NATIONAL & REGIONAL TRENDS UPDATE

U.S. SMALL-CAP REAL ESTATE MARKET

MARCH 2011

May 2, 2011

Feeble remains the watchword for small-cap CRE markets in the aggregate. Modest

rent declines in March resulted in average first quarter national losses of roughly

1% and between 4%-5% across all property types over the last 12 months. That

being said, selected markets have begun to percolate: Chattanooga’s positive

industrial and retail rent growth (each 2.7%) was best in the nation during 1Q;

Baltimore was near the top of the charts for industrial (1.7%) and office (0.6%); and

Greenville was among the outperformers for shopping center rent growth (2.7%)

and office (0.6%).

Overall, small-cap retail and shopping centers appear to be rebounding quicker

than other sectors. Twenty-seven shopping center markets and 24 retail markets

posted positive rent growth during 1Q. Also, 20 industrial markets recorded rent

gains but only 13 office markets – the sector whose prosperity is most reliant on

employment gains – were in the black.

Boxwood’s Days on Market index remains at record-high levels but stabilized in

March. On average across property types, lease-up time consumes 6-8 months for

commercial space in small properties; office has the shortest duration at 203 days

while shopping center space takes on average 250 days (see the trends on Page 8).

Marketing time among individual metros varies widely, however: e.g., industrial

space in Wichita leases up on average in only 93 days but takes over a year in New

Haven; and tenants take down office leases in Kansas City in 107 days on average

compared with a whopping 421 in Fort Pierce.

Summary

2

First quarter GDP figures foretell possible lower economic growth for the second

half of the year. U.S. real GDP rose only 1.8% after fourth quarter’s more

encouraging 3.1%. Declines in government expenditures and construction

outweighed gains in business investment and inventory growth. This may be a

temporary setback on the road to a strong recovery; but frankly, it seems that

economic growth may be sluggish without contributions from the housing market

and associated investment activity. So far it’s been a ‘property-less’ recovery, a

situation that stands in sharp contrast with housing’s key role in economic

recoveries during past recessions.

However, there is no doubt that the U.S. employment picture on Main Street has

brightened a bit: Small businesses with 50 or fewer employees added 102,000 jobs

in March after contributing 96,000 in February according to ADP. The trend is

certainly positive as March’s total exceeds by more than 40% the job gains posted

six months ago. But far greater sums of jobs will be needed for small-cap markets

to rebound sharply.

Summary – Cont’d

3

Price trends in housing and small-cap CRE markets continue to paint a similar

downbeat picture (see the graph on Page 9). The S&P/Case-Shiller composite index

of housing prices in 20 large cities dropped 1.1% during February and, after 7

consecutive months of decline, is on the brink of a double dip coincident with its

April 2009 nadir. The SCPI-20 (Small-Cap Price Index) that tracks sales of

commercial properties under $5 million in the same large markets slid a sizable

1.7% in the corresponding period and, at 77.01, sits at a new low. It’s evident that

distressed real estate weighs heavily on prices and will likely continue to do so for

the greater part of the year.

Nationally, small-cap CRE prices also decreased. The SCPI-100 fell 1.3% in February

to 87.1, reversing the modest 0.25% increase of the previous month. Meanwhile,

the Moody’s/REAL CPPI comprising primarily larger assets above $5 million slid a

hefty 3.3% and has now declined for three consecutive months. The SCPI-100 is

down 20.1% from its 2007 peak, less than half the 44.6% drop in CPPI over the

same timeframe (see the comparative trends on Page 10). Some of the CPPI’s

higher volatility is sample-related, i.e., roughly 29% of the repeat-sales transactions

posted in February involved distressed assets according to Moody’s.

Summary – Cont’d

4

Summary – Cont’d

5

The Great Recession’s severe damage to CRE markets may have wrought a long

winter of discontent, but we have now transitioned beyond that dreadful season.

We’re well into the next phase with: cathartic-like sales of distressed properties that

won’t likely crest until the second half of this year; and a positive, albeit sluggish

revival on Main Street that reflects the moderate pace of U.S. economic growth.

This, coupled with the arrival of higher rents last quarter in assorted small-cap

markets signals stronger fundamentals and better things to come.

National Rent Levels and Changes

6

Source: Boxwood Means, Inc.; LoopNet, Inc.

Property Mar. Feb. 1-Mo. 3-Mo. 12-Mo.

Type Chg. Chg. Chg.

