Insights, discussion and information on Northeast Ohio commercial real estate

1. PC G|no rth e aN O R T H E Ai oO H I O
st oh S T
n e w s l etter P R IVATE CLIEN T GRO U P
february/MarCh 2010
M ON TH Ly N Ew SLETTER
c a p i t a l m a r k e t s | p r i v a t e c l i e n t G r o u pRUA Ry 2010
FEb
www.cbre.com/pcgnortheastohio
What Should We expect From commercial key rateS
real eState debt marketS in 2010?
2/19/10 Month Ago year Ago
Now that the commercial real estate debt markets have Tax-Exempt AAA Rated 3.12% 3.28% -
(10 year GbA rate)
begun what appears to be a long, extended process of
de-leveraging, CbRE Economic Advisors recently turned their Prime 3.25% 3.25% 3.25%
attention toward thinking about some broad industry trends and
how debt markets may evolve. Here are their thoughts on six key 5-yr US Treas. 2.45% 2.45% 1.80%
trends that are likely to play an important role in shaping transaction
10-yr US Treas. 3.78% 3.70% 2.76%
activity over the next several months.
LIbOR 3-Mo. 0.25% 0.25% 1.25%
MORE DISTRESS - while this trend may appear quite obvious to
market participants, expect some subtleties as to how distressed Source: bloomberg and wall Street Journal
assets come to market, and what types of assets comprise the
distressed pipeline in 2010. with banks reluctant to take losses
on performing assets, extensions will continue Year for the Record Books
2009: A Terrible to be the primary cap rate corner
roperty for resolution of lenders’Results 21, 2010 in the
avenue Trade Capital Trends - January portfolios
US Search maturing loan
short term. Expect some opportunistic investors to remain frustrated
national trenDs on PriCinG
All Typesrelatively slow pace |atUS distressed assets migrate into
over the | Cleveland which
Transactions c
transactions, especially on higher quality assets. terrible year in the annals
For those who thought 2008 was a
of US commercial property investing – and who didn’t think
Continued on page2009’s results put a surprising glow on such bleak
so? - 3 (MARKETS)
memories. With $51.9 billion in investment sales showing a
64% retreat from 2008’s $146 billion - and a 90% plunge from
2007’s $522 billion - 2009 limped ingloriously out of sight.
cbre 2010 mob inveStor/ developer Survey
provideS poSitive outlook
Except that, with the year just past coming into full view, it is
The 2010 CB Richard Ellis Medical Office Investor/Developerfooting than
clear that the New Year is beginning on better Survey
was sent to 596 of the most For every property type, theinvestors,
did the old one. influential medical office final quarter of
developers and realmarked investment if not a(REITs) in theBut the direction
2009 estate an upturn, trusts vibrant one. country,
with 120 taking the time to respond. than one year ago, when the bottom
clearly is more positive
was nowhere in sight.
This year’s survey contained eighteen key questions about the state
of the medical Even the most glaring no-show in 2009, the entity-level deal,
office investor/developer market. Some of the more
interesting findings in the survey includedyear-end, when Simon Property
showed signs of life toward the outlook for medical
office capitalization rates. As most would $2.2 billion acquisition. And
Group announced a pending expect, values for core
product, namely class transactions were a factor in really just one sector –
portfolio “A” medical office buildings (MOBs), still
retail – where Cleveland almost a third of total US Total
remain at cyclical highs withthey made uprespondents reporting volume;
87% of the that
overall, there were fewer than $10 billion in portfolio deals.
cap rates are below 8.50% and 37% of Reported
Past 12 months
the respondents reporting Reported
For the most part, 2009 was the year of the one-off, when
that cap rates for core product are Closed/Contract
even those investors below 8.00%.
Newly Offered
with larger horizons were rarely able
Closed/Contract
Total Volume (in mil.) to simultaneously find both the stomach and the capital to
$159.7 $424.5 Total Volume (in mil.) $61,511.4
In contrast, there continues to be in wide spread 16 cap rates between 31
# of Properties take down assets a quantity. in # of Properties 3,754
care medical product and class “b” facilities, with over 82% of the
Total respondents reporting that cap rates are1,943,541
sf 3,971,913 Total sf 1,082,465,562
As the year dragged on andabove 9.00% and 36% of
the waning tide of investment
Price/the respondents reporting that cap rates are over 9.50% for class in just
sf sales volume began its slow turn, cap
$88.9 rates continued$137.6 Price/ sf $68.7
“b” off campusone direction: up. Only apartment caps climbed fewer than
product.
