seattle & portland 2014 investment overview embracing a...

EMBRACING A NEW KIND OF CLOUD

Seattle & Portland 2014 investment overview

OUR SILVER LINING IS THE THRIVING TECH SECTOR

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $53.6 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

jll.com

Seattle & Portland 2014 Investment Overview 3

As we reflect on the investment landscape of 2014 there are several key themes that

come to mind – sustained strength of our local economy, steady employment growth

and the explosion of the Seattle tech market. Each of these factors played a critical role

in helping us maintain our attractiveness in the eyes of the investment community.

Seattle was among the top major markets for job growth in 2014, with growth far

ahead of the national average. We were named “Most Innovate State in the Nation” by

Bloomberg and ranked as the 2nd best place to live for millennials by NerdWallet.

JLL’s own research ranked Seattle as the 2nd strongest tech market in 2014. The best

part about this designation is that we beat out Boston. So, even if we didn’t beat them

in football this year, we still came out on top.

Our local team also benefited from our strong market fundamentals, with the addition

of several new team members and the formation of a Seattle based REIB group.

We would like to take this opportunity to thank you for allowing us to represent you in

2014 and look forward to growing our relationships into 2015 and beyond.

JLL Pacific Northwest Investment Team

Dear valued clients and friends,

CAPITAL MARKETS TEAM

Seattle Seattle Multifamily

David Young

Managing Director +1 206 607 1719 [email protected]

Stuart Williams


Corey Marx

Executive VP +1 206 607 1726 [email protected]

Lori Hill


Seth Heikkila

Senior VP +1 206 607 1732 [email protected]

David Otis

Vice President +1 206 971 7022 [email protected]

Matt Kemper

Vice President +1 206 607 1752 [email protected]

Mark Thygesen

Retail Associate +1 206 607 1737 [email protected]


JLL Capital Markets team

Portland Bellevue NW REIB

Buzz Ellis


Ann Chamberlin


John Lo


Paige Morgan

Senior Vice President +1 503 972 8098 [email protected]

Zach Goodwin

Associate +1 206 607 1791 [email protected]

WE EXPERIENCED TREMENDOUS ECONOMIC GROWTH IN 2014, WHICH PROPELLED INVESTOR INTEREST AND PUSHED PRICING LEVELS TO NEW HEIGHTS. WE ANTICIPATE A STRONG REBOUND OF SALES ACTIVITY IN THE SUBURBS IN 2015.” - Lori Hill

8

JLL Capital Markets group

Leverage the expertise of a global leader

Devised from comprehensive research, pervasive market knowledge, ethical practice and superior professionalism, JLL Capital Markets team is focused on the unique requirements of our investor clients. Our in-depth local market and global investor knowledge delivers best-in-class solutions for clients—whether a sale, financing, repositioning, advisory or recapitalization execution.

With a diverse, unified platform of shared expertise through a single point-of-entry, we help you achieve your priority capital objectives:

Investment Sales

Benefit from sales advisory services grounded in solid market analysis, sophisticated portfolio structuring support, complex valuation, thorough underwriting capabilities, reliable investor intelligence and practical marketing expertise.

Real Estate Investment Banking

Gain direct, strategic access to global money centers and real estate investment banking professionals who manage debt and equity financing across all asset types and scenarios.

Corporate Finance and Net Lease

Access an unmatched combination of expertise in finance, lease accounting, tax and transaction structuring with global access to capital that helps real estate occupiers and net lease investors make the best financial decisions to optimize transaction economics and maximize asset value.

Special Asset Services

Obtain transaction execution, valuation and advisory services for non-performing and sub-performing real estate assets concerning financial institutions and special servicers.

We have a national reach but operate with a select group of experts to offer a personal transaction experience like you won’t find with other firms. Our philosophy is simple - transparency helps foster an environment of open communication, leading to an integrated effort that quickly and efficiently drives the best results.


JLL Real Estate Investment Banking group

Navigate capital solutions

As a trusted business advisor, our Real Estate Investment Banking team helps you navigate the capital markets to obtain the best capital solutions for your particular requirements. With billions of dollars in debt and equity transaction experience and deep insights into capital flows and trends around the world, we are well-qualified to advise on creative structures and innovative solutions. Clients seeking direct access to global capital also benefit from our on-the-ground access and contacts in every money center around the world.

We provide access to the lowest cost of capital on the best terms via a competitive auction process and creative structuring. Through our broad array of relationships and a proprietary database that contains hundreds of lending and equity sources—both domestic and foreign— we provide a link between our clients and opportunity, finding appropriate, prequalified groups of capital providers and investors and creating a competitive market to get the best possible pricing and deal structure. Because we don’t align with any specific capital source, we deliver objective advice and focus exclusively on your needs. Your project receives senior-level attention—the top leaders of our group are always involved on a day-to-day basis.

Our Real Estate Investment Banking professionals devise capitalization strategies and manage debt and equity placements across all asset types.

• Acquisition and permanent financing

• Bridge and mezzanine financing

• Construction financing

• Performing note sales

• Recapitalization strategies

• Asset advisory

SEATTLE

SEATTLE

Market Overview

Driven by the rapidly expanding technology industry, which was ranked the second strongest in the nation in JLL’s High-technology Office Outlook report, Seattle’s economy has hit a new all-time non-farm employment peak and boasts one of the lowest unemployment rates of any major metro area; the local unemployment rate is 100 basis points below the national average. The most recent employment forecast from the Puget Sound Economic Forecaster calls for impressive job growth of 2.6 percent in 2015. Current figures show that unemployment in December 2014 stood at 6.3 percent statewide and 4.6 percent in the Seattle-Bellevue-Everett area. Over the past 12 months, a total of 82,900 jobs have been added in Washington, mostly in the professional and business services (this sector includes many jobs related to high-tech) industries, construction, retail trade, education and health services, and government. A recent report released by the Brookings Institute found that Seattle is one of only three major U.S. cities where the income inequality gap is shrinking. Furthermore, for the second year in a row, Washington topped MoneyRates.com’s list of “Best States to Make a Living.”

The Puget Sound is a top U.S. gateway market and one of the most economically vibrant metropolitan areas in the nation boasting a diversified economy with strong tech sector drivers. PWC’s Emerging Trends in Real Estate ranked Seattle as the fourth best market in terms of investment potential

in 2015, as well as the eighth best overall real estate market and the third best for development potential. This tier one market has seen a strong surge in venture capital funding and prospects remain strong for the aerospace and high-tech industries. Enviable demographics propel tech hiring which perpetuates wage income growth. Seattle’s population growth is far outpacing the national average, and it continues to attract millennials at a faster rate than nearly every other major U.S. city and was recently ranked the second best place to live for this demographic by NerdWallet. With several of the West Coast’s top universities located in the Puget Sound, including the University of Washington, companies in the region have excellent access to skilled workers. An impressive list of local companies have taken advantage of the talent pool, including Amazon, Microsoft, Boeing, Nordstrom, Starbucks, Costco, Russell Investments, the Bill & Melinda Gates Foundation, the Fred Hutchinson Cancer Research Center, and Weyerhaeuser. In addition, many Bay Area companies are expanding in the region, including Google, Facebook, Twitter, and Salesforce. While office-using technology and life sciences companies have been the primary recipients of most of the venture capital and news headlines in the region, a rising tide lifts all boats, and demand and pricing has been increasing across all property types. Despite this trend, Seattle remains relatively affordable to live and conduct business, compared to other tier one markets.

OFFICEINDUSTRIALRETAILMULTIFAMILY

Seattle


2014 Seattle office sales ($10M+) overview

Increased demand fuels record sales prices and robust volume

2014 was the fifth consecutive year that more than $1 billion in office assets traded hands in Puget Sound. In total, the market saw 40 transactions over $10 million close, which makes 2014 the most active year for office investment sales since 2007. However, the $1.8 billion total volume of these deals represents a decrease of nearly 38 percent from the previous year. While volume was less impressive than 2013, average pricing on a per-square-foot basis increased slightly to $318. In addition, Puget Sound area cap rates averaged 6.2 percent, up 10 basis points from last year.

The year began quickly, as the first sale over $100M occurred in January; KBS purchased The Plaza Buildings from Beacon Capital Partners for $186.5 million, or $404 per square foot. The two Bellevue CBD buildings, totaling 461,673 square feet, were the first Class A assets to trade hands in the submarket since City Center Plaza in 2012. Perhaps more notably in the first quarter, Kilroy Realty purchased 401 Terry, a Class A building fully leased to Institute for Systems Biology, from Vulcan for $106.1 million, or $755 per square foot. This pricing set a new per-square-foot market record, surpassing the $745 that GLL Real Estate Partners paid for 202 Westlake just six months earlier.

The second and third quarters of 2014 were notable as institutional investment sales activity occurred almost exclusively in suburban submarkets. While none of the transactions that occurred during this period made headlines like the 401 Terry sale, they offered great evidence of investors’ growing interest in suburban and non-core product. American Realty Advisors purchased Waterfront Place On Yarrow Bay from Talon Private Capital for $31.5 million, or $604 per square foot. Less than five years earlier, in October 2010, the property traded for $21.5 million, or $413 per square foot. That equates to an increase in value of 46.2 percent for the Class A Kirkland asset, which traded at a cap rate of 4.9 percent.

Demand kept building throughout the year, as the fourth quarter saw the highest sales volume, with $828.8 million in assets trading hands in the region. The quarter was highlighted by the sale of 1111 Third and Second & Spring. Ivanhoè Cambridge and Callahan Capital Properties acquired the aforementioned Seattle CBD buildings from Walton Street Capital for $280.0 million, or approximately $396 per square foot. While previous quarters illustrated increased demand for non-core product, five buildings in the Seattle CBD sold in the fourth quarter. Brickman Associates purchased the Pacific Building from The Rockpoint Group and Meriwether for $50.4 million, or $391 per square foot. The property was previously acquired for $35.5 million in March 2013. This represents an increase of 41.9 percent in 19 months.

As the market moves into 2015, strong landlord sentiment and expectations for robust demand continues to fuel investor appetite for Seattle’s office assets. Leasing market fundamentals will continue to improve with strong rent growth anticipated in the short and mid-term. Investor interest in the Bellevue CBD remains palpable, and while development activity has been substantial, core asset sales have been rare in recent years. This situation will change soon, as several properties in the submarket will sell with the sale of The Summit I & II being one of the largest deals done in Puget Sound in 2015.

Seattle has firmly cemented its place as a tier one gateway market for institutional investors and 2015 looks to be a banner year for office investment sales. There is an abundance of capital seeking real estate assets and Seattle’s high profile core properties fit the bill. While REITs and domestic pension funds comprised the majority of buyers in 2014, foreign investors have taken notice of Seattle and are increasingly on bid lists for major assets. We anticipate total office sales volume will exceed $2 billion and the market record for pricing per square foot will fall for the fourth consecutive year.

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Seattle office leasing

16

Robust leasing activity has vacancy trending towards 10 percent and development activity heating up

Bloomberg named Washington the “most innovative state in the nation,” based on its large technology workforce, high productivity rates and vast array of public technology companies. Seattle’s talented workforce, collaborative startup environment and quality real estate has made the city one of the most desired locations in the country for high-tech companies of all sizes. Six of the ten largest office tenants in the metro area are in the high-tech industry. Several major tech tenants have recently entered the market, including Alibaba, Apple, Oracle, HP, and Dropbox. Additionally, companies such as Amazon, Google, Tableau, and Zillow, which already have a major local presence, have been expanding their footprints.

The Seattle office market finished 2014 with 2.1 million square feet of space taken down, which is 42.0 percent higher than the 10-year average. This robust demand, driven primarily by the high-tech industry, accounted for approximately 45.0 percent of all regional office leasing activity in 2014, has pushed vacancy to 10.7 percent, which is 490 basis points below the national average and places Seattle in the position of having the 5th lowest vacancy rate in the country; behind New York, Portland, San Francisco and Salt Lake City. With market fundamentals as strong as they have been

in years - vacancy dropping to levels not seen since 2008, rents escalating and demand far exceeding annual averages - development activity is ramping up.

Each of the four Puget Sound office clusters - Downtown Seattle, Eastside, Northend and Southend - experienced year-over-year rental rate growth in 2014, with the most significant increases occurring in buildings with new ownership, high occupancy, or premium view space. Seattle CBD Class A rents currently stand at $36.70 per square foot, up 6.0 percent year-over-year. Average Class A asking rents in the Bellevue CBD stand at $38.96 per square foot, which represents an increase of 4.3 percent from last year. Seattle and Bellevue have significant pent up demand, as there are currently more than 180 companies in the market representing as much as 8.0 million square feet of potential activity. Tenants are finding it tough to migrate to the downtown cores, particularly tenants seeking Class A space. Companies such as Kemper Development, Trammell Crow, Schnitzer West, Daniels Real Estate, and Touchstone have all broken ground on significant downtown projects, with the intention of capturing the pent-up demand. Seattle is currently one of the most active markets in the nation for office development, with more than 5.1 million square feet of office space

currently under construction, with just 26.2 percent preleased. Houston, Dallas and New York are the only markets with more space currently being built. A talented workforce and quality real estate will sustain this demand.

Competition for tenants looking to migrate to the market, or maneuver within it, is intense and the demand for creative space is intensifying. As market fundamentals continue to strengthen, landlords will need to position their buildings with amenities and features that tenants desire. Tenants need a rich amenity set, including an updated lobby, athletic facility, conference center, bike storage, deck or other outdoor spaces, and diverse retail mix. Owners increasingly want to make sure that their retail offerings appeal to millennials.

Vacancy declined for the fifth consecutive year and is trending toward 10.0 percent in 2015, the tipping point where the market has historically experienced substantial rent growth. Job growth should remain strong in the near future, as major technology tenants continue growing in the market, and construction projects will continue to be kicked off. Those owners that have mastered how to position and market their space as creative are having, and will continue to have, the most success in capturing demand.

