov-07

Oct-07

Sep-07

Aug-07

Jul-0

7

Year

To Y

ear P

erce

nt C

hang

e

Retail sales dropped, mainly due to the end of the cash for clunkers program. When auto sector sales were excluded, retail sales were actually up due to general growth in many industries. With high unemployment, cautious consumers are either unable or unwilling to make large purchases.

Source: Census Bureau.

60

65

70

75

80

85

60

65

70

75

80

85

Sep-09

May-09

Jan-0

9

Sep-08

May-08

Jan-0

8

Sep-07

May-07

Jan-0

7

Sep-06

May-06

Jan-0

6

Sep-05

May-05

Jan-0

5

Sep-04

May-04

Jan-0

4

Sep-03

May-03

Jan-0

3

Sep-02

May-02

Jan-0

2

Sep-01

May-01

Jan-0

1

Sep-00

May-00

Jan-0

0

Perc

ent

Manufacturing utilization rose for the third straight month, showing stabilization for this indica-tor. The reading is down from last year by nearly 7 percent, but does show some promise. With inventories low, any amount of sold product will mean companies will have to increase production to meet demand.

Source: Federal Reserve.

Source: Federal Reserve.

Unemployment

GDP

Consumer Price Index

Manufacturing Utilization

FOMC Policy Decisions

Retail Sales



Mill

ions

4.0

5.0

6.0

7.0

8.0

4.0

5.0

6.0

7.0

8.0

Sep-09

May-09

Jan-0

9

Sep-08

May-08

Jan-0

8

Sep-07

May-07

Jan-0

7

Sep-06

May-06

Jan-0

6

Sep-05

May-05

Jan-0

5

Sep-04

May-04

Jan-0

4

Sep-03

May-03

Jan-0

3

Sep-02

May-02

Jan-0

2

Sep-01

May-01

Existing home sales were up more than 9 percent in September, making it the third straight month when home sales were more than 5 million. While things are certainly looking more promising, it should be noted that the tax credit for first-time homebuyers is contributing to existing home sales, which may be offset by more than a million foreclosures expected during the next several quarters.

Source: NAR.

100

110

120

130

140

150

160

170

180

190

100

110

120

130

140

150

160

170

180

190

Aug-09

Jun-0

9

Apr-09

Feb-09

Dec-08

Oct-08

Aug-08

Jun-0

8

Apr-08

Feb-08

Dec-07

Oct-07

Aug-07

Jun-0

7

Apr-07

Feb-07

Inde

x

NAR’s Affordability Index measures whether or not a typical family could qualify for a mortgage loan on a typical home. An index reading above 100 signifies that a family has more than enough income to qualify for a mortgage on a median-priced home, assuming a 20 percent down payment. Prices remain depleted and rates are still very low, which is helping home buyers.

Source: NAR.

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

Sep-09

Aug-09

Jul-0

9

Jun-0

9

May-09

Apr-09

Mar-09

Feb-09

Jan-0

9

Dec-08

Nov-08

Oct-08

Mon

ths

The single-family housing supply dropped to 7.6 months in September, 15 percent less than the August supply and much lower than the 12-month average of 9.08 months. This is the lowest months of supply in some time, and is proof that homes are selling.

Source: NAR.

20

40

60

80

100

120

20

40

60

80

100

120

Oct-09

Jun-0

9

Jan-0

9

Aug-08

Mar-08

Oct-07

May-07

Dec-06

Jul-0

6

Feb-06

Sep-05

Apr-05

Nov-04

Jun-0

4

Jan-0

4

Aug-03

Mar-03

Oct-02

May-02

Dec-01

Jul-0

1

Inde

x

Despite dropping more than 10 percent in October, consumer confidence is up more than 22 percent from a year ago and up more than 88 percent from its low in February. It remains to be seen whether holiday deals will spur consumers to spend or whether high unemployment will keep consumers from opening their wallets anytime soon.

-6.25

-5.25

-4.25

-3.25

-2.25

-1.25

-0.25

0.75

1.75

-6.25

-5.25

-4.25

-3.25

-2.25

-1.25

-0.25

0.75

1.75

2Q 2009

4Q 2008

2Q 2008

4Q 2007

2Q 2007

4Q 2006

2Q 2006

4Q 2005

2Q 2005

4Q 2004

2Q 2004

4Q 2003

2Q 2003

4Q 2002

2Q 2002

4Q 2001

2Q 2001

4Q 2000

2Q 2000

Perc

ent C

hang

e Q

uart

er A

go

The Commercial Leading Indicator (CLI) fell 1.3 percent during second quarter 2009. This de-cline is more modest than those for the past 2 quarters, which were marked by large decreases of more than 5 percent. The CLI factors in 13 variables affecting commercial real estate, such as unemployment, retail sales, and the NAREIT Price Index.

Source: NAR.

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

Oct-09

Jun-0

9

Feb-09

Oct-08

Jun-0

8

Feb-08

Oct-07

Jun-0

7

Feb-07

Oct-06

Jun-0

6

Feb-06

Oct-05

Jun-0

5

Feb-05

Oct-04

Jun-0

4

Feb-04

Oct-03

Jun-0

3

Feb-03

Oct-02

Jun-0

2

Feb-02

Oct-01

Jun-0

1

Feb-01

Oct-00

Jun-0

0

Feb-00Be

ginn

ing

of M

onth

Adj

uste

d Cl

osin

g Pr

ice

Optimism is in the air for this index. The Standard & Poor’s (S&P) 500 has remained above 1,000 for the past 3 months. At the end of October, the index was up more than 40 percent since falling to 735.09 at the end of February. This is certainly a good sign, but the index dropped slightly in October, and the sustainability of the markets remain uncertain.

