1. CB Richard Ellis | Page 1 2010 Real Estate Forecast - Capitalization Rate Trends Michael J. Moynagh, MAI, Managing Director CBRE Valuation and Advisory Services CFA Society of Minnesota American Society of Appraisers - Twin Cities Chapter July 22, 2010

2. CB Richard Ellis | Page 2 Outline  2010 Real Estate Forecast  Minneapolis Office  St. Paul Office  Suburban Office  Industrial  Retail  Land  Hospitality  National Capitalization Rate Trends

3. 2010 Forecast Minneapolis / Office

4. CB Richard Ellis | Page 4 Office / CBD Absorption Historical Minneapolis

5. CB Richard Ellis | Page 5 Office / CBD Vacancy by Class Minneapolis

6. CB Richard Ellis | Page 6 Office / CBD Gross Rates Historical Minneapolis

7. 2010 Forecast St. Paul / Office

8. CB Richard Ellis | Page 8 Office / CBD Absorption Historical St. Paul

9. CB Richard Ellis | Page 9 Office / CBD Vacancy by Class St. Paul

10. CB Richard Ellis | Page 10 Office / CBD Gross Rates Historical St. Paul

11. 2010 Forecast Suburban Office

12. CB Richard Ellis | Page 12 Office /Absorption Historical Suburban

13. CB Richard Ellis | Page 13 Office / Vacancy by Class Suburban

14. CB Richard Ellis | Page 14 Suburban Office / Gross Rates Historical

15. CB Richard Ellis | Page 15  Bottom may have been reached in office market.  Look for modest gains in 2010 in vacancy and rates.  Construction activity will remain flat for some time. Office Market Conclusion

16. 2010 Forecast Industrial

17. CB Richard Ellis | Page 17 Industrial / Absorption Historical Twin Cities’ Metro Area

18. CB Richard Ellis | Page 18 Industrial / Direct Vacancy Rate Twin Cities Metro Area

19. CB Richard Ellis | Page 19 Industrial / Net Warehouse Asking Rate Twin Cities Metro Area

20. CB Richard Ellis | Page 20  Looks like industrial market may soon find its bottom.  Absorption still slightly negative and rates continue to fall (although at much slower a pace than seen in 2009).  Look for continued improvements in 2010 with absorption possibly turning positive by year end.  Construction activity remains negligible. Market Changes Ahead

21. 2009 Forecast Retail

22. CB Richard Ellis | Page 22 Retail Absorption Twin Cities Metro Area

23. CB Richard Ellis | Page 23 Retail Vacancy Rates Twin Cities Metro Area

24. CB Richard Ellis | Page 24  Hemorrhaging in retail market has stopped, but tenant activity remains sluggish.  Vacant big-box space remains (mostly) unfilled.  Retail market should begin to show positive growth in 2010. However, it will take some time to fill all of the vacant space on the market. Retail Market Conclusion

25. 2010 Forecast Land

26. CB Richard Ellis | Page 26 Land  Land prices have fallen  Several Major Residential Developers have walked away from transactions  There is an over supply of finished lots

27. 2009 Forecast Hospitality

28. CB Richard Ellis | Page 28 Twin Cities - Occupancy Percent Change Year End % Changes Source: STR Report-Twin Cities Market 2009 Forecast % Change Source: CBRE/Torto Wheaton Research

29. CB Richard Ellis | Page 29 Twin Cities - ADR Percent Change Year End % Changes Source: STR Report-Twin Cities Market 2009 Forecast % Change Source: CBRE/Torto Wheaton Research

30. CB Richard Ellis | Page 30 Twin Cities - RevPAR Percent Change Year End % Changes Source: STR Report-Twin Cities Market 2009 Forecast % Change Source: CBRE/Torto Wheaton Research

31. CB Richard Ellis | Page 31 Twin Cities - Lodging Forecast  New supply (hotels u/c) diminishing.  Questionable when/if planned supply will come to fruition.  Indicators appear to be signaling a turn around in the hotel market.  Expected continued improvements in 2010 and 2011.

32. CB Richard Ellis | Page 32 Who’s Selling?  40% Life/Pension, increase from previous year  25% equity/opportunity funds, increase from previous year  25% Individuals, same level as previous year  Life/Pension selling Office  REIT selling Multi-Housing  Individuals selling Retail  Life/Pension & Individuals selling Industrial

33. CB Richard Ellis | Page 33 Who’s Bidding?  All buyer types similar to last year  Equity/Opportunity Funds buying Office  Individuals buying Multi-Housing  Individuals buying Retail  Equity/Opportunity Funds buying Investment

34. CB Richard Ellis | Page 34 Investment Properties Institutional Group Capital Markets Financial Returns – Overall Class A Q2 2009Q1 200820082007 Avg. Sales Cap Rate8.35%6.50%6.60%6.05% Avg. Stabilized Cap Rate9.36%6.91%6.87%6.71% Avg. IRR (Cash)10.25%9.48%9.25%9.27% Class B Q2 2009Q1 200820082007 Avg. Sales Cap Rate8.40%6.65%6.79%6.87% Avg. Stabilized Cap Rate8.57%7.20%7.31%7.60% Avg. IRR (Cash)11.92%10.98%10.82%10.14%

35. CB Richard Ellis | Page 35 Closing Timeline Q2 2009Q1 2008200820072006 Marketing Time8.15.46.15.3 Best & Final Negotiations10.95.35.54.65.2 Due Diligence & Closing8.57.78.57.28.1 Total Weeks27.518.320.117.118.6 Converted to Months6.44.34.74.04.3

36. CB Richard Ellis | Page 36 War Stories  Land Subdivisions-Out state MN 52 subdivisions, small communities, no appraisals, loans based on napkin valuation by lender, 300 lot development in community of 250 people?  Large Retail Center Sold for $100M in 06, will close next week at $35M with original developer buying, Anchor Co-tenancy, % Co-tenancy, Sales kick out clause (reduce rent or leave)

37. CB Richard Ellis | Page 37 War Stories  Suburban Office Bldg, sold in 2006 for $25M, now at $15M, 40% loss!  Suburban new construction condos completed 18 months ago, not one condo sold!  Twin Cities redevelopment hotel, projected $189 ADR and 70% occupancy, actual ADR of $120 and 50% occupancy!  Suburban office complex with $18.5M mortgage from 2006 is currently at a value of $9-$10M! Borrower is attempting to rework loan! Good luck!

38. CB Richard Ellis | Page 38  National Capitalization Rate Trends

39. CB Richard Ellis | Page 39 National Capitalization Rate Trends

40. CB Richard Ellis | Page 40 National Capitalization Rate Trends

41. CB Richard Ellis | Page 41 National Capitalization Rate Trends

42. CB Richard Ellis | Page 42 National Capitalization Rate Trends

43. CB Richard Ellis | Page 43 Questions & Answers ? Conclusion

44. Thank you for this opportunity to share our information with you. Michael J. Moynagh, MAI Managing Director CB Richard Ellis 81 South 9 th Street, Suite 410 Minneapolis, MN 55402 mike.moynagh@cbre.commike.moynagh@cbre.com / www.cbre.com/mike.moynaghwww.cbre.com/mike.moynagh Contact Information: