trends in housing 2nd quarter

TRENDS IN HOUSING

MID-YEAR 2010

2

MID-YEAR 2010TRENDS IN HOUSING

TRENDS IN HOUSING AT MID-YEAR 2010

1. The Washington Metro Area For-Sale Housing Market 32. The Baltimore Metro Area For-Sale Housing Market 83. Policy Spotlight: Federal Tax Credit Completion Deadline Extended 94. Ask Delta 105. Summary Data on the Mid-Atlantic Housing Market 116. Local Spotlight: City of Baltimore 157. Regional Spotlight: Loudoun County 168. The Washington Regional Economy and Outlook 179. The Baltimore Regional Economy and Outlook 1910. The Condominium Market 2011. The Apartment Market 2112. The Commercial Real Estate Market 23

Methodology 26About MRIS and Delta Associates 27

INSIDE THIS ISSUE

Welcome to Trends in Housing, a joint publication of MRIS and Delta Associates. This report provides a regular in-depth look at the statistics and issues that shape the Mid-Atlantic housing market. Following are highlights of market activity at mid-year 2010. The Washington area housing market is in the recovery cycle, ahead of the rest of the nation:

• Prices continue to show signs of recovery: 2nd quarter prices in the metro are up from the 1st quarter and from the same quarter in 2009, with the Outer jurisdictions (Loudoun, Prince William and Frederick Counties) outperforming the Core and Inner jurisdictions. Prices will likely gain traction through the remainder of 2010 facilitating further increases in transaction volume. This is the third consecutive quarter prices have risen on a trailing 12-month basis. • Days on market continue to decline compared to both last quarter and a year ago. Properties in the Outer jurisdictions have experienced the sharpest recovery, but across the region, time on market is very close to or below the region’s long-term average. Time on market is the lowest since 2006. • Theratioofinventory to sales continues to decline in most jurisdictions from one year ago. The metro-wide ratio of 4.5 months’ worth of listings is below the normal, healthy standard of 6 months, signaling that demand is beginning to outpace supply. • Thegap between buyer and seller demands is closing, with the average sales price in the 2nd quarter of 2010 at 95.2% of list price, the highest ratio in more than two years. We hope you find this publication valuable and we welcome your feedback.

David Charron President and CEO MRIS

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Figure 2

Source: Delta Associates; July 2010.

MARKET CONDITIONSWASHINGTON METRO AREA

AT MID-YEAR 2010

THE WASHINGTON METRO AREA FOR-SALE HOUSING MARKET

SECT ION ONE

Figure 1

Source: MRIS, Delta Associates; July 2010.

MARKET INDICATORSWASHINGTON METRO AREA

AT MID-YEAR 2010

Figure 3


HOME PRICES BY SUB-AREA*WASHINGTON METRO AREA

AT MID-YEAR 2010

*Core: DC, Arlington, Alexandria.Inner: Fairfax, Montgomery, Prince George’s; Fairfax City and Falls Church.Outer: Loudoun, Prince William, Frederick.

The Washington area housing market in the 2nd quarter of 2010 continues to show signs of recov-ery, as prices increased from the 1st quarter and from the previous year, and homes sold more quickly. Vol-ume continued to pick up due to record low interest rates and improving local employment conditions.

Unit sales volume is up from one year ago. Sales volume in the 2nd quarter increased 60.6% compared to the 1st quarter volume, and is up 15.9% since mid-year 2009 despite the expiration in April of the Federal tax credit program. The Washington region continues to add high-paying jobs, which is fostering housing demand, even as it loses lower-paying jobs. As the national economy gains traction, Washington will see burgeoning strength in the region’s housing market. As of mid-year 2010, all four major housing market indicators have improved compared to one year earlier. (See Figures 1 and 2)

The average price of a Washington-area home is $398,445 in the 2nd quarter of 2010. The metro-wide price of homes sold in the 2nd quarter of 2010 was 4.2% higher than in the 2nd quarter of 2009. This marks the third straight quarter that metro-wide prices have risen on a trailing 12-month basis.

Prices remain highest in the Core jurisdictions of the District, Arlington and Alexandria. The average sales price of a Core home in the 2nd quarter of 2010 is $509,156, up 2.4% compared to one year ago. In the District, the average price in June 2010 was up 1.2% from one year earlier. In Alexandria, the average sales price in June 2010 was up 7.9% compared to June 2009; Arlington posted price increases of 13.5% for the same 12-month period. (See Figure 3)

The area’s Inner ring of Fairfax, Montgomery and Prince George’s counties (and Falls Church and Fair-fax cities) experienced price declines of 1.1% from the 2nd quarter 2009; the average price in the 2nd quarter of 2010 was $392,958. Fairfax County home prices rose 9.6% from June 2009 to June 2010. In Montgomery County, prices fell 0.3% over the same period; Prince George’s home prices fell 16.0%.

* Sales pace as of June 2010. Pace is ratio of total for-sale inventory to current month’s sales.

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The Outer suburbs of Loudoun, Prince William and Frederick counties – where foreclosures led to the re-gion’s steepest price declines in 2006 through 2008 – had the strongest yearly price gain of the sub-areas. The average sales price of an Outer home in the 2nd quarter is $320,514, up 14.2% from one year ago. In Prince William County, the average sales price in June 2010 increased 24.9% from one year earlier. In Loudoun, home prices rose 10.6% from June 2009 to June 2010; Frederick posted declines of 0.3% year-over-year. (See Figure 4)

In general, 12-month price growth in Virginia jurisdic-tions is recovering earlier than in Maryland jurisdic-tions, likely due to two factors. Job growth in North-ern Virginia has recovered stronger and faster than in Suburban Maryland, thereby increasing demand for housing. Also, Northern Virginia’s housing market eroded earlier than Suburban Maryland’s and is expe-riencing a “first-in, first-out” effect.

In the 2nd quarter of 2010 the number of homes sold metro-wide is up 15.9% from 2nd quarter 2009, indicating a return of buyers to the market.

Home prices at the metro level in the 2nd quarter of 2010 were higher than one year earlier, with Outer jurisdictions showing the most improvement and Core price change turning positive this quarter. The Inner suburbs continue to experience a drop in prices af-ter a bounce in the 2nd quarter of last year; prices in the Outer suburbs approximate those seen in the 3rd quarter of 2008. We think that in the Washington metro, the bottom has likely passed. (See Figure 5) As buyer activity has increased, properties are selling more quickly. For the Washington region, homes sold in an average of 56 days, down from 71 days in the 1st quarter and 93 days one year ago. At 56 days on mar-ket, this is the lowest time on market since 2006.

Homes are taking the longest to sell in the Inner sub-urbs (Fairfax, Montgomery, and Prince George’s); time on market fell to 58 days, down from 97 days one year ago. Properties in the Inner suburbs are selling at a rate far below the region’s long-term average of 76 days. Time on market in the Outer suburbs now aver-ages 48 days, down 40 days from one year ago. In the Core time on market declined to 57 days, down from 80 days one year ago. (See Figure 6)

Figure 4

HOME SALES AVERAGE PRICE CHANGEWASHINGTON METRO BY SUB-AREA*

2003 - MID-YEAR 2010

Figure 5

AVERAGE SALES PRICE FOR EXISTING HOUSESWASHINGTON METRO BY SUB-AREA*

2002 - MID-YEAR 2010






Figure 6


*Core: DC, Arlington, AlexandriaInner: Fairfax, Montgomery, Prince George’s; Fairfax City and Falls Church.Outer: Loudoun, Prince William, Frederick.