Source: S&P.

Source: The Conference Board.

Consumer Confidence Housing Affordability

S&P 500 Existing Home Sales

Commercial Leading Indicator Single Family Home Supply



Commercial real estate activity has suffered from a severe credit crunch for commercial sectors, sustained job losses and weak consumer spending, although the decline appears to be slowing. A forward-looking indicator shows commercial real estate will remain weak into 2010, but recent actions by the Federal Reserve should improve some flow of capital into commercial lending, according to the National Association of REALTORS® (NAR).

The Commercial Leading Indicator (CLI) for Brokerage Activity declined 1.3 percent to an index of 101.5 in the second quarter from a downwardly revised reading of 102.8 in the first quarter, and is 13.7 percent below the 117.6 reading recorded in the second quarter of 2008. The index is at the lowest level since the first quarter of 1994; NAR’s track of the commercial leading indicator dates back to 1990.

Lawrence Yun, NAR chief economist, noted the pace of decline moderated, but the leading indicator has fallen sharply and quickly from the peak, suggesting much lower business opportunities for commercial real estate practitioners engaged in leas-ing, sales and property management. “The reduction in commercial real estate activity is expected at least through first quarter 2010. Any meaningful recovery is not likely to occur before the second half of next year.”

The decline is driven by falling industrial production, far fewer jobs requiring office and retail space, a fall in durable goods shipments, much lower personal spending, lower retail and wholesale sales, and a negative

return on commercial investment. “With the economic recession likely coming to an end within 6 months, a recovery in commercial real estate may soon follow,” Yun said. “The office sector requires job growth to fuel the demand for additional space, the industrial sector needs a rise in production, and the retail sector is tied to consumer spending. Multifamily housing – the apartment market – often performs in reverse to trends in home sales, but can improve if there is sufficient household growth.”

The Society of Industrial and Office REALTORS® (SIOR) in its SIOR Commercial Real Estate Index, a separate attitudinal survey of more than 650 local market experts, also suggests a lower level of business activity in upcoming quarters. Most respondents are seeing sales prices that are lower than replacement costs, and 96 percent report deep rental discounts and increased tenant concessions.

The SIOR Index has declined for 10 consecutive quarters and stood at 36.0 in the second quarter, compared

with a level of 100 that represents a balanced marketplace.

REALTORS® Commercial Alliance Committee chair Robert Toothaker said it is crucial to improve the availability of funds for commercial loans. “Properties with positive cash flow have had trouble finding financing to roll over debt, transactions are essentially at a standstill, and new development is virtually nonexistent in most areas,” he said.

“Commercial loans are mostly short term, and without ready financing, even the most experienced commercial players can get into trouble. The Fed’s recent decision to extend the TALF program for commercial mortgage backed securities beyond the end of 2009 is highly welcome because the flow of liquidity to commercial real estate will be critical for a sustainable economic recovery,” Toothaker said. “However, unless there is a tremendous short-term recovery in the commercial real estate markets, we expect the Fed will be revisiting the issue of another extension of the TALF program early in 2010.”

Decline in Commercial Real EstateSectors Appears to be Slowing

100

105

110

115

120

125

100

105

110

115

120

125

20092008

20072006

20052004

2003

Ind

ex

Commercial Leading Indicator

Source: NAR, 2Q 2009.



Bond yields on CMBS rose following the announcement by the Federal Reserve on August 17 that it is extending TALF lending for existing commercial securities through March 31, 2010, and for newly-issued CMBS through June 30.

Looking at the broad market, commercial vacancy rates continue to rise while rents decline, according to NAR’s latest Commercial Real Estate Outlook. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by Torto Wheaton Research.

Yun projects the unemployment rate to peak around 10.4 percent in the fourth quarter, then gradually improve as 2010 progresses. “We will need sustained economic growth before many employers have enough confidence to expand the job base and create new demand for space,” he said.

The GDP should contract 2.9 percent in 2009 before growing 1.5 percent next year. Inflation, as measured by the Consumer Price Index, is forecast to decline 0.5 percent this year before rising 2.0 percent in 2010.

Office Market

The office sector continues to suffer the most from job losses, which reduces the demand for space. Vacancy rates will probably increase from 15.5 percent in the second quarter to 18.8 percent in the second quarter of 2010.

Annual rent in the office sector is projected to fall 14.1 percent this year and 10.0 percent in 2010 after a 0.4 percent decline last year. In 57 markets tracked, net absorption of office space,

which includes the leasing of new space coming on the market as well as space in existing properties, is estimated to be a negative 75.0 million square feet in 2009 and a negative 47.2 million next year.

Industrial Market

The contracting global economy has constricted the industrial sector. Vacancy rates are likely to rise from 13.0 percent in the second quarter of this year to 15.0 percent in the second quarter of 2010.

Annual industrial rent should fall 11.4 percent this year and another 11.7 percent in 2010, after declining 0.8 percent in 2008. Net absorption of industrial space in 58 markets tracked is seen at a negative 300.0 million square feet this year, and a negative 112.0 million in 2010. Because much construction in recent years was customized to meet specific industrial needs, many obsolete structures remain on the market.

Retail Market

Given a pattern of weak consumer spending, the retail vacancy rate is forecast to edge up from 11.7 percent in the second quarter to 12.9 percent in the same period of 2010. Average retail rent is likely to fall 6.1 percent in 2009 and 4.9 percent next year; it declined 2.0 percent in 2008. Net absorption of retail space in 53 tracked markets is expected to be a negative 25.9 million square feet this year and a negative 3.6 million in 2010.

