Portland Industrial

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					                                                   Real Estate Market Review                                                  1st Quarter

                                                   Portland, Vancouver and Surrounding Areas                                  2011

                                                   Portland Industrial
Market Forecast                                      After four quarters of positive Gross Domestic Product
                         Current / Projection        (GDP) growth and record corporate profits, investors
                                                     believe the much feared double-dip recession has
Vacancy                     8.2%
                                                     been avoided. Although corporate profits continue
Construction       473,000 sf                        to soar, commercial real estate investors question
                                                     whether this will translate into a boost for the overall
Rental Rate            $0.44/sf
                                                     economy. Corporate production has been spurred by
Absorption         160,965 sf                        growth strategies that call for job cutting, decreasing
                                                     wages, and limiting overall spending. While this plan
Market Up Close
                                                     of action has benefited the shareholders and investors,
Sales activity decreased in the first quarter
of 2011, as market participants are
                                                     it is yet to translate into a full blown national recovery.
concerned about the sustainability of the
recovery. It is so difficult to obtain financing
in the current market that all-cash buyers           Employment growth continues to progress at a slow pace with many investors
have become the primary players. The                 questioning the timeline of returning to pre-recession levels. Despite the
exception to this is there are a relatively high
amount of owner-users obtaining SBA 504              recent job gains, the country’s delicate unemployment situation will play a
loans for smaller, single-tenant properties.         major role in the health and recovery of the economy. Unemployment in the
The leasing market has been great for                Portland Metropolitan Statistical Area (MSA) is down more than 100 basis points
tenants. Significant free rent concessions           over a year ago, currently averaging 9.6%. The number of people receiving
and generous improvement allowances are
being offered by landlords to obtain and
                                                     unemployment benefits in Oregon has also been declining.
keep tenants. The most active segment of
the industrial market is for suites of less
                                                     The majority of investors agree that the industrial sector is in the recovery
than 25,000 s.f., which has led to a tenant’s        phase of the market cycle. Demand for domestic goods and services soared
market for larger sizes. n                           during 2010, with sales of U.S. produced goods increasing 7.1%. This rise in
                                                     demand stemmed from increased spending by both businesses and consumers,
                                                     signaling good news for the warehouse sector. That being said, investors are
                                                     conservative about the timeline of the recovery period. The market is hesitant
                                                     to predict rent growth with landlords still giving out large concessions to fill up
                                                     space. Speculative development is not feasible as some properties are on the
                                                     market for under their replacement cost. Unemployment still weighs on the
                                                     sector. As seen across all sectors, quality properties with good locations are
                                                     seeing high demand pushing down capitalization rates. Properties outside of
                                                     this investment category are still struggling to keep vacancy down and demand
                                                     up. Overall, the market is expected to slowly push upward as the national
                                                     economy continues to strengthen.

                                                                                                                            1st Quarter 2011 | 1
Area Review

Portland Industrial Market Statistics
                      Inventory                                                           Deliveries               UC Inventory            Quoted Rates
 Period       Buildings          RBA                Vacancy    Net Absorption       # Bldgs         RBA         # Bldgs       RBA         ($/SF/Mo NNN)
 2011 1Q            5,401    188,657,417              8.4%           160 ,695                 0             0           2      481,000            $0.44
 2010 4Q            5,395    188,595,379              8.5%            361,120                 0             0           1       60,000            $0.44
 2010 3Q            5,369    188,755,379              8.8%           (123,737)                1      415,000            1       60,000            $0.45
 2010 2Q            5,397    188,389,879              8.6%           (166,047)                3      119,723            2      475,000            $0.45
 2010 1Q            5,369    188,283,896              8.4%            (43,780)                2        5,207            4      534,723            $0.45
 2009 4Q            5,400    188,425,939              8.5%           (330,332)                1      210,000            6      539,930            $0.45
 2009 3Q            5,407    188,304,799              8.2%           (286,850)                3       60,437            5      641,430            $0.48
 2009 2Q            5,405    188,277,612              8.1%         (1,936,674)                5       80,217            5      685,437            $0.47
 2009 1Q            5,406    188,359,681              7.1%         (1,161,175)              20       623,388           10      772,117            $0.48
 2008 4Q            5,393    187,803,932              6.2%           (750,457)                6      233,636           26    1,140,936            $0.49
 2008 3Q            5,391    187,660,605              5.7%            625,943                 7      640,849           28      924,249            $0.48
 2008 2Q            5,393    187,248,181              5.8%             97,135               18     1,006,027           20    1,238,544            $0.47
 2008 1Q            5,386    186,410,466              5.5%          1,108,503               12     1,064,477           26    1,845,296            $0.47
 2007 4Q            5,376    185,420,083              5.6%            214,198               13     1,409,583           33    2,533,968            $0.45
 2007 3Q            5,359    183,779,533              4.8%            760,578                 6      377,868           48    3,977,031            $0.44

