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					Asset Management

Deal Flow Remains Calm
Amid Market Flux
Korpacz Real Estate Investor Survey®
Second Quarter 2010




www.pwc.com
Dear Reader:


While most investors are still eager to acquire assets at this point in the cycle, sales activity has been
muted despite offerings. Reasons for the lack of trades are highlighted in this quarter's lead story, "Deal
Flow Remains Calm Amid Market Flux." It's evident that the unknown speed and strength of the recov-
ery, as well as the uncertainty tied to the vast sum of upcoming debt maturities, have many investors
anxious and focused on acquiring core assets.


The desire to secure core assets at cyclical low pricing is reflected in this quarter's average overall cap
rates, which decreased in 17 of the Survey's 30 markets this quarter. Read this issue's Overall Cap Rate
Analysis to see where surveyed investors expect rates to trend over the next six months.


Other timely features in this issue include the Economic News column, which looks at trends for two
economic indicators that reflect the health of the retail sector – U.S. retail sales and personal savings. In
addition, I am please to debut the Southeast regional apartment market this quarter, which can be found
on page 37.


One of the most frequently asked questions I receive from subscribers is "what is the difference between
institutional-grade and noninstitutional-grade real estate?" It's a tricky question, and one that was ad-
dressed 16 years ago in the Survey. Despite the time that has passed, much of what was written then still
holds true today. As a result, I have included it in this issue of the Survey as special commentary (see page
10). Please take a moment to read it and provide me your thoughts and comments (susan.m.smith@
us.pwc.com).


As always, I welcome your feedback and suggestions on the Survey's existing content, as well additional
issues and topics to cover.


Sincerely,




Susan M. Smith
Editor-in-Chief
In This Issue
National Highlights: Deal Flow Remains Calm                Southeast Florida                           31
Amid Market Flux                              2            Suburban Maryland                           32

Overall Cap Rate Analysis                                  Washington, DC                              33

  Second Quarter Trends                       3          National Flex/R&D Market                      34
  Looking Forward                             3
                                                         National Warehouse Market                     35
  Key Indicator Breakout                      4
                                                         National Apartment Market                     36
Technology News & Trends: Minding Your
Spreadsheets                                  5          Regional Apartment Markets
                                                           Mid-Atlantic Region                         37
Economic News: Retail Sales Up – Personal
                                                           Pacific Region                              37
Savings Down                                  6
                                                   NEW     Southeast Region                            37
Domestic Self-Storage Market: A Return to
7.25% Overall Cap Rates?                      8          National Net Lease Market                     38

Special Commentary: Institutional-Grade                  National Medical Office Buildings Market      39
Real Estate                                   10         National Development Land Market              40
National Retail Markets                                  Investor Survey Response Tables               41
  Regional Mall                               11
                                                         Investment and Property Characteristics
  Power Center                                12
                                                           Office Markets                              73
  Strip Shopping Center                       13
                                                           National Markets                            74
Office Markets
                                                         Yield Comparisons                             75
  National CBD                                14
  National Suburban                           15         Dividend Comparisons                          75
  Atlanta                                     16
                                                         Institutional-Grade vs. Noninstitutional-
  Boston                                      17         Grade Property Rates                          76
  Charlotte                                   18
                                                         Income Capitalized in Direct Capitalization   77
  Chicago                                     19
  Dallas                                      20         Forecast Periods and Change Rates
  Denver                                      21           Office Markets                              78
  Houston                                     22           National Markets                            79
  Los Angeles                                 23         Definitions                                   80
  Manhattan                                   24
  Northern Virginia                           25
  Pacific Northwest                           26
  Philadelphia                                27
  Phoenix                                     28
  San Diego                                   29
  San Francisco                               30
              National Highlights
              DEAL FLOW REMAINS CALM AMID MARKET FLUX
Korpacz       AS THE COMMERCIAL REAL ESTATE INDUSTRY BUMPS ALONG THE BOTTOM OF THE CYCLE
              LAGGING BEHIND THE ANEMIC RECOVERY OF THE STILL-FRAGILE U.S. ECONOMY, INVESTORS
              CONVEY BOTH FRUSTRATION AND DISAPPOINTMENT AT THE LACK OF QUALITY BUYING OP-

Real Estate   PORTUNITIES THAT MANY EXPECTED WOULD HAVE MATERIALIZED BY NOW.              "There are still
              very few institutional-grade offerings on the market although the volume is picking up


Investor      a bit," remarks a participant. While a lack of quality offerings is partly to blame for the
              serene sales activity to date, mixed signals and fluctuating opinions on the near-term
              performance of the U.S. economy, the banking industry, and the commercial real es-

Survey®       tate industry are also at fault. "The unknown speed and strength of the recovery have
              many in the industry anxious," comments an investor. In addition, the uncertainty sur-
              rounding the large volume of debt coming due in 2011 and 2012 amplifies the angst.
                 In the economy, the recession that started in December 2007 has yet to be officially
              declared "over" by the National Bureau of Economic Research, leaving some investors
              to question the near-term performance of what some describe as a forever-changed eco-
              nomic landscape. Although the U.S. economy added 431,000 jobs in May 2010,
              roughly 411,000 of those jobs reflected the temporary hiring of census workers, as
              per the U.S. Department of Labor. Excluding the temporary hires, only 20,000 jobs
              were added to the private sector for the month. Unfortunately, Moody's Economy.com
              does not expect employment to return to its prerecession peak until 2013.
                 Without job creation – sustainable job creation, the fundamentals of the commer-
              cial real estate industry will remain weak and, thus, advantageous to tenants. Across
              each property sector, supply greatly outweighs demand causing overall vacancy rates
              to rise and rental rates to fall. Although many surveyed investors note that the rate of
              deterioration for market conditions has slowed as of late, top-tier locations are show-
              ing the most "signs of life" with respect to tenant interest and recovery potential. How-
              ever, inspiring leasing trends have yet to fully materialize, further contributing to a
              sense of market flux. "Psychologically, we take one step forward and then two steps
              back on an almost daily basis," reveals a participant.
                 Despite the ongoing discomfort in the economy and the banking and real estate
              industries, "troubled" sales have accounted for only 25.0% to 30.0% of the industry's
              total sales volume, according to Real Capital Analytics. For the most part, troubled
              property owners have been kept afloat by lenders more willing to extend existing
              loans than take back assets, as well as by special servicers providing greater flexibili-
              ty in modifying loans in lieu of forcing defaults.
                 The low percentage of distressed trades, however, is a greater reflection of investor
              preference than of offerings as most buyers steer clear of "junk" and focus on core
              assets. In fact, strong competition among well-capitalized buyers has elevated sale
              prices and lowered overall cap rates for many prime properties. "The best assets are
              getting significantly more attention from both buyers and lenders," states an investor.
              "Debt is available for the right borrower and the right asset," contends another. For
              second-tier markets and noncore assets, debt availability and buyer interest are very
              limited. Until uniform patterns of stability occur, the investment market is expected to
              remain highly bifurcated with little attention paid to offerings with vacancy issues
              that may not provide highly sought after gains in value. ✦
            Overall Cap Rate Analysis
            THE AVERAGE OVERALL CAPITALIZATION                      quarterly increase is reported in the na-                        "The industry is extremely bifurcated
            (CAP) RATE DECREASED IN 17 SURVEY MAR-                  tional power center market (+15 basis                            with core assets seeing strong pricing
            KETS, INCREASED IN TEN OF THEM, AND                     points).                                                         and secondary assets receiving very lit-
            HELD STEADY IN THREE OVER THE PAST                          According to surveyed investors,                             tle attention from buyers," comments a
            THREE MONTHS.            As shown in Exhibit 1,         cap rate compression mostly continues                            participant.
            the highest quarterly decrease is noted                 to occur for better-positioned and well-
            in the Pacific Northwest office market                  located assets that exhibit stable rent                          LOOKING FORWARD
            (-58 basis points), while the largest                   rolls and limited near-term leasing risk.                        The "bottoming" of the industry contin-


              Exhibit 1                                             Exhibit 2

              OVERALL CAPITALIZATION RATES                          OVERALL CAPITALIZATION RATE FORECASTS
              Second Quarter 2010
                                                                    Second Quarter 2010
                                                                                                                CURRENT                         CHANGE OVER NEXT 6 MONTHS(a)
                                                        Quarterly
                                                                                                                OVERALL CAP RATE                (BASIS POINTS)
              National Markets                Average   Change*
                                                                    MARKET                                      AVERAGE                         RANGE                           AVERAGE
              Apartment                       7.68%     – 17
                                                                    National Regional Mall                      7.93%                           (b)
              Regional Mall                   7.93%     – 41
                                                                    National Power Center                       8.70%                           (b)
              CBD Office                      8.15%     – 20
              Strip Shopping Center           8.38%     – 11        National Strip Shopping Center              8.38%                           (b)

              MOB**                           8.53%     – 25        National CBD Office                         8.15%                           (100) – 75                      21

              Warehouse                       8.60%     – 13        National Suburban Office                    8.60%                           (100) – 200                     30
              Suburban Office                 8.60%     – 19        Atlanta Office                              8.94%                           (b)
              Power Center                    8.70%     + 15        Boston Office                               8.66%                           (50) – 200                      56
              Net Lease                       8.98%     + 12        Charlotte Office                            9.41%                           (100) – 200                     50
              Flex/R&D                        9.38%     +2          Chicago Office                              8.61%                           (b)
                                                                    Dallas Office                               8.77%                           (b)
              Apartment Markets
                                                                    Denver Office                               8.40%                           (100) – 300                     50
              Pacific Region                  7.29%     – 23
              Mid-Atlantic Region             7.40%     – 23        Houston Office                              8.79%                           (b)

              Southeast Region                7.93%     —           Los Angeles Office                          7.71%                           (b)
                                                                    Manhattan Office                            6.58%                           (100) – 0                       (50)
              Office Markets
                                                                    Northern Virginia Office                    7.85%                           (b)
              Manhattan                       6.58%     –7
                                                                    Pacific Northwest Office                    8.63%                           (b)
              Washington, DC                  6.95%     – 16
                                                                    Philadelphia Office                         8.99%                           (100) – 25                      (20)
              Los Angeles                     7.71%     – 22
                                                                    Phoenix Office                              9.26%                           (b)
              San Francisco                   7.83%     0
                                                                    San Diego Office                            8.25%                           (b)
              Northern Virginia               7.85%     +8
                                                                    San Francisco Office                        7.83%                           (100) – 100                     (12)
              Suburban Maryland               7.86%     –7
              San Diego                       8.25%     –3          Southeast Florida Office                    9.20%                           (b)

              Denver                          8.40%     +1          Suburban Maryland Office                    7.86%                           (25) – 100                      56

              Chicago                         8.61%     0           Washington, DC Office                       6.95%                           (b)
              Pacific Northwest               8.63%     – 58        National Flex/R&D                           9.38%                           (b)
              Boston                          8.66%     +8          National Warehouse                          8.60%                           (100) – 100                     26
              Dallas                          8.77%     +3          Apartment
              Houston                         8.79%     –6             National                                 7.68%                           (100) – 200                     40
              Atlanta                         8.94%     0              Mid-Atlantic Region                      7.40%                           (b)
              Philadelphia                    8.99%     – 11           Pacific Region                           7.29%                           (25) – 150                      45
              Southeast Florida               9.20%     +7             Southeast Region                         7.93%                           (b)
              Phoenix                         9.26%     + 14        National Net Lease                          8.98%                           (75) – 100                      0
              Charlotte                       9.41%     + 13        National Medical Office Buildings           8.53%                           (b)
              * Basis points                                        (a) All changes are positive unless enclosed in parentheses.
              ** Medical office buildings                           (b) The majority of participants (over 55.0%) expect overall cap rates to hold steady over the next six months.
              Source: Korpacz Real Estate Investor Survey®          Source: Korpacz Real Estate Investor Survey®




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                           w w w. p w c . c o m   3
            ues to be recognized in investors' ex-                      warehouse market (down as much as                remain lower for most CBD submarkets
            pectations that overall cap rates for the                   100 basis points), and the national              than for their suburban counterparts
            most part will either decline or hold                       apartment market (down as much as                since higher barriers to entry and a
            steady over the next six months. As                         100 basis points). On average, overall           lack of land for new development tend
            shown in Exhibit 2, overall cap rates                       cap rates are expected to increase up            to keep supply and demand a bit more
            are expected to hold steady in 18 of the                    to 56 basis points in nine markets and           balanced in a market's CBD. As a result,
            Survey's 30 markets over the next six                       decrease as much as 50 basis points in           CBD assets typically achieve higher ren-
            months. Furthermore, 13 markets could                       three of them over the next six months.          tal rates. In addition, downtown cores
            see overall cap rates decline by as much                                                                     tend to provide better forms of mass
            as 100 basis points in that time period.                    KEY INDICATOR BREAKOUT                           transportation and embody a 24-hour,
                 Markets where certain surveyed in-                     Overall cap rates, discount rates, and           live-work lifestyle that appeals to many
            vestors noted potential declines in over-                   residual cap rates for the CBD and sub-          individuals and firms. As a result, CBD
            all cap rates in the near term include                      urban submarkets of each individual of-          assets are generally perceived as provid-
            the Manhattan office market (down as                        fice market in our Survey are in Exhibit         ing less investment risk to the owner –
            much as 100 basis points), the national                     3. As shown, average overall cap rates           less risk, lower overall cap rate. ✦

              Exhibit 3
              B R E A K O U T O F K E Y I N D I C AT O R S
              Second Quarter 2010
                                                       DISCOUNT RATE                       OVERALL CAPITALIZATION RATE            RESIDUAL CAPITALIZATION RATE
              CBD OF:                                  RANGE              AVERAGE          RANGE               AVERAGE            RANGE                AVERAGE

              Atlanta                                  7.75% – 13.00%     10.10%           7.00% – 10.00%     8.71%               7.50% – 10.00%      8.99%
              Boston                                   7.75% – 12.00%     9.54%            5.75% – 10.50%     8.18%               6.00% – 10.50%      8.16%
              Charlotte                                8.00% – 11.00%     9.65%            7.00% – 11.00%     9.06%               7.50% – 10.00%      8.71%
              Chicago                                  8.00% – 11.50%     9.11%            6.00% – 10.00%     7.94%               7.00% – 10.00%      8.31%
              Dallas                                   8.00% – 11.50%     9.31%            7.00% – 11.50%     8.60%               7.25% – 11.00%      8.83%
              Denver                                   7.75% – 11.00%     9.29%            7.00% – 9.00%      7.88%               7.75% – 10.00%      8.78%
              Houston                                  8.00% – 12.00%     9.35%            7.00% – 10.00%     8.40%               7.00% – 10.00%      8.50%
              Los Angeles                              7.00% – 12.00%     9.09%            5.00% – 10.00%     7.46%               6.50% – 10.00%      8.11%
              Manhattan                                6.00% – 10.00%     7.98%            5.00% – 8.00%      6.58%               6.00% – 8.50%       7.13%
              Pacific Northwest                        8.00% – 12.00%     10.20%           6.00% – 10.00%     8.30%               7.00% – 9.00%       8.60%
              Philadelphia                             8.50% – 10.50%     9.45%            7.50% – 9.50%      8.75%               7.00% – 9.75%       8.63%
              Phoenix                                  8.50% – 15.00%     10.55%           7.00% – 11.00%     9.08%               8.00% – 11.00%      9.00%
              San Diego                                8.00% – 12.00%     9.88%            7.00% – 9.00%      7.96%               7.00% – 9.00%       8.04%
              San Francisco                            7.50% – 11.00%     8.97%            5.75% – 10.00%     7.32%               6.00% – 10.00%      7.51%
              Southeast Florida                        7.00% – 16.00%     9.92%            7.25% – 12.00%     8.48%               7.00% – 12.00%      8.70%
              Washington, DC                           7.50% – 10.00%     8.17%            6.00% – 8.50%      6.95%               6.00% – 8.50%       7.33%
                                                       DISCOUNT RATE                       OVERALL CAPITALIZATION RATE            RESIDUAL CAPITALIZATION RATE
              SUBURBS OF:                              RANGE              AVERAGE          RANGE               AVERAGE            RANGE                AVERAGE

              Atlanta                                  8.50% – 14.00%     10.76%           7.00% – 11.00%     9.18%               8.00% – 11.00%      9.43%
              Boston                                   8.25% – 14.00%     10.32%           7.25% – 12.00%     9.14%               7.75% – 12.00%      9.21%
              Charlotte                                8.00% – 12.00%     10.31%           7.50% – 13.00%     9.75%               7.50% – 11.00%      9.19%
              Chicago                                  8.50% – 13.00%     10.41%           7.00% – 11.00%     9.28%               8.00% – 11.00%      9.31%
              Dallas                                   8.00% – 12.00%     9.63%            7.00% – 11.00%     8.94%               7.25% – 11.00%      8.94%
              Denver                                   8.00% – 15.00%     11.23%           7.00% – 11.00%     8.92%               8.00% – 11.00%      9.31%
              Houston                                  8.00% – 14.00%     10.00%           7.50% – 12.50%     9.50%               8.00% – 11.00%      8.98%
              Los Angeles                              7.00% – 12.00%     9.21%            5.00% – 10.00%     7.95%               6.50% – 10.25%      8.13%
              Northern Virginia                        6.00% – 11.00%     8.58%            6.50% – 10.00%     7.85%               7.00% – 9.50%       8.15%
              Pacific Northwest                        8.00% – 14.00%     11.05%           6.00% – 11.00%     8.95%               7.00% – 10.00%      9.00%
              Philadelphia                             8.50% – 11.00%     9.94%            7.75% – 11.00%     9.23%               8.00% – 11.00%      9.27%
              Phoenix                                  9.50% – 16.00%     11.54%           8.00% – 11.00%     9.43%               8.00% – 11.00%      9.20%
              San Diego                                7.50% – 14.00%     10.23%           7.00% – 11.00%     8.54%               7.25% – 10.00%      8.46%
              San Francisco                            8.00% – 15.00%     10.33%           7.00% – 11.00%     8.33%               7.00% – 12.00%      8.54%
              Southeast Florida                        7.00% – 16.00%     10.52%           8.00% – 14.00%     9.92%               7.75% – 12.00%      9.30%
              Suburban Maryland                        7.00% – 11.00%     8.81%            5.00% – 9.50%      7.86%               7.50% – 10.00%      8.46%
              Source: Korpacz Real Estate Investor Survey®




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                      w w w. p w c . c o m   4
            Technology News & Trends
            MINDING YOUR SPREADSHEETS
            By Scott Metro, Partner
            Real Estate Systems and Process Assurance - PricewaterhouseCoopers LLP

            SPREADSHEET APPLICATIONS, SUCH AS THOSE OFFERED BY                   Spreadsheet remediation software can be categorized
            MICROSOFT AND APPLE, COMPRISE ONE OF THE MOST WIDELY              into two primary categories: logic inspection and spread-
            USED SOFTWARE TOOLS EMPLOYED BY BUSINESSES TODAY. They            sheet control.
            provide end users with the ability to quickly create analy-          Logic inspection is typically an upfront and occasional
            ses, financial models, and even databases due to the combi-       process that consists of an automated review of spread-
            nation of ease of use, flexibility, and computational power.      sheets for common errors, such as blank cell references,
            The commercial real estate industry is a heavy user of            formulas with hard-coded constants, and incomplete cell
            spreadsheet applications, which are used by owners and            ranges. Upon completion of this process, a printable report
            investors to assist with tasks, such as buy-sell-hold analyses,   is prepared that provides a road map to fix any errors.
            discounted cash flow modeling, straight-line rent calcula-           Spreadsheet control refers to wrapping either preventive
            tions, and even tracking of litigation exposure. With such        or monitoring features around significant spreadsheets in
            power, usability, and flexibility, however, comes vulnerabili-    order to restrict access to the files, as well as to create logs
            ty to errors, data corruption, and even fraud.                    of the changes made each time a file is saved. Companies
                                                                              that wish to control access to files typically must use spread-
            THE PROBLEM                                                       sheet remediation software as a repository, as opposed to
            Studies show that 95.0% of spreadsheets have some form of         using a local computer or network shared drive. Users are
            error embedded in their formulas – of which 5.0% could be         required to “check out” files in order to work on them and
            considered “material” errors. The errors in these studies were    must "check them back in" before others can use them.
            caused by one or a combination of three types of inherent         Limits on who can access the files are easily configured
            vulnerabilities within spreadsheets. First, the ability to con-   using the software.
            trol who can change spreadsheet data is limited. Second,             Companies who simply want to monitor the changes
            users are able to perform calculations in many different          made to files can use the “stealth” feature that is inherent
            ways; some of which are prone to errors. Finally, spread-         in all of the top spreadsheet remediation tools. Using this
            sheets do not provide an “audit trail,” showing the changes       approach, the files on which monitoring is required are
            made since a file was last opened.                                identified in the tool by an administrator. Going forward, a
                 Unfortunately, there have been few acceptable options        log is created showing the “before-and-after” view of the file
            for dealing with such vulnerabilities. One approach is to         every time the file is saved by a user, regardless of where the
            replace all significant spreadsheets with a formal applica-       file exists and all unbeknownst to the user. While this ap-
            tion. This approach, however, is too costly for many real         proach does not prevent errors or unauthorized access, it is
            estate companies. Another option is to ban spreadsheets           effective in determining whether errors have been intro-
            altogether. This option is also an infeasible approach since      duced to a spreadsheet.
            businesses would be inhibited and enforcement of this rule
            would likely be difficult.                                        IN CONCLUSION
                                                                              While spreadsheet remediation tools have been around for
            A SOLUTION                                                        nearly ten years, all of the major vendors have recently
            Fortunately for real estate companies, several vendors have       added new features and technologies to their tool sets. As
            created solutions to provide companies with another option        real estate companies become even more reliant on spread-
            – remediation software, which involves implementing spe-          sheet software, it is expected that vendors will continue to
            cial software to control and monitor spreadsheets. It can         enhance their products in order to help detect, as well as
            mitigate all of the vulnerabilities associated with spread-       eliminate, spreadsheet errors. ✦
            sheet applications, while at the same time maintain the
            power and flexibility that makes them so popular.



P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                 w w w. p w c . c o m   5
            Economic News
            RETAIL SALES UP – PERSONAL SAVINGS DOWN
            By Chuck DiRocco, Director and Head of Research
            Real Estate Business Advisory Services - PricewaterhouseCoopers LLP

            WHILE CHOPPY RETAIL SALES PERFORMANCES CONTINUE TO BE                                                                   are up 5.8% from the trough and up only 2.1% for the first
            A TOP CONCERN FOR OWNERS OF RETAIL REAL ESTATE, SIGNS OF                                                                four months of 2010. It is also interesting to note that the
            A SLIGHT PICK-UP IN RETAIL SALES AND A DECLINE IN PERSONAL                                                              second leading retail sales area for consumer spending has
            SAVINGS ARE MUCH APPRECIATED AFTER A LONG PERIOD OF TROU-                                                               been building materials and garden equipment, which has
            BLED TIMES FOR BOTH MERCHANTS AND PROPERTY OWNERS.                                                                      risen 14.5% so far this year.
            According to the U.S. Census Bureau, total revenue from re-
            tail sales and food services (including auto) grew 0.4% on a                                                            PERSONAL SAVINGS
            monthly basis in April 2010. This volume represents a 9.2%                                                              As commonly seen in prior recessions, personal savings dis-
            overall increase since retail sales bottomed in December                                                                played some dramatic increases between 2007 and 2009. Ac-
            2008. Since hitting its low point, total retail sales increased                                                         cording to the Bureau of Economic Analysis, personal savings
            13 of the following 16 months, displaying signs of a possible                                                           as a percent of disposable income was a mere 1.15% at the
            spending change that has been nonexistent since the onset                                                               start of the credit crisis. However, the savings rate reached a
            of the recent recession.                                                                                                high of 5.71% in May 2009. As shown in Chart ECO-1, actual
                                                                                                                                    savings in dollars spiked between January 2008 and May 2009
            INSIDE RETAIL SALES                                                                                                     as many individuals prepared for the economic unknown.
            Looking at total retail sales growth in more detail, however,                                                              Since peaking in mid year 2009, total personal savings
            sales have been propelled mostly by spending on motor vehi-                                                             has mostly shown declines on a monthly basis. The current
            cles and auto parts – up 12.4% between December 2008 and                                                                rate of savings to disposable income is just above 3.0% and
            April 2010, driven largely by government and corporate                                                                  individuals have set aside 10.0% less since the start of 2010.
            incentives. When excluding the "auto" segment, retail sales                                                             This trend is often seen after recessionary periods as individ-

                   Char t ECO-1
                     U . S . R E TA I L S A L E S A N D P E R S O N A L S AV I N G S
                     December 1999 to December 2011 (Forecast)
                                                   170.0                                                                                                                                                            350.0



                                                   160.0                                                                                                                                                            300.0
             Retail Sales & Food Svcs Excl. Auto




                                                   150.0                                                                                                                                                            250.0
                                                                                                                                                                                                                            Personal Savings


                                                   140.0                                                                                                                                                            200.0



                                                   130.0                                                                                                                                                            150.0
                                                                                                                                                                                                Forecasts

                                                                                                                                                                                             Forecasts
                                                                                                                                                                                             Forecasts
                                                   120.0                                                                                                                                                            100.0



                                                   110.0                                                                                                                                                            50.0

                                                                                                  Dec 1999 Index = 100

                                                   100.0                                                                                                                                                            0.0
                                                             9          0                     2          3           4          5             6          7          8          9                  0             1
                                                        c  -9       c-0         -0
                                                                                   1
                                                                                          c-0        c-0         c-0        c-0           c-0        c-0        c-0        c-0              c-1             c-1
                                                     De                        c                                                                                        De
                                                                 De         De         De         De          De         De            De         De         De                          De              De
                                                                                                                                                                                   Retail Sales        Personal Savings

                      Source: US Census Bureau, Bureau of Economic Analysis, Moody’s




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                                                       w w w. p w c . c o m                     6
            uals have hopes of prosperity. However, severe losses due to     at U.S. neighborhood and community centers, as per Reis. A
            the credit crisis might dampen savings for other reasons, as     year ago, this average was 9.5%. Unfortunately, little improve-
            many individuals are forced to buffer continuing economic        ment is expected over the next 12 to 18 months with Reis
            hardships, job losses, and declining 401(k) portfolios.          forecasting a national retail vacancy rate of 11.4% for 2011.
                                                                                Even so, retail REITs continue to be strong performers –
            IMPACT ON RETAIL REAL ESTATE                                     up over 12.0% year to date through May 2010, according to
            Even though an analysis of the current economic data reveals     data released by NAREIT on May 31, 2010. Freestanding
            no real correlation between retail sales and personal savings,   REITs lead the retail REIT sector with a total return of 14.7%,
            consumer spending is required to stimulate the U.S. econo-       followed by regional malls at 13.3%.
            my and prosper tenant demand for space at retail properties.
                 While the decline in retail store closings in 2010 com-     FINAL THOUGHTS
            pared to 2009 provides some positive signs for the retail sec-   Even as retail sales slowly inch up and personal savings de-
            tor, many owners of retail assets are still contending with      cline, possibly due to a newfound comfort level in the econ-
            vacancy issues as additional major tenants, such as Movie        omy, retail real estate will continue to struggle in 2010 and
            Gallery, Blockbuster, and Waldenbooks, close stores due to       most of 2011 on a national level. Not all is lost, however, as
            reduced spending on the part of consumers.                       some assets in top-tier markets will continue to close deals
                 These woes are evident in looking at the retail sector's    and see vacancy rates dip. For the most part, however, retail
            real estate fundamentals, which deteriorated over the last 12    assets will struggle as U.S. economic conditions remain
            months. In the first quarter of 2010, vacancy averaged 10.6%     questionable and consumers lack confidence. ✦




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                              w w w. p w c . c o m   7
            Domestic Self-Storage Market
            A RETURN TO 7.25% OVERALL CAP RATES?
            By R. Christian Sonne, MAI, MRICS
            Senior Managing Director, Self Storage Industry Group of Cushman & Wakefield

            EQUITY CAPITAL IS RETURNING TO THE                                             Current players in this sector           on the market with six buyers vying to
            SELF-STORAGE ASSET CLASS CAUSING AN                                      include nationwide companies like              close the deal.
            INCREASE IN SALES VOLUME OF SINGLE                                       Strategic Storage Trust, W.P. Carey, and          Specific acquisition and return
            ASSETS, A RETURN TO PORTFOLIO SALES,                                     various REITs, as well as smaller              requirements for select major players
            AND BEST OF ALL, A DECREASE IN OVER-                                     regional companies, such as Equity             in this sector are summarized below.
            ALL CAPITALIZATION RATES.                  In fact, the                  Based Services. In fact, most of the
            rate of downward movement in over-                                       four self-storage REITs are in acquisi-           ◆ Strategic Storage Trust (SST), a
            all cap rates (OARs) suggests a return                                   tion mode. Public Storage, for exam-           nonpublicly traded REIT started five
            to 7.25% OARs within two years – if                                      ple, recently closed on a $189.0-mil-          years ago, has raised over $200.0 mil-
            market conditions continue to improve                                    lion portfolio acquisition of 30 self-         lion and has a portfolio growing at a
            and interest rates remain steady. Clearly,                               storage facilities (28 in California and       pace of one self-storage facility per
            investors have an improving outlook                                      two in Chicago). Another self-storage          week with interest in properties na-
            for the domestic self-storage industry.                                  portfolio of 54 properties is currently        tionwide. SST prefers self-storage
                                                                                                                                    properties near stabilization, but will
                                                                                                                                    consider some upside in rents and
                Ta b l e D S S - 1
                D OM E ST I C S E L F - STO R AG E M A R K E T                                                                      absorption. However, it tends to only
                First Half 2010                                                                                                     focus on potential deals involving
                                                                                                                                    properties that are at least 60.0% oc-
                                                                FIRST HALF 2010                SECOND HALF 2009   FIRST HALF 2009
                                                                                                                                    cupied and have a history of positive
                DISCOUNT RATE (IRR)a
                Range                                           10.00% – 13.00%                10.00% – 13.00%    10.00% – 12.00%   absorption.
                Average                                         11.50%                         11.50%             11.25%               In 2009, a 9.0% overall cap rate
                Change (Basis Points)                                                          0                  + 25              on trailing 12 months of income was
                OVERALL CAP RATE (OAR)a                                                                                             SST's target. Now, its target OAR has
                Range                                           7.00% – 10.00%                 7.00% – 10.00%     7.00% – 10.00%    declined 50 to 100 basis points based
                Average                                         8.45%                          8.75%              8.55%
                                                                                                                                    on a careful analysis of the local trade
                Change (Basis Points)                                                          – 30               – 10
                                                                                                                                    area of an asset. Strategic Storage Trust
                RESIDUAL CAP RATE
                                                                                                                                    is currently the most active buyer of
                Range                                           8.00% – 10.50%                 8.00% – 10.50%     8.00% – 10.50%
                Average                                         8.75%                          9.00%              8.75%             self-storage property in the country.
                Change (Basis Points)                                                          – 25               0
                MARKET RENT CHANGE RATE b                                                                                              ◆ W.P. Carey & Co. (WPC) was
                Range                     1.00% – 5.00%                                        1.00% – 5.00%      1.00% – 5.00%     founded in New York in 1973 as an in-
                Average                                         3.50%                          3.00%              2.00%             vestment management company. Cur-
                Change (Basis Points)                                                          + 50               + 150
                                                                                                                                    rent assets exceed $10.0 billion and
                EXPENSE CHANGE RATE b                                                                                               the company is publicly traded on the
                Range                                           2.00% – 5.00%                  2.00% – 5.00%      2.00% – 5.00%
                                                                                                                                    New York Stock Exchange. In 2004, a
                Average                                         3.00%                          3.00%              3.00%
                Change (Basis Points)                                                          0                  0
                                                                                                                                    partnership among WPC affiliates com-
                                                                                                                                    pleted a $312.0-million acquisition of
                AVERAGE MARKETING TIMEc
                Range                                           3.00 – 12.00                   3.00 – 12.00       3.00 – 12.00      78 U-Haul self-storage and truck ren-
                Average                                         8.00                           11.00              9.50              tal facilities located in 24 states. Since
                Change (%)                                                                     – 27.27            – 15.79           December 2006, WPC has acquired
                a. Rate on unleveraged, all-cash transactions      b. Initial rate of change       c. In months
                                                                                                                                    13 self-storage properties for approxi-
                Source: Cushman & Wakefield                                                                                         mately $60.0 million.



P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                               w w w. p w c . c o m   8
                Chart DSS-1

                AV E R A G E O V E R A L L C A P R AT E T R E N D S
                2003 through Midyear 2010
                                                                                                                                                                     10.00%

                                                                                                                                                                     8.00%

                                                                                                                                                                     6.00%

                                                                                                                                                                     4.00%

                                                                                                                                                                     2.00%

                                                                                                                                                                     0.00%

                    03                      04            05                   06             07                 08                 09                          10   -2.00%
               20                      20            20                   20             20                 20                 20                      r2
                                                                                                                                                            0
                                                                                                                                                   a
                                                                                                                                            d   ye
                                                                                                                                         Mi                          -4.00%

                                                                                                                                                                     -6.00%

                                                                                                                                                                     -8.00%

                                                                                                                                                                     -10.00%

                          Average Overall Cap Rate             % Change

                    Source: Cushman & Wakefield



                 More recently, WPC has formed a                   to $140.0 million in self-storage assets           CONCLUSION
            joint venture with Harbert Manage-                     over the next year.                                The high number of investors and pri-
            ment Corporation and contributed                                                                          vate equity pursuing self-storage assets
            $50.0 million to buy additional self-                  OVERALL CAP RATE TRENDS                            has put downward pressure on overall
            storage assets. The venture is pursuing                Overall cap rate trends for the U.S.               cap rates. Although most investors still
            self-storage opportunities in all 50                   self-storage industry are shown in Chart           prefer to acquire stable self-storage
            states and will consider properties in                 DSS-1. It is interesting to see that the           assets, a growing number of buyers
            need of absorption. The target overall                 rate of compression occurring now in               are once again interested in self-stor-
            cap rate is mid-8.0% on a stabilized                   this sector is similar to the slope of the         age properties with absorption needs
            basis, but only after analysis of the                  rate of increase experienced during                and more aggressive pricing require-
            competition in the local trade area.                   the bull market. If analyzed as a re-              ments. The growing desire to target
                                                                   gression line, the trend suggests that             such assets suggests that investors
                 ◆ Equity Based Services (EBS) is                  overall cap rates for the self-storage             remain confident in this sector's long-
            raising private equity funds with a plan               industry will near 7.25% within two                term performance and its ability to
            to create a nonpublicly traded self-                   years.                                             reach targeted returns. ✦
            storage REIT called Universal Self                        While most investors appear confi-
            Storage Acquisitions. EBS seeks prop-                  dent that interest rates will remain sta-
            erties in the southwest region of the                  ble through 2010, many believe that                 R. Christian Sonne, MAI, MRICS is
            United States. While it focuses on                     interest rates will eventually rise to
                                                                                                                       Senior Managing Director of Cush-
            Class-A locations, it will consider                    combat concerns of inflation over the
                                                                                                                       man & Wakefield’s Self Storage
            Class-B product with expectations of                   long run. However, equity dividend
            an 8.0% to 8.5% overall cap rate.                      requirements may decline. Thus, the                 Industry Group, a nationwide real

                 EBS also considers sub-8.0% OARs                  impact to long-term overall cap rates               estate consulting team specializing
            if there is upside or value-add poten-                 is uncertain. For now, the trend for the            in appraisal and market study of
            tial (at least 75.0% occupancy) through                self-storage industry is declining over-            the self-storage asset class. He can
            management or limited capital expen-                   all cap rates with some investors                   be reached at 949-930-9241 or
            ditures. EBS has $50.0 million in an eq-               expecting OARs to be “8.0% or lower
                                                                                                                       chris.sonne@cushwake.com.
            uity fund and hopes to acquire $120.0                  by the end of this year.”



P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                         w w w. p w c . c o m   9
            Special Commentary:
             Institutional-Grade Real Estate
            THE FOLLOWING IS EXTRACTED FROM THE SECOND QUARTER                      al status can change with a property's physical condition or
            1994 ISSUE OF THE KORPACZ REAL ESTATE INVESTOR SURVEY®.                 economics, market conditions and trends, or investors' pref-
                 Commercial real estate investors use the term institution-         erences. Significant vacancy due to a major tenant's move
            al-grade real estate, and "everyone" knows what it means.               to another building can damage a property's status unless
            However, there is no clear stated definition of the term.               the space can be readily re-leased to a credit tenant. An
            What "everyone knows" is articulated differently by different           entire market or submarket can be shunned by institutional
            investors, but most agree on the basic concepts that distin-            investors with a severe downturn in the regional or local
            guish this property class.                                              economy, such as happened in the "Oil Patch" states in the
                 A simple definition of institutional-grade real estate is:         late 1980s. An aging property that is not technologically up-
            real property investments that are sought out by institutional          graded, or one whose design does not meet current market
            buyers and have the capacity to meet generally prevalent                needs, may fall out of institutional class. Reversal of any such
            institutional investment criteria. True institutional buyers are        conditions can cause reinstatement of institutional status.
            limited to the United States and foreign pension funds, foun-              In years past, institutional investors generally confined
            dations, endowments, foreign life insurance companies, and              their real estate purchases to CBD office buildings, major
            certain foreign government entities that function like pen-             retail properties, and urban high-rise apartment buildings.
            sion funds. U.S. life insurance companies are included in               Today, suburban office properties, garden apartment com-
            their capacity as equity investors for pension funds and                plexes, and industrial warehouses are candidates for institu-
            other institutional clients.                                            tional dollars. As the potential for sustained value and long-
                 There is a natural synergy between the real estate and             term returns from other "brochure-quality" properties in-
            the investment, which can be related to degree of risk. The             creases, investor preferences may expand further. ✦
            physical and financial characteristics of institutional-grade
            property are such that the degree of risk is lower than in               EDITOR'S NOTE:
            noninstitutional-grade property. Superior improvements in a              After re-reading this commentary, I wanted to add my com-
            superior location reduce risk related to physical deteriora-             ments with regard to how I believe things have changed, as
            tion and functional and external obsolescence. Superior                  well as remained the same, over the past 16 years. One
            occupancy and tenancy reduce financial risk.                             thing that stood out to me was the wording "true institution-
                 Institutional-grade real estate is "brochure quality." It is lo-    al buyers are limited to the United States…" As we all know,
            cated in a major market or submarket that is recognized in the           technological advancements and the rapid availability of
            institutional investment community. The property is impres-              data have united the world as never before over the past 16
            sive, has "street appeal." The physical characteristics of insti-        years, making commercial real estate investing a global mis-
            tutional-grade real estate include: large size; high-quality con-        sion for the majority of "domestic" institutional investors.
            struction; above-average architectural design, configuration,                The commentary that describes the physical, geographi-
            and layout; modern mechanical systems; good amenities;                   cal, and financial attributes of institutional-grade real es-
            and in some areas and property types, good adjacent park-                tate still holds true today. I would like to add, however,
            ing. The property is in excellent condition and is less than             that institutional-grade real estate is not limited to just
            ten years old or has an effective age of less than ten years.            Class-A/A+ assets. There are many institutional investors
                 The financial characteristics of institutional-grade prop-          that target Class-B/B+ assets in strong markets, particular-
            erty vary and depend on the investor's specific objective                ly in the apartment sector. In addition, the focus for insti-
            for the specific investment – immediate cash flow, asset en-             tutional investors has evolved over the past 16 years to
            hancement, or upside potential. In general, the property has             include niche sectors, such as self storage and medical
            low leasing risk, proven stable occupancy, a preponderance               office buildings.
            of financially strong tenants, and good long-term growth.                    It will be interesting to see how things change over the
                 The institutional-grade label is not static, and institution-       next 16 years.