Multifamily Market

The apartment rental market – multi-family housing – is facing higher home sales by first-time buyers, but also is

experiencing increased demand from families who have lost their homes. Multifamily vacancy rates should slip from 7.4 percent in the second quarter of 2009 to 7.1 percent in the second quarter of next year.

Average rent is projected to decline 1.5 percent this year, then rise 0.8 percent in 2010, following a 2.9 percent gain in 2008. Multifamily net absorption is forecast at 168,300 units in 59 tracked metro areas in 2009 and 64,600 next year.

NAR’s CLI is a tool to assess market behavior in the major commercial real estate sectors. That index incorporates 13 variables that reflect future commercial real estate activity, weighted appropriately to produce a single indicator of future market performance, and is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate.

The 13 series in the index are industrial production, the NAREIT Price Index, NCREIF (National Council of Real Estate Investment Fiduciaries) total return, personal income minus transfer payments, jobs in financial activities, jobs in professional business service, jobs in temporary help, jobs in retail trade, jobs in wholesale trade, initial claims for unemployment insurance, manufacturers’ durable goods shipment, wholesale merchant sales, and retail sales and food service.

This information is reproduced in part from the Aug. 19, 2009 press release issued by REALTORS Commercial Alliance® and used with their permission.



NationalMarketAnalysis

National Transaction Breakdown12-Month Trailing Averages (10/01/08 - 09/30/09)

Office Industrial Retail Apartment Hotel< $2 MillionVolume (Mil) $1,514 $2,693 $2,832 $1,186 $104

Size Weighted Avg. ($ per sf/unit) $89 $50 $85 $48,108 $19,472

Price Weighted Avg. ($ per sf/unit) $126 $81 $128 $73,444 $29,414

Median ($ per sf/unit) $94 $59 $86 $53,472 $21,875

$2 - $5 MillionVolume (Mil) $2,167 $3,165 $3,567 $2,457 $400




> $5 MillionVolume (Mil) $20,474 $7,176 $10,829 $12,176 $3,087




All TransactionsVolume (Mil) $24,154 $13,035 $17,229 $15,819 $3,590




Capitalization Rates (All Transactions)Range (%) 4.1 - 11.6 5.5 - 13.1 4.7 - 13.3 3.4 - 12.8 5.9 - 12.0

Weighted Avg. (%) 7.4 8.1 7.3 6.7 9.5

Median (%) 7.6 8.0 7.3 6.7 10.0 Source: RERC.



NationalMarketAnalysis

National Transaction BreakdownCurrent Quarter Rates (07/01/09 - 09/30/09)

Office Industrial Retail Apartment Hotel< $2 MillionVolume (Mil) $349 $608 $623 $265 $20




$2 - $5 MillionVolume (Mil) $498 $630 $695 $502 $94




> $5 MillionVolume (Mil) $4,168 $1,242 $3,785 $2,735 $774




All TransactionsVolume (Mil) $5,016 $2,480 $5,104 $3,502 $888




Capitalization Rates (All Transactions)Range (%) 6.0 - 11.6 6.7 - 13.1 4.7 - 13.3 4.0 - 10.6 6.5 - 11.5

Weighted Avg. (%) 8.1 9.2 7.4 7.1 9.6

Median (%) 8.5 8.6 7.4 6.7 10.0 Source: RERC.

OfficePropertySector



w CCIM survey respondents rated the investment conditions for the office sector at 3.8 on a scale of 1 to 10, with 10 being high, during third quarter 2009. This rating was an increase from the previous quarter’s rating of 3.5.

w Office transaction volume and prices continued to decline during third quarter 2009, according to RERC’s 12-month tailing transaction analysis. The 12-month trailing vol-ume declined almost 25 percent, and the 12-month trail-ing weighted average and median capitalization rates increased to 7.4 percent and 7.6 percent, respectively. It is important to note, however, that current quarter data showed increases in both volume and price.

w The office sector received a return versus risk rating of 4.2 on a scale of 1 to 10, with 10 being high, during third quar-ter 2009. This rating indicates that the risk is greater than the return on office properties. The office sector received a value versus price rating of 4.4, slightly less than the previ-ous quarter’s rating.

w According to CBRE Econometric Advisors (formerly Torto Wheaton Research), the office vacancy rate increased by 60 basis points to 16.1 percent during third quarter 2009. This is an increase of 360 basis points since the peak for commercial real estate 3 years ago, and vacancy is pro-jected to continue to increase throughout 2010. Net ab-sorption has posted its third consecutive negative quarter.

4%

5%

6%

7%

8%

9%

4%

5%

6%

7%

8%

9%NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08

RERC Weighted Average Capitalization Rate(12-Month Trailing Average)

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RERC Price-Weighted Average PPSF(12-Month Trailing Average)

$100

$150

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$400

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3Q092Q091Q094Q083Q08

RERC Size-Weighted Average PPSF(12-Month Trailing Average)

National

Look for Class A office because “it is selling well below replacement cost.” On the other hand, it is “tied to job loss, which will continue for some time.” There is also a large supply of “under-occupied space that will take years to refill.”



