Third Quarter 2007 Report Investment Trends Vol. 3, No. 3 ...Colliers Arnold Orlando, Florida Frank...

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Third Quarter 2007 ReportVol. 3, No. 3Investment Trends

Quarterly

Spotlight on

Oklahoma City

iiInvestment TrendsQuarterly

Copyright© 2007 by Real Estate Research Corporation (RERC) and the CCIM Institute.

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

Charles LowreyPrudential Investment Management ServicesParsippany, New Jersey

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, IowaArt 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

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 CarlsonRajiv SharmaAshley Smith

Design EditorsMichelle HoulgraveLindsay Kalvig

Data ManagementBen Neil

Production CommitteeTerri CotterScott HamerlinckDaniel Warner

Research AssistantsAlicia BrownMorgan EvenJeffrey HarmsAaron RiggsChristopher RiggsAnthony Tholkes

CCIM Institute

PresidentJoseph A. Fisher, CCIM

President-ElectTimothy S. Hatlestad, CCIM

First Vice PresidentCharles McClure, CCIM

Executive Vice PresidentSusan Groeneveld, CAE

Director of Public RelationsEdward M. Bury, APR

CCIM Member Services CommitteeNicholas Miner, CCIM ChairmanSteve Moreira, CCIM Vice Chairman

Immediate Past Chairman,CCIM Member Services CommitteeFrank Simpson, CCIM

Advisory Board Members

Copyright Notice for RERC~CCIM Investment Trends Quarterly

Copyright© 2007 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.

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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, MAIPartner & Senior Vice President

Del H. Kendall, CRE, MAIPartner & Senior Vice President

Donald A. Burns, CRE, FRICS, MAIPartner & Senior Vice President

Austin D. MacMullan, MAI, CCIMPartner & Senior Vice President

Gregory P. Kendall, CRE, MAIPartner & Senior Vice President

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.

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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.

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Acknowledgements

REALTORS® Commercial Alliance of the National Association of REALTORS®

NAR PresidentPat Vredevoogd Combs, ABR, CRS, GRI, PMN

NAR Executive Vice President/CEODale A. Stinton

RCA Committee RepresentativeCindy S. Chandler, CCIM, CRE

NAR Vice President of Commercial Real EstateJames Marrelli

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, complex consulting assignments, portfolio management and technology services, independent fiduciary services, and corporate advisory 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.

REALTORS® Commercial Alliance of the National Association of REALTORS®

The REALTORS® Commercial Alliance (RCA) is the commercial division of the National Association of REALTORS® (NAR). The RCA represents the collective commercial real estate constituencies of NAR, including affiliated commercial organizations—the CCIM Institute, 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). The RCA works to serve the needs of commercial practitioner members and shape and unify the commercial real estate industry through the development of valuable products and services, technology initiatives, public policy advocacy, educa-tion, research, and legal analysis.

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 Invest-ment Trends Quarterly is sponsored by the REALTORS® Com-mercial Alliance of the National Association of REALTORS®.

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InThisVolume

Complete Metro-Level Analysis Coming 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

Scope & Methodology

Now Available!National OverviewEconomic SummaryEffect on Real EstateProperty Sector Highlights“Long-Range Vision Key to Oklahoma City Revitalization”

Regional AnalysisScope & MethodologyContributors



Foreword

August 2007

Dear Readers,

Although the U.S. economy is resilient and commercial real estate fundamentals and returns are still strong, RERC, along with CCIM designees and candidates who responded to RERC’s survey, are seeing some change in the market. Some of the highest prices ever paid for high-quality assets are still occurring, but we also are seeing situations where debt and credit are starting to tighten for average or below average properties.

As always, our goal with the RERC/CCIM Investment Trends Quarterly is to provide the transaction-based commercial real estate research that will help you with your investment decisions or to help advise your clients. Adequate research is always important when making such decisions, but now, with the investment climate changing, additional risk is involved and a close examination of the fundamentals is even more critical.

With eight new markets in the coverage of this report (Milwaukee, New Orleans/Baton Rouge, Norfolk, Oklahoma City, Raleigh, Sacramento, Toledo, and Tucson), the total number of metropolitan areas researched, analyzed, and reported on each quarter in the RERC/CCIM Investment Trends Quarterly is 48. A feature article about the commercial real estate investment conditions for one of our new metros – Oklahoma City – is included on Pages 16-17 of this issue.

Finally, we are pleased to offer coverage of the National Association of REALTORS’® (NAR’s) Commercial Leading Indi-cator (CLI) for Brokerage Activity, a forward-looking index used to assess market behavior in the major commercial real estate sectors. According to NAR, we are entering a period of stabilization for commercial real estate, with expected leas-ing and sales activity during third quarter 2007 to be 0.8 percent higher than in third quarter 2006. Thank you to all who completed and returned our surveys, communicated your transaction information, or shared reports or other details about the various property sectors and markets. We appreciate your information and insights, as we “pre-pare for the road ahead.”

Sincerely,

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

Joseph A. Fisher, CCIM2007 CCIM Institute PresidentPresident, Real Estate Investment Services Corp.



PreparingfortheRoadAheadRecent fluctuations in the stock market are raising the level of anxiety among nearly all investors. But who wouldn’t be anx-ious in this environment? The Dow Jones Industrial Average surpassed the 13,000 mark in late April and the 14,000 mark in mid-July, but in late July, lost $105.9 billion in total market value in one day. In fact, according to the Wall Street Journal, after record-high levels just a few days earlier, nearly 17 percent of the approximately 7,800 stocks that trade on U.S. exchanges fell to their lowest prices in the last year.

Commercial real estate investors are watching and wondering if something similar is about to happen to the real estate market as well. Prices for top assets continue to escalate, as reflected by the recent sale of the office building located at 450 Park Ave. in New York City at $1,589 per square foot, the highest price ever paid on a square foot basis in U.S. history. On the other hand, Class B and C properties or those properties in locations with little or negative growth are seeing reduced pricing power.

With investment capital starting to shift, the question is, will the real estate market be able to manage such risk? RERC is not seeing a flight to quality yet, and despite repricing issues, cur-rent returns are still generally very acceptable. However, debt is not as plentiful nor as cheap as it was a short time ago, and the availability of credit could greatly affect return performance. As we prepare for the road ahead, RERC suggests investors be particularly wary of the risks around the curve – the economy, pricing issues, and the availability of capital. To a great extent, these will determine how the commercial real estate market will fare among alternative investments.

EconomicSummaryThe rate of gross domestic product (GDP) growth increased 3.4 percent in second quarter 2007, according to the Bu-reau of Economic Analysis (BEA). This rate is the largest since first quarter 2006, and reflects increased business and government spending. The first quarter 2007 GDP growth rate was revised to 0.6 percent.

At their June 28, 2007 meeting, the Federal Open Market Committee (FOMC) left the federal funds target rate at 5.25 percent, noting that economic growth was moderate dur-ing the first half of 2007, despite the ongoing adjustment in the housing sector. Regarding expectations, the FOMC said, “The economy seems likely to continue to expand at a moderate pace over coming quarters.”

The Federal Reserve Board noted in its July 25, 2007 Beige Book that most districts have seen continued growth in overall economic activity during June and July. Manufac-turing activity continued to expand, and agricultural condi-tions varied widely, as the impacts of drought were felt in the eastern half of the U.S. and heavy rains affected the

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Dallas and Kansas City districts. Residential construction and real estate activity continued to decline in some areas, although other districts noted increased activity in certain markets.

The seasonally-adjusted national unemployment rate re-mained unchanged at 4.5 percent on July 25, 2007, accord-ing to the Bureau of Labor Statistics (BLS). Employment in-creases were seen in several service-providing industries, and manufacturing employment continued to decline.

CCIM Institute candidates and designees responding to RERC’s survey rated the U.S. economy at 6.0 on a 10-point scale, with a score of 10 representing a very strong economy and a 1 representing a very weak economy. This rating reflects survey respondents’ views that the economy is quite stable, with the second quarter 2007 rating in line with first quarter’s rating of 6.1.

According to the July 25, 2007 Beige Book, household lending declined in most regions, while commercial and industrial lending expanded at a modest pace. Household credit quality deteriorated marginally, while business credit quality remained mostly favorable.

After a slow first quarter 2007, the manufacturing sector rebounded during second quarter. According to the Insti-tute for Supply Management, the manufacturing index in-creased to 56.0 in June, following a reading of 55.0 in May, and 54.7 in April.

Labor productivity in the business sector increased 0.5 percent in first quarter 2007, while output increased 0.4 percent and hours decreased 0.1 percent on a seasonally-adjusted basis, according to the BLS. Non-farm business productivity increased 1.0 percent in first quarter, output increased 0.6 percent, and hours fell 2.1 percent. Manu-facturing productivity grew at a 2.4-percent annual rate, as output increased 1.2 percent and hours fell 1.1 percent.

New orders for manufactured goods increased 1.4 per-cent in June 2007, following a decrease of 2.3 percent in May and an increase of 0.5 percent in April. Shipments of durable goods decreased 1.1 percent in June, following increases of 0.6 percent in May and 1.0 percent in April. Unfilled orders increased 1.5 percent in June, following increases of 0.9 percent in May and 1.9 percent in April. Inventories of manufactured goods increased 0.2 percent in June, and 0.1 percent in May and April.

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EconomicSummary

NAR U.S. Economic Outlook: July 20072006 Quarterly 2007 Quarterly 2008 Quarterly Annual

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2005 2006 2007 2008

Annual Growth Rate

Real GDP 2.6 2.0 2.5 0.7 2.7 2.4 2.5 3.0 3.1 3.0 3.2 3.3 2.0 2.8

Nonfarm Payroll Employment 1.5 1.6 1.5 1.5 1.3 1.5 1.3 1.6 1.5 1.5 1.7 1.9 1.5 1.5

Consumer Prices 5.0 3.1 -2.1 3.8 4.8 2.4 2.3 1.9 2.5 2.4 3.4 3.2 2.6 2.4

Real Disposable Income -1.5 3.2 6.4 4.8 -0.2 1.7 2.3 3.5 2.6 2.6 1.2 2.6 3.0 2.5

Consumer Confidence 107 104 107 110 106 106 107 106 107 108 100 106 107 108

Unemployment 4.7 4.7 4.5 4.5 4.5 4.6 4.7 4.8 4.7 4.7 5.1 4.6 4.6 4.7

Interest Rates, Percent

Fed Funds Rate 4.9 5.3 5.2 5.3 5.3 5.3 5.3 5.0 4.8 4.8 3.2 5.0 5.3 4.9

3-Month T-Bill Rate 4.7 4.9 4.9 5.0 5.0 5.0 4.9 4.7 4.5 4.5 3.1 4.7 5.0 4.6

Prime Rate 7.9 8.3 8.3 8.3 8.3 8.3 8.3 8.0 7.8 7.8 6.2 8.0 8.3 7.9

Corporate Aaa Bond Yield 5.9 5.7 5.4 5.4 5.7 5.9 5.9 5.8 5.8 5.9 5.2 5.6 5.7 5.9

10-Year Government Bond 5.1 4.9 4.6 4.7 4.9 5.1 5.1 5.0 5.0 5.0 4.3 4.8 5.0 5.0

30-Year Government Bond 5.1 5.0 4.7 4.8 5.0 5.2 5.2 5.1 5.1 5.1 4.6 4.9 5.1 5.1

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.