Current Supply and New Construction Activity                                     ready) land in Tualatin, and the price was $6.50/s.f. The site right next
                                                                                 door sold back in 2008 for $8.00/s.f., which represents about a 20%
There are over 188 million s.f. of industrial product, excluding flex,
                                                                                 discount. With construction costs down from 2008, the total savings
in the Portland MSA. No deliveries occurred in the first quarter while
                                                                                 for the user is in the 30% to 35% range.
economic conditions have brought speculative construction to a halt.
There are two industrial properties of note currently under construction:        Vacany & Net Absorption
Subaru of America will move to Rivergate Corporate Center III this fall
                                                                                 Net absorption during for the first quarter of 2011 was a positive 160,695 s.f.
after signing a $20 million dollar build-to-suit deal for a 413,000 s.f. parts
                                                                                 This is the second consecutive quarter of positive absorption, and
warehouse, training center, and regional office; and Boeing is building
                                                                                 perhaps the start of a new trend after two straight years of negative
a 60,000 s.f. chemical processing building at its Gresham plant. It
                                                                                 absorption. Starting in the fourth quarter of 2008, the Portland Metro
is noted that the statistics above include owner-occupied space,
                                                                                 area experienced a net loss of approximately 4.8 million s.f. of space.
putting downward pressure on the vacancy numbers. Industrial parks
                                                                                 The positive absorption the last two quarters, totaling 521,815 s.f., does
are experiencing much higher levels of vacancy after eight straight
                                                                                 not come close to making up for the lost space. Vacancy peaked during
quarters of negative absorption.
                                                                                 third quarter of 2010 but has declined since and currently averages
Recent Leasing Activity & Market Trends                                          8.4%.

In 2010 and the first quarter of 2011, we saw a significant increase in          Given economic conditions, the current inventory of available product
concessions and creative deal-making. Much of the leasing activity               and the employment outlook in Oregon and Southwest Washington,
was fueled by tenants relocating to downsize or upgrade functionality.           vacancy is expected to remain relatively flat for the first half of 2011,
Velocity remains sluggish in the 25,000 s.f. or greater range. However,          gradually decreasing as absorption picks up through 2012, mostly
there were a few exceptions during the first quarter: Stag Parkway               due to the lack of new construction. Until economic conditions
leased 53,000 s.f. in the Rivergate submarket; and Galaxy Wine                   improve, any deliveries that are anticipated in the market will be
Company leased 33,000 s.f. in the Guilds Lake/Northwest Portland                 owner-user deals and speculative development will not be feasible in
area. These transactions were indicative of current economic conditions          the foreseeable future.
with significant free rent concessions, low rental rates, higher tenant
improvement packages, as well as enhanced brokerage incentives; truly
                                                                                 Rental Rate Trends & Forecast
signs that it is still a tenant’s market.                                        Rental rates for industrial developments in the market are averaging
                                                                                 $0.44/s.f./month, triple net, which reflects the blended rate including
Industrial Land Trends                                                           shell and surcharges for office. Shell rates range from $0.28/s.f. with
Speculative industrial development is not feasible in the market at this         office surcharges generally ranging from $0.65 to $0.70/s.f. For the
time. There may be a handful of user land deals that take place but              most part, owners are willing to discount excess office space and only
activity is slow. Therefore, land sales have been few and far between,           charge the tenant for the amount of space they actually need. Rental
and raw land values (utilities to site, no entitlements) are nearly 50% of       rates have been flat to declining in the market overall for the past several
what they were at the peak of the market. McLane Foods closed on                 quarters. Rental rates are expected to remain stagnant until market
an approximately 20-acre site of graded and ready to build (pad                  conditions show signs of a more sustainable recovery. The forecast is for
                                                                                 an uptick in rental rates towards the end of 2012 and into 2013.
2 | Portland Industrial Real Estate Market Review
Sales Comparables
 Name                                Address                           City, State            SF          Date        Sale Price       Price/SF Cap Rate
 TA Portfolio (13 Properties)        Multiple                          Portland, OR        475,146       Sep-10       $28,000,000         $59           8.80%
 Single-Tenant Industrial Facility   2400 SE Mailwell Drive            Milwaukie, OR       280,122       Jul-10        $5,900,000         $21            N/Ap
 Single-Tenant Industrial Facility   89 S Timm Road                    Ridgefield, WA      190,294       Aug-10        $7,500,000         $39            N/Ap
 CarQuest Distribution Center        14819 N Lombard Street            Portland, OR        104,863       Dec-10        $5,901,676         $56            N/Ap
 Single-Tenant Industrial Facility   2116 NW 20th Avenue               Portland, OR          98,877      Nov-10        $4,200,000         $42           9.90%
 Single-Tenant Industrial Facility   13705 NE Airport Way              Portland, OR          89,650      Dec-10        $6,400,000         $71            N/Ap
 Single-Tenant Industrial Facility   7930 SW Hunziker                  Tigard, OR            82,150      Mar-11        $2,612,500         $32            N/Ap
 Industrial Condos (4 units)         10800 SW Tualtin Sherwood Rd.     Tualatin, OR          29,296      Mar-11        $2,477,160         $85            N/Ap