Range (in mil.) $3.7-$34.0 $5.1-$50.0 Range (in mil.) $0.5-$590.3
100 basis points year-over-year, but then, only apartment
Avg. Property $ (in on page 4 (SURVEy)
Continued mil.)investors had government-sponsored
$10.0 $13.7
enterprises Fannie Avg. Property $ (in mil.) $16.4
Wghtd. Cap Rate and Freddie pitching in on financing.
8.59% 8.09% Wghtd. Cap Rate 7.61%
See hiGhliGhtS
Mean Cap Rate From the 2010 mortGaGe bankerS 8.42%
7.86% Mean Cap Rate
In sales volume for all property types, there was an eerie uniformity in Real rate of Analytics vs. 2008 sales levels, as
the Capital descent
7.78%
Source:
aSSociation conFerence on paGe by more than 60%. CBD office, usually the king of subtypes, fell the hardest for any
subtype after subtype plunged 4.
sector with meaningful volume, down 78%, while humble strip centers turned out to be the jack of all trades: strips
were down a relatively bearable 36% as the only subtype to endure a year-over-year decline of less than 50%.
Page 1

2. PC G| no rth e a st oh i o february/MarCh 2010
n e w sletter
www.cbre.com/pcgnortheastohio
market SnapShot
oFFice yTD Under
Existing Inventory Vacancy
Net yTD Construction Quoted
Market # buildings Total RbA Direct SF Total SF Vacancy % Absorption Deliveries SF Rates
Downtown
368 42,658,451 5,232,400 5,374,738 12.6% (149,662) 0 525,000 $17.32
Cleveland
East 352 13,762,585 1,416,614 1,459,808 10.6% (93,412) 155,583 0 $18.37
Lorain County 488 5,451,126 514,170 514,170 9.4% (30,150) 0 0 $16.03
Medina County 375 2,978,241 267,837 269,798 9.1% 80,224 50,200 82,240 $16.36
Northeast 446 6,994,420 962,027 970,992 13.9% (54,839) 1,300 0 $15.42
South 322 9,903,202 1,237,812 1,290,877 13.0% (27,909) 0 0 $18.76
Southeast 150 3,033,104 300,475 318,208 10.5% (54,617) 0 0 $18.99
Southwest 456 7,790,742 683,880 686,450 8.8% 28,094 0 0 $16.97
Summit County 1,535 27,452,786 2,213,466 2,430,560 8.9% (148,694) 162,471 32,600 $15.89
west 431 9,099,020 1,154,366 1,156,368 12.7% (90,313) 26,000 0 $15.90
Totals 4,923 129,123,677 13,983,047 14,471,969 10.95% (541,278) 395,554 639,840 $18.70
induStrial yTD Under
Existing Inventory Vacancy
Net yTD Construction Quoted
Market # buildings Total RbA Direct SF Total SF Vacancy % Absorption Deliveries SF Rates
Akron Ind 1,528 61,809,261 4,710,454 4,899,610 7.9% (494,754) 0 0 $3.37
Downtown Ind 805 29,076,213 2,610,682 2,610,682 9.0% (125,184) 0 0 $4.10
East Ind 174 9,435,450 733,206 772,416 8.2% (79,288) 0 0 $6.87
Medina County Ind 505 17,614,791 1,640,794 1,640,794 9.3% (448,554) 0 7,919 $4.22
Northeast Ind 1,625 66,166,273 5,405,065 5,413,830 8.2% (449,798) 5,280 0 $3.17
Outlying Lorain Ind 156 6,321,288 2,709,304 2,709,304 42.9% (70,131) 0 0 $2.36
South Ind 823 35,268,954 2,043,847 2,085,401 5.9% (227,725) 0 14,000 $4.86
Southeast Ind 1,755 89,962,367 7,013,056 7,144,606 7.9% (480,572) 0 0 $4.28
Southwest Ind 1,070 54,298,456 3,580,847 3,580,847 6.6% (666,517) 28,500 0 $4.46
west Ind 1,051 41,526,867 2,355,899 2,359,499 5.7% (528,208) 0 0 $3.46
Totals 9,492 411,479,920 32,803,154 33,216,989 11.16% (3,570,731) 33,780 21,919 $4.12
retail
Existing Inventory Vacancy yTD Under
Net yTD Construction Quoted
Market # buildings Total RbA Direct SF Total SF Vacancy % Absorption Deliveries SF Rates
Downtown
308 7,381,232 321,917 326,152 4.4% 40,766 71,280 78,083 $14.32
Cleveland
East 584 12,296,161 806,280 806,280 6.6% 86,094 0 0 $12.98
Lorain County 1201 15,729,604 1,379,095 1,422,575 9.0% 8,743 201,296 52,705 $9.55
Medina County 802 9,970,745 683,196 696,996 7.0% (87,185) 0 0 $12.10
Northeast 1196 22,927,735 2,456,164 2,593,992 11.3% (261,573) 111,400 0 $9.99
South 526 11,581,047 1,169,528 1,244,848 10.7% (484,558) 0 10,000 $8.31
Southeast 187 3,873,263 579,752 673,267 17.4% (44,806) 0 0 $14.08
Southwest 1152 22,489,260 1,624,287 1,667,352 7.4% 98,793 397,512 24,800 $11.37
Summit County 3020 37,090,595 2,697,872 2,925,232 7.9% (553,935) 49,351 20,000 $9.75
west 771 15,311,571 886,181 964,348 6.3% (19,985) 0 0 $12.70
Totals 9,747 158,651,213 12,604,272 13,321,042 8.8% (1,217,646) 830,839 185,588 $11.52
Source: CbRE, CoStar Group, Inc.
Page 2

3. PC G| no rth e a st oh i o february/MarCh 2010
n e w sl e tte r
www.cbre.com/pcgnortheastohio
Continued from page 1 (MARKETS)
Over the past year, distressed assets increased markedly, regulatory moves to reduce the overall size of the agencies’
reaching some $172 billion at the end of 2009-a fourfold investment portfolios.
increase from year-earlier levels, according to Real Capital
Analytics. Undoubtedly, the pipeline of distressed loans will see CONSERVATIVE UNDERwRITING - Conservative underwriting
rapid growth, particularly in the development and hotel sectors, is here to stay for the time being-a reflection of the relative
with income and occupancy shortfalls causing some bank lack of capital and the prospect that many property leases
lenders to finally throw in the towel, accept losses, and move will rollover into markets where rents and occupancies have
to restore the health of their balance sheets. Distressed hotel declined significantly. However, as lenders see that markets
deals will also continue to rise sharply as the industry struggles are beginning to bottom out and the prospect of recovery in the real
to right itself after an historical decline in revenue over the past estate market takes hold, look for average loan-to-value
year. A gradual recovery in hotel fundamentals by late-2010 ratios to eventually increase to a 70% LTV standard. First
will help to stem the tide of distress in the sector. Also, expect mortgage loans will require 25- to 30-year amortization terms,
plenty of small-loan bank deals, busted developments and significant rollover escrows, and cash management features.
nonstandard property types that will require difficult valuation
and resolution processes. MORE CMbS DEALS - In late 2009, three single-borrower
CMBS deals came to market, the first new issue deals since
“MIDDLE OF THE FAIRwAy” DEALS - The return of life early 2008. Look for several more small-sized, low-leverage,
companies, private funds, mortgage REITS and CMbS single-borrower CMbS deals to come to market in 2010.
issuers will help support lending to high-quality sponsors on As warehousing and hedging risks are gradually resolved,
high-quality assets with stable leasing profiles. Growing expect issuers to dip into the securitization market with larger
competition for larger deals with high-quality sponsors could multi-borrower deals. CMbS loans will remain conservatively
result in a number of larger, syndicated deals among bank sized at 50-60% LTV, leaving little room for rating agency
and life companies. Deals with significant sponsor or leasing interpretation over sizing AAA-rated bond proceeds. For the
issues will continue to lack lending opportunities and will market to expand to higher levels of leverage, investors are
face significant restructuring challenges. likely to require higher levels of confidence regarding the
rating agency model, the alignment of interest among various
A TwO-TIERED DEbT MARKET - At the same time, expect parties to the securitization, and a consensus that real estate
growing bifurcation of the real estate capital market, consisting fundamentals are on the mend. In particular, investors will
of: (i) low-leverage capital becoming more plentiful from need to have more confidence that loan originators have
the above sources, which will compete for business with the significant funds at risk, or “skin in the game”.
best sponsors and (ii) distressed deals in which opportunistic
funds take advantage of deeply discounted note sales or with improving levels of price discovery for low-leverage
restructuring situations on troubled assets. It is likely that loan deals, expect financing under the Term Asset-Backed
pricing will continue its trend of gradual improvement for the Securities Loan Facility (“TALF”) to become less relevant for
top tier assets as more capital flows into the sector; meanwhile, successful deal execution. The TALF program for new issue
pricing expectations for distressed assets will remain highly CMbS, which is scheduled to expire at the end of June, provides
discounted and uncertain. low-cost financing to buyers of AAA-rated CMBS. After successfully
re-starting the new issue market, the number of future
MULTIFAMILy LIQUIDITy - Tracking the decline in sales TALF trades may be rather slim over the next few months.
transaction and refinances, agency multifamily originations However, the program will continue to provide benefits
were off by more than 30% for the year ended in the third through effectively providing insurance or a “backstop” against
quarter of 2009, according to the MbA loan origination survey. adverse changes in pricing and widening loan spreads.
However, this decline was not as dramatic as the more than
50% decline registered for all commercial and multifamily For more insights from CbRE Economic Advisors, visit them at
lenders over this time period. Expect the multifamily sector www.cbre-ea.com.
to continue to benefit from GSE lending. There is the risk,
however, that lending volume may suffer under the weight of
higher defaults and worsening credit issues, as well as eventual
Page 3

4. 2-5 years (30%), followed by 5-7 years (20%). Of those
that selected over 10-years for their hold period, 51%
PC G| no rth e a st oh i o health care REITs and 27% were medical2010
were february/MarCh ofce
developers.
n e w sletter
www.cbre.com/pcgnortheastohio
What is the average hold time frame for your medical
* Continued from page 1 (SURVEy) ofce investments?
What is the average hold time frame for your medical
office investments?
Pricing should hold steady as demand is expected to 33%
outweigh supply in 2010 with 52% of the survey respondents 30%
reporting that available medical office product for purchase
(supply) will be the same as it was in 2009, while 55% 20%
% of Respondents
of the survey respondents reporting that the amount of 15%
When survey respondents were asked howhigher were
investors looking to purchase (demand) will be they than RETURN REQUIREMENTS
2009.
nancing medical ofce buildings, bank debt ranked It’s not surprising that the results for a “market”
as number one, followed byparticipating life companies,
debt from in a webinar 2%
For more information on capitalization rate for medical ofce in 2010 varied
followed bythe survey, are using all cash from the funds
review of
rms that please contact Steve Latkovic at widely10-years 7-10 yearson product type. The majority o
Over depending 5-7 years 2-5 years Under 2 years
steve.latkovic@cbre.com or 216-363-6418. Some of the
on their balance sheet.
questions are answered below: survey respondents (87%) indicated that a “market”
cbre’S debt and equity Class provideS inSiGhtS
capitalization rate for team “A” on-campus produc
What types of funding sources are you utilizing?
What types of nancing sources are you utilizing? From the 2010 mortGaGe bankerS aSSociation
conFerence below 8.50% and 37% of the survey
would be
6% Bank Debt
respondents indicated that a “market” capitalization
3% 2%
Survey respondents also indicated a wide spread in their • The Debt Capital Markets are back, Las Vegas is not
SUPPLY VS. DEMAND
9% 32% Life Companies • Liquidity has returned with Life Cos increasing allocationsproduct
rate would be below 8.00% for the same
target all-cash internal rate of return (IRR) requirements and Securitized lenders of those surveyed indicated in of a
Demand should outweigh market; material increase that
In contrast, 82% back in supply in 2010 with 52%
All Cash effective capacity
for 2010 depending on product type. For Class “A” the survey respondents reporting that available medical
“market” capitalization rate for Class “B” off-campus
• Lenders have overcome their fear of commercial real estate,
Credit Tenant Lease Financing
% on-campus product, 42% of the survey respondents
still careful but working above 9.00% and 15%the the survey
ofce product for purchase (supply) will be of same as
product would be to compete
Revolving Line of Credit
indicated that their target all-cash IRR for 2010 is • Annuity $in 2009, while 55% of the survey respondents
it was are flooding lendersthat a “market” capitalization
liquidity accounts
respondents indicated
Bond Financing • 60-65% Leverage is the new 50-55% LTV
between 10.00% and 12.49%. In contrast, 39% of the
• Up to 75% LTV bepossible on at least forinvestorsin looking to
reporting that above 10.00%of the same select
rate would is the amount some assets product.
Other
survey respondents indicated that their target all-cash
16% markets; as well as recapitalization, mezzanine, equity, hope
purchase (demand) will be higher than 2009.