According to the BLS, the producer price index for finished goods decreased 0.2 percent in June 2007, following a 0.9-percent decrease in May and a 0.7-percent decline in April. After no change during the last 2 quarters of 2006, the fin-ished goods index climbed at a 6.4-percent seasonally-ad-justed annual rate during the first 2 quarters of 2007.

The consumer price index (CPI) for all urban consumers in-creased 0.2 percent in June 2007 (before seasonal adjust-ment), 2.7 percent higher than year-ago averages, reports the BLS. On a seasonally-adjusted basis, CPI increased 0.7 percent in June following a 0.7-percent increase in May. The index for petroleum-based energy decreased 0.9 percent and the index for energy services fell 0.9 percent. The food index rose 0.5 percent in June, with grocery store food prices up 0.6 percent.

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According to the BEA, disposable personal income in-creased 0.4 percent in June and May, following a 0.3-per-cent decrease in April.

The consumer confidence index declined to 103.9 in June 2007 from 108.5 in May, according to the Conference Board. The present situation index declined to 127.9 in June from 136.1 in May. However, according to the Re-uters/University of Michigan Consumer Sentiment Survey, the index of consumer sentiment increased to 90.4 in July 2007 from 85.3 in June, and is up from 84.7 a year ago. The index of consumer expectations increased to 81.5 in July from 74.7 in June, and is up from 72.5 a year ago. The current economic conditions index increased to 104.5 in July from 101.9 in June, and is up from 103.5 a year ago.

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TheEffectonRealEstate

According to the July 25, 2007 Beige Book, residential construction and real estate activity continued to decline in most of the 12 districts, except in the Cleveland and Richmond districts, where there were slight increases in sales.

According to the National Association of REALTORS® (NAR), existing home sales fell to 5.75 million in June 2007 from 5.98 million in May. This was a 3.8-percent decrease from the prior month, and an 11.4-percent decrease from June 2006.

The median home price for existing homes in June 2007 was $230,100, approximately 0.3 percent higher than the median price reported a year ago, according to NAR. The residential market is currently showing some mixed sig-nals, as fewer risky loans will make for healthier numbers, but interest rates are increasing.

The Commerce Department reported that single-family housing starts in June 2007 declined at a seasonally-ad-justed annual rate of nearly 1.52 million, a 0.2-percent de-crease from May. Approximately 1.23 million single-family housing completions occurred in June, which was 6.3 per-cent below those for May. In addition, slightly more than 1.40 million single-family building permits were issued in June, 7.5 percent below May permits.

Total new construction increased by almost 8 percent in May 2007 from April, reaching a seasonally-adjusted an-nual rate of $612.1 billion, according to McGraw-Hill Con-struction. Nonresidential building increased about 4 per-cent in May to an annual rate of $198.0 billion. At an annual rate of slightly less than $272.0 billion, residential building decreased about 2 percent in May. Single-family housing construction continued to weaken, falling 2 percent, while multifamily housing construction increased 2 percent.

Commercial real estate markets were more active in most districts, according to the July 25, 2007 Beige Book. Office vacancy rates decreased and demand for industrial prop-erties increased, with only the Minneapolis district seeing negative net absorption in the industrial sector.

Second quarter 2007 CCIM Institute designees and candi-dates who responded to RERC’s survey rated commercial real estate higher than stocks, bonds, and cash, indicating their view that real estate is performing better than other alternative investments.

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Survey respondents rated the overall “return versus risk” for the commercial real estate market during second quar-ter 2007 at 5.8 on a scale of 1 to 10, with 10 being high. This indicates that respondents feel the return received on commercial real estate is slightly more than the risk as-sociated with the investment, although it is lower than last quarter’s rating of 6.2.

Second quarter 2007 survey respondents rated “value versus price” of commercial real estate at 4.8 on a scale of 1 to 10, with 10 being high, less than the first quarter rating of 5.3, indicating that as a whole, the value of commercial real estate is slightly less than the price paid.

“Inflation versus value” for commercial real estate earned a 4.6 rating from RERC’s second quarter 2007 survey re-spondents, which is slightly lower than the first quarter rat-ing of 4.8.

Some survey respondents noted that interest rates are in-creasing, and although realized capitalization rates have

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TheEffectonRealEstate

not yet followed, they are expected to do so soon in order to compensate for low returns.

The majority of second quarter 2007 survey respondents stated that the apartment market offers the best commer-cial real estate investment opportunity, and that demand for apartment units is likely to increase as the housing market cools and subprime mortgage defaults continue. This will help to increase apartment fundamentals, thus strengthening the sector.

The office sector earned the lowest commercial real es-tate investment conditions rating during second quarter 2007. Respondents to the survey stated that downtown office properties in particular are struggling, as demand has fallen drastically. The retail sector also is struggling, with a sluggish economy and an oversupply of product in some areas.

As was the case in first quarter 2007, RERC’s transac-tion analysis shows the highest dollar volume of sales oc-curred in the office sector during second quarter. The retail sector was the only sector having a lower dollar volume of sales during second quarter 2007 when compared to first quarter.

The apartment sector has the lowest second quarter 2007 realized average capitalization rate at 5.1 percent and the lowest median capitalization rate at 6.1 percent. The hotel sector has the highest realized capitalization rate at 7.7 percent, as well as the highest median capitalization rate at 9.0 percent.

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In Summary…

With a generally stable economy, improving fundamentals, fairly low interest rates, and limited new construction, the commercial real estate market is expected to remain rela-tively strong for the remainder of 2007.

Although there are signs of credit tightening, RERC expects the flow of capital into the commercial real estate market to continue for the near-term, especially with the private-eq-uity sector continuing to make big plays within the market. However, the trend of increasing prices cannot continue. Capitalization rate compression may be well ahead of fun-damentals, and may have led to some overvaluing of assets in some sectors and markets.

RERC suggests that investors prepare for the changes ahead. If investment continues at the record levels seen last year and during the first half of 2007, prices eventually will exceed the intrinsic valuation of assets.

What Do the Financial Markets Tell Us?Compounded Annual Rates of Return as of 6/29/2007

Market Indices 1-Year 3-Year 5-Year 10-Year 15-YearConsumer Price Index 2.69% 3.18% 2.98% 2.66% 2.68%

10-Year Treasury Bond* 4.76% 4.53% 4.36% 4.93% 5.46%

Dow Jones Industrial Average 20.25% 8.72% 7.72% 5.74% 9.76%

NASDAQ Composite 21.43% 9.08% 11.51% 6.20% 10.68%

NYSE Composite 20.86% 14.35% 11.86% 7.28% 9.97%

S&P 500 18.36% 9.64% 8.72% 5.44% 9.08%

NCREIF Index 17.25% 17.98% 14.49% 13.14% 10.60%

NAREIT Index 11.35% 18.82% 17.58% 12.27% 13.89%

*Based on Average End-of-Month T-Bond Rates.Sources: Economy.com, Federal Reserve Board, NCREIF, NAREIT, compiled by RERC.



Real Estate Indicators - 2Q 2007

Performance Indicators Recent Data Impact on Commercial Real Estate

Consumer ConfidenceMarch 2007 - 108.2April 2007 - 106.3 May 2007 - 108.5June 2007 - 103.9

Consumer confidence has fluctuated during second quarter 2007, finishing the quarter down from where it started. The greatest effect will be on the retail sector, as consumer spending may slow.

Consumer Spending(percent change)

March 2007 - 0.3%April 2007 - 0.5%May 2007 - 0.5%June 2007 - (0.9%)

June saw the first negative amount of growth in consumer spending since August 2005. Although the consumer price index for the same time period fell, consumers spent less. This affects the retail and hotel sectors most, and eventually may hurt sector fundamentals.

Real GDP (seasonally-adjusted annual rates in billions)

4th Quarter 2006 - $13,458.21st Quarter 2007 - $13,620.22nd Quarter 2007 (advanced) - $13,755.9

Real GDP rebounded, growing 3.4 percent in second quarter 2007, after a revised 0.6-percent growth rate during first quarter. This growth was due largely to increased business and government spending.

Unemployment Rate (seasonally-adjusted)

March 2007 - 4.4%April 2007 - 4.5%May 2007 - 4.5%June 2007 - 4.5%

Employment continued strong in second quarter 2007, with unemployment remaining at 4.5 percent. Strong employment continues to support the com-mercial real estate market, which depends heavily on job growth and eco-nomic expansion.

Federal Funds RateMarch 21, 2007 - 5.25%May 9, 2007 - 5.25%June 28, 2007 - 5.25%

The Federal Funds Rate remained at 5.25 percent, and as a whole, inter-est rates should remain fairly constant and at relatively low levels. Although credit is beginning to tighten, a low Federal Funds Rate will help commercial real estate to remain an attractive investment alternative.

10-Year Treasury Rates

March 30, 2007 - 4.65%April 30, 2007 - 4.63%May 31, 2007 - 4.90%June 30, 2007- 5.03%

Long-term interest rates increased during second quarter, although the rates remain relatively low. This will help commercial real estate remain an attrac-tive investment alternative.

S&P 500 IndexApril 30, 2007 - 4.52% YTD ReturnMay 31, 2007 - 7.29% YTD ReturnJune 30, 2007 - 6.00% YTD ReturnJuly 16, 2006 - 9.25% YTD Return

The stock market increased in May, declined in June, increased a great deal during the first half of July, and declined dramatically in late July. Although second quarter returns are up, the volatility of the stock market may dissuade investors, encouraging them to look to alternatives such as the commercial real estate market..

Existing Home Sales March 2007 - 6.12 million unitsApril 2007 - 6.01 million unitsMay 2007 - 5.98 million unitsJune 2007 - 5.75 million units

Existing home sales continued to decline during second quarter 2007, as did housing starts and new home sales. Eventually, this will serve to strengthen the apartment market.