AVERAGE DAYS ON MARKET - EXISTING HOUSESWASHINGTON METRO AREA BY SUB-AREA*

2002 - MID-YEAR 2010

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According to Freddie Mac, the average 30-year fixed-rate mortgage in June 2010 was 4.74%, a decline of 68 basis points from the average of 5.42% in June 2009. Rates settled at a new record low of 4.58% in the first week of July after a record-breaking last week of June; the previous low occurred during the first week of December 2009. The rate for a 15-year fixed-rate mortgage was 4.13% at the end of June.

Recent market statistics indicate that buyer and seller pricing expectations are moving toward each other, helping to bring the market into balance. The aver-age selling price in the 2nd quarter of 2010 is 95.2% of list price, the highest ratio since the 2nd quarter of 2007.

In May, the national pending-home sales index, a forward-looking indicator of contracts signed (but not settled) for previously owned homes, fell 30.0% from the April reading as the surge driven by the extension and expansion of the Federal homebuyer tax credit waned. The May 2010 index, which is published by the National Association of REALTORS®, was 15.9% lower than the May 2009 reading. Pending home sales signal optimism in the market; however, some contracts are taking longer than normal to settle as appraisers and lenders are grappling with a re-cal-ibrating market. The National Association of REAL-TORS® affordability index fell 12.2 points from May

2009 to May 2010. The affordability index incorpo-rates median home prices, median incomes and av-erage mortgage rates to broadly gauge the national home-buying climate. Lower prices continue to propel sales volume, and the region is working through its inventory overhang. The Washington area has an average of 4.5 months of for-sale inventory at June 2010, down from 5.1 months’ worth one year ago. In recent years, Washington area average prices tend to rise when the ratio of inventory to sales is below 6 months’ worth. Lender constraints may hinder a quick rise in prices, but the gap between supply and demand is closing in the Washington area. (See Figures 7 and 8)

In most jurisdictions the ratio of inventory to sales fell in the 2nd quarter of 2010 compared to one year ago. Fauquier County has the highest ratio in the region at 8.7 months’ worth of inventory at June 2010. Juris-dictions with ratios higher than last year at this time include Fairfax County, Loudoun County and Fauquier County. The City of Falls Church has just 2.4 months’ worth of inventory at June 2010, the lowest in the re-gion.

Figure 8

*Pace is ratio of total for-sale inventory to current month’s sales.


PRICE CHANGE AND INVENTORYWASHINGTON METRO AREA

2003 - MID-YEAR 2010

MONTHS OF FOR-SALE INVENTORYWASHINGTON METRO AREA

JUNE 2009 vs. JUNE 2010Figure 7

*Months of inventory at current sales pace for last month in each quarter.


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NAVIGATING THE MARKET

The Washington area housing market appears to be in recovery, after 21 months of correction. Key to continued recovery will be job growth, continued re-duced levels of home building, and the condition of the home finance industry, including relatively low in-terest rates.

Building activity in the region remains light, as it should. The market is not yet expanding and lending activity is still constrained. According to the Commerce Department, the annualized number of permits for new housing nationally in May 2010 (the most recent data available) was 574,000, down 5.9% from the April number, but up from the record low of 498,000 set in April 2009. The number of permits issued in May 2010 was up 4.4% from May 2009. (See Figures 9 and 10)

The number of housing starts declined 10.0% from April 2010 to May 2010 following the expiration of the homebuyer tax credit, but increased by 7.8% from May 2009 to May 2010.

Concerns about the economy and job security con-tinue to affect builder confidence. The National As-sociation of Home Builders/Wells Fargo Housing Mar-ket Index of builder confidence was 17 in June 2010, down five points from May following the homebuyer tax credit-related surge experienced in the previous three months. An index below 50 indicates that more builders view sales conditions as poor than good. The

Figure 9

*For privately owned housing units, seasonally adjusted and annualized.

Source: Census Bureau, Delta Associates; July 2010.

CONSTRUCTION STARTS AND BUILDING PERMITS*UNITED STATES

2000 THROUGH MAY 2010


Figure 10

Source: Census Bureau, Delta Associates; July 2010.

CONSTRUCTION BUILDING PERMITS BY STATESELECTED MID-ATLANTIC JURISDICTIONS

2000 THROUGH MAY 2010

*For privately owned housing units, through May 2010, annualized.

index is based on three components. Each of them – measuring current sales conditions, traffic, and sales expectations for the next six months – fell from May.

Home refinancings continued to surge in the 1st quarter with record low interest rates, although tough credit standards are still stifling volume. According to Freddie Mac’s Quarterly Refinance Review, hom-eowners cashed out $9 billion in home equity in the 1st quarter of 2010, the smallest quarterly amount in ten years. The aggregate amount of $70 billion that was cashed out during 2009 is the lowest annual to-tal since 2000. The likely cause of the decline is that homeowners have a smaller equity cushion. Nearly three quarters of those refinancing in the 1st quarter of 2010 kept their loan balance largely unchanged or lowered their principal balance. Conversely, the share of refinancing resulting in higher loan amounts represented 28% in the 1st quarter; the “cash-out” shares over the 4th and 1st quarters were the low-est since Freddie Mac began tracking data in 1985. The main causes of this record low are believed to be tougher underwriting standards and lower home prices.

The Mortgage Bankers Association reported a small increase of 2.1% in seasonally adjusted refinancing applications from May to June. We expect refinanc-ings to slow as long-term interest rates rise in 2011 in the aftermath of heavy deficit spending by the Federal government.

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INCOME GROWTH EXCEEDS CONSUMER SPENDING

U.S. personal income increased by $53.7 billion, or 0.4%, in May and consumer spending increased in May by just $24.4 billion, or 0.2%, according to the Commerce Department. Spending rose 0.2% from April, after showing no increase from the previous month and 0.6% from February to March. The Com-merce report also showed that personal income in-creased by 0.5% from April after increasing 0.4% the previous month. As the recovery continues consumers are spending more; however, gains continue to be measured. Retail sales continue to be a barometer of consumer sentiment; slow improvement will not help bring about a robust recovery.

We expect this same pattern to hold true for hous-ing – a slow but steady increase in home sales as the recovery progresses.

WASHINGTON OUTPERFORMS THE NATION

By most measures, the Washington metro area hous-ing market is performing better than most other met-ro areas. In the Washington metro area, the Federal Housing Finance Agency (FHFA, formerly OFHEO) re-ported an 11.7% annual increase in home prices for the twelve months ending in March 2010, compared to an increase of 10.6% during 2009. This increase was the best by far of the large metro areas. FHFA reported a national average home price decline of

3.1% during this time period. In contrast, the National Association of REALTORS® reported a national aver-age price decline of 0.7%, and a Washington area in-crease of 4.7% in the twelve months ending 1st quar-ter 2010. (FHFA and NAR use different methodologies to calculate price changes.) (See Figure 11)

From April 2009 to April 2010, Washington home prices increased 7.3%, according to the Case-Shiller index, placing 5th among major metro areas for 12-month performance. Of note, Washington home pric-es increased the most compared to 20 other metros over the period from March 2010 to April 2010, at 2.4%.

