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A Review of

Commercial Real Estate

In the 21st Century

By: John Boyer

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© 2010 Coldwell Banker Commercial Affiliates. A Realogy Company. All Rights Reserved. Coldwell Banker Commer-

cial Affiliates fully supports the principles of the Equal Opportunity Act. Each Office is Independently Owned and

Operated. Coldwell Banker Commercial, the Coldwell Banker Commercial Logo are registered (or unregistered)

service marks licensed to Coldwell Banker Commercial Affiliates. Information was provided by sources deemed

reliable. The views express herein this document do not represent the views of the Coldwell Banker Commercial

organization.

Over the first decade in the 21st century, there were several key events / factors that

had a major impact on the commercial real estate business. This document examines

the following topics:

General Commercial Real Estate…..3

Dot-Com Bubble…..4

September 11, 2001…..5

Base Realignment and Closure 2005….6

The ―Prosperous Times‖…..7

Credit Crunch & Housing Market…..8

Technology’s Effect…..9

Individual Property Types…..10-17

Vacancies

Transactions

Cap Rates

Volume

Price / SF

Absorption

What has Changed…..18

What the Future Holds?.....19

About Coldwell Banker Commercial..20

Table of Contents

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Commercial Real Estate in the 2000s

About this Document

To say the least, the first decade of the 2000s was a very interesting era in commercial real estate. It was unlike any preceding

decade and will go down in history as a benchmark. The industry has drastically changed over the last 10 years and this document

will examine some of the major challenges the industry faced. There is a subsequent PDF timeline available for visual reference.

By no means does this cover everything that happened during this time period, but it will look at the major events and the impact on

commercial real estate.

Change in Prices over the Decade1

The chart below highlights the change in price of some common items over the decade. Interesting to note the significant increase

in prices related to a declining household income.

See More: www.walletpop.com/blog/2009/12/29/then-vs-now-how-prices-have-changed-since-1999/

As for commercial real estate, as the charts in the later part of the document indicate, across all sectors, sales and prices rose for

eight straight years, followed by two very down years. To say the least, this decade was a very intriguing time for commercial real

estate.

Industry Happenings

During the early part of the 21st century, mergers and acquisitions

are the key words that come to mind. Several firms either merged

or were acquired by others, causing the commercial real estate

market share to shift dramatically.

CBRE acquired Insignia

CBRE acquired Trammel Crow

Spaulding & Slye merged with Jones Lang LaSalle (JLL)

Staubach merged with Jones Lang LaSalle (JLL)

Oncor International was purchased by Realogy Corporation

Equity Office Property Trust (the largest owner of office

buildings in the US) was acquired by Blackstone Group

Colliers International and First Services Real Estate Advisors

join to become known as Colliers International.

Colliers Turley Martin Tucker, Cassidy & Pinkard Colliers, Colliers Pinkard, Colliers ABR, BT Commercial, BRE Commercial, and

Colliers Houston rebrand as Cassidy Turley.

Now, lets take a look at the first major event that effected Commercial real estate in the 2000s: the Dot-Com bubble.

Item 2000 2009 % Change

Car (Toyota Corolla base) $17,518 $19,395 11%

Average Income per year $40,343 $39,423 (-1%)

Average Monthly Rent $675 $780 13%

Average Cost of a gallon of Gas $1.26 $2.56 49%

US Postage Stamp 33 cents 44 cents 25%

Loaf of Bread $1.72 $2.49 31%

Dozen Eggs 89 cents $1.37 35%

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Dot-Com Bubble

Dot-Com Bubble

The first decade of the 2000s started off with a bang, or ―BURST‖ that is.

After Netscape launched the first successful Internet browser in the

early 90s, the Internet industry exploded and a period began that is

now known as the ―Dot-Com‖ bubble. Hundreds of start-up internet

companies or ―dot-coms‖ popped up and thousands of jobs were

formed. Venture capital flowed into the new companies and investors

bought up stocks in companies that were highly over-valued, and a

number of dot-com millionaires were born.

Many of these companies engaged in unusual business practices with

the hopes of dominating the market. The mantra was growth over

profit, assuming that if they built up their customer base, their profits

would rise as well. At the height of the boom, it was possible for a

promising dot-com to make an initial public offering (IPO) of its stock

and raise a substantial amount of money, even though it had never

made a profit.

Investors responded to daring business practices with money; lots of

it. The US stock market rose dramatically during the this period, with

hundreds of companies being founded weekly, especially in tech hot

spots like the Silicon Valley near San Francisco. Some companies

engaged in lavish internal spending, such as elaborate business

facilities and luxury vacations for employees.

Then the bubble burst in March of 2000. Investors began selling off

stock in large quantities, putting the market into a precipitous fall for

the next two years until it finally bottomed out. Billions of dollars

vanished and thousands lost their jobs. 2 Follow the complete timeline

Commercial Real Estate Effect

Cities all over the US sought to become the "next‖ Silicon Valley by

building network-enabled office space to attract Internet

entrepreneurs. There was false demand for commercial real estate

that was fueled by the dot-com companies and their insatiable

appetite for growth. Many professionals achieved great success

quickly moving tenants into 100,000 SF facilities — much of which

was unneeded space.

