2009 Kootenai County Market Forum All Slides

Coldwell Banker Commercial Offices Seattle

Fargo Minneapolis

Boise

Green Bay

Boston

Rapid City New York Philadelphia Chicag Pittsburgh Baltimore o Washington D.C. Indianapolis Cincinnat Kansas City i Virginia St. Louis B h Beach D t it Detroit

Salt Lake City

Reno

Denver

San Francisco

Los Angeles

Las Vegas

Santa Fe

Charlotte Memphis

Oklahoma City

Phoeni x

Atlanta Dallas

Houston San Antonio

New Orleans

Miami

Office Pat Eberlin

CREATIVITY

Non-Farm Payroll Jobs 60 000 60,000 58,000

56,700

56 000 56,000

56,500 55,100

54,000 52 400 52,400

52 000 52,000 50,000

49,200

48 000 48,000 46,000 44 000 44,000 42,000 40 000 40,000

54,200

46,000

Non-Farm Payroll Jobs

Office Survey Breakdown 10.03%

1,200,000

Net Usaable SF

1,000,000 800,000

3.91%

Vacant SF

600,000 ,

Net Usable SF Net Usable SF

400,000

5.27% 7 70% 7.70%

200,000 0 Post Falls

Hayden

Rathdrum Coeur d'Alene

Source: Fall 2008 Office Survey Auble, Jolicoeur & Gentry/Coldwell Banker Commercial

Class A Space • • • •

Quality of Construction Exceptional finish, amenities and location M d Modern ttechnology h l Rents $18-$24/sq. ft. NNN Annual

Class B Space • • •

Lesser quality interior finishes and amenities More affordable space for tenants Rents $12-18/sq. ft. NNN Annual

Class C Space • •

Functionally out-dated • Lacking ADA, Parking, Technology, Location Rents $6-$12/sq. $ $ ft. NNN Annual

Speculative Office Construction •

New office construction down for two reasons • 1) The negative absorption of existing projects • 2) Financing

New Projects Starting & Finishing in 09 •

Mountain West Bank Operations Center 2 story; 28,000 SF

New Projects Starting & Finishing in 09 •

The Plaza on Sherman SEC Sherman & 7th: 6 story; 70,000 SF

New Projects Starting & Finishing in 09 •

Global Credit Union 320 E Neider: 2 story; 27,400 SF

New Projects Starting & Finishing in 09 •

Kootenai Cancer Center of Post Falls 2 story; 23,609 SF

Creative Minds at Work 1) Value Add Projects

Creative Minds at Work 2) Offer Affordability • Rent concessions • Rent R t abatement b t t • Tenant improvement funds 3) Keep an open mind to retain current tenants • Growing trend of 2009 – Current tenants asking for decreased rent • Maintain value of investment by offering free rent opposed to decreased rent • Deferring D f i th the reduced d d rentt amountt tto the th back b k end d off th the lease term • Request most recent P&Ls to verify financial distress

Creative Minds at Work 4) Flexible Build-Out • Modular Walls with High-End Finishes • Ability Abilit tto E Expand/Contract d/C t t C Costt Eff Effectively ti l • Quick Assembly/Minimal Impact • Classified as Furniture (Faster Depreciation) • Pros vs. Cons

2009 Kootenai County Office Forecast -

Keep open dialogue with current tenants Rising unemployment = Increased Vacancies Offer Affordability Limited amount of new construction will aid in office absorption - CREATIVITY

Retail Dani Kramer, CCIM

Local Unemployment Statistics Kootenai County vs. State of Idaho Unemployment Rate 8.0

Unem mploymeent Ratee

7.0 6.0 5.0 Kootenai County  Unemployment

4.0 3.0

State of Idaho  p y Unemployment

2.0 1.0 0.0

Year

Source: Idaho Commerce & Labor

Pre-2008 Market Conditions Class A Buildings

Class B Buildings

Class C Buildings

•Prime locations •Slightly older buildings •Functionally obsolescent •Newer buildings •Good locations •Older neighborhoods •$16 - $24 per SF NNN •$11 - $15 per SF NNN •$6 - $10 per SF NNN

•All rates quoted annually •NNN = Tenant’s ppro-rata share of common area maintenance,, property taxes, insurance, and other operating expenses

Local Retail – Landlord’s Struggle Landlords start with asking rental rates

Solid Tenant = Negotiation on terms and rent with Tenant

Current Retail Market – Riverstone Master Plan Retail eta Leasing eas g Rates ates $22 - $24 per SF NNN