Industrial $6.70 $6.72 -0.35% -1.01% -5.05%

Flex $8.30 $8.33 -0.33% -1.13% -5.05%

Manufacturing $7.58 $7.60 -0.34% -1.10% -5.28%

Warehouse $7.01 $7.03 -0.27% -0.92% -5.05%

Office $16.67 $16.73 -0.33% -1.08% -4.22%

Medical Office $18.35 $18.39 -0.21% -0.69% -2.66%

Retail $16.77 $16.83 -0.36% -1.03% -4.11%

Street Retail $16.69 $16.74 -0.29% -0.97% -4.02%

Free Standing Bldg. $15.07 $15.12 -0.29% -0.91% -3.27%

Other Retail $16.28 $16.33 -0.29% -0.80% -3.97%

Shopping Centers $16.66 $16.73 -0.45% -1.32% -4.90%

Strip Centers $15.64 $15.72 -0.50% -1.49% -5.29%

National Rent Trends

Source: Boxwood Means, Inc.; LoopNet, Inc.

7

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3

2007 2008 2009 2010 2011

Monthly R

ent C

hange

Industrial Office Retail Shopping Center

Source: Boxwood Means, Inc.; LoopNet, Inc.

Days on Market Trends

8

145

165

185

205

225

245

265

5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3

2009 2010 2011

Days on Market Trend - U.S. Averages

Leases from Market Availability to Closing

Shopping Centers Retail Office Industrial

Source: Boxwood Means, Inc.; S&P

Small-Cap versus Residential Housing Price Trends

9

60

70

80

90

100

110

1202

00

6.0

7

20

06

.09

20

06

.11

20

07

.01

20

07

.03

20

07

.05

20

07

.07

20

07

.09

20

07

.11

20

08

.01

20

08

.03

20

08

.05

20

08

.07

20

08

.09

20

08

.11

20

09

.01

20

09

.03

20

09

.05

20

09

.07

20

09

.09

20

09

.11

20

10

.01

20

10

.03

20

10

.05

20

10

.07

20

10

.09

20

10

.11

20

11

.01

Ind

ex:

July

20

06

= 1

00

20 Largest Metros: Price Trends for Small-Cap CRE vs. Housing

Boxwood SCPI-20 S&P/Case-Shiller-20

Source: Boxwood Means, Inc.; Moody’s

Small versus Large Cap Property Price Trends

10

60

70

80

90

100

110

1202

00

6.0

72

00

6.0

92

00

6.1

12

00

7.0

12

00

7.0

32

00

7.0

52

00

7.0

72

00

7.0

92

00

7.1

12

00

8.0

12

00

8.0

32

00

8.0

52

00

8.0

72

00

8.0

92

00

8.1

12

00

9.0

12

00

9.0

32

00

9.0

52

00

9.0

72

00

9.0

92

00

9.1

12

01

0.0

12

01

0.0

32

01

0.0

52

01

0.0

72

01

0.0

92

01

0.1

12

01

1.0

1

Ind

ex:

July

20

06

= 1

00

National CRE Sales Price Trend Comparison

Boxwood SCPI-100 Moody's/REAL CPPI

Source: Boxwood Means, Inc.

Small-Cap Comparison: Larger vs. Smaller Metros

11

70

80

90

100

110

120

20

06

.07

20

06

.09

20

06

.11

20

07

.01

20

07

.03

20

07

.05

20

07

.07

20

07

.09

20

07

.11

20

08

.01

20

08

.03

20

08

.05

20

08

.07

20

08

.09

20

08

.11

20

09

.01

20

09

.03

20

09

.05

20

09

.07

20

09

.09

20

09

.11

20

10

.01

20

10

.03

20

10

.05

20

10

.07

20

10

.09

20

10

.11

20

11

.01

Ind

ex:

July

20

06

= 1

00

Sales Price Trends: 20 Largest Metros vs. Remainder

Boxwood SCPI-20 Boxwood SCPI-80

Source: Boxwood Means, Inc.; LoopNet, Inc.

Asking Sales Price Trends

12

-2.0%

-1.6%

-1.2%

-0.8%

-0.4%

0.0%1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3

2007 2008 2009 2010 2011

Monthly P

rice C

hange

Industrial Office Retail Shopping Centers

Source: Boxwood Means, Inc.; LoopNet, Inc.

Change in Asking Sales Prices – Last 12 Months

13

-15.1%

-11.4%

-9.7%

-8.6%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

Industrial Retail Office Shopping Centers

12-M

onth C

hg.

National Industrial Rent Trends

Source: Boxwood Means, Inc.; LoopNet, Inc.

14

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%

1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3

2007 2008 2009 2010 2011

Monthly R

ent C

hange

Flex Manufacturing Warehouse Industrial

Rent Conditions – Selected Industrial Markets

Source: Boxwood Means, Inc.; LoopNet, Inc.

15

2.75

1.72

1.67

1.42

-1.01

-2.86

-2.95

-3.24

-5.74

-8 -6 -4 -2 0 2 4

Chattanooga

So. NJ

Baltimore

Milwaukee

U.S. Avg.