THE SEATTLE OFFICE MARKET FINISHED 2014 WITH 2.1 MILLION SQUARE FEET OF SPACE TAKEN DOWN, WHICH IS 42.0 PERCENT HIGHER THAN THE 10-YEAR AVERAGE


Seattle office sales & statistics

2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of Sales 55 119 19 6 15 25 38 39 40

Price/SF Highest $574 $531 $425 $397 $548 $557 $642 $745 $755

CAP Rate Average 6.1% 5.2% 6.2% 9.5% 7.2% 6.8% 5.5% 6.1% 6.2%

Sales Volume $2.7B $9.6B $0.4B $0.37B $1.2B $1.7B $4.9B $2.8B $1.8B

Submarket Size (RSF) Vacancy Avg. Rental Rate Net Absorption RSF

Downtown Seattle 47,854,435 10.4% $33.90 988,037

Eastside 24,905,170 8.6% $33.41 713,051

Northend 7,551,981 12.3% $27.77 311,095

Southend 8,133,629 17.8% $23.46 81,937

2014 Total Market 88,445,215 10.7% $31.60 2,094,120

2013 Total Market 88,460,367 12.5% $30.40 2,585,636

Sales matrix (over $10 Million)

Office market statistics

Office market statistics include Class A and B office buildings over 30,000 sf, single-tenant and multi-tenant.

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Eastside 24,905,170 8.6% $33.41 713,051

Northend 7,551,981 12.3% $27.77 311,095

Southend 8,133,629 17.8% $23.46 81,937

2014 Total Market 88,445,215 10.7% $31.60 2,094,120

2013 Total Market 88,460,367 12.5% $30.40 2,585,636

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Seattle office sales ($10M+)

Property Closing Date

Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Portfolio Sale

1111 Third 1111 3rd Ave Seattle, WA

11/19/14 572,500

1980 / 2013

$254,123,000

$444

N/A Ivanhoè Cambridge / Callahan Capital Properties

Walton Street Capital

• 65% leased at time of sale

• Two building portfolio sale which includedSecond & Spring

Second & Spring 1100 2nd Ave Seattle, WA

11/19/14 135,000

1906 / 1990

$25,877,000

$192

N/A Ivanhoè Cambridge / Callahan Capital Properties



• Two building portfolio sale which included1111 Third

Portfolio Sale

Plaza Center 10900 NE 8th St Bellevue, WA

1/3/14 324,300

1978 / 2007

$131,006,000

$404

5.4% KBS

Beacon Capital Partners


• Two building portfolio sale which includedUS Bank Plaza

US Bank Plaza 10800 NE 8th St Seattle, WA

1/3/14 137,373

1978 / 2007

$55,494,000

$404

5.4% KBS

Beacon Capital Partners


• Two building portfolio sale which includedPlaza Center

Bellefield Office Park 1150-1800 114th Ave SE, 11201 SE 8th St Bellevue, WA

11/7/14 507,000

1972-1997

$120,300,000

$237

8.0% Lionstone Group / Talon



• Fifteen building office campus

401 Terry 401 Terry Ave N Seattle, WA

3/13/14 140,605

2003

$106,125,000

$755

6.0% Kilroy

Vulcan


• Heavily built out with lab space

• Institute for Systems Biology is single tenant- NNN lease expires January 2021

720 Olive 720 Olive Way Seattle, WA

6/30/14 300,710

1981 / 2005

$101,000,000

$336

5.5% Talon / Prudential

Hines


• Building was previously acquired for $83.7Min January 2006



Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Sunset Corporate Campus 13810-13920 SE Eastgate Way Bellevue, WA

12/18/14 307,176

1992 / 1998

$90,691,000

$295

6.0% New York Life

Prudential


• Two building office complex

World Trade Center East 2211 Elliott Ave Seattle, WA

1/24/14 186,117

1999

$74,500,000

$400

5.0% LaSalle

EOP / TIAA-CREF


Stone 34 3400 Stone Way N Seattle, WA

12/19/14 120,777

2014

$70,078,000

$580

5.2% Unico / Laird Norton Company

Skanska


• Brooks Sports leased all of the office space and a portion of the retail

• Long term ground lease

Triton Towers 555-700 S Renton Village Pl, 707 S Grady Way Renton, WA

4/29/14 407,107

1980-1986

$59,960,000

$147

8.1% Hines / Oaktree Capital Management

HAL Real Estate Investments


• Three building office park

• Boeing occupies approximately 55% of the campus

Merrill Place 411 1st Ave S Seattle, WA

1/23/14 179,814

1905 / 1998

$57,700,000

$321

5.2% Hudson Pacific

Nitze-Stagen / Mile Rock Capital


• Off-market transaction

• Development potential for 160,000 SF

PEMCO Building 325 Eastlake Ave E Seattle, WA

12/31/14 168,260

1981

$51,750,000

$308

N/A Unico

PEMCO Insurance


• PEMCO Insurance leases the entire building and will vacate in late 2015

Pacific Building 720 3rd Ave Seattle, WA

10/31/14 129,065

1971

$50,400,000

$391

5.8% Brickman

Rockpoint Group / Meriwether


• Property was acquired for $35.5M in March 2013

Corporate Campus East 3001-3015 112th Ave NE Bellevue, WA 98004

1/14/14 154,195

1986

$43,400,000

$281

6.2% TA Realty

Cornerstone RE Advisors / Teachers Retirement System of Illinois


• Four building office park

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Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

500 Yale 500 Yale Ave N Seattle, WA

10/16/14 73,631

2009

$35,995,000

$489

5.9% Stars

LBA Realty


• Tenants are WeWork and New York Life Insurance Company

Canyon Park Heights Office Center 21540 30th Dr SE Bothell, WA

7/22/14 143,758

2000

$32,850,000

$229

6.8% Nicola Crosby

BlackRock


Waterfront Place On Yarrow Bay 5207-5209 Lake Washington Blvd N Kirkland, WA

8/19/14 52,091

2008

$31,455,000

$604

4.9% American Realty Advisors

Talon


• Building was acquired for $21.5M in October 2010

2200 First (Former Zulily Building) 2200 1st Ave S Seattle, WA

1/2/14 106,515

1909 / 2014

$27,675,000

$260

N/A Urban Renaissance Group

Felton Properties


• Zulily leased the entire building and vacated in June 2014

Three Tree Medical Arts Building 16529 Sylvester Rd SW Burien, WA

12/1/14 60,191

1992

$22,675,000

$377

7.1% Healthcare Realty Trust

Three Tree Medical Arts Bldg LLC


• Ground lease

419 Occidental (Former FX McRory Building) 419 Occidental Ave S Seattle, WA

3/27/14 85,752

1906 / 1987

$17,549,000

$205

6.4% Manchester Capital Management

Intracorp


• Class C office building

Seattle & Portland 2014 Investment Overview


Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Portfolio Sale

Grand Central Building 208-222 1st Ave S Seattle, WA

11/12/14 72,495

1900

$16,498,000

$228

N/A Unico

Goodman Real Estate


• Three building portfolio sale which included Buttnick and City Loan Buildings

• Previously acquired for $11.5M in October 2013

• Will convert to multifamily

Buttnick and City Loan Buildings 206 1st Ave S Seattle, WA

11/12/14 34,336

1930

$10,097,000

$294

N/A Unico

Goodman Real Estate


• Three building portfolio sale which included Grand Central Building

• Will convert to multifamily

Alderwood Business Campus 19101-19221 36th Ave W Lynnwood, WA

1/30/2014 138,499

1985-1996

$16,400,000

$118

9.8% Sterling Realty

Joe Vierra


• Six building business park

Redmond Technology Center 18300 Redmond Way Redmond, WA

6/20/2014 100,978

2008

$15,925,000

$158

N/A Menlo Equities

W3 Partners



Highlands Campus Tech Centre 21520 30th Dr SE Bothell, WA

7/1/2014 74,685

1999

$15,472,000

$207

7.0% Investcorp

LBA Realty


• Three building campus included a flex and manufacturing building

Gateway Corporate Center - Building 7 12720 Gateway Dr Tukwila, WA

10/30/2014 62,167

1987

$15,200,000

$245

N/A BECU

Deutsche Asset & Wealth Management


• BECU is headquartered next door and acquired the property to support its long-term growth

21

22



Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

PCL Building 15405 SE 37th St Bellevue, WA

12/19/2014 50,050

1999

$15,000,000

$300

N/A Donald Burton / Donald Zender

Jack Martin / Nick Westlund


• Purchased for occupancy - Evergreen HomeLoans will take a significant amount of spaceand lease out the rest

Star Plaza 11061 NE 2nd St Bellevue, WA

2/12/14 25,241

1978

$15,000,000

$594

N/A First Congregational Church of Bellevue

David Keyes and Barry Mattaini


• Purchased for occupancy by church

Heritage Corporate Center13427 NE 16th St Bellevue, WA

12/19/2014 52,376

2000

$14,500,000

$277

N/A Par 5 Investments

Trident Investments

• Vacant at time of sale

Seattle Metropolitan Credit Union801 3rd Ave Seattle, WA

12/23/2014 36,131

1907 / 1979

$14,300,000

$396

N/A Martin Smith / Urban Visions

Seattle Metropolitan Credit Union


• Bought for redevelopment

Portfolio Sale

Broderick Building 615 2nd Ave Seattle, WA

3/7/2014 69,451

1889 / 1986

$13,750,000

$198

7.4% Hannay Realty Advisors

Principal Financial Group


• Two building portfolio sale - MiKen Building

• Historic building

MiKen Building 1417 4th Ave Seattle, WA

3/7/2014 46,859

1908 / 1999

$9,300,000

$198

7.4% Hannay Realty Advisors

Principal Financial Group


• Two building portfolio sale - BroderickBuilding

• Historic building

Plaza 305 305 108th Ave NE Bellevue, WA

6/30/2014 22,404

1979 / 2007

$13,500,000

$603

N/A Fana Group

Goldsmith Land Investments


• Property was acquired for redevelopment



Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Market Square 1415 Western Ave Seattle, WA

8/27/2014 45,247

1908 / 1998

$12,400,000

$274

5.5% Stream Real Estate

Goodman Real Estate


• In-place rents were below market

Pioneer Building 606 1st Ave Seattle, WA

1/9/2014 72,000

1892 / 1974

$12,344,000

$171

5.4% Sun Capital Corp.

Dorothy & Richard Sikora


• Class C office building

Kirkland Gateway 11250 NE Kirkland Way Kirkland, WA

7/18/2014 29,6789

2000

$12,000,000

$404

6.0% Columbia Pacific Advisors

Davidson, Czeisler & Kilpatric, P.S.


Eastridge Corporate Center - Building C 12011 NE 1st St Bellevue, WA

5/7/2014 44,670

1984 / 2004

$12,000,000

$269

N/A Bellevue School District

G. Wilhelm Trust


• Buyer acquired the property with plans to occupy spaces as they become available

Transpacific Trade Center 3700 Pacific Hwy E Fife, WA

6/16/2014 68,355

1987 / 1997

$11,900,000

$162

N/A Puyallup Tribe of Indians

Milgard Family Foundation


• Sale included a land parcel of 1.08 acres

Sound Mind & Body 437 North 34th St Seattle, WA

3/31/2014 34,076

1997

$11,600,000

$340

N/A First Western Development Services

SMB of Seattle LLC

• 100% leased at time of sale to Sound Mind & Body Gym

• Building will be renovated for Tableau Software

• Ground lease

Overlake Office Center 15446 NE Bel Red Rd Redmond, WA

10/8/2014 48,568

1980 / 1990

$11,200,000

$231

5.8% NIU Enterprises

Kauri Investments


24



Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Wards Cove 88 E Hamlin St Seattle, WA

6/30/2014 23,120

1917 / 2008

$10,224,000

$442

6.0% Ali Bundrant

Wards Cove Company


• Three property sale included a marina

First West Building200 1st Ave WSeattle, WA

7/30/2014 64,926

1971 / 1990

$10,200,000

$157

N/A Martin Selig Real Estate

Kauri Investments


Downtown Public Health Center 2124 4th Ave Seattle, WA

12/19/2014 24,000

1960 / 1981

$10,078,000

$420

4.7% St Bride’s Managers

Nicola Crosby


• Downtown Public Health Center leases entire building


Seattle


2014 Seattle industrial sales ($10M+) overview

Sales volume down as owners opt to hold onto high preforming assets

The trade, transportation and utility sector, as well as the construction industry, have been two of the main drivers of job growth in Puget Sound within the past year. With a flourishing housing market, an abundance of large infrastructure projects and new office and industrial development, the near term outlook for construction looks positive. The aerospace, food/beverage and logistics industries have helped drive growth in the Ports of Seattle and Tacoma. These industries have remained strong economic drivers, in regards to imports and exports in the region and are helping to drive the local industrial market.

Sales volume of Puget Sound industrial properties decreased by 47.1 percent year-over-year, with $411.3 million in assets trading hands in 2014. While total volume was down, the frequency of trades remained high, as 24 properties were sold. Furthermore, average pricing on a per-square-foot basis remained identical, at $91, and cap rates stayed relatively flat at 6.4 percent. The cap rate compression in the market has been significant, as it’s currently 280 basis points below the high of 9.2 percent in 2009. 2014 simply lacked the jaw-dropping $100-million-plus portfolio sales that had been seen in previous years. The largest deal of the year occurred in November, when CenterPoint Properties purchased the two building industrial park located at 8801 E Marginal Way S from Washington Real Estate for $31.9 million. 100 percent leased at the time of sale, the buildings traded at a cap rate of just 5.45 percent. Buyers in the market were fairly diverse this year, as the aforementioned CenterPoint Properties and DCT Industrial were the only investors on the purchasing side of multiple transactions.

The decline in sales volume is not due to waning interest, but rather a lack of available product. In fact, 57.6 percent of respondents to PWC’s Emerging Trends in Real Estate 2015 survey recommended buying industrial property in Seattle. This makes Seattle the 8th most desirable industrial market in the nation. Additionally, 30.3 percent of respondents placed a “hold” rating on industrial product, while the remaining 12.1 percent minority recommended selling. Investment market activity remains primarily concentrated in off-market deals and buyers positioning for land acquisitions for future development. Owners remain reluctant to take their properties to market as they anticipate the peaking cycle. Institutional investors on the other hand have taken notice of the strong market fundamentals over the last two years and have been aggressive in acquiring both existing product, typically through unsolicited offers, as well as land in order to develop new product in the near-mid-term. These forward commitments for product clearly demonstrate pent up demand for well-located industrial assets and this type of pre-commitment buying has only returned to the Puget Sound market in recent years. With the local economy continuing to strengthen, the outlook for the Puget Sound industrial market is positive. Moving into 2015, we expect the industrial market to continue to perform well, both in terms of demand from tenants and interest from institutional investors.