P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                       w w w. p w c . c o m   10
            National Regional Mall Market
            U.S. ECONOMIC DATA RELATING TO THE                                       released by The Conference Board.             were nine to 12 months ago," reveals a
            RETAIL INDUSTRY IS SENDING AN EN-                                              Despite these positive signs, leasing   participant.
            COURAGING MESSAGE TO OWNERS AND                                          activity remained sluggish in the na-            While the return of stability is wel-
            PROSPECTIVE BUYERS IN THE NATIONAL                                       tional regional mall market during the        come news for many regional mall
            REGIONAL MALL MARKET.                     First, the                     first three months of 2010. In the first      owners, most regional mall assets are
            employment report for March 2010                                         quarter of 2010, the vacancy rate for         still experiencing declines in net oper-
            indicated that the retail sector added                                   the U.S. regional and super-regional          ating income and value due to lower
            15,000 jobs during the month, accord-                                    mall sector increased ten basis points        rental rates, a greater need for conces-
            ing to the U.S. Bureau of Labor Sta-                                     to reach 8.9%, the highest level on           sions, and growing property expenses.
            tistics. Second, same-store retail sales                                 record since Reis began tracking malls        In fact, mall owner Pennsylvania Real
            surged on a year-over-year basis in                                      at the start of 2000. In addition, this       Estate Investment Trust (PREIT) recently
            March 2010, growing 8.3% (excluding                                      uptick marks the sixth consecutive            posted a $17.6-million loss in the first
            Wal-Mart), based on data from the                                        quarterly increase.                           quarter of 2010 even though retail
            Bank of Tokyo-Mitsubishi UFJ. And                                              Nevertheless, certain regional mall     sales in its 54 assets actually increased
            third, the Consumer Confidence Index®,                                   owners are reporting that property fun-       from $340.00 per square foot in the
            which rebounded to 52.3 in March                                         damentals are now stabilizing. "Occu-         first quarter of 2009 to $341.00 per
            2010, increased further in April (up to                                  pancy and retail sales levels at our          square foot in the first quarter of 2010.
            57.9), according to data recently                                        properties are steadier now than they         At the same time, occupancy rose
                                                                                                                                   from 88.8% to 89.3%.
                Ta b l e 1                                                                                                            As more real estate investors sense
                N AT I O N A L R E G I O N A L M A L L M A R K E T                                                                 that the bottom of the cycle is near, if
                Second Quarter 2010
                                                                                                                                   not here, for better-performing regional
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO          mall assets, overall cap rates have
                                                  a
                DISCOUNT RATE (IRR)                                                                                                declined slightly over the past three
                Range                                           6.75% – 14.00%                 7.00% – 17.00%    7.00% – 15.00%
                                                                                                                                   months (see Table NRM-1). While the
                Average                                         10.04%                         10.70%            10.09%
                                                                                                                                   majority of Survey participants (57.0%)
                Change (Basis Points)                                                          – 66              –5
                                                                                                                                   expect overall cap rates to hold steady
                OVERALL CAP RATE (OAR)a
                Range                                           5.00% – 10.50%                 5.00% – 12.00%    5.00% – 11.00%
                                                                                                                                   in this market over the next six months,
                Average                                         7.93%                          8.34%             7.79%             a few expect them to decrease. "We
                Change (Basis Points)                                                          – 41              + 14              foresee more cap rate compression
                RESIDUAL CAP RATE                                                                                                  over the near term," shares a long-time
                Range                                           5.00% – 12.00%                 6.25% – 12.00%    6.25% – 12.00%    participant. ✦
                Average                                         8.23%                          8.91%             8.63%
                Change (Basis Points)                                                          – 68              – 40
                MARKET RENT CHANGE RATE b                                                                                           Ta ble NRM-1
                Range                     (3.00%) – 5.00%                                      (4.00%) – 1.00%   (5.00%) – 3.00%    AVERAGE OVERALL CAP RATES
                Average                                         0.58%                          (0.17%)           0.86%              National Regional Mall Market
                Change (Basis Points)                                                          + 75              – 28                               Class A+           Overall
                                                      b                                                                             Quarter         Assets             Market
                EXPENSE CHANGE RATE
                Range                                           0.00% – 4.00%                  0.00% – 5.00%     1.00% – 3.00%      2Q10            6.93%              7.93%
                Average                                         2.21%                          2.23%             2.79%              1Q10            7.33%              8.34%
                Change (Basis Points)                                                          –2                – 58               4Q09            7.40%              8.06%
                AVERAGE MARKETING TIMEc                                                                                             3Q09            6.81%              7.98%
                Range                                           3.00 – 18.00                   3.00 – 18.00      3.00 – 24.00
                                                                                                                                    2Q09            6.57%              7.79%
                Average                                         7.86                           7.79              8.79
                                                                                                                                    1Q09            5.92%              6.99%
                Change (%)                                                                     + 0.90            – 10.58
                                                                                                                                    Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions      b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                      w w w. p w c . c o m   11
            National Power Center Market
            INDIVIDUAL PROPERTY PERFORMANCES                       box and discount merchants that post-                                   According to CB Richard Ellis, the
            VARY GREATLY IN THE NATIONAL POWER                     ed growth above this figure included                                    Phoenix area had 299 empty big-box
            CENTER MARKET, WHICH CONTINUES TO                      BJ's Wholesale Club (+10.6%) and                                        spaces greater than 10,000 square feet
            BE NEGATIVELY IMPACTED BY SLUGGISH                     Target (+10.3%). While still positive,                                  (totaling 8.4 million square feet) in the
            LEASING ACTIVITY ON THE PART OF MER-                   Costco's growth was a bit lower at                                      first quarter of 2010 – up from 132
            CHANTS THAT REMAIN CONCERNED                           5.0% for the same time period.                                          spaces and 3.9 million square feet a
            ABOUT THE FUTURE SPENDING HABITS                          Underlying such favorable retail                                     year ago.
            OF CONSUMERS.             Even though con-             sales growth rates, however, is a prop-                                       Vacancy and leasing issues remain
            sumer spending has been impressive                     erty sector challenged by too much                                      a concern for existing power center
            for the past few months, stagnant                      available space, particularly in cities                                 owners, as well as for potential buyers.
            income growth and weak hiring will                     that were hotbeds during the recent                                     As a result, many investors still expect
            likely keep spending habits restrained.                residential building boom. In Phoenix,                                  rental rates to decline over the next
            "Most shoppers are still feeling the                   for instance, a significant amount of                                   year. Although this market's average
            impact of the recession and society's                  retail construction occurred in antici-                                 initial-year market rent change rate
            new-found frugality will be hard to                    pation of continued residential growth.                                 improved this quarter, it stands nega-
            shed completely," states an investor,                  As the residential market soured, many                                  tive for the fourth consecutive quarter
            who believes that current retail sales                 retail properties, including power cen-                                 (see Table NPC-1). ✦
            growth rates are not easily sustainable                ters, were left with large vacancies.
            without further job creation.
                 For now, many big-box merchants                      Ta b l e 2
                                                                      N AT I O N A L P O W E R C E N T E R M A R K E T
            continue to perform well compared to
                                                                      Second Quarter 2010
            other traditional retailers as shoppers
            search for bargains. According to the                                                                       CURRENT QUARTER LAST QUARTER                     YEAR AGO
            Bank of Tokyo-Mitsubishi UFJ, same-                       DISCOUNT RATE (IRR)a
                                                                      Range                                             8.50% – 12.00%                7.50% – 15.00%     7.00% – 15.00%
            store retail sales surged 8.3% on a
                                                                      Average                                           9.90%                         10.05%             9.38%
            year-over-year basis in March 2010
                                                                      Change (Basis Points)                                                           – 15               + 52
            (excluding Wal-Mart). Individual big-                                                           a
                                                                      OVERALL CAP RATE (OAR)
                                                                      Range                                             7.50% – 10.00%                7.50% – 10.00%     6.00% – 10.00%
                                                                      Average                                           8.70%                         8.55%              8.04%
              Table NPC-1
                                                                      Change (Basis Points)                                                           + 15               + 66
              INITIAL-YEAR MARKET RENT
                                                                      RESIDUAL CAP RATE
              CHANGE RATES
                                                                      Range                                             7.50% – 10.00%                7.50% – 10.00%     7.00% – 10.00%
              National Power Center Market                            Average                                           8.65%                         8.68%              8.54%
                                                  Change
                                                                      Change (Basis Points)                                                           –3                 + 11
              Quarter           Average           (Basis Points)
                                                                                                                    b
                                                                      MARKET RENT CHANGE RATE
              2Q10              (0.70%)           + 100
                                                                      Range                   (10.00%) – 3.00%                                        (10.00%) – 3.00%   (10.00%) – 3.00%
              1Q10              (1.70%)           0
                                                                      Average                                           (0.70%)                       (1.70%)            0.33%
              4Q09              (1.70%)           – 20                Change (Basis Points)                                                           + 100              – 103
              3Q09              (1.50%)           – 183
                                                                      EXPENSE CHANGE RATE b
              2Q09              0.33%             + 33                Range                                             2.00% – 3.00%                 2.00% – 3.00%      0.00% – 3.00%
              1Q09              0.00%             – 136               Average                                           2.90%                         2.90%              2.75%

              4Q08              1.36%             – 95                Change (Basis Points)                                                           0                  + 15
                                                                                                                c
              3Q08              2.31%             – 13                AVERAGE MARKETING TIME
                                                                      Range                                             3.00 – 18.00                  3.00 – 18.00       3.00 – 18.00
              2Q08              2.44%             – 69
                                                                      Average                                           10.20                         10.20              8.00
              2Q07              3.13%             —
                                                                      Change (%)                                                                      0                  + 27.50
              Source: Korpacz Real Estate Investor Survey®
                                                                      a. Rate on unleveraged, all-cash transactions       b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                           w w w. p w c . c o m   12
            National Strip Shopping Center Market
            SALES ACTIVITY AND PROPERTY PER-                                        according to Real Capital Analytics.        deal, The Shops at Fiesta Ranch in
            FORMANCE REMAIN BIFURCATED WITHIN                                       This total was $6.8 billion during the      Phoenix sold for $1.1 million as part of
            THE NATIONAL STRIP SHOPPING CENTER                                      same time period just two years ago.        a short sale with the construction
            MARKET, WHERE ASSETS THAT WERE PER-                                     Fewer property offerings have kept the      lender. This 16,718-square-foot proper-
            FORMING BETTER GOING INTO THE                                           number of completed strip shopping          ty has sat vacant since its completion
            DOWNTURN ARE STRUGGLING LESS AND                                        center sales to a minimum thus far in       in 2007. Originally, it was listed at
            ARE PIQUING THE MOST INTEREST FROM                                      2010. In the first quarter of 2010, strip   $3.5 million. According to the deal's
            POTENTIAL BUYERS.             "It is still a buyers'                    shopping center sales totaled $1.3 bil-     broker, the low price and improving
            market, but buyers remain picky about                                   lion, relatively unchanged from a year      market conditions were strong draws
            product," notes a participant, who                                      ago. By comparison, strip shopping          for the all-cash buyer.
            prefers well-occupied, stable assets                                    center sales totaled $14.9 billion at the      The desire to place capital into this
            over those with vacancy issues and                                      peak of the market in the first quarter     sector has caused overall capitalization
            leasing needs.                                                          of 2007.                                    rates (OARs) to dip, particularly for
                 Finding unstressed assets for sale,                                      Although most investors are look-     high-quality assets and those in domi-
            however, remains a challenge as offer-                                  ing for stable occupancies and steady       nant trade areas. As shown in Table
            ings sit well below historical levels. In                               cash flows, others are searching for        SSC-1, the average OAR for this market
            the first quarter of 2010, strip shopping                               "upside" opportunity amid a slow-mov-       has declined over the past two quar-
            center offerings totaled $1.9 billion,                                  ing economic recovery. In one recent        ters. Still, it remains well above the
                                                                                                                                averages reported during the peak of
                Ta b l e 3                                                                                                      the market in 2007.
                N AT I O N A L S T R I P S H O P P I N G C E N T E R M A R K E T                                                   Over the next six months, the ma-
                Second Quarter 2010
                                                                                                                                jority of Survey participants (78.0%)
                                                                CURRENT QUARTER LAST QUARTER                   YEAR AGO         forecast overall cap rates to hold
                                                  a
                DISCOUNT RATE (IRR)                                                                                             steady in this market. The remaining
                Range                                           7.00% – 12.50%                7.50% – 12.50%   7.50% – 12.00%
                                                                                                                                participants expect OARs to decline as
                Average                                         9.46%                         9.58%            8.98%
                                                                                                                                much as 100 basis points – the average
                Change (Basis Points)                                                         – 12             + 48
                                                                                                                                projected decline is about 30 basis
                OVERALL CAP RATE (OAR)a
                Range                                           7.00% – 11.40%                7.25% – 11.40%   6.50% – 10.00%   points. ✦
                Average                                         8.38%                         8.49%            7.91%
                Change (Basis Points)                                                         – 11             + 47
                                                                                                                                 Ta ble SSC-1
                RESIDUAL CAP RATE
                Range                                           7.00% – 12.00%                7.50% – 12.00%   6.50% – 10.00%
                                                                                                                                 OVERALL CAP RATE TRENDS

                Average                                         8.63%                         8.86%            8.07%             National Strip Shopping Center Market
                                                                                                                                                                    Change
                Change (Basis Points)                                                         – 23             + 56
                                                                                                                                 Quarter         Average            (Basis Points)
                MARKET RENT CHANGE RATE b
                                                                                                                                 2Q10            8.38%              – 11
                Range                     0.00% – 3.00%                                       0.00% – 3.00%    0.00% – 3.00%
                                                                                                                                 1Q10            8.49%              –4
                Average                                         0.50%                         0.69%            1.50%
                Change (Basis Points)                                                         – 19             – 100             4Q09            8.53%              + 12
                                                                                                                                 3Q09            8.41%              + 50
                EXPENSE CHANGE RATE b
                Range                                           1.00% – 4.00%                 1.00% – 4.00%    1.00% – 4.00%     2Q09            7.91%              + 28
                Average                                         2.89%                         2.88%            2.93%             1Q09            7.63%              + 31
                Change (Basis Points)                                                         +1               –4                2Q08            7.32%              –3
                AVERAGE MARKETING TIMEc                                                                                          2Q07            7.35%              –1
                Range                                           2.00 – 18.00                  2.00 – 18.00     2.00 – 12.00
                                                                                                                                 2Q06            7.36%              – 36
                Average                                         8.61                          9.63             7.71
                                                                                                                                 2Q05            7.72%              —
                Change (%)                                                                    – 10.59          + 11.67
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months
                                                                                                                                 Source: Korpacz Real Estate Investor Survey®




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                   w w w. p w c . c o m   13
            National CBD Office Market
            THE RATE AT WHICH SPACE IS BEING                       are seeing downward shifts in vacan-                                       price is 25.0% below replacement
            RETURNED TO THE NATIONAL CBD                           cy. In the first quarter of 2010, the                                      cost.
            OFFICE MARKET HAS SLOWED DRAMATI-                      downtown markets of San Francisco,                                               As optimism spreads among ten-
            CALLY OVER THE PAST YEAR DUE TO IM-                    Manhattan, and Washington, DC                                              ants and investors and more down-
            PROVED BUSINESS CONFIDENCE ACROSS                      each reported a decrease in overall                                        town regions begin to rebound, riskier
            A BROAD RANGE OF INDUSTRIES.                  In the   vacancy.                                                                   office assets, such as well-located
            professional-and-business-services sec-                   Due to signs of recovery, top-tier                                      Class-B properties in need of renova-
            tor, for example, employment rose by                   CBD markets remain prime targets for                                       tion and Class-A-minus assets with
            54,000 workers in April 2010, the                      investors' dollars. "Major markets are                                     leasing issues, will likely start to pique
            largest monthly gain since December                    receiving significantly more attention                                     investor interest. "Vacancy was taboo a
            2007, based on data from the U.S.                      from investors," notes a participant.                                      year ago, but signs of recovery are
            Bureau of Labor Statistics. Overall, the               On the other hand, most second-tier                                        reviving its appeal," remarks a partici-
            U.S. economy added 290,000 jobs in                     CBDs have yet to see sharp increases                                       pant. "Buying vacancy," however,
            April 2010. Moreover, March's employ-                  in either investor demand or bids.                                         needs to be done carefully since a full
            ment gain was revised upward from                      Overall, Survey participants believe                                       recovery for most markets will take
            162,000 jobs to 230,000 jobs.                          that sale prices for CBD office assets                                     several months. "Positive things are
                 Positive employment growth is                     remain as much as 50.0% below                                              happening, but a full rebound will be
            expected to set the stage for improve-                 replacement cost. The average sale                                         slow," adds the investor. ✦
            ment in the underlying fundamentals
            of the national CBD office market.                        Ta b l e 4
                                                                     N AT I O N A L C B D O F F I C E M A R K E T
            Although the overall vacancy rate for
                                                                     Second Quarter 2010
            this sector stood at 15.0% in the first
            quarter of 2010, its rate of growth re-                                                                        CURRENT QUARTER LAST QUARTER                     YEAR AGO
                                                                                                       a
            mains on a downward trend, accord-                        DISCOUNT RATE (IRR)
                                                                      Range                                                6.75% – 12.50%                6.75% – 13.50%     7.25% – 12.00%
            ing to data by Cushman & Wakefield
                                                                      Average                                              9.28%                         9.58%              9.03%
            (see Table CBD-1). In addition, many
                                                                      Change (Basis Points)                                                              – 30               + 25
            of the country's large gateway CBDs                                                                a
                                                                      OVERALL CAP RATE (OAR)
                                                                      Range                                                6.00% – 10.50%                6.00% – 10.50%     4.50% – 10.50%
                                                                      Average                                              8.15%                         8.35%              7.94%
              Table CBD-1
                                                                      Change (Basis Points)                                                              – 20               + 21
              OVERALL VACANCY RATES
                                                                      RESIDUAL CAP RATE
              National CBD Office Market
                                                                      Range                                                6.50% – 10.50%                6.50% – 10.50%     6.50% – 10.00%
                                                  Change
              Quarter           Average           (Basis Points)
                                                                      Average                                              8.20%                         8.51%              8.31%
                                                                      Change (Basis Points)                                                              – 31               – 11
              1Q10              15.0%             + 30
                                                                                                                       b
                                                                      MARKET RENT CHANGE RATE
              4Q09              14.7%             + 40
                                                                      Range                   (10.00%) – 3.00%                                           (10.00%) – 3.00%   (10.00%) – 3.00%
              3Q09              14.3%             + 60
                                                                      Average                                              (0.55%)                       (1.00%)            (1.38%)
              2Q09              13.7%             + 120               Change (Basis Points)                                                              + 45               + 83
              1Q09              12.5%             + 130                                                    b
                                                                      EXPENSE CHANGE RATE
              4Q08              11.2%             + 60                Range                                                2.00% – 4.00%                 2.00% – 4.00%      2.00% – 4.00%
              3Q08              10.6%             + 40                Average                                              2.85%                         2.85%              3.00%

              2Q08              10.2%             + 30                Change (Basis Points)                                                              0                  – 15
                                                                                                                   c
              1Q08              9.9%              + 20                AVERAGE MARKETING TIME
                                                                      Range                                                3.00 – 12.00                  3.00 – 12.00       3.00 – 12.00
              4Q07              9.7%              – 10
                                                                      Average                                              7.95                          7.90               7.50
              3Q07              9.8%              —
                                                                      Change (%)                                                                         + 0.63             + 6.00
              Source: Cushman & Wakefield                             a. Rate on unleveraged, all-cash transactions          b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                              w w w. p w c . c o m   14
            National Suburban Office Market
            AS A WHOLE, THE OVERALL VACANCY                                         ed quarterly dips in overall vacancy in         companies remain hesitant about
            RATE FOR THE NATIONAL SUBURBAN                                          the first quarter of 2010 included San          near-term lease commitments. Such
            OFFICE MARKET HELD NEARLY STEADY                                        Diego, San Francisco, and Palm Beach.           leasing challenges continue to keep
            FOR THE FIRST THREE MONTHS OF 2010,                                     On the other hand, several suburban             investors using conservative cash flow
            PROVIDING INVESTORS WITH MORE EVI-                                      office areas continued to see overall           assumptions. As shown in Table 5,
            DENCE THAT THE BOTTOM OF THE CYCLE                                      vacancy rates rise, such as Oakland,            certain Survey participants are assum-
            IS HERE.     "The office sector is finally                              Miami, and Portland. As a result,               ing an initial-year market rent decline
            showing signs of life," notes a partici-                                many tenants continue to seek lease             of up to 20.00%. The average for this
            pant. Nevertheless, this market's over-                                 modifications and rent reductions. In           key cash flow assumption has been
            all vacancy rate stands quite high at                                   addition, tenants continue to demand            negative for the past six quarters (see
            19.3% in the first quarter of 2010,                                     rental concessions. In fact, all of our         Table NSO-1).
            based on data from Cushman & Wake-                                      Survey participants indicate that free              In terms of sales activity, investors
            field. Although this figure is 200 basis                                rent exists in this market, ranging up          are showing a strong preference for
            points higher than it was just 12 months                                to 12 months and averaging just over            well-leased, well-located assets. In
            ago, several metro areas have shown                                     four months on a ten-year lease.                one recent deal, TA Associates pur-
            improvement and stability over the                                            Even though some property owners          chased University Corporate Center III
            past few months.                                                        are reporting an increase in leasing            in East Orlando for roughly $158.00
                 Suburban office markets that post-                                 calls from prospective tenants, many            per square foot. This asset was 94.0%
                                                                                                                                    leased at the time of sale and located
                Ta b l e 5                                                                                                          in a submarket with a reported vacan-
                N AT I O N A L S U B U R B A N O F F I C E M A R K E T                                                              cy rate of 15.5% – well below the
                Second Quarter 2010
                                                                                                                                    national average.
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO               This quarter, Survey participants
                DISCOUNT RATE (IRR)               a
                                                                                                                                    indicate that prices for U.S. suburban
                Range                                           7.25% – 14.00%                7.25% – 14.00%     7.50% – 14.00%     office buildings range from 50.0% to
                Average                                         9.88%                         10.07%             9.92%
                                                                                                                                    100.0% of replacement cost. ✦
                Change (Basis Points)                                                         – 19               –4
                OVERALL CAP RATE (OAR)a
                Range                                           6.00% – 12.00%                6.75% – 12.00%     5.00% – 11.00%
                                                                                                                                      Table NSO-1
                Average                                         8.60%                         8.79%              8.24%
                                                                                                                                      INITIAL-YEAR MARKET RENT
                Change (Basis Points)                                                         – 19               + 36
                                                                                                                                      CHANGE RATES
                RESIDUAL CAP RATE                                                                                                     National Suburban Office Market
                Range                                           7.00% – 11.50%                7.00% – 11.50%     7.00% – 11.50%
                                                                                                                                                                        Change
                Average                                         8.77%                         8.85%              8.55%               Quarter          Average           (Basis Points)
                Change (Basis Points)                                                         –8                 + 22                2Q10             (2.15%)            + 31
                MARKET RENT CHANGE RATE b                                                                                            1Q10             (2.46%)            – 11
                Range                     (20.00%) – 3.00%                                    (20.00%) – 3.00%   (20.00%) – 3.25%
                                                                                                                                     4Q09             (2.35%)            +7
                Average                                         (2.15%)                       (2.46%)            (1.21%)
                                                                                                                                     3Q09             (2.42%)            – 121
                Change (Basis Points)                                                         + 31               – 94
                                                                                                                                     2Q09             (1.21%)            – 92
                EXPENSE CHANGE RATE b
                Range                                           2.00% – 4.00%                 1.00% – 4.00%      1.00% – 4.00%       1Q09             (0.29%)            – 220
                Average                                         2.75%                         2.71%              2.94%               4Q08             1.91%              – 53
                Change (Basis Points)                                                         +4                 – 19                3Q08             2.44%              – 14
                AVERAGE MARKETING TIMEc                                                                                              2Q08             2.58%              – 56
                Range                                           3.00 – 24.00                  3.00 – 18.00       3.00 – 18.00
                                                                                                                                     1Q08             3.14%              +3
                Average                                         8.88                          9.00               8.36
                                                                                                                                     4Q07             3.11%              —
                Change (%)                                                                    – 1.33             + 6.22
                                                                                                                                      Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                        w w w. p w c . c o m   15
            Atlanta Office Market
            IN THE FACE OF AN OVERSUPPLY OF                       27.2% increase in total leasing activity                              feet) of Midtown's Colony Square 400
            OFFICE SPACE, ONGOING STRESS IN THE                   in this market for the first quarter on a                             Tower. Finally, software company Red-
            BANKING INDUSTRY, AND A LACK OF EM-                   year-over-year basis, as per C&W. "Al-                                Prairie Corporation is reportedly look-
            PLOYMENT GROWTH, THE ATLANTA OFFICE                   though Atlanta has received its fair share                            ing for 100,000 square feet in order to
            MARKET POSTED POSITIVE NET ABSORP-                    of unfavorable press with regard to an                                move its headquarters to North Atlanta,
            TION FOR THE FIRST TIME SINCE THE                     oversupply of space, the tide is chang-                               where it employs 240 people.
            FOURTH QUARTER OF 2008.               Specifically,   ing," notes a participant. For example,                                     Even though several encouraging
            it absorbed 39,302 square feet in the                 Novelis, a world leader in aluminum                                   events took place in the Atlanta office
            first quarter of 2010, based on data by               rolling and recycling, signed for 100,000                             market this quarter, future rent growth
            Cushman & Wakefield (C&W). More                       square feet at Two Alliance Center in                                 expectations among Survey participants
            than 71.2% of the absorption occurred                 Buckhead to relocate its global head-                                 remain negative. However, this market's
            in the suburbs, where tenants have an                 quarters from Ohio.                                                   average initial-year market rent change
            array of space options available to them.                Similarly, NCR announced its cor-                                  rate did improve 28 basis points (see
                 Although the presence of positive                porate relocation from Ohio to Atlanta                                Table 6). At the same time, Atlanta's
            absorption suggests a turning point in                this quarter and inked a new 45,347-                                  average overall cap rate remains at
            this office market, many investors are                square-foot lease in Northeast Atlanta.                               8.94%. Likewise, the majority of our
            skeptical that a recovery is imminent.                In a recent expansion, WebMD agreed                                   Survey participants (66.7%) expect
            "This market is close to bottoming, but               to take the top two floors (41,000 square                             overall cap rates to hold steady in this
            will have a prolonged stay at the bot-
            tom and most likely a slow recovery                      Ta b l e 6

            given the excessive supply of vacant                     AT L A N TA O F F I C E M A R K E T
                                                                     Second Quarter 2010
            space," remarks a participant. According
            to surveyed investors, a full recovery                                                                   CURRENT QUARTER LAST QUARTER                     YEAR AGO
            for this market could take as many as                    DISCOUNT RATE (IRR)a
                                                                     Range                                           7.75% – 14.00%                7.75% – 15.00%     7.75% – 15.00%
            seven years. The average expected re-
                                                                     Average                                         10.43%                        10.57%             10.57%
            covery time is just shy of three years.
                                                                     Change (Basis Points)                                                         – 14               – 14
                 Despite posting positive absorption,
                                                                     OVERALL CAP RATE (OAR)a
            the local office market remains over-                    Range                                           7.00% – 11.00%                6.75% – 11.00%     6.75% – 11.00%
            whelmed by high vacancy. As a whole,                     Average                                         8.94%                         8.94%              8.88%
            the Atlanta office market is 21.2% va-                   Change (Basis Points)                                                         0                  +6
            cant, a level not seen since year-end                    RESIDUAL CAP RATE
            2004. The four submarkets with the                       Range                                           7.50% – 11.00%                8.00% – 11.00%     7.75% – 12.00%

            largest amounts of vacant space                          Average                                         9.21%                         9.25%              9.10%
                                                                     Change (Basis Points)                                                         –4                 + 11
            include Central Perimeter at 4.9 mil-
                                                                     MARKET RENT CHANGE RATE b
            lion square feet (msf), Northwest (4.8
                                                                     Range                     (5.00%) – 0.00%                                     (5.00%) – 0.00%    (2.00%) – 3.00%
            msf), Buckhead (4.5 msf), and
                                                                     Average                                         (0.44%)                       (0.72%)            0.51%
            Midtown (4.1 msf). A significant portion                 Change (Basis Points)                                                         + 28               – 95
            of the vacant space in the urban                         EXPENSE CHANGE RATE                b

            Midtown and Buckhead submarkets is                       Range                                           0.00% – 3.00%                 0.00% – 3.00%      1.00% – 3.00%
            due to recent new construction.                          Average                                         2.31%                         2.31%              2.70%

            "Unlike most places in the country,                      Change (Basis Points)                                                         0                  – 39

            Atlanta actually did overbuild," under-                  AVERAGE MARKETING TIMEc
                                                                     Range                                           1.00 – 12.00                  3.00 – 12.00       3.00 – 12.00
            scores a participant.
                                                                     Average                                         7.56                          7.83               7.38
                 Several recent corporate announce-
                                                                     Change (%)                                                                    – 3.45             + 2.44
            ments and relocations contributed to a                   a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                        w w w. p w c . c o m   16
            Boston Office Market
            CHANGES IN THIS MARKET'S QUARTERLY                                      tenants. At the end of the first quarter        quarter, the highest amount of free
            KEY SURVEY INDICATORS SHOW THAT                                         of 2010, Boston's CBD posted an over-           rent is being offered to tenants in the
            PARTICIPANTS STILL VIEW THE BOSTON                                      all vacancy rate of 13.0%, up nearly            Phoenix office market, where partici-
            OFFICE MARKET AS CHALLENGING.                          "We              250 basis points from a year ago, as            pants indicate that free rent ranges up
            are still factoring in declines in market                               per Cushman & Wakefield. At the                 to 24 months. On an average basis,
            rent," notes a participant. Overall, the                                same time, this rate was 21.5% for the          however, the Manhattan office market
            initial-year market rent change rate                                    suburbs, up about 300 basis points              reveals the highest average amount of
            used by Survey investors in cash flow                                   from the prior year. As demand lags             free rent at 8.8 months.
            analyses ranges from -10.00% to 1.00%                                   supply, many property owners contin-                While it is clearly a great time for
            and averages -2.00% this quarter. While                                 ue to offer free rent in order to sign          tenants in the Boston office market,
            this average remains unchanged from                                     leases.                                         most tenants remain cautious about
            the prior quarter, it stands as the third                                     Survey participants report that free      space needs and are investigating
            lowest average of all the individual                                    rent ranges up to 12 months and aver-           numerous options. In one recent deal,
            office markets in our Survey.                                           ages seven months. The amount of                Bain Capital signed a 15-year lease for
                 The inability of landlords to raise                                free rent being offered in the Boston           208,000 square feet at the Class-A
            rental rates in the near term is a direct                               office market is comparable to many             200 Clarendon Street in the Back Bay
            reflection of this market's supply-de-                                  of the other office markets included            district.
            mand imbalance that currently favors                                    in our Survey (see Table BOS-1). This               For tenants looking for Class-A CBD
                                                                                                                                    space, about 3.4 million square feet of
                Ta b l e 7                                                                                                          direct vacant space exist, as well as
                B O S TO N O F F I C E M A R K E T                                                                                  937,000 square feet of sublease space.
                Second Quarter 2010
                                                                                                                                    Further adding to this available pool is
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO           1.2 million square feet of new supply
                DISCOUNT RATE (IRR)               a
                                                                                                                                    slated for delivery over the next year.
                Range                                           7.75% – 14.00%                7.75% – 12.00%     7.75% – 12.00%
                                                                                                                                    In the suburbs, Class-A space is even
                Average                                         9.93%                         9.82%              9.45%
                                                                                                                                    more plentiful with 10.2 million square
                Change (Basis Points)                                                         + 11               + 48
                                                                                                                                    feet of direct space and 2.0 million
                OVERALL CAP RATE (OAR)a
                Range                                           5.75% – 12.00%                5.75% – 11.00%     5.75% – 10.25%
                                                                                                                                    square feet of sublease space available,
                Average                                         8.66%                         8.58%              8.29%              as of the first quarter of 2010. ✦
                Change (Basis Points)                                                         +8                 + 37
                RESIDUAL CAP RATE                                                                                                     Table BOS-1
                Range                                           6.00% – 12.00%                6.00% – 12.00%     6.50% – 10.00%
                                                                                                                                      MONTHS OF FREE RENT
                Average                                         8.69%                         8.69%              8.39%
                                                                                                                                      Various Survey Office Markets
                Change (Basis Points)                                                         0                  + 30
                                                                                                                                      Market                    Range            Average
                MARKET RENT CHANGE RATE b                                                                                             Los Angeles               0 to 7           3.7
                Range                     (10.00%) – 1.00%                                    (10.00%) – 1.00%   (10.00%) – 2.60%
                                                                                                                                      San Diego                 1 to 6           3.8
                Average                                         (2.00%)                       (2.00%)            (2.90%)
                                                                                                                                      San Francisco             0 to 10          3.9
                Change (Basis Points)                                                         0                  + 90
                                                      b
                                                                                                                                      Houston                   2 to 12          5.4
                EXPENSE CHANGE RATE
                Range                                           3.00% – 4.50%                 3.00% – 4.50%      3.00% – 3.00%        Washington, DC            2 to 12          5.4
                Average                                         3.11%                         3.11%              3.00%                Boston                    0 to 12          7.0
                Change (Basis Points)                                                         0                  + 11                 Phoenix                   0 to 24          7.2
                AVERAGE MARKETING TIMEc                                                                                               Atlanta                   1 to 18          8.4
                Range                                           2.00 – 12.00                  2.00 – 12.00       2.00 – 12.00
                                                                                                                                      Northern Virginia         2 to 18          8.5
                Average                                         7.79                          7.79               7.75
                                                                                                                                      Manhattan                 0 to 12          8.8
                Change (%)                                                                    0                  + 0.52
                                                                                                                                      Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                        w w w. p w c . c o m   17
            Charlotte Office Market
            MANY INVESTORS AGREE THAT THE                          reported by Cushman & Wakefield.                                      as determining factors in its leasing
            ATTRACTIVENESS OF NORTH CAROLINA'S                     "Leasing activity has picked up and a                                 decision.
            BANKING LAWS BODES WELL FOR THE                        big piece of the recent activity is new-                                    Several signs indicate that the
            LONG-TERM SUCCESS OF THE LOCAL                         to-market deals," observes a participant.                             Charlotte office market has hit bottom,
            OFFICE MARKET DESPITE THE INDUSTRY'S                   During the first quarter, net absorption                              and optimism is growing for improved
            CURRENT WOES.             Unfortunately, the           totaled 421,867 square feet, compared                                 fundamentals going forward. However,
            near-term success of this market is                    with negative absorption of 31,294                                    investment activity remains subdued.
            dependent on the real estate needs of                  square feet during the same period one                                As a result, this market's average over-
            banks. "The story in Charlotte sur-                    year ago.                                                             all capitalization (cap) rate continued
            rounds the future of nonbank-owned                        "Some leasing activity is a result of                              its upward trend this quarter, rising 13
            assets," notes a participant, who ex-                  a flight to quality as tenants trade up                               basis points to 9.41% (see Table CHR-
            plains, "Wells Fargo is in the midst of                from Class-B to Class-A space," de-                                   1). Surveyed participants have mixed
            a collective push to move staff from                   scribes a participant. For instance, law                              feelings with regard to overall cap rate
            nonbank-owned buildings to bank-                       firm Nexsen Pruet is relocating to                                    movement over the next six months.
            owned assets."                                         13,400 square feet in the Class-A, 25-                                Half of our participants expect cap
                 Following the merger with Wells                   story Carillon building downtown from                                 rates to hold steady, 33.3% expect cap
            Fargo, Wachovia announced it would                     another CBD location, citing favorable                                rate compression, and 16.7% antici-
            vacate all of its leased space. While                  rental rates and enhanced technology                                  pate a continued upward trend. ✦
            that has occurred in some outlying
            locations, Wachovia remains in its                        Ta b l e 8
                                                                     C H A R LOT T E O F F I C E M A R K E T
            leased space at Charlotte Plaza in this
                                                                     Second Quarter 2010
            market's CBD. More positive tenant
            news occurred this quarter when Fifth                                                                     CURRENT QUARTER LAST QUARTER                    YEAR AGO
                                                                                                       a
            Third Bank announced its relocation                       DISCOUNT RATE (IRR)
                                                                      Range                                           8.00% – 12.00%                8.00% – 13.00%    8.00% – 13.00%
            to 201 North Tryon Street in the CBD.
                                                                      Average                                         9.98%                         9.81%             9.61%
            The building, owned by Bank of
                                                                      Change (Basis Points)                                                         + 17              + 37
            America, will be renamed Fifth Third
                                                                      OVERALL CAP RATE (OAR)a
            Center.                                                   Range                                           7.00% – 13.00%                6.50% – 13.00%    6.50% – 12.00%
                 Reversing the trend of negative ab-                  Average                                         9.41%                         9.28%             8.96%
            sorption for 2009, the Charlotte office                   Change (Basis Points)                                                         + 13              + 45
            market posted positive net absorption                     RESIDUAL CAP RATE
            in the first quarter of 2010, as per data                 Range                                           7.50% – 11.00%                7.50% – 11.00%    6.00% – 10.00%
                                                                      Average                                         8.95%                         8.93%             8.41%
                                                                      Change (Basis Points)                                                         +2                + 54
              Table CHR-1                                             MARKET RENT CHANGE RATE b
              OVERALL CAP RATE TRENDS                                 Range                     (4.00%) – 0.00%                                     (4.00%) – 0.00%   (4.50%) – 0.00%
              Charlotte Office Market                                 Average                                         (0.50%)                       (1.00%)           (1.13%)
                                                  Change              Change (Basis Points)                                                         + 50              + 63
              Quarter           Average           (Basis Points)
                                                                      EXPENSE CHANGE RATE b
              2Q10              9.41%             + 13                Range                                           2.00% – 3.00%                 0.00% – 3.00%     2.00% – 3.00%
              1Q10              9.28%             +7                  Average                                         2.75%                         2.54%             2.75%

              4Q09              9.21%             0                   Change (Basis Points)                                                         + 21              0

              3Q09              9.21%             + 25                AVERAGE MARKETING TIMEc
                                                                      Range                                           3.00 – 18.00                  3.00 – 18.00      3.00 – 12.00
              2Q09              8.96%             + 73
                                                                      Average                                         7.00                          6.83              6.08
              1Q09              8.23%             —
                                                                      Change (%)                                                                    + 2.49            + 15.13
              Source: Korpacz Real Estate Investor Survey®
                                                                      a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                           w w w. p w c . c o m   18
            Chicago Office Market
            ALTHOUGH THE OVERALL SUPPLY-DE-                                               Like many other major office mar-         ness-services sector over that time peri-
            MAND DYNAMICS OF THE CHICAGO                                            kets across the country, this one's re-         od, dropping from 655,100 workers in
            OFFICE MARKET REMAIN IN FAVOR OF                                        covery will depend on job growth in             April 2007 to 577,100 workers in April
            TENANTS, MANY INVESTORS SENSE THAT                                      office-space-using industries, such as          2010 – an 11.9% decline in three years.
            THE WORST OF THE RECESSION'S NEGA-                                      financial activities and professional-and-      Due to the large number of job losses
            TIVE IMPACT ON UNDERLYING FUNDA-                                        business services. Since the start of           in this market, a near-term recovery is
            MENTALS IS OVER.            "This market appears                        2007, both of these employment sec-             not anticipated. "2010 will continue to
            to be bumping along the bottom," states                                 tors have lost a significant number of          present leasing and ownership chal-
            a participant, who adds that fewer ten-                                 jobs. In April 2007, the financial-activ-       lenges to landlords as companies con-
            ants are seeking rent relief. Still, the                                ities sector employed 295,900 workers           tinue to downsize upon renewal or give
            overall vacancy rate for this market re-                                in the Chicago-Joliet-Naperville metro-         back space," comments a participant.
            mains elevated, standing at 16.2% for                                   politan division, as per the U.S. Bureau           Survey participants indicate that free
            the CBD and 24.5% for the suburbs,                                      of Labor Statistics. Fast-forward to April      rent is a "near certainty" in this market,
            as per Cushman & Wakefield. Both of                                     2010 and the preliminary job number             especially for new tenants. This quarter,
            these figures are above the national                                    stands at 261,000 workers – an 11.8%            free rent ranges up to 18 months for a
            averages and much higher than at the                                    decline in three years.                         ten-year lease and averages 7.5 months.
            peak of the cycle in mid-2007 – 13.9%                                         Job losses on a percentage basis are      Some tenants are also receiving an ex-
            and 18.5%, respectively.                                                similar for the professional-and-busi-          cessive tenant improvement (TI) allow-
                                                                                                                                    ance, which exceeds market TIs by
                Ta b l e 9                                                                                                          between $5.00 and $30.00 per square
                C H I CAG O O F F I C E M A R K E T                                                                                 foot. The average excessive TI amount
                Second Quarter 2010
                                                                                                                                    is $15.12 per square foot. When com-
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO           bined with lower rental rates, ample
                DISCOUNT RATE (IRR)               a
                                                                                                                                    concessions have allowed some com-
                Range                                           8.00% – 13.00%                8.00% – 13.00%     7.00% – 12.00%
                                                                                                                                    panies to upgrade space locations. Vibes
                Average                                         9.76%                         9.93%              9.46%
                                                                                                                                    Media, for example, signed a lease at
                Change (Basis Points)                                                         – 17               + 30
                                                                                                                                    300 W. Adams Street, moving from
                OVERALL CAP RATE (OAR)a
                Range                                           6.00% – 11.00%                6.00% – 11.00%     6.00% – 11.00%
                                                                                                                                    205 W. Wacker Street.
                Average                                         8.61%                         8.61%              8.22%                 As stressed property owners contin-
                Change (Basis Points)                                                         0                  + 39               ue to contend with slow-moving nation-
                RESIDUAL CAP RATE                                                                                                   al and local recoveries, some investors
                Range                                           7.00% – 11.00%                7.00% – 11.00%     7.00% – 11.00%     believe that a greater number of prop-
                Average                                         8.81%                         8.92%              8.51%              erties will be offered for sale and traded
                Change (Basis Points)                                                         – 11               + 30
                                                                                                                                    by the third and fourth quarters of this
                MARKET RENT CHANGE RATE b
                                                                                                                                    year. Potential sellers, however, need
                Range                     (10.00%) – 0.00%                                    (10.00%) – 0.00%   (10.00%) – 3.00%
                                                                                                                                    to realize that pricing in this market is
                Average                                         (2.39%)                       (3.50%)            (0.95%)
                Change (Basis Points)                                                         + 111              – 144              split between core-stabilized assets and

                EXPENSE CHANGE RATE b
                                                                                                                                    value-added deals. "Little value is being
                Range                                           (5.00%) – 3.00%               (5.00%) – 3.00%    (5.00%) – 3.00%    attributed to vacancy, which is a big
                Average                                         1.69%                         1.69%              2.08%              problem for this market because there
                Change (Basis Points)                                                         0                  – 39               is so much of it," notes a participant.
                AVERAGE MARKETING TIMEc                                                                                             Still, it remains a great time to buy core
                Range                                           2.00 – 15.00                  3.00 – 15.00       2.00 – 15.00
                                                                                                                                    assets at below replacement cost, par-
                Average                                         8.06                          8.61               8.54
                                                                                                                                    ticularly in this market's CBD where
                Change (%)                                                                    – 6.39             – 5.62
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months                      new supply is lacking through 2011. ✦



P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                               w w w. p w c . c o m   19
            Dallas Office Market
            ALTHOUGH THE AVERAGE UNEMPLOY-                  during the same time period.                                          investment criteria held steady during
            MENT RATE IN METROPOLITAN DALLAS                   On a positive note, the total                                      the quarter, suggesting this market is at
            IS OUTPERFORMING THE NATIONAL                   amount of sublease space remained                                     or near the bottom. For instance, the
            AVERAGE, PROLONGED JOB LOSSES IN                virtually unchanged over the past 12                                  average overall capitalization (cap)
            OFFICE-SPACE-USING EMPLOYMENT                   months. Moreover, total leasing activ-                                rate inched up just three basis points
            SECTORS ARE PROVING DETRIMENTAL TO              ity escalated 30.8% on a quarterly                                    to 8.77%. Over the next six months,
            UNDERLYING OFFICE MARKET FUNDA-                 basis in the first quarter of 2010. Giv-                              the majority of surveyed investors
            MENTALS.       As shown in Table DOM-1,         en its double-digit vacancy rates, Sur-                               (67.0%) expect overall cap rates to
            the preliminary March 2010 unem-                vey participants estimate that it could                               hold steady in this market.
            ployment rate for the Dallas-Fort               take up to seven years for the Dallas                                       Similar to last quarter, investors are
            Worth-Arlington MSA stands at 8.3%,             office market to reach a stabilized                                   modeling flat rent growth in the first
            or 190 basis points below the nation-           vacancy rate, which participants esti-                                year of cash flow forecasts. In fact,
            al unemployment rate of 10.2%, as               mate to average about 10.0% for this                                  Dallas and the Pacific Northwest (also
            per data from the U.S. Bureau of                market. Their average recovery time                                   showing flat rent growth) are the only
            Labor Statistics. However, since the            for this office market is just over two                               individual office markets in the Survey
            end of 2009, this MSA has lost a total          years.                                                                without a negative initial-year market
            of 7,100 jobs in the professional-and-             In spite of challenging supply-                                    rent change rate this quarter. ✦
            business-services sector and 3,000              demand fundamentals, several key
            jobs in the financial-activities sector.
                 As the lingering impact of the                Ta b l e 1 0
                                                              DA L L A S O F F I C E M A R K E T
            recent economic recession results in
                                                              Second Quarter 2010
            corporate downsizing and consolida-
            tions, available office space continues                                                            CURRENT QUARTER LAST QUARTER                     YEAR AGO
                                                                                                a
            to mount. As of the first quarter of              DISCOUNT RATE (IRR)
                                                              Range                                            8.00% – 12.00%                8.00% – 12.00%     7.00% – 11.50%
            2010, overall vacancy for the Dallas
                                                              Average                                          9.47%                         9.47%              9.38%
            CBD was 29.8%, compared with
                                                              Change (Basis Points)                                                          0                  +9
            27.2% one year prior, as per Cushman
                                                              OVERALL CAP RATE (OAR)a
            & Wakefield. In the suburbs, overall              Range                                            7.00% – 11.50%                7.00% – 11.50%     5.70% – 11.00%
            vacancy rose from 21.7% to 23.1%                  Average                                          8.77%                         8.74%              8.38%
                                                              Change (Basis Points)                                                          +3                 + 39
                                                              RESIDUAL CAP RATE
              Table DOM-1                                     Range                                            7.25% – 11.00%                7.25% – 11.00%     7.00% – 10.50%

              UNEMPLOYMENT TRENDS                             Average                                          8.89%                         8.84%              8.67%

              U.S. and Dallas MSA                             Change (Basis Points)                                                          +5                 + 22

                                   United          Dallas     MARKET RENT CHANGE RATE b
              Time                 States          MSA        Range                     0.00% – 0.00%                                        0.00% – 0.00%      0.00% – 3.25%
              2010                                            Average                                          0.00%                         0.00%              0.27%
              March                10.2%           8.3%*      Change (Basis Points)                                                          0                  – 27