Recent Sales Activity                                                               the I-5 Corridor has on average been one of the more desirable
                                                                                    industrial submarkets in the Portland Metro area, given its good
Cap rate compression is occurring in many U.S. markets. The 1st
                                                                                    freeway linkage and central location. The vacancy rate in this
Quarter 2011 Korpacz Real Estate Investor Survey shows that the
                                                                                    submarket is currently higher than the market average. However,
national warehouse market average decreased 20 basis points over the
                                                                                    this is mostly due to several 100,000 s.f. or larger, single-tenant
previous quarter to 7.76%, which is a 97 basis point drop from the prior
                                                                                    buildings that don’t really compete with the bulk of the market,
year. The national flex/R&D market cap rate fell to 8.9%; a decrease
                                                                                    which is comprised of spaces and buildings that are 50,000 s.f. or
of 25 basis points quarter-over-quarter and 46 basis points compared
                                                                                    smaller. If those buildings are removed, the vacancy rate for more
to one year ago. In Portland, cap rates were pretty flat in 2010, and
                                                                                    typical industrial space in the I-5 Corridor is actually in line with the
market participants expect them to remain relatively level in the near
                                                                                    overall market. Tigard/Durham continues to be one of the strongest
future. However, no industrial cap rate sales occurred in the first quarter
                                                                                    submarkets in Portland, while Tualatin and Wilsonville are two of the
of 2011, and the market is not expected to stabilize until transaction
                                                                                    weakest submarkets with above average vacancy rates. Vacancy in
volume picks up.
                                                                                    the submarket is 12.9% and would be approximately 8.5% if the nine
                                                                                    largest buildings were removed from the survey.
Central Business District Submarket
Portland’s downtown industrial submarket is comprised of 44                         Lloyd District Submarket
buildings totaling 1.7 million s.f. The vacancy rate has historically
                                                                                    This submarket in Northeast Portland is a desirable industrial
been generally in line to slightly higher than the market average as
                                                                                    location given its excellent access to transportation options, nearby
a whole. Rental rates are slightly higher than market averages. Net
                                                                                    employment base and close-in location. Vacancy rates have
absorption has been nominal in recent quarters, and there has been
                                                                                    historically been lower than market averages, while rental rates are
no new construction in this submarket for several years. The average
                                                                                    typically slightly higher. Given that this area is densely built-out, there
rental rate in this area during first quarter of 2011 was at the $0.46/s.f./
                                                                                    has been no new construction in this submarket in the past several
month, triple net, blended, level from one year prior. With little
                                                                                    years. The average rental rate in this area during first quarter of 2011
movement in the submarket, vacancy remains near 5%.
                                                                                    was $0.55/s.f./month, triple net, blended, up from $0.50/s.f. one year
                                                                                    prior. With little movement in the submarket, vacancy remains near
Clark County Submarket                                                              4.5%.
There are over 20.9 million s.f. of industrial product in the Clark
County submarket. Sales activity in this submarket has been very                    Northeast Submarket
low, significantly below that of the Portland Metro area as a whole.
                                                                                    This is the largest industrial submarket in the region with over
Recently, the City of Vancouver received a $3 million federal grant by
                                                                                    68 million s.f. of product. It is highly desirable given its excellent
the Economic Development Administration. The grant is intended to
                                                                                    access to transportation options, nearby employment base and
help redevelop the Crescent Industrial area of downtown Vancouver.
                                                                                    close-in location. Vacancy rates have historically been higher in
The average rental rate in this area during the first quarter of 2011
                                                                                    this submarket due to the fact that there is still a decent amount of
was $0.47/s.f./month, triple net, blended, compared with $0.49/s.f.
                                                                                    available land, so much of the new speculative construction that
one year prior. Vacancy remains high with levels at 9.5% for the first
                                                                                    has taken place over the past 20 years has been in this area. Rental