30

Seattle industrial leasing

Strong tenant demand and increased development made 2014 a memorable year

2014 marked the strongest year for the Puget Sound industrial market in recent history. The dominant story throughout the year was “new development,” as over two million square feet of new product hit the market and an additional 3.7 million square feet of development is currently under way. Just about all of the new construction was delivered in the Southend markets, which include Seattle, the Kent Valley and Pierce County. The biggest market news to hit the Kent Valley in many years was the announcement by Amazon that it will lease over 1.1 million square feet of industrial space at the Stryker Business Center in Kent. The internet sales giant started occupying Building 1B in the second quarter and will occupy the build-to-suit on Stryker Phase II in the summer of 2015. The Northend and Eastside markets have seen performance vary widely quarter to quarter, but are generally heading in the right direction with both markets having a vacancy rate below 7 percent and an increasing number of construction projects in the pipeline. Boeing’s announcement at the beginning of the year to keep production of the 777X in the region has provided a strong boost for the aerospace industry in and around Everett. This is translating to increased demand and increased rental rates in that submarket.

Overall, tenant demand in the region has been very strong in 2014. Almost 5 million square feet of net positive absorption was posted during the year with a number of large deals still in the pipeline. Market conditions remain landlord favorable in a vast majority of submarkets for serviceable industrial product, with those landlords controlling state-of-the-art-product, firmly in the driver’s seat. Concessions have been steadily decreasing with less free rent offered and other concessions also being pulled back.

Rental rates have been on the rise during the past year, increasing by about 20 percent since the end of 2013. During the recession, rental rates fell dramatically, as landlords scrambled to attract and retain as many tenants as possible. As the local and national economies began to strengthen and the commercial real estate market in Puget Sound gained momentum, tenant activity began to heat up in 2014. As a result, landlords were able to push rents higher and be more selective in their choice of tenants. Average monthly blended rental rates in the Southend are now hitting $0.49 per square foot, which is just below the previous market peak of $0.52 per square foot set in Q3 2008, further illustrating market momentum.

Tenant activity will remain strong for the foreseeable future, especially in the Southend markets. New supply will begin to match demand towards the end of 2015, at which point rental rates will begin to level off. With 2 million square feet of development delivered in 2014, and a significant amount of new development currently in the pipeline, the market will begin to shift towards balanced conditions between landlords and tenants. Warehouse and distribution facilities will see the majority of activity in the coming months, as the vast majority of tenants currently in the market are looking for that type of space.

2014 MARKED THE STRONGEST YEAR FOR THE PUGET SOUND INDUSTRIAL MARKET IN RECENT HISTORY.


Seattle industrial sales & statistics


Seattle 47,006,969 2.4% $0.84 633,136

Eastside 31,970,652 6.6% $1.01 546,753

Northend 27,657,595 5.3% $0.70 607,154

Kent Valley 108,395,022 3.5% $0.56 2,520,050

Pierce County 58,163,329 6.0% $0.48 629,192

2014 Total Market 273,193,567 4.4% $0.69 4,936,285

2013 Total Market 256,708,467 5.5% $0.59 4,318,802

2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of Sales 14 35 19 9 11 14 20 25 24

Price/SF Highest (ind) $140 $164 $151 $100 $115 $187 $125 $288 $198

CAP Rate Average 6.8% 5.9% 6.6% 9.2% 7.4% 7.2% 6.5% 6.3% 6.4%

Price/SF Highest (flex) $206 $237 $199 $207 $156 $257 $180 $190 $122

Industrial market statistics

Sales matrix (over $10 million)

Industrial market statistics include industrial and flex inventory over 10,000 sf, single-tenant, multi-tenant and owner-occupied.

3232

Port of Seattle and Port of Tacoma historical total TEU’s

2014 TEU container volume

4,500,000

2,500,000

4,000,000

2,000,000

3,500,000

1,500,000

2007 2008

Seattle*

Tota

l TEU

’s

Tacoma* * In 2014 Port of Seattle and Port of Tacoma began combining their statistics

2009 2010 2011 2012 2013 2014*

500,000

3,000,000

1,000,000

0

2007 2008 2009 2010 2011 2012 2013 2014

Seattle 1,973,504 1,704,492 1,584,596 2,139,577 2,139,577 2,033,535 1,574,994 *

Tacoma 1,924,929 1,861,358 1,545,853 1,455,466 1,488,799 1,534,476 1,890,000 *

Total TEU’s 3,898,433 3,565,850 3,130,449 3,595,043 3,628,376 3,568,011 3,464,994 3,400,000



Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

IAA - Buildings A and B 8801 E Marginal Way S Tukwila, WA

11/26/14 461,980

1930

$31,900,000

$69

5.5% CenterPoint Properties

Washington Real Estate Holdings


• Two building industrial park

The Park at Woodinville 14201-14269 NE 200th St Woodinville, WA

10/24/14 49,446

1982

$29,690,000

$124

6.3% KBS Realty Advisors

Colony Realty Partners

• 96% leased at time of sale to 13 tenants

• Five building industrial park

Rainier Park of Industry - Building 5 13515 48th St E Sumner, WA

3/24/14 358,673

2005

$29,300,000

$82

N/A American Realty Advisors

LaSalle / Legg Mason Real Estate


Frederickson Industrial Center4615 192nd St ETacoma, WA

9/11/14 372,400

1985 / 2001

$27,900,000

$75

N/A James Hardie Building Products

Key Development Investment LLC


• Bought for occupancy

• Six building industrial park

Puyallup Industrial Park 402-418 Valley Ave NW Puyallup, WA

5/31/14 235,945

1998

$22,900,000

$97

6.8% DCT Industrial

Haub Revocable Trust


• Three building business park

Genie Industries - Building 1 & 3 18340-18460 NE 76th St Redmond, WA

3/27/14 198,094

1981 / 1995

$21,850,000

$110

8.5% LBA Realty

Everest Properties / Evergreen Realty Group


• Two building park with a land parcel included

Kent 167 Distribution Center 27232 72nd Ave S Kent, WA

10/27/14 361,120

1985

$19,300,000

$53

N/A KTR Capital Partners

K & H Sutter Company


Highlands Campus Tech Centre 21222-21312 30th Dr SE Bothell, WA

7/1/14 125,987

1999

$18,235,000

$145

7.0% Investcorp

LBA Realty


• Three building campus included an office building

Seattle industrial-flex sales ($10M+)

34


Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Seaway Business Center 1200-1310 Industry St Everett, WA

12/23/14 148,621

2007

$17,537,000

$118

6.6% DCT Industrial

Invesco


• Two building portfolio sale

24th St Business Park North 13701 24th St E Sumner, WA

12/15/14 240,000

2003

$17,500,000

$73

7.2% Harsch Investment Properties

Peterson Brothers, Inc.


• 13 buildings

Lakewood Corporate Center - Phase I - Building A 11101 S Tacoma Way Lakewood, WA

7/25/14 205,000

2006

$17,500,000

$85

6.0% TIAA-CREF

BlackRock Granite Property Fund, Inc.


Puget Sound Freight Lines 3480 W Marginal Way S Seattle, WA

11/12/14 157,515

1965

$16,400,000

$104

5.5% CenterPoint Properties

First Industrial Realty Trust


Lincoln Distribution Center 5808-5834 196th St Kent, WA

11/13/14 169,350

1982

$14,405,000

$85

5.0% Clarion Partners

Bertch Company


• Two buildings

Crown Distribution 17117 59th Ave NE Arlington, WA

11/24/14 101,978

2002

$14,250,000

$140

N/A Spirit Realty Capital

1st Beverage Capital


• Sale leaseback

White River Corporate Park 2302 W Valley Hwy N Auburn, WA

5/12/14 167,023

1991

$14,050,000

$84

7.0% Stockbridge

Morgan Stanley


• Two buildings

Holgate Center 1737 Airport Way S Seattle, WA

7/16/14 110,600

1951

$13,007,000

$118

7.3% Mapleton / RDS Real Estate LLC

Kyubei Ohki, Inc.


• Two building park included a retail building

Seattle industrial-flex sales ($10M+)



Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Hogland Transfer Company Building6605-6615 Hardeson Rd Everett, WA

9/17/14 111,000

1999

$12,200,000

$110

6.0% Prudential

Fidelity Real Estate Group


Park In Puyallup 507 N Levee Rd Puyallup, WA

12/5/14 108,644

1997

$11,600,000

$107

6.1% Gramercy Property Trust

LBA Realty


NW Waste Industries Building 54 S Dawson St Seattle, WA

9/29/14 53,550

1950

$10,625,000

$198

5.6% Prologis

Emerald Services, Inc.

• 100% leased at time of sale with 6.5years remaining on the lease

Intel Business Park 2700-2800 Center Dr DuPont, WA

11/7/14 370,000

1996

$10,368,000

$28

N/A Fortress Investment Group

Intel Corporation

• Part of a multi-property salethat included Telecom Hotel/Data Hosting properties totaling$41,000,000. Information presentedonly reflects the sale of themanufacturing asset.

Des Moines Logistic Center 19216-19320 Des Moines Memorial Dr S SeaTac, WA

5/30/14 136,584

1993

$10,328,000

$28

7.2% TPG Capital

Prologis

• Part of 61 property portfolio sale -$375M total

McCallum Envelope 801 NW 48th St Seattle, WA

7/24/14 79,650

1975

$10,250,000

$129

N/A Suzie Burke

McCallum Print Group

• 100% leased to Direct ConnectGroup on a short term lease whileDCG’s new building is completed

• Acquired as a vacant building andhas since been leased to FremontBrewing

North Creek - Building 7 11720 N Creek Parkway N Bothell, WA

7/30/14 83,360

1999

$10,200,000

$122

N/A Rosen-Harbottle Commercial Real Estate

Eurofins US


Topics Entertainment Building 3401-3405 Lind Ave SW Renton, WA

10/3/14 115,176

1984

$10,000,000

$87

5.5% Terreno Realty Corporation

Greg D. James



Seattle

38

2014 Seattle retail sales ($10M+) overview

Record pricing is achieved as the market sees the most trades in any single year since 2005

Retail investment sales volume decreased by 20.5 percent year-over-year, with $837.0 million in assets trading hands. 2013 featured five sales of over $100 million, and while 2014 could not keep up with that pace, the total number of trades was the highest it’s been since 2005, as 24 major sales ($10M+) occurred this year. Additionally, the average pricing per square foot of retail sales in 2014 increased by an astonishing 72.6 percent, to $355. Overall average cap rates ended the year at 6.0 percent, down 40 basis points year-over-year. This cap rate compression is significant when you consider that 2014 represents the fifth consecutive year of the downward trend, from a high of 8.8 percent in 2009.

2014 got off to a quick start, as Clarion Partners purchased Meridian Center from Miller Capital Advisory and CalPERS in January for $113.2 million, or $724 per square foot. The downtown Seattle property, home to tenants such as Niketown, Regal Meridian 16 and GameWorks, was 92 percent leased at the time of sale, and sold at a cap rate of 5.6 percent. That remained the largest sale of the year,

until Madison Marquette acquired Pacific Place in July. The Washington D.C. developer paid $271.0 million, a market record $849 per square foot, to Pine Street Group and Bentall Kennedy to own the 319,347 square foot property located at 600 Pine Street. Not only did the five-story mall set a regional record for pricing and set the low benchmark for cap rate in 2014, at just 4.5 percent, but it is the biggest retail transaction since the $297.0 million sale of Southcenter Mall in 2012.

As evidenced by record pricing and the high frequency of trades, demand for the Puget Sound retail market remains higher than ever. While transactions of high profile malls were primarily responsible for the sales volume in 2013, 2014 saw the sale of several shopping centers drive volume. With the current imbalance between supply and demand for this type of product, as well as a lack of available value-add properties, competition amongst investors for prime retail opportunities should be fierce in 2015.

THE AVERAGE PRICING PER SQUARE FOOT OF RETAIL SALES IN 2014 INCREASED BY AN ASTONISHING 72.6 PERCENT TO $355


NEARLY 1.9 MILLION SQUARE FEET OF SPACE WAS TAKEN DOWN IN 2014, WHICH REPRESENTS AN INCREASE OF 157.0 PERCENT OVER LAST YEAR

Seattle retail leasing

Strong demand further strengthens retail market

Employment in Seattle has outpaced the national average since 2010. The presence of Microsoft, Google, and especially Amazon has made Seattle an international center of technology. Above-average population growth and employment growth in high-paying tech industries is boosting retail sales and, consequently, demand. The recent residential construction boom, concentrated in the market’s urban core, should boost retail sales downtown. In fact, buying power (population multiplied by income) is expected to rise at least 20 percent by 2018 – a factor that could support more than 1.5 million square feet of new retail. The fact that scheduled deliveries are only half that figure reveal that Seattle is relatively under-retailed. The glut of well-paid, younger residents in the market is resulting in an increase in demand for groceries and luxury goods. Construction has started to come back, but this process has been a gradual one. The recently-built Grand Ridge Plaza at the Issaquah Highlands has started opening stores. Rents have turned the corner and are heading up, but are still competitively low. This won’t be the case for long, especially in the CBD, thanks to the difference between the level of retail that current demand can support and what is actually on track to be delivered.

Conditions in the Seattle retail market continue improving with positive net absorption and limited construction. Nearly 1.9 million square feet of space was taken down in 2014, which represents an increase of 157.0 percent over last year. Rampant leasing activity has pushed total retail vacancy down 70 basis points year-over-year to 4.9 percent. Perhaps more

impressively, this represents a decline of 170 basis points in the last three years. Overall asking rental rates increased 2.0 percent year-over-year. Vacancy is lowest in Downtown Seattle, at a miniscule 2.7 percent. Additionally, rental rates increased an impressive 7.9 percent in Downtown Seattle, to an average of $23.86 per square foot. 2014 was notable in that every cluster in the Puget Sound market - Downtown Seattle, Eastside, Northend, Southend and Tacoma - experienced significant positive net absorption. In fact, Tacoma, which has struggled with elevated vacancy in recent years, saw more than 520,000 square feet of space get taken down. The Eastside retail market had another strong year, as nearly 240,000 square feet of space was absorbed, dropping overall vacancy to 3.9 percent. Demand has been strongest in the Shopping Center sector, which accounted for more than 53 percent of metro area net absorption. Construction activity remains muted with approximately 352,000 square feet delivering to the market in 2014 and slightly less than 500,000 square feet underway.