Vacancy RatesOffice (TWR)= 12.4% down from 12.7% in 1Q06 Industrial (TWR) = 9.3% unchanged from 1Q06Retail (TWR) - 9.0% up from 8.7% in 4Q06Apartment (Reis) - 5.8% down from 6.0% in 1Q06

Vacancy was mixed in second quarter 2007. The office and apartment sec-tors continue to strengthen, while the industrial sector seems to be leveling off. The sluggish economy and high fuel prices are hurting retail sales and the retail property market.

Rental Rates (RERC's surveyed rent growth expectations)

Office - 3.2% to 3.4% Industrial - 2.8% Retail - 2.6% to 2.7% Apartment - 3.5% Hotel - 3.4%

RERC’s research shows that investors expect rental growth to increase slightly over the coming quarters, but at a slightly slower rate than previ-ously. Overall, rent growth continues to be very market-specific, and will be further offset by expense growth.

Real Estate Returns

RERC's Required Returns: Office - 7.6% to 8.2% Industrial - 7.8% to 8.3% Retail - 7.9% to 8.1% Apartment - 7.6% Hotel - 9.4%

NCREIF Realized Returns: Office - 18.3% - 28.1% Industrial - 16.1% - 20.7% Retail - 11.0% - 13.1% Apartment - 13.3% Hotel -21.7%

To the surprise of many, total commercial real estate returns increased in second quarter 2007 and remain at high levels. However, we expect returns to stabilize over the rest of the year, with 2007 returns lower than 2006 levels.

Capitalization Rates

RERC's Realized Cap Rates:Office - 6.0% Industrial - 6.9% Retail - 6.6% Apartment - 5.1% Hotel - 7.7%

NCREIF Implied Cap Rates: Office - 5.5% - 6.4% Industrial - 6.3% - 6.4% Retail - 6.1% Apartment - 5.0% Hotel - 8.2%

RERC’s second quarter 2007 realized capitalization rates and NCREIF im-plied capitalization rates continued to decrease slightly, generally indicating a stabilization of capitalization rates. As we noted last quarter, capitalization rates have bottomed out in most markets, and asset management will be-come absolutely critical to income generation and value creation.



NAR Commercial Forecast (July 2007)

2006 2007 2008

2005 2006 2007 III IV I II III IV I

OFFICE

Vacancy Rate (%) 12.9 12.6 12.7 13.0 13.1 13.3 13.3 13.6 12.6 13.3

Net Absorption (’000 sq. ft.) 18,821 23,925 6,653 14,291 13,153 10,192 12,904 88,834 76,426 44,289

Office Employment (thousands) 16,633 16,704 16,759 16,824 16,903 16,993 17,090 16,358 16,704 16,993

Completions (’000 sq. ft.) 12,003 13,600 11,343 28,191 19,223 17,960 14,069 38,200 47,700 76,737

Inventory (millions sq. ft.) 3,296 3,310 3,321 3,349 3,369 3,386 3,401 3,262 3,310 3,386

Rent Growth (%) 2.1 1.4 2.0 0.8 0.8 0.5 0.7 5.2 5.6 4.1

INDUSTRIAL

Vacancy Rate (%) 9.5 9.4 9.3 9.2 9.2 9.3 9.2 9.8 9.4 9.3

Net Absorption (’000 sq. ft.) 55,806 54,906 31,706 46,919 43,467 40,771 45,707 282,767 202,836 162,862

Industrial Employment (thousands) 10,237 10,231 10,240 10,253 10,271 10,294 10,325 10,184 10,231 10,294


Inventory (millions sq. ft.) 12,075 12,123 12,148 12,192 12,236 12,289 12.328 11,955 12,123 12,289

Rent Growth (%) 0.4 0.5 0.9 0.6 0.8 0.7 0.8 2.9 1.4 3.0

RETAIL

Vacancy Rate (%) 8.0 8.1 8.4 8.8 8.8 8.6 8.6 7.2 8.1 8.6

Net Absorption (’000 sq. ft.) 7,165 6,711 802 4,686 5,270 4,978 4,834 32,846 10,611 15,745


Inventory (millions sq. ft.) 1,540 1,550 1,556 1,568 1,574 1,576 1,581 1,522 1,550 1,576

Rent Growth (%) 1.0 1.0 1.2 0.5 0.4 0.4 0.4 2.9 4.1 2.4

MULTIFAMILY

Vacancy Rate (%) 4.6 5.9 5.7 5.6 5.4 5.8 5.7 6.2 5.9 5.8

Net Absorption (Units) 50,754 -59,683 69,214 67,317 81,889 -5,745 64,591 350,358 229,316 212,316

Completions (Units) 56,844 57,478 52,554 55,448 56,038 55,084 57,320 203,343 221,866 223,890

Inventory (Units in Millions) 13.7 13.7 13.8 13.8 13.9 13.9 14.0 13.6 13.8 14.0

Rent Growth (%) 1.1 0.8 0.7 0.7 0.8 0.9 1.0 2.9 4.1 2.1

Sources: NAR, Torto Wheaton Research.



NAR Commercial Forecast (July 2007)

Time Period

Commercial Leading Indicator

% Change from 1 Quarter Ago

% Change from 1 Year Ago

2007

1Q 120.3 0.2 0.8

2006

4Q 120.1 0.1 1.7

3Q 120.0 0.3 2.8

2Q 119.5 0.2 2.6

1Q 119.2 1.0 3.1

2005

4Q 118.1 1.1 1.9

3Q 116.7 0.2 2.2

2Q 116.5 0.7 2.6

1Q 115.7 -0.1 2.5

2004

4Q 115.8 1.4 3.5

3Q 114.2 0.6 3.0

2Q 113.6 0.7 3.3

1Q 112.8 0.8 2.3

2003

4Q 111.9 0.9 1.2

3Q 110.9 0.9 -0.6

2Q 109.9 -0.3 -1.7

1Q 110.3 -0.3 -1.0

2002

4Q 110.6 -0.8 -0.6

3Q 111.5 -0.3 -1.1

2Q 111.9 0.5 -2.1

1Q 111.3 0.1 -3.9

Source: NAR.

The Commercial Leading Indicator (CLI) for Brokerage Activity, a forward-looking index for the commercial real estate market, rose slightly in the first quarter to the highest level on record, but the rate of growth has decelerated over the past year, according to the National Association of Realtors® (NAR).

The CLI for Brokerage Activity increased 0.2 percent to an index of 120.3 in the first quarter 2007 from a reading of 120.1 in the fourth quarter 2006, and is 0.8 percent higher than the first quarter of 2006, when it stood at 119.3. NAR’s tracking of the index dates back to 1990.

Lawrence Yun, NAR senior economist, said the index has risen for 8 consecutive quarters, but factors in its components are mixed.

“Rising industrial production, a rise in the REIT price index, growth in commercial jobs, rising income, and gains in the wholesale sales contributed to the rise in our leading indicator,” he said.

On the other hand, deteriorating economic conditions have been a drag, specifically a marked decline in durable goods shipments, a decline in return on commercial investment, and an increase in the number of people filing for unemployment insurance.”

Net absorption in the office and industrial sectors in the third quarter of 2007 is expected to be 10 million to 20 million square feet, with about $335 billion to $345 billion in new completed commercial construction activity, compared with $323 billion of new construction recorded in the first quarter of the year.

“Deceleration in the growth of our leading index means we’re entering a more stable period for commercial real estate sectors,” Yun said.

Commercial real estate practitioners can anticipate leasing and sales activity in the third quarter of this year to be approximately 0.8 percent higher than the third quarter of 2006.

The commercial leading indicator is a tool to assess market behavior in the major commercial real estate sectors. The index incorporates 13 variables that reflect future commercial real estate activity, weight-ed appropriately to produce a single indicator of future market per-formance, and is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate.

This information is reprinted, in part, from the June 2007 “Commercial Real Estate Outlook,” a newsletter produced by the

REALTORS® Commercial Alliance. 100

105

110

115

120

125Commercial Leading Indicators

200720062005200420032002

How to Use the Commercial Leading Indicator

Source: NAR.

�0Investment TrendsQuarterly


NationalMarketAnalysis

Investment Conditions Ratings* - 2Q 2007Office 6.0

Industrial 6.4

Retail 6.5

Apartment 6.8

Hotel 6.7*Ratings are averages based on responses to surveys from CCIM designees and candidates for second quarter 2007.

National Transaction Breakdown (7/1/06 - 6/30/07)Office Industrial Retail Apartment Hotel

< $2 MillionVolume (Mil) $2,791 $4,854 $4,977 $6,133 $314

Size-Weighted Avg. $87 $51 $85 $72,526 $33,976

Price-Weighted Avg. $125 $85 $130 $109,766 $57,630

Median $92 $58 $86 $82,687 $37,433

$2 - $5 MillionVolume (Mil) $5,389 $8,396 $8,967 $7,203 $1,312



Median $155 $82 $207 $95,000 $49,355

> $5 MillionVolume (Mil) $234,956 $42,505 $64,758 $101,181 $52,931



Median $188 $82 $188 $93,909 $104,310

All TransactionsVolume (Mil) $243,135 $55,755 $78,701 $114,517 $54,557



Median $145 $69 $133 $88,333 $98,310

Capitalization Rates % (All Transactions)Range 3.4 - 10.6 3.6 - 10.8 3.3 - 10.0 3.0 - 11.0 4.1 - 11.0

Weighted Avg. 6.0 6.9 6.6 5.1 7.7

Median 6.9 7.1 6.7 6.1 9.0 Source: RERC.

OfficePropertySector

��Investment TrendsQuarterly


CCIM designees and candidates who responded to RERC’s survey rated investment conditions for the office market at an average of 6.0 on a scale of 1 to 10, with 10 being high, for second quarter 2007. This is down from the previous quarter’s rating of 6.5, and is the lowest rating among the major property types tracked for the RERC/CCIM Investment Trends Quarterly.

Several survey respondents noted that demand for office properties seems to be slowing, especially in downtown areas. As a result, there is an oversupply of space and lower sales volume in some areas.

Survey respondents assigned the office sector the lowest return versus risk rating, indicating their view that the of-fice sector offers the lowest returns when compared to the amount of risk involved.

At 6.0 percent, the average weighted capitalization rate for the office sector is the second lowest among the major property types tracked by RERC for second quarter 2007. The second quarter rate is 20 basis points less than the first quarter rate.