quarter of 2011.
                                                                                    rates in the 12,000 to 15,000 s.f. range seem to have stabilized, but
                                                                                    the 50,000 to 100,000 s.f. market is very soft and characterized by
I-5 Corridor Submarket                                                              low rents and high concessions. A 415,000 s.f. FedEx building was
As of the first quarter of 2011, the I-5 submarket was comprised of                 delivered to this submarket in 2010, which was the only building
over 23.4 million s.f. The average asking rental rate of $0.46/s.f.,                delivered. In addition, a 413,000 s.f. building is under construction for
which is in-line with the overall market average but historically it                Subaru’s main Oregon parts distribution center. The average rental
is often higher. This is partly due to the spaces in the I-5 Corridor               rate in this area during first quarter of 2011 was $0.43/s.f./month,
typically has a higher ratio of office to warehouse, but also because               triple net, blended, compared with $0.47/s.f. one year prior. After                                                                                                                               1st Quarter 2011 | 3
                                                 three quarters of positive absorption to close 2010,                                         is heavily weighted in high tech users, which gives
                                                 the first quarter of 2011 saw a loss of space, albeit                                        this submarket higher volatility. During the recession
                                                 small, to bring the vacancy rate up to 7.6%.                                                 of 2001-2005, this was the hardest hit submarket
                                                                                                                                              with vacancies in the high 20% range. During the
                                                 Northwest Submarket                                                                          current downturn, the tech industry seems to have
                                                 The Northwest area of Portland is a highly desirable                                         weathered the storm better, and although they are
                                                 industrial submarket given its close proximity to the                                        not growing, they also are not leaving the state or
                                                 city center, great central freeway access, and its lack                                      shutting down operations. In late 2010, Intel made
                                                 of industrial land for new development. Vacancy rates                                        an announcement that they would be spending
Seattle                                          have historically been lower than market averages.                                           approximately $6 to $8 billion on new plant facilities
206.296.9600                                     However, the functionality of the buildings is also                                          in Hillsboro, Oregon, which is a major win for the
Bellevue                                         inferior to that of the other submarkets given their                                         submarket and for the Portland Metro area in general.
425.454.7040                                     general age. If the functionality of the property is taken                                   This announcement has created a stir of interest
                                                 into account, this submarket achieves higher rents                                           in the area; however, it may be a few years before
South Seattle
                                                 per square foot than newer buildings in the outer                                            their new activity starts to have a positive effect on
                                                 submarkets. Given that this area is densely built-out,                                       vacancy and development. Another industry which
Tacoma                                           there has been no new significant construction in this                                       has begun to plant roots in the Sunset Corridor is
253.722.1400                                     submarket for many years. The average rental rate in                                         the solar industry, as Solar World recently expanded
Olympia                                          this area during first quarter of 2011 was $0.37/s.f./                                       their Hillsboro plant from 400,000 s.f. to over 800,000 s.f.
                                                 month, triple net, blended, compared with $0.39/s.f.                                         This decision signals that Solar World is making a
                                                 one year prior. It is noted that this area has less office                                   significant investment in manufacturing operations
Portland                                         build-out, which influences the overall blended rate                                         in Oregon, and will make them one of the largest
503.221.9900                                     average. Despite having lower average rents, the                                             solar panel manufacturers in the United States. The
San Francisco                                    reality is that this is a very competitive submarket.                                        average rental rate in this area during fourt quarter
415.229.8888                                     The first quarter of 2011 saw the third straight quarter                                     of 2010 was $0.41/s.f./month, triple net, blended,
Redwood Shores                                   of positive absorption, and a drop of one percent in                                         compared with $0.43/s.f. one year prior. With positive
650.769.3600                                     vacancy rates bringing the overall level to 7.1%.                                            absorption in the first quarter of 2011, vacancy went