WASHINGTON HOUSING OUTLOOK

The Washington area housing market has entered the recovery phase of the cycle. We expect that a combination of a recovering national economy and a recovering local labor market will continue to bring gains to the Washington housing market. The pace of the recovery may be uneven, how-ever. In the remainder of 2010, we expect that re-newed demand will continue to yield yearly price gains, with gains first apparent in the Outer sub-urbs and Core, but extending to the Inner suburbs by late 2010/early 2011.

Source: National Association of Realtors, Delta Associtaes, July 2010.

ANNUAL ESCALATION OF EXISTING HOME SALE PRICES


Figure 11

*12 months ending March 2010.

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Figure 12

MARKET INDICATORSBALTIMORE METRO AREA

AT MID-YEAR 2010

*Sales pace as of June 2010. Pace is ratio of total for-sale inventory to current month’s sales.


THE BALTIMORE METRO AREA FOR-SALE HOUSING MARKET

SECT ION TWO

The Southern suburbs showed an increase of 1.5% compared to the 2nd quarter of 2009. The average sales price in the Southern suburbs in the 2nd quarter is $372,205.

As a whole, Baltimore metro prices rose 0.9% from one year earlier. The ratio of inventory to sales ticked down by 0.2 months to 7.7 months during the 2nd quarter. Unit sales volume in 2nd quarter 2010 to-taled 7,211 units, an increase of 21.5% over the same quarter in 2009. (See Figure 12)

For more detail on the Baltimore housing market, please see the graphs in Section 5.

The Baltimore metro market showed positive results this quarter after several quarters of mixed perfor-mance. Yearly statistics show a modest increase in prices since the 2nd quarter of 2009, and improve-ment in both volume and days on market. It is too soon to declare the Baltimore metro area housing market in recovery, but the remainder of 2010 may herald recovery.

Baltimore City: prices rose 3.2% in the 2nd quarter of 2010 from a year ago. The city’s low average sales price of $165,959 tends to contribute to volatility in percentage changes.

The Northern suburbs: prices were down slightly, by 0.5% from one year ago. The average sales price in the Northern suburbs for the 2nd quarter of 2010 is $274,825.

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Congress passed legislation in early November 2009 that extended and expanded the $8,000 Federal home-buyer tax credit introduced in the Housing and Econom-ic Recovery Act of 2008. The $24 billion bill expanded unemployment benefits, provided tax benefits to busi-nesses with operating losses, and expanded the housing program to more buyers while extending the original purchase deadline to April 2010. The deadline for buy-ers to complete purchase was set for June 30th, 2010.

The extension and expansion of the Federal home buyer tax credit has had a noticeable impact on the housing market since its inception. Locally, we estimate that 1,900 transactions may not have occurred in 2009 if not for the Federal tax credit. The rush to beat the deadline to finalize a qualifying transaction has swamped many service providers and caused delays. Because of this, the Federal government has extended the deadline to close a qualifying purchase to September 30th.

It was estimated by the National Association of REAL-TORS® that as many as 180,000 homebuyers could have lost their tax credit on a qualifying purchase because busy lenders and loan servicers were unable to process the transaction quickly enough to meet the original June 30th deadline. Transactions at risk of not meeting the original closing deadline may have included as many as 75,000 short sales.

POLICY SPOTLIGHT: FEDERAL TAX CREDITCOMPLETION DEADLINE EXTENDED

SECT ION THREE

Nationally, the Federal homebuyer tax credit is be-lieved to have magnified price increases during the first half of the year and spurred an artificial increase in demand. Following the purchase deadline in April 2010, transaction volume has slowed precipitously and new construction activity is also down, signaling a drop in demand.

For additional detail on the Washington metro ar-ea’s performance compared to the U.S. average see Section 4.

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SECTION FOUR

How is the Washington metro real estate market performing compared to the U.S. average?

The evolving structure of the Washington area economy and the inherent stability of its core industries have provided the foundation for continued growth even when the nation-

al economy falls into recession. In this decade, the Washington area economy outperformed the nation, despite two economic downturns during 2001-2003 and 2008-2009. During the 2000 to 2009 decade, the Washington area ranked first among all metro ar-eas in total job creation. It is Washington’s recent strong economic performance that is buoying the lo-cal housing market as the National market continues to lag.

The U.S. median home price was 2.8 times the median household income during 2009, matching Washing-ton’s ratio. Nationally, home price growth outpaced income growth from 2000 to 2006. Washington met-ro home prices increased an average of 9.5% per year from 2000 to 2006 – more than any other major met-ro area – and outpacing the average annual income growth of 2.5% during the same period.

House prices increased 11.7% in the Washington met-ro area during the 12 months ending March 2010, according to the Federal Housing Finance Agency (FHFA). This compares to the national decline of 3.1% during the same period. (See Figure 13)

AQ

Figure 13

PERCENT CHANGE IN HOUSE PRICESWASHINGTON METRO VS. UNITED STATES

2000 THROUGH MARCH 2010

Note: Seasonally adjusted purchase-only index

Source: FHFA, Delta Associates; July 2010.

Prices at the national level started to decline in 2007 due to the credit crunch and fell further at the onset of the national recession, as the credit markets froze and job losses increased foreclosures. Housing became more affordable in 2008 and affordability flattened in 2009. However, as demand for housing keeps pace, we expect this ratio to start to rise again. (See Figure 14)

The combined effect of an increase in affordability, record-low interest rates and increased employment activity in the Washington metro area has led to a recovery ahead of the national market.

We expect that a recovering national economy and a recovering local labor market will con-tinue to bring gains to the Washington housing market.

RATIO OF MEDIAN HOME PRICETO MEDIAN HOUSEHOLD INCOME

WASHINGTON METRO AREA1992 THROUGH 1ST QUARTER 2010Figure 14

Source: NAHB/Wells Fargo Opportunity Index, Delta Associates; July 2010.

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AVERAGE DAYS ON MARKET - EXISTING HOUSES WASHINGTON METRO AREA

1996 THROUGH MID-YEAR 2010

SALES PRICE CHANGE - TRAILING 12 MONTHSWASHINGTON METRO AREA

JUNE 2009 THROUGH JUNE 2010

SALES VOLUMEWASHINGTON METRO AREA, ALL HOUSING TYPES


SUMMARY DATA ON THE MID-ATLANTIC HOUSING MARKET

Summary:The Washington area saw an 11.7% change in existing home values for the 12 months ending March 2010 (per FHFA data), ahead of the national average of -3.1%.

Summary: Sales volume in the 2nd quarter was 18,021 homes: 15.9% higher than the same quarter in 2009.