After increasing during first quarter 2007, the average va-cancy rate for CBD office property declined during second quarter to 9.9 percent, a decrease of 40 basis points, ac-cording to Torto Wheaton Research. The average vacancy rate for suburban office property was 13.9 percent during second quarter, down 10 basis points from the previous quarter. The decline in vacancy rates is expected to slow, however, due to new construction.

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Office Risk-Adjusted Returns

5.5%

6.0%

6.5%

7.0%

7.5%NationalWestMidwestSouthEast

2Q071Q074Q063Q062Q06

RERC Weighted Average Capitalization Rate

$100

$200

$300

$400

$500

$600NationalWest

Midwest

South

East

2Q071Q074Q063Q062Q06

RERC Price-Weighted Average PPSF

$100

$200

$300

$400

$500

$600NationalWest

MidwestSouth

East

2Q071Q074Q063Q062Q06

RERC Size-Weighted Average PPSF

National



IndustrialPropertySector

CCIM designees and candidates who responded to RERC’s survey rated investment conditions for the industrial sector at 6.4 on a scale of 1 to 10, with 10 being high, for second quarter 2007.

The average availability rate for the industrial sector for second quarter 2007 remains unchanged at 9.3 percent, according to Torto Wheaton Research.

According to RERC’s analysis, both size- and price-weighted averages for the industrial sector increased during second quarter 2007. The price-weighted average price per square foot of industrial space saw the largest increase, gaining $9 per square foot during second quarter 2007.

According to RERC’s analysis, the second quarter 2007 trans-action-based, weighted average capitalization rate for industri-al properties is 6.9 percent, down slightly from the first quarter rate.

At 5.5, the industrial sector received the highest value versus price rating, indicating survey respondents’ views that the val-ue placed on industrial space is slightly greater than the price at which it is selling.

Many survey respondents stated that they expect the industrial sector to remain strong over the coming year, with growing demand and limited supply in many areas. However, some respondents raised concern about possible overbuilding and overpricing.

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6.0%

6.5%

7.0%

7.5%


2Q071Q074Q063Q062Q06


$30

$50

$70

$90

$110

$130

$150NationalWest

MidwestSouth

East

2Q071Q074Q063Q062Q06


$30

$50

$70

$90

$110

$130

$150NationalWest

MidwestSouthEast

2Q071Q074Q063Q062Q06


National



RetailPropertySector

6.00%

6.25%

6.50%

6.75%

7.00%

7.25%

7.50% NationalWestMidwestSouthEast

2Q071Q074Q063Q062Q06


$100

$150

$200

$250

$300

$350NationalWest

Midwest

SouthEast

2Q071Q074Q063Q062Q06


CCIM Institute designees and candidates who responded to RERC’s survey gave the retail sector an investment conditions rating of 6.5 on a scale of 1 to 10, with 10 being high, for sec-ond quarter 2007. Like the rating for most of the other property types tracked in this report, this rating is lower than the first quarter rating.

The availability rate for the retail sector increased to 9.0 per-cent during first quarter 2007, according to Torto Wheaton Re-search. This is an increase of 30 basis points from the rate reported during fourth quarter 2006.

With demand for retail property increasing in some suburban areas and undeveloped land hard to come by, the retail sector is seeing a shift from new construction to redevelopment of existing space. This is expected to help keep supply down and improve the fundamentals.

Survey respondents gave the retail sector the lowest value versus price rating when compared to the other major prop-erty types covered by RERC, reflecting their belief that retail properties have the lowest value when compared to the price paid.

The health of the retail sector depends, to a large extent, on the health of each area’s economy and consumer spending. Several survey respondents stated that given slow econom-ic growth in their areas, the retail sector provides one of the weakest commercial real estate investment opportunities. Other respondents stated that with the health of their regional economy, the retail sector likely will flourish.

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■

■

■

$100

$150

$200

$250

$300

$350NationalWest

MidwestSouth

East

2Q071Q074Q063Q062Q06


National



ApartmentPropertySector

CCIM designees and candidates who responded to RERC’s survey rated investment conditions for the apartment sector at 6.8 on a scale of 1 to 10, with 10 being high, for second quarter 2007. This is the highest rating among all property sectors tracked by RERC, although it is down from the previous quarter’s 7.1 rating.

Average vacancy in the apartment sector decreased to 5.8 percent during second quarter 2007 from 6.0 percent dur-ing first quarter, according to Reis, Inc.

The weighted average capitalization rate for the apartment sector is 5.1 percent for second quarter 2007, which is equal to the average rate reported during first quarter. The apartment sector continues to have the lowest capitaliza-tion rate among the property types tracked by RERC.

Many RERC survey respondents note that the apartment market represents one of the best investment opportuni-ties in the commercial real estate market, due in part to increased demand resulting from the cooling housing mar-ket and increased failure of subprime loans.

With a rating of 6.2, the apartment sector received the highest return versus risk rating when compared to the other sectors tracked by RERC. This higher-than-average rating reflects respondents’ views that the return on apart-ments is higher than the amount of expected risk.

At 4.8, the apartment sector also received the highest value versus inflation rating. Although this rating reflects respondents’ views that inflation will be slightly higher than the sector’s value over the coming year, inflation is ex-pected to be less for the apartment market than for the other property sectors tracked by RERC.

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■

■

■

■

3.5%

4.5%

5.5%

6.5%


2Q071Q074Q063Q062Q06


$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000NationalWest

MidwestSouth

East

2Q071Q074Q063Q062Q06

RERC Price-Weighted Average PPU

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000


MidwestSouth

East

2Q071Q074Q063Q062Q06

RERC Size-Weighted Average PPU

National



HotelPropertySector

Investment conditions for the hotel sector earned a rating of 6.7 on a scale of 1 to 10, with 10 being high, during sec-ond quarter 2007. While lower than the previous quarter, the rating is the second highest among all the property sectors tracked by RERC.

According to Smith Travel Research, the second quarter 2007 average hotel occupancy rate is 73.3 percent, 1.7 percent higher than the year-ago average rate. Revenue per available room (RevPAR) is $75.37, an increase of 7.7 percent from a year ago.

According to some sources, the greatest opportunities in the hotel sector are luxury and upscale properties. This is due to minimal new supply and the significant average daily rate growth and RevPAR exhibited by these proper-ties.

CCIM Institute designees and candidates who responded to RERC’s survey gave the hotel sector the lowest inflation versus value rating among all property types. This reflects their views that the hotel sector will be most affected by inflation, and that inflation will be greater than the value added to the property during the coming year.

Many survey respondents stated that the hotel market may be declining, as hotel properties in some regions are be-coming overpriced and the sector is becoming overbuilt.

According to RERC’s analysis, the weighted average capitalization rate for hotel properties for second quarter 2007 is 7.7 percent, 50 basis points lower than the previ-ous quarter’s average. Even so, this is the highest capi-talization rate reported among the major property sectors tracked by RERC.

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■

7.0%

7.5%

8.0%

8.5%

9.0%

9.5% NationalWestMidwestSouthEast

2Q071Q074Q063Q062Q06


$50,000

$140,000

$230,000

$320,000

$410,000


MidwestSouthEast

2Q071Q074Q063Q062Q06

RERC Price-Weighted Average PPU

$50,000

$140,000

$230,000

$320,000

$410,000


MidwestSouth

East

2Q071Q074Q063Q062Q06

RERC Size-Weighted Average PPU

National



Things can happen fast in Oklahoma City. For example, the town grew from zero to 10,000 in one day – April 22, 1889 – the day of the great land rush born from a presidential proclamation. These days, city fathers and business leaders have taken a more concerted approach to growth.

In 1993, Oklahoma City embarked on a downtown capital improvement pro-gram called Metropolitan Area Projects (MAPs) that was fueled by a temporary one-cent sales tax. Believed to be the largest project of its kind at the time, the goal of MAPs was to energize the city center through development of new and upgraded sports, entertainment, cultural, and convention facilities.

To call this visionary program a suc-cess would be an understatement. Dur-

ing the 66 months MAPs was in effect, Oklahoma City collected $309 million in revenues and another $54 million in interest. This has culminated in an esti-mated $2.4 billion in public and private investment so far, with few signs this positive momentum is slowing down.

Comprised of five distinct districts, downtown Oklahoma City has evolved to incorporate new and rehabbed retail, recreation, and residential development with office and hospitality projects. The capitol of the Sooner State includes the expected – a large office market with an estimated 6 million square feet of headquarters space utilized by such energy companies as Chesapeake En-ergy Corporation and Devon Energy Company – as well as the unexpected. Funded through MAPs and the Army Corps of Engineers, the newly renamed Oklahoma River now features 7 miles

of navigable wa-ters bordered by landscaped areas and recreational facilities. For ex-ample, Chesa-peake Energy built a futuristic name-sake boathouse on the river that is now the hub of na-

tional college rowing events. And on a more solemn note, the city developed the Oklahoma City National Memorial & Museum downtown to commemorate the victims and survivors of the bomb-ing of the former Alfred P. Murrah Fed-eral Building.

The burgeoning arts district is host to the successful Oklahoma City Museum of Art, the Norick Library, and other cul-tural institutions. Nearby, arenas like the Ford Center and the Cox Business Services and Convention Center pro-

Oklahoma City RevitalizationLong-Range Vision Key to

By Edward M. Bury, APR

Above: Oklahoma City’s state-of-the-art sports and entertainment venue, the Ford Center. Right: The downtown Ronald J. Norick Library.



vide state-of-the-art venues for sport-ing events and business meetings.

But one of the most noteworthy changes to the downtown landscape is the emergence of residential properties and creation of a 24-hour environment. The Hill at Bricktown, for example, is a new $75 million development featuring 157 urban townhomes with occupancy slated to begin this fall. Within the bor-ders of the Bricktown, Deep Deuce, and Automobile Alley districts, there are more than 870 existing residential units, with an additional 743 pending or under construction, according to sta-tistics released from Downtown Okla-homa City, Inc.

The Bricktown district, the center of entertainment and nightlife, benefited from two MAPs projects: the SBC Brick-town Ballpark, a 12,000-seat ballpark that is the home of the AAA Oklahoma Red Hawks, and the Bricktown Canal, which features a Water Taxi service of-fering relaxing, 1-mile rides.

Like many metropolitan areas, Okla-homa City has seen a decline in man-ufacturing jobs. The bright spot is that new employment is being created with white-collar jobs, especially in health-care. The Oklahoma Health Center employs 12,500 persons, and future plans call for a capital investment of $300 million, including a $42 million cancer center and a $180 million Okla-homa University Medical Center Hos-pital complex. The medical campus is just east of the downtown, and is driv-ing housing and retail in the downtown area. Overall, non-farm employment in the city grew by 3.1 percent in the 12-month period ending June 2007.