40

Seattle retail sales & statistics

Submarket Size (RSF) Vacancy Avg. Rental Rate (NNN) Net Absorption RSF


Eastside 27,512,181 3.9% $23.06 239,160

Northend 45,581,016 4.8% $16.83 511,709

Southend 31,448,856 5.5% $16.11 520,995

Tacoma 40,865,073 6.8% $15.02 523,602

2014 Total Market 172,010,039 4.9% $17.53 1,885,341

2013 Total Market 171,492,976 5.6% $17.18 733,505

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of Sales 22 28 19 4 8 7 15 16 18 22

Price/SF Highest $368 $518 $467 $380 $404 $305 $387 $512 $509 $849

CAP Rate Average 6.3% 6.4% 5.9% 7.2% 8.8% N/A 7.0% 6.4% 6.4% 6.0%

Retail market statistics



Seattle retail sales ($10M+)


Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Pacific Place 600 Pine St Seattle, WA

7/14/14 319,347

1998

$271,000,000

$849

4.5% Madison Marquette

Pine Street Group / Bentall Kennedy (MEPT)


• Major tenants include Barneys NewYork, Barnes & Noble, Tiffany & Co, andAMC Theatres

Meridian Center 1500 6th Ave Seattle, WA

1/29/14 156,318

1996 / 2004

$113,150,000

$724

5.6% Clarion Partners

Miller Capital Advisory / CalPERS


• Major tenants include Niketown,Regal Meridian 16, GameWorks, andAmerican Apparel

Portfolio Sale

Point Fosdick Square 4831 Point Fosdick Dr NW Gig Harbor, WA

12/23/14 183,898

2011

$59,057,000

$321

N/A Terramar Retail Centers

Safeway


• Part of 35 property portfolio sale

• Major tenants include Safeway, QFC,Ace Hardware, and Rite Aid

Lakeside at Canyon Park 24040 Bothell Everett Hwy Bothell, WA

12/23/14 121,833

2011

$35,552,000

$292

N/A Terramar Retail Centers

Safeway

• Included 3.96 acres of land


• Part of 35 property portfolio sale

• Major tenants include Safeway andStarbucks

Broadway Market 401-417 Broadway E Seattle, WA

12/30/14 110,949

1950

$43,000,000

$388

5.2% Regency Centers Corporation

Madison Marquette / LaSalle


• Major tenants include QFC, Gold’sGym, and Urban Outfitters

• Ground lease

Lake Forest Park Towne Center17171-17535 Bothell Way NE Lake Forest Park, WA

10/15/14 241,480

1964 / 1995

$37,000,000

$153

5.0% Merlone Geier Partners

Madison Marquette


• Major tenants include Albertsons, RiteAid, and Ace Hardware

Walgreens Center 15555 NE 24th St Bellevue, WA

12/31/14 49,056

1969 / 1979

$30,000,000

$612

5.5% Panos Properties

Walgreens


42

Seattle retail sales ($10M+)


Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Redondo Square 27005-27073 Pacific Hwy S Kent, WA

5/15/14 125,096

1990 / 2004

$24,900,000

$199

6.5% Gerrity Group

Urban Renaissance Group


• Six building retail center

• Anchor tenants are Ace Hardware,Bartell Drugs, and Safeway

South Hill Village 120 N 31st Ave SE Puyallup, WA

3/11/14 142,002

1995

$23,903,000

$168

6.1% Nicola Crosby

Echelbarger Investments


• Major tenants include Big Lots,Petsmart, and Sportsman’s Warehouse

Bethel Junction Shopping Center3311-3399 Bethel Rd SE Port Orchard, WA

7/28/14 157,683

1989 / 1998

$20,800,000

$132

6.8% Gerrity Group

Robertson Properties Group


• Major tenants include Safeway, Big Lots,and O’Reilly Auto Parts

Heritage Square 700-740 NW Gilman Blvd Issaquah, WA

2/27/14 53,277

1985 / 1993

$18,025,000

$338

6.7% Retail Properties of America

Development Enterprises


• Non-anchored retail center

• Tenants include Jack in the Box,Denny’s, Sleep Country USA, andSherwin Williams

Claremont Village 4805-4933 Evergreen Way Everett, WA

11/5/14 86,497

1952 / 1995

$17,575,000

$203

6.0% Phillips Edison ARC Shopping Center

Eliat Management Company


• Multi-tenant retail center anchored byQFC

• Key tenants include Ace Hardware,GNC, and Chase Bank

Market at Lake Tapps19467-19685 WA-410 Bonney Lake, WA

9/25/14 78,941

1990 / 2013

$16,600,000

$210

6.7% Boardman LLC

Felton Properties / Time Equities


• Major tenants include Office Depot,Walmart, and Bank of America

Westgate North Shopping Center2601 N Pearl St Tacoma, WA

12/30/14 62,232

1960 / 1989

$15,800,000

$254

6.6% Donahue Schriber Realty

Crow Holdings


• Major tenants include Chase Bank,Round Table Pizza, and Taco Bell



Total SF Year Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Aurora Square 15727-15915 Westminster Way N Shoreline, WA

5/28/14 38,030

1987

$15,250,000

$401

5.0% ROIC

ACF Property Management


• Key tenants include Marshalls and Pier1 Imports

Avondale Plaza 11435-11523 Avondale Rd NE Redmond, WA

11/25/14 40,216

2005

$15,070,000

$375

5.9% Retail Properties of America

Barclays Realty & Management


• Major tenants include PCC NaturalMarket and Remax Elite

200 Plaza 206-224 105th Ave NE Bellevue, WA

4/2/14 29,920

1959 / 1978

$15,000,000

$501

N/A Run Xiang Wang

Jerome Alhadeff


• Future redevelopment site

Lowe’s Home Improvement2221 NW Myhre Rd Silverdale, WA

9/1/14 126,890

2008

$13,800,000

$109

4.9% Rosenthal & Rosenthal Inc.

Stephen Anderson


• Major tenants are Sportsman’sWarehouse and Ashley Furniture

Shane Co Plaza 18811 28th Ave W Lynnwood, WA

1/1/14 53,289

1980

$13,724,000

$258

N/A General Growth Properties

Rosen-Harbottle


• Tenants include Mattress Discountersand Windermere Real Estate

24 Hour Fitness 18006 120th Ave NE Bothell, WA

10/27/14 43,147

2014

$13,331,000

$309

8.4% Khosrow Omidvar

Titus Properties

• 100% leased at time of sale to 24 HourFitness

Lake Serene Center 3625 148th St SW Lynnwood, WA

5/1/14 29,983

2009

$12,500,000

$417

8.0% Washington Investment LLC

Daniel J Towslee


• Major tenants include Bartell Drugs,Starbucks, and 7-Eleven

SeaTac Plaza 2120-2210 S 320th St Federal Way, WA

8/25/14 107,394

1979

$12,000,000

$112

5.0% Wei Zhang & Jenny Shih

Byung Chan Park & Young Su Park


• Major tenants include AllstateInsurance, Laser Quest, and OutbackSteakhouse


Seattle


2014 Seattle multifamily sales ($10M+) overview

Seattle continues to be a highly-sought after market to invest in multifamily assets, as the property type accounts for nearly half of all regional investment activity

2014 was another great year for the Seattle multifamily market. Driven by employment that is outpacing nearly every major metro and attracting hordes of high-earning tech workers, the market experienced continued low vacancy and strong rent growth. Developers have taken notice as the robust development pipeline is working overtime to keep up with the seemingly insatiable demand for new residential units. As evidenced by the strong sales volume in 2014, investors continue to flood into the market, pushing pricing into record setting territory for both new construction and value-add assets. Total volume ended 2014 at $2.8 billion, 40.0 percent higher than 2013 and very near the region’s all-time peak of $2.9 billion, set in 2007.

Multifamily sales in the region in 2014 were notable not only for the sheer volume of properties changing hands, 84 transactions occurred in 2014, but also for the variety of property types selling. Demand was widespread with urban projects, as well as suburban assets commanding strong pricing. Average cap rates for the region remained compressed and relatively stable, averaging 5.2 percent, up just 10 basis points from 2013. The largest sale in 2014 was Invesco Realty’s acquisition of The Martin in South Lake Union. Vulcan sold the 188 unit property for $114 million at a reported cap rate of 4.7 percent and the highest price per

unit for the year at $606,382. The largest suburban property to trade was Bailey Farm in Bothell. The Wolff Company sold the 372-unit garden style asset to Kennedy-Wilson and Capri Capital Partners for $91.5 million, representing a cap rate of 4.3 percent and a price per door of $245,968.

Moving into 2015, expect to see more of the same in the Puget Sound region, high volume of trades, low cap rates and record pricing. With Amazon continuing to expand its South Lake Union campus (currently set to exceed 10 million SF); the Boeing Company (over 80,000 employees in the Puget Sound region) continuing to set sales records as the world’s leading aircraft manufacturer; Bay Area tech giants like Facebook, Apple and Google expanding their footprints in Seattle; and significant start up activity, the economic engines that drive the multifamily market are firing on all cylinders. Therefore, even with record-setting deliveries of new units, Seattle’s multifamily sales environment should remain positive with rent growth (albeit slightly less than the previous two years), occupancy rates favorable to landlords, and sales volume in 2015 to meet or exceed that of 2014. Even with the threat of increasing interest rates, capitalization rates will continue to remain at historically low levels as a result of the underlying fundamentals.

48

Seattle multifamily sales & statistics

2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of Sales 121 93 57 15 36 45 17 49 84

Highest Price/Unit $285,965 $407,083 $417,391 $211,957 $321,078 $350,000 $509,800 $690,583 $606,383

CAP Rate Average 5.4% 5.1% 5.8% 6.4% 6.4% 5.8% 5.5% 5.1% 5.2%

Sales Volume $2.0B $2.9B $1.6B $0.39B $0.89B $1.5B $2.7B $2.0B $2.8B


THE ROBUST DEVELOPMENT PIPELINE IS WORKING OVERTIME TO KEEP UP WITH THE SEEMINGLY INSATIABLE DEMAND FOR NEW RESIDENTIAL UNITS


Seattle multifamily sales ($10M+)

Property Closing Date Sale Price$ Per Unit

$ Per SF

UnitsYear Built

Cap rate BuyerSeller

The Martin 2105 5th Ave Seattle, WA

10/8/14 $114,000,000

$606,383

$629

188

2013

4.0% Invesco Realty

Vulcan

Bailey Farm 1225 183rd St SE Bothell, WA

3/21/14 $91,500,000

$245,968

$328

372

2012

4.3% Kennedy-Wilson/Capri Capital Partners

The Wolff Company

Beaumont 14001 NE 183rd St Woodinville, WA

12/31/14 $84,000,000

$244,186

$183

344

2009

4.3% Guardian Life Insurance

Boston Capital

Piedmont15309 NE 13th Pl Bellevue, WA

5/2/14 $76,750,000

$193,813

$216

396

1968

5.0% Essex Property Trust

Carmel Partners

Waterscape at Juanita Village 11801 97th Ln NE Kirkland, WA

9/25/14 $75,200,000

$383,673

$392

196

2013

4.3% UDR, Inc.

M-M Properties

Station at Othello Park 4219 S Othello St Seattle, WA

7/17/14 $75,000,000

$213,675

$220

351

2011

5.1% Universal Investment Gesellschaft

USAA

Panorama House 1100 University St Seattle, WA

9/5/14 $73,982,000

$413,307

$430

179

1962

N/A Security Properties

James Wolfe

Joseph Arnold Lofts 62 Cedar St Seattle, WA

4/28/14 $68,500,000

$522,901

$581

131

2013

4.1% Invesco

The Schuster Group

Leilani on Greenwood 10215 Greenwood Ave N Seattle, WA

9/16/14 $65,898,000

$241,385

$198

273

2013

4.9% Weidner Apartment Homes

Goodman Real Estate

5050



$ Per SF

UnitsYear Built


Millington at Merrill Creek 1401 Merrill Creek Pkwy Everett, WA

6/13/14 $63,500,000

$184,593

$193

344

2006

5.3% Security Properties

Invesco

Carriages at Fairwood Downs 15030 SE 179th St Renton, WA

6/26/14 $61,800,000

$154,500

$139

400

1988

5.5% TruAmerica Multifamily

Berkshire Group

Alcyone 301 Minor Ave N Seattle, WA

12/17/14 $60,950,000

$378,571

$303

161

2004

4.5% Equity Residential

Vulcan

Pavilion 1900 SW Campus Dr Federal Way, WA

5/30/14 $59,750,000

$115,347

$121

518

1990

6.4% Fowler Property Acquisitions

Kennedy-Wilson

Ellington at Bellevue 11200 NE 11th St Bellevue, WA

8/18/14 $58,750,000

$267,045

$356

220

994


AvalonBay Communities

Rock Creek Landing 1024 N Central Ave Kent, WA

7/30/14 $58,220,000

$101,076

$131

576

1986

5.3% Kennedy-Wilson

Holland Residential

Broadstone Koi 1139 NW Market St Seattle, WA

6/2/14 $57,000,000

$343,373

$464

166

2013

4.5% CBRE Global Investors

Prudential

Queen Anne Towne 1900 Queen Anne Ave N Seattle, WA

5/16/14 $51,100,000

$477,570

$364

107

2014

4.7% RREEF America

Emerald Bay Equity

Elan Redmond Town Center 16325 Clevelan St Redmond, WA

12/9/14 $49,975,000

$372,948

$397

134

2013

4.7% Berkshire Income Realty

Greystar Investment Group

51Seattle & Portland 2014 Investment Overview 51


$ Per SF

UnitsYear Built


Pebble Cove 17600 134th Ave SE Renton, WA

12/17/14 $49,500,000

$171,875

$16

288

1996

5.0% Jackson Square/Reverse Exchange Svcs

Invesco

Bella Sonoma 2301 62nd Ave E Fife, WA

11/20/14 $46,750,000

$166,964

$162

280

2006

5.4% Kennedy-Wilson

SEB

Lightbox 4545 8th Ave NE Asotin, WA

8/29/14 $45,500,000

$280,864

$353

162

2014

4.1% UDR, Inc.