Summary:The average time on the market in 2nd quarter 2010 was 56 days, down from 93 days one year earlier.

Summary: Prices continue to post gains in the first six months of the year after a strong December. On a 12-month trailing basis, prices in June 2010 were 3.9% higher than in June 2009. Pricing varies significantly by substate area.

Figure 15 Figure 16

Source: MRIS, GMU Center for Regional Analysis, Delta Associates; July 2010.

CHANGE IN EXISTING HOME VALUESSELECT METRO AREAS

Source: FHFA, GMU Center for Regional Analysis, Delta Associates; July 2010.

Figure 17 Figure 18

Source: MRIS, GMU, Delta Associates; July 2010.Source: MRIS, Delta Associates; July 2010.

SECT ION F IVE

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Summary: Prices fell 1.1% from one year earlier. Average time on market in the 2nd quarter is 63 days, down from 90 days one year ago. Unit sales volume in the 2nd quar-ter is 34.7% higher than the same quarter of last year.

Summary: Prices fell 8.1% in the 2nd quarter of 2010 from the same period in 2009. Average days on market fell to 73 from 119 one year ago. Unit sales for the 2nd quarter of 2010 are 36.1% higher than the same period in 2009.

Summary: The average price in the 2nd quarter of 2010 is 13.0% higher than one year earlier. Time on market averaged 43 days in the 2nd quarter – the lowest of any substate area and below the regional average. Unit sales volume for 2nd quarter 2010 is 2.4% higher than last year at this time.

Includes: Arlington, Fairfax, Fauquier, Loudoun, and Prince WilliamCounties; Alexandria, Fairfax, and Falls Church Cities.

Includes: Frederick, Prince George’s, and Montgomery Counties.Includes: Anne Arundel, Carroll, Harford, Howard, and Baltimore Counties; Baltimore City.

NORTHERN VIRGINIAHOUSING MARKET INDICATORS


DISTRICT OF COLUMBIAHOUSING MARKET INDICATORS

2003 THROUGH MID-YEAR 2010Figure 19 Figure 20

BALTIMORE AREAHOUSING MARKET INDICATORS


SUBURBAN MARYLANDHOUSING MARKET INDICATORS

2003 THROUGH MID-YEAR 2010Figure 21 Figure 22

Summary: The average sales price in the 2nd quarter of 2010 rose 0.9% from the same period in 2009. Time on market averaged 106 days in the 2nd quarter, down from 126 days one year earlier. Unit sales for 2nd quarter of 2010 are 21.5% higher than the 2nd quarter of 2009.

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Source: MRIS, Delta Associates; July 2010. Source: MRIS, Delta Associates; July 2010.


Includes: Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

Includes: Frederick, Prince George’s, and Montgomery Counties. Includes: Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties; Baltimore City.

NORTHERN VIRGINIASINGLE-FAMILY SALES

MID-YEAR 2009 vs. MID-YEAR 2010

DISTRICT OF COLUMBIASINGLE-FAMILY SALES

MID-YEAR 2009 vs. MID-YEAR 2010Figure 23 Figure 24

BALTIMORE AREASINGLE-FAMILY SALES

MID-YEAR 2009 vs. MID-YEAR 2010

SUBURBAN MARYLANDSINGLE-FAMILY SALES

MID-YEAR 2009 vs. MID-YEAR 2010Figure 25 Figure 26

Thousands of DollarsThousands of Dollars

Thousands of Dollars Thousands of Dollars

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MEDIAN SOLD PRICESELECTED BALTIMORE METRO AREA JURISDICTIONS

JUNE 2009 vs. JUNE 2010

MEDIAN SOLD PRICESELECTED WASHINGTON METRO AREA JURISDICTIONS

JUNE 2009 vs. JUNE 2010Figure 27 Figure 28

SALES BY DAYS ON MARKETMID-YEAR 2010Figure 29

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LOCAL SPOTLIGHT: CITY OF BALTIMORE

Homes in this area have sold less quickly than in the Baltimore region as a whole. The average time on market in the 2nd quarter of 2010 was 114 days in the City of Baltimore, higher than the regional aver-age of 106 days, but still below the City’s recent high of 130 days in the 1st quarter of 2009.

As of mid-July 2010, there are 1,187 actively market-ing properties for sale, of which 243 are in foreclosure or are being marketed as a short sale. There are an additional 83 homes under contract, of which 72 are in foreclosure or are being marketed as a short sale.

S ECT ION S I X

The City of Baltimore is the largest city in Maryland with a population of nearly 640,000 residents. The City was founded in 1729 and is a major U.S. sea-port. Baltimore was hit hard by the decline in manu-facturing in the 1970s and has since reinvented itself as a service-based economy. Baltimore is located in north-central Maryland along the Patapsco River, an arm of the Chesapeake Bay, and is situated closer to major Midwestern markets than any other major sea-port on the East Coast. Transportation options are plentiful with several interstate highways nearby in-cluding I-70, I-83, I-95, I-895, and I-97. Rail options include Amtrak, MARC commuter rail and light rail. Baltimore-Washington International Thurgood Mar-shall Airport (BWI) is located just south of the City.

It is common to divide the City into East or West Bal-timore at Charles Street and into North and South at Baltimore Street. Major neighborhoods include the main commercial area Downtown, Mount Vernon, Lo-cust Point, Federal Hill and the Inner Harbor.

The average sales price of a home in the City of Bal-timore was $165,959 in the 2nd quarter of 2010 and has increased 3.2% from the 2nd quarter of 2009. The 2nd quarter 2010 average sales price is down 17.5% from a peak in the 2nd quarter of 2008. (See Figure 30)


AVERAGE SALES PRICECITY OF BALTIMORE

2006 - MID-YEAR 2010Figure 30

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REGIONAL SPOTLIGHT: LOUDOUN COUNTY

SECT ION SEVEN

Loudoun County is located in Northern Virginia, as part of the Washington, DC metro area. Loudoun cov-ers more than 500 square miles and has one of the highest median incomes in the United States. Loud-oun County has an estimated population of 290,000 residents. The eastern portion of the county benefits from a high concentration of Internet and high-tech company headquarters as well as proximity to Wash-ington Dulles International Airport. The western por-tion of Loudoun County is more rural with the econo-my driven by the equine industry and farming.

A majority of the Washington Dulles International Airport’s operations are within Loudoun County, al-though the airport straddles the border with Fairfax County. Access to the regional road network is con-venient with the U.S. Routes 50 and 15, State Routes 28 and 7, and several other large arteries within the county’s borders.

The average home sales price in Loudoun County is $407,580 in the 2nd quarter of 2010, representing a 10.3% increase from the 2nd quarter of 2009. The 2nd quarter 2010 average sales price is still down substantially from a peak in the 3rd quarter of 2005, but has recovered from a low point in the 1st quarter of 2009, rising 21.8% since that time. (See Figure 31)


AVERAGE SALES PRICE BY QUARTEREXISTING HOUSES - LOUDOUN COUNTY



AVERAGE DAYS ON MARKETEXISTING HOUSES - LOUDOUN COUNTY


The average time on market in the 2nd quarter of 2010 was 44 days in Loudoun County, a decrease from last quarter’s average of 63 days and below a high of 134 days in the 1st quarter of 2007. (See Figure 32)

As of June 2010, Loudoun County has a 4.7-month ratio of inventory to sales, up from 4.3 months at June 2009. That ratio is slightly above the regional average of 4.5 months.