              February             10.4%           8.4%       EXPENSE CHANGE RATE b
                                                              Range                                            3.00% – 3.00%                 3.00% – 3.00%      3.00% – 3.00%
              January              10.6%           8.7%
                                                              Average                                          3.00%                         3.00%              3.00%
              2009
                                                              Change (Basis Points)                                                          0                  0
              March                9.0%            7.3%
                                                              AVERAGE MARKETING TIMEc
              February             8.9%            7.3%       Range                                            3.00 – 12.00                  3.00 – 12.00       3.00 – 12.00
              January              8.5%            7.2%       Average                                          6.90                          7.50               7.10
              * Preliminary                                   Change (%)                                                                     – 8.00             – 2.82
              Source: U.S. Bureau of Labor Statistics
                                                               a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                     w w w. p w c . c o m   20
            Denver Office Market
            OFFICE-SPACE-USING TENANTS READY                                        months as the office space is built out         company DaVita (84,054 square feet).
            AND WILLING TO LEASE SPACE ARE CAPI-                                    and some existing tenants move out                 Attractive concession packages are
            TALIZING ON NUMEROUS SPACE OPTIONS,                                     upon lease expirations.                         enticing tenants to make leasing deci-
            COMPRESSED RENTAL RATES, AND GEN-                                             Overall, total leasing activity in the    sions in this market. Surveyed partici-
            EROUS CONCESSION PACKAGES FOUND                                         first quarter of 2010 soared 53.5% over         pants indicate that free rent is prevalent
            IN THE DENVER OFFICE MARKET.                        "A lot of           the level seen in the first quarter of          in Denver, ranging up to ten months
            Class-A-minus buildings are quoting                                     2009, based on data by Cushman &                and averaging five months. Further, ex-
            Class-B rental rates, which makes for                                   Wakefield. Notably, first quarter's leas-       cessive tenant improvement (TI) allow-
            tough competition among Class-B                                         ing total of nearly 2.2 million square          ances (the amount that the awarded TI
            building owners," says a participant. In                                feet is just below the first quarter 2008       exceeds what is typical for a balanced
            a massive multiple-building lease this                                  level of 2.5 million square feet leased         market), which were virtually nonexist-
            quarter, space rocket firm United Launch                                before the full impact of the U.S. eco-         ent one year ago, stand at an average
            Alliance (ULA) signed for more than                                     nomic recession hit. Other large lease          of $10.00 per square foot this quarter.
            450,000 square feet of space in the                                     commitments in Denver's CBD this                   Although leasing velocity has esca-
            Centennial-Englewood area in south-                                     quarter were made by the U.S. General           lated, the volume of sale transactions is
            east Denver. This move will consoli-                                    Services Administration (98,769 square          modest with buyers focused on high-
            date ULA's nearly 2,000 employees                                       feet), engineering firm AECOM USA               quality office product. "Data points are
            from other local areas over the next 18                                 (92,575 square feet), and health-services       coming to light, but only the very best
                                                                                                                                    product is being competitively priced,"
                Ta b l e 1 1                                                                                                        states an investor. In a suburban office
                DENVER OFFICE MARKET                                                                                                building sale this quarter, HRPT Proper-
                Second Quarter 2010
                                                                                                                                    ties Trust purchased the fully occupied
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO           235,575-square-foot ReMax headquar-
                                                  a
                DISCOUNT RATE (IRR)                                                                                                 ters building for $318.00 per square
                Range                                           7.75% – 15.00%                7.75% – 15.00%     7.75% – 13.00%
                                                                                                                                    foot. In addition, the 45,000-square-
                Average                                         10.26%                        10.20%             9.64%
                                                                                                                                    foot West End Plaza recently sold to
                Change (Basis Points)                                                         +6                 + 62
                                                                                                                                    local buyer AGR Building for $320.00
                OVERALL CAP RATE (OAR)a
                Range                                           7.00% – 11.00%                7.00% – 11.00%     6.00% – 9.50%
                                                                                                                                    per square foot. This five-story, Class-B,
                Average                                         8.40%                         8.39%              7.79%              multitenant asset was renovated in
                Change (Basis Points)                                                         +1                 + 61               2007 and was fully leased.
                RESIDUAL CAP RATE                                                                                                      Pricing office product remains chal-
                Range                                           7.75% – 11.00%                7.75% – 11.00%     7.00% – 9.50%      lenging, as many sellers are using the
                Average                                         9.05%                         9.00%              7.90%              well-located, high-quality assets that
                Change (Basis Points)                                                         +5                 + 115
                                                                                                                                    have traded as benchmarks for pricing
                MARKET RENT CHANGE RATE b
                                                                                                                                    lower-quality offerings. "During the peak
                Range                     (20.00%) – 3.00%                                    (20.00%) – 3.00%   (10.00%) – 3.00%
                Average                                         (1.58%)                       (2.40%)            (1.90%)
                                                                                                                                    of the market, investors widened their
                Change (Basis Points)                                                         + 82               + 32               search for assets and paid first-tier prices
                EXPENSE CHANGE RATE b
                                                                                                                                    in second-tier markets like Denver, so
                Range                                           0.00% – 3.00%                 0.00% – 3.00%      3.00% – 3.50%      the drop in pricing since that time seems
                Average                                         2.75%                         2.70%              3.10%              larger," a participant explains. Most
                Change (Basis Points)                                                         +5                 – 35               Survey participants (67.0%) believes
                AVERAGE MARKETING TIMEc                                                                                             that conditions in the Denver office
                Range                                           1.00 – 9.00                   1.00 – 12.00       1.00 – 9.00
                                                                                                                                    market currently favor buyers, while
                Average                                         5.73                          6.10               4.45
                                                                                                                                    the balance deem the market neutral –
                Change (%)                                                                    – 6.07             + 28.76
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months
                                                                                                                                    equally favoring buyers and sellers. ✦



P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                w w w. p w c . c o m   21
            Houston Office Market
            WHILE THE VELOCITY OF OFFICE TRANS-                    occupied, for $106.00 per square foot                                 up to 20.0%, while others believe val-
            ACTIONS SURGED THIS QUARTER IN THE                     and assumed the seller's $5.1-million                                 ues may increase as much as 5.0%.
            HOUSTON OFFICE MARKET, INVESTORS                       debt.                                                                       Although the quantity and quality
            ARE HESITANT TO VIEW THE RECENT AC-                       Debt issues continue to plague this                                of office building sales may not neces-
            TIVITY AS A SIGNIFICANT STEP TOWARD                    market. In some instances, current                                    sarily reflect a return to what investors
            RECOVERY.        "The high volume of office            property values stand below outstand-                                 consider improved market conditions,
            building sales and offerings occurring                 ing debt obligations, particularly for                                this market's average overall capital-
            shouldn't be used to imply that this                   sales in the less-than-$15.0-million                                  ization (cap) rate did decline for the
            market is improving," remarks a par-                   range. "In today's world, some assets                                 second straight quarter to 8.79%. Over
            ticipant, who believes that on a "price-               are not worth their debt and are trad-                                the next six months, most surveyed
            per-pound" basis, office properties                    ing at liquidation-type pricing," ob-                                 investors foresee overall cap rates
            recently purchased in Houston inaccu-                  serves a participant. This quarter, our                               holding steady in this market. In con-
            rately reflect its investment market.                  Survey participants estimate that office                              trast, this market's average initial-year
                 Nevertheless, office building sales               assets are worth an average of 78.0%                                  market rent change rate turned nega-
            did total $476.0 million during the first              of replacement cost, down from an                                     tive this quarter, suggesting that in-
            three months of 2010, which is con-                    average of 81.8% one year ago. Over                                   vestors are being more conservative in
            siderably greater than the $380.0 mil-                 the next 12 months, certain partici-                                  their cash flow analyses (see Table
            lion posted during all of 2009, based                  pants anticipate asset values to decline                              HOU-1). ✦
            on data by Real Capital Analytics. The
            desire to acquire assets in Houston is                    Ta b l e 1 2
                                                                     H O U S TO N O F F I C E M A R K E T
            evident in the recent sale of a 102,141-
                                                                     Second Quarter 2010
            square-foot, Class-B office building in
            the Galleria submarket, which attract-                                                                    CURRENT QUARTER LAST QUARTER                   YEAR AGO
                                                                                                       a
            ed ten bidders. A local group pur-                       DISCOUNT RATE (IRR)
                                                                     Range                                            8.00% – 14.00%                8.00% – 14.00%   7.50% – 14.00%
            chased the asset, which was 96.0%
                                                                     Average                                          9.68%                         9.69%            9.49%
                                                                     Change (Basis Points)                                                          –1               + 19

              Table HOU-1                                            OVERALL CAP RATE (OAR)a
                                                                     Range                                            7.00% – 12.50%                7.25% – 11.00%   5.00% – 12.00%
              INITIAL-YEAR MARKET RENT
                                                                     Average                                          8.79%                         8.85%            8.23%
              CHANGE RATES
                                                                     Change (Basis Points)                                                          –6               + 56
              Houston Office Market
                                                  Change             RESIDUAL CAP RATE
              Quarter           Average           (Basis Points)     Range                                            7.00% – 11.00%                8.00% – 11.00%   7.25% – 10.00%

              2Q10              (0.50%)           – 50               Average                                          8.74%                         8.82%            8.13%
                                                                     Change (Basis Points)                                                          –8               + 61
              1Q10              0.00%             0
              4Q09              0.00%             0                  MARKET RENT CHANGE RATE b
                                                                     Range                     (5.00%) – 0.00%                                      0.00% – 0.00%    0.00% – 5.00%
              3Q09              0.00%             – 100
                                                                     Average                                          (0.50%)                       0.00%            1.00%
              2Q09              1.00%             – 292              Change (Basis Points)                                                          – 50             – 150
              1Q09              3.92%             +7
                                                                     EXPENSE CHANGE RATE b
              4Q08              3.85%             + 12               Range                                            2.00% – 3.00%                 2.00% – 3.00%    3.00% – 5.00%
              3Q08              3.73%             0                  Average                                          2.92%                         2.90%            3.40%
              2Q08              3.73%             + 47               Change (Basis Points)                                                          +2               – 48

              1Q08              3.26%             – 169              AVERAGE MARKETING TIMEc
                                                                     Range                                            3.00 – 12.00                  3.00 – 12.00     3.00 – 12.00
              2Q07              4.95%             + 245
                                                                     Average                                          7.08                          7.30             7.30
              2Q06              2.50%             —
                                                                     Change (%)                                                                     – 3.01           – 3.01
               Source: Korpacz Real Estate Investor Survey®
                                                                      a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                       w w w. p w c . c o m   22
            Los Angeles Office Market
            WHILE THE DESIRE TO ACQUIRE ASSETS                                            Most of the office properties that       in this market are expecting favorable
            IN THE LOS ANGELES OFFICE MARKET                                        have traded in this market recently            pricing for at least the next 12 months
            REMAINS STRONG AMONG A DIVERSE                                          include mid-size assets, such as the           as the market remains challenged by
            GROUP OF INVESTORS, A LACK OF                                           184,000-square-foot Huntington Pa-             weak tenant demand and a decline in
            QUALITY PRODUCT HAS BROUGHT THE                                         vilion in Pasadena and the 270,000-            rental rates. This quarter, surveyed
            INVESTMENT MARKET TO A NEAR STAND-                                      square-foot 1515 Walnut Grove Ave-             investors note that prices in the Los
            STILL.   "A lot of money wants to funnel                                nue in Rosemead. Furthermore, most             Angeles office market range from
            into this market for both stable and                                    sales have occurred in the suburbs             50.0% to 100.0% of replacement cost
            distressed office properties, but there                                 with the Hollywood/Santa Monica                and average 80.0%. On a price-per-
            are still obstacles to overcome," re-                                   submarket capturing 11 of this mar-            square-foot basis, RCA reports that the
            marks a participant. As a result, sales                                 ket's 37 total property trades over the        average sale price in this market was
            volume amounted to $180.0 million                                       past 12 months.                                down 23.0% on a year-over-year basis
            in the first quarter of 2010, mirroring                                       Both the Tri-Cities and East Los         in the first quarter of 2010.
            the average for the four preceding                                      Angeles submarkets have also experi-              As the market continues to show
            quarters in 2009, as per Real Capital                                   enced sales activity, accounting for nine      signs of bottoming and more capital
            Analytics (RCA). By comparison, quar-                                   and ten sales, respectively, of the mar-       pursues deals, the average overall cap-
            terly sales volume ranged between                                       ket's total over the noted time period.        italization (cap) rate for this market
            $1.43 billion and $4.09 billion in 2007.                                      Investors looking for opportunities      dipped 22 basis points this quarter. As
                                                                                                                                   shown in Table LAO-1, this decrease
                Ta b l e 1 3                                                                                                       comes after six consecutive quarterly
                LO S A N G E L E S O F F I C E M A R K E T                                                                         increases. Over the next six months,
                Second Quarter 2010
                                                                                                                                   the majority of surveyed investors fore-
                                                                CURRENT QUARTER LAST QUARTER                    YEAR AGO           see overall cap rates holding steady in
                DISCOUNT RATE (IRR)a                                                                                               this market. ✦
                Range                                           7.00% – 12.00%                7.00% – 14.00%    7.00% – 14.00%
                Average                                         9.15%                         9.42%             9.50%
                Change (Basis Points)                                                         – 27              – 35                Table L AO-1

                OVERALL CAP RATE (OAR)a                                                                                             OVERALL CAP RATE TRENDS
                Range                                           5.00% – 10.00%                5.00% – 10.00%    4.50% – 10.00%      Los Angeles Office Market
                Average                                         7.71%                         7.93%             7.53%                                                  Change
                Change (Basis Points)                                                         – 22              + 18                Quarter         Average            (Basis Points)

                RESIDUAL CAP RATE                                                                                                   2Q10            7.71%              – 22
                Range                                           6.50% – 10.25%                6.50% – 10.25%    6.50% – 10.00%      1Q10            7.93%              + 18
                Average                                         8.12%                         8.24%             8.13%               4Q09            7.75%              + 13
                Change (Basis Points)                                                         – 12              –1
                                                                                                                                    3Q09            7.62%              +9
                MARKET RENT CHANGE RATE b                                                                                           2Q09            7.53%              + 54
                Range                     (5.00%) – 3.00%                                     (5.00%) – 3.00%   (10.00%) – 4.00%
                                                                                                                                    1Q09            6.99%              + 39
                Average                                         (0.50%)                       (0.36%)           0.81%
                Change (Basis Points)                                                         – 14              – 131               4Q08            6.60%              + 40
                                                                                                                                    3Q08            6.20%              0
                EXPENSE CHANGE RATE b
                Range                                           2.00% – 3.00%                 2.00% – 3.00%     0.00% – 3.00%       2Q08            6.20%              +4
                Average                                         2.86%                         2.79%             2.75%               1Q08            6.16%              0
                Change (Basis Points)                                                         +7                + 11                4Q07            6.16%              +2
                AVERAGE MARKETING TIMEc                                                                                             3Q07            6.14%              – 18
                Range                                           1.00 – 12.00                  1.00 – 12.00      1.00 – 12.00
                                                                                                                                    2Q07            6.32%              – 27
                Average                                         6.50                          7.17              6.33
                                                                                                                                    1Q07            6.59%              —
                Change (%)                                                                    – 9.34            + 2.69
                                                                                                                                    Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                      w w w. p w c . c o m   23
            Manhattan Office Market
            MORE WILLINGNESS ON THE PART OF                        125 Park Avenue.                                                      for this market is the slight downward
            LENDERS TO FINANCE WELL-LOCATED,                          One sign that investors are sensing                                shift in its average overall capitaliza-
            STABILIZED ASSETS HAS HELPED TO HEAT                   stability returning to the Manhattan                                  tion (cap) rate. As shown in Table
            UP SALES ACTIVITY IN THE MANHATTAN                     office market is the continued rise in                                MAN-1, the average overall cap rate
            OFFICE MARKET.           In the first quarter of       this market's average initial-year mar-                               (OAR) dipped seven basis points this
            2010, office building trades amounted                  ket rent change rate. As shown in                                     quarter after holding steady in the
            to nearly $4.2 billion, according to                   Table 14, the average for this key as-                                prior quarter. Even though the current
            Real Capital Analytics. By comparison,                 sumption increased 233 basis points                                   average remains elevated in compari-
            only $2.2 billion traded in all of 2009.               over the past three months. This fol-                                 son to the prior quarter, it is important
            "There is a greater comfort level with                 lows a 175-basis-point increase in the                                to note that the OAR range for this
            regard to the future of the industry and               prior quarter. In addition, the low end                               market tightened by 100 basis points
            this office market," states a participant,             of the range for this key assumption                                  this quarter. Over the next six months,
            who believes that this office market                   rose from -15.0% to -10.0% this quar-                                 half of surveyed participants foresee
            has hit bottom. As a result, a tremen-                 ter. Even though the average remains                                  overall cap rates holding steady while
            dous amount of capital is focused on                   negative, its recent shifts show more                                 the other half expects them to decrease
            acquiring assets here. "It's a great time              confidence and optimism on the part                                   by as much as 100 basis points. The
            to buy," exclaims another.                             of surveyed participants.                                             average expected decrease is 50 basis
                 In one recent sale, 600 Lexington                    Also reflecting investors' optimism                                points. ✦
            Avenue sold for about $640.00 per
            square foot. The price tag for this                       Ta b l e 1 4
                                                                     M A N H AT TA N O F F I C E M A R K E T
            282,000-square-foot, 94.0%-occupied
                                                                     Second Quarter 2010
            office tower is a good sign for other
            sellers looking to offer assets for sale                                                                  CURRENT QUARTER LAST QUARTER                     YEAR AGO
                                                                                                       a
            in what most participants still describe                 DISCOUNT RATE (IRR)
                                                                     Range                                            6.00% – 10.00%                6.00% – 12.00%     6.00% – 12.00%
            as a "buyers'" market. Two other as-
                                                                     Average                                          7.98%                         8.23%              8.36%
            sets currently up for sale include the
                                                                     Change (Basis Points)                                                          – 25               – 38
            750,000-square-foot 340 Madison
                                                                     OVERALL CAP RATE (OAR)a
            Avenue and the 596,773-square-foot                       Range                                            5.00% – 8.00%                 5.00% – 9.00%      5.00% – 10.00%
                                                                     Average                                          6.58%                         6.65%              6.54%
                                                                     Change (Basis Points)                                                          –7                 +4
              Table MAN-1
                                                                     RESIDUAL CAP RATE
              OVERALL CAP RATE TRENDS
                                                                     Range                                            6.00% – 8.50%                 6.00% – 9.00%      6.50% – 10.00%
              Manhattan Office Market                                Average                                          7.13%                         7.17%              7.50%
                                                  Change
                                                                     Change (Basis Points)                                                          –4                 – 37
              Quarter           Average           (Basis Points)

              2Q10              6.58%             –7                 MARKET RENT CHANGE RATE b
                                                                     Range                     (10.00%) – 3.00%                                     (15.00%) – 0.00%   (20.00%) – 8.00%
              1Q10              6.65%             0
                                                                     Average                                          (1.42%)                       (3.75%)            (5.00%)
              4Q09              6.65%             + 14               Change (Basis Points)                                                          + 233              + 358
              3Q09              6.51%             –3
                                                                     EXPENSE CHANGE RATE b
              2Q09              6.54%             + 47               Range                                            1.00% – 3.00%                 1.00% – 3.00%      1.00% – 3.50%
              1Q09              6.07%             + 26               Average                                          2.67%                         2.67%              2.83%

              4Q08              5.81%             + 11               Change (Basis Points)                                                          0                  – 16

              3Q08              5.70%             +3                 AVERAGE MARKETING TIMEc
                                                                     Range                                            3.00 – 9.00                   3.00 – 9.00        2.00 – 9.00
              2Q08              5.67%             +3
                                                                     Average                                          5.90                          5.90               5.75
              2Q07              5.64%             —
                                                                     Change (%)                                                                     0                  + 2.61
              Source: Korpacz Real Estate Investor Survey®
                                                                      a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                         w w w. p w c . c o m   24
            Northern Virginia Office Market
            THE NORTHERN VIRGINIA OFFICE MAR-                                       activity occurred in Class-A buildings,      At 0.20%, this quarter's average repre-
            KET IS SHOWING SMALL, YET ENCOUR-                                       where average asking rental rates            sents the lowest ever reported for this
            AGING, SIGNS OF IMPROVEMENT AS THE                                      declined nearly 6.0% over the past           market since it debuted in the Survey
            U.S. ECONOMY SLOWLY RECOVERS. First,                                    year and nearly 15.0% since the peak         in the third quarter of 2001. Despite
            the overall vacancy rate for this mar-                                  of the cycle in 2007, based on C&W           its decline, it is interesting to note that
            ket held relatively steady during the                                   data. "Some tenants are taking advan-        Northern Virginia and Washington,
            first three months of 2010. Second,                                     tage of still-weak market conditions,"       DC are the only two Survey markets
            total sublease space decreased over the                                 comments a participant, who doesn't          never to report a negative average for
            past year by approximately 200,000                                      expect rental rates to rebound too           this key indicator.
            square feet, as per Cushman & Wake-                                     quickly.                                         Such a feat underscores investors'
            field (C&W). And third, positive net                                          As market conditions continue to       confidence in this market's long-term
            absorption was reported in various                                      favor tenants, surveyed investors are        performance. It is also reflected in this
            areas this quarter, such as Tysons                                      using low market rent growth rate            market's average overall capitalization
            Corner, Rosslyn, and Reston.                                            assumptions in cash flow projections.        rate, which remains one of the lowest
                 Overall, leasing activity totaled                                  As shown in Table NVO-1, the aver-           for all the individual office markets
            1.15 million square feet in Northern                                    age initial-year market rent change          surveyed. As one participant notes, "A
            Virginia's office market in the first                                   rate for this market has fallen deeply       tremendous amount of capital is tar-
            quarter of 2010. Nearly half of this                                    since the peak of the cycle in 2007.         geting this office market."
                                                                                                                                     Unfortunately, few institutional-
                Ta b l e 1 5                                                                                                     grade offerings limit opportunities for
                NORTHERN VIRGINIA OFFICE MARKET                                                                                  eager buyers. Even though some in-
                Second Quarter 2010
                                                                                                                                 vestors expect that additional quality
                                                                CURRENT QUARTER LAST QUARTER                    YEAR AGO         assets will soon come to market,
                                                  a
                DISCOUNT RATE (IRR)                                                                                              pent-up investor demand and improv-
                Range                                           6.00% – 11.00%                6.00% – 12.00%    6.00% – 12.00%
                                                                                                                                 ing market conditions will likely cre-
                Average                                         8.58%                         8.50%             8.50%
                                                                                                                                 ate a competitive environment for
                Change (Basis Points)                                                         +8                +8
                                                                                                                                 buyers. ✦
                OVERALL CAP RATE (OAR)a
                Range                                           6.50% – 10.00%                5.00% – 11.00%    5.00% – 10.00%
                Average                                         7.85%                         7.77%             7.49%
                                                                                                                                   Table NVO-1
                Change (Basis Points)                                                         +8                + 36
                                                                                                                                   INITIAL-YEAR MARKET RENT
                RESIDUAL CAP RATE
                                                                                                                                   CHANGE RATES
                Range                                           7.00% – 9.50%                 6.50% – 9.50%     6.50% – 9.50%
                                                                                                                                   Northern Virginia Office Market
                Average                                         8.15%                         7.94%             7.84%
                                                                                                                                                                     Change
                Change (Basis Points)                                                         + 21              + 31
                                                                                                                                   Quarter         Average           (Basis Points)
                MARKET RENT CHANGE RATE b                                                                                          2Q10            0.20%              – 47
                Range                     (2.00%) – 3.00%                                     (2.00%) – 3.00%   0.00% – 4.00%
                                                                                                                                   1Q10            0.67%              + 10
                Average                                         0.20%                         0.67%             1.74%
                                                                                                                                   4Q09            0.57%              – 72
                Change (Basis Points)                                                         – 47              – 154
                                                                                                                                   3Q09            1.29%              – 45
                EXPENSE CHANGE RATE b
                Range                                           1.50% – 3.00%                 1.50% – 3.00%     3.00% – 3.00%      2Q09            1.74%              – 95
                Average                                         2.79%                         2.82%             3.00%              1Q09            2.69%              – 12
                Change (Basis Points)                                                         –3                – 21               4Q08            2.81%              +2
                AVERAGE MARKETING TIMEc                                                                                            3Q08            2.79%              –7
                Range                                           1.00 – 12.00                  1.00 – 12.00      1.00 – 12.00
                                                                                                                                   2Q08            2.86%              –8
                Average                                         6.30                          7.58              7.07
                                                                                                                                   1Q08            2.94%              —
                Change (%)                                                                    – 16.89           – 10.89
                                                                                                                                   Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                     w w w. p w c . c o m   25
            Pacific Northwest Office Market
            UNDERLYING FUNDAMENTALS REMAIN                         current locations and negotiating early                               dence in this market's long-term per-
            WEAKENED BY THE U.S. ECONOMIC                          renewals at reduced rates.                                            formance is reflected in its average
            RECESSION THAT ROCKED THE LOCAL                           Rental rates have adjusted down-                                   overall capitalization (cap) rate, which
            ECONOMY AND SHUT DOWN WASHING-                         ward over the past several months in                                  slipped to 8.63% this quarter. It has
            TON MUTUAL, THE LARGEST U.S. SAV-                      order to reflect the reduced demand                                   been five quarters since this market's
            INGS AND LOAN, AND HARMED THE                          for space on the part of tenants. Al-                                 average overall cap rate stood below
            OPERATIONS OF MANY OTHER LOCAL                         though surveyed investors remain con-                                 9.00%. Over the next six months,
            COMPANIES, SUCH AS STARBUCKS AND                       servative in their underwriting assump-                               most Survey participants expect over-
            BOEING.      While the growing consensus               tions with respect to market rent                                     all cap rates in this market to hold
            among surveyed investors is that this                  growth, this market's average initial-                                steady.
            market is "bouncing along the bot-                     year market rent change rate turned                                          As this market's local economy
            tom," full-blown signs of stability have               positive this quarter after being nega-                               starts to stabilize and "settle down,"
            yet to emerge. "This market isn't dete-                tive in the prior quarter. Nevertheless,                              some investors expect an influx of
            riorating at a rapid pace anymore, but                 the average for this key assumption                                   capital from both debt and equity
            the statistics still favor tenants," claims            remains well below historical levels                                  sources to enter the market, pushing
            a participant.                                         (see Table PNW-1). Just two years ago                                 down overall cap rates and closing
                 In the first quarter of 2010, the                 it averaged 3.92%.                                                    the bid-ask pricing gap still present
            Seattle CBD posted an overall vacancy                     At the same time, however, confi-                                  between most buyers and sellers. ✦
            rate of 21.4%, according to Cushman
            & Wakefield. Just three years ago, this                   Ta b l e 1 6
                                                                     PA C I F I C N O R T H W E S T O F F I C E M A R K E T
            figure was an impressive 9.7%. In the
                                                                     Second Quarter 2010
            suburbs, the jump in vacancy has been
            less dramatic, moving from 18.0% in                                                                       CURRENT QUARTER LAST QUARTER                    YEAR AGO
                                                                                                       a
            the first quarter of 2007 to 21.9% in                    DISCOUNT RATE (IRR)
                                                                     Range                                            8.00% – 14.00%                9.00% – 15.00%    9.00% – 14.00%
            the first quarter of 2010. While some
                                                                     Average                                          10.63%                        11.13%            11.25%
            tenants are taking advantage of a fav-
                                                                     Change (Basis Points)                                                          – 50              – 62
            orable leasing environment by upgrad-
                                                                     OVERALL CAP RATE (OAR)a
            ing addresses, others are staying in                     Range                                            6.00% – 11.00%                7.25% – 12.00%    7.00% – 11.00%
                                                                     Average                                          8.63%                         9.21%             9.00%
                                                                     Change (Basis Points)                                                          – 58              – 37
               Table PNW-1
                                                                     RESIDUAL CAP RATE
               INITIAL-YEAR MARKET RENT                              Range                                            7.00% – 10.00%                7.00% – 10.00%    7.00% – 10.00%
               CHANGE RATES                                          Average                                          8.80%                         8.95%             8.78%
               Pacific Northwest Office Market                       Change (Basis Points)                                                          – 15              +2
                                                  Change
                                                                     MARKET RENT CHANGE RATE b
              Quarter           Average           (Basis Points)
                                                                     Range                     0.00% – 2.00%                                        (3.00%) – 2.00%   0.00% – 3.00%
              2Q10              0.20%             + 30
                                                                     Average                                          0.20%                         (0.10%)           0.63%
              1Q10              (0.10%)           – 30               Change (Basis Points)                                                          + 30              – 43
              4Q09              0.20%             –5                                                       b
                                                                     EXPENSE CHANGE RATE
              3Q09              0.25%             – 38               Range                                            2.50% – 3.00%                 0.00% – 3.00%     0.00% – 3.00%
              2Q09              0.63%             – 57               Average                                          2.80%                         2.60%             2.13%

              1Q09              1.20%             – 172              Change (Basis Points)                                                          + 20              + 67

              4Q08              2.92%             – 100              AVERAGE MARKETING TIMEc
                                                                     Range                                            1.00 – 12.00                  1.00 – 12.00      1.00 – 12.00
              3Q08              3.92%             0
                                                                     Average                                          6.80                          7.68              7.25
              2Q08              3.92%             —
                                                                     Change (%)                                                                     – 11.46           – 6.21
               Source: Korpacz Real Estate Investor Survey®           a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                        w w w. p w c . c o m   26
            Philadelphia Office Market
            PHILADELPHIA HAS MADE TREMENDOUS                                        Sunoco (220,000 square feet) and                  As Philadelphia faces challenges to
            STRIDES IN ECONOMIC DIVERSIFICATION.                                    Dow Chemical (202,000 square feet),           a robust economic recovery, the leas-
            Nevertheless, its office market cannot                                  contributed to an increase in overall         ing market is decidedly in favor of ten-
            escape the employment losses brought                                    vacancy from 11.5% to 12.8% in the            ants. This quarter, surveyed participants
            on by the U.S. economic recession.                                      Philadelphia CBD over the past three          unanimously note that free rent is
            On one hand, the education-and-                                         months, based on data by Cushman &            commonplace in this market, ranging
            health-services sector has surpassed                                    Wakefield. As such, the CBD posted            from one to nine months. The average
            the historically dominant trade-trans-                                  negative net absorption of 884,881            free rent awarded for a ten-year lease
            portation-and-utilities sector as the                                   square feet, the highest level seen in        is just shy of five months. In certain
            largest industry sector in metropolitan                                 this market since 2002. Even though           cases, landlords also provide addition-
            Philadelphia, based on a recent report                                  the tumultuous pharmaceutical indus-          al tenant improvement (TI) dollars,
            by the U.S. Bureau of Labor Statistics.                                 try has a significant presence in the         ranging from $2.00 to $10.00 per
            In spite of this, workforce downsizing                                  suburbs, overall vacancy there held           square foot and averaging $5.50 per
            across many industries has negatively                                   steady at 16.9% in the first quarter of       square foot. These TI allowances are
            impacted the demand for office space                                    2010. Further, the suburbs absorbed           over and above the typical TIs for this
            in this market.                                                         75,601 square feet during the first           market, which for second-generation
                 Real estate decisions made by large                                three months of this year, suggesting         space range from $10.00 to $30.00
            tenants to market office space, such as                                 that new leasing activity is occurring.       per square foot and average $21.50
                                                                                                                                  per square foot.
                Ta b l e 1 7                                                                                                          As underlying office market fun-
                PHILADELPHIA OFFICE MARKET                                                                                        damentals remain stalled in Philadel-
                Second Quarter 2010
                                                                                                                                  phia, future rent growth expectations
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO         are dim among Survey participants.
                                                  a
                DISCOUNT RATE (IRR)                                                                                               Despite a 17-basis-point increase this
                Range                                           8.50% – 11.00%                9.00% – 11.00%     9.00% – 11.00%
                                                                                                                                  quarter, the average initial-year market
                Average                                         9.69%                         9.84%              9.82%
                                                                                                                                  rent change rate remains negative for
                Change (Basis Points)                                                         – 15               – 13
                                                                                                                                  the third consecutive quarter (see
                OVERALL CAP RATE (OAR)a
                Range                                           7.50% – 11.00%                7.50% – 11.00%     7.50% – 11.00%   Table PHL-1). ✦
                Average                                         8.99%                         9.10%              9.12%
                Change (Basis Points)                                                         – 11               – 13
                                                                                                                                    Table PHL-1
                RESIDUAL CAP RATE
                Range                                           7.00% – 11.00%                7.50% – 11.00%     8.00% – 10.00%     INITIAL-YEAR MARKET RENT

                Average                                         8.95%                         9.18%              9.17%              CHANGE RATES
                Change (Basis Points)                                                         – 23               – 22               Philadelphia Office Market
                                                            b
                                                                                                                                                                      Change
                MARKET RENT CHANGE RATE                                                                                            Quarter          Average           (Basis Points)
                Range                   (10.00%) – 3.00%                                      (10.00%) – 3.00%   0.00% – 3.00%
                                                                                                                                   2Q10             (0.58%)            + 17
                Average                                         (0.58%)                       (0.75%)            0.75%
                Change (Basis Points)                                                         + 17               – 133             1Q10             (0.75%)            0
                                                                                                                                   4Q09             (0.75%)            – 93
                EXPENSE CHANGE RATE b
                Range                                           2.50% – 3.00%                 2.50% – 3.00%      3.00% – 3.00%     3Q09             0.18%              – 57
                Average                                         2.94%                         2.94%              3.00%             2Q09             0.75%              0
                Change (Basis Points)                                                         0                  –6                1Q09             0.75%              – 83
                AVERAGE MARKETING TIMEc                                                                                            4Q08             1.58%              – 50
                Range                                           4.00 – 18.00                  6.00 – 18.00       3.00 – 9.00
                                                                                                                                   3Q08             2.08%              0
                Average                                         7.58                          8.00               6.60
                                                                                                                                   2Q08             2.08%              —
                Change (%)                                                                    – 5.25             + 14.85
                                                                                                                                    Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                      w w w. p w c . c o m   27
            Phoenix Office Market
            LEASING ACTIVITY IS GAINING MOMEN-                      had to compete very heavily, pay a                                    has a lot of vacant buildings that will
            TUM IN THE PHOENIX OFFICE MARKET AS                     large brokerage commission, and pro-                                  be liquidated," indicates a participant.
            TENANTS WITH PENDING EXPIRATIONS                        vide immediate rent relief," shares a                                 Another participant echoes, "This mar-
            SHOP THE COMPETITIVE MARKET FOR                         participant. This quarter, our Survey                                 ket is ground zero for bank-owned
            FAVORABLE RENTAL RATES AND LIBERAL                      participants indicate that free rent                                  office assets." In a recent bank sale, a
            CONCESSION PACKAGES.                  Office-space-     ranges up to 24 months and averages                                   joint venture sold Glendale Corporate
            using tenants hold the upper hand in                    7.2 months – nearly double the aver-                                  Center for $62.00 per square foot. The
            lease negotiations due to the more                      age of 4.1 months one year ago.                                       three Class-A buildings were construct-
            than 20.2 million square feet of vacant                    Although tenants appear more                                       ed in 2008 and reportedly 4.5% occu-
            space in this market, based on data by                  willing to make decisions regarding                                   pied at the time of the sale.
            Cushman & Wakefield. The delivery of                    office space needs, investor interest in                                    Until growth in office-space-using
            two new partially leased Class-A office                 this market has not followed suit. The                                jobs commences in the Phoenix mar-
            buildings to the Phoenix CBD contrib-                   presence of numerous low-occupancy                                    ket, investors remain cautious about
            uted to its 54-basis-point increase in                  buildings with shell tenant finish is                                 future rent growth. As seen in Table
            overall vacancy (to 23.4%) for the first                making pricing unattractive due to the                                PHO-1, this quarter's average initial-
            quarter of 2010. In the suburbs, over-                  high tenant improvement dollars need-                                 year market rent change rate remains
            all vacancy inched up from 27.4% to                     ed and the other lease-up costs that                                  negative, although slightly improved
            27.6% over the past three months.                       potential buyers will incur. "Phoenix                                 from the prior quarter. ✦
                 In some cases, landlords are ap-
            proaching tenants to renew leases                          Ta b l e 1 8
                                                                      PHOENIX OFFICE MARKET
            prior to lease expirations, but the dol-
                                                                      Second Quarter 2010
            lars necessary to secure the deals are
            extremely costly to owners. "We just                                                                      CURRENT QUARTER LAST QUARTER                     YEAR AGO
                                                                                                        a
            did a renewal for a tenant with one                       DISCOUNT RATE (IRR)
                                                                      Range                                           8.50% – 16.00%                8.50% – 16.00%     8.00% – 12.00%
            year remaining on its lease, but we
                                                                      Average                                         11.04%                        10.51%             9.93%
                                                                      Change (Basis Points)                                                         + 53               + 111
                                                                                                                a
               Table PHO-1                                            OVERALL CAP RATE (OAR)
                                                                      Range                                           7.00% – 11.00%                7.00% – 11.00%     5.50% – 10.00%
               INITIAL-YEAR MARKET RENT
                                                                      Average                                         9.26%                         9.12%              8.40%
               CHANGE RATES
                                                                      Change (Basis Points)                                                         + 14               + 86
               Phoenix Office Market
                                                   Change             RESIDUAL CAP RATE
              Quarter           Average            (Basis Points)     Range                                           8.00% – 11.00%                8.00% – 10.00%     7.00% – 10.00%

              2Q10              (3.50%)            + 70               Average                                         9.14%                         8.95%              8.78%
                                                                      Change (Basis Points)                                                         + 19               + 36
              1Q10              (4.20%)            + 130
              4Q09              (5.50%)            + 40               MARKET RENT CHANGE RATE b
                                                                      Range                     (15.00%) – 0.00%                                    (15.00%) – 0.00%   (15.00%) – 0.00%
              3Q09              (5.90%)            – 162
                                                                      Average                                         (3.50%)                       (4.20%)            (4.28%)
              2Q09              (4.28%)            – 553              Change (Basis Points)                                                         + 70               + 78
              1Q09              1.25%              0                                                        b
                                                                      EXPENSE CHANGE RATE
              4Q08              1.25%              – 150              Range                                           0.00% – 3.00%                 0.00% – 3.00%      3.00% – 3.00%
              3Q08              2.75%              – 25               Average                                         2.75%                         2.70%              3.00%
              2Q08              3.00%              – 125              Change (Basis Points)                                                         +5                 – 25

              1Q08              4.25%              – 50               AVERAGE MARKETING TIMEc
                                                                      Range                                           3.00 – 12.00                  3.00 – 12.00       3.00 – 12.00
              4Q07              4.75%              0
                                                                      Average                                         6.25                          6.00               5.20
              3Q07              4.75%              —
                                                                      Change (%)                                                                    + 4.17             + 20.19
               Source: Korpacz Real Estate Investor Survey®
                                                                      a. Rate on unleveraged, all-cash transactions     b. Initial rate of change    c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                         w w w. p w c . c o m   28
            San Diego Office Market
            INVESTORS WITH CAPITAL TO PLACE ARE                                     explains a participant.                             Following five quarters of increases
            SEEKING QUALITY ASSETS IN THE SAN                                             In a CBD sale this quarter, U.S.          in its average overall capitalization (cap)
            DIEGO OFFICE MARKET DESPITE SLUGGISH                                    Bank agreed to purchase the 110,000-            rate, a slight dip occurred this quarter,
            UNDERLYING FUNDAMENTALS.                       Although                 square-foot former San Diego National           suggesting that this market is at or near
            transaction activity is still modest,                                   Bank headquarters following its acqui-          the bottom (see Table SDO-1). "Opti-
            many investors are optimistic about                                     sition of the local bank. The terms of          mism and capital have returned to San
            the long-term prospects of the San                                      the transaction were not disclosed, but         Diego very quickly," notes a partici-
            Diego office market due to the pres-                                    U.S. Bank already occupies 81,000               pant. Over the next six months, the
            ence of steady government employ-                                       square feet of the property and will            majority (66.7%) of surveyed partici-
            ment, a concentration of health and                                     have naming rights on the building.             pants expect overall cap rates to hold
            biotech firms, a highly educated work-                                  Also this quarter, CB Richard Ellis             steady, while the balance anticipate
            force, and a desirable quality of life.                                 Realty Trust purchased a fully occupied         increases of up to 50 basis points.
            However, the bid-ask gap between                                        Class-A asset in the Sorrento Mesa                  In addition to renewed investor
            buyers and sellers presents a challenge                                 submarket. Time Warner Cable leases             interest, supply and demand trends
            to finalizing deals. "Core office assets                                the entire 134,000-square-foot build-           exhibit some traction despite ongoing
            are trading at levels difficult to under-                               ing through 2018. The sale price was            job losses. "We are still seeing business
            write and Class-B assets are being                                      not available, but the asset reportedly         failures in the San Diego market,"
            treated as if they were Class-A assets,"                                traded in 2005 for $17.8 million.               comments a participant. Leasing veloc-
                                                                                                                                    ity in the first quarter of 2010 totaled
                Ta b l e 1 9                                                                                                        1,595,164 square feet, a 31.2% in-
                SAN DIEGO OFFICE MARKET                                                                                             crease over the fourth quarter of 2009,
                Second Quarter 2010
                                                                                                                                    based on data by Cushman & Wake-
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO           field. The leasing climate remains
                DISCOUNT RATE (IRR)a                                                                                                extremely competitive between land-
                Range                                           7.50% – 14.00%                8.00% – 14.00%     8.00% – 11.00%
                                                                                                                                    lords and consists primarily of move-
                Average                                         10.05%                        10.01%             9.41%
                                                                                                                                    ment within the market rather than
                Change (Basis Points)                                                         +4                 + 64
                                                                                                                                    growth. "There is definitely a flight to
                OVERALL CAP RATE (OAR)a
                Range                                           7.00% – 11.00%                7.00% – 11.00%     7.00% – 9.00%      quality in this market, so it's tough to
                Average                                         8.25%                         8.28%              7.82%              be a Class-B+ asset owner right now,"
                Change (Basis Points)                                                         –3                 + 43               observes a participant. ✦
                RESIDUAL CAP RATE
                Range                                           7.00% – 10.00%                7.00% – 10.00%     7.00% – 9.00%
                Average                                         8.25%                         8.25%              8.10%                Table SDO-1

                Change (Basis Points)                                                         0                  + 15                 OVERALL CAP RATE TRENDS

                MARKET RENT CHANGE RATE                     b                                                                         San Diego Office Market
                Range                   (10.00%) – 0.00%                                      (10.00%) – 0.00%   (10.00%) – 0.00%                                        Change
                                                                                                                                      Quarter         Average            (Basis Points)
                Average                                         (1.92%)                       (2.30%)            (4.50%)
                Change (Basis Points)                                                         + 38               + 258                2Q10            8.25%              –3
                                                                                                                                      1Q10            8.28%              + 15
                EXPENSE CHANGE RATE b
                Range                                           0.00% – 3.00%                 0.00% – 3.00%      3.00% – 3.00%        4Q09            8.13%              +2
                Average                                         2.50%                         2.40%              3.00%                3Q09            8.11%              + 29
                Change (Basis Points)                                                         + 10               – 50                 2Q09            7.82%              + 78
                AVERAGE MARKETING TIMEc                                                                                               1Q09            7.04%              + 98
                Range                                           1.00 – 12.00                  1.00 – 12.00       1.00 – 9.00
                                                                                                                                      2Q08            6.06%              – 19
                Average                                         6.30                          6.88               5.92
                                                                                                                                      2Q07            6.25%              —
                Change (%)                                                                    – 8.43             + 6.42
                                                                                                                                      Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                        w w w. p w c . c o m   29
            San Francisco Office Market
            WHILE THE TIMING MAY BE RIGHT FOR                        lion. In early 2008, Broadway Partners                                tenant's space.
            EAGER AND WELL-CAPITALIZED BUYERS                        attempted to sell the asset, which was                                      While it remains to be seen whether
            TO ACQUIRE STABLE ASSETS IN THE SAN                      reportedly encumbered with a $250-                                    more distressed ownership situations
            FRANCISCO OFFICE MARKET, ONE THING                       million, five-year, interest-only loan                                occur in this market, many potential
            IS MISSING – PRODUCT.                 "We only re-       maturing in mid-2012.                                                 buyers have been disappointed by the
            viewed two deals this quarter, of which                     The situation surrounding the                                      lack of distressed selling in this market.
            one involved a single-tenant building,"                  "giveback" of One Sansome Street is                                   One reason for a lack of distressed
            shares an investor. Even though the                      similar to Hines' decision to return                                  selling is that banks continue to ex-
            number of office buildings sold is up                    333 Bush Street to its lenders as a re-                               tend and restructure loans where nec-
            46.0% on a year-over-year basis, of-                     sult of asset distress in July 2009. At                               essary, especially given the general
            ferings are down 52.0%, as per Real                      333 Bush Street, bankruptcy of the                                    sentiment among surveyed investors
            Capital Analytics. Class-A towers sold                   main tenant (law firm Heller Ehrman,                                  that this market has bottomed out.
            recently include 211 Main Street, a                      which occupied 46.0% of the build-                                    Investors' optimism is recognized in
            373,769-square-foot property; 49                         ing) was too much for the owner to                                    this market's average initial-year mar-
            Stevenson Street, a 121,179-square-                      overcome since property values at the                                 ket rent change rate, which turned
            foot asset; and One Sansome Street, a                    time were plummeting, tenant demand                                   positive this quarter after being nega-
            739,000-square-foot building.                            was sinking, and significant capital                                  tive for four consecutive quarters (see
                 One Sansome Street was acquired                     was needed to retrofit the vacated                                    Table SFO-1). ✦
            by a joint venture involving Barker
            Pacific Group and Prudential Real                           Ta b l e 2 0
                                                                        SAN F R AN C I S CO O F F I C E M A R K E T
            Estate Investors after the former owner
                                                                        Second Quarter 2010
            (Broadway Partners) turned the property
            over to its lender (Prudential). Broad-                                                                     CURRENT QUARTER LAST QUARTER                     YEAR AGO
                                                                                                         a
            way Partners acquired One Sansome                           DISCOUNT RATE (IRR)
                                                                        Range                                           7.50% – 15.00%                8.00% – 14.00%     7.00% – 14.00%
            Street at the peak of the cycle in May
                                                                        Average                                         9.65%                         9.74%              9.11%
            2007 as part of a 24-builidng portfolio
                                                                        Change (Basis Points)                                                         –9                 + 54
            sale from Beacon Capital for $5.0 bil-
                                                                        OVERALL CAP RATE (OAR)a
                                                                        Range                                           5.75% – 11.00%                6.00% – 11.00%     5.00% – 11.00%
                                                                        Average                                         7.83%                         7.83%              7.35%
              Ta ble SFO-1
                                                                        Change (Basis Points)                                                         0                  + 48
              INITIAL-YEAR MARKET RENT
                                                                        RESIDUAL CAP RATE
              CHANGE RATES
                                                                        Range                                           6.00% – 12.00%                6.25% – 12.00%     5.00% – 12.00%
              San Francisco Office Market
                                                                        Average                                         8.03%                         8.13%              7.59%
                                                    Change
                                                                        Change (Basis Points)                                                         – 10               + 44
              Quarter           Average             (Basis Points)