According to one area commercial real estate expert, local and outside in-vestors are taking note of the market’s current progress and future potential.

“Local investment has had a major impact on downtown Oklahoma City and on Oklahoma in general,” said Judy J. Hatfield, CCIM, principal at Equity Realty of Oklahoma City. “In addition, investors from California and other markets are seeing the upside of investing in our state. This is a very exciting trend taking place during our centennial year of 2007.

“Investors are now experiencing good returns because of the boom in the oil and gas businesses,” she add-

ed. “This is spurring many new jobs and the need for more office, retail, and housing developments.”

Oklahoma City Transaction Breakdown (7/1/06 - 6/30/07)Office Industrial Retail Apartment Hotel

< $5 MillionVolume (Mil) $40 $94 $183 $79 –

Size-Weighted Avg. $55 $33 $62 $28,537 –

Price-Weighted Avg. $76 $52 $101 $32,142 –

Median $53 $34 $61 $28,750 –

> $5 MillionVolume (Mil) $54 $38 $448 $285 $149



Median $82 $35 $115 $33,240 $104,232

All TransactionsVolume (Mil) $95 $132 $631 $364 $156



Median $56 $34 $65 $30,000 $100,217

Capitalization Rates % (All Transactions)Weighted Average – – – 7.2 –

Median – – – 7.4 –Source: RERC.

Above: Construction is underway for a new housing development in Oklahoma City.


Copyright© �00� by Real Estate Research Corporation (RERC) and the CCIM Institute.

EastRegionTransactionBreakdown

Regional Transaction Price Breakdown/Tiers

CCIM Institute designees and candidates rated the eco-nomic performance in the East region at 6.4 on a scale of 1 to 10, with 10 being high, for second quarter 2007. This is equal to the region’s rating in first quarter, with survey respondents expecting the economy to perform at a similar level over the next year.

East region survey respondents have mixed feelings about the region’s office sector. Some respondents see the office sector as offering significant investment opportunity due

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to positive absorption and supply not exceeding demand. Other respondents note that many office properties are not selling, especially those in some of the smaller downtown areas.

The weighted average capitalization rates for most property types in the East region are lower or equal to the national capitalization rates, with the exception of the industrial sec-tor.

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East Transaction Breakdown (7/1/06 - 6/30/07)Office Industrial Retail Apartment Hotel

< $2 MillionVolume (Mil) $582 $1,022 $1,130 $1,219 $54



Median $84 $49 $83 $76,667 $38,111

$2 - $5 MillionVolume (Mil) $1,092 $1,735 $1,854 $2,318 $199

Size-Weighted Avg. $103 $53 $144 $87,736 $35,515 Price-Weighted Avg. $172 $95 $253 $162,810 $60,036

Median $130 $73 $212 $95,238 $35,772




Median $210 $78 $208 $109,648 $104,310




Median $154 $61 $130 $90,625 $104,310


Weighted Avg. 5.7 7.2 6.6 4.1 7.6





$50

$210

$370

$530

$690

$850U.S. TotalPrice-Weighted Average PPSF

Washing

ton, D

.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore

RERC Price-Weighted Avg. PPSF - 2Q 2007

5%

6%

7%

8%U.S. TotalAvg. Capitalization Rate

Washing

ton, D

.C.

Raleigh

Philad

elphia

Northe

rn NJ

New Yo

rk City

Charlo

tte

Boston

RERC Weighted Avg. Cap Rate - 2Q 2007

East Office Transactions (7/1/06 - 6/30/07)Volume

(millions)Size-weighted Average ($/sf)

Price-weighted Average ($/sf) Median

Average Cap Rate (%)

Baltimore $1,670 $176 $234 $155 –

Boston $16,660 $309 $447 $156 5.9

Charlotte $1,363 $144 $183 $123 6.7

Hartford $765 $112 $120 $102 –

New York City $57,494 $488 $767 $336 5.3

Norfolk $209 $142 $169 $122 –

Northern NJ $4,879 $179 $217 $148 6.4

Philadelphia $2,917 $143 $175 $128 7.4

Pittsburgh $256 $90 $113 $76 –

Raleigh $1,271 $141 $177 $114 7.1

Richmond $540 $175 $219 $97 –

Washington, D.C. $17,837 $333 $409 $272 5.8

East Total $109,131 $317 $569 $154 5.7

U.S. Total $243,135 $239 $412 $145 6.0 Source: RERC.

$50

$210

$370

$530

$690

$850U.S. TotalSize-Weighted Average PPSF

Washing

ton, D

.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore

RERC Size-Weighted Avg. PPSF - 2Q 2007

Sales of office properties in the East region from July 1, 2006 through June 30, 2007 represented nearly 45 per-cent of the total office property sales occurring nationally during this time period.

The lowest realized regional office capitalization rate aver-age is in the East regional office market versus the capital-ization rate average in other regions.

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East




$20

$80

$140

$200

$260


Washin

gton,

D.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore


6.0%

6.5%

7.0%

7.5%

8.0%U.S. TotalAvg. Capitalization Rate

Washing

ton, D

.C.

Philad

elphia

Northe

rn NJ

New Yo

rk City

Hartfor

d

Baltim

ore


East Industrial Transactions (7/1/06 - 6/30/07)Volume




Baltimore $1,029 $75 $103 $79 7.5

Boston $1,635 $78 $114 $75 –

Charlotte $523 $60 $83 $47 –

Hartford $366 $56 $78 $50 7.5

New York City $2,430 $165 $300 $131 7.1

Norfolk $140 $85 $105 $71 –

Northern NJ $1,078 $78 $104 $83 7.7

Philadelphia $1,127 $56 $85 $52 6.9

Pittsburgh $132 $28 $38 $38 –

Raleigh $489 $66 $76 $55 –

Richmond $368 $47 $58 $43 –

Washington, D.C. $973 $105 $134 $111 6.9

East Total $13,650 $68 $128 $61 7.2


$20

$80

$140

$200

$260


Washin

gton,

D.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore


The industrial sector in the East region is the only sector with a weighted average capitalization rate higher than the national rate. The East regional average is 7.2 percent, 30 basis points higher than the national average.

At 6.9 percent, Philadelphia and Washington, D.C. indus-trial properties have the lowest realized average capital-ization rates in the East region, and are equal to the na-tional average capitalization rate.

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East




$100

$200

$300

$400

$500

$600


Washin

gton,

D.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore


6.0%

6.5%

7.0%

7.5%


Washing

ton, D

.C.

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Charlo

tte

Boston

Baltim

ore


East Retail Transactions (7/1/06 - 6/30/07)Volume




Baltimore $796 $194 $417 $97 6.4

Boston $1,950 $172 $259 $109 6.2

Charlotte $621 $151 $189 $140 6.8

Hartford $292 $143 $195 $92 –

New York City $5,887 $366 $609 $235 6.3

Norfolk $225 $152 $193 $106 7.0

Northern NJ $1,259 $191 $236 $182 6.3

Philadelphia $1,974 $205 $296 $132 6.3

Pittsburgh $181 $137 $198 $138 7.7

Raleigh $405 $128 $174 $140 –

Richmond $259 $140 $157 $142 –

Washington, D.C. $1,954 $241 $327 $248 6.4

East Total $21,458 $182 $339 $130 6.6


$100

$200

$300

$400

$500

$600


Washin

gton,

D.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore


The price- and size-weighted average prices per square foot of retail space in the East region are higher than na-tional averages, while the median price of retail space is slightly lower than the national average.

At 6.2 percent, the Boston retail sector has the lowest average capitalization rate when compared to the other metros in the East region. At 7.7 percent, the Pittsburgh retail sector has the highest average capitalization rate in the region.

■

■

East




$40,000

$112,000

$184,000

$256,000

$328,000

$400,000U.S. TotalPrice-Weighted Average PPU

Washing

ton, D

.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore

RERC Price-Weighted Avg. PPU - 2Q 2007

3%

4%

5%

6%


Washing

ton, D

.C.

Richmon

d

Raleigh

Philad

elphia

New Yo

rk City

Charlo

tte

Boston


East Apartment Transactions (7/1/06 - 6/30/07)Volume

(millions)Size-weighted

Average ($/unit)Price-weighted Average ($/unit) Median


Baltimore $2,100 $105,780 $131,040 $83,167 –

Boston $2,379 $185,012 $227,879 $128,000 5.4

Charlotte $815 $59,711 $75,074 $42,574 5.8

Hartford $256 $95,477 $149,463 $56,207 –

New York City $25,080 $220,370 $373,599 $113,597 3.2

Norfolk $315 $84,922 $103,319 $74,512 –

Northern NJ $998 $126,746 $160,856 $84,948 –

Philadelphia $1,745 $86,016 $107,830 $75,957 6.1

Pittsburgh $34 $48,661 $70,440 $37,218 –

Raleigh $825 $75,489 $98,880 $62,888 5.8

Richmond $521 $91,808 $247,634 $67,759 6.6

Washington, D.C. $3,464 $133,889 $187,353 $112,788 5.0

East Total $42,715 $143,621 $283,216 $90,625 4.1

U.S. Total $114,517 $102,850 $190,442 $88,333 5.1 Source: RERC.

$40,000

$112,000

$184,000

$256,000

$328,000

$400,000U.S. TotalSize-Weighted Average PPU

Washing

ton, D

.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore

RERC Size-Weighted Avg. PPU - 2Q 2007

Capitalization rates for the East region apartment market are lower than those for the other regions. At 4.1 percent, the average capitalization rate for the East region apart-ment market is also well below the national average.

At 3.2 percent, New York City has the lowest realized aver-age capitalization rate for apartments among the 48 met-ros covered by RERC.

■

■

East



HotelPropertySector

$60,000

$168,000

$276,000

$384,000

$492,000


Washing

ton, D

.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore


6.0%

6.5%

7.0%

7.5%

8.0%

8.5%


Washing

ton, D

.C.

Norfolk

New Yo

rk City

Charlo

tte

Boston

Baltim

ore


East Hotel Transactions (7/1/06 - 6/30/07)Volume




Baltimore $673 $136,484 $177,347 $104,310 8.8

Boston $2,050 $275,365 $409,288 $112,020 7.7

Charlotte $166 $75,438 $98,536 $62,500 8.1

Hartford $105 $91,153 $106,930 $104,310 –

New York City $3,842 $321,865 $562,540 $187,500 7.4

Norfolk $256 $88,607 $109,321 $104,310 8.8

Northern NJ $618 $105,822 $123,243 $104,310 –

Philadelphia $709 $141,202 $213,147 $104,310 –

Pittsburgh $74 $78,765 $86,292 $75,934 –

Raleigh $270 $89,852 $103,578 $97,340 –

Richmond $106 $68,308 $92,494 $71,951 –

Washington, D.C. $2,104 $189,210 $238,635 $104,310 6.5

East Total $13,928 $166,221 $326,642 $104,310 7.6


$60,000

$168,000

$276,000

$384,000

$492,000


Washing

ton, D

.C.