Current Retail Market – Riverstone Aerial

Pl Planned d Site Sit for f Peak P k

Current Retail Market - Vacancies

Ironwood Square $12.00 per SF NNN $15 per SF NNN

Neider N i & 95 $15 per SF NNN Sportsman Plaza I & II $23 - $25 per SF NNN

Current Retail Market

Ironwood Square $12.00 per SF NNN

Neider N i & 95 $15 per SF NNN

Sportsman’ss Warehouse Sportsman

Current Retail Market – New Retail CdA NEC of Best & 4th Street •$18 $ -$ $24 per p SF NNN

Mountain ou ta View V ew Plaza a a •NWC of Hwy 95 & Neider •$9 - $15 per SF NNN

Current Retail Market – New Retail Hayden Rustlers Roost NWC of Hwy 95 & •NWC Hayden Ave 2.5 acres sold to a national medical user Discount Tire

Planned

2008 Vacancy Report – Kootenai Retail 5.83%

Net Ussable SF F

2,500,000

12.48%

Vacancy Rates

2,000,000

1,500,000 , , Vacant SF Net Usable SF

6.03%

1,000,000

10.66% 500,000

0 Post Falls Retail

Hayden Retail

Rathdrum Retail

Coeur d'Alene Retail

Source: Auble, Jolicoeur & Gentry/Coldwell Banker Commercial

2008 Vacancy Report – Kootenai Retail

Parkwood Business Properties • 2008 Retail Vacancy – 1.3%

2008 Vacancy Report – Kootenai Retail General Growth Properties Inc. (GGP)

Current Retail Market – Post Falls

Current Retail Market – Post Falls Coeur d’Alene, ID

I-90 Pleasantview Rd. Interchange (46,000+ CPD 2006) EXPO Retail/Commercial/Industrial/Multi-Family R t il/C i l/I d t i l/M lti F il

Sysco

Future Beck Rd. Interchange 2010 Estimated Completion

Planned Wal-Mart Superstore Pl Planned d Lowe’s L ’ Idaho-Washington Border

Stateline I-90 Interchange

Current Retail Market – Post Falls Mullan Avenue Highway 41 Highland Crossing

Planned

River City Center

Looking Forward to 2009 - Retail Market • Landlords and Tenants need to keep an open dialogue • Expect stable/increased vacancies • Downward D d pressure on rents t • Increased pressure on rent concessions

Looking Forward to 2009 - Retail Market “With Adversity Comes Opportunity” • Landlord Opportunities • Purchase distressed properties • Purchase retail projects at favorable cap rates • Acquire tenants looking to downsize or relocate to a better location • Tenant Opportunities pp • Lock-in a lower lease rate for several years at a better location • Renegotiate R ti t upcoming i option ti extensions t i

Development Land Doug Rall, CPA

Topics • • • • •

Review R i off residential id i l and d commercial i lb building ildi permits i issued for 2008 verses 2007 Review of residential platted lots added from 2000 thru 2008 Review of out of state drivers’ license surrender report p from 2002 thru 2008 Review of closed commercial land escrows reported b th by the MLS ffor 2008 verses 2007 2007. Forecast for 2009-2010.

Kootenai County Building Permits Number of Permits 2007

2008

2007/2008 Change

Residential

1,848

1,294

-28.25%

Commercial

336

273

-18.75% 18 75%

Total

2,184

1,567

-29.98%

2007

2008

2007/2008 Change

Residential

$305,338,467

$182,706,174

-40.16%

Commercial

$212 724 424 $212,724,424

$118 070 569 $118,070,569

-44 5% -44.5%

Total

$518,062,891

$300,776,174

-41.94%

Permit Volume

S Source: Construction C t ti M Monitor it

Total Residential Lots Platted 3000 2617 2462

2500 2000

1938 1510

1500 1179

1000 500 0

989

1593 1362 1152

Total Residential Lots Platted l d l l d

Drivers License Surrenders 2000 1800 1600

Arizona California Colorado M t Montana Nevada O Oregon Washington

1400 1200 1000 800 600 400 200 0 2002

2003

2004

2005

2006

2007

2008

License Surrenders/Lots Platted 6000 5219

5309

4779

5000

4708 4429

4289

4073

4000 3000

2617

0

Drivers License Surrenders

1938

2000 1000

Total Lots Platted

2462

1510 989

1179

1593 1362

1152

Commercial Land Sale # Land Sales

Range

Gross Sales

2007

24

0.13 – 56.8 Acres $13,868,701

2008

16

0 26 – 4.4 0.26 4 4 Acres

$3 841 650 $3,841,650

Source: Coeur d’Alene MLS

Forecast • • • •

Building permits are expected to remain at or slightly below 2008 levels. O t off state Out t t migration i ti to t Idaho Id h is i expected t d to t remain i level or show a slight decrease Commercial land sales will continue to be slow Prices of land will continue to decline

“When building values decline, the value of raw land declines and when building values increase, so does the value al e of raw ra land land.””