In the beginning of the bubble, Data Centers — facilities housing

computers, servers, telecommunications and storage equipment, and

systems to backup and protect data, power and cooling systems —

were the popular purchase. When the bubble burst, much of these

Data Centers and office space were left vacant. The cost of

transferring Data Centers back to usable office space was very

expensive. Over-committed tenants quickly dumped their unneeded

space, quadrupling the available sublease inventory in the span of six

quarters to 146 million SF3. The flood of sublease space was

concentrated in technology hubs such as San Francisco, San Jose,

Seattle, Austin and Boston.

Silicon Valley and San Francisco were hit the hardest. Rents

plummeted in both areas. San Francisco's office demand in the 91-

block former industrial area known as South of Market, had 49%

vacancy after the burst. The citywide office vacancy rate climbed to

23% in the fourth quarter of 2001 from 1.8% in the third quarter of

2000. Office space from failed companies such as Pets.com were

turned into Apartments. Employment in Silicon Valley high-tech

industries declined by about 17% and rent fell 30%.4

Future Effect

Recent research suggests, however, that as many as 50% of the

dot-coms survived through 2004, reflecting two facts: the

destruction of public market wealth did not necessarily

correspond to firm closings, and second, that many of the dot-

coms were small players who were able to weather the financial

markets storm. Also, much of the sublease inventory opened

the doors for tenants to enjoy Class A space at reduced rates.

Web 2.0 Bubble?

In 2007, new Internet technologies prompted another rush of

start-ups to tap the energy associated with Web 2.0 - wikis,

blogs, podcasts, widgets and social media — to quickly extend

their Internet real estate.

But while the Web 2.0 phenomenon may have some things in

common with the Dot-Com bubble, experts note that there are

also differences, including the low cost of entry for companies

launching blog, wiki or social networking businesses. The main

difference, however, is that this time around, consumers are

driving the adoption of the technologies rather than companies

trying to force their Internet sites onto users.5

Opportunities Today

The business need for Internet speed is rising exponentially in

the digital era of Google, Yahoo, Netflix, YouTube, Facebook,

Twitter, online gaming and smart phones. Such "cloud" data

must be stored offsite at colossal data centers. Data center

property niche has been one of the few commercial real estate

sectors to generate sizzle through the recession.

Granted, data center sales, leasing and development transactions

slowed considerably in 2008 and 2009 as construction and

acquisition financing dried up. However, pent-up demand since

2005 has sparked a new flurry of construction, acquisitions and

equity raising activity by data center builders and investors, with

hundreds of thousands of square feet of new data center facilities

were announced in 2009-2010.6

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September 11, 2001

Just as the economy was showing signs of bouncing back from the Dot-Com

bubble, the September 11, 2001 attacks on the U.S. occurred.

About the Attack

September 11, 2001 - terrorists hijack four U.S. airliners. The attack of

planes leveled the World Trade Center and inflicted serious damage to the

Pentagon in Arlington, VA, causing nearly 3,000 total deaths. The fourth

plane was heroically crashed by passengers when they learned of the plot,

preventing destruction of another structure. The plot was attributed to the Al-

Qaeda organization led by Osama Bin Laden. The U.S. then began the War on

Terrorism and attacks Afghanistan. View some of the costs of the attacks.

Effect on NYC

In NYC, 13.4m SF of Class A office property was destroyed and another

14.4m SF damaged. This would negatively affect the national absorption

numbers for the office sector. Lower Manhattan lost approximately 30

percent of its office space. This was more than the total vacant space in an

already tight New York City office market. After 9/11, some tenants spread

to multiple locations, including suburbs, and, in many cases, moved to low-rise buildings. In New York City, about $2.8 billion in

wages were lost in the three months following the 9/11 attacks. The economic effects were mainly focused on the

city's export economy sectors. The city's GDP was estimated to have declined by $27.3 billion for the last three months of 2001 and

all of 2002.7

View the complete World Trade Center study by FEMA. View a Detailed report on Tenants that were effected in NYC

Effect on Commercial Real Estate & the Economy8

As a result of September 11, consumer confidence was low. Air travel was more difficult due to enhanced security and people were

afraid to fly. Retail spending was down. There was a lot of speculation that ―trophy‖ buildings would suffer, but that would prove not

to be the case. The effect of 9/11 was short-lived in that aspect. With hindsight, we can see that the U.S. economy was already

suffering and the 9/11 attacks did not have a significant effect on economic growth either nationally or in New York. In the months

that followed, there was a flock to secondary markets, especially in the retail and apartment sectors, but that would also prove to be

short-lived.

The 9/11 attacks had a profound impact on the attitudes among corporate real estate executives. Most firms were adopting a

number of new security and safety measures, revisiting all communication procedures and engaging in general disaster and business

recovery planning. Some firms moved their business to more suburban areas. Total occupancy costs, as a result of security and

insurance costs, were said to increase by 1% to 3% on average with greater increases on central business district high-rise properties.

