2015 Q1 U.S. Capital Flows Report

US Research & Forecast Report

CAPITAL FLOWSQ1 2015

Q1 Investment Up 45 Percent Industrial, Apartment and Hotel sectors see strongest gains over the same period in 2014

Pete Culliney Director of Research | Global

> Cross-border investment more than doubled (111%) this quarter over one year prior, capturing $22.2 billion in properties across all major types.

> Traditionally tops in cross-border investment into the U.S., Canadian investors were edged out by sovereign wealth funds from Asia, including GIC’s acquisition of the huge IndCor industrial portfolio from the Blackstone Group.

> Entity-level transactions made a significant jump in Q1 2015, with $21.5 billion worth of properties acquired. This was nearly equal to the 2014 full-year total.

Key Takeaways > Commercial property investment in the United States is off to a strong start so far in 2015, with Q1 sales up 45% year-over-year (y-o-y) on volume of $129 billion.

> Office and apartment sales led the way with quarterly sales of $33.5 billion and $33.0 billion, respectively. Apartments saw stronger gains, up 68% over the same period in the prior year, whereas office saw a 43% increase. Both types saw declines from their Q4 2014 levels, however.

Sources: Real Capital Analytics, Colliers International

Key Colliers Transactions in Q1 2015DATE TYPE METRO PROPERRY PRICE ($M) BUYER SELLER

Mar 15 Office Boston 100 Cambridge Street $279.8 InterContinental Developers Inc

Commonwealth of Massachusetts

Mar 15 Office Manhattan Two 25th Street Office Buildings $210.0 Jowa Holdings Brickman Associates JV DivcoWest

Feb 15 Apartment Houston 2 Communities: Avenues at Northpointe & Avenues at Cypress $76.0 Preferred Apt

Communities Davis Development

Mar 15 Retail Seattle Lakeland Town Center $51.6 Donahue Schriber Loja Group LLC

Jan 15 Office East Bay Civic Center Place $39.3 Healthcare Realty Trust Berkeley Land Company

Mar 15 Industrial Gulfport Huntington Ingalls $32.0 Mississippi State Port Authority Avondale Enterprises Inc

Apr 15 Apartment Daytona Beach Grandeville on Saxon $30.3 NorthlandLNR Partners OBO Wachovia 2006-C24

Feb 15 Dev Site San Francisco 321-323 Fremont St $28.5 R&F Properties Crescent Heights

Feb 15 Industrial Los Angeles 1201 South Grand Avenue $26.0 Shanghai Shenglong Investment Group Co Ltd

Rafi & Katrin & Danny & Emanuel Shaoulian

Mar 15 Retail Las Vegas Rhodes Ranch Town Center $25.3 Del Mar Partnership Inc Warmington Group

Jan 15 Apartment Stillwater, OK Campus Park Student Housing $24.5 Scion Group Campus Crest

Feb 15 Retail Atlanta Sandy Springs Crossing $23.4 RCG Ventures OBO DRA Advisors

Coro Realty Advisors JV Pope & Land Enterprises

Jan 15 Industrial Philadelphia fmr Oxford Bookbinding $22.5 TPA-Eastland LP Keystone Industrial Properties

Jan 15 Office Minneapolis fmr Ameriprise Operations Center $22.4 DCI Technology Holdings KanAm Grund

Mar 15 Industrial Chicago Kellog's Distribution Facility $22.0 Metropolitan Life Insurance Company Conor Commercial.

Jan 15 Apartment Los Angeles 615-617 Ocean Avenue $15.6Optimus Properties OBO All West Holdings LLC

Robert Eroen, Successor Trustee to the

Jan 15 Retail Morgantown, WV Pierpont Centre $13.9 Wheeler REIT DDR

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Investment Volume by Type

Investment by Type Over Time

Sources of Capital

Sources for all charts: Real Capital Analytics, Colliers International

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2 U.S. Capital Flows Research and Forecast Report | 1Q 2015 | Colliers International

Liquidity Events Refresh Coffers > Industrial transaction volume, which totaled $21.0 billion in Q1 2015, saw by far the largest jump this period, up 97% from $10.6b in Q1 2014 and 23% from $17.1 billion in Q4 2014, due entirely to an unprecedented spike in entity-level deals. At $9.2 billion, Q1 2015 was the biggest quarter for industrial mergers since RCA started tracking the market. The bulk of this was due to GIC’s acquisition of the IndCor portfolio.

Private Equity Takes Profits > Looking to cash out, Blackstone was said to be working on an $8 billion IPO for its industrial subsidiary IndCor Properties. But when the Singapore Govt. Investment authority GIC Group came knocking with $8.1 billion, the deal was done. The IndCor portfolio consisted primarily of 360 warehouse-distribution properties that were acquired since 2007 through over 18 transactions but also contained a few properties that came under the Blackstone umbrella as part of the Equity Office acquisition.