Resmark Companies

Covington Farms 10115 Holly Drive Everett, WA

2/28/14 $42,700,000

$121,307

$126

352

1989

5.8% Lowe Enterprises

Heitman

Montair at Somerset Hill 1704 Barnes Blvd SW Olympia, WA

7/30/14 $42,620,000

$115,189

$121

370

1991

N/A Kennedy-Wilson

Holland Residential

Grammercy 17425 120th Ln SE Renton, WA

6/11/14 $41,500,000

$108,639

$208

382

1980


PASSCO

Canvas600 Elliott Ave W Seattle, WA

9/5/14 $40,000,000

$325,203

$506

123

2014

5.0% Public Employee Retirement System of Idaho

Goodman Real Estate

Park West 4100 129th Pl SE Bellevue, WA

12/3/14 $39,278,000

$270,883

$157

145

1989

4.0% Pacific Urban Residential

Ellingwood Company

Newport Crossing 7311 Coal Creek Pkwy SE Newcastle, WA

11/4/14 $38,800,000

$202,083

$203

192

1990

4.6% Friedkin Realty

Security Properties

52



$ Per SF

UnitsYear Built


Copper Ridge 4600 Davis Ave S Renton, WA

4/24/14 $36,525,000

$112,385

$144

325

1983

5.3% Citation Homes Central

Archon Group

Three20 320 E Pine St Seattle, WA

5/16/14 $36,071,000

$269,187

$336

134

2014


The Stratford Company

Jax500 3rd Ave W Seattle, WA

11/5/14 $36,000,000

$473,684

$578

76

2014

4.0% Fritzi Realty

Continental Properties

Gatsby 1145 10th Ave E Seattle, WA

8/7/14 $35,600,000

$508,571

$618

70

2014

4.2% Fritzi Realty

Continental Properties

Square One 1020 NE 63rd St Seattle, WA

12/9/14 $33,500,000

$299,107

$374

112

2014


Intracorp Real Estate

Stream Uptown 708 6th Ave N Seattle, WA

7/10/14 $32,955,000

$279,280

$372

118

2012

5.2% TIAA-CREF

Star Equity Management

North Creek 11401 3rd Ave SE Everett, WA

8/5/14 $29,850,000

$113,068

$133

264

1986

5.5% Lowe Enterprises

Blackstone Group

Park South 10102 8th Ave S Seattle, WA

5/29/14 $29,744,000

$118,033

$118

252

1987

5.8% Friedkin Realty

MG Properties Group

Collins on Pine 1222 E Pine St Seattle, WA

5/21/14 $29,117,000

$350,807

$369

83

2013


Metropolitan Homes



$ Per SF

UnitsYear Built


Aspen at Belvedere 21010 39th Way S SeaTac, WA

10/15/14 $28,950,000

$172,321

$179

168

2010

5.5% Prime Group

Holland Residential

Montclair Heights 2223 Benson Rd S Renton ,WA

4/23/14 $28,670,000

$164,770

$143

174

1989


Braddock & Logan Homes

Belvedere at Aspen Heights 20998 37th Ave S SeaTac, WA

10/15/14 $28,000,000

$200,000

$200

140

2013

4.8% Prime Group

PNW Home Builders Group

Westhaven2201 SW Holden St Seattle, WA

3/27/14 $27,000,000

$142,105

$171

190

1987


Holland Residential

Lakes by Mill Creek 13001 8th Ave W Everett, WA

4/21/14 $26,910,000

$120,673

$137

223

1986

6.1% Thayer Manca Residential

Empire Investments

Apex 2424 S 41st St Tacoma, WA

4/30/14 $26,500,000

$130,542

$73

203

2006

6.6% Kennedy-Wilson

MC Construction Consultants

StonePointe3806 78th Ave Ct W University Place, WA

7/30/14 $26,000,000

$108,333

$119

240

1990

6.2% Kennedy-Wilson

Holland Residential

BluWater11311 19th Ave SE Everett, WA

12/8/14 $25,500,000

$167,763

$182

152

1991

5.4% Coast Equity Partners

Gosvernor International

The Venue 1150 Union Ave NE Renton, WA

2/13/14 $24,125,000

$84,947

$117

284

1973


Columbus Pacific Properties

54



$ Per SF

UnitsYear Built


Muriel’s Landing 5240 University Way NE Seattle, WA

3/25/14 $24,000,000

$240,000

$461

100

2012

6.0% FSC Realty

The Schuster Group

Vesper Seattle 1321 Minor Ave Seattle, WA

11/12/14 $23,914,000

$332,139

$452

72

1991

4.9% Saratoga Capital

Pacific Urban Residential

Balfour Place 1205 Stewart St Seattle, WA

3/26/14 $23,130,000

$115,650

$238

200

1992

N/A Redwood-Kairos Real Estate Partners

Irwin Somerville

Shangri-La/Avana on the Lake 538 Lakeside Ave S Seattle, WA

9/11/14 $23,125,000

$292,722

$319

79

1961

4.5% Greystar Real Estate Partners

BlackRock

Gilman Square 360 NW Dogwood St Issaquah, WA

6/30/14 $23,000,000

$184,000

$199

125

1987

4.9% King County Housing Authority

Security Properties

Northshore Townhomes 7000 NE 186th Pl Kenmore, WA

9/22/14 $22,100,000

$256,977

$178

86

2008

5.0% The Matteson Companies

Grosvenor Americas

Sunset View 2101 SW Sunset Blvd Renton, WA

3/14/14 $21,885,000

$91,188

$71

240

1970

6.6% Investors Management Group

Angelo, Gordon & Co.

Sierra Sun 12400 Sunrise Blvd E Puyallup, WA

5/22/14 $21,500,000

$143,333

$120

150

2004

5.6% Hamilton Zanze & Company

James Brown

Martha Lake 16626 6th Ave W Lynnwood, WA

12/3/14 $20,300,000

$130,968

$144

155

1991

5.8% Waterton Associates

Helix Funds



$ Per SF

UnitsYear Built


Pinewood Square 6500 208th St SW Lynnwood, WA

10/22/14 $20,275,000

$112,639

$164

180

1977

5.2% Paul & Barbara Stephanus

Bridge Property Management

Serra Vista 15517 40th Ave W Lynnwood, WA

12/19/14 $20,010,000

$145,000

$166

138

1989

5.5% Paul & Barbara Stephanus

Archon

Newberry Square 16116 Ash Way Lynnwood, WA

8/28/14 $20,000,000

$162,602

$100

123

2005

5.3% Fairfield Residential

Sundquist Homes

Viewpointe on Queen Anne 2450 Aurora Ave N Seattle, WA

4/30/14 $20,000,000

$178,571

$166

112

1987

4.9% Timberline Partners

Jim Lampman

Aspen Creek 12724 104th Ave Ct E Puyallup, WA

12/29/14 $19,900,000

$122,840

$136

162

1996

N/A SEA 104 Court East LP

UDR, Inc.

Karbon 6802 Coal Creek Pkwy SE Renton, WA

8/15/14 $19,100,000

$181,905

$194

105

1989

5.9% Friedkin Realty Management

Goodman Real Estate

Cherry Creek 2325 96th St Seattle, WA

4/28/14 $18,225,000

$72,321

$95

252

1979

7.2% Security Properties

ALS Calico Corporation

Borgata 420 S 50th St Renton, WA

10/15/14 $17,900,000

$215,663

$192

83

2002

4.7% Rise Properties Trust

Grosvenor International

Catalina Community 2210 132nd Ave SE Bellevue, WA

2/25/14 $16,395,000

$170,781

$334

96

1992

6.0% Greg & Marina Itkin

Keystone Development

56



$ Per SF

UnitsYear Built


Residences at 3295 3295 SW Avalon Way Seattle, WA

6/19/14 $15,440,000

$257,333

$290

60

2012

5.0% Abacus Capital Group

Randolph Street Realty Capital

Union Arms & Manor 604 E Union St Seattle, WA

1/31/14 $15,173,000

$180,631

$225

84

1925

4.2% Pinnacle

Gibraltar

Verse Seattle 421 23rd Ave S Seattle, WA

4/28/14 $14,612,000

$162,356

$192

90

2004

6.2% Pacific Urban Residential

Lorig Associates

Remi 2727 Eastlake Ave E Seattle, WA

11/5/14 $14,100,000

$414,706

$446

34

1996

4.0% TriMark Property Group

Westlake Associates

Landings at River’s Edge 1741 22nd St NE Auburn, WA

11/18/14 $14,050,000

$117,083

$115

120

1976

5.7% Trimark Property Group

River’s Edge Auburn

Woodland Pointe 14359 Linden Ave N Seattle, WA

6/24/14 $14,000,000

$125,000

$196

112

1978

5.4% Rise Properties Trust

The Stratford Company

Rev Fremont 309 NW 41st St Seattle, WA

9/30/14 $13,140,000

$268,163

$373

49

2013

5.0% TriMark Property Group

Kauri Investments

University Manor 1305 NE 43rd St Seattle, WA

4/22/14 $12,992,000

$162,400

$255

80

1928

4.0% Gerard Pigotti

Shorenstein

Sunset Park 11202 2nd Lane SW Seattle, WA

9/18/14 $12,920,000

$104,194

$64

124

1988

5.8% Pacific Living Properties

Sunset Equities



$ Per SF

UnitsYear Built


Borealis 109 Dexter Ave N Seattle, WA

11/20/14 $12,500,000

$235,894

$264

53

2008

5.1% PrivatePortfolio Group

Vulcan

Velo 301 E Roy St Seattle, WA

9/16/14 $12,500,000

$255,102

$376

49

1967

5.1% Frederick & Julie Gould

Cadence Capital

Heather Ridge 20427 68th Ave W Lynnwood, WA

2/21/14 $12,150,000

$113,551

$139

107

1969

5.6% Apex Properties

Weidner Apartment Homes

1400 Market Street 1314 Market St Tacoma, WA

12/1/14 $12,125,000

$97,000

$144

125

1978

N/A The Reliant Group

Epic Asset Management

107 on Greenwood 10770 Greenwood Ave N Seattle, WA

9/16/14 $11,770,000

$210,179

$383

56

2013

5.0% Weidner Apartment Homes

Goodman Real Estate

Squire Park 11710 S Jackson St Seattle, WA

12/24/14 $11,250,000

$190,678

$172

59

2009

7.6% Jonathan Rose Companies

Central Area Development Association

Commencement Terrace 29 Saint Helens Ave Tacoma, WA

8/14/14 $11,090,000

$66,012

$93

168

1979

6.0% Investors Management Group

RP Management Inc.

Westside Flats 3233 SW Avalon Way Seattle, WA

1/17/14 $10,769,000

$179,483

$223

60

1999

5.2% Granite Peak Partners

Avalon Ventures

700 East Mercer 700 E Mercer St Seattle, WA

9/10/14 $10,605,000

$207,941

$260

51

1962

4.0% Frederick & Julie Gould

Western Property Management

58



$ Per SF

UnitsYear Built


Newport Heights 5680 152nd St Tukwila, WA

12/11/14 $10,525,000

$131,563

$174

80

1985

5.7% Woodspear Properties

Horizon Realty Advisors

Miller-Warren 701 E Pike St Seattle, WA

10/1/14 $10,000,000

$192,302

$327

52

1910

4.0% Timberlane Partners

Rodney Hansen

1711 12th Avenue 1711 12th Ave Seattle, WA

7/29/14 $10,000,000

$270,270

$536

37

2013

4.7% Planetary Power

Graham Capital Group

PORTLAND

Title left

60

PORTLAND

Market Overview

Strong economic growth and overall market fundamentals have increasingly put Portland on the radar of institutional investors seeking yield and value. During 2014, Portland recovered all jobs lost during the recession and then some. The metro area saw robust job growth of 3 percent and employment has surpassed the area’s previous jobs peak by more than 34,000. Economic expansion has been diverse with both office and industrial using sectors contributing significantly, with the high tech sector driving a significant amount of growth and energy in the market. Our city continues to garner outsized attention from national media outlets touting our amazing quality of life, foodie scene and relatively affordable cost of living. The reality of what Portland has to offer is finally soaking in and businesses and real estate investors around the country are noticing.

In-migration of the sought-after young and highly educated to Portland is driving job growth in the high tech sector as employers increasingly follow the talent. And while pricing is escalating across all property types, Portland remains a relative bargain compared to its West Coast neighbors, both in terms of cost of living and in terms of cost of doing business. Perhaps growth in the Portland market can best be explained by one of the CEO’s of a tech firm that has recently elected to expand in Portland area presence; “We hired people from all over the country and gave them the choice between living in San Francisco or Portland. 100% chose Portland.”


Portland

Title right

62


2014 Portland office sales ($10M+) overview

Sales volumes reach highest level since 2007

Office investment activity in the Portland market saw a robust increase in 2014 with institutional sales at their highest volume since 2007. The market saw 18 trades over $10 million for a total volume of close to $640 million, an increase of 46.0 percent year-over-year. The year was notable as demand for institutional assets spread to the suburban markets and CBD pricing surpassed pre-recession peaks for both Class A and Class B assets. Although cap rates for core urban products have compressed, averaging 6.5 percent in Portland, they remain 100 basis points higher in Portland than our neighbors to the north and south, enabling Portland to continue to offer a favorable risk-adjusted spread over other west coast markets. In addition, foreign investors have taken notice and are increasingly on bid lists for major Portland assets.

In the CBD, low vacancy and solid rental rate growth led to pricing increases and a flurry of activity in the second half of the year. One Main Place traded for $86.3 million in late December. New York Life bought the building from KBS for $274 a foot and a cap rate of 6.1 percent, the property was 92.0 percent leased at the time of sale and the buyers expect to capture value through rising rental rates and building lease-up. One Main Place last sold in 2010 for $57 million and a 9.0 percent cap rate, the building was 99.0 percent leased at the time of sale. This represents an increase in value of more than 57.0 percent in five years. The Lovejoy, located in the Pearl District and built in 2008 represents a smaller Class A asset, but one that garnered a significant price, trading for $38.5 million as Unico bought out the rest of their interest in the property from their partner Cigna. The building was 100% leased at the time of sale and traded for a 6.5 percent cap rate with a price per square foot of $460, setting the new high-watermark. The size of the building and location in the Pearl District contributed to the strong pricing achieved for the asset.