At the same time, it appeared that lenders would not finance property if terrorist insurance was not part of the coverage. The cost of

insurance for office space went up from $0.24 to $0.40/SF. Some of these costs were pushed down to the tenants.

Security

In 2001, the cost of security in privately-owned office buildings was approximately $0.50/SF. By 2003, that cost had doubled to more

than $1.00/SF. The increased expenditures covered items such as: identity cards, scanners, security cameras and personnel. In

government-owned buildings, which have installed security codes, concrete barriers, structural reinforcement, wider stairways and

enhanced communication systems, the costs go as high as $2.00/SF. On the other hand, the cost of office security in the suburbs is

considerably less than it is in the cities. Moving just 15 to 20 miles outside of the city can reduce the cost of security by as much as

60 percent. Moreover, studies show workers feel safer when situated just a few miles outside the urban areas, so several firms did

move their shops to suburban areas.

Back-Up Sites Another result was the potential need for some firms to create back-up sites. Firms were wary of concentrating their data in one

place. The cost, time and manpower to research catastrophe preparedness, and the investment in additional real estate and

equipment to set up dual locations can be considerable.

Looking on the Bright Side This is not to say that heightened security measures are all negative. In fact, the number of robberies and break-ins committed in

New York City office buildings has declined. With gated and secure parking areas, there have been fewer car thefts. Over all,

commercial buildings are safer than ever before. 9

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Base Realignment and Closure 2005

What is BRAC (Base Realignment and Closure)? By

definition, BRAC is a process of closing excess

military installations and realigning the total asset

inventory to reduce expenditures on operations and

maintenance.

More than 350 installations have been closed in four

BRAC rounds: 1989, 1991, 1993, and 1995. The

most recent round of BRAC completed in the fall of

2005 and with the commission's recommendations

became law in November 2005.10

Base Realignment and Closure (BRAC) 2005

Major facilities slated for closure:

Fort McPherson, Georgia

Fort Gillem, Georgia

Naval Submarine Base New London in Connecticut

(removed from list August 24, 2005)

Portsmouth Naval Shipyard in Kittery, Maine

(removed from list August 26, 2005)

Naval Air Station Brunswick in Maine

Ellsworth Air Force Base in South Dakota (removed

from list August 26, 2005)

Cannon Air Force Base in New Mexico (temporarily

removed from closure August 26, 2005)

Fort Monmouth in New Jersey

Defense Finance and Accounting Service in New York

Fort Monroe, Virginia

Willow Grove Naval Air Station in Pennsylvania

Naval Station Ingleside, Texas

Otis Air National Guard Base, Massachusetts

(removed from list August 26, 2005)

Navy Supply Corps School

Major facilities slated for realignment:

Army Human Resource Command (HRC) in

Missouri, moving to the Fort Knox in Kentucky.

Walter Reed Army Medical in Washington, D.C.

Naval Station Great Lakes in Illinois

Naval Air Station Oceana in Virginia (extent

contingent on reopening the former Naval Air

Station Cecil Field in Florida)

Grand Forks Air Force Base in North Dakota

Eielson Air Force Base and Elmendorf Air Force

Base in Alaska

Rome Laboratory in New York

Wright Patterson Air Force Base in Ohio

View the Final Updated BRAC 2005 List11

Effect on Commercial Real Estate & the Economy

When a military facility closes, the effects ripple throughout the

surrounding community as families lose their neighbors, businesses

lose their customers and workers lose their jobs. It also may affect

transportation in many cities as workers are moved around to the

alignment. A positive impact is the ―buffer‖ space around the bases

may become available for development.

Although the report came out in 2005, the effects of it may not have

been seen yet. Many of the bases scheduled to close either have been

removed from the list, or haven’t closed yet. September 2011 is the

date that many of the facilities listed will be closed. We will know in

the years to come the economic impact of the BRAC 2005. Just to give

you an idea of the effect of a BRAC, the closure of Norton Air Force

Base in 1994 had a devastating impact especially to the City of San

Bernardino. There has been some redevelopment since then, however,

the financial impact on the city is still being felt today.

So what will communities do with the empty base space? These are

massive spaces that had a very specific function, and are typically in

secure, remote areas. Several plans have been put into place as to

what to do with the empty base space. These plans are guided by

“Local Redevelopment Authorities.‖ These plans include city centers,

green centers, biomedical research parks, residential and other

commercial uses. An issue to deal with is because of the security

levels of some bases, the street grid and other necessary items are not

extended out into the community. So the challenge becomes finding a

way, as the bases are redeveloped, to make those connections; new

roads, removal of security gates, etc.

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Prosperous Times

Prosperous Times

There was a period in the first decade of the 2000s, during

2005-2007, which one can refer to as ―Prosperous Times;‖

where it seemed like everyone was prospering within

commercial real estate. As shown in the graphs to the right

or in the later part of this document, across all property

types, sales were up, vacancies were down, CAP rates were

at historic lows and rents were rising. Development was

fast paced – construction and other bridge financing was

readily available and inexpensive – the market was

enjoying quite a ride.

Debt capital was abundant. Not only for home purchases,

refinances and other real estate related financial

transactions—but for corporations and private equity. Many

Buyers/Users looked to future projected income (in most

cases excessively optimistic) to justify present values that

were unsound.

Leverage buy-outs were abundant—the large banks, Wall

Street and pension fiduciaries were spending into the

economy like they had not done in the recent past.

Things were really good!

Virtually all of the significant transactions (displayed on

the following pages) were completed during this time. In

fact, there were several record-setting quarters for the

individual property types. Competition among buyers for

the largest and best assets remained fierce. Condo

Converters were running strong during these years. The

prices they paid for multi-family properties outpaced the

conservative business mind of the investor buyers.

It seemed liked everyone wanted to be in commercial

real estate. National commercial real estate trade shows, such as ICSC, experienced record levels of attendance.

Commercial real estate companies seemed to grow in size, more offices opened up, more professionals would be

licensed. To say the least, it was a great time to be in commercial real estate. The commercial industry lagged

slightly behind the Housing Boom, which took place between 2003-2005.

Housing Market

The ―Housing Market Boom,” a period between 2003-2005;

where home prices dramatically increased, bidding wars

were frequent, contracts were above asking prices and

houses remained on the market for short periods of time.

For a while, it seemed you could pay almost anything for a

home, wait a few months and make a profit selling it.

During this time, consumer confidence soared. Home

owners were building equity at a rate that outpaced their

savings; and as such, many stopped putting money aside

and were looking to their future net worth to be a product of

the value of their largest investment – their home. This in

turn, led to many homeowners stretching the envelope as

to what they felt they could afford. However, it appeared to

be a false “Prosperous Times” and this all led to...

In 2007 $423B of commercial real estate

assets traded hands.

“You could do less than half the things right and still

have an awesome year…” anonymous

Source: Fannie Mae

Source: Real Capital Analytics

$59 $65$74 $76

$175$196

$225

$271

$145 $155$175 $187

$0

$50

$100

$150

$200

$250

$300

2004 2005 2006 2007

CRE Avg. Price/SF 2004-2007

Industrial

Office

Retail

$0

$50,000

$100,000

$150,000

$200,000

$250,000

2004 2005 2006 2007

Mill

ion

s

CRE Sales Volume 2004-2007 ($5m+)

Industrial

Office

Retail

Apartment

Source: Real Capital Analytics

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Credit Crunch & Housing Market

After a short period of ―false‖ economic prosperity (See

Prosperous Times), Americans experienced an economic

crisis. In 2008, the National Bureau of Economic Research

announced that we were officially in a recession.

Unemployment rates sky-rocketed with well over a million jobs

lost in 2008.

During the ―Housing Market Boom,‖ inflated confidence in

prices led lenders to give mortgages to unqualified buyers,

which led to spectacular short-term gains. These "subprime"

loans were packaged into groups that were traded like

securities and purchased by some of the largest investment

houses including Citigroup and Merrill Lynch.

Then, in 2007, home prices began a rapid decline. This occurred as mortgage loan terms changed and interest rates rose,

causing homeowners to begin defaulting on the loans that they never should have qualified for in the first place. Many homes

went into foreclosure and the excess supply of homes put downward pressure on prices. The relaxation of real estate valuation

standards and real estate finance underwriting guidelines inflated loan to value ratios beyond levels that can be refinanced. The

banks had to write down the value of their mortgage-backed assets. This created huge losses for banks in 4th quarter of 2007,

and also restricted their ability to borrow and lend capital, which greatly reduced the capacity of banks to loan money, spurring a

“liquidity" crisis. It came to a head when Wall Street hemorrhaged losses. Lehman filed for bankruptcy, Goldman Sachs and

Morgan Stanley became bank holding companies, Wachovia merged with Wells Fargo, and Congress passed the Wall Street

bailout package.

A series of government measures to rescue ailing companies like AlG, Fannie Mae and Freddie Mac followed. The ―big three‖ car

companies (General Motors, Ford, and Chrysler) asked Congress for a bail-out to prevent the auto industry from going bankrupt.

Fearful Americans stopped shopping, and the retail industry hit a 40-year low.

Timeline of the entire Crisis12

Effect on Commercial Real Estate

In August 2007 on the commercial side of the business – as a

result of the subprime mortgage debacle – the securitized debt

markets became virtually non-existent. See CMBS Issuances Chart

Credit became unavailable due to the global financial meltdown.

As such, virtually every aspect of the commercial real estate

industry was impacted. Establishing current values was near

impossible due to lack of market activity, comparable sales and

short sales.

Investors were basing investment decisions on pure cash returns

vs. using leverage to bolster yields. According to Real Capital

Analytics, values declined considerably, by as much as 45% . Many

would-be sellers were holding properties off the market and in

many cases, find themselves today in ―negative equity purgatory‖.

There was a huge gap between buyer and seller expectations.