Orlando

Riverside-San Bern.

Grand Rapids

Las Vegas

Best

Wors

t

Industrial Rents

Worst/Best Performing Markets, 1Q 2011 Pct. Change

Source: Boxwood Means, Inc.; LoopNet, Inc.

Leasing Conditions – Selected Industrial Markets

16

375

371

361

346

218

133

131

126

93

0 100 200 300 400

New Haven

Boston

Jacksonville

West Palm Beach

U.S. Avg.

Denver

Orange Cty

Memphis

Wichita

Wors

tBest

Days on Market - Closed Industrial Leases

Worst/Best Performing Markets, as of February

National Retail Rent Trends

Source: Boxwood Means, Inc.; LoopNet, Inc.

17

-1.0%

-0.8%

-0.6%

-0.4%

-0.2%

0.0%

0.2%

0.4%

0.6%1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3

2007 2008 2009 2010 2011

Monthly R

ent C

hange

Free-Standing Retail Street Retail Other Retail Retail

Rent Conditions – Selected Retail Markets

Source: Boxwood Means, Inc.; LoopNet, Inc.

18

2.74

1.45

1.21

1.13

-1.03

-3.17

-3.56

-3.92

-4.61

-5 -4 -3 -2 -1 0 1 2 3 4

Chattanooga

Modesto

Fort Wayne

Appleton

U.S. Avg.

Toledo

Grand Rapids

Las Vegas

Fort Myers

Best

Wors

t

Retail Rents

Worst/Best Performing Markets, 1Q 2011 Pct. Change

Source: Boxwood Means, Inc.; LoopNet, Inc.

Leasing Conditions – Selected Retail Markets

19

434

391

357

350

225

147

147

140

113

0 100 200 300 400 500

Des Moines

Fresno

Modesto

Oklahoma City

U.S. Avg.

New York

Jacksonville

Lakeland

Springfield, IL

Wors

tBest

Days on Market - Closed Retail Leases

Worst/Best Performing Markets, as of February

National Shopping Center Rent Trends

Source: Boxwood Means, Inc.; LoopNet, Inc.

20

-0.6%

-0.5%

-0.4%

-0.3%

-0.2%

-0.1%

0.0%1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3

2007 2008 2009 2010 2011

Monthly R

ent C

hange

Shopping Center Strip Center

Rent Conditions – Selected Shopping Center Markets

Source: Boxwood Means, Inc.; LoopNet, Inc.

21

2.75

2.72

2.34

2.03

-1.32

-3.39

-3.89

-3.92

-4.45

-6 -5 -4 -3 -2 -1 0 1 2 3 4

Greenville

Appleton

Boise City

Albuquerque

U.S. Avg.

Newark

Rochester, NY

Las Vegas

Tucson

Best

Wors

t

Shopping Center Rents

Worst/Best Performing Markets, 1Q 2011 Pct. Change

Source: Boxwood Means, Inc.; LoopNet, Inc.

Leasing Conditions – Selected Shopping Center Markets

22

411

398

391

380

250

145

138

136

126

0 100 200 300 400 500

Memphis

Tulsa

Cleveland

Hartford

U.S. Avg.

Wash. DC

Kansas City

Albuquerque

Pittsburgh

Wors

tBest

Days on Market - Closed Shopping Center Leases

Worst/Best Performing Markets, as of February

National Office Rent Trends

Source: Boxwood Means, Inc.; LoopNet, Inc.

23

-0.6%

-0.5%

-0.4%

-0.3%

-0.2%

-0.1%

0.0%

0.1%

0.2%

0.3%

1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3 4 5 6 7 8 9

10

11

12 1 2 3

2007 2008 2009 2010 2011

Monthly R

ent C

hange

Office Medical Office

Rent Conditions – Selected Office Markets

Source: Boxwood Means, Inc.; LoopNet, Inc.

24

1.14

0.57

0.55

0.49

-1.08

-3.12

-3.25

-3.50

-3.87

-5 -4 -3 -2 -1 0 1 2

Modesto

Baltimore

Greenville

Pittsburgh

U.S. Avg.

Phoenix

Riverside-San Bern.

Las Vegas

Orange Cty.

Best

Wors

t

Office Rents

Worst/Best Performing Markets, 1Q 2011 Pct. Change

Source: Boxwood Means, Inc.; LoopNet, Inc.

Leasing Conditions – Selected Office Markets

25

421

378

375

343

203

122

118

115

107

0 100 200 300 400

Fort Pierce

New Haven

Stockton

Memphis

U.S. Avg.

Richmond

Tacoma

Jersey City

Kansas City

Wors

tBest

Days on Market - Closed Office Leases

Worst/Best Performing Markets, as of February

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