Loudoun County was hit hard and early by the housing downturn in the metro area. However, the County’s fundamentals continue to show signs of improvement as the metro-wide recovery continues.

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S ECT ION E IGHT

The Washington metro area economy is recovering faster than those of other large metro areas. Washington maintains one of the strongest economic bases in the nation, due to hosting the Federal government, as conditions are slowly improving. And this employment recovery has led to an early recovery in the region’s housing, apartment and condominium markets.

The Washington metro area added 13,200 payroll employment positions over the 12 months ending May 2010 while most other large metro areas continued to shed workers. The region also has a low unemployment rate and one of the strongest economic bases in the country, buoyed by Federal stimulus. (See Figure 33) Job Change

With 3.0 million payroll jobs, the Washington metro area ranks the fourth largest job base among metro areas, behind New York, the LA Basin and Chicago.

Five of the twelve sectors grew jobs over the past 12 months. The region continues to grow high-wage jobs even as it sheds low-wage jobs. However, it is Government hiring, rather than private sector activity, which is generating most of the job creation.

Job Change by Sector

The Government sector gained 13,900 jobs during the last 12 months, with all of these jobs created in the Federal government.

The Trade/Transportation sector added 8,600 jobs over the past year.

The Professional and Business Services sector created 4,100 positions during the last 12 months.

The Education and Health sector gained 2,500 jobs in the previous 12 months, with most of these positions in the health field.

The Other Services sector added 2,400 positions over the past year.

Unemployment Rate

The Washington area unemployment rate is 6.0% at May 2010, unchanged from last year at this time.

The Washington metro area has the lowest unemployment rate among comparable metros and compares favorably to the national rate of 9.7% in May 2010. The national rate fell to 9.5% in June 2010. (See Figure 34)

THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK

Figure 33

Source: BLS, Delta Associates; July 2010.

PAYROLL JOB CHANGELARGE METRO AREAS

12 MONTHS ENDING MAY 2010 Figure 34

Source: BLS, Delta Associates; July 2010.

UNEMPLOYMENT RATESLARGE METRO AREAS

MAY 2009 vs. MAY 2010

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THE WASHINGTON REGIONAL ECONOMY AND OUTLOOK

Figure 35 Figure 36

Note: Figures are estimates. Procurement figures do not include US Postal Service and FAA purchases. Source: GMU Center for Regional Analysis, Delta Associates; July 2010.

PAYROLL JOB GROWTHWASHINGTON METRO AREA

2000 - 2012

CORE ECONOMIC SECTORSIN CURRENT YEAR DOLLARS

WASHINGTON METRO AREA

Core Industries

The Washington area’s gross regional product (GRP) was $405.5 billion in 2009, a decrease of 0.5% in 2009 from revised 2008 figures. This reflects a slight recession for the Washington metro area during 2009. (See Figure 35)

Approximately one-third of the Washington metro GRP is generated by the Federal government – the region’s most important core industry. A core industry is one that imports capital and exports a good or ser-vice. Total Federal spending in the Washington metro area totaled $148.8 billion in 2009.

The performance of the Washington area’s core indus-tries bolsters the area during economic downturns.

The most important element of Federal spending in the metro area economy is procurement — the Feder-al government’s purchase of goods and services from the private sector. Spending increased notably during 2009 by 8.7% to $78.5 billion. This level of spending growth is healthy for this part of the economic cycle, but it is below the 30-year annual average of 10.5%.

Washington Area Economic Outlook

We expect the Washington metro area economy to slowly recover during the balance of 2010 —add-ing new jobs methodically. Although we believe the lo-cal economy is in recovery, we expect the speed to be slow, as consumers and companies remain cautious.

We expect consumer confidence will edge up moder-ately this year. As jobs continue to be added to the local area during the balance of the year, consumers will increasingly become more optimistic. As consum-ers feel more confident, retail sales will start to pick up on both essential and non-essential items.

GRP declined 0.5% during 2009. This decline is less severe compared to the national decline of 2.4%. The decline locally is due to retail spending and construc-tion – the two hardest hit industries in the metro area during 2009.

We project the area’s GRP (in constant dollars) will grow 3.5% to $419.7 billion in 2010, before increas-ing 3.8% to $435.6 billion in 2011, as the technology and construction sectors rebound.

In consultation with Dr. Stephen Fuller of George Mason University, we project that 32,200 payroll jobs will be added to the Washington metro area economy during 2010.

We expect the Northern Virginia substate area to be the leader in job growth with 16,700 new jobs in 2010. The Suburban Maryland and District substate areas should produce 9,300 and 6,200 new jobs, re-spectively. (See Figure 36)

We expect job growth will gain greater steam in 2011 and 2012 – adding 37,300 and 44,300, respectively.

Note: Data restated since 2000 consistent with redefinition of metro area in March 2005.Source: Dr. Stephen Fuller, Delta Associates; July 2010.

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THE BALTIMORE REGIONAL ECONOMY AND OUTLOOK

SECT ION N INE

Core Industries

The Federal/State Government sector represented 18.8% of the Baltimore metro area’s gross regional product (GRP) during 2009. The Financial Activi-ties sector closely follows, representing 17.3% of the GRP. Baltimore’s GRP in 2009 totaled approximately $131.7 billion, a decline of 1.2%, from $133.3 billion in 2008. This compares to a 2.4% decline nationally. (See Figure 37)

Baltimore Area Economic Outlook

We expect the Baltimore metro economy to recov-er at a slow pace during the balance of 2010. We believe the recession has ended in Baltimore and the local economy is currently on a slow path to recovery.

Job growth should start to recover during 2010 with 5,000 new jobs. Companies should continue growing during 2011 and 2012, adding 15,000 and 18,000 new jobs, respectively. However, we expect this surge to be short-lived, with job gains falling in line with the 20-year average of 6,500 after 2012.

We expect a job recovery similar to that of the 1990-1991 recession – around four to five years to recover the total amount of jobs lost during this recession.

Figure 37

Source: Bureau of Economic Analysis, Delta Associates; July 2010.

CORE ECONOMIC SECTORSIN CURRENT YEAR DOLLARS

BALTIMORE METRO AREA

The recovery of the Baltimore metro area economy has been slow through mid-year 2010. The Baltimore metro area shed 17,700 jobs during the 12 months ending May 2010. This compares to the loss of 42,800 jobs during 2009, as revised by BLS in March. The un-employment rate is currently 7.4%, lower than a peak of 8.7% at February 2010, but slightly higher than last year’s rate of 7.3%. We expect conditions to improve modestly during 2010, as stimulus funding continues to feed the area through 2011. Coupled with a solid core economic base and a boost from BRAC, this area will recover ahead of most metro areas and remain stable in the long-term. Job Growth by Sector

Over the past 12 months ending May 2010, five sec-tors added new jobs in the metro area – the Leisure and Hospitality, Education/Health, Professional and Business Services, Government and the Trade/Trans-portation sectors.

