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CCIM PresentationFebruary 4, 2009
Market OverviewPresented By:W. Grant Norling
Jeff Grose, MAI
Steven L. Waugh
PGP Valuation, Incwww.pgpinc.com
Commitment to Values
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The Housing Market
Steve Waugh
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Industrial & Office MarketsJeff Grose, MAI
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Industrial Market Overview
Slowing economy has and will continue to shape the
market
Hangover sales volume off 60-80%
Market participants frozen in light of economic turmoil
2009 will see softening in rents and increase in cap rates
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Industrial Market Overview
Period Market Submarket Market Submarket
2003 206,479,984 13,943,125 11.0% 11.1%
2004 207,813,591 14,367,305 9.1% 9.4%
2005 208,936,088 14,837,005 7.8% 8.5%
2006 211,459,670 15,538,355 6.3% 5.3%
2007 215,011,836 16,510,776 5.0% 5.0%
Q1 2008 216,041,306 16,836,510 5.6% 9.0%
Q2 2008 216,925,883 17,567,392 6.1% 12.5%
Q3 2008 216,912,451 17,567,392 6.2% 11.8%
Q4 2008 217,071,293 17,567,392 6.3% 12.0%
2008 YTD 217,071,293 17,567,392 6.0% 11.3%
Period Market Submarket Market Submarket
2003 $0.38 $0.37 3,942,713 865,367
2004 $0.38 $0.38 4,988,711 459,598
2005 $0.39 $0.40 4,016,319 639,813
2006 $0.38 $0.41 4,596,790 1,236,093
2007 $0.42 $0.40 4,797,566 394,386
Q1 2008 $0.45 $0.42 65,229 -7,743
Q2 2008 $0.45 $0.42 -226,048 57,192
Q3 2008 $0.46 $0.44 -238,621 122,280
Q4 2008 $0.46 $0.45 9,118 -29,627
2008 YTD $0.46 $0.43 -390,322 142,102
Source: CoStar Property NNN = Triple Net Y-T-D = Year-to-Date
Portland Market & Columbia Corridor East Submarke t (Industrial)
SUPPLY VACANCY
AVERAGE ASKING RENT PSF/MO. (NNN) NET ABSORPTION
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Industrial Construction Portland Market
Completed Construction 1st Qtr. 2008:1,136,378 SF
Completed Construction 2nd Qtr. 2008:1,134,520 SF
Completed Construction 3rd Qtr. 2008: 0 SF
Completed Construction 4th Qtr. 2008:478,184 SF
Under Construction 1st Qtr. 2009: 916,345 SF
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What does it mean?
Rents Softening
Concessions?
Pressure on landlords
to retain roll-overtenants
Sales Difficulty obtaining
financing
Buyers and sellerswill not see eye to
eye in the first half2009
Transaction volumewill continue to be
low
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Cap Rates
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Acquisition FinancingSource: Real Capital Analytics
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Industrial Market Trends / Forecast
Leasing Economic conditions will continue to limitnew tenants entering the market and existing
tenants expanding. Cap Rates Rising. Risk factors will be considered
to a much greater degree than in the past.
Overall The market needs credibility. Once faithis restored in financial markets, stock market, and
economy, transactions (sales and leases) canresume. The lack of new supply coming on lineshould ease the effects of the current slow downand provide for a quick rebound when the economyimproves.
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Office Market
Like the industrial sector, the office market is
feeling the effects of the recession New construction has been moderate in 07/08
which is softening the negative impacts for2009
Market participants frozen in light ofeconomic turmoil
2009 will see softening in rents and increase incap rates
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Office Market All
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Portland Office Vacancy, Q4-2008
Central Business District: 7.8%
Class A: 5.1%
Class B: 11.4%
Class C: 11.3%
Net absorption for the CBD at +371,701 for 2008. Overallmarket also saw positive net absorption. This is due tolimited new construction.