              2Q10              0.44%               + 127               MARKET RENT CHANGE RATE b
                                                                        Range                     (5.00%) – 3.00%                                     (20.00%) – 3.00%   (10.00%) – 14.00%
              1Q10              (0.83%)             + 17
                                                                        Average                                         0.44%                         (0.83%)            (0.35%)
              4Q09              (1.00%)             + 106
                                                                        Change (Basis Points)                                                         + 127              + 79
              3Q09              (2.06%)             – 171                                                    b
                                                                        EXPENSE CHANGE RATE
              2Q09              (0.35%)             – 90                Range                                           0.00% – 3.00%                 0.00% – 3.00%      1.00% – 3.00%
              1Q09              0.55%               – 218               Average                                         2.56%                         2.56%              2.78%
              4Q08              2.73%               – 177               Change (Basis Points)                                                         0                  – 22

              3Q08              4.50%               – 45                AVERAGE MARKETING TIMEc
                                                                        Range                                           1.00 – 12.00                  3.00 – 12.00       1.00 – 12.00
              2Q08              4.95%               – 161
                                                                        Average                                         6.67                          8.00               7.33
              2Q07              6.56%               —
                                                                        Change (%)                                                                    – 16.63            – 9.00
              Source: Korpacz Real Estate Investor Survey®
                                                                        a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                           w w w. p w c . c o m   30
            Southeast Florida Office Market
            AS THE SOUTHEAST FLORIDA OFFICE                                               Investors that recently acquired         this market's average initial-year market
            MARKET BOUNCES ALONG THE BOTTOM                                         assets in this market include Baptist          rent change rate improved 36 basis
            OF THE CYCLE, BOTH TENANTS AND IN-                                      Health South Florida, which purchased          points this quarter, it remains negative
            VESTORS ARE STRATEGIZING HOW TO                                         Town & Country Corporate Center in             at -0.71% (see Table SEF-1). Further-
            BEST TAKE ADVANTAGE OF RENTAL RATES                                     South Dade for $22.9 million; Merid-           more, the low end of the range remains
            AND SALE PRICES THAT FAVOR BOTH                                         ian Miami, which bought 1680 Merid-            at -10.00% for the third consecutive
            GROUPS.       "Buyers should be able to cap-                            ian in Miami Beach for $15.8 million;          quarter. In addition, none of our Survey
            italize on current market conditions in                                 Imar Offices, which acquired Union             participants are incorporating rent
            a big way," boasts a participant. This                                  Planter's Square in Central Broward            spikes into cash flow analyses. "The
            quarter, surveyed investors report that                                 for $1.8 million; and Pimo Capital,            recovery will be a slow one so we are
            sale prices in this market range from                                   which bought One Lincoln Place in              opting to keep rent growth low," ex-
            40.0% to 100.0% of replacement cost                                     the Glades Road submarket of Palm              plains a participant.
            and average 76.0% of replacement                                        Beach County for $10.5 million.                    The near-term difficulties anticipated
            cost. At the peak of the cycle in mid-                                        Despite a favorable buying environ-      for this market by our Survey partici-
            2007, the Survey revealed that sale                                     ment, investors are being very selec-          pants are also reflected in this quarter's
            prices in this market ranged from 90.0%                                 tive with acquisitions and continue to         average overall capitalization (cap) rate.
            to 110.0% of replacement cost and                                       use conservative underwriting assump-          At 9.20%, this market's average repre-
            averaged 97.1% of replacement cost.                                     tions in cash flow analyses. Even though       sents the third highest average overall
                                                                                                                                   cap rate for the 18 individual office
                Ta b l e 2 1                                                                                                       markets in our Survey. Only Charlotte
                S O U T H E A S T F LO R I DA O F F I C E M A R K E T                                                              and Phoenix reported higher averages
                Second Quarter 2010
                                                                                                                                   at 9.41% and 9.26%, respectively.
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO          Over the next six months, surveyed
                                                  a
                DISCOUNT RATE (IRR)                                                                                                investors expect overall cap rates to
                Range                                           7.00% – 16.00%                7.00% – 16.00%     8.00% – 16.00%
                                                                                                                                   hold steady as this market works to find
                Average                                         10.22%                        10.33%             10.27%
                                                                                                                                   a bottom and slowly start to recover. ✦
                Change (Basis Points)                                                         – 11               –5
                OVERALL CAP RATE (OAR)a
                Range                                           7.25% – 14.00%                7.25% – 14.00%     6.70% – 10.50%
                                                                                                                                     Ta ble SEF-1
                Average                                         9.20%                         9.13%              8.49%
                                                                                                                                     INITIAL-YEAR MARKET RENT
                Change (Basis Points)                                                         +7                 + 71
                                                                                                                                     CHANGE RATES
                RESIDUAL CAP RATE
                                                                                                                                     Southeast Florida Office Market
                Range                                           7.00% – 12.00%                7.75% – 12.00%     7.50% – 10.50%
                                                                                                                                                                       Change
                Average                                         9.00%                         9.13%              8.69%              Quarter          Average           (Basis Points)
                Change (Basis Points)                                                         – 13               + 31
                                                                                                                                    2Q10             (0.71%)            + 36
                                                            b
                MARKET RENT CHANGE RATE                                                                                             1Q10             (1.07%)            + 18
                Range                   (10.00%) – 3.00%                                      (10.00%) – 3.00%   (5.00%) – 3.00%
                                                                                                                                    4Q09             (1.25%)            – 75
                Average                                         (0.71%)                       (1.07%)            0.03%
                                                                                                                                    3Q09             (0.50%)            – 53
                Change (Basis Points)                                                         + 36               – 74
                                                                                                                                    2Q09             0.03%              – 89
                EXPENSE CHANGE RATE b
                Range                                           1.00% – 3.00%                 1.00% – 3.00%      3.00% – 3.00%      1Q09             0.92%              – 141
                Average                                         2.86%                         2.86%              3.00%              4Q08             2.33%              – 31
                Change (Basis Points)                                                         0                  – 14               3Q08             2.64%              + 21
                AVERAGE MARKETING TIMEc                                                                                             2Q08             2.43%              – 32
                Range                                           2.00 – 18.00                  2.00 – 18.00       3.00 – 12.00
                                                                                                                                    1Q08             2.75%              – 108
                Average                                         7.50                          7.33               7.20
                                                                                                                                    2Q07             3.83%              —
                Change (%)                                                                    + 2.32             + 4.17
                                                                                                                                     Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                       w w w. p w c . c o m   31
            Suburban Maryland Office Market
            AS TENANTS CONTINUE TO TAKE ADVAN-                     government-related leases were com-                                   "We need to work a bit harder to both
            TAGE OF FAVORABLE LEASING CONDI-                       pleted in the first quarter of 2010 with                              retain existing tenants and attract new
            TIONS, THE UNDERLYING FUNDAMENTALS                     the Food and Drug Administration (near-                               ones," notes a participant, who also
            OF THE SUBURBAN MARYLAND OFFICE                        ly 200,000 square feet in two deals),                                 remarks that tenant interest for space
            MARKET SHOWED SIGNS OF IMPROVE-                        the U.S. Census Bureau (about 20,000                                  has increased.
            MENT OVER THE PAST FEW MONTHS.                         square feet in Prince George's County),                                     Even though concessions continue
            Overall, total leasing activity was just               and Lockheed Martin (renewed for over                                 to exist in this market, signs of growth
            shy of one million square feet in this                 50,000 square feet in Greenbelt).                                     and expansion on the part of tenants are
            market in the first quarter of 2010, as                   Although landlords are increasingly                                allowing some investors to be more
            per Cushman & Wakefield. On a net                      confident in this market's ability to re-                             aggressive in their underwriting assump-
            basis, leasing activity resulted in posi-              cover with each passing lease that is                                 tions. This quarter, the average initial-
            tive absorption of about 35,000 square                 signed, many property owners still rec-                               year market rent change rate for this
            feet for the quarter. A large portion of               ognize the need to offer concessions.                                 market increased by 27 basis points. In
            this market's leasing activity continues               This quarter, our surveyed investors re-                              addition, the low end of its range im-
            to center around government entities,                  port that free rent ranges from one to                                proved. Furthermore, this market's av-
            which accounted for about 75.0% of                     12 months and averages 6.2 months for                                 erage overall capitalization rate dipped
            the total leasing activity in the first                a ten-year lease. A year ago, this aver-                              for the second consecutive quarter (see
            quarter of 2010.                                       age was slightly lower at 5.7 months.                                 Table SMO-1). ✦
                 In one of the largest local govern-
            ment leases for that time period, the                     Ta b l e 2 2
                                                                      S U B U R BA N M A RY L A N D O F F I C E M A R K E T
            General Services Administration (GSA)
                                                                      Second Quarter 2010
            signed a ten-year deal for new head-
            quarters space for the National Cancer                                                                    CURRENT QUARTER LAST QUARTER                     YEAR AGO
                                                                                                       a
            Institute. This space will be located in a                DISCOUNT RATE (IRR)
                                                                      Range                                           7.00% – 11.00%                7.00% – 11.00%     7.00% – 11.00%
            new 575,000-square-foot office building
                                                                      Average                                         8.81%                         8.85%              8.69%
            located on John Hopkins University's
                                                                      Change (Basis Points)                                                         –4                 + 12
            Montgomery County campus. Other
                                                                      OVERALL CAP RATE (OAR)a
                                                                      Range                                           5.00% – 9.50%                 5.00% – 9.50%      5.00% – 10.00%
                                                                      Average                                         7.86%                         7.93%              7.57%
              Ta ble SMO-1
                                                                      Change (Basis Points)                                                         –7                 + 29
              OVERALL CAP RATE TRENDS
                                                                      RESIDUAL CAP RATE
              Suburban Maryland Office Market
                                                                      Range                                           7.50% – 10.00%                7.50% – 9.50%      7.00% – 10.00%
                                                  Change
              Quarter           Average           (Basis Points)      Average                                         8.46%                         8.38%              8.17%
                                                                      Change (Basis Points)                                                         +8                 + 29
              2Q10              7.86%             –7
              1Q10              7.93%             – 23                MARKET RENT CHANGE RATE b
                                                                      Range                     (2.00%) – 3.00%                                     (4.00%) – 3.00%    (4.00%) – 4.00%
              4Q09              8.16%             +8
                                                                      Average                                         0.49%                         0.22%              0.67%
              3Q09              8.08%             + 51                Change (Basis Points)                                                         + 27               – 18
              2Q09              7.57%             + 22
                                                                      EXPENSE CHANGE RATE b
              1Q09              7.35%             + 17                Range                                           0.00% – 3.00%                 0.00% – 3.00%      3.00% – 3.00%
              4Q08              7.18%             + 16                Average                                         2.75%                         2.75%              3.00%

              3Q08              7.02%             0                   Change (Basis Points)                                                         0                  – 25

              2Q08              7.02%             + 10                AVERAGE MARKETING TIMEc
                                                                      Range                                           1.00 – 12.00                  1.00 – 15.00       1.00 – 12.00
              1Q08              6.92%             0
                                                                      Average                                         7.86                          8.29               7.44
              4Q07              6.92%             —
                                                                      Change (%)                                                                    – 5.19             + 5.65
              Source: Korpacz Real Estate Investor Survey®
                                                                      a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                         w w w. p w c . c o m   32
            Washington, DC Office Market
            THE APPEAL OF OWNING CLASS-A OF-                                        "Property incomes will likely roll down        Evening Star Building, have piqued
            FICE BUILDINGS IN WASHINGTON, DC                                        for a couple of years, but this market         interest from overseas investors. Ac-
            REMAINS VERY STRONG AMONG MOST                                          will outperform most downtowns in              cording to the Association of Foreign
            INVESTORS EVEN THOUGH THE MARKET'S                                      the long term," explains an investor.          Investors in Real Estate, foreign capital
            UNDERLYING FUNDAMENTALS REMAIN                                          The recent local sale of 1999 K Street         targeting this market comes from
            CHALLENGED BY A SLOW-MOVING ECO-                                        NW for $830.00 per square foot                 numerous countries, such as Holland,
            NOMIC RECOVERY.               In the first quarter                      demonstrates the confidence that in-           France, and Sweden.
            of 2010, this office market posted an                                   vestors have in this market. Purchased             Domestic investors also place well-
            overall vacancy rate of 14.5%, accord-                                  by a German open-ended investment              leased, quality office assets in Wash-
            ing to Cushman & Wakefield. This fig-                                   Fund (Deka Immobilien GmbH), this              ington, DC at the top of preference
            ure is just below the national CBD                                      250,000-square-foot, Class-A office            lists. Such fervent investor interest
            overall vacancy rate of 15.0% and one                                   tower opened last fall and is fully oc-        amid a shortage of quality offerings
            of the highest rates ever reported for                                  cupied by the Mayer Brown law firm.            has resulted in a decline in this mar-
            this metro area. In fact, just one year                                       Investment interest in Washington,       ket's average overall capitalization
            ago, this market's overall vacancy rate                                 DC is reportedly strong among inter-           (cap) rate this quarter. In turn, some
            was 9.4%.                                                               national players. In fact, two other           speculation exists among investors
                 Despite its sudden rise in overall                                 local office buildings on the market,          that property values have increased or,
            vacancy, few investors seem dismayed.                                   Two Constitution Square and the                at best, stabilized.
                                                                                                                                       As shown in Table WDC-1, this
                Ta b l e 2 3                                                                                                       market's average overall cap rate de-
                WA S H I N G T O N , D C O F F I C E M A R K E T                                                                   clined this quarter following six quar-
                Second Quarter 2010
                                                                                                                                   ters of mostly cap rate expansion. Over
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO          the next six months, most surveyed
                                                  a
                DISCOUNT RATE (IRR)                                                                                                investors (83.3%) expect overall cap
                Range                                           7.50% – 10.00%                7.50% – 10.00%     7.00% – 9.50%
                                                                                                                                   rates to hold steady in this market.
                Average                                         8.17%                         8.21%              7.95%
                                                                                                                                   The remaining percentage expects
                Change (Basis Points)                                                         –4                 + 22
                                                                                                                                   them to decrease as much as 25 basis
                OVERALL CAP RATE (OAR)a
                Range                                           6.00% – 8.50%                 5.50% – 8.50%      5.00% – 8.00%     points. ✦
                Average                                         6.95%                         7.11%              6.43%
                Change (Basis Points)                                                         – 16               + 52
                                                                                                                                    Ta ble WDC-1
                RESIDUAL CAP RATE
                                                                                                                                    OVERALL CAP RATE TRENDS
                Range                                           6.00% – 8.50%                 6.00% – 8.50%      5.00% – 8.50%
                Average                                         7.33%                         7.40%              7.02%              Washington, DC Office Market
                                                                                                                                                                        Change
                Change (Basis Points)                                                         –7                 + 31
                                                                                                                                    Quarter          Average            (Basis Points)
                MARKET RENT CHANGE RATE b
                                                                                                                                    2Q10             6.95%              – 16
                Range                     (2.00%) – 3.00%                                     (4.00%) – 3.00%    (4.00%) – 3.00%
                                                                                                                                    1Q10             7.11%              0
                Average                                         0.43%                         0.14%              0.96%
                Change (Basis Points)                                                         + 29               – 53               4Q09             7.11%              + 13
                                                                                                                                    3Q09             6.98%              + 55
                EXPENSE CHANGE RATE b
                Range                                           1.50% – 3.00%                 1.50% – 3.00%      3.00% – 3.50%      2Q09             6.43%              + 17
                Average                                         2.82%                         2.82%              3.06%              1Q09             6.26%              +3
                Change (Basis Points)                                                         0                  – 24               2Q08             6.23%              +2
                AVERAGE MARKETING TIMEc                                                                                             2Q07             6.21%              – 24
                Range                                           2.00 – 18.00                  2.00 – 18.00       3.00 – 12.00
                                                                                                                                    2Q06             6.45%              – 63
                Average                                         7.57                          7.93               6.44
                                                                                                                                    2Q05             7.08%              —
                Change (%)                                                                    – 4.54             + 17.55
                                                                                                                                     Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change       c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                       w w w. p w c . c o m   33
            National Flex/R&D Market
            SLUGGISH TENANT DEMAND CONTINUES                       rate fell 1.6% for flex/R&D space in                                 improvement, posting 1.3 million
            TO RAISE THE LEVEL OF AVAILABLE SPACE                  metro Los Angeles on a quarterly basis.                              square feet of net absorption. In con-
            IN THE NATIONAL FLEX/R&D MARKET.                       In metro Denver, the overall vacancy                                 trast, companies continued to shed flex
            "Demand for flex/R&D space is suffer-                  rate for flex/R&D space dipped to                                    space in Chicago, resulting in negative
            ing because suburban office space has                  15.6% in the first quarter of 2010 –                                 net absorption of 388,000 square feet
            become a more affordable alternative                   down from 16.1% in the prior quarter.                                for the quarter.
            for tenants," comments a participant.                  At the same time, the average asking                                       Due to weak fundamentals, many
            In the first quarter of 2010, the U.S.                 rental rate slipped only 0.2%.                                       surveyed investors continue to use low
            vacancy rate for flex/R&D space rose                      Choppy market performances and                                    initial-year market rent change rates in
            to 14.2% from 13.7% in the fourth                      a slow-moving economic recovery                                      preparing cash flow forecasts (see Table
            quarter of 2009, as reported by Grubb                  suggest that this product type as a                                  FLX-1). Such a low growth rate expec-
            & Ellis. Overall, occupancy loss totaled               whole will struggle over the near term.                              tation underscores Survey participants'
            5.5 million square feet in the flex/R&D                Even in large established industrial                                 cautionary viewpoint of this property
            sector for the first three months of                   markets, such as Chicago, flex/R&D                                   type. In fact, over the next 12 months,
            2010. By comparison, negative net                      space continues to underperform                                      certain participants expect property
            absorption totaled less than 500,000                   warehouse-distribution space. In the                                 values for this asset class to decline as
            square feet for the massive warehouse-                 first quarter of 2010, Chicago's bulk                                much as 15.0%. The average expected
            distribution market.                                   warehouse sector showed marked                                       value decline is about 2.0%. ✦
                 Vacancy rates for flex/R&D space
            vary greatly between metro areas. In                      Ta b l e 2 4
                                                                     N AT I O N A L F L E X / R & D M A R K E T
            Los Angeles County, for example, the
                                                                     Second Quarter 2010
            overall vacancy rate for flex/R&D space
            was 6.3% in the first quarter of 2010,                                                                   CURRENT QUARTER LAST QUARTER                    YEAR AGO
                                                                                                      a
            up from 5.4% a year earlier, as per                      DISCOUNT RATE (IRR)
                                                                     Range                                           8.25% – 13.00%                8.00% – 13.00%    7.75% – 12.00%
            Delta Associates. As vacancy rates in-
                                                                     Average                                         10.05%                        10.14%            9.41%
            creased, the average asking net rental
                                                                     Change (Basis Points)                                                         –9                + 64
                                                                     OVERALL CAP RATE (OAR)a
                                                                     Range                                           7.50% – 12.00%                7.50% – 12.00%    7.00% – 10.00%
              Ta ble FLX-1
                                                                     Average                                         9.38%                         9.36%             8.36%
              INITIAL-YEAR MARKET RENT
                                                                     Change (Basis Points)                                                         +2                + 102
              CHANGE RATES
              National Flex/R&D Market                               RESIDUAL CAP RATE
                                                                     Range                                           7.50% – 11.50%                7.50% – 12.50%    7.00% – 11.50%
                                                  Change
              Quarter           Average           (Basis Points)     Average                                         9.16%                         9.20%             8.56%

              2Q10              0.07%             – 12               Change (Basis Points)                                                         –4                + 60

              1Q10              0.19%             – 10               MARKET RENT CHANGE RATE b
                                                                     Range                     (2.00%) – 3.00%                                     (5.00%) – 3.00%   (5.00%) – 3.00%
              4Q09              0.29%             + 65
                                                                     Average                                         0.07%                         0.19%             0.82%
              3Q09              (0.36%)           – 118
                                                                     Change (Basis Points)                                                         – 12              – 75
              2Q09              0.82%             – 18                                                    b
                                                                     EXPENSE CHANGE RATE
              1Q09              1.00%             – 78               Range                                           1.00% – 3.00%                 1.00% – 3.00%     2.00% – 3.00%
              4Q08              1.78%             – 72               Average                                         2.86%                         2.88%             2.94%
              3Q08              2.50%             – 20               Change (Basis Points)                                                         –2                –8

              2Q08              2.70%             +9                 AVERAGE MARKETING TIMEc
                                                                     Range                                           3.00 – 18.00                  3.00 – 18.00      3.00 – 18.00
              2Q07              2.61%             + 28
                                                                     Average                                         8.92                          8.43              8.00
              2Q06              2.33%             —
                                                                     Change (%)                                                                    + 5.81            + 11.50
               Source: Korpacz Real Estate Investor Survey®
                                                                     a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                       w w w. p w c . c o m   34
            National Warehouse Market
            AS IN THE OFFICE SECTOR, THE UNDER-                                     points from the prior quarter.                 which secured an entire 324,000-
            LYING FUNDAMENTALS OF THE U.S.                                                While a more upbeat performance          square-foot building in Avenel. Else-
            INDUSTRIAL SECTOR CONTINUED TO                                          is noted for the national warehouse            where in New Jersey, L.A. Enterprises
            SOFTEN THROUGH THE FIRST THREE                                          market, individual performances vary           leased 372,000 square feet at Alovats
            MONTHS OF 2010, BUT AT A SLOWER                                         greatly by metro area. Markets that            North, where it will relocate its head-
            PACE THAN IN PRIOR QUARTERS.                        Accor-              posted increases in vacancy in the first       quarters from South Brunswick. Other
            ding to Grubb & Ellis Company (GEC),                                    quarter of 2010 included Las Vegas,            companies that recently leased large
            the U.S. industrial sector ended the                                    Fresno, and San Jose/Silicon Valley. On        blocks of warehouse space in New
            first quarter with a 10.9% vacancy                                      the other hand, declines in vacancy            Jersey included Factory Direct, Beaulieu
            rate, the highest level reported by GEC                                 were posted for the Inland Empire,             of America, and Production Resource
            since the third quarter of 1994. This                                   Seattle, and Albuquerque. In addition,         Group.
            figure is 20 basis points above the                                     various warehouse locations within                 When combined with steady im-
            prior quarter rate. In comparison, pre-                                 New Jersey are showing signs of im-            provement in underlying fundamentals,
            vious quarterly increases ranged from                                   provement, particularly in Bergen and          a glut of core capital is causing overall
            30 to 70 basis points. Within the indus-                                Middlesex Counties.                            capitalization (cap) rates to decrease
            trial sector, the vacancy rate for ware-                                      One of the largest industrial leases     (see Table NWH-1). "Rapid cap rate
            house/distribution space was 12.2% in                                   signed in New Jersey during the first          compression is occurring for the best
            the first quarter of 2010, up ten basis                                 quarter of 2010 involved Merit Group,          warehouse assets," attests a participant.
                                                                                                                                   Certain investors expect this trend to
                Ta b l e 2 5                                                                                                       result in a rise in offerings, as well as
                N AT I O N A L WA R E H O U S E M A R K E T                                                                        slight cap rate compression for lower-
                Second Quarter 2010
                                                                                                                                   quality warehouse assets over time. For
                                                                CURRENT QUARTER LAST QUARTER                     YEAR AGO          now, however, most surveyed investors
                                                  a
                DISCOUNT RATE (IRR)                                                                                                (77.0%) believe that buyers maintain
                Range                                           7.10% – 12.50%                7.50% – 12.50%     6.50% – 12.50%
                                                                                                                                   the upper hand in this market's sales
                Average                                         9.35%                         9.64%              9.02%
                                                                                                                                   arena. ✦
                Change (Basis Points)                                                         – 29               + 33
                OVERALL CAP RATE (OAR)a
                Range                                           7.00% – 12.00%                7.00% – 12.00%     5.50% – 10.00%
                                                                                                                                    Table NWH-1
                Average                                         8.60%                         8.73%              7.93%
                                                                                                                                    OVERALL CAP RATE TRENDS
                Change (Basis Points)                                                         – 13               + 67
                                                                                                                                    National Warehouse Market
                RESIDUAL CAP RATE                                                                                                                                       Change
                Range                                           7.00% – 12.00%                7.50% – 12.00%     6.00% – 11.00%     Quarter          Average            (Basis Points)
                Average                                         8.64%                         8.79%              8.25%              2Q10             8.60%              – 13
                Change (Basis Points)                                                         – 15               + 39
                                                                                                                                    1Q10             8.73%              –7
                MARKET RENT CHANGE RATE b                                                                                           4Q09             8.80%              + 34
                Range                     (10.00%) – 3.00%                                    (10.00%) – 3.00%   (5.00%) – 3.00%
                                                                                                                                    3Q09             8.46%              + 53
                Average                                         (0.44%)                       (0.88%)            0.17%
                Change (Basis Points)                                                         + 44               – 61               2Q09             7.93%              + 80
                                                                                                                                    1Q09             7.13%              + 40
                EXPENSE CHANGE RATE b
                Range                                           1.00% – 3.00%                 1.00% – 3.00%      2.00% – 3.00%      4Q08             6.73%              + 10
                Average                                         2.56%                         2.69%              2.87%              3Q08             6.63%              +7
                Change (Basis Points)                                                         – 13               – 31               2Q08             6.56%              –2
                AVERAGE MARKETING TIMEc                                                                                             2Q07             6.58%              – 46
                Range                                           3.00 – 18.00                  3.00 – 18.00       3.00 – 18.00
                                                                                                                                    2Q06             7.04%              – 79
                Average                                         9.25                          9.83               8.15
                                                                                                                                    2Q05             7.83%              —
                Change (%)                                                                    – 5.90             + 13.50
                                                                                                                                     Source: Korpacz Real Estate Investor Survey®
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                       w w w. p w c . c o m   35
            National Apartment Market
            INVESTMENT APPETITE FOR HIGH-QUALITY          exist. "Gap financing continues to be                                 and effective rental rates moved mini-
            ASSETS IN FIRST-TIER MARKETS RESULTED         an issue for buyers that need some                                    mally during the quarter. "While we
            IN AN UPTICK IN TRANSACTION ACTIVITY          amount of leverage before an asset sta-                               believe that rental rates have stabilized,
            IN THE NATIONAL APARTMENT MARKET              bilizes," notes a participant. The bid-                               the rent declines from the previous 24
            AT THE START OF THE YEAR. Total       sales   ask pricing gap has narrowed primarily                                months still have to work through the
            volume for apartments was $4.3 billion        due to the recognition of current mar-                                rent rolls," explains a participant. More-
            during the first quarter of 2010, nearly      ket conditions by sellers. Over the next                              over, Reis estimates new construction
            double the total one year prior, based        12 months, Survey participants offer                                  of 97,202 units in 2010 and 56,227
            on data by Real Capital Analytics.            mixed views with regard to asset val-                                 units in 2011. These figures are well
            "There's a lot of capital chasing core        ues. While some foresee increases of                                  below the inventory growth in 2007
            assets, and multiple bidders exist for        as much as 15.0%, others expect de-                                   through 2009, which averaged roughly
            most offerings," observes a participant.      creases of as much as 25.0%.                                          116,000 units annually. "Once the un-
                 Several high-dollar transactions            While the investment market is                                     bundling of families occurs – children
            contributed to the recent rise in sales       heating up, underlying supply-demand                                  moving out from parents' homes, room-
            volume, including Equity Residential's        trends have changed little this quarter.                              mates separating – a rebound will hap-
            acquisition of 425 Mass, a 559-unit           In fact, overall occupancy for the nation                             pen quickly given the limited amount
            property in Washington, DC for $167.0         held steady at 8.0% for the first quarter,                            of new supply in many markets," re-
            million. This condominium/apartment           as per data by Reis. Similarly, asking                                marks a participant. ✦
            development was in bankruptcy and
            completely vacant at the time of the             Ta b l e 2 6
                                                            N AT I O N A L A PA R T M E N T M A R K E T
            sale. In addition, Watermarke Proper-
                                                            Second Quarter 2010
            ties submitted the winning bid of 30
            suitors for the 159-unit Gardens at                                                              CURRENT QUARTER LAST QUARTER                     YEAR AGO
                                                                                              a
            Wilshire Center mixed-use apartment              DISCOUNT RATE (IRR)
                                                             Range                                           6.25% – 14.00%                6.50% – 14.00%     7.50% – 14.00%
            project – a Class-A asset located be-
                                                             Average                                         9.89%                         10.18%             9.73%
            tween Beverly Hills and downtown Los
                                                             Change (Basis Points)                                                         – 29               + 33
            Angeles that sold for $48.0 million.
                                                             OVERALL CAP RATE (OAR)a
                 As the pace of sales has accelerated        Range                                           5.00% – 11.00%                5.00% – 11.00%     5.50% – 9.50%
            and include a high proportion of qual-           Average                                         7.68%                         7.85%              7.49%
            ity assets, the average overall capital-         Change (Basis Points)                                                         – 17               +6
            ization rate (OAR) for this market has           RESIDUAL CAP RATE
            declined for the second consecutive              Range                                           5.50% – 11.00%                5.00% – 11.00%     5.75% – 9.50%
                                                             Average                                         7.84%                         8.01%              7.87%
            quarter and stands at 7.68%. Investors
                                                             Change (Basis Points)                                                         – 17               – 17
            have mixed feelings with regard to the
                                                             MARKET RENT CHANGE RATE b
            movement of OARs going forward
                                                             Range                     (10.00%) – 3.00%                                    (10.00%) – 3.00%   (7.00%) – 3.00%
            given the limited supply of quality              Average                                         (0.49%)                       (0.91%)            0.19%
            offerings and the inclination that more          Change (Basis Points)                                                         + 42               – 76
            distressed assets will ultimately clear          EXPENSE CHANGE RATE                  b


            the market. Most participants (42.9%)            Range                                           0.00% – 4.00%                 0.00% – 4.00%      2.00% – 3.00%

            see OARs increasing over the next six            Average                                         2.38%                         2.55%              2.75%
                                                             Change (Basis Points)                                                         – 17               – 27
            months while 33.3% believe rates will
            hold steady.                                     AVERAGE MARKETING TIMEc
                                                             Range                                           1.00 – 18.00                  1.00 – 18.00       3.00 – 18.00
                 Investors flush with equity are the
                                                             Average                                         7.14                          8.06               8.25
            most active players in the apartment             Change (%)                                                                    – 11.41            – 13.58
            sales arena as financing challenges still        a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                w w w. p w c . c o m   36
            Regional Apartment Markets
            INVESTMENT CRITERIA VARY FOR APART-                                     ment sales volume over the past 12                ment cost in the Pacific region, 84.00%
            MENT ASSETS ACROSS GEOGRAPHIC RE-                                       months as of the first quarter of 2010.           in the Mid-Atlantic region, and 85.00%
            GIONS. This quarter, we are pleased to                                  In comparison, distressed sales in the            in the Southeast region. In a recent
            debut Survey data for apartments in the                                 metro areas of New York City and                  trade illustrating value compression, a
            southeast region, which is comprised                                    Washington, DC represented 6.0% and               private investor purchased the 212-unit
            of Alabama, Arkansas, Florida, Georgia,                                 10.0%, respectively, of each market's             garden-style Sugar Mill apartments in
            Mississippi, and Tennessee.                                             total sales volume. In the Pacific region,        Melbourne, Florida for $6.3 million
                 Several markets in the southeast re-                               forced sales accounted for 15.0% of               from the lender. In December 2006,
            gion of the United States were extreme-                                 the total sales volume in Los Angeles             this property sold for $14.7 million,
            ly hard hit by the condo boom and                                       and 9.0% of the volume in Sacramento.             equivalent to a 57.1% decline in value
            bust, the housing crisis, and the subse-                                      Sale prices of apartment assets have        over roughly 3.5 years.
            quent economic recession. As a result,                                  declined as a result of lower operating                Rising investor interest in apartment
            a significant proportion of forced apart-                               incomes associated with reduced oc-               acquisitions resulted in falling average
            ment sales have occurred in the region.                                 cupancies and lower rental rates. Sur-            overall capitalization rates in both the
            Based on a report by Real Capital An-                                   veyed investors believe that apartment            Mid-Atlantic and Pacific regions over the
            alytics, distressed apartment sales in                                  prices are below replacement cost in              past three months (see Table 27) – a
            Tampa and Orlando represented 55.0%                                     all three regions. Specifically, current          trend that certain investors expect will
            and 53.0% of each market's total apart-                                 pricing represents 80.42% of replace-             continue over the next six months. ✦

                Ta b l e 2 7
                R E G I O N A L A PA R T M E N T M A R K E T S
                Second Quarter 2010

                                                                MID-ATLANTIC REGION                             PACIFIC REGION                           SOUTHEAST REGION
                                                                CURRENT QUARTER PRIOR QUARTER                   CURRENT QUARTER PRIOR QUARTER            CURRENT QUARTER
                DISCOUNT RATE (IRR)a
                Range                                           7.50% – 14.00%                7.50% – 14.00%    8.00% – 12.50%    8.00% – 12.50%         7.50% – 14.00%
                Average                                         10.50%                        10.50%            10.04%            10.00%                 10.05%
                Change (Basis Points)                                                         0                                   +4
                OVERALL CAP RATE (OAR)a
                Range                                           4.50% – 10.00%                5.00% – 10.00%    5.00% – 9.50%     5.00% – 9.50%          5.75% – 10.00%
                Average                                         7.40%                         7.63%             7.29%             7.52%                  7.93%
                Change (Basis Points)                                                         – 23                                – 23
                RESIDUAL CAP RATE
                Range                                           5.00% – 9.75%                 5.00% – 9.75%     5.00% – 9.00%     5.00% – 9.00%          5.50% – 9.75%
                Average                                         7.69%                         7.83%             7.30%             7.50%                  7.75%
                Change (Basis Points)                                                         – 14                                – 20
                MARKET RENT CHANGE RATE b
                Range                     (5.00%) – 2.00%                                     (5.00%) – 2.00%   (5.00%) – 2.50%   (5.00%) – 2.50%        (10.00%) – 3.00%
                Average                                         (0.58%)                       (0.83%)           (0.79%)           (0.79%)                (1.79%)
                Change (Basis Points)                                                         + 25                                0
                EXPENSE CHANGE RATE b
                Range                                           1.00% – 3.00%                 1.00% – 3.00%     2.00% – 3.00%     2.00% – 3.00%          1.00% – 3.00%
                Average                                         2.58%                         2.67%             2.68%             2.68%                  2.43%
                Change (Basis Points)                                                         –9                                  0
                AVERAGE MARKETING TIMEc
                Range                                           1.00 – 18.00                  3.00 – 18.00      3.00 – 12.00      3.00 – 18.00           1.00 – 18.00
                Average                                         7.17                          7.50              7.07              7.71                   7.58
                Change (%)                                                                    – 4.40                              – 8.30
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change    c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                    w w w. p w c . c o m   37
            National Net Lease Market
            THE STATE OF THE NATIONAL NET LEASE                       In a retail net lease portfolio sale                               ment of General Services received in
            MARKET IS SPLIT BETWEEN INVESTORS                      this quarter, a private investor acquired                             April for the purchase and lease of 11
            LOOKING TO PLACE EQUITY IN HIGH-                       20 CVS pharmacies for $62.7 million.                                  state office properties. Also this quar-
            QUALITY CREDIT DEALS AND THOSE                         In another retail deal, Walgreens agreed                              ter, a joint venture acquired the HSBC
            FOCUSED TO MEET DEBT OBLIGATIONS                       to acquire all 257 Duane Reade stores                                 Tower in New York for $330.0 million
            FOR DEALS COMPLETED DURING THE                         located in the New York City metro-                                   in a sale-leaseback transaction. HSBC
            RECENT CYCLE PEAK.             "We will spend          politan area for nearly $1.1 billion.                                 USA plans to lease the entire 865,000-
            this entire quarter working with our                   The leases on the Duane Reade stores                                  square-foot office building for one year
            lenders on refinancing and extending                   were recently valued at $73.0 million,                                and floors one through 11 for the fol-
            our loans," comments a participant. At                 based on tax recording documents                                      lowing ten years.
            the same time, the net lease sales mar-                filed with the New York Department                                           As deal flow gains momentum,
            ket is showing signs of life. "We have                 of Finance.                                                           investors are anticipating positive rent
            seen an uptick in smaller transactions                    The sale-leaseback segment of the                                  growth. In fact, this market’s initial-
            of up to $5.0 million involving private                net lease market also remains an attrac-                              year market rent change rate increased
            investors, as well as larger deals of                  tive play, particularly for firms in need                             90 basis points this quarter to 1.50%,
            office, industrial, and medical assets                 of equity. Investor interest in sale-lease-                           the highest level seen in five consecu-
            involving institutional buyers," shares                back deals is evident in the more than                                tive quarters (see Table NLM-1). ✦
            a participant. As the financial stress                 300 offers that the California Depart-
            grows for some owners, investors ex-
            pect an increase in forced sales.                         Ta b l e 2 8
                                                                      N AT I O N A L N E T L E A S E M A R K E T
                 While the flow of debt returning to
                                                                      Second Quarter 2010
            the net lease market for credit deals
            has also stimulated sales activity, buy-                                                                  CURRENT QUARTER LAST QUARTER                    YEAR AGO
                                                                                                       a
            ers are facing tighter underwriting cri-                  DISCOUNT RATE (IRR)
                                                                      Range                                           8.00% – 9.50%                 8.00% – 10.00%    8.00% – 12.00%
            teria. This quarter, Survey participants
                                                                      Average                                         8.50%                         9.00%             9.63%
            report loan-to-value ratios (LTVs) rang-
                                                                      Change (Basis Points)                                                         – 50              – 113
            ing from 50.0% to 70.0%, averaging
                                                                      OVERALL CAP RATE (OAR)a
            58.75% – much lower than the 80.0%                        Range                                           6.75% – 12.00%                7.00% – 10.00%    7.00% – 10.00%
            LTVs seen at the peak of the cycle. In                    Average                                         8.98%                         8.86%             8.83%
            addition, the pipeline of credit deals                    Change (Basis Points)                                                         + 12              + 15
            available for sale is dwindling due to                    RESIDUAL CAP RATE
            the lack of recent new development.                       Range                                           8.00% – 10.50%                8.00% – 10.00%    8.00% – 9.00%
                                                                      Average                                         9.25%                         9.19%             8.63%
                                                                      Change (Basis Points)                                                         +6                + 62
              Ta ble NLM-1                                            MARKET RENT CHANGE RATE b
              INITIAL-YEAR MARKET RENT                                Range                     (1.00%) – 7.00%                                     (1.00%) – 3.00%   0.00% – 3.00%
              CHANGE RATES                                            Average                                         1.50%                         0.60%             0.81%
              National Net Lease Market                               Change (Basis Points)                                                         + 90              + 69
                                                  Change              EXPENSE CHANGE RATE                  b

              Quarter           Average           (Basis Points)      Range                                           1.00% – 7.00%                 1.00% – 4.00%     0.00% – 2.50%
              2Q10              1.50%             + 90                Average                                         2.80%                         2.00%             1.17%
              1Q10              0.60%             + 30                Change (Basis Points)                                                         + 80              + 163

              4Q09              0.30%             – 20                AVERAGE MARKETING TIMEc
                                                                      Range                                           2.00 – 12.00                  2.00 – 12.00      2.00 – 36.00
              3Q09              0.50%             – 31
                                                                      Average                                         5.86                          6.50              8.42
              2Q09              0.81%             —
                                                                      Change (%)                                                                    – 9.85            – 30.40
              Source: Korpacz Real Estate Investor Survey®
                                                                      a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                        w w w. p w c . c o m   38
            National Medical Office Buildings Market
            MANY INVESTORS AGREE THAT U.S. MED-                                     facilities located proximate to such         ed, 92,000-square-foot MOB recently
            ICAL OFFICE BUILDING (MOB) SPACE HAS                                    hospitals," a participant explains.          opened with Opthamology Surgery
            OUTPERFORMED OTHER ASSET CLASSES                                              Due to MOB's stable performance        Center of Dallas taking 25,000 square
            DURING THE RECENT DOWNTURN.                           "High-            during the recession and the passage of      feet as the anchor tenant. This property
            quality MOB space has shown its sta-                                    new healthcare legislation, leasing activ-   is located near Texas Health Presbyterian
            bility, even in difficult times, which is                               ity and new construction have increased      Hospital and Medical City Dallas.
            leading to increased investor demand                                    in the MOB market. For instance, Isis           With tenant demand on the rise,
            for this property type," remarks a partic-                              Pharmaceuticals signed a 20-year,            investor interest is gaining momentum
            ipant. Further, some investors believe                                  146,000-square-foot lease for a new          amid limited high-quality MOB inven-
            that the federal healthcare reform leg-                                 facility in Carlsbad, California being       tory. One participant notes, "There is a
            islation will result in an overall increase                             developed by BioMed Realty Trust. In         window of opportunity for Class-A on-
            in demand for medical office space,                                     addition, two MOB leases were signed         campus MOB product to trade at favor-
            specifically out-patient centers and                                    this quarter in San Diego, including a       able levels to sellers over the next three
            clinics geared to handle increases in                                   renewal for 48,880 square feet by            to six months since there is a lack of
            patient traffic. "Under the new health-                                 Phamatech, a global healthcare firm,         top-flight product on the market relative
            care legislation, an infill nonprofit                                   and a 95,731-square-foot new deal by         to the abundance of available money
            hospital will be required to do more                                    CareFusion, a medical-technology             by several REITs." On the heels of a
            procedures, benefitting medical office                                  company. In Dallas, a newly construct-       large portfolio buy last quarter, Health-
                                                                                                                                 care Trust of America (HTA) acquired a
                Ta b l e 2 9                                                                                                     13-building MOB portfolio for $217.00
                NAT I ONA L M E D I CA L O F F I C E B U I L D I N G S M A R K E T                                               per square foot this quarter. The assets
                Second Quarter 2010
                                                                                                                                 are located nationwide and, on average,
                                                                CURRENT QUARTER LAST QUARTER                   YEAR AGO          are 98.5% leased with remaining lease
                                                  a
                DISCOUNT RATE (IRR)                                                                                              terms of ten years or greater. HTA also
                Range                                           8.00% – 13.00%                8.00% – 13.00%   8.50% – 15.00%
                                                                                                                                 purchased a 99.0% leased, 191,612-
                Average                                         10.05%                        10.13%           10.72%
                                                                                                                                 square-foot MOB in Pittsburgh for just
                Change (Basis Points)                                                         –8               – 67
                                                                                                                                 over $212.00 per square foot this
                OVERALL CAP RATE (OAR)a
                Range                                           5.00% – 11.50%                7.50% – 11.50%   6.00% – 11.00%    quarter. In another single-asset trade,
                Average                                         8.53%                         8.78%            8.58%             Rady Children's Hospital acquired a
                Change (Basis Points)                                                         – 25             –5                28,600-square-foot MOB in California
                RESIDUAL CAP RATE                                                                                                for $232.00 per square foot.
                Range                                           7.00% – 12.00%                7.50% – 11.50%   7.00% – 12.00%       Despite the recent revitalization of
                Average                                         8.75%                         8.86%            8.75%
                                                                                                                                 both leasing and sales activity, most in-
                Change (Basis Points)                                                         – 11             0
                                                                                                                                 vestors continue to model conservative
                MARKET RENT CHANGE RATE b
                                                                                                                                 rent growth in their cash flows as indi-
                Range                     0.00% – 3.00%                                       0.00% – 3.00%    0.00% – 3.00%
                Average                                         0.94%                         1.11%            2.30%
                                                                                                                                 cated by the 17-basis-point decline in
                Change (Basis Points)                                                         – 17             – 136             this quarter's average initial-year mar-
                EXPENSE CHANGE RATE b                                                                                            ket rent change rate (see Table 29). On
                Range                                           1.50% – 4.00%                 0.00% – 4.00%    2.00% – 4.00%     the contrary, this market's average over-
                Average                                         2.64%                         2.50%            2.95%             all capitalization rate fell for the third
                Change (Basis Points)                                                         + 14             – 31              straight quarter, landing at 8.53%. The
                AVERAGE MARKETING TIMEc                                                                                          majority of Survey participants (67.0%)
                Range                                           1.00 – 12.00                  3.00 – 20.00     4.00 – 24.00
                                                                                                                                 anticipate OARs holding steady for
                Average                                         6.78                          7.71             9.00
                                                                                                                                 MOB assets over the next six months. ✦
                Change (%)                                                                    – 12.06          – 24.67
                a. Rate on unleveraged, all-cash transactions     b. Initial rate of change     c. In months