Class B and historic properties were also highly sought-after in the CBD as seven properties traded hands in 2014. Several represented opportunities for the new owners to reposition the buildings into creative office and capture a rising market,

while others represent the fruits of that labor. Perhaps the best example of the latter was the sale of the Yeon Building. Gaw Capital acquired the building from Jonathan Rose Companies for $29.7 million. Jonathan Rose, with their local operating partner Urban Renaissance Group, made significant upgrades to the property taking it to 93.5 percent leased. The cap rate on the sale was 5.1 percent with a price per square foot of $234. Jonathan Rose acquired the 60.0 percent leased-building in 2011 for $73 per square foot. The sale of the American Bank Building set a high-watermark for Class B and historic buildings in the CBD of $266 per square foot. A joint venture between ScanlanKemperBard and a Chilean pension fund, Independencia, purchased the 169,000 square foot property for $45.1 million in July, the property was 93 percent leased and had a cap rate of 7.2 percent.

Institutional interest spread to the suburbs in 2014 with those sales up over 800 percent year-over-year. The largest office sale was Starwood Capital’s acquisition of the PS Business Park portfolio, Cornell Oaks and Creekside Corporate Park. The 18-building portfolio totaled 1.2 million square feet and traded for $164 million, or $135 per square foot with a cap rate of 7.0 percent. The properties were over 90.0 percent leased representing an opportunity to add value through lease up and rent growth in a rising market. The market saw six additional suburban transactions over $10M. It is anticipated that several other new suburban offerings will hit the market in 2015.

Driven by the market’s strong fundamentals – low vacancy and increasing rents – as well as superior values compared with that of its closest major neighbors, investor interest in Portland will persist, motivating existing owners to sell and leading to strong pricing for core and value-add assets. The CBD will see significant investment activity in 2015 with several core properties expected to trade hands. In general, institutional interest in Portland is at a new high and we see no near-term end to this increased appetite for product.

64

Portland office leasing

Robust demand propels market to top of national heap

Portland’s office market saw just over 1.3 million square feet of net demand in 2014, almost twice the 10-year historical average for net absorption, pushing market vacancy to a 15-year low. The Portland market has seen four consecutive years of above average demand while deliveries have remained significantly below average. This office market momentum has pushed vacancy into single digits for the first time in more than 15 years. Portland now boasts the second lowest metro area vacancy of all major markets tracked by Jones Lang LaSalle, behind only New York. Demand for office space in Portland continues to be driven by technology firms, with more than 30 percent of all leasing activity attributed to high-technology and information. Market improvement was diverse but users generally showed a preference for an urban environment with 67 percent of demand in the Central City and Close In Eastside while the suburban markets accounted for 33 percent of area absorption.

The business climate in Portland is strong and many firms are expanding their presence in the market. The average size of Portland’s tenant is also growing. Conventional wisdom was that Portland is a market of very small tenants, with the average sized tenant somewhere in the range of 4,000 to 5,000 square feet. Our research shows that since 2009, the size of Portland area office tenants has increased by over 20 percent, now clocking in at just over 8,000 square feet. Currently, JLL is tracking more than 3.2 million square feet of tenants in the market with an average size requirement of over 21,000 square feet.

Rents in the Portland market have increased notably over the past year, particularly for large, premium spaces. In the CBD, Class A rents increased 5.2 percent year-over-year and are approaching the $30 mark with the highest asking rents for premium Class A product hitting $38.00 per square foot, full service. At $29.63 as of the end of 2014, overall average Class A asking rents are now more than 11 percent higher than their previous high-watermark set in 2008. Class B rents in the CBD are also showing strong momentum, with year-over-year rent growth for 2014 of 6.5 percent. Strong demand

from creative users is driving this rental rate growth. The Westside suburbs have been in growth mode for the past 2 years as vacancy has improved dramatically. With Westside suburban vacancy now sitting at 11.9 percent, the market has seen a strong recovery, dropping 140 basis points. This has led to Class A rental rate increases of 4.3 percent year-on-year, with Sunset Corridor Class A up 6.7 percent over the same timeframe. The limited supply of large spaces market-wide is driving up rents for users over 30,000 square feet. Net effective rents for leases executed over the past year in this size range are up 18.1 percent year-over-year.

The construction pipeline has filled considerably in the past year with 887,648 square feet of office product currently under construction, all of which is speculative and 98.6 percent of which is either in the CBD or Close In Eastside, up from only 422,934 square feet at the end of 2013. Deliveries are up as well with 325,640 square feet delivering in 2014, compared with just 213,800 in 2013. An increasing amount of development has come in the form of redevelopment, as developers look to capitalize on large, well-located, but functionally obsolete buildings, which appeal to the growing number of expanding creative and high-tech firms in Portland. Large projects including Park Avenue West, Pearl West, and The Oregonian, are expected to deliver in late 2015 and early 2016, which will add substantial supply to CBD inventory.

With relatively little vacant supply set to deliver in early 2015 coupled with accelerating demand, Portland’s vacancy should dip below 9.5 percent in the first quarter of 2015. In turn, rents are expected to increase and concessions will likely decrease, as tenants experience tighter market conditions, especially for large, centrally-located, Class A and creative spaces; this will further motivate developers to pursue additional developments and redevelopments in the central city.


Portland office sales & statistics


Central City 25,671,550 7.4% $26.24 675,229

Eastside 6,351,742 9.0% $21.05 259,493

Westside 20,888,188 11.9% $21.27 380,319

Vancouver Suburbs 6,331,738 11.3% $17.65 1,907

2014 Total Market 59,243,218 9.6% $22.49 1,313,948

2013 Total Market 58,106,985 11.1% $21.18 989,864

2007 2008 2009 2010 2011 2012 2013 2014

Number of Sales 28 9 5 5 5 9 14 18

Price/SF Highest $442 $271 $159 $197 $356 $443 $399 $460

CAP Rate Average 6.7% 7.1% 7.6% 8.4% 7.4% 8.3% 7.3% 7.2%

Office market statistics


66

Portland office sales ($10M+)


Total SFYear Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Portfolio Sale

Cornell Oaks Greenbrier Pkwy Beaverton, OR

10/01/2014 688,260

1982 / 1999

$164,100,000

$135

7.0% Starwood Capital

PS Business Parks

• 18 building portfolio with a mix of Class A, B and Flex space

• Cornell Oaks 93% leased at time of sale

• Creekside 90% leased at time of sale

• Properties in rising market with significant rent growth potential and potential to add value through lease up

• Two large tenants were known to be vacating, influencing occupancy and cap rate

• Cap rate on in-place NOI

Creekside Corp Park SW Nimbus Ave Beaverton, OR

524,131

1984 / 1999

One Main Place 101 SW Main St Portland, OR

12/15/2014 315,133

1982

$86,300,000

$274

6.1% New York Life

KBS Realty Advisors

• CBD Core asset


• Major tenants Ball Janik and Tripwire


American Bank Building 617 SW Morrison St Portland, OR

7/29/2014 169,548

1914

$45,100,000

$266

7.2% ScanlanKemperBard/ Independencia

LaeRoc Partners

• 93% leased at time of sale with limited near term rollover

• SKB in a JV with Independencia, a Chilean Pension Fund

• 50% of building rolls within 4 years w/opportunity to boost rents


Historic US National Bank Block 309 SW 6th Ave Portland, OR

11/10/2014 207,895

1906

$40,000,000

$192

4.7% ScanlanKemperBard/AEW

Beardsley Building Development

• Occupancy at sale was 80% but large tenant will roll in Jan 2015 putting occupancy at 63%

• Pro forma cap on 63% occupancy



Total SFYear Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

The Lovejoy 1331 NW Lovejoy St Portland, OR

6/18/2014 82,901

2008

$38,550,000

$460

6.5% Unico

Unico/Cigna


• Sale is for office condo portion of project

• Unico owned partial interest, sale represents the purchase of office condo by different fund

• Pro forma cap

Lincoln Building 421 SW Oak St Portland, OR

2/27/2014 262,975

1944 / 2005

$37,100,000

$141

9.0% DRA Advisors/ Newcastle Partners

Broadreach Capital Partners/ Unico

• 97.7% leased at time of sale

• Flat income stream with significant rollover risk in year 5

• Pro forma cap

Cascade Station I & II 9500-9600 NE Cascades Pky Portland, OR

4/15/2014 127,718

2008 / 2009

$30,000,000

$235

7.9% Palisades Partners

Trammell Crow

• First acquisition for Palisades Partners, focus on value-add and core-plus assets in Western US

• 70 year ground lease


• Pro forma cap

Yeon Building 522-530 SW 5th Ave Portland, OR

11/20/2014 126,885

1906/1987

$29,750,000

$234

5.1% Gaw Capital/Downtown Properties

Jonathan Rose Cos.


• Significant renovations/systems upgrades completed by seller

• Pro forma cap

Peace Health 1115 SE 164th Ave Vancouver, WA

8/07/2014 488,808

1981 / 2005

$25,700,000

$53

N/A PeaceHealth

PacTrust

• PeaceHealth occupies 33%

• PeaceHealth was leasing with pre-negotiated option to buy

68

Portland office sales ($10M+)


Total SFYear Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

Tigard Corporate Center 12123-12447 SW 69th Ave Portland, OR

3/31/2014 123,210

2000

$24,000,000

$195

8.9% Deutsche Asset & Wealth Management (RREEF)

Specht Properties/ASB

• Single tenant with 3+ years remaining


• Included a 357 stall parking structure

The Executive Bldg 811 SW 6th Ave Portland, OR

7/24/2014 109,934

1956 / 2006

$21,100,000

$191

8.0% Swift Realty Capital

Matteson Real Estate Equities

• Class B+ building with good location

• DEQ is major tenant with lease expiration within 24 months


• Existing debt was assumed

Cornell West 1500 NW Bethany Blvd Beaverton, OR

8/25/2014 115,668

2000

$18,224,000

$158

6.8% TA Realty

Founders Properties

• Good quality suburban Class A office building



Lattice Semiconductor 5555 NE Moore Ct Hillsboro, OR

11/07/2014 194,620

1999

$15,150,000

$78

N/A Goldman Sachs

Lattice Semiconductor

• Property was occupied by Lattice, they will lease back a portion and will re-locate HQ to CBD

• Property will be 50% vacant after sale

The Oregonian 1320 SW Broadway Portland, OR

9/24/2014 165,000

1948 / 1996

$14,500,000

$88

N/A Clarion/Urban Renaissance Group

Oregonian Publishing Co.


• Bought for re-development



Total SFYear Built

Sale Price$ Per SF

Cap rate

BuyerSeller

Comments

14th Overton Bldgs 1315-1330 NW Overton Portland, OR

9/04/2014 44,000

1921

$14,100,000

$320

N/A Meriwether Partners

WDC Properties


• Major tenant is IceBreaker

• 2-story former industrial buildings – likely purchased for future re-development

Main Place Bldg 1111 Main St Vancouver, WA

9/30/2014 87,984

1990

$12,150,000

$138

8.0% Menashe Properties

Realvest Corp


• Sale included 230 stall parking garage

Mt Scott Prof Center 9300 SE 91st St Happy Valley, OR

12/17/2014 53,000

2008

$11,000,000

$208

N/A MB Real Estate

Mark Jenquin

• Medical office building


• Major tenants Metropolitan Pediatrics

1500 Plaza 1500 NE Irving St Portland, OR

9/02/2014 66,484

1964

$10,800,000

$162

6.6% Swift Realty Capital

Washington Holdings


• Multi-tenant office building



Portland

72

2014 Portland industrial sales ($10M+) overview

Sales volume up, but lack of supply remains an issue

Sales volume for industrial product jumped to near $320 million in 2014, more than double the volume sold in 2013 and more than 300 percent of the volume the market has averaged during the previous six years. Still, a lack of quality assets coming to market has been a consistent theme in the Portland industrial market during this real estate cycle. Of the sales in 2014, $206 million in 9 transactions were institutional investments while the rest were owner/user acquisitions. Demand has far exceeded supply as investors continue to wait for their assets to stabilize or for pricing to return to its pre-recession peak before they put them on the market.

Strong demand has led to cap rate compression, particularly for premium quality assets. Average cap rates for trades in 2013 was 7.2 percent, this dropped to 7.1 percent in 2014. During 2014, the Portland area saw its first industrial trade at a sub 6 percent cap rate, and this for an older stabilized portfolio. The Holman Portfolio, consisting of 4 buildings in Clackamas (built 1980) totaling 430,799 square feet and 5 buildings in Guild’s Lake (built 1958-1973) totaling 346,671 square feet, traded from Hawthorne Investment Company to Industrial Property Trust. The property included 15 acres of land valued at $6.00 per square foot. With land removed from the valuation, the trade totaled $52 million with a cap rate of 6.2 percent on the Guild’s Lake portion and a 5.9 percent cap rate on the Clackamas portion. In the largest trade for the year, GE Capital sold a portfolio of 115 properties in multiple states. IndCor was the buyer and they purchased the three Oregon assets totaling more than 1.1 million square feet for an allocated $69.8 million with a cap rate of 6.7 percent. These were also older assets, built between 1964 and 1984.

Owner users remained active in the Portland market, accounting for six transactions totaling $113 million for the year. Corporations, motivated by rising prices and a lack of availability, want to take control of their own real estate and hedge against rising rental rates. The largest of these was Intel’s purchase of Maxim Integrated Product’s 325,000 square foot facility on 33 acres in the Sunset Corridor. The price was $23.2 million, representing a price of $71 per square foot, and it is assumed that Intel will occupy the property as Maxim vacates. In another owner user sale, Alliance Packaging and NIKE, Inc. engaged in a down-leg transaction, trading two industrial properties. Alliance Packaging’s older facility near NIKE’s Beaverton campus was sold to NIKE for $15.0 million or $132 per square foot. NIKE then constructed a custom facility in Hillsboro for Alliance Packaging, which sold for $22.3 million or $62 per square foot. Alliance Packaging will occupy 64.3 percent of this new building and will lease out the remainder.

Industrial product in Portland remains very tightly held with limited assets coming to market, but this is likely to loosen up a bit in 2015. As newer properties stabilize, expect owners to consider selling and volumes to increase again in 2015 with interest from institutional investors remaining high. Three institutional properties are currently on the market and expected to close in 2015 with additional product anticipated to hit the market in the middle of the year. In addition, much of the new speculative construction is being built by merchant developers who are likely to sell them as soon as they are stabilized; bringing some much needed modern institutional supply to hungry area investors.