Multi Family Multi-Family Glenn Sather

Topics • Statistics • Observations • Forecast & Recommendations

2008 Statistics • Sales Volume and Values 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 0

35 MM

16 MM 11 MM

2006

2007

2008

Multi‐Family  Sales Volume

2008 Statistics 150%+ - Supply of “For Sale” Stock

2008 Statistics New Construction Permits 100,000,000

91 MM

80 000 000 80,000,000 60,000,000

51 MM

New Construction  N C t ti Permits

40,000,000 20,000,000

12 MM

0 2006

2007

2008

2008 Statistics • Capital Markets & Apartments • 2-4 2 4 Units • 5 Units + • Vacancy Data • Rents R t

Observations • The Condo Card • Shadow Stock • Apartments p & the “Financial Storm”

Forecast & Recommendations • Opportunities in 2009 • Supply Problem • Rents • Tenant Retention

Investments Wayne Burton

What Type of Investments? This Segment g will FOCUS on Income-Producing Investments.

What Will Be Covered? • • • • • •

Capitalization (Cap) Rates. C h on C Cash Cash h (R (Return t on Y Your M Money). ) 2008 Financing and its Effects Effects. 2008 At a Glance. What About 2009? Is the Herd turning?

Capitalization Rates • Considered a Common Method to determine Value. • Predicated on a Cash Purchase prior to Debt Service.

• Higher Cap Rate = Lower Property Value • Cap Rate has Direct Effect on Property Value Net Operating Income (NOI) of $100,000 9% Cap Rate = Property Value of $1,111,111 6.5% Cap Rate = Property Value of $1,538,461

• What Wh t Determines D t i Cap C R Rates? t ?

Factors That Help Set Property Cap Rates • • • •

Market Desirability and Availability Property Type Location and Condition

Example p Of 12% Plus Cap p

New NNN Lease S ld att 8.82% Sold 8 82% C Cap R Rate t

22 unit Apartment Sold At 10.5% 10 5% Cap Rate

Self Storage has been in Escrow at 9.0% Cap p Rate

Example of 7% and less Cap

CASH ON CASH • A Method to Value Your Return on g g Investment when leveraging. EXAMPLE: O EXAMPLE On a 9% C Cap R Rate t P Purchase, h with ith a: • Loan Rate @ 7.5%,, Cash on Cash is: 7.44% • Loan Rate @ 6.5%, Cash on Cash is: 9.12%

• Cap Rates and NOI does not take into account Financing. • Interest Rates • The Availability and Cost of Capital Capital.

2008 FINANCING & EFFECTS • Commercial Direct Lenders were in the 7-8% Range • Banks wanted more Owner Equity - 30% and higher • Debt Service Ratio (DSR) was higher • What is DSR?

• What were the Banks doing? • Relationship-Banking g • Much Tighter g Underwriting g • Cash Cas a and dO Owner e Financing a c g became King

2008 At a Glance • Fewer Buyers • Cost of Capital • Loan Requirements Tightened

• Cap Rate Trended up • Buyers looking for Value - 8.5% plus Cap Rates • Loan Requirements Constricted Sales

What About 2009? • Interest Rates Have Come Down 6.10% to 7.10% • Some Lending Institutions Are Lending ONLY for Owner-Occupied Owner Occupied • Strong Pressure on Interest Rates to Rise • Cap Rates Will Continue to Rise

• Possible Increase in Capital p Gains Tax • Product Makes a Difference Example.

Thi is This i a Market M k t like lik NONE W We Have Seen in Years!

Forecast for 2009 Where Is the Herd Going? g A Activity and IInquires are U Up I Interest Rates R Are A D Down Value l is i the Best it i has been in i Years Y

The Herd Has Stopped

SOME HAVE TURNED • Owner-Occupied • SBA • USDA

• How about “Sale Lease Back”? • Banks are Back to Basics. • Out-of-Town Investors. Investors

SOME ARE THINKING ABOUT IT. • Buyers will be tentative. • Gaps in the market • What Gets The Deal Done?

• • • •

Is this a STRONG Buyer? Is the Project Financeable? I Owner-Carry Is O C available? il bl ? Is the Cap Rate based on Actual Numbers? • What about Replacement Cost?

WHAT WILL THE DEAL LOOK LIKE? It will be more difficult to get the Deal to Escrow “The Altar” and even get them to sayy harder to g “I Do” 2009 will have its Challenges but it is also a Great G t Time Ti tto LEAD the Herd, NOT TO FOLLOW IT!

FROM OUR PROFESSIONALS TO YOU:

Based on Replacement Cost, Cap / Loan Rates and Availabilityy

NOW IS POSSIBLY THE BEST TIME IN YEARS TO BUY!