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                             w w w. p w c . c o m   39
            National Development Land Market
            INVESTMENT OPPORTUNITIES ARE HARD                                           categories in the report.                    GROWTH RATE ASSUMPTIONS
            TO COME BY IN THE NATIONAL DEVEL-                                               Many development land investors          Growth rates for development expens-
            OPMENT LAND MARKET AS HOLDERS OF                                            are hopeful that opportunities to ready      es, such as amenities, real estate taxes,
            LAND INVENTORY WATCH PROPERTY VAL-                                          land for development will increase as        advertising, and administration, range
            UES DECLINE AND DEMAND FROM                                                 the industry recovers. "The recovery for     up to 6.00% and average 2.50%. For
            BUILDERS TEMPORARILY FADE AWAY.                                             this sector is all about the job market,     lot pricing, investors indicate a growth
            "There is little likelihood that the land                                   which is starting to perk up," states a      rate up to 3.00%; the average is 1.13%.
            market will experience any stabiliza-                                       participant. In fact, one surveyed inves-
            tion, let alone a recovery, soon," com-                                     tor is already noticing an increase in       ABSORPTION PERIOD
            ments a participant. "Try to survive                                        interest from developers. "We complet-       The absorption period required to sell
            2010 and pray that it won't be this bad                                     ed two significant land sales in the first   an entire project varies significantly
            again," adds the investor.                                                  quarter, both for new office buildings       depending on such factors as location,
                 Although a recent report by the U.S.                                   of 120,000 square feet and 60,000            size, and property type. This quarter,
            Census Bureau shows that private non-                                       square feet," shares a participant. Due      preferred absorption periods for partici-
            residential construction spending in-                                       to the limited amount of new supply          pants range from 12 to 240 months. The
            creased 2.0% on a seasonally adjusted                                       added to the industry during the last        mean absorption period is 90 months.
            basis in April 2010 compared to the                                         24 months, some investors feel that the
            prior month, year-over-year spending                                        time is right to start planning now for      FORECAST VALUE CHANGE
            is down 16.1%. Of the 16 categories                                         the next phase of the cycle. "The indus-     Over the next 12 months, Survey par-
            included in the study, the office cate-                                     try isn't overbuilt so when the recovery     ticipants expect development land val-
            gory had the sharpest annual spending                                       takes hold, it could present a great op-     ues to decline as much as 15.00%. The
            decline, dropping 59.7% from April                                          portunity for those ready to build new       average expected decline is 7.50%.
            2009 to April 2010 (see Table DVL-1).                                       space," explains another.
                 While much of the real estate indus-                                                                                MARKETING PERIOD
            try presents limited opportunities for                                      DISCOUNT RATES                               The typical time that a property is on
            development land investors, one Survey                                      Free-and-clear discount rates including      the market prior to selling ranges from
            participant points out that wetland mit-                                    developer's profit range from 15.00%         12 to 240 months and averages 67
            igation as it relates to banking is in good                                 to 30.00% and average 21.25% this            months. ✦
            shape. "Land use for environmental                                          quarter (see Exhibit DL-1). This average
            credits certainly is a bright spot in this                                  is up 158 basis points from the fourth
                                                                                                                                       Table DVL-1
            otherwise depressed marketplace," adds                                      quarter of 2009 and assumes that enti-
                                                                                                                                       U.S. NONRESIDENTIAL
            the investor. In fact, the report by the                                    tlements are in place. Without entitle-
                                                                                                                                       CONSTRUCTION SPENDING*
            U.S. Census Bureau shows that private                                       ments in place, certain investors in-
                                                                                                                                       April 2009 to April 2010
            construction spending for conservation                                      crease the discount rate between 400                                                Year-Over-Year
            and development was up 10.4% on a                                           and 1,500 basis points.                        Category                             Change

            year-over-year basis in April 2010 – the                                                                                   Office                               (59.7%)

            highest gain of the 16 nonresidential                                                                                      Health care                          (36.8%)
                                                                                                                                       Manufacturing                        (31.1%)
              E x h i b i t D L- 1                                                                                                     Commercial                           (29.4%)
              D I S C O U N T R AT E S ( I R R S ) a                                                                                   Educational                          (17.4%)
              Second Quarter 2010
                                                                                                                                       Amusement & Recreation (16.7%)
                                                                  CURRENT QUARTER                     FOURTH QUARTER 2009
                                                                                                                                       Lodging                              (16.1%)
              FREE & CLEAR
              Range                                              15.00% – 30.00%                      12.00% – 30.00%
                                                                                                                                       Total*                               (16.1%)
              Average                                            21.25%                               19.67%
              Change                                                                                  + 158                            * For private construction; not all categories are included
                                                                                                                                       Source: U.S. Census Bureau
              a. Rate on unleveraged, all-cash transactions; including developer’s profit




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                            w w w. p w c . c o m      40
     N AT I O N A L R E G I O N A L M A L L M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                              DISCOUNT     OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                             UNDERLYING    PER
                                                                                      MARKET                             CAP        SELLING   FREE &       FREE &     MONTHS     TENANT      VACANCY &     SQUARE
                                                                                      RENT          EXPENSES      CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION   CREDIT LOSS   FOOT       MONTHS


                                                                                                                                                                                             4.0%
     PUBLIC REAL ESTATE COMPANY ✦ Forecast Period: 10 years                                                              6.00%                7.75%        6.00%                                           Does
                                                                                          1.0%                                                                                               (Class A);
     Mainly uses DCF and direct capitalization; in direct cap, capitalizes NOI                      1.0%          3.0%   to         1.0%      to           to         6          75.0%                     not        4
                                                                                          Year 1                                                                                             10.0%
     before TIs, leasing commissions, and capital replacement reserve.                                                   8.00%                10.00%       8.00%                                           use
                                                                                                                                                                                             (Class B)




     INVESTMENT BANKER ✦ Forecast Period: 10 years
                                                                                          0.0%
     Relies on DCF and direct capitalization; does extensive sensitivity analysis
                                                                                          Year 1;   1.0%                 7.00%                7.00%        7.00%      6          65.0%       7.5%          $0.25      6
     on residual cap rates, growth rates, and initial market rents; retail sales
                                                                                          0.0%      to            3.0%   to         1.5%      to           to         to         to          to            to         to
     based on historical and market analysis; typical sales growth per market
                                                                                          to 3.0%   2.0%                 10.50%               12.50%       11.00%     12         75.0%       10.0%         $0.40      10
     per year is at the inflation rate (CPI); analysis of TIs is an important cash
                                                                                          Year 2
     flow forecast item.




     REIT ✦ Forecast Period: 5 to 10 years
                                                                                          2.0%      3.0%          2.0%   5.00%      0.5%      10.00%       6.00%                 75.0%       3.0%                     6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to        to            to     to         to        to           to         6          to          to            $0.20      to
     after capital replacement reserve but before TIs and leasing commissions;
                                                                                          5.0%      4.0%          3.0%   8.50%      1.5%      11.50%       9.00%                 85.0%       4.0%                     18
     may use a rent spike of 5.0% in years 2 and 3.




     PUBLIC C CORP ✦ Forecast Period: 10 years
                                                                                          0.0%      2.0%          2.0%   7.25%      1.0%      10.00%       7.00%      3          70.0%       5.0%          $0.25      3
     Mainly uses direct capitalization; in direct cap, capitalizes NOI before
                                                                                          to        to            to     to         to        to           to         to         to          to            to         to
     TIs, leasing commissions, and capital replacement reserve; free rent is no
                                                                                          1.0%      3.0%          3.0%   10.25%     3.0%      13.00%       11.00%     12         75.0%       10.0%         $0.50      6
     longer awarded.




     INVESTMENT BANKER ✦ Forecast Period: 7 to 10 years
                                                                                          (3.0%)    0.0%          2.0%   7.00%                9.75%        7.00%      6          60.0%       3.0%                     4
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to 1.0%   to            to     to         1.0%      to           to         to         to          to            $0.25      to
     before TIs, leasing commissions, and capital replacement reserve; uses
                                                                                          Year 1    3.0%          3.0%   12.00%               14.00%       12.00%     10         75.0%       8.0%                     10
     face rents and reflects concessions when they are scheduled to occur.




     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years
     Uses mainly DCF analysis; in direct cap, capitalizes NOI before tenant               (3.0%)    2.0%          2.0%   6.75%      0.5%      6.75%        6.25%      3          50.0%       5.0%          $0.20      6
     improvements, leasing commissions, and capital replacement reserve;                  to        to            to     to         to        to           to         to         to          to            to         to
     uses face rents and reflects concessions when they are scheduled to                  2.0%      3.0%          3.0%   10.50%     2.5%      10.50%       10.00%     20         75.0%       10.0%         $0.50      12
     occur.



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




41
     N AT I O N A L P O W E R C E N T E R M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                              DISCOUNT     OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                             UNDERLYING    PER
                                                                                      MARKET                             CAP        SELLING   FREE &       FREE &     MONTHS     TENANT      VACANCY &     SQUARE
                                                                                      RENT           EXPENSES     CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION   CREDIT LOSS   FOOT       MONTHS


                                                                                      0.0% Year 1;
                                                                                      0.0%
     REALTY ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                      to 3.0%                            7.50%      1.0%      8.50%        7.50%      9          60.0%       3.0%          $0.10      12
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      Year 2;        3.0%         3.0%   to         to        to           to         to         to          to            to         to
     before TIs, leasing commissions, and capital replacement reserve; does
                                                                                      1.0%                               8.00%      4.0%      9.50%        8.50%      18         70.0%       5.0%          $0.20      18
     not use rent spikes.
                                                                                      to 3.0%
                                                                                      Year 3




     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
                                                                                      0.0% Year 1;
     Prefers DCF analysis; also uses direct capitalization; in direct cap,                                               7.50%      1.0%      9.00%        8.50%      6          50.0%       8.0%          $0.10
                                                                                      1.0%
     capitalizes NOI before TIs, leasing commissions, and capital replacement                        3.0%         3.0%   to         to        to           to         to         to          to            to         12
                                                                                      to 2.0%
     reserve; uses face rents and reflects concessions when they are scheduled                                           9.00%      2.0%      10.00%       9.50%      12         60.0%       10.0%         $0.40
                                                                                      Year 2
     to occur.




     INSTITUTIONAL INVESTOR ✦ Forecast Period: 10 years
     Primarily interested in high-credit deals; uses both DCF and direct                             2.0%                8.00%      1.5%      8.50%        7.50%      9          50.0%       5.0%          $0.25      9
                                                                                      0.0%
     capitalization but focuses on IRR; in direct cap, capitalizes NOI after                         to           3.0%   to         to        to           to         to         to          to            to         to
                                                                                      Years 1 & 2
     capital replacement reserve but before TIs and leasing commissions.                             3.0%                8.50%      2.0%      9.50%        8.50%      18         60.0%       8.0%          $0.35      15




     INVESTMENT BANKER ✦ Forecast Period: 5 to 10 years
     Considers power center investments ”coupon clipper” deals; uses both             0.0%                        2.0%   9.00%                10.00%       8.00%      6          60.0%       5.0%          $0.10      6
     DCF and direct capitalization; prefers urban areas with easy access and          to 3.0%        3.0%         to     to         2.0%      to           to         to         to          to            to         to
     good anchor tenancy; credit is key; uses a rent spike of 5.0% in year 5.         Years 1 & 2                 3.0%   10.00%               12.00%       10.00%     10         75.0%       12.0%         $0.20      9




                                                                                      (10.0%)
     INVESTMENT ADVISOR ✦ Forecast Period: 5 to 10 years                              to 0.0%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          Year 1;                            9.00%      1.0%      10.00%       9.00%      6          55.0%       5.0%          $0.20      3
     before TIs, leasing commissions, and capital replacement reserve; does           0.0%           3.0%         3.0%   to         to        to           to         to         to          to            to         to
     not use rent spikes; uses face rents and reflects concessions when they          to 3.0%                            10.00%     2.0%      12.00%       10.00%     12         65.0%       10.0%         $0.40      6
     are scheduled to occur.                                                          Year 2;
                                                                                      3.0% Year 3



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




42
     N AT I O N A L S T R I P S H O P P I N G C E N T E R M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                               DISCOUNT     OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                       INITIAL-YEAR CHANGE RATES          RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                              UNDERLYING    PER
                                                                                       MARKET                             CAP        SELLING   FREE &       FREE &     MONTHS     TENANT      VACANCY &     SQUARE
                                                                                       RENT         EXPENSES       CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION   CREDIT LOSS   FOOT       MONTHS


     DEVELOPER ✦ Forecast Period: 10 years
                                                                                          0.0%      3.0%           2.0%   8.00%                9.00%        8.00%      6                      5.0%          $0.50      2
     Relies on direct capitalization; shifting away from DCF; uses effective
                                                                                          to 2.0%   to             to     to         3.0%      to           to         to         70.0%       to            to         to
     rents; in direct cap, capitalizes cash flow after TIs, leasing commissions, and
                                                                                          Year 1    4.0%           3.0%   9.00%                10.00%       9.00%      12                     10.0%         $1.00      9
     capital replacement reserve.



     INVESTMENT BANKER ✦ Forecast Period: 10 years
     Does extensive sensitivity analysis on residual cap rates, growth rates,                       1.0%                  8.00%                9.00%        7.50%      4          60.0%       7.5%          $0.15      6
                                                                                          0.0%
     and initial market rents; retail sales based on both historical and market                     to             3.0%   to         2.0%      to           to         to         to          to            to         to
                                                                                          Year 1
     analysis; initial cash return is more important than IRR; TIs are an                           3.0%                  11.00%               11.00%       9.50%      8          70.0%       12.5%         $0.30      12
     important cash flow forecast item.



     INSTITUTIONAL INVESTOR ✦ Forecast Period: 10 years
     Invests primarily in 200,000- to 400,000-square-foot, well-anchored                            2.0%           2.0%   8.50%      2.0%      9.00%        8.00%      9          50.0%       5.0%          $0.15      9
     community centers and good credit quality anchored power centers;                    0.0%      to             to     to         to        to           to         to         to          to            to         to
     relies on DCF; uses face rents and reflects concessions when they are                          3.0%           3.0%   9.50%      2.5%      11.00%       9.00%      12         60.0%       10.0%         $0.25      12
     scheduled to occur.



     INVESTMENT BANKER ✦ Forecast Period: 7 to 10 years
                                                                                          0.0%                     2.0%   7.50%      0.5%      9.00%        7.50%      6          60.0%       3.0%                     4
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to        3.0%           to     to         to        to           to         to         to          to            $0.25      to
     after capital replacement reserve but before TIs and leasing commissions;
                                                                                          2.0%                     3.0%   10.00%     1.5%      12.00%       9.50%      10         75.0%       8.0%                     9
     uses face rents and reflects concessions when they are scheduled to occur.



     REIT ✦ Forecast Period: 10 years
                                                                                                                   3.0%   8.00%                8.00%        7.25%                 67.0%                     $0.15
     Primarily uses direct capitalization in valuing assets; also uses yield
                                                                                          0.0%      3.0%           to     to         3.0%      to           to         12         to          5.0%          to         4
     capitalization; in direct cap, capitalizes NOI before TIs, leasing
                                                                                                                   3.5%   8.50%                8.50%        9.00%                 70.0%                     $0.20
     commissions, and capital replacement reserve.



     DOMESTIC PENSION FUND ✦ Forecast Period: 10 years
                                                                                          0.0%                            7.75%      1.0%      8.50%        7.00%      6          60.0%       1.0%          $0.10
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to        3.0%           3.0%   to         to        to           to         to         to          to            to         12
     before TIs, leasing commissions, and capital replacement reserve; uses
                                                                                          3.0%                            8.50%      3.0%      9.50%        8.50%      12         75.0%       3.0%          $0.25
     face rents and reflects concessions when they are scheduled to occur.



     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
     Prefers DCF analysis; also uses direct capitalization; in direct cap,                                                7.50%      1.0%      8.50%        7.25%                 50.0%       6.0%
     capitalizes NOI before TIs, leasing commissions, and capital                         0.0%      3.0%           3.0%   to         to        to           to         6          to          to                       12
     replacement reserve; uses face rents and reflects concessions when                                                   9.00%      3.0%      10.50%       9.50%                 60.0%       8.0%
     they are scheduled to occur.


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




43
     N AT I O N A L C B D O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                              DISCOUNT     OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                               UNDERLYING    PER
                                                                                      MARKET                             CAP        SELLING   FREE &       FREE &     MONTHS     TENANT        VACANCY &     SQUARE
                                                                                      RENT        EXPENSES        CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION     CREDIT LOSS   FOOT       MONTHS


     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years
                                                                                      (10.0%)     2.0%            2.0%   6.75%      0.5%      6.75%        6.25%      3          50.0%         5.0%          $0.20      6
     Uses mainly DCF analysis; in direct cap, capitalizes NOI before tenant
                                                                                      to          to              to     to         to        to           to         to         to            to            to         to
     improvements, leasing commissions, and capital replacement reserve;
                                                                                      2.0%        3.0%            3.0%   10.50%     2.5%      10.50%       10.00%     20         75.0%         10.0%         $0.50      12
     does not use rent spikes.


     INVESTMENT BANKER ✦ Forecast Period: 10 years
                                                                                                                         8.00%                8.00%        7.00%      6          60.0%         7.5%          $0.20      6
     Real cash-on-cash rate (after capital expenditures) is more important than
                                                                                      0.0%        3.0%            3.0%   to         2.0%      to           to         to         to            to            to         to
     IRR; uses face rents and reflects concessions when they are scheduled to
                                                                                                                         10.00%               10.00%       9.50%      12         75.0%         12.5%         $0.35      10
     occur.


     PUBLIC REAL ESTATE COMPANY ✦ Forecast Period: 10 years
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,             (3.0%)      2.0%                   6.50%                8.00%        6.00%      6          60.0%         5.0%          Does       4
     leasing commissions, and capital replacement reserve; uses a rent spike          to          to              3.0%   to         1.0%      to           to         to         to            to            not        to
     of 10.0% in years 4 and 5.                                                       3.0%        3.0%                   8.00%                9.50%        8.00%      12         70.0%         8.0%          use        6



     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
     Prefers DCF analysis; also uses direct capitalization; in direct cap,                                               6.50%      1.0%      7.50%        7.00%      6          50.0%                       $0.20
     capitalizes NOI before TIs, leasing commissions, and capital replacement         0.0%        3.0%            3.0%   to         to        to           to         to         to            10.0%         to         12
     reserve; uses face rents and reflects concessions when they are scheduled                                           8.75%      2.0%      8.75%        8.50%      9          65.0%                       $0.25
     to occur; does not use rent spikes.


     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 5 to 10 years
                                                                                                  2.0%            2.0%   8.50%      2.0%      9.00%        8.00%      6          60.0%         5.0%          $0.20      4
     Uses direct capitalization; in direct cap, capitalizes NOI before TIs, leasing
                                                                                      0.0%        to              to     to         to        to           to         to         to            to            to         to
     commissions, and capital replacement reserve; believes that cap rates
                                                                                                  3.0%            3.0%   9.00%      2.5%      10.50%       9.00%      12         75.0%         7.0%          $0.25      6
     will hold steady over the next 6 months.


     PUBLIC C CORP ✦ Forecast Period: 7 to 10 years
     Mainly uses direct capitalization; in direct cap, capitalizes NOI before         0.0%        2.0%            2.0%   7.50%      1.0%      11.00%       7.50%      3          70.0%         5.0%          $0.25      6
     TIs, leasing commissions, and capital replacement reserve; no longer             to          to              to     to         to        to           to         to         to            to            to         to
     uses a rent spike.                                                               2.0%        3.0%            3.0%   8.50%      3.0%      12.50%       8.50%      12         75.0%         10.0%         $0.50      9



     INSTITUTIONAL REAL ESTATE INVESTOR ✦ Forecast Period: 10 years                               3.0%                   8.50%                8.50%        8.75%      8          95.0%                                  6
     Uses both DCF and direct capitalization; believes overall cap rates will         0.0%        to              4.0%   to         4.0%      to           to         to         (government   2.0%                     to
     increase 50 to 75 basis points over the next six months.                                     4.0%                   9.50%                11.00%       10.50%     12         leasing)                               9


     DOMESTIC PENSION FUND ✦ Forecast Period: 10 years
                                                                                      0.0%                               6.50%      1.0%      7.50%        6.00%      6          65.0%         0.0%          $0.10
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to          3.0%            3.0%   to         to        to           to         to         to            to            to         12
     before TIs, leasing commissions, and capital replacement reserve; uses
                                                                                      3.0%                               9.00%      2.0%      9.50%        8.00%      12         75.0%         7.0%          $0.25
     face rents and reflects concessions when they are scheduled to occur.


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




44
     N AT I O N A L S U B U R B A N O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                DISCOUNT     OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES            RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                 UNDERLYING    PER
                                                                                      MARKET                               CAP        SELLING   FREE &       FREE &     MONTHS     TENANT        VACANCY &     SQUARE
                                                                                      RENT               EXPENSES   CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION     CREDIT LOSS   FOOT       MONTHS



     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 7 years                                  0.0%                      2.5%   7.25%                7.50%        7.50%      6                                      $0.15      6
     Uses DCF and face rents; prefers 24-hour cities across the country;                  to             3.0%       to     to         1.0%      to           to         to         60.0%         2.0%          to         to
     uses a rent spike in years 3 to 5; uses effective rents in DCF analysis.             2.0%                      3.0%   8.00%                9.50%        8.50%      16                                     $0.25      12




     INVESTMENT BANKER ✦ Forecast Period: 10 years
                                                                                                         2.0%              8.00%                9.50%        7.00%      6          60.0%         7.5%          $0.15      6
     Real cash-on-cash rate (after capital expenditures) is more important than
                                                                                          0.0%           to         3.0%   to         2.0%      to           to         to         to            to            to         to
     IRR; uses face rents and reflects concessions when they are scheduled to
                                                                                                         3.0%              10.00%               11.00%       9.00%      10         70.0%         12.5%         $0.25      9
     occur; does not use rent spikes.




     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                          0.0% Year 1;
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                               7.50%      1.0%      8.50%        7.25%      6          50.0%         3.0%          $0.25      12
                                                                                          0.0%
     before TIs, leasing commissions, and capital replacement reserve; uses                              3.0%       3.0%   to         to        to           to         to         to            to            to         to
                                                                                          to 3.0%
     face rents and reflects concessions when they are scheduled to occur;                                                 9.00%      4.0%      9.50%        9.00%      18         70.0%         8.0%          $1.00      18
                                                                                          Year 2
     uses a rent spike of 4.0% to 5.0% in years 3 and 4.




     PUBLIC REAL ESTATE COMPANY ✦ Forecast Period: 10 years
                                                                                          (5.0%)         2.0%              8.00%                7.50%        6.50%      9          55.0%         5.0%          Does       3
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,
                                                                                          to             to         3.0%   to         1.0%      to           to         to         to            to            not        to
     leasing commissions, and capital replacement reserve; does not use rent
                                                                                          1.0%           3.0%              9.50%                9.50%        9.00%      12         70.0%         9.0%          use        6
     spikes; prefers coastal markets.




     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 5 to 7 years                                                               8.00%      2.0%      10.00%       8.50%                                             $0.20      3
                                                                                          0.0%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                             3.0%       3.0%   to         to        to           to         9          65.0%         6.0%          to         to
                                                                                          Years 1 & 2
     before TIs, leasing commissions, and capital replacement reserve.                                                     9.00%      3.0%      11.00%       9.50%                                             $0.30      6




     INSTITUTIONAL REAL ESTATE INVESTOR ✦ Forecast Period: 10 years                       0.0%           3.0%              9.00%                8.25%        9.00%      8          95.0%                                  6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              to             to         4.0%   to         4.0%      to           to         to         (government   2.0%          $3.00      to
     after capital replacement reserve but before TIs & leasing commissions.              1.0%           4.0%              10.50%               12.00%       11.50%     12         leasing)                               9




     INVESTOR ✦ Forecast Period: 10 years                                                                2.0%              7.50%                9.00%        7.50%      8          65.0%         5.0%          $1.00      6
     Relies on DCF and direct capitalization; in direct cap, capitalizes NOI              0.0%           to         3.0%   to         1.5%      to           to         to         to            to            to         to
     before TIs, leasing commissions, and capital replacement reserve.                                   3.0%              9.00%                14.00%       9.50%      12         70.0%         10.0%         $2.00      9



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




45
     AT L A N TA O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                  DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                      UNDERLYING    PER
                                                                                      MARKET                             CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT           EXPENSES     CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS



                                                                                                                         7.50% to                 8.50% to        8.00% to
     INSTITUTIONAL INVESTOR ✦ Forecast Period: 5 to 10 years                          0.0% Year 1;
                                                                                                     2.0%                8.50% (CBD);   1.0%      11.00% (CBD);   10.00% (CBD); 6         65.0%       10.0%         $0.15      3
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          0.0%
                                                                                                     to                  8.50% to       to        9.00% to        9.00% to      to        to          to            to         to
     before TIs, leasing commissions, and capital replacement reserve; uses           to 1.0%
                                                                                                     3.0%                10.00%         1.5%      12.00%          11.00%        9         70.0%       12.0%         $0.25      9
     effective rent after all concessions are extracted.                              Year 2
                                                                                                                         (suburbs)                (suburbs)       (suburbs)




     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                                                                  8.75% to                 8.75% to        7.75% to
     Uses both DCF and direct capitalization; uses face rents and reflects            (5.0%)                      2.5%   9.50% (CBD);   3.0%      10.50% (CBD);   9.25% (CBD);   8        50.0%                     $0.20
     concessions when they are scheduled to occur; does not use rent spikes;          to             3.0%         to     9.25% to       to        9.00% to        8.50% to       to       to          10.0%         to         12
     in direct cap, capitalizes NOI after capital replacement reserve but before      0.0%                        3.0%   10.00%         4.0%      10.75%          9.50%          12       60.0%                     $0.25
     TIs and leasing commissions.                                                                                        (suburbs)                (suburbs)       (suburbs)



                                                                                                                         8.50% to                 10.00% to       8.50% to
                                                                                      0.0% Year 1;
     INVESTMENT BANKER ✦ Forecast Period: 5 to 10 years                                              1.0%         1.0%   9.50%          1.0%      12.00% (CBD);   9.50% (CBD);   6        70.0%       6.0%          $0.10      5
                                                                                      0.0%
     Prefers DCF analysis; in direct cap, capitalizes NOI before TIs, leasing                        to           to     in both        to        10.00% to       8.50% to       to       to          to            to         to
                                                                                      to 1.5%
     commissions, and capital replacement reserve; no longer uses a rent spike.                      1.5%         1.5%   CBD &          3.0%      14.00%          10.00%         9        75.0%       8.0%          $0.20      7
                                                                                      Year 2
                                                                                                                         suburbs                  (suburbs)       (suburbs)



                                                                                                                         8.00% to                 8.00% to        7.00% to
     LIFE INSURANCE COMPANY ✦ Forecast Period: 5 to 10 years
                                                                                                     0.0%                10.00%         1.0%      10.00% (CBD);   9.00%          6                    9.0%                     6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          0.0%
                                                                                                     to           3.0%   in both        to        8.50% to        in both        to       60.0%       to            $0.25      to
     after capital replacement reserve but before TIs and leasing commissions;        Years 1 & 2
                                                                                                     3.0%                CBD &          2.0%      10.50%          CBD &          10                   12.0%                    9
     uses face rents and reflects concessions when they are scheduled to occur.
                                                                                                                         suburbs                  (suburbs)       suburbs



                                                                                                                         9.00% to                 10.00% to       7.25% to
     INVESTMENT ADVISOR ✦ Forecast Period: 10 years
                                                                                                     1.0%                10.00% (CBD); 0.8%       11.00% (CBD);   7.50% (CBD);   6                    7.0%          $0.25      0
     Relies on DCF; in direct cap, capitalizes NOI before TIs, leasing                0.0%
                                                                                                     to           3.0%   9.00% to      to         10.00% to       7.50% to       to       60.0%       to            to         to
     commissions, and capital replacement reserve; uses effective rent after          Years 1 & 2
                                                                                                     3.0%                11.00%        1.0%       12.00%          7.75%          9                    10.0%         $0.30      3
     all concessions are extracted.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)




                                                                                                                         8.00% to                 7.75% to        8.00% to
     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                               0.0% Year 1;
                                                                                                                         9.00%          1.0%      9.25% (CBD);    9.00% (CBD);   9                    7.0%          $0.15      9
     Uses DCF, direct capitalization, and sales comparison approach; in direct        0.0%
                                                                                                     3.0%         3.0%   in both        to        8.50% to        8.50% to       to       65.0%       to            to         to
     cap, capitalizes NOI before TIs, leasing commissions, and capital                to 2.0%
                                                                                                                         CBD &          2.0%      9.50%           9.50%          12                   10.0%         $0.25      12
     replacement reserve.                                                             Year 2
                                                                                                                         suburbs                  (suburbs)       (suburbs)


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




46
     B O S T O N O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                  DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                      UNDERLYING    PER
                                                                                      MARKET                             CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT          EXPENSES      CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS


     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                                                                  7.75% to                 8.50% to        7.50% to
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                             9.00% (CBD);   2.0%      10.00% (CBD);   8.75% (CBD);   6        50.0%       8.0%          $0.20      10
     after capital replacement reserve but before TIs and leasing commissions;            0.0%      3.0%          3.0%   8.25% to       to        9.00% to        8.00% to       to       to          to            to         to
     uses face rents and reflects concessions when they are scheduled to occur;                                          9.50%          3.0%      10.00%          9.50%          12       65.0%       10.0%         $0.25      12
     does not use rent spikes.                                                                                           (suburbs)                (suburbs)       (suburbs)


                                                                                                                         7.00% to                 9.00% to        7.00% to
     PENSION FUND ADVISOR ✦ Forecast Period: 3 to 10 years                                0.0%      3.0%          3.0%   9.50% (CBD);   1.0%      12.00% (CBD);   9.50% (CBD);   6        40.0%       4.0%          $0.15      2
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              to        to            to     8.00% to       to        10.00% to       8.00% to       to       to          to            to         to
     before TIs, leasing commissions, and capital replacement reserve.                    1.0%      4.5%          5.0%   12.00%         2.0%      14.00%          12.00%         24       70.0%       5.0%          $0.50      12
                                                                                                                         (suburbs)                (suburbs)       (suburbs)
                                                                                                                         7.50% to                 9.00% to        9.00% to
     VALUE-ADD INVESTOR ✦ Forecast Period: 5 years                                        (10.0%)                        10.50% (CBD);            12.00% (CBD);   10.50% (CBD); 9                                   $0.15
     Uses DCF and direct capitalization; in direct cap, capitalizes NOI before            to        3.0%          3.0%   8.50% to      2.5%       10.00% to       9.50% to      to        65.0%       6.0%          to         12
     Tis, leasing commissions, and capital replacement reserve.                           (5.0%)                         10.50%                   12.00%          11.00%        12                                  $0.25
                                                                                                                         (suburbs)                (suburbs)       (suburbs)


     INVESTMENT ADVISOR ✦ Forecast Period: 5 to 7 years                                                                  8.50% to                 9.00% to        9.00% to
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                             9.50% (CBD);             12.00%          10.00%         9        65.0%       5.0%          $0.20      3
     before TIs, leasing commissions, and capital replacement reserve; uses               0.0%      3.0%          3.0%   9.00% to       1.5%      in both         in both        to       to          to            to         to
     face rents and reflects concessions when they are scheduled to occur;                                               10.00%                   CBD &           CBD &          12       70.0%       10.0%         $0.40      6
     uses a rent spike in certain instances.                                                                             (suburbs)                suburbs         suburbs


                                                                                                                         7.50% to                 8.25% to        7.00% to
     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 10 years
                                                                                                    Up                   8.00% (CBD);             9.25% (CBD);    8.00% (CBD);   6                                             6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          0.0%      to            3.0%   7.75% to       2.0%      8.50% to        7.25% to       to       65.0%       5.0%          $0.15      to
     before TIs, leasing commissions, and capital replacement reserve; does
                                                                                                    3.0%                 8.50%                    9.50%           8.50%          9                                             9
     not use rent spikes.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)


     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 10 years                                                                6.00% to                 8.00% to        5.75% to
     Uses mainly direct capitalization; major focus is on the initial cash-on-            (5.0%)    Up            Up     6.50% (CBD);             8.50% (CBD);    6.00% (CBD);   7                                  Does
     cash return; typically extends forecast period to capture impact of all              to        to            to     9.00% to       1.3%      10.00% to       8.25% to       to       70.0%       4.0%          not        8
     lease expirations; uses face rents and reflects concessions when they                0.0%      3.0%          3.0%   10.00%                   11.00%          9.25%          8                                  use
     are scheduled to occur.                                                                                             (suburbs)                (suburbs)       (suburbs)



     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                                                                  7.50% to                 7.75% to        6.75% to
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              (7.0%)                         9.50% (CBD);   0.5%      10.25% (CBD);   9.75% (CBD);   6        65.0%       5.0%          $0.20      3
     before TIs, leasing commissions, and capital replacement reserve; uses               to        3.0%          3.0%   8.00% to       to        8.25% to        7.50% to       to       to          to            to         to
     face rents and reflects concessions when they are scheduled to occur;                (2.0%)                         10.00%         3.0%      11.25%          10.25%         12       70.0%       8.0%          $0.35      6
     does not use rent spikes.                                                                                           (suburbs)                (suburbs)       (suburbs)


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




47
     C H A R L O T T E O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                  DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                      UNDERLYING    PER
                                                                                      MARKET                             CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT          EXPENSES      CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS


                                                                                                                         7.50% to                 8.25% to        7.00% to
     LIFE INSURANCE COMPANY ✦ Forecast Period: 8 to 10 years                                                      1.0%   9.00%                    9.00%           8.75% (CBD);   6                    3.0%          $0.10      6
                                                                                      0.0%
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs, leasing                   3.0%          to     in both        1.5%      in both         7.50% to       to       65.0%       to            to         to
                                                                                      Years 1 & 2
     commissions, and capital replacement reserve; does not use rent spikes.                                      3.0%   CBD &                    CBD &           9.00%          12                   7.0%          $0.25      18
                                                                                                                         suburbs                  suburbs         (suburbs)



                                                                                                                         8.25% to                 9.50% to        8.50% to
     REIT ✦ Forecast Period: 10 years
                                                                                      (4.0%)                             9.00%                    10.50%          10.50%         6        70.0%       5.0%          $0.15      3
     Uses all three approaches to value; in direct cap, capitalizes NOI before
                                                                                      to            3.0%          3.0%   in both        1.0%      in both         in both        to       to          to            to         to
     TIs, leasing commissions, and capital replacement reserve; expects overall
                                                                                      (1.0%)                             CBD &                    CBD &           CBD &          12       75.0%       7.0%          $0.60      6
     cap rates to hold steady over the next six months.
                                                                                                                         suburbs                  suburbs         suburbs




     PENSION FUND ADVISOR ✦ Forecast Period: 5 years                                                                     9.00% to                 8.00% to        9.00% to
     Mainly uses DCF analysis, sales comparison approach, and cost approach;                                             10.00%         1.0%      10.00%          10.00%                                            $0.15
     in direct cap, capitalizes NOI after capital replacement reserve but before      0.0%          2.0%          2.0%   in both        to        in both         in both        8        60.0%       10.0%         to         4
     TIs and leasing commissions; uses face rents and reflects concessions                                               CBD &          1.5%      CBD &           CBD &                                             $0.25
     when they are scheduled to occur; does not use rent spikes.                                                         suburbs                  suburbs         suburbs




                                                                                                                         8.00% to                 9.00% to        9.00% to
     INSTITUTIONAL INVESTOR ✦ Forecast Period: 5 to 10 years
                                                                                      (1.0%)        2.5%                 8.50% (CBD);   1.0%      11.00% (CBD);   11.00% (CBD); 7         65.0%       5.0%          $0.15      4
     Mainly uses DCF analysis and sales comparison approach; in direct cap,
                                                                                      to            to                   8.50% to       to        10.00% to       9.50% to      to        to          to            to         to
     capitalizes NOI before TIs, leasing commissions, and capital replacement
                                                                                      0.0%          3.0%                 9.50%          1.5%      12.00%          13.00%        9         75.0%       8.0%          $0.25      8
     reserve; prefers the CBD; does not use rent spikes.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)



                                                                                                                         8.00% to                 10.00% to
                                                                                                                                                                  8.00%
     VALUE-ADDED INVESTOR ✦ Forecast Period: 5 years                                                2.5%                 8.25% (CBD);             10.50% (CBD);                  10
                                                                                                                                                                  (CBD);
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs, leasing     0.0%          to                   9.00% to       2.0%      11.50% to                      to       65.0%       10.0%         $0.15      8
                                                                                                                                                                  9.50%
     commissions, and capital replacement reserve; does not use rent spikes.                        3.0%                 9.50%                    12.00%                         12
                                                                                                                                                                  (suburbs)
                                                                                                                         (suburbs)                (suburbs)



                                                                                                                         9.00% to                 9.00% to        9.00% to
     PRIVATE EQUITY FIRM ✦ Forecast Period: 3 to 5 years
                                                                                                                         10.00% (CBD);            11.00% (CBD);   10.00% (CBD); 18                    12.0%                    6
     Mainly uses DCF analysis; in direct capitalization, capitalizes NOI before
                                                                                      0.0%          3.0%          3.0%   10.00% to     2.0%       11.00% to       10.00% to     to        70.0%       to            $0.20      to
     TIs, leasing commissions, and capital replacement reserve; believes that
                                                                                                                         11.00%                   12.00%          11.00%        24                    14.0%                    9
     market conditions are neutral.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




48
     C H I C A G O O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                   DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES           RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                       UNDERLYING    PER
                                                                                      MARKET                              CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT          EXPENSES       CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS


     LIFE INSURANCE COMPANY ✦ Forecast Period: 5 to 10 years                                                              7.50% to                 8.00% to        7.50% to
     Relies mainly on DCF analysis; also uses direct capitalization; in direct                      0.0%                  9.00% (CBD);   2.0%      8.50% (CBD);    10.00% (CBD); 9                                   $0.25      6
     cap, capitalizes cash flow after TIs, leasing commissions, and capital               0.0%      to             3.0%   8.00% to       to        8.50% to        8.00% to      to        60.0%       10.0%         to         to
     replacement reserve; uses face rents and reflects concessions when they                        3.0%                  9.50%          3.0%      9.50%           10.50%        12                                  $0.50      12
     are scheduled to occur; uses a rent spike of 5.0% in year 3.                                                         (suburbs)                (suburbs)       (suburbs)



     REAL ESTATE ADVISOR ✦ Forecast Period: 10 years                                                Averages              8.00% to                 9.00% to        7.50% to
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                        2.0% to 3.0%          10.00% (CBD); 1.8%       11.00% (CBD);   9.00% (CBD);   9        60.0%       10.0%         $0.25      4
     before TIs, leasing commissions, and capital replacement reserve; uses               0.0%      over the       2.0%   9.00% to      to         10.00% to       8.50% to       to       to          to            to         to
     face rents and reflects concessions when they are scheduled to occur;                          holding               11.00%        2.3%       12.00%          10.50%         12       70.0%       12.0%         $0.50      6
     does not use rent spikes.                                                                      period                (suburbs)                (suburbs)       (suburbs)



     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 10 years                                                                 7.00% to                 8.50% to        7.00%
     Uses mainly direct capitalization; major focus is on the initial cash-on-            (10.0%)                         7.50% (CBD);             9.00% (CBD);    (CBD);                  75.0%                     Does
     cash return; typically extends forecast period to capture impact of all              to        3.0%           3.0%   10.00% to      1.5%      11.00% to       10.00% to      10       to          8.0%          not        8
     lease expirations; uses face rents and reflects concessions when they                0.0%                            11.00%                   12.00%          11.00%                  85.0%                     use
     are scheduled to occur; does not use rent spikes.                                                                    (suburbs)                (suburbs)       (suburbs)


                                                                                                                          7.00% to                 8.00% to        7.00% to
     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 3 to 7 years
                                                                                                                          9.00% (CBD);   1.0%      11.00% (CBD);   8.00% (CBD);   6        60.0%       10.0%         $0.15      3
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,
                                                                                          0.0%      3.0%           3.0%   8.00% to       to        9.00% to        8.50% to       to       to          to            to         to
     leasing commissions, and capital replacement reserve; uses face rents;
                                                                                                                          10.00%         3.0%      12.00%          10.00%         9        70.0%       12.0%         $0.25      6
     uses a rent spike of 7.0% in years 3 through 5.
                                                                                                                          (suburbs)                (suburbs)       (suburbs)


                                                                                                                          7.50% to                 8.00% to        7.50% to
     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years
                                                                                          (5.0%)                          8.00% (CBD);   0.3%      9.00% (CBD);    9.00% (CBD);   9        65.0%       10.0%         $0.25      6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to        3.0%           3.0%   8.50% to       to        9.00% to        9.00% to       to       to          to            to         to
     before TIs, leasing commissions, and capital replacement reserve; does
                                                                                          0.0%                            9.00%          1.0%      10.00%          10.50%         12       70.0%       15.0%         $0.50      12
     not use rent spikes.
                                                                                                                          (suburbs)                (suburbs)       (suburbs)

                                                                                                                                                                   8.50% to
     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 10 years                                  (3.0%)                          9.00%                    9.00%           9.00% (CBD);   8        60.0%       9.0%          $0.20      6
     Mainly uses direct capitalization; in direct cap, capitalizes NOI before             to        3.0%           3.0%   to             2.0%      to              9.00% to       to       to          to            to         to
     TIs, leasing commissions, and capital replacement reserve.                           0.0%                            9.50%                    10.00%          10.00%         12       70.0%       12.0%         $0.25      12
                                                                                                                          (CBD)                    (CBD)           (suburbs)

                                                                                                                          8.00% to                 8.00% to        6.00% to
     INVESTMENT ADVISOR ✦ Forecast Period: 10 years
                                                                                                    1.0%                  9.00% (CBD);   1.0%      9.00% (CBD);    7.00% (CBD);                                      $0.25      2
     Relies on DCF; uses face rents and reflects concessions as they are
                                                                                          0.0%      to             3.0%   9.00% to       to        9.00% to        7.00% to       6        60.0%       7.0%          to         to
     scheduled to occur; prefers the West Loop; uses a rent spike of 10.0%
                                                                                                    3.0%                  10.00%         2.0%      12.00%          8.00%                                             $0.30      3
     in year 5.
                                                                                                                          (suburbs)                (suburbs)       (suburbs)


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




49
     D A L L A S O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                  DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                      UNDERLYING    PER
                                                                                      MARKET                             CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT           EXPENSES     CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS



     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                                                                  7.25%                    8.00%           7.00%
     Relies on DCF; also uses direct capitalization and sales comparison                                                                                                         6        65.0%
                                                                                                     3.0%         3.0%   in both        0.5%      in both         in both        to       to          6.0%          $0.25      3
     approach; uses effective rents; in direct cap, capitalizes NOI before TIs,       0.0%
                                                                                                                         CBD &                    CBD &           CBD &          8        70.0%
     leasing commissions, and capital replacement reserve.                                                               suburbs                  suburbs         suburbs




     REAL ESTATE ADVISOR ✦ Forecast Period: 5 years                                                                      8.75% to                 9.50%           7.75% to
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,                                                9.25% (CBD);   2.0%      (CBD);          8.25% (CBD);   9
                                                                                      0.0%
     leasing commissions, and capital replacement reserve; believes that this                        3.0%         3.0%   9.00% to       to        11.50% to       8.50% to       to       70.0%       3.0%          $0.25      5
                                                                                      Years 1 & 2
     market currently favors buyers.                                                                                     9.50%          3.0%      12.00%          9.00%          12
                                                                                                                         (suburbs)                (suburbs)       (suburbs)



     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                                                                  8.25% to                 8.25% to        7.25% to
                                                                                      0.0% Year 1;
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                             9.50%          2.0%      9.75% (CBD);    8.50% (CBD);   8        50.0%       10.0%         $0.20      10
                                                                                      0.0%
     after capital replacement reserve but before TIs and leasing commissions;                       3.0%         3.0%   in both        to        8.75% to        7.75% to       to       to          to            to         to
                                                                                      to 2.0%
     does not use rent spikes; uses face rents and reflects concessions when                                             CBD &          3.0%      9.75%           9.00%          12       65.0%       12.0%         $0.25      12
                                                                                      Year 2
     they are scheduled to occur.                                                                                        suburbs                  (suburbs)       (suburbs)




                                                                                                                         8.00% to                 9.00% to        8.50% to
     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
                                                                                                                         8.25% (CBD);   1.0%      9.75% (CBD);    9.00% (CBD);   8                    3.0%          $0.15
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                                     3.0%         3.0%   8.50% to       to        9.00% to        9.00% to       to       70.0%       to            to
     after capital replacement reserve but before TIs and leasing commissions;
                                                                                                                         9.00%          2.0%      9.50%           10.00%         12                   15.0%         $0.20
     uses face rents and reflects concessions when they are scheduled to occur.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)




     REIT ✦ Forecast Period: 3 to 5 years                                                                                10.50% to                10.50% to       10.50% to
                                                                                                                         11.00% (CBD);            11.50% (CBD);   11.50% (CBD);                                                9
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          0.0%
                                                                                                     3.0%         3.0%   10.00% to     2.0%       10.00% to       10.00% to     24        70.0%       15.0%         $0.20      to
     before TIs, leasing commissions, and capital replacement reserve; uses           Years 1 & 2
                                                                                                                         11.00%                   11.00%          11.00%                                                       12
     face rents and reflects concessions when they are scheduled to occur.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)



                                                                                                                         8.00% to                 8.00% to        8.00% to
     LIFE INSURANCE COMPANY ✦ Forecast Period: 4 to 8 years
                                                                                                                         10.00%         1.0%      10.00%          10.00% (CBD); 6         60.0%       6.0%                     4
     Uses both DCF and direct capitalization; also looks at discount to
                                                                                      0.0%           3.0%         3.0%   in both        to        in both         8.00% to      to        to          to            $0.25      to
     replacement cost; relies on DCF; in direct cap, capitalizes NOI after
                                                                                                                         CBD &          2.0%      CBD &           11.00%        9         65.0%       10.0%                    6
     capital replacement reserve but before TIs and leasing commissions.
                                                                                                                         suburbs                  suburbs         (suburbs)



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




50
     D E N V E R O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                    DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES            RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                        UNDERLYING    PER
                                                                                      MARKET                               CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT           EXPENSES     CPI      RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS




     PRIVATE REAL ESTATE INVESTOR ✦ Forecast Period: 5 to 10 years
                                                                                                                           9.00%                    12.00%          9.00%
     Mainly uses DCF analysis; in direct cap, capitalizes NOI after capital                                                               1.0%                                     10       60.0%       10.0%                    3
                                                                                      0.0% Year 1;                         to                       to              to
     replacement reserve but before TIs and leasing commissions; no longer uses                      3.0%         3.0%                    to                                       to       to          to            $0.25      to
                                                                                      3.0% Year 2                          11.00%                   15.00%          11.00%
     a rent spike; uses face rents and reflects concessions when they are                                                                 2.0%                                     15       70.0%       15.0%                    9
                                                                                                                           (suburbs)                (suburbs)       (suburbs)
     scheduled to occur.




