Office Sector Outlook 2010 F. Antonio Puente, CCIM Senior Vice President November 19th, 2009

“An optimist stays up until midnight to see the New Year in. A pessimist stays up to make sure the old year leaves.” -Bill Vaughan, real estate investor "The US commercial property market is far from recovery and needs job growth, sustained low interest rates and further government support" in addition " We think we are early in the game as far as real estate markets reaching stability.” - GE Capital Real Estate CEO, Ronal Pressman

State of the Market Market Indicator2010Comments Supply  Several new “spec” buildings are being delivered to the market with very little, if any, pre leasing success. Vacancy  Vacancy rates began an upward trend in late 2008 and will continue into 2010/11due to the sluggish economy and cautious tenants. Demand/Absorption  Due to continued rising unemployment, defaulting tenants, demand will continue to weaken and negative absorption will continue in most markets. Rental Rates  Rental rates will continue to stay flat or slide along with higher tenant improvement allowances, more free rent, more perks. Unemployment  The unemployment is a significant indicator of the occupancy in the office sector. The stabilization and then reducing of unemployment is a direct correlation to office occupancy stats.

Office Supply In 2008/09 the market delivered over 1 million square feet of new buildings in the Miami area in several submarkets. Most of these building have achieved little or no leasing results to date. Buildings that were built as "for sale condo buildings" are now offering spaces on a "for lease" basis, also. Specifically in the Coral Gables/Ponce corridor and Coconut Grove. In 2010 the market will again deliver over 1.1 million square feet mainly in the Downtown/Brickell submarket. These buildings will be delivered to the market with over 70% still available. In fact one new 600,000 rsf office building on Brickell has slowed the construction process to a crawl due to lack of financing and leasing activity. This building, Brickell Financial, will probably wait out for the strengthening of the office market which could potentially take several years of positive absortion. Most proposed buildings that did not already commence construction have been “put on hold”, therefore, we now have a finite number of the total inventory of office space.

Miami Vacancy

Miami Historical Deliveries

Miami Tenants by Industry

Locally, Office Vacancies High and Rising

Office Market Fundamentals

Future Growth in Office Jobs

Significant New Construction Brickell / Downtown SizeDelivery 1450 Brickell Ave.570,000 SF Brickell Ave.596,000 SFTBD Met 2 Tower, 301 SE 2 nd Ave.705,000 SF2010 (late) Coral Gables Miami Green Building100,000 SFcompleted Bacardi Headquarters230,000 SFcompleted 396 Alhambra150,000 SF2011 Ponce de Leon Towers203,000 SFno started Doral/Airport Area Doral Center150,000 SF Waterford257,000 SFcompleted Park Square at Doral231,000 SFcompleted Kendall / Dadeland Area BCI / TownCenter One205,000 SFcompleted North Miami-Dade/Miami Lakes Parkside Corporate Center IV 40,000 SFcompleted City Place, 2950 Waterway Blvd.50,000 SFcompleted Market Statistics (% of Office Market) Source: CoStar Property

Under ConstructionSizeDelivery 1450 Brickell Ave.570, Brickell Ave.596, ?? Met 2 Tower, 301 SE 2 nd Ave.705, Recent Transaction Bilzin Sunmerg Baena80,000 SF Greenberg Traurig125,000 SF BankUnit11,500 SF Boston Consulting Group 5,200 SF William J. Brown Law Firm 4,800 SF Cabrera Capital Markets, 4,700 SF SFET Publishing (Televisa) 4,700 SF THM Group 3,900 SF GSA - Omni30,000 SF Average Rental Rates New Construction$ $50.00 Class A$ $46.00 Class B$ $38.00 Class C$ $28.00 Average Vacancies Class A9..5 % Class B/C15.5% Overall16.5% Market Statistics Downtown / Brickell Greatest Exposure to Potential Overdevelopment Source: CoStar Property

Market Statistics Airport West Source: CoStar Property Under ConstructionSizeDelivery Flagler Station100,000 SFcompleted Crossroads 110,000 SFcompleted Downtown Doral Center150,000 SF Waterford257,000 SFcompleted Park Square at Doral231,000 SFcompleted Recent Transactions Caterpillar26,000 rsf Parbell of Florida25,0000 rsf Johnson & Johnson19,600 rsf Phelps Dodge17,000 rsf Average Rental Rates New Construction$ Class A$29.00 Class B$23.00 Class C$21.00 Average Vacancies Class A14.9 % Class B18.4% Class C13.6% Overall16.1% City of Doral has been recently named as one of The 10 best places to retire in the US citing taxes And surrounding beauty. -US News and World Report

Under ConstructionSizeDelivery Miami Green Building100,000 SFcompleted Bacardi Headquarters230,000 SFcompleted Ponce de Leon Towers203,000 SF2012 Recent Transactions AECOM23,000 SF BSS&S20,000 SF Medical Business Services17,000 SF DeMahy Labrador – GFB14,000 SF Vision Strategic Services15,000 SF Average Rental Rates New Construction$ $50,00 Class A$39.50 Class B$33.00 Class C$20.00 Average Vacancies Class A15.5 % Class B/C7.4% Overall12 % Market Statistics Coral Gables / Coconut Grove “The Model Market” Trolley, downtown wireless Connectivity, historical preservation keep Coral Gables at the top of the list for office tenants looking to stay closer to home Source: CoStar Property

Market Statistics Kendall / Dadeland Source: CoStar Property The Dadeland / Kendall market continues to be a market of choice for business owners and executives who live in close proximity. The addition of residential condos and new retail establishments have added to the allure. Under ConstructionSizeDelivery Dadeland Centre II113,000 SFcompleted Town Center One210,000 SFcompleted Recent Transactions: Preferred Trust5,000 SF Fold Financial Management2,300 SF Keith Chasen, PA2,200 SF Average Rental Rates New Construction$40.00-$45.00 Class A$34.00 Class B$26.00 Class C$22.00 Average Vacancies Class A10.5 % Class B/C10 % Overall13.5 %

Distressed Properties in Miami

Miami Property Clock

Conclusions and Forecast for 2010 Slumping Office Market - Tenants have the upper edge in negotiations, but this round of office development is now coming to an end. Very few new Office projects planned. Active Leasing Market - Tenants and Brokers are taking advantage of the soft market and looking for the best opportunities. Tenants are playing musical chairs. Effective Rents - The Gross Rents will remain depressed for the next two - three years. Rent abatement, tenant perks and higher Tenant Improvements will prevail. Survival of the Fittest – Mature buildings that are financially stable and with quality ownership will perform better than most due to markets concerns about building performance and operations from unstable assets.

Conclusions and Forecast for 2008 Office Investment Activity - has been very slow to date, but should increase in the form of “bank note sales” and “distressed asset transfers”. Cash buyers continue to dominate the marketplace and are hoping for lower prices. High initial cap rates and strong IRR of % will continue to be the norm. City’s mandate - Miami needs to continue to invest in roads, mass transportation, the ports, and maintain its place as the gateway to the Americas in order to attract and retain new business. Green is the Color of Money - Both existing buildings and new construction are fully amerced in environmentally-friendly, energy conservative initiatives and construction standards. LEED certified professionals and buildings will be sought after.

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