The Leisure and Hospitality sector created 6,100 payroll jobs over the last year in the Baltimore area. The majority of these positions were created in food service and drinking establishments.

The Education/Health sector added 5,700 payroll jobs over the last year. Most of this gain was in health care and social assistance.

The Professional and Business Services sector cre-ated 4,000 positions over the last year.

The Government sector added 2,600 jobs over the past 12 months; all of these positions were created by the Federal government.

The Trade/Transportation sector added 300 posi-tions since last year at this time.

Unemployment Rate

The Baltimore area unemployment rate was 7.4% in May 2010, up slightly from 7.3% one year prior. Among comparable metros, Baltimore has the low-est unemployment rate, ahead of Pittsburgh at 8.5%, Cleveland at 9.1% and St. Louis at 9.2%. Baltimore’s current unemployment rate compares favorably to the national rate of 9.7% in May 2010. The national rate declined to 9.5% in June 2010.

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SECT ION TEN

THE WASHINGTON AREA CONDOMINIUM MARKET

Mid-Year 2010 Highlights:

• Salesvolume:New unit sales volume (defined as net binding contracts written with security deposits up) totaled 636 units.

• Prices: New prices are down, while resale prices are on the rise.

• Effective new condo prices were down 6.0% metro-wide from 12 months ago, with prices in the Central submarket of the District up by 3.6%. • Resale prices are up 4.1% metro-wide. However, prices remain lower in Suburban Maryland jurisdictions.

• Concessions: Metro-wide, concessions are stable, averaging 3.9% of the asking price at mid-year 2010 compared to 3.8% last year at this time.

• Pipeline: There are currently 4,624 unsold new condominium units that are actively marketing in the metro area; about the same amount as last quarter. As a result, there is now 1.8 years’ worth of inventory of product on the market at current rates of sales velocity in the metro area. In the Central submarket in the District there is less than six months of new inventory left to sell.

• Sales pace: Projects that have sold out in the past two years have averaged 2.4 sales per month. Projects introduced to the market more recently have averaged a higher pace.

During the second quarter there were 631 net sales in the Washington metro area. In the 12-month period ending June 2010 there were a total of 2,620 sales, which is an increase of 62% from the prior 12-month period. In Northern Virginia, the number of sales is up 91% during the same time period. However, in Suburban Maryland there were fewer sales during the past 12 months due to contract cancellations in the second half of 2009 in Prince George’s County.

The majority of sales during the first half of 2010 have occurred in Loudoun/Prince William, Montgomery, and Arlington/Alexandria; whereas the least amount have occurred in the Upper NW submarket of the Dis-trict and Prince George’s.

Concession rates declined in the District, as more projects with long-standing inventory finally reach sell-out. Some District submarkets are not of-fering concessions at all. Conversely, the highest con-cession rate in the metro area is in Loudoun/Prince William at 5.8%. As a result, prices are down in that submarket by more than 10% from a year ago.

The Washington metro area currently has an inven-tory of 4,624 new units to sell – a 1.8-year inventory at current rates of net sales velocity. Before price in-creases become the norm again, the leftover “dog” inventory of condos in most submarkets needs to be absorbed and new, more desirable product needs to be introduced to the market. We look for this to be the metro-wide norm by 2011. THE BALTIMORE AREA CONDOMINIUM MARKET

During the past 12 months, there were 376 sales metro-wide, an increase of 22% from the prior 12-month period.

Effective new condo prices are down 3.6% metro-wide since June 2009. Price declines in the Southern Suburbs are over 10%, while in Baltimore City prices are up 1.3%.

Concessions are up 50 basis points metro-wide from last year. Currently, projects in the Northern Suburbs are offering the most concessions.

There are 1,752 unsold units currently marketing in the metro area.

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THE APARTMENT MARKET

SECT ION E LEVEN

THE WASHINGTON AREA APARTMENT MARKET

The Washington metro area continues to be one of the best performing apartment markets in the nation due to:

1. A job market that is one of two major metro areas to be gaining jobs at this point in the growing national economic recovery. 2. A transient work force that has produced a large pool of Class A renters by choice. 3. A demographic trend that is experiencing a structural shift away from ownership and toward renting.

Following a year of competitive apartment market conditions due to an elevated number of deliver-ies in 2008 and 2009, the Washington market has turned the corner. Limited starts during the economic downturn and strong absorption in the Washington metro are laying the groundwork for strong market conditions in 2011 and 2012, with an emerging prod-uct shortage by mid-2011 in select submarkets, with widespread shortages in late 2011 into early 2012.

• Thepipelineofsupplyisedgingupfromitscyclical bottom in the 4th quarter of 2009.

• AnnualizedClassAabsorptionexceeds6,700–one of the highest metro totals in the nation.


• The region’sstabilized vacancy rate for investment grade apartments (Class A and B) is 3.1%, down from 4.3% a year ago. With the national rate at 8.2%, this is one of the lowest vacancy rates of any metro area in the nation.

• Rents for all investment grade apartments were up 3.6% over the past twelve months. Class A rents performed even better, rising by 4.2% during this period, compared to a decline of 1.8% during the preceding year.

• Annual net absorption, at 11,845 Class A and B apartments, set a new record due to a surge in Class B apartment absorption. Class A absorption continued at a strong pace with 6,770 units absorbed, remaining one of the strongest in the na-

tion. Average monthly absorption at new projects increased over the quarter to 14 units per project per month, propelled by strong lease-up pace at projects delivering during the spring. Despite eight deliveries this quarter, the number of projects in lease-up has declined from 47 to 34 over the past 12 months.

• Concessions at Class A projects edged lower following a pattern first seen in this cycle in the 1st quarter of 2010. At mid-year 2010 concessions were 4.1% of face rent compared to 6.2% of face rent at mid-year 2009.

• Pipeline: After the pipeline ballooned to 36,951 units in December 2007, largely driven by the re- version of condominium projects, the pipeline began its cyclical decline, continuing downward to a new historical low of 16,606 as of year-end 2009. As the horizon for improving market fundamentals grew closer in 2nd quarter 2010, the pipeline edged up to 17,309 units. We believe that we are now seeing a cyclical increase in the development pipeline, although it will be gradual at first due to the difficulty of obtaining development credit.

THE BALTIMORE AREA APARTMENT MARKET

Demand for rental housing in the Baltimore area has improved, particularly in the southern suburbs, and fundamentals are looking up as supply comes into line with demand.


• Stabilized Class A vacancy is down 120 basis points from last year to 4.0%. Vacancy in Balti- more’s southern submarkets is down to 2.2% from 4.3% a year ago. Vacancy in Baltimore’s northern submarkets is down to 4.6% from 4.9% last year at this time. The Baltimore region’s vacancy rate continues to outperform the national average of 8.2%. Concessions in the Baltimore metro area have fall- en since last year to 4.0% at June 2010, from 5.7% last year.