THANK YOU FOR COMING

R Davidson Rick D President & COO Coldwell Banker Commercial

Agenda • Overview of International Commercial Real Estate markets • Di Discussion i off Major M j Product P d Types: T Office, Industrial, Retail, Multi-family • Market Direction

Widening of the Financial Crisis Seized by:

British Government

Acquired by:

Acquired by:

Collapsed

Filed for Bankruptcy

Placed into Federal Conservatorship

Widening of the Financial Crisis Acquired by:

Taken Over by:

Infused dollars from:

Federal Government

Sold Assets to:

Became Bank Holding Companies

Unemployment and Job Loss Unemployment M 09’ 8 Mar 8.5% 5%

Job Loss

Education Level

Global Markets

Real GDP Growth Rates: 20082008-2011

Source: Economist Intelligence Unit, ING Economics, ING Real Estate Research & Strategy as of 14 November 2008. Note: Countries and regions are ranked, left to right, by the difference between their forecast GDP growth rate of 2009 and their average longterm GDP growth rate (Geometric average 1998-2011). Historical data is from EIU. Forecasts are from ING Economics

AsiaPac Leasing Markets will see a turn Vacancy Rates Rents

In Markets including: g Hong Kong Singapore Shanghai Tokyo New Delhi Mumbai

EURO ZONE UK will be the worse performing Projected negative growth of 1.7% 1 7%

leasing Markets Vacancy Rates Rents

In Markets including: London Madrid Milan Paris Warsaw

Canada Economic Growth is projected below LT Market Fundamentals Vacancy Rates Rents (softening)

Office Vacancy: 6 7% 6.7%

Latin America Expected p Positive Economic Growth: Brazil Mexico Argentina Chile Venezuela

US 4thh Year of decline in Housing Sector Declining Consumer Spending Declining Access to Capital Illiquidity of Credit Markets

The Great Deleveraging Capital Values are falling as investors reappraise their appetite for risk As commercial real estate fundamentals decline – there will be a direct impact on real estate values

CMBS Issuances I 1990 1990--2008

Decline 75% in 2008 over same period in 2007

Office Jan 09 – fewer than $1B Closed Listings Li i O Outpaced d Closed Transactions 41 4:1 Cap Rate 7.5% (45 bps increase since Sep 08)

Distressed Office Assets 297 Properties $11.5B in Value Notable Markets: Austin Los Angeles Detroit Cleveland Kansas City

Offi Buyer Office B C Composition iti

Office Vacancy (14%) Rents (5-6%) Absorption

Industrial Jan 09 – fewer than $400m Closed Close to $2B iin newly Cl l listed properties Cap p Rate 8.4% (80 bps increase since Sep 08)

Distressed Industrial Assets 170 Properties p $1.3B in Value Notable Markets: Austin Columbus

I d t i l Buyer Industrial B C Composition iti

Industrial Vacancy (8.8%) Rents (1.7% Warehouse) (3.6% R&D) (1.1 Manufacturing)

Absorption

Retail Jan 09 –$876m Closed Close to $2B in newly li d properties listed i Cap Rate 7.3% (20 bps increase since Sep 08)

Distressed Retail Assets $6 7B iin V $6.7B Value l Notable Markets: Las Vegas Indianapolis San Jose

Retail Buyer Composition

Retail Vacancy (8.9%) (8 9%) Rents (1.1%) Absorption

Multi--Family Multi Jan 09 – fewer than $600m Closed Listings Li i O Outpaced d Closed Transactions 51 5:1 Cap Rate 6.4% (50 bps increase since Sep 08)

Distressed MultiMulti-Familyy Assets 906 Properties $9 2B in Value $9.2B Notable Markets: Miami Las Vegas P l Beach Palm B h

Multi--Family Buyer Composition Multi

MultiM lti-Family Multi F il Vacancy (6.6%) (6 6%) Rents Absorption

Market Outlook • Rents will fall; Concessions will grow • Retail product is and will suffer the most; • Office product will continue to be weak with f th growth further th iin unemployment l t • Industrial will be impacted less but still impacted p • MF will perform better than the rest from an operational standpoint

Opportunities pp • For Tenants – take advantage g of the market and lock in for longer terms • For landlords – keeping tenants is key • Smaller sales transactions with private investors • REO transactions

Opportunities pp • NPL portfolios and other distressed debt purchases h • Student S d h housing i will ill continue i to perform f • Health care will continue to have demand • Other Federal Government related business • “Keep some powder dry”

Big Brothers Big Sisters

2007 Climb for Kids’ Kids Sake

2008 Climb for Kids’ Kids Sake

2009 Climb for Kids’ Kids Sake

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