Private to Public REIT Shift > Private, non-traded REIT CCIT, managed by Cole Capital, also found an exit strategy. Seemingly amassed for bulk sale, CCIT acquired its portfolio of industrial and office properties between 2012 and 2014, including over $2 billion in property acquisitions in 2013. The bulk of these were single properties and small portfolios purchased from local developers. Once critical mass was achieved, buyer Select Income REIT stepped in for the entity-level acquisition. They were able to bring the ownership to the public market with the assistance of $1.45 billion in unsecured senior notes due between 2018 and 2025.

3

Sources for all charts: Real Capital Analytics, Colliers International

Investment into the Top Six Metros

3 U.S. Capital Flows Research and Forecast Report | 1Q 2015 | Colliers International

Volume in Millions of $

Volume in Millions of $

*2015 YTD

Cross Border Investors Jump In > Cross-border investors drove investment gains so far this year, capturing $22.2 billion in properties across all major types. This was up 111% from $10.5 billion a year prior.

> While representing just 17% of deal activity this quarter, the $22.2 billion in transaction volume was well above the cross-border segment’s historical 10% share of the total pie. However, this may have reflected deals being worked on in late 2014 that did not close before year’s end, as the Q4 2014 share was unusually low at only 7%. Combined, the foreign share over the last two quarters amounted to 12.3%, down just slightly from the 12.5% share registered over the same period a year ago.

> Approximately 50% of the $8.2 billion invested in Manhattan by cross-border investors came from two transactions: the $2.0 billion purchase of the Waldorf-Astoria Hotel by Chinese insurance company Anbang and the $2.2 billion acquisition of 1.1 million square feet (MSF) at 1095 Sixth Avenue in Midtown Manhattan by the institutional investment manager of the Quebec government.

> The bulk of the investment in Hawaii was by the Australian Superannuation Fund purchasing a 25% share of the Ala Moana Center, the largest mall in Hawaii, in something of a value-add play. This transaction valued the entire center at $5.5 billion, with the fund paying $907 million now and another $236 million in 2016 following the completion of a redevelopment that will add 66,000 SF to the current 2.2 MSF of retail and office space.

> Despite historically averaging only about 10% of property investment in the U.S., cross-border investors tend to have a higher profile and seem to create a bigger splash than this proportion would indicate. We attribute this to the focus that these investors have on the biggest markets. On average, foreign investors place more than 60% of their investments in the top six metros – New York City, Boston, Washington, D.C., Chicago, San Francisco and Los Angeles – compared to domestic investors who place on average approximately 40% of their funds into these prime metros. Additionally, foreign investors often target trophy assets for which high pricing often brings outsized press coverage and media attention that heightens the perception of a cross-border takeover.

Top Market DestinationsMARKET TOTAL PROPS TOTAL VOLUME

Manhattan 27 $8,198.70

D.C. 7 $1,662.30

Hawaii 5 $1,390.40

Atlanta 32 $985.90

Los Angeles 28 $888.00

San Francisco 13 $854.80

Houston 14 $823.10

Miami 18 $781.90

Chicago 26 $761.40

Other 561 $15,314.10

Total 731 $31,660.50

Top Countries of OriginCOUNTRY TOTAL PROPS TOTAL VOLUME

Singapore 361 $8,218.50

Canada 134 $6,659.60

China 19 $2,983.00

Germany 14 $1,812.10

Australia 15 $1,804.40

UAE 35 $1,788.40

Brazil 11 $1,140.00

Norway 2 $937.00

Switzerland 23 $834.40

Other 117 $5,483.10

Total 731 $31,660.50

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2015*

*till 5/28/15

44 U.S. Capital Flows Research and Forecast Report | 1Q 2015 | Colliers International4 North American Research & Forecast Report | Q4 2014 | Office Market Outlook | Colliers International

Copyright © 2015 Colliers International.The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International 601 Union Street, Suite 4800 Seattle, WA 98101+1 206 695 4200colliers.com

FOR MORE INFORMATIONBrian WardPresident, Capital Markets & Investment Services | Americas+1 206 694 [email protected]

Pete Culliney Director of Research | Global +1 212 716 3698 [email protected]

CONTRIBUTORAndrew Nelson Chief Economist | USA +1 415 288 7864 [email protected]

> Wall Street still anticipates the Fed to move before year-end 2015, suggesting any further rate declines this year will be modest and short-lived. Nonetheless, with inflation decidedly tame, wages still barely rising and the economy showing no signs of overheating, few analysts expect the Fed’s movements or increases in rates on longer-term bonds to be significant. Accordingly, capital market conditions for property investors should remain favorable through 2015 and into 2016.

Outlook for Interest Rates Uncertain > Long-term interest rates have been somewhat volatile in 2015, as Wall Street has attempted to handicap the timing and magnitude of the first post-recession increase in the federal funds rate. Despite this volatility, current rates are little changed from where they started the year. As of May 21, the rate on the 10-year Treasury note stood at 2.19%, up just 7 bps from where it opened on January 2. During this period, rates fell through January, reaching a low of 1.68% at the end of the month, before generally rising thereafter, peaking at 2.28% in mid-May. In the most recent FOMC meeting minutes, released on May 20, the Fed effectively ruled out a June increase, which resulted in rates decreasing slightly again.

2015 Q1 U.S. Capital Flows Report

Real Estate

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