• Average effective rents in the metro area are $1,401 ($1.39 per SF). Rents grew in this metro area over the year by 2.5%. Rents in the Baltimore suburbs have risen by 3.1% since Mid-year 2009. Effective rents in the southern suburbs increased

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THE APARTMENT MARKET

3.6% over the past twelve months and the northern suburbs grew effective rents by 2.3% during the same period. Effective rent growth in the Baltimore City submarkets was essentially flat, growing by 0.1% in both the Fells Point/Inner Harbor and downtown submarkets. However, the Fells Point/ Inner Harbor submarket greatly outperformed the Downtown submarket with rent growth of 5.6% compared to a decline of 2.7% over the year.

• The supply pipeline metro-wide has edged down over the quarter and since mid-year 2009. Some 2,979 units are planned to deliver in the next 36 months in the Baltimore metro area (down from the 4,072 units planned this time last year).

Lease-up pace for the five actively marketing projects in the Baltimore area currently averages twelve units per month per project.

The pipeline remained constrained, as in recent quar-ters. As a result, we project that the 36-month supply will be slightly less than the number of units that will be absorbed in the Baltimore area over the next 36 months. This imbalance indicates that occupancy will improve and rent growth is likely to continue over the next three years.

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The Washington metro area office market experi-enced mixed, but on balance encouraging, signals during the 2nd quarter of 2010. Absorption surged, boosted by government leasing, to 2.4 million SF in the 2nd quarter. Yet private sector leasing remains weak. Vacancy edged down to 12.8% from 13.2% in the 1st quarter, yet is up from one year ago. Sublease space declined during the past three months, as ten-ants plan to utilize this shadow space as the economy improves. Rents declined 4.2% during the 1st half of 2010 – an annualized rate worse than in 2009.

THE WASHINGTON AREA OFFICE MARKET

Overall, the metro area remains one of the top per-forming markets in the nation.


• Net absorption: 2.4 million SF in the 2nd quarter, compared to 630,000 SF in all of 2009.

• Overall vacancy rate: 12.8%, up from 12.1% one year ago; down from 13.2% in the 1st quarter. Fourth lowest rate in the nation. (See Figure 38)

• Space under construction: 4.6 million SF, down from 10.5 million SF one year ago.

• SpaceU/Cis51%preleased, compared to 32% a year ago.

• Effective rents: Down 4.2% during the 1st half of 2010, compared to a decline of 6.9% in 2009.

• Investment sales: $887 million ($329/SF) during the 1st half of 2010, inclusive of partial interest sales.

The Washington metro area market should re-main one of the best performing office markets in the nation. We believe the recession bottomed out locally during the first half of 2009 and a recovery is underway. Recovery will be slow during the balance of 2010.

Although we expect the Federal government to eat away at the oversupply of office space in the metro area, leasing by the private sector will remain modest. We expect limited leasing by the private sector from companies with the budget to secure space at lowered rents. Meaningful growth will not be felt until 2011.

We expect vacancy will decline to 12.0% in the Wash-ington metro area over the next two years. Although we project vacancy will decline, this rate remains ele-vated compared to a cyclical low of 7.9% experienced at Year-end 2005.

We project rents will decline by 5.0% to 7.0% in 2010 – with concession offerings limiting effective rents. We expect available space to remain elevated in 2010, keeping rents down. By 2012 rents should gain trac-tion, and return to the long-term average increase of 3.8% inside the Beltway by 2013.

Source: CoStar, Delta Associates; July 2010.

OFFICE VACANCY RATESSELECTED METRO AREAS

MID-YEAR 2010Figure 38

THE COMMERCIAL REAL ESTATE MARKET

SECT ION TWELVE

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In the long term, the Baltimore metro area is well positioned for steady future growth, as the health and life-science industries fuel demand in the area. BRAC relocations will give a boost to the area during the 2010-2011 period.

THE WASHINGTON AREA RETAIL MARKET

Incomes in the Washington metro area grew by 30.3% from 2000 to 2009, compared to 26.2% nationally. By 2014, the Washington metro area’s average house-hold income is projected to rise 4.7%, compared to a rise of 4.2% nationally, and enough to support future retail growth.

The Washington metro area has over 119 million SF of retail space, inclusive of all types of retail, in over 1,000 shopping centers. Northern Virginia is home to over half of the total metro retail inventory.

Of the total retail inventory in the Washington metro area, 55.9 million SF is located in 319 grocery-an-chored shopping centers, which is almost half of the total retail inventory in the metro area. (See Figure 39)

THE BALTIMORE AREA OFFICE MARKET

The Baltimore metro area experienced improving conditions during the 2nd quarter of 2010. Absorp-tion turned positive during the past three months due to pre-leased deliveries and a large user purchase. Although the vacancy rate edged down during the quarter, the rate remains elevated due to weak de-mand from hesitant tenants. Offsetting some of the weak demand, BRAC has spurred leasing activity from contractors – generating a handful of developers to break ground on new office space this quarter. Rents declined during the 1st half of 2010, as property own-ers with available space struggle to obtain tenants. Although the Baltimore metro area should experi-ence sluggish conditions in the near-term, the market should stabilize quicker than many other metro areas due to the expanding health care industry and the on-slaught of BRAC relocations to the area.


• Net absorption: positive 742,000 SF in the 2nd quarter, compared to positive 91,000 SF during all of 2009.

• Overall vacancy rate: 14.0%, down from 14.5% at 1st quarter, but up from 12.8% one year ago.

• Space under construction: 1.1 million SF, down from 1.7 million SF one year ago.

• Rents: down 2.9% during the 1st half of 2010, compared to a decline of 5.2% in 2009.

• Investment sales: $135 million during the 1st half of 2010. Average sales price: $202/SF.

We expect the Baltimore area office market to re-main sluggish during the balance of 2010, with modest improvements late in the year. BRAC and the life-science industries should fuel demand in the near term – offsetting the reduced demand by hesitant ten-ants.

We expect vacancy to edge down by June 2012, as the economy improves and tenants relocate here due to the BRAC decision. We believe the construction vol-ume will rise, particularly around Ft. Meade and Ab-erdeen Proving Ground during 2010. We anticipate rents will edge down during 2010 by an average of 2.5% to 3.5%, as vacancy remains elevated.

Note: Estimates


GROCERY-ANCHORED SHOPPING CENTER WASHINGTON METRO AREA

MID-YEAR 2010Figure 39

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Figure 42

Source: CoStar, U.S. Census, Delta Associates; July 2010.

RETAIL SPACE PER CAPITAWASHINGTON METRO AREA

2010

Figure 41

GROCERY-ANCHORED SHOPPING CENTERASKING RENTS

WASHINGTON METRO AREA 1999 - 2009


GROCERY-ANCHORED SHOPPING CENTER VACANCY RATES

WASHINGTON METRO AREA 1999 - 2009Figure 40

The metro-wide vacancy rate for grocery-an-chored shopping centers increased to 5.3% at year-end 2009, from 3.7% one year earlier. At 5.3% vacant, grocery-anchored shopping centers are some-what outperforming the overall shopping center mar-ket at 5.6% vacant at year-end 2009. (See Figure 40)

Rental rates at grocery-anchored centers de-creased 5.8% in 2009, after rising by 1.7% in 2008. Metro-wide average in-line tenant rents were $31.77/SF at year-end 2009. Suburban Maryland rents were $32.25/SF, a 4.8% decline from one year earlier. Northern Virginia rents were $31.29/SF, down 6.6% from year-end 2008. (See Figure 41)

The core submarkets experienced the least decline in asking rates during 2009, as there continues to be de-mand within the core and this area has limited avail-ability. The inner and outer rings experienced steeper rent declines at 5.4% and 7.4%, respectively, as these submarkets have less demand and a greater amount of available inventory.