IndustrialPropertySector

w CCIM members gave the industrial sector an investment conditions rating of 4.3 on a scale of 1 to 10, with 10 be-ing high, during third quarter 2009. This rating remained unchanged from the previous quarter’s rating, and was the second highest rating among the property types.

w Prices continued to decline and capitalization rates in-creased for the industrial sector during third quarter 2009 on both a 12-month trailing and current quarter basis. The 12-month trailing volume declined by more than 25 per-cent compared to the previous quarter.

w The industrial sector earned a return versus risk rating of 4.9 on a scale of 1 to 10, with 10 being high, during third quarter 2009, which was slightly less than the previous quarter’s rating. The value versus price rating increased slightly to 5.0 from the previous quarter’s rating. This rat-ing indicates that value is equal to the price for industrial properties.

w The availability rate for the industrial property sector in-creased by 50 basis points to 13.5 percent during third quarter 2009. This is the eighth consecutive quarterly in-crease in the availability rate, and is the highest that this rate has been since CBRE Econometric Advisors (former-ly Torto Wheaton Research) began tracking it in 1989. The industrial market saw its seventh consecutive quarter of negative net absorption.

5%

6%

7%

8%

9%

10%

5%

6%

7%

8%

9%

10%NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08


$25

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$75

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$175

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$175NationalWest

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East

3Q092Q091Q094Q083Q08


$25

$45

$65

$85

$105

$125

$25

$45

$65

$85

$105

$125NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08


National

“Invest in industrial warehouse. As demand begins to thaw, supply inventories that have been depleted will need to be restocked.” “Look for multi-tenant properties, especially 4,000 to 10,000 square-foot units. These are great for startups.”



RetailPropertySector

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08


$100

$150

$200

$250

$300

$350

$400

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$250

$300

$350

$400NationalWest

Midwest

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East

3Q092Q091Q094Q083Q08


w CCIM designees and candidates rated the retail sector’s investment conditions at 3.8 on a scale of 1 to 10, with 10 being high, during third quarter 2009. Although this rating is higher than the previous quarter’s rating of 3.4, it tied for the second lowest rating among the property types.

w RERC’s current quarter transaction analysis shows the re-tail market may be starting to stabilize, while the 12-month trailing data continued to show lower prices and increas-ing capitalization rates. The 12-month trailing volume of transactions declined in third quarter 2009, but volume did increase for current quarter data. In addition, the 12-month trailing size-weighted average price per square foot declined, but increased for current quarter data. The 12-month trailing weighted average and median capital-ization rates increased to 7.3 percent.

w The second quarter 2009 availability rate for the retail sec-tor increased by 50 basis points to 11.7 percent, according to CBRE Econometric Advisors (formerly Torto Wheaton Research). The retail availability rate has been rising since 2006, and is the highest it has been since Torto Wheaton Research began tracking the rate in 1989. Net absorption continued to be negative for the fourth consecutive quar-ter.

w The retail sector received a return versus risk rating of 4.0 on a scale of 1 to 10, with 10 being high, during third quar-ter 2009. This rating was the second lowest among the property types. The value versus price rating for the retail sector was 4.4, which was slightly higher than the previous quarter, but still suggests the price of the retail properties outweighs the value.

$50

$100

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$250

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$250NationalWest

Midwest

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East

3Q092Q091Q094Q083Q08


National

Most respondents suggest avoiding retail “unless it is fully leased,” while others tell investors to look for retail because “devaluations make way for buyers to pick through the wreckage” and because there is “plenty of upside.”



ApartmentPropertySector

w CCIM survey respondents rated the investment conditions for the apartment sector at 5.5 on a scale of 1 to 10, with 10 being high, during third quarter 2009. This rating was an increase from the previous quarter, and was the highest among the property types.

w RERC’s 12-month trailing volume for the apartment sector declined more than 30 percent from the previous quarter, while the current quarter volume increased slightly. The 12-month trailing price per unit decreased from the previ-ous quarter. The 12-month trailing weighted average and median capitalization rates increased by 40 basis points and 20 basis points, respectively.

w The apartment vacancy rate increased by 10 basis points to 7.8 percent during third quarter 2009, according to Reis, Inc. The forecasted vacancy rate for the apartment sector is expected to peak in 2010 at a yearly rate of 8.3 percent. Asking rent continued to decline, while net absorption was positive.

w The apartment market earned a return versus risk rating of 5.8 on a scale of 1 to 10, with 10 being high, which was an increase from the previous quarter’s rating of 5.2. The value versus price rating for the apartment sector was 5.3, indicating the value is outweighing the price of apartment properties.

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08


$0

$50,000

$100,000

$150,000

$200,000

$250,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08

RERC Price-Weighted Average PPU(12-Month Trailing Average)

$0

$30,000

$60,000

$90,000

$120,000

$150,000

$0

$30,000

$60,000

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$150,000NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08

RERC Size-Weighted Average PPU(12-Month Trailing Average)

National

Apartments are a good bet because “those in homes that cannot afford them are being forced to downsize and look to renting.” Also, keep in mind that “the population is steady, even if employment is negative.”



HotelPropertySector

w At 3.6 on a scale of 1 to 10, with 10 being high, the hotel sec-tor received the lowest investment conditions rating among the property types during third quarter 2009. Even so, this rating was an increase from the previous quarter’s rating of 3.4.

w According to Smith Travel Research, during the last full week in September 2009, the occupancy rate for hotels de-creased by 7.2 percent from the previous year. The aver-age daily rate (ADR) decreased by 10.1 percent, while the revenue per available room (RevPAR) decreased by 16.6 percent from year-ago results.

w During third quarter 2009, 12-month trailing volume for the hotel sector declined by nearly 25 percent. The 12-month trailing size- and price-weighted average prices per hotel unit declined from the previous quarter. The 12-month trail-ing weighted average and median capitalization rates in-creased to 9.5 percent and 10.0 percent, respectively.

w The hotel sector received a return versus risk rating of 3.8 on a scale of 1 to 10, with 10 being high, which was the low-est rating among the property types. However, this rating was an increase from the previous quarter’s rating of 3.4. The value versus price rating for the hotel sector was 4.1, which was also an increase from the previous quarter, but the value of hotel properties is still lower than the price paid.