The result was a 88% decline in overall volume of assets traded

from $423B year-end 2007 to $51.4B in 2009 (the lowest of the

decade). 2009 would go in the record books as a devastating year

for commercial real estate. Price / SF also declined and

development was virtually non-existent. Average cap rates rose,

causing prices to fall. Vacancies rose to record levels and there are

many debt maturities on the horizon. As a result, many projects

were put on hold: View 10 CRE projects put on hold

Many distressed properties started to come to the market (with more slated to hit), and some commercial real estate

professionals were taking advantage of this new-found opportunity.

0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.07.5

2000200120022003200420052006200720082009

U.S

. H

om

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ale

Un

its (

in m

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s)

$25

$45

$65$85

$105

$125

$145$165

$185

$205

$225$245

Me

dia

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e

(00

0s

)

U.S. Homesale Units Median Home Price

0

50,000

100,000

150,000

200,000

250,000

2005 2006 2007 2008 2009

CMBS Issuances

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Technology

Technology

Technology seemed to explode in the 2000s. Devices such as portable MP3 players, Nintendo Wii,

Xbox, Netflix, DVR, Blue-Ray and iTunes all revolutionized consumer behaviors. Let’s examine some of the

major technological advancements and their effect on commercial real estate.

Availability of Information

The Internet explosion took the commercial real estate business by storm. Information become

more readily available. While sites such as CoStar and LoopNet (which went public in 2006,

although both technically launched in the late 1990s) became increasingly popular, and in fact,

became the ―norm.‖ It seemed as if commercial real estate companies needed access to one or

both. Information such as comparables, that were traditionally coveted and indeed, a professional’s

differentiator, were now readily accessible, and leveled the playing field for professionals. In residential

real estate, this has become more prevalent with Listing Hubs, Zillow and Trulia; because now the

information is accessible to the general public instead of agents controlling what their clients see. The

question to ponder is, will commercial real estate follow in residential’s footsteps, as it typically does, in

making information even more readily available and accessible to the public? Read an interesting

LinkedIn conversation about information becoming more accessible.

Internet Shopping

Internet shopping wasn’t developed in the 2000s, but its popularity grew by leaps and bounds over the

last decade. From a commercial real estate perspective, this had a direct effect on the retail sector.

Music downloading sites such as Napster and iTunes severely damaged the CD industry, causing such

stores as Tower Records to close their doors. Netflix has really put a dent in Blockbuster’s market

dominance; and online discount shops have hurt retail sales, causing stores to close. View the list of

companies that have recently closed shops. It isn’t all bad news though. There has been a recent shift in

these shops requiring more warehouse space and shipping needs to house their internet distribution goods.

Smartphones

Without a doubt, the single technological advancement that changed commercial real estate the most in

the 2000s was the advent of the Smartphone. The nature of the business is persistent and consistent

contact with clients. The Smartphone allowed the convenience of being more accessible and ability to

retrieve and send emails while on the go, instead of at your desk. These days, it’s rare to see a commercial

real estate professional without a Smartphone. If you do see one, would you conduct business with him?

Social Media

Social Media exploded in the 2000s, especially the latter part of the decade. I don’t think we’ve

fully experienced the ramifications of Social Media yet for commercial real estate, but it is

coming. Social Media created a shift in the way we traditionally think about marketing. Typically,

you would market your properties to your sphere of clients via email, which was very localized and

had little interaction. Also, Social Media created a shift in the way we think about networking.

Typically, most networking took place at an industry event. You handed out a couple of business cards and

talked shop with a limited number of people. Most of the people were from your market. With Social

Media, these boundaries can be broken. You can network with and market to thousands of people on a

local, regional and national basis; at the click of a button! You can also reach many more people with your

marketing efforts.

Video

With the launch of YouTube in 2005, videos became more accessible to the public. Like Social Media,

Video hasn’t quite translated into the commercial real estate world, but many in the industry believe it will.

As video gets cheaper and easier to produce, you will see more ―virtual tours‖ and less flyers of a building.

What’s Next

There are a couple of new technologies on the horizon that could have a dramatic effect on commercial

real estate such as Augmented Reality and QR Codes to be aware of. You will have the ability to include

more information on building signs, business cards or property flyers; that a user can download directly to

their Smartphone.

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Name City, ST SF Price $/SF Buyer Year

General Motors Bldg New York, NY 1,925,000 $2,853,000,000 $1,482 Boston Properties JV Goldman

Sachs JV Meraas Capital 2008

666 Fifth New York, NY 1,550,000 $1,800,000,000 $1,161 Kushner Companies 2007

WorldWide Plaza New York, NY 1,600,000 $1,739,000,000 $1,087 Macklowe Properties 2007

MetLife Bldg New York, NY 2,840,000 $1,720,000,000 $606 Tishman Speyer Properties 2005

Travelers Complex New York, NY 2,600,000 $1,575,000,000 $606 SL Green Realty Corp 2007