                                                                                                                           8.00% to                 9.00% to        7.00% to
     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 3 to 7 years
                                                                                                                           9.00% (CBD);   1.0%      11.00% (CBD);   9.00% (CBD);   6        60.0%       7.0%          $0.15      3
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,             0.0% Year 1;
                                                                                                     3.0%         3.0%     8.50% to       to        10.00% to       8.00% to       to       to          to            to         to
     leasing commissions, and capital replacement reserve; uses a rent spike of       3.0% Year 2
                                                                                                                           10.00%         3.0%      12.00%          10.00%         8        70.0%       12.0%         $0.25      6
     5.0% in years 2 and 5.
                                                                                                                           (suburbs)                (suburbs)       (suburbs)




     REIT ✦ Forecast Period: 1 to 11 years                                                                                                                          7.00% to
                                                                                                                           8.00%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          (5.0%)         0.0%         (2.0%)                                            9.00% (CBD);                                      $0.20      3
                                                                                                                           to
     after capital replacement reserve but before TIs and leasing commissions;        to             to           to                                                8.00% to                                          to         to
                                                                                                                           10.00%
     uses face rents and reflects concessions when they are scheduled to occur;       0.0%           3.0%         5.0%                                              10.00%                                            $0.30      6
                                                                                                                           (suburbs)
     believes market conditions favor buyers.                                                                                                                       (suburbs)




                                                                                      (20.0%)
     PENSION/CORE INVESTOR ✦ Forecast Period: 10 years                                                                     7.75% to                 7.75% to        7.00% to
                                                                                      to (5.0%)
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs, leasing                                          8.50% (CBD);   1.5%      9.00% (CBD);    8.00% (CBD);   6                    7.0%          Does       6
                                                                                      Year 1;
     commissions, and capital replacement reserve; believes that market                              3.0%         3.0%     8.50% to       to        8.00% to        7.50% to       to       65.0%       to            not        to
                                                                                      (5.0%)
     conditions favor buyers.                                                                                              8.75%          2.0%      9.25%           8.50%          12                   9.0%          use        9
                                                                                      to 0.0%
                                                                                                                           (suburbs)                (suburbs)       (suburbs)
                                                                                      Year 2




                                                                                                                           8.00% to                 8.00% to        7.00% to
     PRIVATE REAL ESTATE INVESTOR ✦ Forecast Period: 10 years
                                                                                                                           10.00% (CBD);            11.00%          9.00%          6                    0.0%          $0.15
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,             3.0%
                                                                                                     3.0%         3.0%     9.00% to      0.5%       in both         in both        to       75.0%       to            to         1
     leasing commissions, and capital replacement reserve; does not use rent          Years 1 & 2
                                                                                                                           10.00%                   CBD &           CBD &          12                   5.0%          $0.25
     spikes; prefers the CBD submarket.
                                                                                                                           (suburbs)                suburbs         suburbs



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




51
     H O U S T O N O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                  DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                      UNDERLYING    PER
                                                                                      MARKET                             CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT           EXPENSES     CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS




     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                                                                  8.00% to                 8.75% to        8.50% to
                                                                                                                         9.00%                    9.75%           9.50%          6        65.0%                     $0.10
     Relies on DCF; also uses direct capitalization and sales comparison
                                                                                      0.0%           3.0%         3.0%   in both        1.5%      in both         in both        to       to          6.5%          to         3
     approach; uses effective rents; in direct cap, capitalizes NOI before TIs,
                                                                                                                         CBD &                    CBD &           CBD &          8        70.0%                     $0.35
     leasing commissions, and capital replacement reserve.
                                                                                                                         suburbs                  suburbs         suburbs




     LIFE INSURANCE COMPANY ✦ Forecast Period: 3 to 8 years                                                              8.00% to                 8.00% to        8.00% to
                                                                                      0.0% Year 1;
     Uses both DCF and direct capitalization; also looks at discount to                                                  10.00%         1.0%      11.00%          10.00%         6        60.0%       5.0%          $0.25      6
                                                                                      0.0%
     replacement cost; relies on DCF; in direct cap, capitalizes NOI after capital                   3.0%         3.0%   in both        to        in both         in both        to       to          to            to         to
                                                                                      to 2.0%
     replacement reserve but before TIs and leasing commissions; uses face                                               CBD &          2.0%      CBD &           CBD &          10       65.0%       10.0%         $1.00      9
                                                                                      Year 2
     rents and reflects concessions when they are scheduled to occur.                                                    suburbs                  suburbs         suburbs




                                                                                                                         8.00% to                 8.25% to        7.00% to
     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                               0.0% Year 1;
                                                                                                                         9.50% (CBD);   2.0%      9.50% (CBD);    8.75% (CBD);   8        50.0%       8.0%          $0.20      10
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          0.0%
                                                                                                     3.0%         3.0%   8.25% to       to        8.75% to        7.75% to       to       to          to            to         to
     after capital replacement reserve but before TIs and leasing commissions;        to 2.0%
                                                                                                                         9.50%          3.0%      9.75%           9.00%          10       65.0%       10.0%         $0.25      12
     uses face rents and reflects concessions when they are scheduled to occur.       Year 2
                                                                                                                         (suburbs)                (suburbs)       (suburbs)




                                                                                      Averages
                                                                                                                         8.25%                    9.50%
     PENSION FUND ADVISOR ✦ Forecast Period: 10 years                                 2.4%                                              1.0%                                     5
                                                                                                                         to                       to              8.00%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          over the       3.0%         3.0%                  to                                       to       70.0%       6.0%          $0.15      6
                                                                                                                         8.75%                    10.50%          (CBD)
     after capital replacement reserve but before TIs and leasing commissions.        holding                                           1.5%                                     12
                                                                                                                         (CBD)                    (CBD)
                                                                                      period




                                                                                                                         8.00% to                 8.00% to        8.00% to
     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 5 to 7 years
                                                                                                     2.0%         2.0%   9.50% (CBD);   1.0%      12.00% (CBD);   10.00% (CBD); 6         65.0%       7.0%          $0.15      6
     Uses both DCF analysis and direct capitalization; in direct cap, capitalizes     0.0%
                                                                                                     to           to     8.00% to       to        9.00% to        8.00% to      to        to          to            to         to
     NOI before TIs, leasing commissions, and capital replacement reserve;            Years 1 & 2
                                                                                                     3.0%         3.0%   11.00%         3.0%      14.00%          11.00%        12        75.0%       15.0%         $0.30      12
     believes that market conditions currently favor buyers.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)




     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




52
     L O S A N G E L E S O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                      DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                          INITIAL-YEAR CHANGE RATES          RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                          UNDERLYING    PER
                                                                                          MARKET                             CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                          RENT          EXPENSES      CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS



                                                                                                                             8.00% to                 9.50% to        8.00% to
     INVESTMENT ADVISOR ✦ Forecast Period: 1 to 10 years
                                                                                                                             10.00%                   11.00%          10.00%         6        70.0%                     $0.10
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,
                                                                                          0.0%          3.0%          3.0%   in both        0.5%      in both         in both        to       to          5.0%          to         1
     leasing commissions, and capital replacement reserve; believes that
                                                                                                                             CBD &                    CBD &           CBD &          9        75.0%                     $0.25
     market conditions equally favor buyers and sellers.
                                                                                                                             suburbs                  suburbs         suburbs



                                                                                                                             7.50% to                 8.00% to        7.50% to
     REAL ESTATE COMPANY ✦ Forecast Period: 10 years
                                                                                          (5.0%)        2.0%                 8.50% (CBD);             9.50% (CBD);    9.00% (CBD);   9        60.0%       5.0%          Does       3
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,
                                                                                          to            to            3.0%   7.00% to       1.0%      7.00% to        7.50% to       to       to          to            not        to
     leasing commissions, and capital replacement reserve; uses a rent spike
                                                                                          0.0%          3.0%                 8.50%                    9.50%           9.50%          12       70.0%       8.0%          use        6
     of 8.0% in years 5 and 6.
                                                                                                                             (suburbs)                (suburbs)       (suburbs)




     INVESTMENT BANKER ✦ Forecast Period: 5 to 10 years                                                                      8.00% to                 10.00% to       7.50% to
                                                                                          0.0%
     Prefers DCF analysis; also uses direct cap; in direct cap, capitalizes NOI                                              9.00%                    12.00%          9.00% (CBD);   4        65.0%       5.0%          $0.10      6
                                                                                          to 2.0%
     before TIs, leasing commissions, and capital replacement reserve; uses                             3.0%          3.0%   in both        2.0%      in both         8.00% to       to       to          to            to         to
                                                                                          Year 1;
     face rents and reflects concessions when they are scheduled to occur;                                                   CBD &                    CBD &           9.00%          6        75.0%       10.0%         $0.25      9
                                                                                          3.0% Year 2
     uses a rent spike of 5.0% in year 5.                                                                                    suburbs                  suburbs         (suburbs)




                                                                                                                             7.50% to                 8.25% to        6.00%
     PENSION FUND ADVISOR ✦ Forecast Period: 10 years                                                                                       1.0%      9.00% (CBD);    (CBD);         0        65.0%       5.0%          $0.20
                                                                                                                             7.75% (CBD);
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              0.0%          3.0%          3.0%                  to        8.50% to        7.00% to       to       to          to            to
                                                                                                                             7.50%
     after capital replacement reserve but before TIs and leasing commissions.                                                              2.0%      8.75%           8.25%          13       70.0%       9.0%          $0.30
                                                                                                                             (suburbs)
                                                                                                                                                      (suburbs)       (suburbs)



                                                                                                                             7.50% to                 8.00% to        6.50% to
     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years
                                                                                                                             9.00%          1.0%      10.00% (CBD);   8.00% (CBD);   6        60.0%       2.0%          $0.15      6
     Relies primarily on DCF; also uses direct capitalization; in direct cap,
                                                                                          (5.0%)        3.0%          3.0%   in both        to        8.00% to        6.50% to       to       to          to            to         to
     capitalizes NOI before TIs, leasing commissions, and capital replacement
                                                                                                                             CBD &          3.0%      10.25%          9.00%          12       65.0%       3.0%          $0.25      12
     reserve; does not use rent spikes.
                                                                                                                             suburbs                  (suburbs)       (suburbs)



                                                                                                                             8.00% to                 8.00% to        7.25% to
     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years
                                                                                                                      2.0%   9.75% (CBD);   2.0%      10.00% (CBD);   8.75% (CBD);   8        50.0%       6.0%          $0.20      10
     Uses DCF and direct capitalization; in direct cap, capitalizes NOI before
                                                                                          0.0%          3.0%          to     8.25% to       to        8.25% to        7.50% to       to       to          to            to         to
     TIs, leasing commissions, and capital replacement reserve; does not use
                                                                                                                      3.0%   10.25%         3.0%      10.25%          9.00%          12       65.0%       8.0%          $0.25      12
     rent spikes.
                                                                                                                             (suburbs)                (suburbs)       (suburbs)


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




53
     M A N H AT TA N O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                              DISCOUNT     OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                             UNDERLYING    PER
                                                                                      MARKET                             CAP        SELLING   FREE &       FREE &     MONTHS     TENANT      VACANCY &     SQUARE
                                                                                      RENT          EXPENSES      CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION   CREDIT LOSS   FOOT       MONTHS



     INVESTMENT BANKER ✦ Forecast Period: 10 years
     Strongest interest is in Midtown; selling expenses exclude transfer tax                        1.0%                 7.00%                8.00%        7.00%      5          60.0%       5.0%          $0.20      4
     which is ignored in analysis; uses both DCF and direct capitalization;               0.0%      to            3.0%   to         3.0%      to           to         to         to          to            to         to
     no longer uses a rent spike; in direct cap, capitalizes cash flow after TIs,                   2.0%                 8.50%                9.50%        8.00%      10         70.0%       10.0%         $0.50      9
     leasing commissions, and capital replacement reserve.




     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 10 years
     Uses mainly direct capitalization; in direct cap, capitalizes NOI before             0.0%                           6.00%                             5.50%      7          70.0%                     Did
     TIs, leasing commissions, and capital replacement reserve; uses face                 to        3.0%          3.0%   to         4.0%      8.00%        to         to         to          2.5%          not        7
     rents and reflects concessions when they are scheduled to occur; uses a              3.0%                           6.50%                             6.00%      8          75.0%                     disclose
     rent spike of 10.0% in years 2 and 3.




     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
     Mainly uses DCF analysis when valuing assets; in direct cap, capitalizes
     NOI before TIs, leasing commissions, and capital replacement reserve;                0.0%      3.0%          3.0%   7.00%      4.0%      8.00%        6.60%      6          70.0%       2.0%          $0.10      6
     no longer uses a rent spike.



                                                                                          (5.0%)
     INVESTMENT ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                          to 0.0%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                        2.0%          2.0%   7.50%                8.00%        7.00%      6          60.0%       5.0%          $0.20      3
                                                                                          Year 1;
     before TIs, leasing commission, and capital replacement reserve; uses face                     to            to     to         4.5%      to           to         to         to          to            to         to
                                                                                          0.0%
     rents and reflects concessions when they are scheduled to occur; selling                       3.0%          3.0%   8.50%                10.00%       8.00%      12         75.0%       10.0%         $0.50      6
                                                                                          to 5.0%
     expenses include transfer tax.
                                                                                          Year 2



     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                      3.0%   6.50%      1.0%      7.00%        6.00%      6          65.0%       5.0%          $0.20      3
     before TIs, leasing commissions, and capital replacement reserve; selling            0.0%      3.0%          to     to         to        to           to         to         to          to            to         to
     expenses exclude transfer tax, which is ignored in analysis; does not use                                    4.0%   7.50%      3.0%      8.25%        7.25%      12         70.0%       8.0%          $0.50      8
     rent spikes.




     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                          (10.0%)                        6.50%      1.5%      6.00%        5.00%      6                      5.0%          $0.30
     Uses both DCF and direct capitalization; relies on DCF; uses face rents
                                                                                          to        3.0%          3.0%   to         to        to           to         to         60.0%       to            to
     in DCF model, net effective rents in direct capitalization; prefers Midtown
                                                                                          (5.0%)                         7.00%      2.0%      7.00%        6.00%      18                     10.0%         $1.00
     and Times Square; selling expenses exclude transfer tax.



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




54
     N O R T H E R N V I R G I N I A O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                DISCOUNT     OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES            RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                               UNDERLYING    PER
                                                                                      MARKET                               CAP        SELLING   FREE &       FREE &     MONTHS     TENANT      VACANCY &     SQUARE
                                                                                      RENT               EXPENSES   CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION   CREDIT LOSS   FOOT       MONTHS




     INVESTMENT BANKER ✦ Forecast Period: 10 years
                                                                                                                           8.50%                9.50%        8.00%      6          50.0%       8.0%          $0.15      6
     Uses both DCF and direct capitalization; in direct cap, capitalizes cash             0.0%
                                                                                                         3.0%       3.0%   to         2.0%      to           to         to         to          to            to         to
     flow after TIs, leasing commissions, and capital replacement reserve; uses           Years 1 & 2
                                                                                                                           9.50%                11.00%       10.00%     12         60.0%       12.0%         $0.25      9
     face rents and reflects concessions when they are scheduled to occur.




     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years
                                                                                          (2.0%)         1.5%       1.0%   7.75%      1.0%      7.50%        7.00%      9          60.0%       1.0%          $0.15      1
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to 1.0%        to         to     to         to        to           to         to         to          to            to         to
     after capital replacement reserve but before TIs and leasing commissions;
                                                                                          Year 1         3.0%       3.0%   9.00%      3.0%      9.25%        8.00%      12         75.0%       3.0%          $0.60      6
     uses face rents and reflects concessions when they are scheduled to occur.




     INSTITUTIONAL INVESTOR ✦ Forecast Period: 10 years
                                                                                          0.0%           2.0%              7.75%      2.0%      8.50%        7.50%      9          50.0%       4.0%          $0.15      9
     Relies on DCF; also uses direct capitalization; in direct cap, capitalizes
                                                                                          Years 1 & 2;   to         3.0%   to         to        to           to         to         to          to            to         to
     NOI after capital replacement reserve but before TIs and leasing
                                                                                          3.0% Year 3    3.0%              8.50%      3.0%      10.00%       8.00%      12         60.0%       6.0%          $0.25      15
     commissions; does not use rent spikes.




     PENSION FUND ADVISOR ✦ Forecast Period: 10 years                                     Averages
                                                                                                                                                                                               2.0%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              2.5% over
                                                                                                         3.0%       3.0%   7.75%      2.0%      8.00%        7.35%      9          70.0%       to            $0.10
     before TIs, leasing commissions, and capital replacement reserve; does               the forecast
                                                                                                                                                                                               8.0%
     not use rent spikes.                                                                 period




     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                                                           7.00%      1.5%      6.00%        6.50%      9                      8.0%          $0.30      3
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          0.0%           3.0%       3.0%   to         to        to           to         to         60.0%       to            to         to
     after capital replacement reserve but before TIs and leasing commissions;
                                                                                                                           8.00%      2.0%      8.00%        8.00%      18                     14.0%         $1.00      6
     uses face rents and reflects concessions when they are scheduled to occur.




     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




55
     PA C I F I C N O R T H W E S T O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                    DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES            RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                        UNDERLYING    PER
                                                                                      MARKET                               CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT               EXPENSES   CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS



                                                                                                                           7.00% to                 8.00% to        6.00% to
     INVESTMENT ADVISOR ✦ Forecast Period: 10 years
                                                                                                                           9.00%                    11.00%          9.00%          6        75.0%       0.0%          $0.10
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs, leasing         0.0%
                                                                                                         3.0%       3.0%   in both        0.5%      in both         in both        to       to          to            to         1
     commissions, and capital replacement reserve; believes that market                   Years 1 & 2
                                                                                                                           CBD &                    CBD &           CBD &          9        80.0%       5.0%          $0.25
     conditions favor sellers; may use a rent spike of 3.0% in years 2 through 4.
                                                                                                                           suburbs                  suburbs         suburbs




     PRIVATE INVESTOR ✦ Forecast Period: 10 years                                                                                                                   8.00% to
                                                                                                                           9.00%                    12.00%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              0.0%                                                                      10.00% (CBD);                                     Does
                                                                                                                           (CBD);                   (CBD);
     before TIs, leasing commissions, and capital replacement reserve; does               to 2.0%        2.5%       2.5%                  4.0%                      10.00% to     9         80.0%       2.0%          not        12
                                                                                                                           10.00%                   14.00%
     not use rent spikes; uses face rents and reflects concessions when they              Year 1                                                                    11.00%                                            use
                                                                                                                           (suburbs)                (suburbs)
     are scheduled to occur.                                                                                                                                        (suburbs)




     INVESTMENT BANKER ✦ Forecast Period: 5 to 10 years                                                                                             10.00% to       8.00% to
                                                                                          0.0% Year 1;                     9.00%
     Uses DCF, direct capitalization, and price per square foot; does                                                                               12.00%          10.00%         4        65.0%       5.0%          $0.10      6
                                                                                          0.0%                             in both
     extensive sensitivity analysis; reliance is on projections and IRRs; uses                           3.0%       3.0%                  2.0%      in both         in both        to       to          to            to         to
                                                                                          to 3.0%                          CBD &
     face rents and reflects concessions when they are scheduled to occur;                                                                          CBD &           CBD &          6        75.0%       12.0%         $0.25      9
                                                                                          Year 2                           suburbs
     uses a rent spike of 5.0% in year 5.                                                                                                           suburbs         suburbs




     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                                                                    8.00% to                 8.00% to        6.00% to
                                                                                          0.0%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                               9.00% (CBD);   2.0%      10.00% (CBD);   9.00% (CBD);   6        60.0%       1.0%          $0.20      6
                                                                                          Year 1;
     before TIs, leasing commissions, and capital replacement reserve; uses                              2.5%              8.50% to       to        9.00% to        7.50% to       to       to          to            to         to
                                                                                          3.0%
     face rents and reflects concessions when they are scheduled to occur;                                                 9.50%          3.0%      10.50%          9.00%          9        65.0%       2.0%          $0.25      12
                                                                                          Year 2
     may use a rent spike of 5.0% in year 3.                                                                               (suburbs)                (suburbs)       (suburbs)




                                                                                                                           8.00% to                 9.00% to        8.00% to
     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                                                    2.0%   9.00% (CBD);   3.0%      10.00% (CBD);   9.00% (CBD);   9        50.0%       5.0%          $0.20      3
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,
                                                                                          0.0%           3.0%       to     8.50% to       to        10.00% to       9.00% to       to       to          to            to         to
     leasing commissions, and capital replacement reserve; expects cap rates
                                                                                                                    3.0%   9.50%          4.0%      12.00%          10.00%         12       65.0%       7.0%          $0.25      6
     to hold steady over the next six months.
                                                                                                                           (suburbs)                (suburbs)       (suburbs)



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




56
     P H I L A D E L P H I A O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                   DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES           RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                       UNDERLYING    PER
                                                                                      MARKET                              CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT              EXPENSES   CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS




                                                                                                                          9.00% to                 9.25%           9.00% to
     PRIVATE INVESTOR ✦ Forecast Period: 10 years
                                                                                          (10.0%)       2.5%       2.8%   9.75%          3.0%      (CBD);          9.25% (CBD);   6        65.0%       8.0%                     6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to            to         to     in both        to        9.50% to        9.00% to       to       to          to            $0.25      to
     after capital replacement reserve but before TIs and leasing commissions;
                                                                                          (3.0%)        2.8%       3.0%   CBD &          4.0%      9.75%           9.50%          8        70.0%       10.0%                    9
     uses effective rents.
                                                                                                                          suburbs                  (suburbs)       (suburbs)




     REIT ✦ Forecast Period: 10 years                                                                                                              9.00%           9.00%
                                                                                                                                                                                  6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                              10.00%                   to              to
                                                                                          3.0%          3.0%       3.0%                  2.0%                                     to       65.0%       5.0%          $0.20      6
     before TIs, leasing commissions, and capital replacement reserve; focuses                                            (suburbs)                11.00%          11.00%
                                                                                                                                                                                  8
     on suburban markets; uses effective rents.                                                                                                    (suburbs)       (suburbs)




                                                                                                                          7.00% to                 9.00% to
     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 5 to 7 years                                                                                                       8.00% to
                                                                                                                          8.00% (CBD);   2.0%      10.00% (CBD);                                                     $0.20      6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              0.0%                                                                     9.00% (CBD);
                                                                                                        3.0%       3.0%   8.00% to       to        10.00% to                      9        65.0%       6.0%          to         to
     before TIs, leasing commissions, and capital replacement reserve; expects            Years 1 & 2                                                              9.50%
                                                                                                                          9.00%          3.0%      11.00%                                                            $0.30      9
     cap rates to decrease 25 to 100 basis points over the next six months.                                                                                        (suburbs)
                                                                                                                          (suburbs)                (suburbs)




     OPPORTUNITY FUND INVESTOR ✦ Forecast Period: 5 years                                                                                          9.00% to
                                                                                                                          9.00%                                    9.00%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              0.0%                                                     10.00%                                                                       4
                                                                                                                          in both                                  in both
     after capital replacement reserve but before TIs and leasing commissions;            Years 1 & 2   3.0%       3.0%                  3.0%      in both                        6        65.0%       5.0%          $0.25      to
                                                                                                                          CBD &                                    CBD &
     uses face rents and reflects concessions when they are scheduled to occur;                                                                    CBD &                                                                        6
                                                                                                                          suburbs                                  suburbs
     prefers suburbs.                                                                                                                              suburbs




     INVESTMENT BANKER ✦ Forecast Period: 10 years                                                                        8.00% to                 8.50% to        7.75% to
     Uses both DCF and direct capitalization; in direct cap, capitalizes cash                                             9.50%                    10.50%          9.50%          6        60.0%       7.5%          $0.15      6
                                                                                          0.0%
     flow after TIs, leasing commissions, and capital replacement reserve                               3.0%       3.0%   in both        2.0%      in both         in both        to       to          to            to         to
                                                                                          Years 1 & 2
     (averaged to smooth out); does not use rent spikes.                                                                  CBD &                    CBD &           CBD &          9        65.0%       12.0%         $0.25      9
                                                                                                                          suburbs                  suburbs         suburbs



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




57
     P H O E N I X O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                   DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                       INITIAL-YEAR CHANGE RATES          RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                       UNDERLYING    PER
                                                                                       MARKET                             CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                       RENT          EXPENSES      CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS




     PRIVATE REAL ESTATE INVESTOR ✦ Forecast Period: 5 to 10 years
                                                                                                                          9.00%                    11.00%          9.00%
     Mainly uses DCF analysis; in direct cap, capitalizes NOI after capital            (5.0%)                                            1.0%                                     9        60.0%       10.0%         $0.20       3
                                                                                                                          to                       to              to
     replacement reserve but before TIs and leasing commissions; uses face rents       to 0.0%       3.0%          3.0%                  to                                       to       to          to            to          to
                                                                                                                          10.00%                   16.00%          10.50%
     and reflects concessions when they are scheduled to occur; does not use           Years 1 & 2                                       2.0%                                     12       70.0%       15.0%         $0.25       6
                                                                                                                          (suburbs)                (suburbs)       (suburbs)
     rent spikes.




                                                                                                                          8.00% to                 8.50% to        7.00% to
     REAL ESTATE ADVISOR ✦ Forecast Period: 4 to 8 years
                                                                                                                          9.00% (CBD);             9.50% (CBD);    8.50% (CBD);   9        50.0%                     $0.25       3
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs, leasing      0.0%
                                                                                                     3.0%          3.0%   8.50% to       1.5%      9.50% to        8.00% to       to       to          7.0%          to          to
     commissions, and capital replacement reserve; expects cap rates to hold           Years 1 & 2
                                                                                                                          9.50%                    10.50%          9.50%          12       65.0%                     $0.50       6
     steady over the next six months.
                                                                                                                          (suburbs)                (suburbs)       (suburbs)




     PRIVATE EQUITY FUND MANAGER ✦ Forecast Period: 3 to 5 years                                                                                   10.00% to
                                                                                                                          9.00% to                                 9.00% to
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                       2.0%                 1.0%       11.00%                        6         60.0%       5.0%          $0.20       3
                                                                                       0.0%                               10.00% (CBD);                            10.00% (CBD);
     before TIs, leasing commissions, and capital replacement reserve; uses                          3.0%          to                   to         in both                       to        to          to            to          to
                                                                                       Years 1 & 2                        9.00%                                    9.00%
     face rents and reflects concessions when they are scheduled to occur;                                         3.0%                 3.0%       CBD &                         9         70.0%       7.0%          $0.25       9
                                                                                                                          (suburbs)                                (suburbs)
     does not use a rent spike.                                                                                                                    suburbs




                                                                                       (7.0%)
     PUBLIC REIT ✦ Forecast Period: 10 years                                                                              8.25% to                 10.00% to       8.50% to
                                                                                       to (5.0%)
     Uses all approaches to value; in direct cap, capitalizes NOI before TIs,                                             9.00%                    10.50%          10.50%         6        70.0%       5.0%          $0.15       3
                                                                                       Year 1;
     leasing commissions, and capital replacement reserve; believes that this                        3.0%          3.0%   in both        1.0%      in both         in both        to       to          to            to          to
                                                                                       (1.0%)
     market currently favors buyers; expects cap rates to hold steady over the                                            CBD &                    CBD &           CBD &          12       75.0%       10.0%         $0.60       6
                                                                                       to 1.0%
     next six months.                                                                                                     suburbs                  suburbs         suburbs
                                                                                       Year 2




                                                                                       (15.0%)                            8.50% to                 8.50% to        8.00% to
     PENSION/CORE INVESTOR ✦ Forecast Period: 10 years
                                                                                       to (10.0%)    0.0%                 9.00% (CBD);   2.0%      10.50% (CBD);   9.50% (CBD);   9                    7.0%          Does        9
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,
                                                                                       Year 1;       to            3.0%   9.00% to       to        9.50% to        9.00% to       to       60.0%       to            not         to
     leasing commissions, and capital replacement reserve; does not use rent
                                                                                       (5.0%)        3.0%                 9.50%          2.5%      11.50%          10.00%         12                   10.0%         use         12
     spikes.
                                                                                       Year 2                             (suburbs)                (suburbs)       (suburbs)



      Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




58
     S A N D I E G O O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                  DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                      UNDERLYING    PER
                                                                                      MARKET                             CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT          EXPENSES      CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS




                                                                                                                         8.00% to                 10.00% to       8.00% to
     PRIVATE INVESTOR ✦ Forecast Period: 3 to 10 years
                                                                                                                         9.00%          1.0%      12.00% (CBD);   9.00% (CBD);   9        60.0%       7.5%          $0.20      3
     Mainly uses DCF analysis; in direct cap, capitalizes NOI after capital           0.0%
                                                                                                    3.0%          3.0%   in both        to        11.00% to       9.00% to       to       to          to            to         to
     replacement reserve but before TIs and leasing commissions; uses a rent          Years 1 & 2
                                                                                                                         CBD &          2.0%      14.00%          11.00%         12       70.0%       10.0%         $0.25      6
     spike of 10.0% in year 3 in certain submarkets.
                                                                                                                         suburbs                  (suburbs)       (suburbs)




                                                                                                                         7.00% to                 9.50% to        7.00% to
     INVESTMENT ADVISOR ✦ Forecast Period: 10 years
                                                                                                                         9.00% (CBD);             11.00%          9.00% (CBD);   6                                  $0.10
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,             0.0%
                                                                                                    3.0%          3.0%   8.00% to       0.5%      in both         8.00% to       to       70.0%       5.0%          to         1
     leasing commissions, and capital replacement reserve; may use rent               Year 1
                                                                                                                         10.00%                   CBD &           10.00%         9                                  $0.25
     spikes in certain submarkets.
                                                                                                                         (suburbs)                suburbs         (suburbs)




                                                                                      (6.0%)
                                                                                                                         7.00% to                 8.00% to        7.00% to
     PUBLIC REAL ESTATE COMPANY ✦ Forecast Period: 10 years                           to (2.0%)
                                                                                                    2.0%                 8.00% (CBD);   1.0%      9.00% (CBD);    8.00% (CBD);   6        60.0%                     Does
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,             Year 1;
                                                                                                    to            3.0%   7.50% to       to        7.50% to        7.00% to       to       to          5.0%          not
     leasing commissions, and capital replacement reserve; does not use rent          (2.0%)
                                                                                                    3.0%                 9.00%          1.5%      8.50%           8.50%          12       70.0%                     use
     spikes.                                                                          to 0.0%
                                                                                                                         (suburbs)                (suburbs)       (suburbs)
                                                                                      Year 2




                                                                                      (10.0%)
     PENSION/CORE INVESTOR ✦ Forecast Period: 10 years                                                                   8.00% to                 8.00% to        7.25% to
                                                                                      to (5.0%)
                                                                                                                         8.25% (CBD);   1.5%      9.00% (CBD);    8.00% (CBD);                        7.0%          Does
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,             Year 1;
                                                                                                    3.0%          3.0%   8.50% to       to        8.75% to        8.00% to       9        65.0%       to            not        9
     leasing commissions, and capital replacement reserve; does not use rent          (5.0%)
                                                                                                                         9.00%          2.0%      9.50%           8.50%                               9.0%          use
     spikes.                                                                          to 0.0%
                                                                                                                         (suburbs)                (suburbs)       (suburbs)
                                                                                      Year 2




     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 1 to 5 years                                                            7.50% to                 9.00% to        7.50% to
                                                                                                    0.0%          2.0%   8.00% (CBD);             11.00%          8.00% (CBD);   3        65.0%       10.0%                    6
     Mainly uses DCF analysis; in direct cap, capitalizes NOI after capital           0.0%
                                                                                                    to            to     7.25% to       2.5%      in both         7.25% to       to       to          to            $0.20      to
     replacement reserve but before TIs and leasing commissions; does not             Years 1 & 2
                                                                                                    1.0%          3.0%   8.00%                    CBD &           8.00%          9        75.0%       15.0%                    12
     use rent spikes.
                                                                                                                         (suburbs)                suburbs         (suburbs)



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




59
     S A N F R A N C I S C O O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                  DISCOUNT        OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL                 RATE (IRR)      RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                      UNDERLYING    PER
                                                                                      MARKET                             CAP            SELLING   FREE &          FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT          EXPENSES      CPI    RATE           EXPENSE   CLEAR           CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS

                                                                                          0.0%
     INVESTMENT ADVISOR ✦ Forecast Period: 5 to 10 years                                                                 8.00% to                 9.00% to        7.00% to
                                                                                          to 1.0%
                                                                                                    1.0%                 8.25% (CBD);   1.0%      11.00% (CBD);   9.00%                                                        3
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              Year 1;
                                                                                          0.0%      to            3.0%   8.50% to       to        11.00% to       in both        6        75.0%       0.0%          $0.25      to
     before TIs, leasing commissions, and capital replacement reserve; uses
                                                                                          to 3.0%   3.0%                 10.00%         1.5%      15.00%          CBD &                                                        5
     face rents and reflects concessions when they are scheduled to occur.
                                                                                          Year 2                         (suburbs)                (suburbs)       suburbs


     PENSION FUND ADVISOR ✦ Forecast Period: 5 to 10 years                                                               7.00% to                 8.00% to        6.50% to
                                                                                          1.0%      2.0%          1.5%   7.50% (CBD);   1.0%      11.00% (CBD);   7.50% (CBD);   6        50.0%       5.0%          $0.15      6
     Uses both DCF and direct capitalization but relies on DCF; uses face
                                                                                          to 2.0%   to            to     7.00% to       to        9.00% to        8.00% to       to       to          to            to         to
     rents and reflects concessions when they are scheduled to occur; prefers
                                                                                          Year 1    3.0%          2.5%   9.00%          2.0%      14.00%          9.00%          12       75.0%       12.0%         $0.40      12
     the CBD.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)


                                                                                                                         8.00% to                 9.00% to        7.50% to
     PENSION FUND ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                          (5.0%)    2.0%          2.0%   9.00% (CBD);   1.0%      11.00% (CBD);   9.00% (CBD);   9        60.0%       5.0%          $0.25      6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to 0.0%   to            to     8.50% to       to        10.00% to       8.00% to       to       to          to            to         to
     before TIs, leasing commissions, and capital replacement reserve; does
                                                                                          Year 1    3.0%          3.0%   9.50%          2.0%      13.00%          9.50%          12       75.0%       10.0%         $0.50      9
     not use rent spikes.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)


                                                                                                                         6.00% to                 8.00% to        7.00% to
     INVESTMENT ADVISOR ✦ Forecast Period: 10 years
                                                                                                                         8.00% (CBD);             10.00% (CBD);   9.00% (CBD);   6                                  $0.10
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,
                                                                                          0.0%      3.0%          3.0%   7.00% to       0.5%      9.00% to        8.00% to       to       75.0%       5.0%          to         1
     leasing commissions, and capital replacement reserve; believes that
                                                                                                                         9.00%                    11.00%          10.00%         9                                  $0.25
     market conditions equally favor buyers and sellers.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)


     DOMESTIC PENSION FUND ✦ Forecast Period: 10 years                                                                   7.00% to                 8.00% to        6.50% to
     Prefers CBD; uses both DCF and direct capitalization; in direct cap,                 0.0%                           8.00% (CBD);             9.00%           7.50% (CBD);   8        65.0%       1.0%          $0.10
     capitalizes NOI before TIs, leasing commissions, and capital replacement             to        3.0%          3.0%   7.00% to       1.0%      in both         7.00% to       to       to          to            to         12
     reserve; uses face rents and reflects concessions when they are scheduled            3.0%                           8.50%                    CBD &           8.00%          12       75.0%       3.0%          $0.25
     to occur.                                                                                                           (suburbs)                suburbs         (suburbs)


                                                                                                                         6.50% to                 7.50% to        5.75% to
     REAL ESTATE COMPANY ✦ Forecast Period: 10 years
                                                                                                    2.0%                 8.00% (CBD);             9.00% (CBD);    7.00% (CBD);   9        60.0%       5.0%          Does       3
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs,
                                                                                          0.0%      to            3.0%   7.50% to       1.0%      8.00% to        7.00% to       to       to          to            not        to
     leasing commissions, and capital replacement reserve; uses a rent spike
                                                                                                    3.0%                 9.00%                    9.50%           8.00%          12       70.0%       7.0%          use        6
     of 10.0% in year 4 and 12.0% in years 5 and 6.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)


     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 10 years                                                                7.00% to                 8.00% to        6.00% to
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                             10.00% (CBD); 1.0%       10.00% (CBD);   10.00% (CBD); 2                     5.0%          $0.10      4
                                                                                          0.0%
                                                                                                    3.0%          3.0%   8.00% to      to         9.00% to        7.00% to      to        65.0%       to            to         to
     before TIs, leasing commissions, and capital replacement reserve; does               Year 1
                                                                                                                         12.00%        2.0%       12.00%          11.00%        7                     10.0%         $0.30      10
     not use rent spikes.
                                                                                                                         (suburbs)                (suburbs)       (suburbs)


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




60
     S O U T H E A S T F L O R I D A O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                 DISCOUNT        OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES            RESIDUAL              RATE (IRR)      RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                                   UNDERLYING    PER
                                                                                      MARKET                               CAP         SELLING   FREE &          FREE &       MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT               EXPENSES   CPI    RATE        EXPENSE   CLEAR           CLEAR        VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS

                                                                                          (5.0%)
                                                                                          to 0.0%                                                8.50% to
     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 5 years                                                                    8.00%                                 9.00%
                                                                                          Year 1;                                                12.00% (CBD);                9                    6.0%          $0.15      2
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                               to                                    to
                                                                                          0.0% Year 2;   3.0%       3.0%               2.5%      10.00% to                    to       65.0%       to            to         to
     before TIs, leasing commissions, and capital replacement reserve.                                                     11.50%                                14.00%
                                                                                          0.0%                                                   15.00%                       12                   9.0%          $0.25      12
                                                                                                                           (suburbs)                             (suburbs)
                                                                                          to 3.0%                                                (suburbs)
                                                                                          Year 3

                                                                                          (5.0%)
                                                                                                                           9.00% to              11.00% to       8.50% to
     INSTITUTIONAL INVESTOR ✦ Forecast Period: 1 to 7 years                               to 0.0%
                                                                                                                           12.00%      1.0%      16.00% (CBD);   12.00% (CBD); 9       60.0%       7.0%          $0.20      4
     Uses DCF analysis only; uses face rents and reflects concessions when                Year 1;
                                                                                                         3.0%       3.0%   in both     to        12.00% to       8.50% to      to      to          to            to         to
     they are scheduled to occur; expects overall cap rates to move up 50 to              0.0%
                                                                                                                           CBD &       3.0%      16.00%          13.00%        12      70.0%       10.0%         $0.50      9
     100 basis points over the next six months.                                           to 3.0%
                                                                                                                           suburbs               (suburbs)       (suburbs)
                                                                                          Years 2 & 3



     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years                                                                                                          7.25% to
                                                                                                                           7.75% to              8.50% to
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                                                                     8.00%
                                                                                          1.0%                             8.75%       1.0%      9.50%                        6        65.0%       7.0%          $0.10      6
     before TIs, leasing commissions, and capital replacement reserve; uses                                                                                      (CBD);
                                                                                          to             3.0%       3.0%   in both     to        in both                      to       to          to            to         to
     face rents and reflects concessions when they are scheduled to occur;                                                                                       8.75% to
                                                                                          3.0%                             CBD &       3.0%      CBD &                        12       70.0%       11.0%         $0.30      9
     does not use rent spikes.                                                                                                                                   10.50%
                                                                                                                           suburbs               suburbs
                                                                                                                                                                 (suburbs)



     PENSION FUND ADVISOR ✦ Forecast Period: 10 years                                                                      7.50%                 9.00%           7.50%
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                               (CBD);      1.0%      (CBD);          (CBD);       9                                  $0.15
     after TIs, leasing commissions, and capital replacement reserve; does not            0.0%           3.0%       3.0%   8.00%       to        9.00%           8.75%        to       70.0%       3.25%         to
     use rent spikes.                                                                                                      to 8.25%    2.0%      to 9.25%        to 10.40%    12                                 $0.20
                                                                                                                           (suburbs)             (suburbs)       (suburbs)


                                                                                                                           7.00% to
                                                                                                                                                 7.00% to        8.00% to
     LIFE INSURANCE COMPANY ✦ Forecast Period: 3 to 10 years                                                               9.00%
                                                                                                                                       1.0%      10.00%          10.00%       6        50.0%       6.0%          $0.25
     Uses both DCF and direct capitalization; also looks at discount to                   0.0%                             (CBD);
                                                                                                         3.0%       3.0%               to        in both         in both      to       to          to            to         6
     replacement cost; uses face rents and reflects concessions when they are             Years 1 & 2                      8.00% to
                                                                                                                                       2.0%      CBD &           CBD &        12       70.0%       10.0%         $0.50
     scheduled to occur; does not use rent spikes.                                                                         10.00%
                                                                                                                                                 suburbs         suburbs
                                                                                                                           (suburbs)



     REIT ✦ Forecast Period: 10 years                                                                                      9.00%                 8.50%           9.00%
                                                                                                                    2.5%                                                      6
     Valuation preference is DCF analysis; also uses direct cap; in direct cap,                                            to                    to              to
                                                                                          3.0%           3.0%       to                 2.0%                                   to       65.0%       5.0%          $0.20      6
     capitalizes NOI before TIs, leasing commissions, and capital replacement                                              10.50%                10.50%          10.50%
                                                                                                                    3.0%                                                      9
     reserves; does not use rent spikes; prefers suburbs.                                                                  (suburbs)             (suburbs)       (suburbs)



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




61
     S U B U R B A N M A R Y L A N D O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                              DISCOUNT     OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                             UNDERLYING    PER
                                                                                      MARKET                             CAP        SELLING   FREE &       FREE &     MONTHS     TENANT      VACANCY &     SQUARE
                                                                                      RENT           EXPENSES     CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION   CREDIT LOSS   FOOT       MONTHS



     INVESTMENT BANKER ✦ Forecast Period: 10 years
                                                                                                                         8.50%                9.50%        7.50%      6          55.0%       5.0%          $0.15      6
     Uses both DCF and direct capitalization; in direct cap, capitalizes cash         0.0%
                                                                                                     3.0%         3.0%   to         2.0%      to           to         to         to          to            to         to
     flow after TIs, leasing commissions, and capital replacement reserve; uses       Years 1 to 3
                                                                                                                         9.50%                11.00%       9.00%      9          65.0%       10.0%         $0.25      9
     face rents and reflects concessions when they are scheduled to occur.