Richmon

d

Raleigh

Pittsbu

rgh

Philad

elphia

Northe

rn NJ

Norfolk

New Yo

rk City

Hartfor

d

Charlo

tte

Boston

Baltim

ore


The median price per unit of hotel space in the East region from July 1, 2006 through June 30, 2006 is higher than the median prices per unit among the other regions tracked by RERC.

Although the median realized capitalization rate for hotel properties in the East region is equal to the national av-erage, the weighted average capitalization rate for East region hotels is slightly lower than the national average.

■

■

East



SouthRegionTransactionBreakdown

Regional Transaction Price Breakdown/TiersSouth Transaction Breakdown (7/1/06 - 6/30/07)

Office Industrial Retail Apartment Hotel< $2 MillionVolume (Mil) $844 $1,297 $1,779 $822 $84



Median $89 $53 $82 $45,000 $38,750




Median $140 $62 $171 $38,194 $46,623




Median $136 $64 $155 $66,333 $104,232




Median $116 $56 $114 $53,506 $96,713


Weighted Avg. 6.8 7.0 6.9 6.7 8.4


With a rating of 5.1, CCIM Institute designees and candidates regarded the performance of the South regional economy lower than the national economy and of any of the other re-gional economies tracked by RERC during second quarter 2007. According to RERC’s analysis, nearly half of the survey respondents expect the South regional economy to continue to perform at a similar level for the coming year, while about 40 percent of survey respondents expect the South regional economy to decline.

Due to increasing demand, second quarter 2007 survey re-spondents expect the industrial and apartment sectors gen-

■

■

erally to offer the best commercial real estate investment po-tential in the South region. Due to some overbuilding in the region, respondents felt the office sector in general offers the weakest investment opportunity.

As has been the trend, average sale prices for all property types in the South region are lower than those reported for the nation, and average capitalization rates for the South re-gion are slightly higher than national averages.

■




$0

$100

$200

$300

$400


Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans/

Baton R

ouge

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


5.5%

6.5%

7.5%


Tampa

San Anto

nio

Orland

o

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


South Office Transactions (7/1/06 - 6/30/07)Volume




Atlanta $8,277 $169 $212 $127 6.9

Austin $1,780 $240 $284 $152 5.8

Dallas/Ft. Worth $5,076 $115 $133 $102 7.1

Houston $2,536 $125 $148 $97 7.1

Memphis $614 $114 $160 $102 7.6

Miami $4,024 $198 $246 $178 5.9

Nashville $767 $113 $129 $100 8.0

New Orleans/Baton Rouge

$818 $227 $291 $77 –

Oklahoma City $95 $57 $75 $56 –

Orlando $1,308 $162 $190 $169 7.8

San Antonio $724 $101 $113 $86 7.3

Tampa $1,739 $146 $165 $125 6.6

South Total $31,470 $146 $192 $116 6.8


$0

$100

$200

$300

$400


Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans/

Baton R

ouge

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


The volume of reported office property transactions from July 1, 2006 through June 30, 2007 in the South region represented less than 13 percent of the total office sales transactions in the nation during this time period.

The largest dollar volume of office transactions from July 1, 2006 through June 30, 2007 in the South region oc-curred in Atlanta. The Austin office market has the lowest average capitalization rate in the South region, while the Miami area has the highest median price per square foot for office space.

■

■

South




$20

$56

$92

$128

$164


Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans/

Baton R

ouge

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


5.0%

5.5%

6.0%

6.5%

7.0%

7.5%


San Anto

nio

Orland

o

New Orle

ans/

Baton R

ouge

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


South Industrial Transactions (7/1/06 - 6/30/07)Volume




Atlanta $1,868 $52 $64 $54 7.2

Austin $500 $117 $179 $71 6.6

Dallas/Ft. Worth $1,099 $63 $103 $45 7.7

Houston $1,069 $58 $81 $51 7.3

Memphis $1,081 $35 $43 $34 7.0

Miami $2,108 $81 $99 $89 5.7

Nashville $811 $41 $51 $42 –


$56 $43 $64 $34 7.3

Oklahoma City $132 $38 $75 $34 –

Orlando $690 $66 $81 $78 6.1

San Antonio $268 $42 $54 $43 7.5

Tampa $604 $70 $86 $70 –

South Total $13,417 $55 $82 $56 7.0


$20

$56

$92

$128

$164


Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans/

Baton R

ouge

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


Although the weighted average and median capitalization rates for all property types in the South region are higher than national averages, the region’s industrial sector is most in line with national levels. The weighted average capitalization rate for the South region is 10 basis points above the national rate, and the median capitalization rate is 30 basis points above the national rate.

According to RERC’s analysis, the Miami market reflects the highest median price per square foot of industrial space in the South region. Miami also has the lowest weighted aver-age capitalization rate among the South regional industrial markets.

■

■

South




$50

$100

$150

$200

$250

$300

U.S. TotalPrice-Weighted Average PPSF

Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans/

Baton R

ouge

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


6.0%

6.5%

7.0%

7.5%


Tampa

San Anto

nio

Orland

o

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


South Retail Transactions (7/1/06 - 6/30/07)Volume




Atlanta $2,515 $158 $204 $144 6.7

Austin $457 $173 $216 $169 7.4

Dallas/Ft. Worth $3,999 $132 $192 $102 7.0

Houston $1,471 $146 $197 $125 6.9

Memphis $460 $128 $188 $97 7.8

Miami $2,902 $202 $255 $162 6.3

Nashville $486 $93 $123 $95 7.3


$127 $131 $158 $104 –

Oklahoma City $631 $91 $114 $65 –

Orlando $1,679 $198 $232 $176 6.7

San Antonio $744 $110 $167 $101 6.8

Tampa $854 $158 $199 $141 6.8

South Total $23,188 $135 $194 $114 6.9


$50

$100

$150

$200

$250


Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans/

Baton R

ouge

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


Nearly 25 percent of the total dollar volume of sales from July 1, 2006 through June 30, 2007 in the South regional commercial real estate market occurred in the retail sec-tor. This volume of sales in the retail sector is second only to the region’s office sector.

The highest dollar volume of retail transactions in the South region occurred in the Dallas market. The highest average capitalization rate when compared to the other metro areas in the region is 7.8 percent and is represented in the Memphis market.

■

■

South




$30,000

$60,000

$90,000

$120,000

$150,000

$180,000

$210,000

U.S. TotalPrice-Weighted Average PPU

Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

Austin

Atlanta


4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%


Tampa

San Anto

nio

Orland

o

Oklaho

ma City

Nashv

ille

Miami

Memph

is

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


South Apartment Transactions (7/1/06 - 6/30/07)Volume




Atlanta $3,705 $73,987 $89,428 $60,556 6.2

Austin $1,280 $85,676 $115,151 $64,528 6.0

Dallas/Ft. Worth $2,960 $55,135 $77,940 $38,149 7.1

Houston $2,071 $56,610 $83,269 $38,081 6.6

Memphis $569 $37,204 $53,108 $27,558 7.8

Miami $2,349 $118,948 $157,917 $90,000 6.0

Nashville $672 $59,284 $72,466 $43,786 6.7


$103 $81,598 $118,295 $67,000 –

Oklahoma City $364 $36,634 $53,605 $30,000 7.2

Orlando $766 $76,678 $88,503 $71,011 6.3

San Antonio $468 $58,711 $88,120 $46,285 6.4

Tampa $1,393 $87,049 $108,722 $63,750 6.4

South Total $22,031 $67,589 $96,746 $53,506 6.7


$30,000

$60,000

$90,000

$120,000

$150,000

$180,000


Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans/

Baton R

ouge

Nashvill

e

Miami

Memph

is

Housto

n

Dallas/

Ft. W

orth

Austin

Atlanta


The weighted average capitalization rate and median cap-italization rate for the apartment sector in the South region are 160 basis points and 100 basis points, respectively, above national rates.

The lowest average capitalization rate for apartments in the South region is 6.0 percent, in both the Miami and Aus-tin markets. The highest capitalization rate in the South region apartment market is 7.8 percent for the Memphis market.

■

■

South



HotelPropertySector

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000


Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans/

Baton R

ouge

Nashvill

e

Miami

Memph

is

Housto

n

Dallas/

Ft. W

orth

Austin

Atlanta


6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%


Miami

Housto

n

Dallas

/

Ft. W

orth

Austin

Atlanta


South Hotel Transactions (7/1/06 - 6/30/07)Volume




Atlanta $2,130 $104,004 $130,034 $104,232 8.9

Austin $398 $138,890 $187,696 $94,820 6.2

Dallas/Ft. Worth $1,149 $119,280 $216,018 $81,634 8.6

Houston $458 $120,688 $172,345 $59,621 9.9

Memphis $345 $81,318 $96,341 $96,614 –

Miami $1,073 $130,937 $187,553 $104,271 8.0

Nashville $510 $108,083 $124,327 $104,232 –


$212 $140,593 $177,766 $104,232 –

Oklahoma City $156 $99,577 $118,385 $100,217 –

Orlando $697 $63,098 $93,217 $69,601 –

San Antonio $154 $73,325 $98,532 $72,000 –

Tampa $339 $81,625 $96,329 $64,274 –

South Total $11,578 $110,600 $174,158 $96,713 8.4


$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000


Tampa

San Anto

nio

Orland

o

Oklaho

ma City

New Orle

ans/

Baton R

ouge

Nashvill

e

Miami

Memph

is

Housto

n

Dallas/

Ft. W

orth

Austin

Atlanta


The South region accounted for slightly more than 20 per-cent of the total dollar volume of U.S. hotel transactions from July 1, 2006 through June 30, 2007.

The highest average capitalization rate reported for hotel properties in the South region is 9.9 percent, seen in the Houston market, while the lowest rate for the region is 6.2 percent and occurred in the Austin market.