Office 2001—2009

Source: Real Capital Analytics

Source: Real Capital Analytics Source: CoStar

Source: CoStar

Twin Towers Complex Arlington, VA 1,100,000 $670,000,000 $609 Monday Properties 2007

Twin Towers Complex Arlington, VA 1,100,000 $495,000,000 $450 Beacon Capital Partners 2005

Waterview Office Twr Arlington, VA 633,908 $435,000,000 $686 Paramount Group 2007

One & Two Fountain Sq Reston, VA 616,178 $420,000,000 $681 Beacon Capital Partners 2007

Polk & Taylor Bldgs Arlington, VA 886,447 $419,000,000 $473 Beacon Capital Partners 2007

Significant Transactions: CBD

Significant Transactions: Suburban

Source: Real Capital Analytics

$0

$100

$200

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$400

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$0

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$100,000

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01' 02' 03' 04' 05' 06' 07' 08' 09' P/SFMillions

Office Volume & Price/SF

-100,000,000

-50,000,000

0

50,000,000

100,000,000

150,000,000

200,000,000

01' 02' 03' 04' 05' 06' 07' 08' 09'

Office Absorption

0%

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4%

6%

8%

10%

12%

0

1,000

2,000

3,000

4,000

5,000

01' 02' 03' 04' 05' 06' 07' 08' 09'CAPTrans

Office Transactions & Avg Cap Rate

0%

4%

8%

12%

16%

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

01' 02' 03' 04' 05' 06' 07' 08' 09'VacancyRental

Office Rental & Vacancy Rates

View next page for a breakdown of the Office Sector by year

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Office Breakdown

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$0

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$0

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01' 02' 03' 04' 05' 06' 07' 08' 09' P/SFMillions

Retail Volume & Price/SF

-30,000,000

-20,000,000

-10,000,000

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

00' 01' 02' 03' 04' 05' 06' 07' 08' 09'

Retail Absorption

0%

2%

4%

6%

8%

10%

12%

0

1,000

2,000

3,000

4,000

5,000

01' 02' 03' 04' 05' 06' 07' 08' 09'CAPTrans

Retail Transactions & Avg Cap Rate

Name City, ST SF Price $/SF Buyer Year

Bay Street Emeryville Emeryville, CA 383,055 $234,000,000 $611

LaSalle Bank JV Madison

Marquette 2008

Suburban Square Ardmore, PA 360,501 $215,000,000 $596 Kimco Realty 2007

Jack London Square Oakland, CA 460,484 $191,000,000 $414 Nat Electrical Benefit Fund 2007

Villa Marina Mktplace Marina del Rey, CA 450,000 $189,000,000 $420 RREEF Funds 2006

Winter Garden Village Winter Garden, FL 758,988 $180,000,000 $238 Cole Capital Partners 2008

Retail 2001—2009

Source: Real Capital Analytics

Source: Real Capital Analytics Source: Reis

Source: Reis

Mall of America Minneapolis, MN 4,200,000 $1,800,000,000 $429 Triple Five Group 2006

Sawgrass Mills Sunrise, FL 1,991,491 $1,025,000,000 $515 Simon Property Group 2007

Grand Canal Shoppes Las Vegas, NV 445,151 $766,000,000 $1,721 General Growth Properties 2004

Potomac Mills Prince William, VA 1,606,000 $520,000,000 $324 Simon Property Group 2007

Westfield North Bridge Chicago, IL 680,933 $515,000,000 $756 Macerich JV Alaska Permanent

Fund Corp 2008

Significant Transactions: Strip Malls

Significant Transactions: Malls

Source: Real Capital Analytics

0

2

4

6

8

10

12

$13.00

$14.00

$15.00

$16.00

$17.00

$18.00

01' 02' 03' 04' 05' 06' 07' 08' 09'VacancyRental

Retail Rental & Vacancy Rates

View next page for a breakdown of the Retail Sector by year

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Retail Breakdown

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0%

2%

4%

6%

8%

10%

12%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

01' 02' 03' 04' 05' 06' 07' 08' 09' CAPTrans

Apart Transactions & Avg Cap Rate

Apartment 2001—2009

Source: Real Capital Analytics

Source: Real Capital Analytics Source: Reis

Name City, ST Units Price $/Unit Buyer Year

Empirian Village Greenbelt, MD 2,877 $275,000,000 $95,586 Empire Equity Group 2008

Jefferson at Bay Mdws San Mateo, CA 575 $220,000,000 $383 Archstone 2006

Palazzo East Los Angeles, CA 610 $199,000,000 $327 AIMCO 2005

The Avant Annandale, VA 1,065 $198,000,000 $186 Stellar Management 2007

The Park Kiely San Jose, CA 948 $190,000,000 $201,248 Laramar Group 2008

PeterCooper & StuyTown New York, NY 11,232 $5,400,000,000 $481 Tishman Speyer 2006

Trump Place New York, NY 12,330 $809,000,000 $658 Equity Residential 2005

Villas Parkmerced San Francisco, CA 3,486 $675,000,000 $194 Stellar Mgmt 2005

Manhattan House New York, NY 587 $623,000,000 $1,061 Richard Kalikow 2005

Presidential Towers Chicago, IL 2,346 $475,000,000 $202 Waterton Associates LLC 2007