6%

8%

10%

12%

6%

8%

10%

12%NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08


$0

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$1,000,000

NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08

RERC Price-Weighted Average PPU(12-Month Trailing Average)

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$50,000

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$0

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$350,000

NationalWest

Midwest

South

East

3Q092Q091Q094Q083Q08

RERC Size-Weighted Average PPU(12-Month Trailing Average)

National

Take a look at hotels, as “they will be the first to rebound as consumer spending and confidence starts to pick up.” But others suggest avoiding hotels “unless buying at a rock-bottom discount. Hotel NOI will not recover anytime soon.”



B.K. Allen, CCIMB.K. Allen Real EstatePotomac Falls, Virginia

Todd Clarke, CCIMNew Mexico ApartmentsAlbuquerque, New Mexico

Wayne D’Amico, CCIMProperty PoliticsEssex, Connecticut

Paul Fetscher, CCIMGreat American BrokerageLong Beach, New York

Stephen FurnaryING Clarion PartnersNew York, New York

Breck HansonLaSalle Bank, N.A.Chicago, Illinois

Dennis MartinRREEF/DB Real EstateNew York, New York

Jeff Lyon, CCIMGVA Kidder MathewsSeattle, Washington

Buzz McCoyBuzz McCoy Associates, Inc.Los Angeles, California

Tom Nordstrom, CCIMAEGON USA Realty Advisors, Inc.Cedar Rapids, Iowa

Art PasquerellaBerwind Property Group, Inc.Philadelphia, Pennsylvania

Duncan Patterson, CCIMPatterson-Woods AssociatesGreenville, Delaware

Gary M. Ralston, CCIM, SIOR, SRS, CPM, CREFlorida Retail Development, LLCWinter Park, Florida

Cynthia Shelton, CCIMColliers ArnoldOrlando, Florida

Frank Simpson, CCIMThe Simpson CompanyGainesville, Georgia

Allen SmithPrudential Investment Managment ServicesParsippany, New Jersey

Richard SokolovSimon Property GroupIndianapolis, Indiana

John Stone, CCIMJohn M. Stone CompanyDallas, Texas

Dewey Struble, CCIMSperry Van NessReno, Nevada

Julien StudleyJulien Studley, Inc.New York, New York

Allan SweetAMLI Residential Properties TrustChicago, Illinois

Garry Weiss, CCIMFirst Industrial Realty TrustChicago, Illinois

Sam ZellEquity Group InvestmentsChicago, Illinois

RERC~CCIM Investment Trends Quarterly

RERC Editorial Staff

PublisherKenneth P. Riggs, Jr.CFA®, CRE, FRICS, MAI, CCIM

Editor-in-ChiefBarb Bush

Lead AnalystBrian Velky

Research AnalystsGreg PhilippCliff CarlsonCharles GohrDavid KellyLindsey KuhlmannMorgan Westpfahl

Design EditorMichelle Houlgrave

Data ManagementBen NeilDaniel Warner

Production CommitteeTerri Cotter

Research AssistantsJeffrey HarmsKayla RosenbaumAnthony Tholkes

CCIM Institute

PresidentCharles “Mac” McClure, CCIM

President-ElectRichard Juge, CCIM

First Vice PresidentFrank Simpson, CCIM

Chief Executive OfficerSusan Groneveld, CAE

Advisory Board Members

Copyright Notice for RERC~CCIM Investment Trends Quarterly

Copyright© 2009 by Real Estate Research Corporation (RERC) and the CCIM Institute. All rights reserved. No part of this publication may be reproduced, duplicated, or copied in any form, includ-ing electronic forwarding or copying, xerography, microfilm, or other methods, or incorporated into any information retrieval system, without the written permission of RERC and the CCIM Institute.



Acknowledgements

National Associationof REALTORS®

NAR PresidentCharles McMillan, CIPS

NAR Chief Executive OfficerDale A. Stinton

NAR Vice President Commercial Real EstateJan M. Hope

REALTORS® CommercialAlliance Committee ChairRobert Toothaker, CPM

Real Estate Research CorporationFounded more than 75 years ago, Real Estate Research Corporation (RERC) was the nation’s first independent real estate firm that specialized in both real estate research and analysis. Recognized as a pioneer in the art of real es-tate management and for monitoring key sectors of the economy that influence the real estate industry, RERC has retained its place as one of the industry’s leading real estate investment trends analysts through the publication of such reports as Expectations & Market Realities in Real Estate and the RERC Real Estate Report. Today, RERC is known for its research publications and market studies, commercial property valuations, com-plex consulting assignments, portfolio manage-ment and technology services, and independent fiduciary services.

The CCIM InstituteThe CCIM Institute, headquartered in Chicago, confers the Certified Commer-cial Investment Member designation through an extensive curriculum of 200 classroom hours in addition to professional experience requirements. CCIMs are recognized experts in commercial real estate brokerage, leasing, asset management, valuation, and investment analysis, and form a business net-work encompassing more than 1,000 markets throughout North America, Eu-rope, Asia and the Caribbean. There currently are more than 8,600 CCIM designees, with an additional 8,200 professionals pursuing the designation. CCIM Institute is an affiliate of the National Association of REALTORS®. Visit www.ccim.com.