■

■

South



MidwestRegionTransactionBreakdown

Regional Transaction Price Breakdown/TiersMidwest Transaction Breakdown (7/1/06 - 6/30/07)

Office Industrial Retail Apartment Hotel< $2 MillionVolume (Mil) $408 $792 $804 $727 $45



Median $65 $38 $63 $51,530 $21,500

$2 - $5 MillionVolume (Mil) $673 $1,344 $1,359 $693 $202



Median $101 $47 $169 $47,251 $37,425




Median $139 $52 $149 $63,798 $99,286




Median $98 $43 $96 $53,000 $73,309


Weighted Avg. 6.8 7.6 6.9 5.9 7.8


CCIM Institute designees and candidates rated the second quarter 2007 performance of the Midwest regional economy at 6.5 on a scale of 1 to 10, with 10 being high. This rating is slightly higher than last quarter’s regional rating, and also is higher than the current national average rating of 6.0. Eighty percent of survey respondents expect the Midwest regional economy to perform at a similar level during the next year.

Survey respondents stated that the Midwest apartment sector offers the best investment opportunity among the commercial real estate sectors, largely due to the slow housing market,

■

■

higher interest rates, and a meltdown in subprime lending. Survey respondents stated that the Midwest retail sector of-fers the lowest investment potential, as the economy in many markets is slowing and many retail sectors are overbuilt.

The Midwest regional weighted average and median capi-talization rates from the July 1, 2006 through June 30, 2007 time period for the major property types RERC tracks are well above national averages, with the exception of the Midwest hotel sector, which is fairly in line with the national hotel sec-tor.

■




$50

$100

$150

$200

$250

$300

$350

$400

$450

U.S. TotalPrice-Weighted Average PPSF

Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


5.5%

6.5%

7.5%


Minnea

polis

Milwau

kee

Kansa

s City

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


Midwest Office Transactions (7/1/06 - 6/30/07)Volume




Chicago $17,844 $230 $271 $152 6.4

Cincinnati $640 $126 $154 $76 7.1

Cleveland $931 $113 $144 $91 7.8

Columbus $423 $82 $109 $77 7.8

Detroit $628 $104 $125 $112 7.7

Indianapolis $505 $110 $124 $89 –

Kansas City $1,317 $115 $127 $91 7.1

Milwaukee $987 $130 $178 $78 7.2

Minneapolis $2,308 $136 $159 $119 6.7

Omaha $554 $122 $151 $111 –

St. Louis $1,524 $133 $165 $111 –

Toledo $75 $68 $90 $92 –

Midwest Total $28,652 $169 $225 $98 6.8


$50

$100

$150

$200

$250

$300

$350

$400


Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


Following national trends, the largest dollar volume of sales for the Midwest region during the July 1, 2006 through June 30, 2007 time period occurred in the office sector.

The Chicago office market has the highest median price per square foot, as well as the lowest capitalization rate, of all the Midwest markets for the time period analyzed.

The average capitalization rate for each office market in the Midwest region is higher than the national average capitalization rate.

■

■

■

Midwest




$20

$40

$60

$80

$100

$120


Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


6%

7%

8%

9%


Minnea

polis

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


Midwest Industrial Transactions (7/1/06 - 6/30/07)Volume




Chicago $2,763 $55 $76 $57 6.8

Cincinnati $413 $45 $55 $39 8.4

Cleveland $584 $41 $61 $37 7.3

Columbus $787 $33 $45 $36 6.9

Detroit $448 $54 $71 $50 9.8

Indianapolis $194 $46 $54 $40 –

Kansas City $273 $59 $101 $49 –

Milwaukee $213 $35 $44 $37 –

Minneapolis $570 $54 $64 $59 6.9

Omaha $70 $36 $101 $38 –

St. Louis $355 $51 $78 $48 –

Toledo $23 $41 $48 $30 –

Midwest Total $7,814 $46 $67 $43 7.6


$20

$40

$60

$80

$100

$120


Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


The weighted average and median capitalization rates for the Midwest regional industrial market are well above the national averages. The price- and size-weighted averages and median prices for industrial properties in the Midwest region are well below national levels.

Second only to the Los Angeles market, approximately $2,763 million of industrial property transactions occurred in the Chicago market during the time period between July 1, 2006 and June 30, 2007.

■

■

Midwest




$50

$100

$150

$200

$250

$300

$350

$400

$450 U.S. TotalPrice-Weighted Average PPSF

Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


5.0%

5.5%

6.0%

6.5%

7.0%

7.5%


Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


Midwest Retail Transactions (7/1/06 - 6/30/07)Volume




Chicago $2,797 $170 $235 $155 6.6

Cincinnati $455 $172 $247 $85 7.0

Cleveland $809 $130 $160 $94 6.8

Columbus $475 $92 $143 $103 7.6

Detroit $285 $121 $213 $120 7.3

Indianapolis $177 $127 $193 $122 6.3

Kansas City $700 $123 $287 $70 6.9

Milwaukee $226 $116 $150 $105 7.0

Minneapolis $2,022 $210 $401 $91 5.6

Omaha $142 $89 $160 $67 –

St. Louis $413 $124 $159 $96 –

Toledo $78 $96 $116 $72 –

Midwest Total $10,428 $132 $236 $96 6.9


$50

$100

$150

$200

$250

$300

$350

$400


Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


The price- and size-weighted average and median prices for Midwest regional retail space purchased between July 1, 2006 and June 30, 2007 are lower than the national retail averages.

At 100 basis points below the national average, the Minne-apolis market has the lowest weighted-average capitaliza-tion rate within the Midwest region’s retail sector. The In-dianapolis market is the only other area in the region with an average capitalization rate below the national rate.

■

■

Midwest




$40,000

$80,000

$120,000

$160,000

$200,000


Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%


Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Chicag

o


Midwest Apartment Transactions (7/1/06 - 6/30/07)Volume




Chicago $4,185 $129,515 $216,273 $84,254 4.6

Cincinnati $345 $46,768 $65,860 $30,104 –

Cleveland $556 $49,332 $66,170 $39,583 6.8

Columbus $420 $48,986 $55,888 $42,319 7.1

Detroit $559 $45,314 $57,984 $36,875 6.8

Indianapolis $374 $56,054 $72,264 $42,509 7.2

Kansas City $446 $58,182 $80,315 $38,906 7.3

Milwaukee $260 $92,631 $136,605 $49,375 –

Minneapolis $548 $83,982 $97,682 $72,813 –

Omaha $118 $49,302 $83,164 $31,316 –

St. Louis $314 $50,588 $63,206 $40,179 –

Toledo $249 $46,447 $62,451 $30,556 –

Midwest Total $9,811 $70,122 $134,038 $53,000 5.9


$40,000

$80,000

$120,000

$160,000

$200,000


Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


The weighted-average capitalization rate for apartments in the Midwest region is higher than the national average, al-though at 4.6 percent, the weighted-average capitalization rate for apartments in the Chicago area is 50 basis points below that of the nation.

■

Midwest



HotelPropertySector

$0

$100,000

$200,000

$300,000

$400,000

$500,000


Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


Midwest Hotel Transactions (7/1/06 - 6/30/07)Volume




Chicago $2,340 $143,598 $209,629 $104,255 6.7

Cincinnati $349 $120,658 $146,204 $104,310 –

Cleveland $212 $86,199 $118,484 $104,310 –

Columbus $217 $90,336 $117,510 $79,872 –

Detroit $336 $80,914 $102,707 $75,460 –

Indianapolis $93 $71,614 $90,213 $79,872 –

Kansas City $148 $79,573 $106,434 $72,202 –

Milwaukee $65 $89,132 $95,910 $89,194 –

Minneapolis $255 $112,193 $158,257 $83,338 –

Omaha $69 $63,204 $88,175 $67,265 –

St. Louis $524 $154,344 $584,279 $71,347 8.7

Toledo $39 $62,445 $76,591 $78,563 –

Midwest Total $5,402 $105,101 $202,744 $73,309 7.8


$0

$100,000

$200,000

$300,000

$400,000

$500,000


Toled

o

St. Lou

is

Omaha

Minnea

polis

Milwau

kee

Kansa

s City

Indian

apoli

s

Detroit

Columbu

s

Clevela

nd

Cincinn

ati

Chicag

o


More than 95 percent of the hotel transactions in the Mid-west region from July 1, 2006 through June 30, 2007 sold for more than $5 million.

The median prices per unit of hotel properties in the Chi-cago, Cincinnati, and Cleveland markets are higher than the regional and national median prices.

■

■

The average weighted capitalization rate for the Chicago market is 110 basis points lower than that of the region.

■

Midwest



WestRegionTransactionBreakdown

Regional Transaction Price Breakdown/TiersWest Transaction Breakdown (7/1/06 - 6/30/07)

Office Industrial Retail Apartment Hotel< $2 MillionVolume (Mil) $957 $1,742 $1,262 $3,364 $131



Median $125 $102 $118 $112,000 $46,920




Median $196 $122 $250 $127,003 $61,000




Median $221 $111 $232 $116,120 $104,310




Median $192 $111 $181 $115,000 $103,947


Weighted Avg. 5.9 6.4 6.2 5.5 7.2


CCIM Institute designees and candidates rated the West regional economy at 6.9 on a scale of 1 to 10, with 10 be-ing high, for second quarter 2007. Although this is a lower rating than first quarter, it is the highest second quarter rating earned by any of the four regions surveyed. More than half of this quarter’s survey respondents expect the West regional economy to strengthen even further over the coming year.

Respondents to the survey stated that the industrial sector has the best investment potential among the commercial property sectors in the West region, due largely to limited supply and decreasing availability. Many respondents also

■

■

note that the office sector is overbuilt, and therefore regard investment opportunities for this sector as limited.

The average and median capitalization rates for the major property types in the West region range from 10 to 100 ba-sis points lower than national averages, with the exception of the weighted average capitalization rate for the apart-ment market.

The price- and size-weighted average and median prices for the major property types in the West region are mostly higher than the nation.

■

■




$100

$150

$200

$250

$300

$350

$400

$450

$500 U.S. TotalPrice-Weighted Average PPSF

Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


5%

6%

7%


Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Denve

r


West Office Transactions (7/1/06 - 6/30/07)Volume




Denver $5,463 $164 $208 $124 6.6

Honolulu $250 $243 $295 $251 –

Las Vegas $851 $216 $272 $224 6.9

Los Angeles $15,482 $285 $345 $225 6.1

Phoenix $5,051 $200 $248 $168 6.4

Portland $4,796 $255 $310 $171 5.7

Sacramento $2,531 $232 $260 $239 6.8

Salt Lake City $977 $180 $227 $120 7.4

San Diego $4,467 $284 $350 $237 6.4

San Francisco $22,198 $324 $449 $248 5.5

Seattle $9,067 $298 $345 $211 5.5

Tucson $207 $150 $167 $140 –

West Total $72,877 $259 $348 $192 5.9


$100

$150

$200

$250

$300

$350

$400

$450


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


The dollar volume of office transactions in the West region from July 1, 2006 through June 30, 2007 account for nearly 30 percent of the total dollar volume of office transactions that occurred nationally during this time period.