Significant Transactions: Garden

Significant Transactions: High / Mid Rise

Source: Real Capital Analytics

$0

$40,000

$80,000

$120,000

$160,000

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

01' 02' 03' 04' 05' 06' 07' 08' 09'P/SFMillions

Apart Volume & Price/SF PPU

0

1

2

3

4

5

6

7

8

9

$750

$800

$850

$900

$950

$1,000

$1,050

01' 02' 03' 04' 05' 06' 07' 08' 09'VacancyRental

Apart Rental & Vacancy Rates

Source: Reis

View next page for a breakdown of the Apartment Sector by year

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

01' 02' 03' 04' 05' 06' 07' 08' 09'

Apartment Absorption

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Apartment Breakdown

16

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View next page for a breakdown of the Industrial Sector by year

$0

$20

$40

$60

$80

$100

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

01' 02' 03' 04' 05' 06' 07' 08' 09' P/SFMillions

Industrial Volume & Price/SF

-100,000,000

-50,000,000

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

01' 02' 03' 04' 05' 06' 07' 08' 09'

Industrial Absorption

0%

2%

4%

6%

8%

10%

12%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

01' 02' 03' 04' 05' 06' 07' 08' 09'CAPTrans

Industrial Transactions & Avg Cap Rate

Name City, ST SF Price $/SF Buyer Year

Dallas Market Center Dallas, TX 4,800,000 $249,000,000 $52 CNL Income Properties 2005

Sun Microsystems Cmplx Burlington, MA 805,000 $212,000,000 $263 Nordic Properties 2007

Sunset Gower Studios Los Angeles, CA 415,000 $205,000,000 $493 Hudson Capital 2007

San Diego Tech Center San Diego, CA 647,000 $185,000,000 $286 Maguire Properties 2005

Northlake Data Center Melrose Park, IL 700,000 $181,000,000 $259 Microsoft 2009

Industrial 2001—2009

Source: Real Capital Analytics

Source: Real Capital Analytics Source: CoStar (Flex & Warehouse combined)

Source: CoStar (Flex & Warehouse combined)

Pfizer La Jolla Campus La Jolla, CA 770,000 $372,000,000 $483 Pfizer Corp 2004

Metro Chicago Chicago, IL 3,743,211 $231,000,000 $62 RREEF Funds 2005

Pacific Gateway Ctr Torrance, CA 1,252,708 $195,000,000 $156 Prudential RE Investors 2006

Chino South Business Park Chino, CA 1,807,421 $147,000,000 $81 John Hancock Insurance Co 2008

110-112 Hidden Lake Duncan, SC 786,778 $135,000,000 $171 Lexington Corp Prop. Trust 2005

Significant Transactions: Flex

Significant Transactions: Warehouse

Source: Real Capital Analytics

0%

2%

4%

6%

8%

10%

12%

$0.00

$2.00

$4.00

$6.00

$8.00

01' 02' 03' 04' 05' 06' 07' 08' 09'VacancyRental

Industrial Rental & Vacancy Rates

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Industrial Breakdown

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What has changed

What has changed

Now that you understand what happened during the first

decade of the 2000s, let’s take a minute to understand what

has changed. Over 200 Coldwell Banker Commercial®

professionals from across the U.S. responded to a survey

about what they felt has changed in the commercial real

estate industry.

If you've been in the business for more than 12 years, what is

different in the way you do commercial real estate now, than

in times before the year 2000?

Less Personal—Smartphones have made it easier to

become accessible. However, it also made it easier to

―text‖ answers to questions. There are a lot less face-to-

face meetings. The personal meetings to develop

strategic decisions and action plans are drawn out by

streams of piecemeal emails. The transactions may

initiate with a face-to-face meeting, but much of the

follow up is done via texting and emailing. Although we

haven’t fully transitioned away from it, the ―old school‖

style of brokerage is slowly fading and may fade more in years to come. However, it may never die, technology will just

integrate more.

More Information—Increased sophistication of marketing tools via the internet along with "user-friendly" software and sites

allowed more users access to materials that were easy to understand, increasing the public's awareness and exposure to

deals that were typically only available to "A" list and institutional clients. We can no longer use our ―possession‖ of the

information to attract clients. Instead, we must focus on how clients use the information - helping them - understand it,

interpret it, analyze it, simplify it and utilize it.

Less Localized—The internet has paved grounds for wider dissemination of marketing material and improved communication.

We are doing more regional and national business than we’ve done in the past. Networking is also much easier. You can

connect with many more professionals and potential clients on the various social media sites in a matter of minutes. This

would have taken years in the past.

What are clients doing differently?

Demand information faster—Most want property offering brochures sent by electronic means, not by fax or regular mail. They

want you to text them regularly to keep them updated. They don’t want to sit down for an hour lunch; they are happy with you

emailing the necessary info.