Overall Portland market has 1,383,398 SF underconstruction with deliveries in 2009.
With slow economy and large amount of new product,vacancies will rise and there will be pressure on landlords
to retain tenants.
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Overall Cap RatesSource: Korpacz Real Estate Investors Survey, Q4 2008
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Regional Retail Market2008 Overview & Forecast
Grant Norling, Retail Manager
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Retail DemandVacancy Rates & Absorption Trends:
Year Absorption (SF) Vacancy1999 506,141 5.0%
2000 979,766 6.0%
2001 342,886 6.7%
2002 375,920 5.4%
2003 242,709 4.3%
2004 2,461,489 4.3%2005 808,981 4.7%
2006 46,584 4.8%
2007 1,100,000 4.9%
2008 339,774 5.8%
Total 9,476,332
Source: Norris Beggs & Simpson Retail Market Report
Portland Metro Retail Demand
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Retail Demand 2008 90 basis point increase in vacancy
Largest change since 2000
2009 Likely first (-) negative absorption in over a decade
More national tenants go dark
Local and regional tenants struggle in harsh economy
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Portland Metro: Where is the Vacancy?
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Portland Metro: Where is theVacancy?
Former Tenant City Sq. Ft.
Mervyns Vancouver 82,225
Linens N' Things Portland 40,160
Linens N' Things Portland 35,000Linens N' Things Beaverton 45,000
Linens N' Things Tanasbourne 38,410
Levitz Clackamas 34,103
Levitz Tigard 40,041
Wickes J antzen Beach 51,350
Shoe Pavilion Portland 17,505Shoe Pavilion J antzen Beach 19,909
Shoe Pavilion Beaverton 16,500
Total 420,203Source: New & Neville Real Estate Services
Vacant Box Spaces
Represents 1% of +/- 42 Million SF metro wide
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Portland Metro: Soon to be Vacant
Former Tenant Location Sq. Ft.Circuit City Gateway 37,857
Circuit City J antzen Beach 37,360
Circuit City Washington Square 37,000
Circuit City Clackamas 37,000
Circuit City Salem 37,000 Total Source: CoStar
Vacant Box Spaces
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2008 US Store Closings
Many spaces go dark in 2008 ICSC estimates 6,100 retail chain stores exited in 2008
nation wide
Retailer Status Stores Closed
Ann Taylor Re-Structuring 117
Banana Republic Re-Structuring 25
Circuit City Chapter 11 721
Disney Stores Chapter 11 98Foot Locker Re-Structuring 60Linens 'N Things Chapter 11 371
Macy's Re-Structuring 11
Mervyn's Chapter 7 149
Pacific Sunware Re-Structuring 154
Phillips-Van Heusen Re-Structuring 175
Sharper Image Chapter 11 96Starbucks Re-Structuring 600Wilson's Leather Chapter 11 103
Zales J ewelers Re-Structuring 105
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Investment Grade Sales Retail CAP Rates - OR
Year
Type of
Center
CAP Rate
Range
Average
CAP Rate
2002 Strip 8.3 - 10.8% 9.6%
Anchored 7.9 - 9.5% 8.9%
All Centers 7.9 - 10.8% 9.2%
2003 Strip 8.0 - 9.6% 8.8%Anchored 7.0 - 9.5% 8.7%
All Centers 7.9 - 9.6% 8.7%
2004 Strip 6.5 - 8.9% 7.6%
Anchored 7.0 - 9.4% 7.6%All Centers 6.5 - 9.4% 7.6%
2005 Strip 6.4 - 7.8% 7.1%
Anchored 5.9 - 8.6% 7.2%All Centers 5.9 - 8.6% 7.1%
2006 Strip 5.5 - 10.1% 6.9%
Anchored 5.7 - 7.7% 6.7%All Centers 5.5 - 10.1% 6.8%
2007 Strip 5.8 - 8.1% 6.8%
Anchored 6.2 - 7.3% 6.7%
All Centers 5.8 - 8.1% 6.8%
2008 Strip 6.5 - 7.0% 6.7%
Anchored 6.5 - 7.6% 7.0%
All Centers 6.5 - 7.6% 6.9%Source: PGP Valuation, Inc. Database
Notes
End 07 MarketTurns
08 Caps 10 bps
08 Sales Volume 75% compared to07
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National OAR Averages - Strip Centers
7.3
4%
7.20%
7.2
4%
7.2
8%
7.3
2%
7.3
3%
7.4
9%
7.05%
7.10%7.15%
7.20%
7.25%
7.30%
7.35%7.40%
7.45%
7.50%
7.55%
2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08
Source: Korpacz Strip Shopping Center
Notes
3Q07 Market Turns
4Q08 Caps 16 bps
46 bps projectedthrough 2Q09
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National OAR Averages - Power Centers
7.