Portland industrial leasing

Industrial market leverage shifting away from tenants

Portland has a strong “traded-sector” economy, defined as one where goods and services are used outside the region. This traded-sector economy supports a strong and vibrant industrial market and includes traded sector clusters such as active apparel companies, electronics manufacturers and “clean” technology companies. Manufacturing contributes significantly to the area’s traded sector economy and computer and electronic manufacturing dominate the area. The industrial supersectors, which include trade, transportation, & utilities, manufacturing, and construction, are all performing strongly. With strong industrial employment growth driving demand and limited supply side development, the Portland industrial market is seeing strengthening market fundamentals as vacancy declines and rental rate increases spread to more submarkets.

Metro area net absorption has historically averaged 2.2 million square feet on an annual basis with construction averaging 1.8 million square feet. 2014 saw the market absorb 3.6 million square feet, far surpassing 2013 numbers and average annual numbers. Metro area vacancy has dropped to its lowest level in over 20 years, now sitting at 5.3 percent. Industrial leasing volume was strongly positive during the year and market activity has shown a significant uptick as 2014 came to a close. Computer and electronics manufacturing and distribution as well as food and beverage distribution companies continue to drive growth, with a surge in activity from third party logistics providers. While the area has seen small to mid-sized firms’ fuel growth, there has been increased interest from several very large users, looking to establish regional distribution centers in the Portland area.

In response to these significant strengthening market conditions, the market is seeing significant new speculative construction break ground. The first projects since 2009. 2014 saw the delivery of 1,184,233 square feet, higher than every previous year since 2008. Additionally, the construction pipeline has ramped up significantly with speculative projects, now with over 2,000,000

square feet under construction and a large amount of planned development set to break ground in early 2015. Nearly 500,000 square feet of predominantly speculative space is expected to hit the market in the first quarter of 2015 with the delivery of Gateway Corporate Center and Prologis PDX 20, both in the NE Columbia Corridor. Although absorption is expected to remain at strong levels, vacancy will likely bump up slightly. Interstate Crossroads Distribution Center and Cameron Distribution center, both speculative projects in NE Columbia Corridor, are under construction and are expected to bring an additional 800,000+ square feet of space to the submarket by the end of 2015.

This new development activity demonstrates confidence in demand in the NE/Columbia Corridor. Shovel-ready industrial land is in very limited supply within Portland’s urban growth boundary, and this barrier to entry, along with the expensive and restrictive Portland area approval processes should continue to keep new supply in check despite this new construction activity.

Pricing has increased notably, up 9.4 percent year-over year, now at a new high average asking rent of $0.58 per square foot per month, blended. Rents are seeing significantly stronger growth in tighter submarkets and in the limited quality product that is left on the market. Asking rates for new construction are further evidence of this rent trend with shell rates at $0.45 and the office surcharge at $0.85 per square foot.

METRO AREA VACANCY HAS DROPPED TO ITS LOWEST LEVEL IN OVER 20 YEARS, NOW SITTING AT 5.3 PERCENT

74

Portland industrial sales & statistics

Submarket Size (RSF) Vacancy Avg. Rental Rate Net Absorption (RSF)

Eastside 91,663,973 4.9% $0.51 1,178,539

Westside 72,125,065 5.6% $0.63 2,373,454

Clark County 18,026,025 6.0% $0.65 54,546

2014 Total Market 181,815,063 5.3% $0.58 3,606,593

2013 Total Market 179,365,147 6.1% $0.53 1,831,650

2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of Sales 13 17 5 1 1 2 5 5 15

Price/SF Highest $207 $156 $112 $52 $59 $44 $63 $95 $133

CAP Rate Average 7.8% 6.9% 7.0% 9.5% 9.2% N/A 7.4% 7.4% 7.1%

Industrial market statistics



Portland industrial sales ($10M+)


Total SFYear Built

Sale Price$ Per SF


Comments

GE Capital Portfolio Wilsonville Dist., Yeon & Cascade Business Portland, OR

2/27/2014 1,145,730

1964 / 1984

$69,800,000

$61

6.7% IndCor

GE Capital

• Portfolio of 115 properties in multiple states

• Comp represents estimate of OR portion of sale

Airport Way Portfolio Airport Park, Airport Park West, Airport Ctr I & II Portland, OR

4/23/14 475,146

1979 / 1994

$35,800,000

$75

7.8% Stockbridge Capital

Industrial Income Trust REIT

• Sale was 3 parks in Oregon

• Portfolio sale containing 13 properties making up Airport Park, Airport Park West, Airport Center I & II, and Johnstone Supply


Portfolio Sale

Holman Portfolio - Clackamas 10775-10955 SE Jennifer St Clackamas, OR

12/18/14 430,799

1980

$28,997,223

$67

5.9% Industrial Property Trust

Hawthorne Investment Co.

• 17% of leases roll in first year

• Sale price was $32.9M which included 15 acres of land

• Land valued at $6 PSF removed from price to achieve true $/SF

Holman Portfolio - NW Portland 2805-2909 NW 31st Ave Portland, OR

12/19/14 346,671

1958 / 1973

$23,734,088

$68

6.2% Industrial Property Trust

Hawthorne Investment Co.

• Buildings 100% leased at time of sale

• 5 buildings in NW portion of sale

7300 NW Evergreen Pky - HB1 7300 NW Evergreen Pky Hillsboro, OR

12/17/14 325,000

1987

$23,200,000

$71

N/A Intel Corp.

Maxim Integrated Products, Inc.

• Two buildings 100% leased to Maxim Integrated Products

• 33.40 acres

• Assumed that Intel will occupy property - Owner/User sale

Alliance Packaging 23035 NW Jacobson Rd Hillsboro, OR

7/1/14 358,870

2014

$22,254,371

$62

N/A Alliance Packaging

NIKE, Inc.

• BTS for Alliance by Trammel Crow on Nike land

• Alliance will occupy 64.3% and lease out balance

76

Portland industrial sales ($10M+)


Total SFYear Built

Sale Price$ Per SF


Comments

Alliance Packaging 1255 SW Burlington Dr Beaverton, OR

6/30/14 112,971

1985

$14,953,000

$132

N/A NIKE, Inc.

Alliance Packaging

• Owner/User


• Down-leg transaction in exchange for a newly built industrial building in Hillsboro

• Nike will occupy or re-develop

212 Corporate Center 11241-11245 SE Highway 212 Clackamas, OR

1/7/14 233,425

1996

$14,500,000

$62

N/A PECO

Tennant Investors

• Owner/User sale

• Two building park

Lake Oswego Commerce Ctr 6024 SW Jean Rd Lake Oswego, OR

4/25/14 153,315

1979

$14,000,000

$91

N/A MicroSystems Engineering

Watumull Properties

• Portfolio of 5 properties 100% leased

• Micro Systems and Biotroniks Inc. occupy a majority of the complex

• Micro Systems exercised option to purchase

Wilsonville Corporate Center 26200 SW 95th Ave Wilsonville, OR

5/30/14 202,000

1995

$13,673,943

$68

7.2% TPG Capital

Prologis

• Part of a 59-property portfolio

• OR portion is allocated

• Cap rate is for portfolio

Cross-Dock Terminal 6845 N Cutter Cir Portland, OR

4/14/14 96,077

1991

$13,212,500

$138

8.6% Winkler Development

NorthAmerican Terminals Management

• 100% leased to single tenant with 5+ years left

• Great land location

• Tenant has credit challenges

Swan Island Industrial 5000-5130 N Basin Ave Portland, OR

10/1/14 346,612

1954

$12,600,000

$36

8.6% Premier Press

Watumull Properties

• Owner/User Sale


• Premier Press sold their facility same day and will be relocating to this facility



Total SFYear Built

Sale Price$ Per SF


Comments

Parkway Corporate Center 25600 SW Parkway Center Dr Wilsonville, OR

6/26/14 177,288

1986

$11,600,000

$65

N/A Findlay Family Properties

Weston Investment Co.

• Owner/User

• 10.37 acres of land

• Property purchased to be redeveloped into a full-service Chrysler auto dealership

Tanasbourne Business Park 20795-20811 NW Cornell Rd Hillsboro, OR

1/2/14 112,953

1996

$11,400,000

$101

7.3% Pacific NW Properties

Rees & Associates



• 3-building flex park

• Pricing reflects heavy office build-out

Premier Press 510 NW 15th/2850 NW 31st Portland, OR

10/1/14 110,185

1937 / 1957

$10,150,000

$92

N/A Meriwether Partners

Premier Press

• 2 properties 100% leased at time of sale, Premier Press expected to vacate within months

• Redevelopment project


Portland


80

2014 Portland retail sales ($10M+) overview

Investment volume and pricing stable

Institutional interest in Portland area retail properties remained strong in 2014, driven by solid population and economic growth and strong regional demographics. 2014 retail investment sales volume for sales over $10 million was essentially stable from the previous year, totaling $668 million after 2013 set a record high for the last decade. However the number of transactions was up significantly, with 13 properties trading, compared to nine transactions in 2013. The sale of Washington Square Mall dominated investment activity for the year and represented more than half the total volume of activity. Macerich acquired their joint venture partner’s 49 percent interest in a 5 mall portfolio sale from Cadillac Fairview. Washington Square Mall was one of the assets acquired, totaling 1,443,000 square feet, with an allocated price of $399 million. The Mall was 93% leased at the time of sale and is Oregon’s highest performing mall with sales of $1,044 per square foot. No cap rate was available but the price per square foot of $564 represents the high-watermark for the market.

Other activity was largely dominated by institutional investors buying well-leased grocery-anchored shopping centers with an average cap rate of 7.0 percent. Among these sales were Mall 205 and Plaza 205, sold to Gerrity by ACF Property Management for $76 million at a 6.7 percent cap, the two shopping centers were 91% leased and anchored by Home Depot and Bed, Bath & Beyond. Wilsonville Town Center also sold to Northview Investments from Retail Opportunity Investment Corp. The 170,000 square foot Thriftway-anchored community center traded for $35.1 million and a 6.0 percent cap rate. Net sellers in the Portland market this year were Retail Opportunity Investment Corp, CE John and Kirkwood Properties.

THE SALE OF WASHINGTON SQUARE MALL DOMINATED INVESTMENT ACTIVITY FOR THE YEAR AND REPRESENTED MORE THAN HALF THE TOTAL VOLUME OF ACTIVITY


Portland retail leasing

Strong demographics propel retail market

Portland’s above-average population growth and outstanding job growth have worked in its favor, making it an attractive market for both corporate and retail expansion. The market’s reputation as a tech-center has not only boosted employment, but has also increased the number of well-educated, highly-paid residents in the area. Tourism has also been a boon to the local economy; in the last year, visitors spent four percent more money on hotels, food, entertainment and shopping than in the prior year. Thanks to increasing retail sales, retailers’ confidence is increasing, resulting in growing expansion plans in the market. Cumulative growth in the big-spender cohort (ages 35-54) is expected to near 3.5 percent by 2018, a factor almost certain to push up retail demand even more. Portland’s CBD is especially popular with retailers such as H&M, Tory Burch, Apple and Microsoft opening new stores in recent months.

The move towards urban and local is very evident in the Portland retail market. What limited development underway takes on a heavily mixed-use and walkable flavor while local and healthy continue to be the winning formula in tenant mix. Portland demographics and heavy inmigration of millennials is having a large influence on retail market

offerings. Millennials call for innovation and novelty in their retail experience, and more than anything, they are experiential buyers, seeking to combine digital and brick and mortar retailing. Millennials have large buying power and tend to favor fast fashion retailers, restaurants and omnichannel choices. The impact on the Portland retail market can be seen in the development of mixed use, urban retail centers and walkable destination retail.

Portland’s retail market saw solid improvement in 2014 with net absorption almost double the previous year, coming in at just over 1 million square feet, pushing vacancy to pre-recession levels, now standing at 4.8 percent. While rents fell 15 percent during Portland’s downturn, they have been rebounding for the past two years and were up 4.0 percent year-over-year in 2014. Construction in the Portland market has been muted since 2009, but the area saw the delivery of just over 1 million square feet in 2014 with a modest amount of construction underway. While construction remains minimal, it could present a challenge for expanding retailers, since vacancy is already at pre-recession levels. Thanks to limited supply, pricing power should remain in the hands of landlords for the next few years.