Shift in what they need—Clients don’t need someone who is just going to complete the transaction. Sites such as Craigslist

are assisting small property owners to market their property without the help of an agent. Clients now need an advisor. On

the leasing side, they are using space more efficiently and using an open plan "bullpen" set up more and more. They are

getting smarter with the amount of ―actual‖ space they need.

Due Diligence—Since information has become more readily available, clients are spending more time "crunching the

numbers.‖ They are being extremely patient, waiting for the right opportunities. Many clients are only buying when the seller

and buyer can make a deal without the banks participating; or, there is a deal below a reasonable market price. Many are

also purchasing based on cash flow rather than appreciation. Clients are pre-qualifying professionals they hire by visiting

websites which include personal sites, national websites, listing database sites and social media sites. They expect more and

won’t work with you if you are not qualified!

Expect You to be Prepared—As a result of the client's due diligence regarding professionals, clients now expect their

professionals to know something about their property and/or their corporate structure at the initial meeting. Professionals

must be prepared to discuss various strategies with their clients before their first face to face meeting or first conference call.

Feeling the effect of the Credit Crunch—Most transactions only occur when the sellers are willing or able to sell at steep

discounts compared to the asking price of a couple of years ago or are able to provide some form of owner financing or some

combination thereof. As a result, most sellers with better options are sitting on the sidelines while waiting for values to

return. Even when sellers have sufficient motivation to sell and they and ability to lower their price, buyers often times

cannot secure sufficient financing to complete a transaction with loan-to-value ratios being as low as 65% or lower. While

owner financing is usually an option, many sellers are not in a position to offer it which results in many deals that fall through.

19

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What the Future Holds

What the Future Holds

Although the last two years of the decade saw historic lows in property

transaction volume due to the Credit Crunch, according to Real Capital

Analytics, 2010 has started off on a positive note.

The first and second quarter results show the progress made in the

investment markets and the overall change in attitude from just a year

ago. Sales volume increased from Q2’09 with every property type

registering higher volume. Core rather than distressed sales were

primarily behind the volume gains despite the huge overhang of

distressed situations. Analysis also reveals that lenders are far more

likely to restructure and extend rather than liquidate troubled assets.

One sign of recovery is the increase of CMBS issuances which totaled 4

billion during the first quarter of 2010; whereas, only 3 billion were issued

in 2009.

When speaking of the future of commercial real estate, there are several

questions to ponder:

What other mergers will take place within CRE?

What will be the lasting effect of the BRAC?

How long will the Credit Crunch effect commercial real estate and the

economy?

When will the economy as a whole turn around?

Will internet sales continue to restructure the retail business?

What is the next technology that will come out?

Will data be made more available to the public?

What effect will the new NAR Realtors Property ResourceTM (RPR) -

an online real estate library/archive with data on every property in

the U.S.—have on the CRE industry? Yes, commercial information will

be included. Read their blog for more info

What new technologies will help evolve the Green movement?

What new products / materials will have an effect on CRE building

designs?

What new technologies will increase operating efficiencies?

What will drive leasing and sales in the coming years?

When will the wave of distressed assets actually hit the markets

and when will this activity slow down?

Sources:

1—www.thepeoplehistory.com/pricebasket.html

2—Dot-com bubble

3—www.commercialpropertyinfo.net/images/Office_Market_Report.pdf

4—Vacant Dot-Com Sites in San Francisco Turn Into New Apartments

5—Web 2.0: A new dot-com bubble in the making? Mar 19, 2007

6—Data Center Development Flying High Again In New Era of Cloud Computing. June 9, 2010

7—The Implications of September 11, 2001 New York attacks on U.S. Cities’ Urban Functionality and Corporate Location

8—9/11/2001 impact on trophy and tall office properties

9—The Economic Impact of Heightened Security Measures on the Commercial Real Estate Market, Post 9/11

10—Base Realignment and Closure, 2005

11—Final updated BRAC list

12—Economics of Crisis: Timeline of the entire Crisis

20

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About Coldwell Banker Commercial®

* Includes franchisees within the Coldwell Banker franchise

system that are licensed to use the Coldwell Banker

Commercial marks.

1 - Displayed on CBCWorldwide.com May 2010

Number of Companies 220*

Professionals 2,200 +

Countries 22

# of Listings 16,300 1

Industry Leading Technologies

A wealth of commercial real estate

experience

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The collective commercial real estate experience and know-how found in the Coldwell Banker Commercial system is without comparison in the industry - giving us insight into the complex challenges both corporate occupiers and owners face each day. We understand that commercial real estate is a fluid and ever-evolving process. By delivering precise solutions, customized to your specific requirements, we can assist you to anticipate and capitalize on changes as they arise. Each office around the globe is empowered to provide clients with critical market knowledge and support. Additionally, CBC of-fices collaborate and leverage their global presence through industry-leading technologies, enabling CBC professionals to effec-tively serve their clients.

When working with a CBC professional, you are connected to a full range

of capabilities and expertise in every major property type.

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A Review of

Commercial Real Estate

In the 21st Century