06%
7.00
% 7.1
3%
7.1
3%
7.1
7%
7.1
7%
7
.57%
6.70%
6.80%
6.90%
7.00%
7.10%
7.20%
7.30%
7.40%
7.50%
7.60%
7.70%
2Q-07 3Q-07 4Q-07 1Q-08 2Q-08 3Q-08 4Q-08
Source: Korpacz Power Center
Notes
3Q07 Market Turns
4Q08 Caps 40 bps
58 bps projectedthrough 2Q09
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Investment Sales 2008 Retail Sales
Category Anchored Strip Other*
Size
Low 40,800 12,000 1,690
High 78,292 27,710 14,820
Average 53,306 16,465 5,264Sale Price
Low $6,925,000 $1,575,000 $625,000
High $16,762,867 $6,200,000 $7,300,000
Average $12,165,717 $4,018,250 $2,607,479
Sale Price/SF
Low $170 $131 $191
High $322 $347 $835Average $226 $248 $528
Cap Rates
Low 6.5% 6.5% 6.0%
High 7.6% 7.0% 8.5%
Average 7.0% 6.7% 7.2%Source: PGP Valuation, Inc. Database *Fast food, freestanding & NNN
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SelectedSales
Price: $8,600,000Price/SF: $204NRA: 42,129 SFDate: 2/28/2008Cap Rate: 7.39%Anchors: Kmart and Albertsons Shadow AnchoredComments: This is the sale of the strip-center component of an
approximate 200,000 SF community shoppingcenter
Berryhill RetailCenter
Oregon City, OR
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SelectedSales
Price: $16,762,867Price/SF: $322NRA: 52,001 SFDate: 10/10/2008Cap Rate: 6.75%Anchors: AlbertsonsComments: Property was never on market and was sold after a
private party made an offer
LowriesMarketplace
Wilsonville, OR
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SelectedSales
Price: $16,375,000Price/SF: $209
NRA: 78,292 SFDate: 8/28/2008Cap Rate: 7.57%Anchors: Petco, Barnes & Noble and RossComments: Sale of the center across the street from the ValleyRiver Mall. Perceived risk of anchor tenant rents appliedupward pressure to cap rate.
Valley River North
Eugene, OR
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Total Market-$18.49Mall-$25.75Shopping Center-
$19.61
General Retail-$17.14
Specialty Center-$32.00
Power Center-$16.38
PortlandMetro
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2008 YTD Summary
Vacancy rates increasing
Cap rates increasing
New construction stagnant
Retail rents softening
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2009 Projections
2009 lowest amount of new space delivered in a decade New construction will grind to a halt
The 1st & 2nd quarters will give perspective as to the depthand length of the problems retail landlords will face as post-holiday store closures are fully realized Power and regional centers likely to take the biggest hit Healthy retailers in 2009 will be able to take advantage of the
market; more so than perhaps at any time since the recession
of the early 1990s Slightly greater investment sales volume compared to 08
Savvy investors will capitalize on overleveraged ownersmisfortunes
Cap rates from 7-8+%; more cap rates >8% than
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