     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          (2.0%)                             7.50%      2.5%      7.25%        7.00%      6          60.0%       1.0%          $0.25      1
     after capital replacement reserve but before TIs and leasing commissions;        to 0.0%        3.0%         3.0%   to         to        to           to         to         to          to            to         to
     uses face rents and reflects concessions when they are scheduled to occur;       Year 1                             10.00%     4.0%      9.00%        9.00%      9          70.0%       3.0%          $0.50      6
     no longer uses rent spikes.




     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 10 years
                                                                                                                         7.50%      2.0%      8.00%        7.50%                             5.0%          $0.15      6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          0.0%
                                                                                                     3.0%         3.0%   to         to        to           to         9          65.0%       to            to         to
     before TIs, leasing commissions, and capital replacement reserve; uses           Year 1
                                                                                                                         8.50%      2.5%      9.00%        9.00%                             8.0%          $0.30      9
     face rents and reflects concessions when they are scheduled to occur.




     INSTITUTIONAL INVESTOR ✦ Forecast Period: 10 years
     Relies on DCF; also uses direct capitalization; in direct cap, capitalizes                      2.0%                8.00%      2.0%      8.50%        8.00%      9          50.0%       4.0%          $0.15      9
                                                                                      0.0%
     NOI after capital replacement reserve but before TIs and leasing                                to           3.0%   to         to        to           to         to         to          to            to         to
                                                                                      Year 1
     commissions; does not use rent spikes.                                                          3.0%                9.00%      3.0%      10.00%       8.50%      12         60.0%       6.0%          $0.30      12




     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
     Prefers DCF analysis; also uses direct capitalization; in direct cap,                                               7.50%      1.0%      8.00%        7.50%                 50.0%       7.0%          $0.15
                                                                                      0.0%
     capitalizes NOI before TIs, leasing commissions, and capital replacement                        3.0%         3.0%   to         to        to           to         6          to          to            to         12
                                                                                      Year 1
     reserve; uses face rents and reflects concessions when they are scheduled                                           9.00%      2.0%      9.50%        8.50%                 60.0%       9.0%          $0.25
     to occur.




     PENSION FUND ADVISOR ✦ Forecast Period: 5 to 10 years
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                             7.50%      1.5%      7.00%        5.00%      6                                    $0.30      6
                                                                                      3.0%
     after capital replacement reserve but before TIs and leasing commissions;                       3.0%         3.0%   to         to        to           to         to         50.0%       10.0%         to         to
                                                                                      Year 1
     does not use rent spikes; uses face rents and reflects concessions when                                             9.00%      2.0%      9.00%        7.00%      18                                   $1.00      12
     they are scheduled to occur.



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




62
     WA S H I N G T O N , D C O F F I C E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                  DISCOUNT     OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                          INITIAL-YEAR CHANGE RATES          RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                                 UNDERLYING    PER
                                                                                          MARKET                             CAP        SELLING   FREE &       FREE &     MONTHS     TENANT      VACANCY &     SQUARE
                                                                                          RENT          EXPENSES      CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION   CREDIT LOSS   FOOT       MONTHS



     INVESTMENT BANKER ✦ Forecast Period: 10 years
                                                                                                                             7.50%                8.50%        7.00%      6          65.0%       7.5%          $0.15      4
     Uses both DCF and direct capitalization; in direct cap, capitalizes cash             0.0% Year1;
                                                                                                        3.0%          3.0%   to         2.0%      to           to         to         to          to            to         to
     flow after TIs, leasing commissions, and capital replacement reserve; uses           2.0% Year 2
                                                                                                                             8.50%                10.00%       8.50%      10         70.0%       12.0%         $0.35      10
     face rents and reflects concessions when they are scheduled to occur.




     LIFE INSURANCE COMPANY ✦ Forecast Period: 10 years
                                                                                          (2.0%)        1.5%          2.0%   7.00%      1.5%      8.00%        6.75%      6          60.0%       1.5%          $0.25      2
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to 0.0%       to            to     to         to        to           to         to         to          to            to         to
     after capital replacement reserves but before TIs and leasing commissions;
                                                                                          Year 1        3.0%          3.0%   8.50%      3.0%      9.00%        8.00%      9          70.0%       5.0%          $0.50      6
     uses face rents and reflects concessions when they are scheduled to occur.




     INSTITUTIONAL INVESTOR ✦ Forecast Period: 10 years
     Relies on DCF; in direct cap, capitalizes NOI after capital replacement                            2.0%          2.0%   7.00%      2.0%      7.50%        6.50%      6          50.0%       2.0%          $0.15      6
     reserve but before TIs and leasing commissions; uses present value                   0.0%          to            to     to         to        to           to         to         to          to            to         to
     analysis of effective rents; does not use rent spikes.                                             3.0%          3.0%   8.00%      2.5%      8.50%        7.50%      9          60.0%       4.0%          $0.25      9




     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
                                                                                                                             7.00%                             6.30%      9                      1.0%                     9
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          0.0%          3.0%          3.0%   to         2.0%      7.50%        to         to         70.0%       to            $0.25      to
     after capital replacement reserve but before TIs and leasing commissions;
                                                                                                                             7.25%                             7.00%      12                     7.0%                     18
     does not use rent spikes.




     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 10 years
                                                                                          2.0%                               6.00%                             5.50%                 70.0%       3.0%          Does       3
     Uses mainly direct capitalization; major focus is on the initial cash-on-
                                                                                          to            3.0%          3.0%   to         2.5%      8.00%        to         7          to          to            not        to
     cash return; typically extends forecast period to capture impact of all
                                                                                          3.0%                               6.25%                             6.00%                 75.0%       5.0%          use        6
     lease expirations.




     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
     Prefers DCF analysis; also uses direct capitalization; in direct cap,                                                   7.25%                7.50%        7.25%      3          50.0%                     Does
     capitalizes NOI before TIs, leasing commissions and capital replacement              0.0%          3.0%          3.0%   to         2.0%      to           to         to         to          7.0%          not        12
     reserve; uses face rents and reflects concessions when they are scheduled                                               8.50%                8.50%        8.25%      6          60.0%                     use
     to occur.



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




63
     N AT I O N A L F L E X / R & D M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                DISCOUNT     OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES            RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                               UNDERLYING    PER
                                                                                      MARKET                               CAP        SELLING   FREE &       FREE &     MONTHS     TENANT      VACANCY &     SQUARE
                                                                                      RENT               EXPENSES   CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION   CREDIT LOSS   FOOT       MONTHS



     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 10 years
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              2.0%                             7.50%                8.25%        7.50%      6                      3.0%          $0.15
     before TIs, leasing commissions, and capital replacement reserve;                    to             3.0%       3.0%   to         3.0%      to           to         to         70.0%       to            to         6
     believes market conditions favor buyers.                                             3.0%                             8.50%                8.75%        8.25%      9                      5.0%          $0.40




     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 4 to 8 years
     Uses mainly DCF analysis; in direct cap, capitalizes NOI before TIs,                                                  9.00%      2.0%      9.00%        9.00%      9          50.0%       5.0%          $0.15
                                                                                          0.0%
     leasing commissions, and capital replacement reserve; does not use rent                             3.0%       3.0%   to         to        to           to         to         to          to            to         12
                                                                                          Years 1 to 3
     spikes; uses face rents and reflects concessions when they are scheduled                                              10.00%     3.0%      13.00%       12.00%     12         65.0%       10.0%         $0.35
     to occur.



     REAL ESATE SERVICES FIRM ✦ Forecast Period: 5 to 10 years
                                                                                          (2.0%)                           10.50%     2.0%      10.00%       9.50%      9          60.0%       5.0%          $0.15      8
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to 0.0%        3.0%       3.0%   to         to        to           to         to         to          to            to         to
     before TIs, leasing commissions, and capital replacement reserve; uses
                                                                                          Year 1                           11.50%     3.0%      12.00%       11.00%     18         70.0%       10.0%         $0.35      12
     face rents and reflects concessions when they are scheduled to occur.



     LIFE INSURANCE COMPANY ✦ Forecast Period: 5 to 10 years
                                                                                          (2.0%)         1.0%       1.0%   8.00%      3.0%      9.50%        8.50%      6          50.0%       5.0%          $0.25      3
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          to             to         to     to         to        to           to         to         to          to            to         to
     before TIs, leasing commissions, and capital replacement reserve; uses
                                                                                          0.0%           3.0%       3.0%   9.25%      6.0%      11.50%       10.00%     12         65.0%       10.0%         $1.00      9
     face rents and reflects concessions when they are scheduled to occur.



     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
                                                                                                                           8.50%                8.75%        8.50%      9          65.0%       1.0%          $0.10
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          0.0%           3.0%       3.0%   to         2.0%      to           to         to         to          to            to
     before TIs, leasing commissions, and capital replacement reserve; does
                                                                                                                           10.00%               10.25%       12.00%     12         70.0%       6.5%          $0.15
     not use rent spikes.



     REAL ESTATE ADVISOR ✦ Forecast Period: 10 years
                                                                                                                           7.75%      1.0%      8.75%        8.00%      9          50.0%       3.0%          $0.15      12
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                          0.0%           3.0%       3.0%   to         to        to           to         to         to          to            to         to
     before TIs, leasing commissions, and capital replacement reserve; uses
                                                                                                                           8.75%      4.0%      10.00%       10.00%     18         65.0%       8.0%          $0.50      18
     face rents and reflects concessions when they are scheduled to occur.



     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 5 to 7 years                                                               9.00%      2.0%      10.00%       8.00%                                           $0.15      3
     Uses all three approaches to value, in direct capitization, capitalizes NOI          0.0%           3.0%       3.0%   to         to        to           to         9          65.0%       6.0%          to         to
     before TIs, leasing commissions, and capital replacement reserve.                                                     10.00%     3.0%      11.00%       9.00%                                           $0.25      6


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




64
     N AT I O N A L WA R E H O U S E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                              DISCOUNT     OVERALL CAP VACANCY                             REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES          RESIDUAL             RATE (IRR)   RATE (OAR)  ASSUMPTIONS                         RESERVE     TIME

                                                                                                                                                                                             UNDERLYING    PER
                                                                                      MARKET                             CAP        SELLING   FREE &       FREE &     MONTHS     TENANT      VACANCY &     SQUARE
                                                                                      RENT          EXPENSES      CPI    RATE       EXPENSE   CLEAR        CLEAR      VACANT     RETENTION   CREDIT LOSS   FOOT       MONTHS


     PRIVATE EQUITY INVESTOR ✦ Forecast Period: 10 years
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              2.0%                           7.50%                8.00%        7.00%      6          50.0%       3.0%          $0.10
     before TIs, leasing commissions, and capital replacement reserve; believes           to        3.0%          3.0%   to         3.0%      to           to         to         to          to            to         6
     market conditions favor buyers.                                                      3.0%                           9.00%                10.00%       9.00%      12         70.0%       5.0%          $0.20


     DOMESTIC PENSION FUND ✦ Forecast Period: 10 years
     Focuses on portfolio purchases; uses both DCF and direct capitalization;             0.0%                           7.50%      1.0%      7.50%        7.00%      6          65.0%       0.5%          $0.10
     in direct cap, capitalizes NOI before TIs, leasing commissions, and capital          to        3.0%          3.0%   to         to        to           to         to         to          to            to         12
     replacement reserve.                                                                 3.0%                           8.50%      3.0%      9.00%        8.00%      12         75.0%       2.0%          $0.25


     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 10 years
     Mainly uses direct capitalization; in direct cap, capitalizes NOI after              1.0%                           9.00%                10.00%       7.50%                                           $0.00
     capital replacement reserve but before TIs and leasing commissions; uses             to        2.8%          3.5%   to         3.0%      to           to         9          60.0%       6.0%          to         9
     face rents and reflects concessions when they are scheduled to occur;                1.5%                           11.00%               12.50%       9.00%                                           $0.15
     prefers the East Coast.


     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
     Prefers DCF analysis; also uses direct capitalization; in direct cap,                                               7.25%      1.0%      8.25%        7.25%      3          50.0%       8.0%          $0.05
     capitalizes NOI before TIs, leasing commissions, and capital replacement             0.0%      3.0%          3.0%   to         to        to           to         to         to          to            to         12
     reserve; uses face rents and reflects concessions when they are                                                     9.00%      2.0%      9.50%        8.50%      6          60.0%       10.0%         $0.15
     scheduled to occur.


     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
                                                                                          (10.0%)                        8.00%                9.00%        9.00%      9          50.0%       5.0%          $0.10      3
     Mainly uses DCF; in direct capitalization, capitalizes NOI after capital
                                                                                          to        2.0%          3.0%   to         2.0%      to           to         to         to          to            to         to
     replacement reserve but before TIs and leasing commissions; does not use
                                                                                          0.0%                           11.00%               11.00%       12.00%     18         70.0%       10.0%         $0.20      6
     rent spikes.


     INSTITUTIONAL INVESTOR ✦ Forecast Period: 10 years
     Relies on DCF; also uses direct capitalization; in direct cap, capitalizes                     2.0%                 7.50%      2.0%      8.50%        7.50%      6          50.0%       2.0%          $0.10      6
     NOI after capital replacement reserve but before TIs and leasing                     0.0%      to            3.0%   to         to        to           to         to         to          to            to         to
     commissions.                                                                                   3.0%                 8.50%      3.0%      9.50%        8.00%      9          60.0%       4.0%          $0.20      12


     REAL ESTATE ADVISOR ✦ Forecast Period: 10 years
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI              0.0%                           7.50%      1.0%      8.00%        7.50%      9          50.0%                     $0.10      12
     before TIs, leasing commissions, and capital replacement reserve; uses               to        3.0%          3.0%   to         to        to           to         to         to          3.0%          to         to
     face rents and reflects concessions when they are scheduled to occur;                2.0%                           9.00%      4.0%      9.50%        9.50%      18         65.0%                     $0.35      18
     does not use rent spikes.


     REAL ESTATE ADVISOR ✦ Forecast Period: 7 to 10 years                                 (3.0%)    2.0%          2.5%   7.25%                7.10%        8.50%      6                                    $0.05      6
     Uses DCF and effective rents; in direct cap, capitalizes cash flow after TIs,        to        to            to     to         1.0%      to           to         to         65.0%       2.0%          to         to
     leasing commissions, and capital replacement reserve.                                0.0%      3.0%          3.0%   8.25%                8.50%        10.00%     14                                   $0.15      12


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




65
     N AT I O N A L A PA R T M E N T M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                                            STRUCTURAL
                                                                                                                                                 DISCOUNT     OVERALL CAP   REPLACEMENT   MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES   VACANCY   RESIDUAL             RATE (IRR)   RATE (OAR)    RESERVE       TIME

                                                                                      MARKET                      TOTAL     CAP        SELLING   FREE &       FREE &        PER
                                                                                      RENT             EXPENSES   VACANCY   RATE       EXPENSE   CLEAR        CLEAR         UNIT          MONTHS


     INSURANCE COMPANY ✦ Forecast Period: 10 years
                                                                                      (3.0%)           3.0%       1.0%      6.50%      0.5%      6.50%        6.00%         $200          1
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               to         to        to         to        to           to            to            to
     before capital replacement reserve; does not use a separate FF&E
                                                                                      1.0%             4.0%       5.0%      10.00%     2.5%      10.00%       9.50%         $400          2
     replacement reserve.



     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
     Prefers DCF analysis; also uses direct capitalization; in direct cap,                                        8.0%      6.50%      2.0%      7.50%        6.50%         $150
     capitalizes NOI before capital replacement reserve; deducts FF&E reserve         0.0%             3.0%       to        to         to        to           to            to            12
     from NOI before capitalization; uses a separate FF&E replacement                                             12.0%     8.50%      3.0%      8.75%        8.00%         $375
     reserve of $100 to $150 per unit.



     DOMESTIC PENSION FUND ✦ Forecast Period: 1 to 10 years
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          0.0%                        3.0%      6.00%      2.0%      8.00%        6.00%         $250
     after capital replacement reserve; reflects concessions as they occur, may       to               3.0%       to        to         to        to           to            to            12
     burn off on new property during lease-up period in strong market; does           3.0%                        15.0%     8.25%      3.0%      9.00%        8.00%         $750
     not use a separate structural replacement reserve.


                                                                                      Averages
     PRIVATE INVESTOR ✦ Forecast Period: 10 years
                                                                                      1.5% over                             7.50%                11.00%       7.50%                       3
     Prefers Northeast, Mid-Atlantic, Midwest, and Great Lakes; uses DCF and
                                                                                      the forecast     3.0%       10.0%     to         1.5%      to           to            $250          to
     direct capitalization; in direct cap, capitalizes NOI after capital
                                                                                      period                                9.00%                14.00%       8.50%                       9
     replacement reserve.



     PRIVATE INVESTMENT FIRM ✦ Forecast Period: 5 to 10 years                         0.0%             3.0%       5.00%     6.00%      1.0%      6.25%        5.50%         $200          1
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI          to               to         to        to         to        to           to            to            to
     after capital replacement reserve; sees overall cap rates holding steady.        3.0%             3.5%       10.0%     8.00%      4.0%      9.00%        7.25%         $300          3



     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
                                                                                      (5.0%)                      5.0%      7.50%                8.50%        7.50%         $250          3
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               2.0%       to        to         2.0%      to           to            to            to
     after capital replacement reserve; buys 150- to 400-unit apartment
                                                                                      0.0%                        10.0%     9.50%                10.50%       9.00%         $350          6
     complexes in first- and second-tier markets nationwide.



     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                      0.0%             0.0%       5.0%      10.00%     3.0%      11.00%       9.00%         $175          12
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               to         to        to         to        to           to            to            to
     before capital replacement reserve; uses a separate FF&E replacement
                                                                                      1.0%             2.0%       7.0%      11.00%     6.0%      13.00%       11.00%        $250          18
     reserve of $200 to $300 per unit.



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




66
 M I D - AT L A N T I C R E G I O N A PA R T M E N T M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
 Second Quarter 2010

                                                                                                                                                                            STRUCTURAL
                                                                                                                                                 DISCOUNT     OVERALL CAP   REPLACEMENT   MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES   VACANCY   RESIDUAL             RATE (IRR)   RATE (OAR)    RESERVE       TIME

                                                                                      MARKET                      TOTAL     CAP        SELLING   FREE &       FREE &        PER
                                                                                      RENT             EXPENSES   VACANCY   RATE       EXPENSE   CLEAR        CLEAR         UNIT          MONTHS



 PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 4 to 8 years
                                                                                      (5.0%)           1.0%       6.0%      5.75%      1.0%      7.50%        5.75%         $150          3
 Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               to         to        to         to        to           to            to            to
 before capital replacement reserve; does not use a separate structural
                                                                                      0.0%             3.0%       10.0%     9.75%      2.0%      14.00%       10.00%        $300          18
 replacement reserve.




 REAL ESTATE ADVISOR ✦ Forecast Period: 10 years
 Prefers DCF analysis; also uses direct capitalization; in direct cap,                (5.0%)                      5.0%      7.50%      1.0%      8.00%        7.00%         $150          6
 capitalizes NOI after capital replacement reserve; does not deduct FF&E              to               3.0%       to        to         to        to           to            to            to
 reserve from NOI before capitalization; uses a separate structural                   0.0%                        8.0%      8.00%      2.0%      9.00%        8.50%         $250          12
 replacement reserve of $150 to $250 per unit.




 INVESTMENT ADVISOR ✦ Forecast Period: 5 to 7 years
                                                                                      (3.0%)                      6.0%      8.00%      1.0%      9.00%        7.50%         $250          6
 Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               3.0%       to        to         to        to           to            to            to
 after capital replacement reserve; uses a separate FF&E replacement
                                                                                      0.0%                        10.0%     9.00%      2.0%      11.00%       9.00%         $300          9
 reserve.




 PENSION EQUITY INVESTOR ✦ Forecast Period: 4 to 7 years
                                                                                      0.0%                        5.0%      7.75%      2.0%      10.00%       7.00%         $250          6
 Uses all three approaches to value; in direct capitization, capitalizes NOI
                                                                                      to               2.0%       to        to         to        to           to            to            to
 after capital replacement reserve; uses a separate FF&E replacement reserve
                                                                                      2.0%                        9.0%      8.50%      3.0%      12.00%       8.00%         $350          9
 of $2,000 to $4,000 per unit.




 PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 8 to 10 years
                                                                                      (1.0%)                      5.0%      7.00%      1.5%      10.00%       6.50%         $250          3
 Mainly uses direct capitalization analysis; in direct cap, capitalizes NOI
                                                                                      to               3.0%       to        to         to        to           to            to            to
 after capital replacement reserve; believes that market conditions favor
                                                                                      2.0%                        9.0%      9.00%      2.0%      12.50%       8.50%         $350          9
 buyers.




 PUBLIC C CORP ✦ Forecast Period: 5 to 10 years                                                                   5.0%      5.00%                10.00%       4.50%         $75           1
                                                                                      1.0%             2.0%                            1.5%
 Mainly uses direct capitalization; in direct cap, capitalizes NOI after                                          to        to                   to           to            to            to
                                                                                      to               to                              to
 capital replacement reserve; also uses a separate FF&E replacement                                               8.0%      7.00%                13.00%       6.50%         $175          4
                                                                                      2.0%             3.0%                            3.0%
 reserve of $75 to $175 per unit.



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




67
     PA C I F I C R E G I O N A PA R T M E N T M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                                            STRUCTURAL
                                                                                                                                                 DISCOUNT     OVERALL CAP   REPLACEMENT   MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES   VACANCY   RESIDUAL             RATE (IRR)   RATE (OAR)    RESERVE       TIME

                                                                                      MARKET                      TOTAL     CAP        SELLING   FREE &       FREE &        PER
                                                                                      RENT             EXPENSES   VACANCY   RATE       EXPENSE   CLEAR        CLEAR         UNIT          MONTHS



     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 5 to 10 years
                                                                                      (2.5%)           2.5%       4.0%      5.50%      1.0%      8.00%        6.50%         $250          6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               to         to        to         to        to           to            to            to
     after capital replacement reserve; uses a separate FF&E replacement
                                                                                      2.5%             3.0%       15.0%     8.00%      2.0%      12.00%       9.50%         $350          12
     reserve of $150 to $250 per unit.



     REAL ESTATE ADVISOR ✦ Forecast Period: 10 years
     Prefers DCF analysis; also uses direct capitalization; in direct cap,            (5.0%)                      5.0%      7.50%      1.0%      8.00%        7.00%         $150          6
     capitalizes NOI after capital replacement reserve; does not deduct               to               3.0%       to        to         to        to           to            to            to
     FF&E reserve from NOI before capitalization; uses a separate FF&E                0.0%                        8.0%      8.50%      2.0%      9.25%        8.50%         $250          12
     replacement reserve of $150 to $250 per unit.



     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
                                                                                      (5.0%)                      5.0%      7.50%                8.50%        8.00%         $250          3
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               2.0%       to        to         2.0%      to           to            to            to
     after capital replacement reserve; buys 150- to 400-unit apartment
                                                                                      (3.0%)                      10.0%     9.00%                10.50%       9.00%         $350          6
     complexes.



     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                                                  5.0%      6.00%      1.0%      8.00%        5.00%         $150          9
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      0.0%             3.0%       to        to         to        to           to            to            to
     before capital replacement reserve; does not use a separate FF&E
                                                                                                                  10.0%     7.25%      4.0%      9.25%        6.25%         $250          18
     replacement reserve.



     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 8 to 10 years                        0.0%                        6.0%      7.00%                10.00%       6.25%         $250          3
     Mainly uses direct capitalization analysis; in direct cap, capitalizes NOI       to               3.0%       to        to         1.5%      to           to            to            to
     after capital replacement reserve; believes market conditions favor buyers.      2.0%                        10.0%     9.00%                12.50%       8.50%         $350          9



     PUBLIC C CORP ✦ Forecast Period: 5 to 10 years
                                                                                                       2.0%       5.0%      5.00%      1.5%      11.00%       5.00%         $150          3
     Mainly uses direct capitalization; in direct cap, capitalizes NOI after
                                                                                      0.0%             to         to        to         to        to           to            to            to
     capital replacement reserve; also uses an FF&E replacement reserve of
                                                                                                       3.0%       10.0%     7.00%      3.0%      12.50%       7.00%         $300          6
     $150 to $300 per unit.



     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 5 years                                                                                                                    $250
                                                                                                       2.0%       5.0%      7.00%      2.0%      9.00%        7.00%                       3
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI                                                                                                to
                                                                                      0.0%             to         to        to         to        to           to                          to
     after capital replacement reserve; does not use a separate structural                                                                                                  $300
                                                                                                       3.0%       15.0%     8.00%      3.0%      12.00%       9.00%                       12
     replacement reserve.                                                                                                                                                   (FF&E)


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




68
     S O U T H E A S T R E G I O N A PA R T M E N T M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                                            STRUCTURAL
                                                                                                                                                 DISCOUNT     OVERALL CAP   REPLACEMENT   MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES   VACANCY   RESIDUAL             RATE (IRR)   RATE (OAR)    RESERVE       TIME

                                                                                      MARKET                      TOTAL     CAP        SELLING   FREE &       FREE &        PER
                                                                                      RENT             EXPENSES   VACANCY   RATE       EXPENSE   CLEAR        CLEAR         UNIT          MONTHS




     PENSION EQUITY INVESTOR ✦ Forecast Period: 4 to 7 years
                                                                                      0.0%                        10.0%     8.00%      2.0%      10.00%       8.00%         $250          6
     Uses all three approaches to value; in direct capitization, capitalizes NOI
                                                                                      to               2.0%       to        to         to        to           to            to            to
     after capital replacement reserve; uses a separate FF&E replacement reserve
                                                                                      2.0%                        12.0%     8.50%      3.0%      12.00%       9.00%         $350          9
     of $2,000 to $5,000 per unit.




     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 4 to 8 years
                                                                                      (10.0%)          1.0%       6.0%      5.75%      1.0%      7.50%        5.75%         $150          9
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               to         to        to         to        to           to            to            to
     before capital replacement reserve; does not use a separate structural
                                                                                      0.0%             3.0%       10.0%     9.75%      2.0%      14.00%       10.00%        $300          18
     replacement reserve.




     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 10 years
                                                                                      0.0%                        5.0%      6.50%      1.0%      8.50%        6.00%         $150          6
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               3.0%       to        to         to        to           to            to            to
     before capital replacement reserve; does not use a separate FF&E
                                                                                      3.0%                        10.0%     7.50%      4.0%      9.50%        7.00%         $250          12
     replacement reserve.




     PENSION FUND ADVISOR ✦ Forecast Period: 10 years
                                                                                      (10.0%)                     7.5%      8.00%                8.50%        8.00%         $250          3
     Uses both DCF and direct capitalization; in direct cap, capitalizes NOI
                                                                                      to               2.0%       to        to         2.0%      to           to            to            to
     after capital replacement reserve; buys 150- to 400-unit apartment
                                                                                      (5.0%)                      10.0%     9.50%                10.50%       9.00%         $350          6
     complexes; uses a separate FF&E reserve of $250 to $350 per unit.




     REAL ESTATE ADVISOR ✦ Forecast Period: 5 to 7 years
     Prefers DCF analysis; also uses direct capitalization; in direct cap,            (4.0%)                      6.0%      8.00%      1.0%      9.00%        7.50%         $250          6
     capitalizes NOI after capital replacement reserve; does not deduct               to               3.0%       to        to         to        to           to            to            to
     reserves from NOI before capitalization; does not use a separate FF&E            2.5%                        10.0%     9.00%      2.0%      11.00%       9.00%         $400          9
     replacement reserve.




     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




69
     N AT I O N A L N E T L E A S E M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                          PREFERRED                                  PREFERRED                                                    UNDERLYING
                                                                                          PROPERTY                                   CREDIT                            DISCOUNT     OVERALL CAP   VACANCY &     REPLACEMENT   MARKETING
                                                                                          TYPE             CHANGE RATES              RATING      RESIDUAL              RATE (IRR)   RATE (OAR)    CREDIT LOSS   RESERVE       TIME

                                                                                                                                                                                                                PER
                                                                                                           MARKET                                CAP        SELLING    FREE &       FREE &                      SQUARE
                                                                                                           RENT           EXPENSES               RATE       EXPENSES   CLEAR        CLEAR                       FOOT          MONTH




     PRIVATE INVESTMENT FIRM ✦ Forecast Period: 15 to 20 years                            Office, retail
                                                                                                           0.0%                      B                                 Depends      7.75%                       Does          2
     Primary valuation method is DCF analysis; also uses direct capitalization; in        R&D, industrial,
                                                                                                           to                        to          (1)        (1)        on lease     to                          not           to
     direct cap, capitalizes cash flow after TIs, leasing commissions, and capital        banks,
                                                                                                           3.0%                      AAA                               term         10.00%                      use           12
     replacement reserve; mainly focuses on sale-leaseback deals.                         healthcare




     PRIVATE INVESTMENT FIRM ✦ Forecast Period: 9 to 10 years
                                                                                                           (1.0%)         1.5%       BB          9.50%      2.0%       8.00%        9.00%         0.0%          $0.10         6
     Primary valuation method is direct capitalization; in direct cap, capitalizes        Office,
                                                                                                           to             to         to          to         to         to           to            to            to            to
     NOI before TIs, leasing commissions, and capital replacement reserve; also           industrial
                                                                                                           0.0%           2.5%       A           10.50%     3.0%       9.00%        10.00%        5.0%          $0.20         12
     uses DCF analysis; mainly focuses on net lease transactions.




     PRIVATE INVESTMENT FIRM ✦ Forecast Period: 3 to 5 years
                                                                                          Retail,          0.0%           1.0%       BBB         9.00%                              8.75%         10.0%                       4
     Primary valuation method is sales comparison approach; also uses DCF
                                                                                          office,          to             to         to          to         1.5%       8.00%        to            to            $0.20         to
     analysis; mainly completes net lease sales; in direct cap, capitalizes cash
                                                                                          industrial       1.0%           2.0%       AA          9.50%                              9.00%         20.0%                       6
     flow after TIs, leasing commissions, and capital replacement reserve.




     INVESTMENT ADVISOR ✦ Forecast Period: 3 to 5 years
                                                                                          General-purpose                 1.0%       BBB–        8.00%      2.8%       8.00%        7.75%         3.0%          $0.05         5
     Primary valuation method is direct capitalization; also uses DCF analysis;
                                                                                          office,         0.0%            to         to          to         to         to           to            to            to            to
     in direct cap, capitalizes NOI before TIs, leasing commissions, and capital
                                                                                          warehouse                       3.0%       A           9.00%      3.5%       9.00%        8.75%         5.0%          $0.15         7
     replacements reserve; mainly focuses on net lease sales.




     PRIVATE INVESTOR ✦ Forecast Period: 5 to 10 years                                    Credit retail,   0.0%           1.0%                   8.50%      4.0%       8.50%        8.50%         1.0%          $0.15         4
     Primary valuation method is direct capitalization; in direct cap, capitalizes        restaurant,      to             to                     to         to         to           to            to            to            to
     NOI after capital replacement reserve but before TIs and leasing commissions.        medical          3.0%           4.0%                   10.00%     5.0%       9.50%        9.50%         3.0%          $0.75         6




     (1)   Does not consider any residual value


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




70
     N AT I O N A L M E D I C A L O F F I C E B U I L D I N G S M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                                                                                      DISCOUNT         OVERALL CAP VACANCY                               REPLACEMENT MARKETING
                                                                                      INITIAL-YEAR CHANGE RATES              RESIDUAL                 RATE (IRR)       RATE (OAR)  ASSUMPTIONS                           RESERVE     TIME

                                                                                                                                                                                                           UNDERLYING    PER
                                                                                      MARKET                                 CAP            SELLING   FREE &           FREE &         MONTHS   TENANT      VACANCY &     SQUARE
                                                                                      RENT               EXPENSES   CPI      RATE           EXPENSE   CLEAR            CLEAR          VACANT   RETENTION   CREDIT LOSS   FOOT       MONTHS



                                                                                                                             8.00% to                 8.50% to         8.25% to
     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 7 to 10 years                                                               8.50%                    12.00%           9.00%
     Mainly uses direct capitalization; in direct cap, capitalizes NOI before             1.5%           3.5%       1.0%                    2.0%                                      6        82.5%       5.0%          $0.20      6
                                                                                                                             (on campus);             (on campus);     (on campus);
     TIs, leasing commissions, and capital replacement reserve; uses face rents           to 2.0%        to         to                      to                                        to       to          to            to         to
                                                                                                                             8.50% to                 9.25% to         8.75% to
     and reflects concessions when they are scheduled to occur.                           Years 1 to 3   4.0%       1.5%                    3.0%                                      9        85.0%       12.5%         $0.25      8
                                                                                                                             9.50%                    13.00%           10.00%
                                                                                                                             (off campus)             (off campus)     (off campus)




                                                                                                                             8.50% to                 9.25% to         7.75% to
     REIT ✦ Forecast Period: 10 years                                                                                        9.25%                    10.25%           8.25%
     Uses both DCF analysis and direct capitalization; in direct cap, capitalizes         1.0%           2.0%                (on campus);   1.5%      (on campus);     (on campus);   6        70.0%       5.0%          $0.25      6
     NOI before TIs, leasing commissions, and capital replacement reserve;                to 3.0%        to         3.0%     9.00% to       to        10.00% to        8.25% to       to       to          to            to         to
     expects cap rates to hold steady over the next six months.                           Years 1 & 2    3.0%                10.00%         2.0%      11.00%           9.00%          18       80.0%       10.0%         $0.50      9
                                                                                                                             (off campus)             (off campus)     (off campus)




                                                                                                                             8.00% to                 9.00% to         8.00% to
     REIT ✦ Forecast Period: 1 to 10 years                                                                                   8.75%                    10.00%           9.00%
     Mainly uses DCF analysis; in direct cap, capitalizes NOI before TIs, leasing         0.0%           1.5%       (1.0%)   (on campus);   2.0%      (on campus);     (on campus);   9        60.0%       5.0%          $0.25      4
     commissions, and capital replacement reserve; expects cap rates to hold              to 1.5%        to         to       8.50% to       to        9.50% to         8.50% to       to       to          to            to         to
     steady over the next six months.                                                     Year 1         2.5%       2.5%     10.00%         2.5%      11.00%           10.00%         18       80.0%       8.0%          $0.50      12
                                                                                                                             (off campus)             (off campus)     (off campus)




                                                                                          0.0%                                                                         7.50% to
     REAL ESTATE SERVICE FIRM ✦ Forecast Period: 7 to 10 years                                                               7.75% to                 8.50% to         8.25%
                                                                                          to 2.0%                                                                                                          3.0%          $0.15      4
     Uses all approaches to value; in direct cap, capitalizes NOI after capital                          2.0%       2.5%     8.25%                    9.25%            (on campus);
                                                                                          Year 1;                                                                                              80.0%       to            to         to
                                                                                                         to         to       for both       2.0%      for both         5.00% to       6
     replacement reserve but before TIs and leasing commissions; expects cap              2.0%
                                                                                                         3.0%       3.0%     on campus                on campus                                            5.0%          $0.25      6
     rates to hold steady over the next six months.                                       to 3.0%                                                                      8.25%
                                                                                                                             and off campus           and off campus   (off campus)
                                                                                          Year 2




                                                                                                                             7.50% to                 8.00% to         7.50% to
     PRIVATE REAL ESTATE FIRM ✦ Forecast Period: 3 to 7 years                                                                9.00%                    10.00%           9.00%
     Uses all approaches to value; indirect cap, capitalizes NOI before TIs,              0.0%           2.0%       2.0%                    1.0%                       (on campus);   6        70.0%       5.0%          $0.10      6
                                                                                                                             (on campus);             (on campus);
     leasing commissions, and capital replacement reserve; expects cap rates to           to 3.0%        to         to                      to                         8.00% to       to       to          to            to         to
                                                                                                                             8.50% to                 9.00% to
     hold steady over the next six months.                                                Years 1 & 2    3.0%       3.0%                    3.0%                       11.00%         18       80.0%       10.0%         $0.30      9
                                                                                                                             11.00%                   11.00%
                                                                                                                             (off campus)             (off campus)     (off campus)



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




71
     N AT I O N A L D E V E L O P M E N T L A N D M A R K E T– I N V E S T O R S U R V E Y R E S P O N S E S
     Second Quarter 2010

                                                                                          PROPERTY         ABSORPTION   CHANGE RATES                          DISCOUNT RATE                FORECAST VALUE CHANGE   MARKETING
                                                                                          TYPES            CRITERIA                                           (IRR)                        NEXT 12 MONTHS          PERIOD

                                                                                                                        LOT            DEVELOPMENT            FREE &          SUBJECT TO
                                                                                                           YEARS        PRICES         COSTS           CPI    CLEAR           FINANCING    RANGE                   MONTHS



     DEVELOPER/BROKER
     Primary method of pricing is comparable sales; analysis is prepared subject                           1                           Based on a                                          (15.0%)                 24
     to financing; project size ranges from 3 to 19 acres; value of land currently        95.0%            to                          % of specific   0.0%   12.00%          15.00%       to                      to
     under development totals $4.5 million; development is concentrated in                Industrial       5                           line item                                           (30.0%)                 60
     Northwest suburban Chicago.




     PRIVATE INVESTMENT COMPANY
     Primary method of pricing is DCF; analysis is prepared free and clear of                              6                                                                                                       60
     financing; project size ranges from 400 to 2,000 acres; value of land currently      Master-planned   to           0.0%           0.0%            0.0%   20.00%                       0.0%                    to
     under development is $100 million; prefers Chicago and Florida markets,              single-family    10                                                                                                      144
     Midwest and Phoenix.




     DEVELOPER
     Primary method of pricing is comparable sales; analysis is prepared free and
                                                                                          Industrial                                   % of                   15.00%          15.00%       (10.0%)                 12
     clear of financing; project size ranges from 20 to 250 acres; value of land                           Over
                                                                                          and                                          specific        3.0%   to              to           to                      to
     currently under development totals between $15.0 and $25.0 million;                                   20
                                                                                          commercial                                   revenue                30.00%          30.00%       0.0%                    240
     development is concentrated in the Midwest and Southeast regions of the
     United States.




     DEVELOPER
                                                                                          Single-family/   1                           0.0%                   18.00%                                               12
     Primary method of pricing is DCF; analysis is prepared free and clear of
                                                                                          wetlands         to           0.0%           to              3.0%   to                           0.0%                    to
     financing; project size ranges from 50 to 760 acres; development is
                                                                                          mitigation       5                           5.0%                   24.00%                                               24
     concentrated in Arizona, California and Washington.




     DEVELOPER
     Primary method of pricing is comparable sales; analysis is prepared subject                           1                                                                                                       24
     to financing; value of land currently under development is between $50.0             Residential      to           3.0%           3.0%            3.0%   20.00%          20.00%                               to
     and $100.0 million; development is concentrated in Arizona and                                        5                                                                                                       72
     California.




     DEVELOPER
                                                                                                           6            0.0%                                  20.00%                                               60
     Primary method of pricing is DCF; analysis is prepared subject to financing;
                                                                                          Residential      to           to                                    to                                                   to
     project sizes are between 700 and 8,000 acres; development is concentrated
                                                                                                           10           3.0%                                  25.00%                                               72
     in California, Hawaii, and Arizona.