National Association of REALTORS®

Commercial (NAR Commercial)The National Association of REALTORS® (NAR) connects commercial real es-tate professionals and exchanges valuable information that contributes to their success. NAR Commercial in partnership with NAR’s commercial affiliates—CCIM Institute (CCIM), the Counselors of Real Estate (CRE), the Institute of Real Estate Management (IREM), the REALTORS® Land Institute (RLI), and the Society of Industrial and Office REALTORS® (SIOR)—is dedicated to col-laboration with and building on the strengths of each affiliate entity to benefit the real estate industry. NAR Commercial works to serve the needs of mem-bers, and to shape and unify the commercial real estate industry through public policy and advocacy, valuable products and services, technology initiatives, education, and research.

The RERC/CCIM Investment Trends Quarterly is produced by Real Estate Research Corporation (RERC) in association with and for members of the CCIM Institute. The RERC/CCIM In-vestment Trends Quarterly is sponsored by the National Asso-ciation of REALTORS®.



RealEstateResearchCorporation

Founded in 1931, Real Estate Research Corporation is one of the longest-serv-ing and most recognized national firms devoted to real property research, valu-ation, real estate consulting, indepen-dent fiduciary services, and portfolio services.

“

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Offices located throughout the U.S., with headquarters in Chicago

LeadershipKenneth P. Riggs, Jr.CFA®, CRE, FRICS, MAI, CCIMPresident & CEO

Jules H. Marling, III, CRE, FRICS, MAIManaging Director

Del H. Kendall, CRE, MAIManaging Director

Donald A. Burns, CRE, FRICS, MAIManaging Director

Gregory P. Kendall, CRE, MAIManaging Director

Kent D. Steele, CRE, FRICS, MAIManaging Director

William L. Corbin, MAIManaging Director

Standard PublicationsRERC Real Estate Report

RERC/CCIM Investment Trends Quarterly

Expectations & Market Realities in Real Estate

Real Estate Research Corporation980 North Michigan Avenue, Suite 1110Chicago, IL 60611-4522Phone: 319.352.1500Fax: 319.352.4050www.RERC.com

Explore our services... ■ Specialized Research■ Independent Fiduciary Services■ Fairness Opinions■ Litigation Support■ Consulting■ Portfolio Services■ Commercial Valuation■ Financial Risk Management■ Market Research & Analysis■ Appraisal Management Services

IndependentTo ensure objectivity and independence, RERC does not engage in any activity that may conflict with the best interests of our cli-ents. As an impartial observer of the markets, RERC is able to collect and synthesize data and commentary unavailable to less independent organizations.

UniqueRERC brings unique and diverse skills to solving complex real estate issues. RERC’s innovative approach to problem solving is fostered by the diverse education and professional backgrounds of our team members.

ExpertiseRERC’s expertise originates from a national presence and per-spective, coupled with local market knowledge gained through the completion of hundreds of engagements annually in every major market. Our clients have found that RERC is relationship-oriented, focusing first and foremost on our clients’ and custom-ers’ needs, and delivering the highest quality products and ser-vices. RERC is an SEC-registered advisor.



Trusted Advice. Proven Performance.

Gold

Bronze

Contributors

Shahid Abdulla Broadway National Bank

San Antonio, TX

Adam Abrams RED Brokerage, LLC Kansas City, MO

Tony M. Amato Amato Commercial Group

Las Vegas, NV

Brian Andrus Stonebridge Real Estate Co., Inc.

Tampa, FL

Helen Banks Texas International Consultants, Inc.

Houston, TX

Beau Beery AMJ Inc. of Gainesville Gainesville, FL

Ken Bendalin Cliffside RealtyAdvisors

Dallas, TX

Gary Best Realty Executives Southern Arizona

Tucson, AZ

John Birkeland SpringwoodCommercial Realty

Central Pennsylvania

Creigh Bogart Retail One Tampa, FL

Jared Booth Coldwell BankerCommercial NRT

Salt Lake City, UT

Jay Boyle Grubb & Ellis|BRE Commercial

San Diego, CA

Charles Brenner C Brenner Inc. Orlando, FL

Thomas F. Campenni Thomas F. Campenni Co.

East Coast

Bob Cissell Cissell MuellerCompanies

St. Louis, MO

William E. Collins Bilco Enterprises, Inc.

Terry Conley TLC - The Location Connection, Inc

Charles Connely C.C. Connely &Associates, LLC

Kansas City, MO

Chad Cook Aguer HavelockAssociates, Inc.

Sacramento, CA

Coba C. Craig Silvestri-Craig, Realtors Kentucky

K.F. Crimmins The Blau & Berg Company

New York, NY

Kenneth Crimmins The Blau & Berg Company

Northern New Jersey

Mark Cusick IPMG, Inc. Portland, OR

A.E. Dabney Texas General Land Office

Austin, TX

Mark DeRiemer Savills Charlotte, NC

Robert J. Dikman The Dikman Company Tampa, FL

Lynn Dulin Coldwell BankerCommercial NRT

Baltimore, MD

Jeff Eales Birtcher Anderson Properties

Orange County, CA

John Ehrhardt BuckinghamCompanies

Indianapolis, IN

Bill Ellis Concord Property Corporation

San Antonio, TX

Craig Evans Colliers ABR New York, NY

Kenneth Evans KCE PA Tampa, FL

Allen Feltman Allen Feltman Real Estate

Dallas, TX

N. Ross Fisher Fisher Commercial Properties

Detroit, MI

Patrick Fitzgerald KeyBank Orlando, FL

Tom Flowers First National Bank Kansas City, MO

James B. Foley CB Ragland Nashville, TN

Stephen K. Ford Current Commercial Real Estate, LLC

Brian Frank Kilby Valuation Group / Accurate Services

Phoenix, AZ

Howard Friedman Compass Commercial Real Estate Services

Central Oregon



Bronze

Contributors

Jim Fulton Coldwell BankerBullard Realty

Atlanta, GA

Jessica Furlong Grubb & Ellis Mgmt. Svcs.