WHILE RENTS FELL 15 PERCENT DURING PORTLAND’S DOWNTURN, THEY HAVE BEEN REBOUNDING FOR THE PAST TWO YEARS AND WERE UP 4.0 PERCENT YEAR-OVER-YEAR IN 2014

82

Portland retail sales & statistics


CBD 5,151,778 3.8% $22.10 -6,431

Clark County 17,869,969 7.4% $16.34 190,510

I-5 Corridor 10,475,139 3.8% $21.32 449,204

Lloyd District 5,511,205 4.1% $14.88 -5,236

Northeast 20,436,712 5.1% $15.52 52,922

Northwest 1,809,029 1.8% $15.60 -12,260

Southeast 22,108,577 4.4% $15.28 134,233

Southwest 13,190,818 4.3% $17.93 236,177

Westside 9,392,120 3.6% $18.53 42,146

2014 Total Market 105,945,347 4.8% $16.86 1,081,265

2013 Total Market 104,601,889 5.3% $16.22 535,567

2006 2007 2008 2009 2010 2011 2012 2013 2014

Number of Sales 13 14 6 4 9 4 5 9 13

Price/SF Highest $393 $633 $636 $173 $328 $209 $533 $405 $564

CAP Rate Average 6.8% 6.5% 6.6% 8.5% 7.9% 9.7% 6.4% 7.4% 7.3%

Retail market statistics



Portland retail sales ($10M+)


Total SFYear Built

Sale Price$ Per SF


Comments

Washington Square Mall 9301-9799 SW Washington Square Tigard, OR

11/17/2014 1,443,000

1974 / 1995

$399,352,586

$564

N/A Macerich

Cadillac Fairview

• Part of a 5-portfolio mall sale

• Macerich acquired the JV partner’s 49% interest and now wholly owns the property

• $/SF based on full value of allocated price


• Oregon’s highest performing mall with sales per SF of $1,044

Mall 205 & Plaza 205 10120 SE Washington St Portland, OR

7/31/2014 478,239

1971

$76,500,000

$160

6.7% Gerrity

ACF Property Management

• Two shopping centers anchored by Home Depot, Bed Bath & Beyond and 24 Hour Fitness


Wilsonville Town Center 8235 SW Wilsonville Rd Wilsonville, OR

12/11/2014 170,031

1990

$35,100,000

$206

6.0% Northview Investments

Retail Opportunity Investment Corp

• Community center anchored by Rite Aid and Thriftway


Hazel Dell Square 7604-7607 NE 5th Ave Vancouver, WA

4/3/2014 85,766

2007

$27,650,000

$322

6.8% Giustina Resources

CE John / Gramor Development

• 6 buildings anchored by Natural Grocers and LA Fitness


Tigard Marketplace 13520 SW Pacific Hwy Tigard, OR

2/18/2014 134,323

2002

$25,125,000

$187

9.3% ROIC

Mount Kellett / EVOQ Properties

• 8 retail properties

• Shopping Center anchored by H-Mart and Bi-Mart


• Property to be repositioned

• Off market sale

84

Portland retail sales ($10M+)


Total SFYear Built

Sale Price$ Per SF


Comments

Sunnyside 205 9919 SE Sunnyside Rd Clackamas, OR

12/10/2014 53,547

1988

$17,525,000

$327

7.0% Family Buys Trust

Regency Centers Corporation

• Neighborhood center anchored by Sunnyside Health & Wellness


Willamette Market Place 2050 8th Ave West Linn, OR

7/10/2014 61,517

2008

$15,305,000

$249

7.0% Scanlan Kemper Bard

Karlin Real Estate

• Included 4 retail buildings and a multi-story retail/medical building


• Anchored by Ace and Five Guys

Progress Ridge Town Square 14950 SW Barrows Rd Beaverton, OR

6/27/2014 65,759

2010

$15,200,357

$231

7.8% Spirit Realty Capital

Kirkwood Properties

• Property part of Shoppes at Progress Ridge anchored by New Seasons

• Big Al’s under 20-year triple net lease with 15 years left

Burlington Coat Factory 10510 SE 82nd Ave Portland, OR

7/10/2014 83,260

1959

$13,180,000

$158

7.5% Bilak Investments

Oregon Pacific Investment & Development


• 10 year net lease

• Sale included 60,000 SF of excess land

Oregon City Point 19478 Molalla Ave Oregon City, OR

8/20/2014 35,305

2007

$12,350,000

$349

7.1% Flair Diversified Properties

Retail Opportunity Investment Corp

• Class A shopping center anchored by Starbucks, Five Guys and Panda Express




Total SFYear Built

Sale Price$ Per SF


Comments

Big Al’s 16615 SE 18th Ave Vancouver, WA

6/27/2014 60,479

2006

$10,539,361

$174

N/A Spirit Realty Capital

Kirkwood Properties

• Sale leaseback of single building in strip mall


• Mall anchored by Walgreens

• Big Al’s is bar & grill with bowling

Slabtown Marketplace 2170 NW Raleigh St Portland, OR

6/10/2014 36,000

1952

$10,178,000

$283

N/A Capstone Partners

CE John Company

• Property purchased for land value – being re-developed into a mixed use project

• Will have 38,000 SF of retail (including 28,000 SF New Seasons) and 115 units of multi family

• Total project cost will be $40M

Hillsboro Town Center 1975-2075 SE TV Hwy Hillsboro, OR

11/25/2014 108,553

1980 / 1998

$10,000,000

$92

7.5% Sidley Law Group

Phillips Edison & Co.

• Community center anchored by Bi-Mart

• 2 building center


Title right

86


Portland

Seattle & Portland 2014 Investment Overview

2014 Portland multifamily sales ($10M+) overview

89

Sales volume surges past previous peak

In 2014, Portland solidified its presence among the nation’s top multifamily markets. Demand for new apartments surged, resulting in quick absorption and an incredibly low number of properties offering concessions. Growth was spurred on by record high job numbers as well as strong upticks in both the metro’s total population and labor force. Overall year-over-year rent growth surged past 10 percent, with vacancies continuing to hover well below 4 percent. Assets sold at historically low cap rates, averaging just 5.6 percent with premier assets trading a cap rates below 5 percent. Total transaction volume for institutional deals was robust at $1.2 billion, continuing at a pace on par to set new records. Sales volumes were almost double those seen in 2013, and higher than the volume experienced during the height of the previous cycle. The number of transactions was also significant, up to 37 from 20 in 2013. Sale receipts also show new benchmarks for price per square foot within traded multifamily assets and a new high-watermark was set for price per unit with the sale of the Asa Flats and Lofts, $456,710. Unico sold the 231-unit urban project sold to Invesco for $105.5 million, and a cap rate of 4.5 percent.

A significant number of newly constructed urban projects traded hands in 2014 with very strong pricing as they remain a favorite among institutional investors. The projects were generally well-leased and commanding the highest rents in the market. These assets traded at the lowest cap rates in the market, between 4.4 and 5.0 percent. The market also saw an uptick in trades for suburban properties, with those in mixed-use settings

achieving a pricing premium. In the largest transaction, Heitman Capital Management purchased Rock Creek Landing from UBS for $80 million. The 480-unit Hillsboro property adjacent to The Streets of Tanasbourne festival marketplace was 95 percent leased at the time of sale and traded at a 4.8 percent cap rate.

Looking to 2015, economic indicators point toward continued strength within the Portland metro area. Multifamily development will remain robust, with developers seeking to minimize the metro’s overall rental housing shortage. Reports show that new properties are typically of institutional caliber (150 units or greater) with an emphasis on smaller unit types (one bedroom and studio floor plans), which are generally commanding greater pricing on a per foot basis. Rent growth is expected to continue at a healthy pace and absorption will remain strong as more millennials flood the market and employment numbers, as well as office leasing and expansions, continue to swell. Consequently, the Portland metro is expected to continue its upward trajectory within the multifamily sector, offering strong returns for investors.

90

Portland multifamily sales & statistics

2006 2007 2008 2009 2010 2011 2012 2013 2014

Total # of sales 25 27 21 8 16 21 20 20 37

Highest price per unit $146,610 $294,077 $455,340 $184,659 $285,149 $395,000 $267,241 $343,017 $456,710

Cap rate average 6.1% 5.2% 5.4% 7.2% 5.9% 5.7% 5.7% 5.6% 5.6%

Total sales volume ($ in millions) $458M $1.1B $688M $266M $485M $690M $660M $702M $1.2B


ASSETS SOLD AT HISTORICALLY LOW CAP RATES, AVERAGING JUST 5.6 PERCENT WITH PREMIER ASSETS TRADING AT CAP RATES BELOW 5 PERCENT


Portland multifamily sales ($10M+)


$ Per SF

UnitsYear Built


Asa Flats + Lofts1200 NW Marshall St Portland, OR

6/19/2014 $105,500,000

$456,710

$435

231

2008

4.5% Invesco

Unico

Rock Creek Landing3009 NW Overlook Dr Hillsboro, OR

8/19/2014 $80,000,000

$166,667

$185

480

1995

4.8% Heitman Capital Management

UBS

One Jefferson Parkway 1 Jefferson Pkwy Lake Oswego, OR

6/03/2014 $63,000,000

$181,556

$172

347

1985/2007

N/A Friedkin Realty Management Group

Prometheus

Thorncroft Farms 2120 NW Thorncroft Dr Hillsboro, OR

1/23/2014 $58,000,000

$170,588

$155

340

1998

5.5% Berkshire Property Advisors

Crow Holdings

CE John Portfolio (3 Properties)Franklin Ide 2240-2250 NW Lovejoy St Portland, OR

12/1/2014 $31,900,000

$346,739

$398

92

2012

N/A LaSalle Investment

CE John Company

Benevento 1606 NW 23rd Ave Portland, OR

12/1/2014 $12,100,000

$504,167

$404

24

2013


CE John Company

92



$ Per SF

UnitsYear Built


Sawyer’s Row 1950 NW Raleigh St Portland, OR

12/1/2014 $11,200,000

$280,000

$265

40

2013


CE John Company

Arbor Heights 15199 SW Royalty Pkwy Tigard, OR

10/20/2014 $54,100,000

$155,460

$190

348

1997

4.7% CBRE Global Investors

Capri Capital Partners

Harrison Tower 222 SW Harrison St Portland, OR

12/16/2014 $53,000,000

$286,486

$355

185

1965/2007

5.0% Sequoia Equities

Alecta Real Estate Investment

Sofi at Murrayhill 11103 SW Davies Rd Beaverton, OR

8/01/2014 $53,000,000

$150,997

$174

351

1990

N/A PUR Housing America

JP Morgan

Tupelo Alley 3850 Mississippi Ave Portland, OR

2/7/2014 $52,900,000

$281,383

$224

188

2009

4.4% JP Morgan

Behringer Harvard/ PGGM

The Landing 19901 Coast Redwood Ave Oregon City, OR

8/25/2014 $52,500,000

$111,446

$133

302

2011

5.4% The Randall Group

VergePointe Capital

Green Leaf Monterey 8640 SE Causey Ave Portland, OR

4/24/2014 $51,250,000

$131,410

$140

390

2008

6.0% Green Leaf Partners

Blue Vista Capital Partners



$ Per SF

UnitsYear Built


Avana Orenco Station Apartments 6710 NW Vinings Way Hillsboro, OR

8/26/2014 $51,000,000

$193,182

$209

264

1998

5.0% Greystar Real Estate Partners

Invesco

Arbor Creek 3280 SW 170th Ave Beaverton, OR

9/26/2014 $47,250,000

$107,386

$140

440

1984

5.8% Jackson Square Properties

Holland Partner Group

Westview Heights 18301 NW Chemeketa Ln Portland, OR

8/18/2014 $44,800,000

$226,263

$156

198

2003

4.8% Sares-Regis Group

Kennedy-Wilson

Lumina Apartments 2700 W Powell Blvd Gresham, OR

10/17/2014 $43,550,00

$98,977

$121

440

1994

6.0% Grand Peaks Properties

Fowler Property Acquisitions

2121 SE Belmont 2121 SE Belmont St Portland, OR

12/1/2014 $42,300,000

$343,902

$233

123

2007

N/A RREEF

Berkshire Group

Honeyman Hardware Lofts 555 NW Park Ave Portland, OR

11/1/2014 $37,050,000

$370,500

$268

100

1903

4.7% DiNapoli Capital Partners

Lubert-Adler Partners

Vista @ 23 3181 NE 23rd St Gresham, OR

3/26/2014 $27,000,000

$97,122

$94

278

1990

6.8% Bridge Investment Group Partners

Harbour Realty Partners

94



$ Per SF

UnitsYear Built


The Addy1222 NW 18th AvePortland, OR

8/07/2014 $26,650,000

$256,250

$288

104

2014

4.5% Zurich Alternative Asset Management

Mountain West Investments

Tualatin Meadows18755 SW 90th AveTualatin, OR

10/30/2014 $23,750,000

$98,958

$138

240

2001

N/A Affordable Housing Associates

GSL Properties

Creekside Village 3100 Falk Rd Vancouver, WA

12/16/2014 $19,970,000

$151,288

$102

132

1992

N/A ConAm Group of Companies

Westbridge Properties

The Gables at Mountain Park 2 Jefferson Pkwy Lake Oswego, OR

1/9/2014 $19,500,000

$151,163

$156

129

1991

5.5% Sares-Regis Group

Belkorp Industries Inc

Green Leaf Cascade Park 604 SE 121st Ave Vancouver, WA

8/25/2014 $18,500,000

$111,446

$124

166

1987

5.5% Green Leaf Partners

Guardian Management

Townhomes With A View 9840 SE Talbert St Clackamas, OR

12/19/2014 $16,250,000

$84,635

$55

192

1987

N/A NBP Capital

HSBC Bank

The Preserve 19839 Highway 213 Oregon City, OR

12/30/2014 $16,025,000

$118,704

$170

135

1994

6.5% Objective Real Estate Partners




$ Per SF

UnitsYear Built


Lewis Ridge Apartments 7915 NE Burton Rd Vancouver, WA

4/17/2014 $15,662,147

$139,841

$136

112

2013

6.1% Eaton Vance Corp

Darren Welborn

Sunnyside Place Apartments 13300 SE 122nd Ave

7/17/2014 $14,100,000

$130,556

$131

108

1991

5.8% Hamilton Zanze & Company

Wood River Management

Chesapeake Pointe 4400 SE Naef Rd Milwaukie, OR

10/16/2014 $14,000,000

$88,050

$106

159

1988

5.8% Bischoff Properties

Summit Realty Group

Causey Village 8411 SE Causey Ave Portland, OR

6/30/2014 $13,500,000

$187,500

$140

72

2007

N/A Reliant Group

J & R Group

Seasons on the Park 1017 SE 12th Ave Battle Ground, WA

10/22/2014 $13,350,000

$111,250

$123

120

2013

5.8% Becki Christian

Transpacific Investments

Stark Street Crossings 20433 SE Stark St Gresham, OR

8/22/2014 $13,100,000

$100,769

$111

130

2003

6.1% OpenPath Investments

B3R Properties

Beef Bend Court 13880 SW Chinn Ln Tigard, OR

4/15/2014 $13,100,000

$109,167

$129

120

1998

6.0% Hamilton Zanze & Co

Guardian Management

96



$ Per SF

UnitsYear Built


Courtyard at Cedar Hills13643 SW Electric StBeaverton, OR

03/31/2014 $11,675,000

$107,356

$90

145

1969

6.5% Prime Residential

Granite Bay Capital Group

Fifth Avenue Court221 NW 5th AvePortland, OR

07/29/2014 $10,606,000

$110,479

$134

96

1999

7.0% Cascade Housing Association

Kalberer Company

The Enclave/Trailside 4850 SW 11th St Gresham, OR

04/24/2014 $10,050,000

$83,750

$82

120

1999

5.5% Summit Real Estate


601 Union Street, Suite 1100, Seattle, WA 98101 tel +1 206 607 1700 fax +1 206 607 1701

225 108th Avenue NE, Suite 550, Bellevue, WA 98004 tel +1 425 974 4000 fax+1 425 974 4020

1 SW Columbia, Suite 550, Portland, OR 97258 tel +1 503 972 8000 fax +1 503 972 8001

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