     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




72
     I N V E S T M E N T A N D P RO P E R T Y C H A R AC T E R I S T I C S : O F F I C E M A R K E T S
     Second Quarter 2010

                                             FORECAST VALUE CHANGE                                                    STRUCTURAL                                          YEARS TO STRUCTURAL         TENANT IMPROVMENT ALLOWANCES (PSF)
                                             NEXT 12 MONTHS                            PRICE AS % OF REPLACEMENT COST VACANCY                                             VACANCY                     NEW DEALS (1)               RENEWAL LEASES

     MARKET                                  RANGE                    AVERAGE          RANGE                      AVERAGE          RANGE                        AVERAGE   RANGE             AVERAGE   RANGE              AVERAGE   RANGE             AVERAGE


     National CBD                            (15.00%) – 10.00%        (0.63%)          50.00% – 100.00%           74.58%           5.00% – 12.50%               8.07%     1–7               3.6       $15.00 – $75.00    $34.15    $7.50 – $30.00    $15.47


     National Suburban                       (40.00%) – 10.00%        (5.09%)          50.00% – 100.00%           79.72%           5.00% – 15.00%               9.80%     0–7               3.4       $0.00 – $80.00     $29.03    $0.00 – $25.00    $13.00


     Atlanta                                 (10.00%) – 5.00%         (3.75%)          50.00% – 100.00%           78.21%           5.00% – 12.00%               9.84%     0–7               2.9       $7.50 – $75.00     $28.61    $5.00 – $35.00    $13.33


     Boston                                  (25.00%) – 10.00%        (7.64%)          50.00% – 110.00%           85.36%           5.00% – 12.00%               8.79%     0–5               2.1       $10.00 – $70.00    $41.61    $5.00 – $25.00    $16.79


     Charlotte                               (20.00%) – 5.00%         (5.88%)          60.00% – 100.00%           83.75%           3.00% – 15.00%               7.60%     2–5               3.5       $5.00 – $45.00     $26.46    $5.00 – $20.00    $11.13


     Chicago                                 (15.00%) – 10.00%        (3.20%)          40.00% – 100.00%           69.72%           8.00% – 15.00%               10.61%    1–5               3.4       $10.00 – $80.00    $43.14    $5.00 – $40.00    $21.67


     Dallas                                  (35.00%) – 0.00%         (8.96%)          50.00% – 100.00%           78.75%           5.00% – 15.00%               9.80%     0–7               2.3       $5.00 – $60.00     $27.33    $8.00 – $25.00    $13.17


     Denver                                  (10.00%) – 10.00%        (0.21%)          10.00% – 100.00%           64.75%           5.00% – 15.00%               11.25%    2–5               3.4       $7.00 – $50.00     $27.46    $2.00 – $25.00    $9.63


     Houston                                 (20.00%) – 5.00%         (3.13%)          40.00% – 110.00%           78.00%           5.00% – 15.00%               8.40%     1–3               1.9       $5.00 – $45.00     $25.63    $2.00 – $20.00    $10.50


     Los Angeles                             (10.00%) – 15.00%        1.88%            50.00% – 100.00%           80.00%           5.00% – 12.00%               8.00%     0–6               2.5       $10.00 – $90.00    $32.43    $5.00 – $25.00    $14.33


     Manhattan                               (5.00%) – 20.00%         5.38%            50.00% – 100.00%           83.75%           5.00% – 12.00%               8.69%     0–5               1.8       $15.00 – $75.00    $48.20    $15.00 – $50.00   $25.63


     Northern Virginia                       (10.00%) – 6.00%         (0.85%)          80.00% – 100.00%           90.50%           6.00% – 15.00%               9.25%     0–3               2.1       $20.00 – $80.00    $43.35    $5.00 – $35.00    $21.80


     Pacific Northwest                       (15.00%) – 10.00%        0.83%            50.00% – 100.00%           73.33%           5.00% – 12.00%               7.13%     2–5               3.5       $15.00 – $100.00   $48.58    $5.00 – $30.00    $16.88


     Philadelphia                            (20.00%) – 3.00%         (4.12%)          50.00% – 100.00%           75.83%           5.00% – 12.50%               8.29%     1–4               2.2       $5.00 – $45.00     $24.75    $5.00 – $20.00    $10.50


     Phoenix                                 (20.00%) – 0.00%         (7.42%)          40.00% – 100.00%           77.83%           5.00% – 15.00%               10.38%    2–5               3.7       $10.00 – $60.00    $34.00    $5.00 – $25.00    $11.45


     San Diego                               (20.00%) – 5.00%         (3.50%)          50.00% – 100.00%           75.50%           5.00% – 25.00%               10.11%    2–7               3.7       $10.00 – $75.00    $29.88    $2.50 – $20.00    $10.55


     San Francisco                           (30.00%) – 20.00%        (1.21%)          40.00% – 100.00%           74.29%           3.00% – 10.00%               7.06%     1–5               3.1       $5.00 – $80.00     $35.95    $0.00 – $30.00    $12.78


     Southeast Florida                       (25.00%) – 4.00%         (5.17%)          40.00% – 100.00%           76.00%           5.00% – 30.00%               10.50%    1–5               2.6       $0.00 – $50.00     $26.54    $5.00 – $35.00    $13.58


     Suburban Maryland                       (20.00%) – 5.00%         (0.83%)          70.00% – 100.00%           87.50%           5.00% – 12.00%               9.14%     0–5               1.9       $10.00 – $85.00    $38.21    $5.00 – $30.00    $19.17


     Washington, DC                          (10.00%) – 10.00%        0.83%            60.00% – 110.00%           88.75%           5.00% – 12.50%               7.33%     0–3               1.0       $20.00 – $80.00    $44.92    $14.00 – $45.00   $25.00

     (1) Includes both second-generation and new space; a breakout of TI allowances is included in the fourth quarter issue of the Survey starting with 4Q09.

     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




73
 I N V E S T M E N T A N D P R O P E R T Y C H A R A C T E R I S T I C S : N AT I O N A L A N D R E G I O N A L M A R K E T S
 Second Quarter 2010

                                     FORECAST VALUE CHANGE              PRICE AS % OF              CLASS-A+ and A MALLS                                   CLASS-B+ and B MALLS                                   STABILIZED
                                     NEXT 12 MONTHS                     REPLACEMENT COST           IRRs                         OARs                      IRRs                        OARs                       OCCUPANCY

 MARKET                              RANGE                 AVERAGE      RANGE            AVERAGE   RANGE              AVERAGE   RANGE           AVERAGE   RANGE             AVERAGE   RANGE            AVERAGE   RANGE                 AVERAGE

 National Regional Mall              (15.00%) – 10.00% 0.00%            65.00% – 100.00% 87.50%    6.75% – 12.00%     9.55%     8.00% – 8.50%   7.34%     8.50% – 14.00%    11.20%    7.50% – 10.50%   9.00%     87.50% – 98.00%       92.82%

 National Power Center               (20.00%) – 15.00% (2.50%)          60.00% – 110.00% 85.00%                                                                                                                  88.00% – 95.00%       92.00%

 National Strip Shopping Center      (15.00%) – 10.00% 0.00%            20.00% – 110.00% 81.88%                                                                                                                  80.00% – 95.00%       91.06%




                                     FORECAST VALUE CHANGE              PRICE AS % OF
                                     NEXT 12 MONTHS                     REPLACEMENT COST           FINISHED SPACE %                                       TIs - 2ND GENERATION SPACE (PSF/UNIT)                  TIs - RENEWAL (PSF/UNIT)
 MARKET                              RANGE                 AVERAGE      RANGE            AVERAGE   RANGE                        AVERAGE                   RANGE                       AVERAGE                    RANGE                 AVERAGE

 National Flex/R&D                   (15.00%) – 5.00%      (1.79%)      60.00% – 100.00% 80.00%    10.00% – 80.00%              40.36%                    $0.00 – $25.00              $10.36                     $0.00 – $12.00        $4.82

 National Warehouse                  (30.00%) – 5.00%      (5.00%)      50.00% – 100.00% 74.81%    0.00% – 20.00%               7.12%                     $0.00 – $10.00              $1.49                      $0.00 – $2.50         $0.63

 Apartment (National)                (25.00%) – 15.00% (2.10%)          60.00% – 110.00% 82.00%

 Apartment (Mid-Atlantic Region)     (20.00%) – 10.00% (3.50%)          60.00% – 125.00% 84.00%

 Apartment (Pacific Region)          (35.00%) – 25.00% (2.86%)          50.00% – 125.00% 80.42%

 Apartment (Southeast Region)        (15.00%) – 15.00% (0.83%)          60.00% – 110.00% 85.00%

 National Net Lease                  (20.00%) – 10.00%     (2.00%)      50.00% – 120.00% 87.92%                                                           $10.00 – $25.00             $27.29                     $2.00 – $20.00        $10.42

 National Medical Office Buildings   (20.00%) – 10.00%     (0.75%)      50.00% – 115.00% 94.29%                                                           $5.00 – $50.00              $19.72                     $2.00 – $50.00        $12.25


 Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




74
             Y I E L D C O M PA R I S O N S
             April 1, 2010
                                                                       2005             2006              2007            2008                 2009            2009        2010        2010
                                                                       AVERAGE          AVERAGE           AVERAGE         AVERAGE              AVERAGE         OCTOBER     JANUARY     APRIL

             Korpacz Yield Indicator (KYI)a                            9.43%            8.81%             8.41%           8.47%                9.49%           9.78%       9.79%       9.69%
             Long-Term Mortgagesb                                      5.57%            6.45%             6.84%           6.50%                7.55%           6.65%       5.90%       6.31%
             10-Year Treasuriesc                                       4.29%            4.76%             4.72%           3.82%                3.09%           3.21%       3.85%       3.89%
             Consumer Price Index Changed                              4.30%            1.32%             3.50%           3.65%                (0.14%)         1.53%       0.94%       2.44%


             SPREAD TO KYI (Basis Points)
             Long-Term Mortgages                                       386              236               157             197                  194             313         389         338
             10-Year Treasuries                                        514              405               369             465                  640             657         594         580
             Consumer Price Index Change                               513              749               491             482                  963             825         885         725
              a. A composite IRR average of the markets surveyed (excluding hotels).
              b. Fixed-rate mortgages; immediate funding. Source: CB Richard Ellis/L.J. Melody Capital Markets; reflects conventional funding, 70% average LTV commercial loans; fixed rates,
                 15-year average term.
              c. Source: Federal Reserve; the annual average change is the mean of the four corresponding quarters.
              d. Source: U.S. Department of Labor; quarterly changes are annualized based on the index change from the prior quarter; the annual average change is the mean of the four corresponding quarters.




              C O M PA R AT I V E Y I E L D S
              April 1, 2010

                    14.0
                                                                                                                                                                                        B        KYI

                    12.0
                                  B         B B B B B B B                                                                                                                               J
                                        B B               B B B                                                B B                                                                               Mortgages
                                                                                                                            B
                    10.0 J              J J                                                                                       B
                                                                                                                                                                                        H
                                                                                                                                                                 B B B
                                                                                                                                                                                                 Treasuries
                                              J                                                                                         B
                                  H     H H J   J J J         J
                                                                                                                                                B
                                                                                                                                                      B B
                                            H                                                                                                                                           F        CPI-U
                          8.0                         J J   J                                                                                                    J
              Yield (%)




                                              H   H H     J                                                     J J                                   J J
                                                      H H     H                                                                                 J                          J
                          6.0                   H                                                                           J J J                                      J
                                          F               H H
                                        F                                                                      H H                              H H
                                            F                                                                                   F
                                                                                                                                H
                          4.0 F                                                                                             H H                       F H
                                                                                                                                                        F              H H
                                                              F                                                               F                                  H
                                              F F
                                                  F F F     F                                                                                                              F
                          2.0                           F                                                      F F F
                                                          F                                                                                     F
                                                                                                                                                                       F
                          0.0                                                                                                                                    F

                      -2.0
                                                                                                                                                                 Ap 10

                                                                                                                                                                         0
                                   88



                                           0


                                                      92



                                                                   4


                                                                                96



                                                                                           98



                                                                                                         00



                                                                                                                     02



                                                                                                                                 04



                                                                                                                                               06



                                                                                                                                                          8




                                                                                                                                                                      01
                                            9




                                                                   9




                                                                                                                                                           0


                                                                                                                                                                       0
                                19



                                         19



                                                    19



                                                                19



                                                                             19



                                                                                         19



                                                                                                      20



                                                                                                                   20



                                                                                                                               20



                                                                                                                                               20



                                                                                                                                                        20


                                                                                                                                                                    -2
                                                                                                                                                                   r-2
                                                                                                                                                                 Jan




              D I V I D E N D C O M PA R I S O N S
              April 1, 2010
                                                                        2005             2006              2007             2008                2009           2009        2010        2010
                                                                        AVERAGE          AVERAGE           AVERAGE          AVERAGE             AVERAGE        OCTOBER     JANUARY     APRIL

              Korpacz Dividend Indicator (KDI)a                         7.94%            7.42%             7.01%            6.99%               8.09%          8.49%       8.42%       8.33%
              Equity REITsb                                             4.75%            4.19%             3.93%            5.07%               6.62%          4.02%       3.73%       3.86%
              S&P 500c                                                  1.71%            1.80%             1.76%            2.19%               2.90%          2.26%       2.01%       1.87%


              SPREAD TO KDI (Basis Points)
              Equity REITs                                              319              323               308              192                 147            447         469         447
              S&P 500                                                   623              562               525              480                 519            623         641         646
              a. A composite OAR (initial rate of return in an all-cash transaction) average of the markets surveyed (excluding hotels).
              b. Source: National Association of Real Estate Investment Trusts; dividend yields are as of the last day of the prior quarter.
              c. Source: Standard & Poors; dividend yields are quarterly yields as of the last day of the prior quarter.




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                                               w w w. p w c . c o m   75
     I N S T I T U T I O N A L- G R A D E V S . N O N I N S T I T U T I O N A L- G R A D E P R O P E R T Y R AT E S
     Second Quarter 2010
                                                           INSTITUTIONAL                                                        NONINSTITUTIONAL – BASIS-POINT SPREAD TO INSTITUTIONAL RATES
                                                           IRRs                                      OARs                       IRRs                                        OARs

     MARKET                                                RANGE                           AVERAGE   RANGE            AVERAGE   RANGE                AVERAGE               RANGE               AVERAGE

     National Regional Mall                                6.75% – 14.00%                  10.04%    5.00% – 10.50%   7.93%     50 – 350             192                   25 – 500            279

     National Power Center                                 8.50% – 12.00%                  9.90%     7.50% – 10.00%   8.70%     NA                   NA                    NA                  NA

     National Strip Shopping Center                        7.00% – 12.50%                  9.46%     7.00% – 11.40%   8.38%     50 – 800             278                   50 – 1,000          303

     National CBD Office                                   6.75% – 12.50%                  9.28%     6.00% – 10.50%   8.15%     (a)                  (a)                   (a)                 (a)

     National Suburban Office                              7.25% – 14.00%                  9.88%     6.00% – 12.00%   8.60%     50 – 250             134                   25 – 300            141

     Atlanta Office                                        7.75% – 14.00%                  10.43%    7.00% – 11.00%   8.94%     50 – 200             125                   25 – 200            92

     Boston Office                                         7.75% – 14.00%                  9.93%     5.75% – 12.00%   8.66%     100 – 1,000          321                   100 – 500           239

     Charlotte Office                                      8.00% – 12.00%                  9.98%     7.00% – 13.00%   9.41%     100 – 400            250                   100 – 200           158

     Chicago Office                                        8.00% – 13.00%                  9.76%     6.00% – 11.00%   8.61%     100 – 600            279                   100 – 300           209

     Dallas Office                                         8.00% – 12.00%                  9.47%     7.00% – 11.50%   8.77%     (a)                  (a)                   (a)                 (a)

     Denver Office                                         7.75% – 15.00%                  10.26%    7.00% – 11.00%   8.40%     (a)                  (a)                   (a)                 (a)

     Houston Office                                        8.00% – 14.00%                  9.68%     7.00% – 12.50%   8.79%     0 – 300              158                   0 – 400             192

     Los Angeles Office                                    7.00% – 12.00%                  9.15%     5.00% – 10.00%   7.71%     100 – 300            183                   50 – 250            158

     Manhattan Office                                      6.00% – 10.00%                  7.98%     5.00% – 8.00%    6.58%     50 – 385             168                   50 – 385            218

     Northern Virginia Office                              6.00% – 11.00%                  8.58%     6.50% – 10.00%   7.85%     (a)                  (a)                   (a)                 (a)

     Pacific Northwest Office                              8.00% – 14.00%                  10.63%    6.00% – 11.00%   8.63%     75 – 500             329                   75 – 500            213

     Philadelphia Office                                   8.50% – 11.00%                  9.69%     7.50% – 11.00%   8.99%     50 – 200             120                   50 – 150            93

     Phoenix Office                                        8.50% – 16.00%                  11.04%    7.00% – 11.00%   9.26%     (a)                  (a)                   (a)                 (a)

     San Diego Office                                      7.50% – 14.00%                  10.05%    7.00% – 11.00%   8.25%     0 – 400              150                   0 – 400             138

     San Francisco Office                                  7.50% – 15.00%                  9.65%     5.75% – 11.00%   7.83%     25 – 500             197                   25 – 400            197

     Southeast Florida Office                              7.00% – 16.00%                  10.22%    7.25% – 14.00%   9.20%     (a)                  (a)                   (a)                 (a)

     Suburban Maryland Office                              7.00% – 11.00%                  8.81%     5.00% – 9.50%    7.86%     (a)                  (a)                   (a)                 (a)

     Washington, DC Office                                 7.50% – 10.00%                  8.17%     6.00% – 8.50%    6.95%     (a)                  (a)                   (a)                 (a)

     National Flex/R&D                                     8.25% – 13.00%                  10.05%    7.50% – 12.00%   9.38%     100 – 500            283                   100 – 400           250

     National Warehouse                                    7.10% – 12.50%                  9.35%     7.00% – 12.00%   8.60%     100 – 500            263                   100 – 300           225

     National Apartment                                    6.25% – 14.00%                  9.89%     5.00% – 11.00%   7.68%     0 – 400              216                   0 – 400             161

     Apartment (Mid-Atlantic Region)                       7.50% – 14.00%                  10.50%    4.50% – 10.00%   7.40%     25 – 500             291                   25 – 400            203

     Apartment (Pacific Region)                            8.00% – 12.50%                  10.04%    5.00% – 9.50%    7.29%     0 – 500              263                   0 – 400             200

     Apartment (Southeast Region)                          7.50% – 14.00%                  10.05%    5.75% – 10.00%   7.93%     25 – 400             271                   25 – 400            204

     National Medical Office Buildings                     8.00% – 13.00%                  10.05%    5.00% – 11.50%   8.53%     100 – 400            240                   50 – 400            185

     (a) Participants are not currently pursuing noninstitutional investments in this market.

     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




76
                            I N C O M E C A P I TA L I Z E D I N D I R E C T C A P I TA L I Z AT I O N
                            Second Quarter 2010
                                                                         METHOD 1 (a)                               METHOD 2 (a)                               METHOD 3 (a)
                            MARKET                                       CURRENT              YEAR AGO              CURRENT              YEAR AGO              CURRENT            YEAR AGO

                           National Retail
                           Regional Mall                                 14.3%                14.3%                 71.4%                71.4%                 14.3%              14.3%
                           Power Center                                  20.0%                16.7%                 80.0%                83.3%                 0.0%               0.0%
                           Strip Shopping Center                         22.2%                42.9%                 55.6%                28.6%                 22.2%              28.6%


                           Office
                           National CBD                                  10.0%                0.0%                  70.0%                87.5%                 20.0%              12.5%
                           National Suburban                             25.0%                30.8%                 50.0%                38.5%                 25.0%              30.8%
                           Atlanta                                       33.3%                20.0%                 66.7%                80.0%                 0.0%               0.0%
                           Boston                                        14.3%                0.0%                  85.7%                100.0%                0.0%               0.0%
                           Charlotte                                     16.7%                20.0%                 83.3%                80.0%                 0.0%               0.0%
                           Chicago                                       11.1%                10.0%                 77.8%                80.0%                 11.1%              10.0%
                           Dallas                                        40.0%                33.3%                 60.0%                66.7%                 0.0%               0.0%
                           Denver                                        33.3%                33.3%                 66.7%                66.7%                 0.0%               0.0%
                           Houston                                       50.0%                40.0%                 50.0%                60.0%                 0.0%               0.0%
                           Los Angeles                                   0.0%                 0.0%                  100.0%               100.0%                0.0%               0.0%
                           Manhattan                                     16.7%                14.3%                 66.7%                71.4%                 16.7%              14.3%
                           Northern Virginia                             50.0%                25.0%                 33.3%                62.5%                 16.7%              12.5%
                           Pacific Northwest                             0.0%                 0.0%                  100.0%               100.0%                0.0%               0.0%
                           Philadelphia                                  40.0%                20.0%                 60.0%                60.0%                 0.0%               20.0%
                           Phoenix                                       42.9%                0.0%                  57.1%                100.0%                0.0%               0.0%
                           San Diego                                     33.3%                0.0%                  66.7%                100.0%                0.0%               0.0%
                           San Francisco                                 0.0%                 10.0%                 100.0%               90.0%                 0.0%               0.0%
                           Southeast Florida                             25.0%                33.3%                 75.0%                66.7%                 0.0%               0.0%
                           Suburban Maryland                             42.9%                33.3%                 42.9%                55.6%                 14.3%              11.1%
                           Washington, DC                                42.9%                55.6%                 42.9%                33.3%                 14.3%              11.1%

                           National Flex/R&D                             0.0%                 12.5%                 100.0%               87.5%                 0.0%               0.0%
                           National Warehouse                            30.8%                23.1%                 61.5%                61.5%                 7.7%               15.4%

                           Apartmentb
                                National                                 65.0%                71.4%                 35.0%                28.6%
                                Mid-Atlantic Region                      83.3%                                      16.7%
                                Pacific Region                           85.7%                                      14.3%
                                Southeast Region                         60.0%                                      40.0%

                           National Net Lease                            28.6%                                      42.9%                                      28.6%

                           National Medical Office Buildings 11.1%                            0.0%                  77.8%                100.0%                11.1%              0.0%

                           Note: Lines may not add to up to 100% due to rounding.

                           a. Method 1: NOI after deducting capital replacement reserve but before deducting TIs (tenant improvements) and leasing commissions.
                              Method 2: NOI before deducting capital replacement reserve,TIs, and leasing commissions.
                              Method 3: Cash flow after deducting capital replacement reserve, TIs, and leasing commissions.
                           b. Method 1: NOI after deducting capital replacement reserve.
                              Method 2: NOI before deducting capital replacement reserve.




                            L O D G I N G I N C O M E C A P I TA L I Z E D I N D I R E C T C A P I TA L I Z AT I O N
                            First Quarter 2010
                                                                         PRIOR 12 MONTHSa                           FORECAST 12 MONTHSb                        BOTHc
                            SEGMENT                                      CURRENT        YEAR AGO                    CURRENT        YEAR AGO                    CURRENT            YEAR AGO

                            Full-Service                                 55.6%                 33.3%                11.1%                55.6%                 33.3%              11.1%
                            Economy/Limited-Service                      60.0%                 66.7%                40.0%                33.3%                 0.0%               0.0%
                            Luxury/Upper-Upscale                         37.5%                 62.5%                50.0%                37.5%                 12.5%              0.0%
                            Extended-Stay                                80.0%                 50.0%                20.0%                50.0%                 0.0%               0.0%

                            Note: Lines may not add to up to 100% due to rounding.

                            a. Percentage of our lodging participants who capitalize the prior 12 months of income in direct capitalization.
                            b. Percentage of our lodging participants who capitalize the next 12 months of income in direct capitalization.
                            c. Percentage of our lodging participants who analyze both the prior 12 months of income and the next 12 months of income in direct capitalization.




P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                                           w w w. p w c . c o m   77
     F O R E C A S T P E R I O D S A N D C H A N G E R AT E S : O F F I C E M A R K E T S
     Second Quarter 2010
                                                                                            MARKET RENT CHANGE RATES                                  EXPENSE CHANGE RATES
                                                          FORECAST PERIOD                   INITIAL YEAR                 FORECAST PERIOD AVERAGE      INITIAL YEAR                FORECAST PERIOD AVERAGE

     MARKET                                               RANGE                   AVERAGE   RANGE              AVERAGE   RANGE              AVERAGE   RANGE             AVERAGE   RANGE             AVERAGE


     National CBD Office                                  5 – 10                  10        (10.00%) – 3.00%   (0.55%)   (3.00%) – 5.00%    2.38%     2.00% – 4.00%     2.85%     2.00% – 3.50%     2.85%


     National Suburban Office                             5 – 10                  9         (20.00%) – 3.00%   (2.15%)   (3.00%) – 4.50%    1.96%     2.00% – 4.00%     2.75%     2.00% – 4.00%     2.96%


     Atlanta Office                                       3 – 10                  7         (5.00%) – 0.00%    (0.44%)   0.00% – 4.00%      2.11%     0.00% – 3.00%     2.31%     1.00% – 3.00%     2.72%


     Boston Office                                        3 – 10                  8         (10.00%) – 1.00%   (2.00%)   0.00% – 4.50%      2.40%     3.00% – 4.50%     3.11%     3.00% – 4.50%     3.11%


     Charlotte Office                                     3 – 10                  7         (4.00%) – 0.00%    (0.50%)   0.00% – 3.00%      1.51%     2.00% – 3.00%     2.75%     2.00% – 3.00%     2.82%


     Chicago Office                                       3 – 10                  8         (10.00%) – 0.00%   (2.39%)   0.00% – 5.00%      3.00%     (5.00%) – 3.00%   1.69%     2.00% – 3.00%     2.94%


     Dallas Office                                        3 – 10                  8         0.00% – 0.00%      0.00%     0.00% – 3.00%      2.01%     3.00% – 3.00%     3.00%     3.00% – 3.00%     3.00%


     Denver Office                                        1 – 11                  7         (20.00%) – 3.00%   (1.58%)   (2.00%) – 5.00%    2.46%     0.00% – 3.00%     2.75%     2.00% – 3.00%     2.92%


     Houston Office                                       2 – 10                  8         (5.00%) – 0.00%    (0.50%)   0.00% – 5.00%      2.38%     2.00% – 3.00%     2.92%     2.00% – 3.00%     2.92%


     Los Angeles Office                                   1 – 10                  9         (5.00%) – 3.00%    (0.50%)   (2.00%) – 5.00%    2.10%     2.00% – 3.00%     2.86%     2.00% – 3.00%     2.86%


     Manhattan Office                                     5 – 10                  9         (10.00%) – 3.00%   (1.42%)   (3.00%) – 15.00%   3.62%     1.00% – 3.00%     2.67%     2.00% – 3.00%     2.83%


     Northern Virginia Office                             5 – 10                  10        (2.00%) – 3.00%    0.20%     2.00% – 3.00%      2.60%     1.50% – 3.00%     2.79%     2.50% – 3.00%     2.96%


     Pacific Northwest Office                             5 – 10                  9         0.00% – 2.00%      0.20%     0.00% – 10.00%     3.76%     2.50% – 3.00%     2.80%     2.50% – 3.00%     2.90%


     Philadelphia Office                                  5 – 10                  8         (10.00%) – 3.00%   (0.58%)   1.50% – 3.00%      2.46%     2.50% – 3.00%     2.94%     3.00% – 3.00%     3.00%


     Phoenix Office                                       3 – 10                  7         (15.00%) – 0.00%   (3.50%)   0.00% – 10.00%     3.08%     0.00% – 3.00%     2.75%     2.00% – 3.00%     2.92%


     San Diego Office                                     1 – 10                  7         (10.00%) – 0.00%   (1.92%)   0.00% – 4.00%      2.28%     0.00% – 3.00%     2.50%     2.00% – 4.00%     2.92%


     San Francisco Office                                 5 – 10                  9         (5.00%) – 3.00%    0.44%     2.00% – 7.00%      4.26%     0.00% – 3.00%     2.56%     2.00% – 3.00%     2.83%


     Southeast Florida Office                             1 – 10                  7         (10.00%) – 3.00%   (0.71%)   (5.00%) – 4.00%    1.23%     1.00% – 3.00%     2.86%     1.00% – 3.00%     2.83%


     Suburban Maryland Office                             3 – 10                  9         (2.00%) – 3.00%    0.49%     (1.00%) – 5.00%    2.29%     0.00% – 3.00%     2.75%     0.00% – 3.00%     2.81%


     Washington, DC Office                                10 – 10                 10        (2.00%) – 3.00%    0.43%     0.00% – 5.00%      2.68%     1.50% – 3.00%     2.82%     2.50% – 3.00%     2.96%


     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




78
     F O R E C A S T P E R I O D S A N D C H A N G E R AT E S : N AT I O N A L A N D R E G I O N A L M A R K E T S
     Second Quarter 2010
                                                                                            MARKET RENT CHANGE RATES                                 EXPENSE CHANGE RATES
                                                          FORECAST PERIOD                   INITIAL YEAR                 FORECAST PERIOD AVERAGE     INITIAL YEAR                FORECAST PERIOD AVERAGE

     MARKET                                               RANGE                   AVERAGE   RANGE              AVERAGE   RANGE             AVERAGE   RANGE             AVERAGE   RANGE             AVERAGE


     National Regional Mall                               5 – 10                  9         (3.00%) – 5.00%    0.58%     (3.00%) – 4.00%   2.27%     0.00% – 4.00%     2.21%     2.00% – 4.00%     2.89%


     National Power Center                                5 – 10                  9         (10.00%) – 3.00%   (0.70%)   1.00% – 5.00%     2.75%     2.00% – 3.00%     2.90%     3.00% – 3.00%     3.00%


     National Strip Shopping Center                       4 – 10                  9         0.00% – 3.00%      0.50%     0.00% – 3.00%     1.81%     1.00% – 4.00%     2.89%     2.00% – 4.00%     3.07%


     National Flex/R&D                                    4 – 12                  9         (2.00%) – 3.00%    0.07%     0.00% – 4.00%     2.31%     1.00% – 3.00%     2.86%     1.00% – 3.00%     2.86%


     National Warehouse                                   5 – 10                  9         (10.00%) – 3.00%   (0.44%)   0.00% – 4.00%     2.31%     1.00% – 3.00%     2.56%     0.00% – 3.00%     2.71%


     Apartment (National)                                 1 – 10                  8         (10.00%) – 3.00%   (0.49%)   (2.00%) – 5.00%   2.26%     0.00% – 4.00%     2.38%     0.00% – 3.50%     2.70%


     Apartment (Mid-Atlantic Region)                      4 – 10                  7         (5.00%) – 2.00%    (0.58%)   1.00% – 5.00%     3.00%     1.00% – 3.00%     2.58%     1.00% – 3.00%     2.67%


     Apartment (Pacific Region)                           5 – 10                  8         (5.00%) – 2.50%    (0.79%)   1.00% – 5.00%     2.64%     2.00% – 3.00%     2.68%     2.00% – 3.00%     2.82%


     Apartment (Southeast Region)                         2 – 10                  6         (10.00%) – 3.00%   (1.79%)   0.00% – 4.00%     2.25%     1.00% – 3.00%     2.43%     0.00% – 3.00%     2.67%


     National Net Lease                                   3 – 20                  8         (1.00%) – 7.00%    1.50%     1.00% – 15.00%    3.65%     1.00% – 7.00%     2.80%     1.00% – 3.00%     1.69%


     National Medical Office Buildings                    1 – 10                  7         0.00% – 3.00%      0.94%     0.00% – 3.00%     1.80%     1.50% – 4.00%     2.64%     2.00% – 5.00%     2.88%

     Source: Personal survey conducted by PricewaterhouseCoopers LLP during April 2010.




79
            Definitions
            GENERAL                                                  property expenses (including real estate
                                                                     taxes). In direct capitalization, investors
                                                                                                                                 tenant lease
                                                                                                                                 Tenant Retention
                                                                     capitalize one of the following:
            BASIS POINT                                                                                                          Percentage of leased rentable area that is
            1/100th of a percentage point (0.01%)                    1. NOI after capital replacement reserve                    expected to be released by the existing
                                                                        deduction but before TIs and leasing                     tenants at lease expiration
            CHANGE RATE                                                 commissions
            Annual compound rate of change                                                                                       Underlying Vacancy/Credit Loss
                                                                     2. NOI before capital replacement reserve                   Percentage of total revenue uncollected
            DISCOUNT RATE (IRR)                                         deduction, TIs, and leasing commissions                  due to unexpected vacancy or credit loss
            Internal rate of return in an all-cash transac-                                                                      (in addition to any rent loss from vacan-
                                                                     3. Cash flow after capital replacement                      cies at lease expirations)
            tion, based on annual year-end compound-
                                                                        reserve deduction, TIs, and leasing com-
            ing
                                                                        missions
            EXCESSIVE TENANT IMPROVEMENT
                                                                     OVERALL CAPITALIZATION RATE
                                                                                                                               APARTMENT
            ALLOWANCE3
                                                                     Initial rate of return in an all-cash transac-
            The amount by which an awarded tenant                                                                              NET OPERATING INCOME
                                                                     tion; the overall cap rates reported in this
            improvement allowance exceeds that                                                                                 (APARTMENT NOI)
                                                                     Survey reflect investors' expectations of
            which is typical for the market                                                                                    Income remaining after deduction of all
                                                                     property performance and are applied to
                                                                                                                               property expenses (which includes leasing
            FORECAST PERIOD1                                         one of the three net operating income lev-
                                                                                                                               commissions); in direct capitalization, in-
            A presumed period of ownership; a period                 els noted above.
                                                                                                                               vestors capitalize one of the following:
            of time over which expected net operating
                                                                     RENT SPIKE                                                1. NOI after capital replacement reserve
            income is projected for purposes of analysis
                                                                     An increase in market rent that is markedly
            and valuation                                                                                                      2. NOI before capital replacement reserve
                                                                     higher than the general rate of inflation
            INSTITUTIONAL-GRADE REAL ESTATE                                                                                    3. Cash flow after capital replacement re-
                                                                     REPLACEMENT COST1                                            serve
            Real property investments that are sought
                                                                     The cost of construction, at current prices,
            out by institutional buyers and have the
                                                                     of a building having utility equivalent to                GARDEN APARTMENT1
            capacity to meet generally prevalent insti-
                                                                     the building being appraised but built with               Development consisting of two- to three-
            tutional investment criteria
                                                                     modern materials and according to current                 story structures built in a garden-like set-
            KORPACZ DIVIDEND INDICATOR                               standards, design, and layout                             ting with an abundance of lawn, plants,
            (KDI)                                                                                                              flowers, etc.; customarily located in the
                                                                     RESERVE
            A composite OAR average of the surveyed                                                                            suburbs or rural-urban fringe.
                                                                     Amount allocated for periodic replacement
            markets excluding lodging
                                                                     of building components during a property’s                HIGH-RISE APARTMENT5
            KORPACZ YIELD INDICATOR (KYI)                            economic life                                             Multifamily housing development consist-
            A composite IRR average of the surveyed                                                                            ing of at least four stories.
                                                                     RESIDUAL
            markets excluding lodging and develop-
                                                                     Estimated total price at conclusion of fore-              MID-ATLANTIC REGION
            ment land
                                                                     cast period                                               As per NCREIF, includes the states of
            MARKETING TIME                                             Cap Rate                                                Delaware, Maryland, Virginia, North
            The period of time between the initial                     Overall capitalization rate used in calcula-            Carolina, and South Carolina, as well as
            offering of a property for sale and the clos-              tion of residual price; typically applied to            Washington, DC
            ing date of the sale                                       the NOI in the year following the forecast
                                                                                                                               PACIFIC REGION
            MEDICAL OFFICE BUILDING (MOB)                              Selling Expense                                         As per NCREIF, includes the states of
            A multitenant office building containing                   Transaction expenses (legal, brokerage,                 Washington, Oregon, and California
            physicians' offices and exam rooms, and in                 marketing, etc.) paid by the seller
                                                                                                                               SOUTHEAST REGION
            some cases pharmacies and ancillary hos-                                                                           As per NCREIF, includes Alabama,
            pital-service space to conduct outpatient
                                                                     SHADOW SPACE
                                                                                                                               Arkansas, Florida, Georgia, Mississippi,
                                                                     Space within an occupied office suite that
            services, such as diagnostic testing, reha-                                                                        and Tennessee
                                                                     is not currently utilized by a tenant and is
            bilitation, and day-surgery operating proce-
                                                                     also not being marketed for subleasing
            dures. MOBs are different from general
            office buildings since they typically require            STRUCTURAL VACANCY                                        DEVELOPMENT LAND
            more plumbing and electrical and mechan-                 Normal vacancy rate in a balanced market
            ical systems to accommodate equipment                                                                              DEVELOPMENT LAND
            unique to medical practices                              VACANCY ASSUMPTIONS                                       Land that has been purchased, readied for
                                                                       Months Vacant                                           subdivision development (i.e. entitlements
            NET OPERATING INCOME (NOI)                                 The number of months a space remains                    and infrastructure), and subsequently sold
            Income remaining after deduction of all                    unleased at the expiration of a vacating                to builders


                                                         1
            Various sources for these definitions include The Dictionary of Real Estate Appraisal, Third Edition, published by The Appraisal Institute,
            2                                             3                  4                              5
             International Council of Shopping Centers, investor interviews, Smith Travel Research, and National Multi Housing Council.



P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                               w w w. p w c . c o m   80
            DEVELOPER’S PROFIT1                                       LUXURY LODGING
            A market-derived figure that reflects the                 High-quality lodging offering personalized                RETAIL
            amount a developer expects to receive for                 guest services, typically with extensive
                                                                      amenities; upper-tier pricing; includes four-
                                                                                                                                FORTRESS MALL
            his or her contribution to a project
                                                                                                                                The dominant performing Class-A+ malls in
                                                                      and five-star resorts; includes luxury and
                                                                                                                                the country whose inline stores generate at
                                                                      upper-upscale chain segments
            INDUSTRIAL                                                MANAGEMENT FEE
                                                                                                                                least $450 per square foot in retail sales;
                                                                                                                                they contain inline and anchor stores that
            FLEX/R&D3                                                 An expense item representing the sum paid                 are both well established and unmatched in
            An industrial property with 14- to 20-foot                for or the value of management service,                   the trade area
            clear ceiling heights, up to 100.0% finished              including incentives, expressed as a per-
                                                                      centage of total revenues
                                                                                                                                LIFESTYLE CENTER2
            office space including lab and clean-room                                                                           Most often located near affluent residential
            space (up to 60.0% finished office space                                                                            neighborhoods, this center type caters to
            excluding lab and clean-room space), and
                                                                      NET OPERATING INCOME
                                                                      (LODGING NOI)                                             the retail needs and “lifestyle” pursuits of
            dock-high and/or grade-level loading used                                                                           consumers in its trading area. It has an
            for minimal distribution, research and                    Income remaining after deduction of all
                                                                      property expenses: in direct capitalization,              open-air configuration and typically
            development, and specialized office space                                                                           includes at least 50,000 square feet of
                                                                      investors capitalize one of the following:
            WAREHOUSE3                                                                                                          space occupied by upscale national chain
                                                                      1. Prior 12 months                                        specialty stores. Other elements, such as
            An industrial property with 16- to 30-foot
            clear ceiling heights, up to 15.0% finished               2. Forecast next 12 months                                restaurants and entertainment, design ambi-
            office space, and dock-high loading facilities                                                                      ence and amenities like fountains and street
                                                                      3. Both of the above                                      furniture, make the lifestyle center serve as
            used for the storage and distribution of goods
                                                                                                                                a multi-purpose leisure-time destination.
                                                                      OCCUPANCY4
                                                                                                                                One or more conventional or fashion spe-
                                                                      Rooms sold divided by rooms available
            LODGING                                                                                                             cialty department stores often act as anchors.
                                                                      OPERATING EXPENSES
                                                                                                                                OUTLET CENTER2
            AVERAGE DAILY RATE (ADR)4                                 The ongoing expenditures incurred during
                                                                                                                                Consist mostly of manufacturers’ outlet
            Room revenue divided by rooms sold                        the ordinary course of business necessary to
                                                                                                                                stores selling their own brands at a dis-
                                                                      maintain and continue the production of
            CHAIN SCALE LODGING SEGMENTS4                                                                                       count. Usually located in rural or occasion-
                                                                      gross revenues, not including reserves, debt
            Based on the actual, system-wide average                                                                            ally in tourist locations. A strip configura-
                                                                      service, and capital costs
            room rates of the major chains, the five                                                                            tion is most common, although some are
            chain scale segments include luxury, upper-               PROFPAR                                                   enclosed or arranged in a “village” format.
            upscale, upscale, midscale with food and                  Profit per available room
                                                                                                                                POWER CENTER 2,3
            beverage, midscale without food and bever-
                                                                      PROPERTY EXPENSES                                         An open center dominated by at least
            age, and economy. Independent hotels are
                                                                      Includes all necessary operating expenses                 75.0% large big-box anchors, including dis-
            included as a separate category.
                                                                      and a reserve for replacement of building                 count stores, warehouse clubs, and value-
            ECONOMY/LIMITED-SERVICE                                   components and FF&E                                       oriented category stores; a minimal amount
            LODGING                                                                                                             of inline store space
            Lodging with “rooms only” operation and                   RESERVE FOR REPLACEMENT
                                                                      An allowance that provides for the periodic               REGIONAL MALL2,3
            no food and beverage except possibly con-
                                                                      replacement of building components, and                   An enclosed shopping center that contains
            tinental breakfast; lower-tier pricing
                                                                      furniture, fixtures, and equipment, which                 at least two department stores and has cli-
            EXTENDED-STAY LODGING                                     deteriorate and must be replaced during the               mate-controlled walkways that are lined
            Lodging with rooms that generally include                 building’s economic life                                  with smaller retail shops
            work stations with two-line phones, access
                                                                      REVPAR                                                    REGIONAL MALL CLASSIFICATIONS3
            to fax machines; mid- and upper-price
            lodgings include kitchenettes, separate                   Revenue per available room                                Class                 Inline Retail Sales PSF
            lounging area; weekly rates                                                                                         A+                    $600 and up
            FULL-SERVICE LODGING                                      NET LEASE                                                 A                     $450 to $599
            Lodging with restaurant and lounge facili-
                                                                      PROVISION 1031                                            B+                    $350 to $449
            ties, meeting space, and a minimum service
            and amenities level; moderate to lower up-                A tax code that allows the seller of an in-               B                     $250 to $349
            per-tier pricing; includes all-suite lodgings;            vestment property to defer capital gains
                                                                      taxes by exchanging the sale proceeds for                 C                     Less than $250
            includes upscale and midscale-with-food-
            and-beverage chain segments                               an investment in a similar property or prop-
                                                                      erties within 180 days of the original closing            STRIP SHOPPING CENTER2,3
            GROSS ROOMS REVENUE MULTI-                                                                                          An open row of stores either with or with-
            PLIER (GRRM)                                              SALE-LEASEBACK                                            out anchor stores that offer convenience
            The relationship, or ratio, between sale                  A transaction in which an owner sells a                   (neighborhood centers) and general mer-
            price and gross rooms revenue                             property that it fully occupies to a third                chandise (community centers)
                                                                      party and then leases the space back from
                                                                      the new owner

                                                         1
            Various sources for these definitions include The Dictionary of Real Estate Appraisal, Third Edition, published by The Appraisal Institute,
            2                                             3                  4                              5
             International Council of Shopping Centers, investor interviews, Smith Travel Research, and National Multi Housing Council.



P R I C E WAT E R H O U S E C O O P E R S L L P                                                                                                                w w w. p w c . c o m   81
REAL ESTATE INVESTOR SURVEY
                                                             I NDEX     OF    VALUATION I SSUES
VOL. 23, NO. 2
Second Quarter 2010                                          TOPIC                                          QUARTER COVERED
Korpacz Real Estate Investor Survey®                         Buyers vs. Sellers                              Third
is published quarterly by
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professional services. If such services or other expert      TOPIC                                          QUARTER DEBUTED
assistance are required, the services of a competent         Domestic Self-Storage Market                   Second 2005
professional person should be sought.
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This publication, as well as its content, is the property
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cated or distributed in part or in whole without the
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given to PricewaterhouseCoopers Korpacz Real Estate          Institutional-Grade Real Estate                Second 1994
Investor Survey®.
                                                             Investment Sales                               Second 2009
Survey Process: Survey participants represent a cross
section of major institutional equity real estate            Medical Office Space                           Fourth 2007
investors who invest primarily in institutional-grade        Net Lease Market                               First 2000
property. As such, the information presented is not
generally applicable to noninstitutional-grade invest-       October 11, 2001*                              2001
ments. In addition, the information represents
investors’ investment expectations and does not reflect      Power Centers                                  Third 1995
actual property performances.                                Real Estate Value Cycles                       First 2000
The information in this survey is gathered through on-       Regional Mall Market                           Second 1996
line questionnaires and telephone interviews. As such,
the findings and opinions expressed reflect those of our     REITs                                          Second 1998
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represent that the survey is statistically accurate, its     Retail: The Perfect Storm, or More Hot Air?    Second 2009
results provide important insight into the thinking of a
significant portion of the equity real estate marketplace.   Self Storage Industry                          First 2003

Investor Survey Responses: The individual investor           Senior Housing Industry                        First 2009
responses contained in the large tables in the back of
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constraints, not all responses are included.                 *16-page supplement following 9/11
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