The San Francisco office market alone accounts for more than 30 percent of the total dollar volume of office sales in the West region during the last year. According to RERC’s analysis, at 5.5 percent, the San Francisco and Seattle of-fice markets have the lowest average capitalization rates for the West region.

■

■

West




$40

$80

$120

$160

$200


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


5.0%

5.5%

6.0%

6.5%

7.0%

7.5%


Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Denver


West Industrial Transactions (7/1/06 - 6/30/07)Volume




Denver $1,116 $78 $98 $75 7.0

Honolulu $217 $148 $197 $143 –

Las Vegas $1,061 $134 $163 $145 6.9

Los Angeles $6,127 $114 $149 $132 5.8

Phoenix $1,886 $92 $114 $100 7.3

Portland $918 $75 $103 $82 7.1

Sacramento $198 $92 $118 $89 7.3

Salt Lake City $190 $57 $68 $58 7.7

San Diego $2,029 $130 $192 $150 6.5

San Francisco $2,335 $118 $147 $126 5.3

Seattle $2,030 $102 $147 $109 6.9

Tucson $126 $73 $94 $71 –

West Total $20,018 $99 $139 $111 6.4


$40

$80

$120

$160

$200


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


The highest dollar volume of industrial property transac-tions in the U.S. occurred in the West region during the pe-riod from July 1, 2006 through June 30, 2007. The highest price- and size-weighted and median prices for industrial space also occurred in the West region.

The lowest average capitalization rate for industrial space purchased in the West region between July 1, 2006 and June 30, 2007 was in the San Francisco market. The high-est median price for industrial properties sold during this time period is $150 per square foot in the San Diego mar-ket.

■

■

West




$50

$150

$250

$350

$450


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


5.0%

5.5%

6.0%

6.5%


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


West Retail Transactions (7/1/06 - 6/30/07)Volume




Denver $1,381 $162 $205 $156 6.6

Honolulu $666 $295 $364 $308 6.5

Las Vegas $1,156 $197 $258 $218 6.5

Los Angeles $6,041 $276 $429 $237 6.0

Phoenix $2,063 $186 $237 $192 6.5

Portland $470 $172 $215 $151 6.3

Sacramento $918 $218 $269 $239 6.3

Salt Lake City $274 $137 $164 $115 6.9

San Diego $1,328 $251 $324 $234 6.1

San Francisco $1,847 $250 $532 $233 5.5

Seattle $966 $194 $267 $163 6.3

Tucson $537 $160 $194 $146 6.4

West Total $22,231 $197 $311 $181 6.2


$50

$150

$250

$350

$450


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


Retail property sales accounted for nearly 13 percent of all commercial real estate transactions between July 1, 2006 and June 30, 2007 in the West region. However, West re-gional retail property sales accounted for more than twice this amount, or about 28 percent, of retail sales nation-wide.

The highest dollar volume of transactions for retail proper-ties among the 48 metros covered in this report occurred in the Los Angeles market, accounting for nearly 25 per-cent of total retail property sales in the West region.

■

■

West




$30,000

$84,000

$138,000

$192,000

$246,000


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


4.0%

4.5%

5.0%

5.5%

6.0%

6.5%


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Denve

r


West Apartment Transactions (7/1/06 - 6/30/07)Volume




Denver $1,796 $92,102 $108,581 $66,088 5.5

Honolulu $155 $157,838 $180,767 $170,252 –

Las Vegas $2,433 $94,611 $106,622 $82,808 5.7

Los Angeles $9,395 $158,296 $196,284 $133,077 5.0

Phoenix $7,539 $92,433 $114,261 $74,074 5.6

Portland $753 $92,775 $119,678 $71,464 6.5

Sacramento $794 $97,308 $109,252 $84,067 5.9

Salt Lake City $293 $82,079 $88,443 $66,667 6.3

San Diego $2,491 $169,670 $206,916 $119,444 5.5

San Francisco $4,790 $202,507 $246,386 $161,250 4.8

Seattle $3,715 $120,972 $153,346 $111,836 5.6

Tucson $1,581 $69,292 $87,606 $52,172 6.2

West Total $38,377 $115,846 $158,663 $115,000 5.5


$30,000

$84,000

$138,000

$192,000

$246,000


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


Apartment property sales in the West region accounted for nearly 35 percent of all U.S. apartment transactions during the July 1, 2006 through June 30, 2007 time period.

The highest median price per apartment unit in the West region is in the Honolulu market. The lowest average capi-talization rate for apartment properties in the West region is in the San Francisco market.

■

■

West



HotelPropertySector

$50,000

$220,000

$390,000

$560,000

$730,000


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


6.0%

6.5%

7.0%

7.5%

8.0%

8.5%


Tucs

on

San Fr

ancis

co

San Dieg

o

Phoen

ix

Los A

ngele

s


West Hotel Transactions (7/1/06 - 6/30/07)Volume




Denver $681 $144,146 $218,834 $104,310 –

Honolulu $2,683 $454,916 $874,040 $173,333 –

Las Vegas $5,082 $270,542 $728,905 $104,310 –

Los Angeles $3,971 $197,990 $359,908 $104,310 7.5

Phoenix $3,528 $312,553 $511,659 $104,310 8.8

Portland $212 $108,180 $119,322 $104,310 –

Sacramento $247 $110,246 $124,027 $100,629 –

Salt Lake City $130 $77,608 $89,169 $103,947 –

San Diego $1,235 $205,333 $364,858 $104,310 7.2

San Francisco $2,644 $166,541 $256,943 $104,310 6.2

Seattle $850 $122,152 $205,084 $79,872 –

Tucson $292 $101,983 $121,820 $73,573 7.7

West Total $23,249 $200,773 $485,072 $103,947 7.2


$50,000

$220,000

$390,000

$560,000

$730,000


Tucs

on

Seattle

San Fr

ancis

co

San Dieg

o

Salt La

ke City

Sacram

ento

Portlan

d

Phoen

ix

Los A

ngele

s

Las V

egas

Honolu

lu

Denve

r


The highest size- and price-weighted average unit prices for hotels sold between July 1, 2006 and June 30, 2007 are in the West region.

The highest dollar volume of hotel transactions conducted in the U.S. between July 1, 2006 and June 30, 2007 is in the Las Vegas market, accounting for nearly one-fourth of all hotel sales in the West region.

■

■

West



Trusted Advice. Proven Performance.

Gold

Bronze

Contributors

Company Name Metro/Area �st USA Commercial Properties, LLC

Bryan Watkins Phoenix, AZ

AllPro Realty Specialists, Inc. Gloria J. Young

AMJ Inc. of Gainesville Beau Beery Florida

Berthouex Realty Group Al Berthouex Memphis, TN

Bryant Commercial Real Estate Partners Rick Tumlin Atlanta, GA

Byers & Harvey, Inc. Gene Walker

C�� Commercial Chris Schreiber Idaho,Washington

Capstone Properties Kent Cooper Central Florida

CB Richard Ellis/MEGA Jim Maenner Omaha, NE

Choi International Mark J. Storfer Honolulu, HI

Coldwell Banker Steve Mackenback Ohio

Coldwell Banker Commercial, NRT

Debra Johnson Shuey SW Florida

Coldwell Banker Commercial, Prime Properties, LLC

Dale Beede Grand Junction, CO

Coldwell Banker Commercial, Trademark Properties, Inc.

Mark Howe Raleigh, NC

Colliers Roy Budgell CanadaDarling Realty Lance A. Bieker Florida

Duemelands Commercial

Skip Duemeland North Dakota

Eight M Investors, LLC Tai Bixby New Mexico

Eisner, Feldman & Grant, Inc.

Natalie Feldman Tampa, FL

Elman USA, LLC Adel Elmakabady Atlanta, GA

Graham Organization Mark Vellinga South Dakota

Hembree & Associates Anthony Homer Florida

Infinity Real Estate Group, Inc.

Mark A. Berezin

Integra Realty Resources Carol Doherty Las Vegas,

NVInvestment Real Estate Associates

Adam P. Von Romer Miami, FL

Investment Realty Company, L.C.

Steve Raub San Antonio, TX

Keller Realty, Inc. Sam Robnett Las Vegas, NV

Keller Williams Realty

Frank E. Hemming, Jr.

Orange County, NY

KSK Services, Inc. Kenneth Krawczyk

Wisconsin and Florida

Larkin Commercial Properties, Inc. Jay Verro New York

Laureate Capital Carl J. Bedwell Nashville, TNLegend Properties, Inc. David DePetris Philadelphia,

PALong Commercial Realty

James P. Robertson Tucson, AZ



Thank you to all who

contributed to this

report.

Contributors

Miller, Wilkins & Associates Shaun Wilkins Cincinnati,

OHNew West Consulting Brian Frank Phoenix, AZ

NexCore Group Bryan P. Barnes Denver, CONorthStar Real Estate Capital

Michael Batdorf, CCIM

Orion Partners Ltd. Barry PalmaPA Lethbridge & Co.

Barry Lethbridge

Ft. Lauderdale, FL

Platinum Properties GMAC Real Estate Chuck Martin Las Vegas,

NVPlatinum Property Group

Michael Cantwell

West Palm Beach, FL

PRISM Commercial Group, LLC

David M. Tyler Florida

Prudential Carolina Realty

Richard Roskind Charlotte, NC

REMAX Commercial Investment

Doug Groppenbacher, CCIM CIPS

Phoenix, AZ

REMAX Commercial Midwest

Dave Smith Omaha, NE

S.J. Financial Group, Inc.

Stephen V. Jacquemin St. Louis, MO

Somerset International Properties

Dennis J. Rooklyn

Los Angeles, CA

Sperry Van Ness Pete Chrzaszcz CaliforniaSwearingen Realty Group, LLC Greg Bennett Dallas, TX

The Schenk Company, Inc. Greg Schenk Columbus,

OH

Trade Up �0��, Inc. Joshua Slaybaugh



Scope&Methodology

The 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 vari-

ous 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 Definitions

Capitalization 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.

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.

NCREIF Definitions

NCREIF: 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 dividing 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/in-dices.

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 MSAs

West: 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 population. 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 recommenda-tion 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 background on the real estate industry as a whole, not as support for any particular real estate investment or security. Although the RERC/CCIM Invest-ment 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.

Third Quarter 2007 Report Investment Trends Vol. 3, No. 3 ...Colliers Arnold Orlando, Florida Frank...

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