Silicon Valley                                                                                                                                down 50 basis points to 8.6%.
                                                 Southeast Submarket
                                                 This submarket in Southeast Portland is a relatively                                         Summary & Conclusion
                                                 desirable industrial location given its excellent access                                     2010 was a year that many in the commercial real
                                                 to transportation options, nearby employment base,                                           estate industry are thankful has passed. The first
Contact                                          favorable Clackamas County tax structure and supply                                          quarter of 2011 has started off slow, with buyers and
                                                 constrained market due to a lack of developable land.                                        sellers unable to get traction in the market. Even
Steven Klein
                                                 However, vacancy has risen for larger spaces in excess                                       after some signs of improvement in the national
Senior Vice President
                                                 of 25,000 s.f. due to company consolidations, closures                                       economy, investors are wary about the volatility
Branch Manager
                                                 and bankruptcy. Currently there is little to no demand                                       moving forward. Corporate profits are near pre-
                                                 for larger spaces. The average rental rate in this area                                      recession levels, but the growth has not carried into
                                                 during first quarter of 2011 was at the $0.39/s.f./                                          the broad economy; more specifically, employment.
                                                 month, triple net, blended, level from one year prior.                                       Investors are still focusing their capital on Class “A”
The information in this
report was composed by the                       With positive absorption in the first quarter of 2011,                                       properties in core markets or single-tenant net
Kidder Mathews Valuation                         vacancy went down 60 basis points to 6.6%.                                                   investment coupon-clippers. Cap rates have
Advisory Group.
                                                                                                                                              declined nationally, as well as locally for warehouse
Rebecca Horvat, MAI                              Southwest Submarket                                                                          properties, but sales volume remains down. The
Valuation Advisory Group                         The Southwest submarket encompasses the Capitol                                              local leasing market left much to be desired
503.221.9900                                     Highway area, 217 Corridor/Beaverton, and other                                              for landlords and was largely fueled by tenants                        areas of Southwest Portland. This submarket has over                                         upgrading to newer spaces or locations. Significant
                                                 5.7 million s.f. of industrial product, with a vacancy rate                                  concessions are still the norm, and vacancy is
                                                 significantly higher than the overall market average.                                        expected to remain relatively flat until market
                                                 Rental rates are also higher as many of these buildings                                      conditions improve and inventory is absorbed.
                                                 in Beaverton lend themselves to more office space                                            However, some major Portland area drivers like Intel
                                                 and higher tech manufacturing and R&D facilities. The                                        and Nike are expanding. Boeing and Solar World
                                                 average rental rate in this area during the first quarter                                    are also expanding which will eventually provide for
                                                 of 2011 was $0.56/s.f./month, triple net, blended,                                           new employment in the area. Portland’s diversified
                                                 compared with $0.53/s.f. one year prior. With no new                                         economy helped lead to a stronger real estate
                                                 deliveries, negative absorption has led to a large rise in                                   market than in many other secondary and major
                                                 vacancy rates to the current level of 17%.                                                   markets in the U.S. and should also lead to a slow
                                                                                                                                              and steady recovery.
                                                  Westside Submarket
                                                 This submarket is comprised of the Sunset Corridor/
                                                 Hillsboro area along US-26 in Beaverton. This area

  This information supplied herein is from sources we deem reliable. It is provided without any representation, warranty or guarantee, expressed or implied as to its accuracy. Prospective Buyer or Tenant should conduct an
  independent investigation and verification of all matters deemed to be material, including, but not limited to, statements of income and expenses. CONSULT YOUR ATTORNEY, ACCOUNTANT, OR OTHER PROFESSIONAL ADVISOR.

4 | Portland Industrial Real Estate Market Review

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