Detroit, MI

Robert Glaser PICOR Tucson, AZ

Chad Gleason Retail Realty Services Seattle, WA

Rob Green M&I Marshall & Ilsley Bank

Indianapolis, IN

P. Lee Greer Jr. Sperry Van Ness Lexington, KY

Hal Hanstein Cardinal Realty Group St. Louis, MO

Chris Harris Mutual of Omaha Bank Las Vegas, NV

Dennis Hearst Cushman & Wakefield San Diego, CA

Thomas G. Hellgeth Brian Properties, Inc. Chicago, IL

Christiane Hepfer International Capital, LLC

Dallas, TX

Scott Hileman Nye Commercial Advisors

Tampa, FL

Dean Hirabayashi American Savings Bank

Honolulu, HI

Warren Hitchcock NorthMarq Capital Houston, TX

Charles Hold Midland Equities LLC Chicago, IL

Cindy Hopkins AAA Real Estate & Investments/Hopkins Commercial

San Antonio, TX

Chris Hughson Oregon RealtyAdvisors, Inc.

Portland, OR

Gary Hunter Capital Financial, LLC Seattle, WA

Chris Jacobson NorthMarq Minneapolis, MN

Park Jaehong Samsunglife Insurance

David H. Johnson Radius Commercial Real Estate

Denver, CO

Bruce Kahn Foundation Group Seattle, WA

James Katon Integra RealtyResources

Charlotte, NC

Wickliffe Kelley Fenley Realty Co. Miami, FL

Bruce Kemp Compass Commercial Bend, OR

Norm Khoury Colliers Turlet Martin Tucker

Columbus, OH

Juanita Kiesling WestMark, Realtors

Mike King Coldwell BankerCommercial

Coeur d’ Alene, ID

Robert King TRI Commercial RE Services, Inc.

Salt Lake City, UT

Matthew Klein Colliers Minneapolis, MN

Karl Landreneau NAI/Latter & Blum Realtors

Baton Rouge, LA

Gregory Lawton Fifth Third Bank Tampa, FL

Chris Leon Realty World Comm San Francisco, CA

Robert A. Liebeck MJ Peterson Com-mercial

Buffalo, NY

Albert Lindeman Sperry Van Ness AML Commercial

Chicago, IL

Louis Lizzadro Lizzadro Properties, Inc.

Chicago, IL

Jarrod Luigs Sperry Van Ness / Martin Commercial Group

Dennis Lynch Miron Construction Madison, WI

Steve Massell Massell Commercial Real Estate

Atlanta, GA

Paul S. McDonald McDonald and Assoc. Houston, TX

Michael Mikelic King PenguinProperties, LLC

New York, NY

Joe Milkes Milkes Realty Valuation Dallas, TX

Nicholas L Miner Eagle Commercial Realty Services, AMO

Phoenix, AZ

Carlos Miranda C.T.A., Inc. Puerto Rico

Gene Nelsen Nelsen AppraisalAssociates

Des Moines, IA

Nick Nicketakis CBS Realtors Chicago, IL

Drew Pearson NAI Latter & Blum Baton Rouge, LA

John Perron Ramsey Shilling Los Angeles, CA

Steve Poole Grubb & Ellis Denver, CO

28 29Investment TrendsQuarterly


Contributors Contributors

Christine Porter NPV Advisors Salt Lake City, UT

Daniel Poulin Sealy & Company New Orleans, LA

Lenore Reynolds Bruce Strumpf, Inc. Tampa, FL

William Riley RDG, LLC Seattle, WA

John Robinson Magnusson Balfour Commercial andBusiness Brokerage

Portland, ME

Francisco Rodriguez North America Realty Advisors

Miami, FL

Larry Romero Financial Partners Credit Union

Los Angeles, CA

Bob Rosenberg Inve$tnet Inc Sacramento, CA

Richard J. Rossiter Jones Lang LaSalle Orlando, FL

Bob Rourke Premises Group, LLC Chicago, IL

Brandon K Sanders Steve Eustis Co. West Texas

David Schnitzer Venture Commercial Dallas, TX

Chris Secontine Signature Associates

Jan A. Sell Sell & Associates, Inc. Phoenix, AZ

Robert Smith Jr. Lockard Companies Waterloo/Cedar Falls, IA

Gregory Spanos Janko Group Chicago, IL

Mike Spears The National Realty Group

Houston, TX

Rob Stefka CommercialInvestment Services

Mark Storfer Choi International Honolulu, HI

Dewey Struble Sperry Van Ness Reno-Sparks, NV

Paul Sylvester Re/Max Masters Los Angeles, CA

Jim Tansey NAI Ruhl & RuhlCommercial Co.

Brian Tapp NAI Knoxville Knoxville, TN

Bryson Thomason PMC Greenville, SC

Herb Tousley CBC Griffin Companies Minneapolis, MN

Arthur Triplette CBRE Houston, TX

Mark Vellinga Graham Organization Sioux Falls, SD

BronzeMatthew Vickery Larson and Darby

GroupChicago, IL

Wes Walters WWR , Inc. Austin, TX

Frank Weiskopf Realty Executives

Butch West West Commercial R/E Services

Richard Wheelock East West Realty Honolulu, HI

Robert B White Grubb & Ellis1st Commercial

David L. Williamson BancorpSouth Bank Birmingham, AL

Alan Wood WWM Real Estate

Daniel Zelonker Mizrach RealtyAssociates

Miami, FL

Thank youto all

who sharedinformation

for thisreport.



Scope&MethodologyThe analysis provided in the RERC/CCIM Investment Trends Quarterly is conducted by Real Estate Research Corporation (RERC). The information is gathered in raw form from surveys sent to CCIM designees and candidates, and from sales transactions collected from various sources, including CCIM members, various key commercial information exchange organizations (CIEs), the media, assessors’ offices, RERC contacts in the marketplace, and other reliable public and private resources. All sales transactions are aggregated, analyzed, and reported on by RERC. Additional data and forecasts are provided courtesy of the REALTORS® Commercial Alliance and Torto Wheaton Research.

Published quarterly, the RERC/CCIM Investment Trends Quarterly report provides timely insight into transaction volume, pricing, and capitalization rates for the core income-producing properties.

RERC DefinitionsCapitalization Rate: The capitalization rate is defined as the first year “stabilized” net operating income (NOI) (NOI is before capital expenditures – tenant improvements, leasing commissions, reserves – and debt service) divided by the present value (or purchase price). Capitalization rates included are transac-tion-based medians and price-weighted averages.

RERC Capitalization Rate and Ranges: Capitalization rates and ranges listed throughout this report are based on RERC’s proprietary realized capitalization rate model, which includes available transaction-based capitalization rates, NCREIF Index Returns, and other market factors, but is heavily weighted toward transaction-based capitalization rates for each property type within each market.

Price-Weighted Average: The price-weighted average is developed through weighting each asset based on the gross sales price. Therefore, larger dollar properties are given more weight than the smaller dollar properties, with the weighted average reflecting more weight towards institutional real estate.

Size-Weighted Average: The size-weighted average is developed through weighting each asset based on its gross square footage – simply an aggregation of all the gross sales prices divided by the aggregation of the gross square footage.

National/Regional Market Analysis: RERC ranks the investment potential of the metros and property types it covers based on various space market and financial market criteria, including pricing, capitalization rates, vacancy rates, and other factors.

Investment Conditions Rating: A rating of 1 through 10 (with 10 being high) reflecting survey respondents’ collective views of the investment environment for a particular property type in comparison with other property types. The rating may take into account supply and demand, economic conditions, pricing, rental rates, or other factors.

NCREIF DefinitionsNCREIF: The National Council of Real Estate Investment Fiduciaries (NCREIF) is an independent organization dedicated to the compilation, validation, and distribution of performance data for the institutional real estate investment community.

Total Return: The total return includes appreciation (or depreciation), realized capital gain (or loss), and income. It is computed by adding the income and capital appreciation return on a quarterly basis.

Implied Cap Rate (Income Return): The implied capitalization rate measures the portion of return attributable to each property’s NOI. It is computed by divid-ing the total NOI by the total quarterly investment.

Capital Appreciation Return: The capital appreciation return measures the change in market value adjusted for any capital improvements/expenditures and partial sales divided by the average quarterly investment.

Annual and Annualized Returns: Annual returns are computed by chain-linking quarterly rates of return to produce time-weighted rates of return for the an-nual and annualized periods under study. For time periods beyond 1 year, the annualized returns are expressed as the annual compounded rate of return.

Allocation: The distribution, expressed as a percentage of the overall investment, in a particular geographic area by property type.

For a detailed description of the proceeding returns, as well as the calculations used by NCREIF to derive these figures, please visit http://www.ncreif.org/indi-ces.

The combined returns are the weighted average of the returns for each property type according to the proportionate market value of properties surveyed relative to the total market values surveyed during a time period.

RERC Defined Regions and MSAsWest: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming

Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin

South: Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee, Texas

East: Connecticut, Delaware, Kentucky, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, Washington D.C., West Virginia

Metropolitan Statistical Area (MSA): A geographic unit comprised of one or more counties around a central city or urbanized area with 50,000 or more popu-lation. Contiguous counties are included if they have close social and economic links with the area’s population nucleus.

With a few exceptions, the MSAs within this report coincide with the U.S. Office of Management and Budget’s December 2005 definitions for each MSA. For example, St. Paul, Minn., and Bloomington, Minn., as well as many other suburbs, are included within the Minneapolis MSA.

Note of Caution: It is imperative to exercise caution when comparing the data contained herein to previous reports published by RERC. The data herein is not “fixed,” and will be updated and changed as additional transaction information is gathered and analyzed.

Disclaimer: This publication is designed to provide accurate information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal or accounting service. The publisher advises that no statement in this issue is to be construed as a recommendation to make any real estate investment or to buy or sell a security or as investment advice. The examples contained in the publication are intended for use as back-ground on the real estate industry as a whole, not as support for any particular real estate investment or security. Although the RERC/CCIM Investment Trends Quarterly uses only sources that it deems reliable and accurate, Real Estate Research Corporation (RERC) does not warrant the accuracy of the information contained herein.

Documents

Fourth Quarter 2009 Report Investment Trends Vol. 5, No. 4 ... · ket is given to the first-time homebuyer tax credit program (projected to be extended until April 30, 2010), we are