The metro area has 25.9 SF of retail space per capita, compared to the national average of 23.4. Although Northern Virginia and Suburban Maryland are above the national average, the District remains underserved at just 8.6 SF of retail space per capita. Given the high incomes in the Washington suburbs, these areas are not overserved. (See Figure 42)

We believe retail is poised for a stronger recovery in the metro area than elsewhere, given high incomes and a projected job growth. We believe investors and developers should act now by:

1. Selectively accumulating assets at below replace- ment cost while prices and interest rates are low.2. Acquiring debt or recapitalizing assets.3. Developing new projects in the 2011-2013 period in select locations with good supply/demand fundamentals.

We believe Washington metro area retail will remain successful, even through economic downturns, if the center is:

• Locatedwithinmixed-useorneighborhoodcen- ters in a submarket with solid supply/ demand fundamentals.• Closetotransitandjobs.• Focusedoneverydaynecessitiesandamenities, such as groceries, banking, and entertainment.


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METHODOLOGY

BUREAU OF LABOR STATISTICS METRO AREA DEFINITIONS

AtlantaAtlanta-Sandy Spring-Marietta, GA

AustinAustin-Round Rock, TX

BostonBoston-Cambridge-Quincy, MA-NH (Metropolitan NECTA)

ChicagoChicago-Naperville-Joliet, IL-IN-WI

(Non-Metropolitan Division)

Dallas-Fort WorthDallas-Forth Worth-Arlington, TX

DenverDenver-Aurora, CO + Boulder, CO

HoustonHouston-Sugar Land-Baytown, TX

LA BasinLos Angeles-Long Beach-Glendale, CA (Metropolitan Division)

Riverside-San Bernardino-Ontario, CA Santa Ana-Anaheim-Irvine, CA (Metropolitan Division)

New YorkNew York-Northern New Jersey-Long Island, NY-NJ-PA

PhoenixPhoenix-Mesa-Scottsdale, AZ

San AntonioSan Antonio, TX

San Francisco BaySan Francisco-Oakland-Fremont, CA + San Jose-

Sunnyvale-Santa Clara, CA

South FloridaFort Lauderdale-Pompano Beach-Deerfield Beach, FL

Miami-Miami Beach-Kendall, FLWest Palm Beach-Boca Raton-Boyton Beach, FL

WashingtonWashington-Arlington-Alexandria, DC-VA-MD-WV

(Non-Metropolitan Division)

SINGLE-FAMILY HOUSING DATA

Northern Virginia is defined as Arlington, Fairfax, Fauquier, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

Suburban Maryland is defined as Frederick, Montgomery, and Prince George’s Counties.

The Washington Metro Area describes all of the jurisdictions listed above and the District of Columbia.

The Baltimore Metro Area is defined as Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties; Baltimore City.

COMMERCIAL REAL ESTATE DATA

Office, Apartments, Condominiums

Northern Virginia is defined as Arlington, Fairfax, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

Suburban Maryland is defined as Frederick, Montgomery, and Prince George’s Counties.

The Washington Metro Area is defined by all of the jurisdictions listed above, plus the District of Columbia.

The Baltimore Metro Area is defined as Anne Arundel, Baltimore, Carroll, Harford, and Howard Counties, plus Baltimore City.

Retail

Northern Virginia is defined as Arlington, Fairfax, Loudoun, and Prince William Counties; Alexandria, Fairfax, and Falls Church Cities.

Suburban Maryland is defined as Montgomery and Prince George’s Counties.

The Washington Metro Area is defined by all of the jurisdictions listed above, plus the District of Columbia.

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ABOUT MRIS AND DELTA ASSOCIATES

Delta Associates

Delta Associates, the research affiliate of Transwestern, is a firm of experienced professionals offering consulting and data services to the commercial real estate industry for over 30 years. The firm’s practice is organized in four related areas:

• Consulting, research and advisory services for commercial real estate projects, including market studies, market entry strategies, asset performance enhancement studies, pre-acquisition due diligence, and financial and fiscal impact analyses.

• Valuationservices for realestatecompaniesand fractional interests in them.

• Distressed asset recovery services to include property performance analyses and enhancement studies, debt structuring evaluation and note valuations, portfolio assembly due diligence, valuations and litigation support.

• Subscriptiondataforselectmetroregionsforoffice, flex/industrial, retail, condominium, and apartment markets.

Delta’s Trends in Housing team includes: Greg Leisch, Chief Executive; David Weisel, President, Consulting Division; Alexander (Sandy) Paul, National Research Director; and Alyson Bode, Director of Information Resources.

For more information on Delta Associates, please visit DeltaAssociates.com

MRIS

Metropolitan Regional Information Systems, Inc. (MRIS) is the nation’s largest Multiple Listing Service. MRIS serves more than 48,000 real estate professionals spanning Maryland, the District of Columbia, Northern Virginia, and parts of West Virginia and Pennsylvania – a total of 22,000 square miles.

Customers currently have access to over 81,000 active listings, an archive of more than 3.2 million “compara-ble” listings and over 5.6 million public records contain-ing tax, assessment, and deed transfer information about properties throughout the region. The cutting edge tech-nology designed by MRIS keeps real estate professionals’ business ahead of the curve.

MRIS is owned by 25 Shareholder REALTOR® Associa-tions and governed by brokers who rely heavily on input from the agents, brokers, and shareholders serving on vital committees.

When measuring both listing and selling agent activity, MRIS subscribers generated more than $35 billion in sales volume and engaged in over 110,000 transactions in 2009.

For more information on MRIS, please visit:mris.com

Headquarters 9707 Key West AvenueSuite 200Rockville, Maryland 20850301.838.7100

Headquarters500 Montgomery St.

Suite 600Alexandria, VA 22314

703.836.5700

© 2010 MRIS. All rights reserved. You may neither copy nor disseminate this report. If quoted, proper attribution is required. Sources: Bloomberg, Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau, City of Baltimore, Commerce Department, CoStar, Delta Associates, Department of Housing and Urban Development, Dr. Stephen Fuller and John McClain at GMU’s Center for Regional Analysis, Federal Housing Finance Agency, Federal Reserve, Freddie Mac, Internal Revenue Service, Loudoun County, Mortgage Bankers Association, MRIS, NAHB, NAR, The New York Times, Primary Mortgage Market Survey®, Real Estate Channel, RealtyTrac, Standard & Poor’s, Treasury Department, U.S. News & World Report, The Wall Street Journal, Washington Business Journal, The Washington Examiner, The Washington Post.

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