22%
IRR for Class “B” off-campus product Synthetic Lease Financing
for 2010 is above notes, basis plays, etc
• 6% Loan Coupon is the new 8%
17.50% Wherewillyou is increasingly available, across the for medical
What do be see investment supply/demand for
• Positive leverage a “market” capitalization rate asset
range inofce in 2010 compared to 2009?
medical 2010?
ofce
What is your target Internal Rate of of return (all-cash)
What is your target internatl rate
requirement for 2010?
Return (All-Cash) • Competition for multi-family loans heats up as Life Co
pricing narrows gap with agency terms55%
requirement for 2010? 100% 0% 52%
3% 5% 3%
• The valuation cycle is at or past bottom, at least for better
6% 4% 6% 15%
While there was a wide variation for the average hold- 90%
100% 38% 6%
quality assets; but there is a divide between high & low
14%
39%
% of Respondents
6% 10% 17%
14% 80%
quality
time for 8% respondents’ medical24% ce investments,
90% the of 21% Above 10%
Higher
13% • The residential market bottomed last year and is now
70%
80% 12% 10% 9.50% - 9.99%
over 10-years ranked number one (33%), followed by favorably priced based on relationship to median income Same
70% 10% Above 20.00% 60% 50% 10%
12% 20% 15% • The cycle has moved past Fear, to38% Capital and6% then 9.00% - 9.49%
2-5 years (30%), followed by 5-7 years (20%). Of those 45% Lower
60% 17.50% - 20.00% 50%
Fundamentals, should have a longer than typical run
that selected over 10-years for their hold period, 51% 8.50% - 8.99%
50% 31% 24% 15.00% - 17.49%
(10 years or more)
40% 46%
29%
were health care REITs and 27% were medical ofce
42% • banks are beginning to break the extension pattern, forcing - 8.49%
Supply Demand 8.00%
40% 12.50% - 14.99% 30%
borrowers to mark assets with sale or refinance on today’s - 7.99%
7.50%
30%
developers. 10.00% - 12.49% 20%
23% reality 35% 30% 34%
20% 27%
• This remains an orderly process, with abundant acquisition 7.50%Below
10% 21%
22% 7.50% - 9.99% 10%MARKET FUNDAMENTALS
capital succeeding accommodating lenders as a limit on
16%
12% Below 7.50% 0% 2% 2%
1% 2%
0% 2%
1%
0%
8% 6% Over two thirds of survey respondents (70%) project
What is the average hold time
0% frame for
2% your medical price weakness
• The tone Class A optimism atOff- year’s On-
and On- Class A this Class B event Class B Off-
could not
ofce investments?A Off- Class B On-
Class A On- Class Class B Off- medical ofce lease rates for 2010 to increase between
Campus Campus Campus Campus
Campus Campus Campus Campus
possibly have improved more than it did compared to last
year and two percent, while 10% of survey respondents
zero
33% believe that medical ofce lease rates will experience
Page 4 30%

5. PC G| no rth e a st oh i o february/MarCh 2010
n e w s l e tte r
www.cbre.com/pcgnortheastohio
recent inveStment tranSactionS
OFFICE
Property Name City, State Sale Price Sale Date Additional Information
Point 6 westlake, OH $2,000,000 December 2009
RETAIL
Property Name City, State Sale Price Sale Date Additional Information
Gabriel Brothers Plaza Kent, OH $4,500,000 December 2009 CAP rate: 9.7% (est.)
Shaker Towne Center Shaker Heights, OH $17,800,000 December 2009
Snow View Plaza Parma, OH $9,450,000 December 2009
Discount Drug Mart Dover, OH $3,243,000 December 2009 CAP rate: 8.8% (est.)
Discount Drug Mart Carrollton, OH $3,596,000 January 2010 CAP rate: 8.9% (est.)
Featured property | For Sale recent team SaleS
Panera Plaza 200 East Market Street
2070-2074 walker Lake Road Akron, OH 44308
Ontario, OH 44862 • Long term acute care
hospital (LTACH) anchored
• Potential of 20%+IRR for the by Select Medical.
entire project
• From marketing to close in
100 days.
Property price: $2,450,000 Property type: Medical
CAP rate: 8.65%* buyer: Health Care REIT
Current NOI: $185,984 Purchase price: $20,500,000
*On in-place income Building size: 54,450 SF
Deal closed: December 2009
Scott Pollock and Steve Latkovic specialize in advising clients in the disposition and acquisition of income-producing
properties throughout Northeastern Ohio. we deliver our clients a seamless transaction to achieve optimal pricing
and maximum returns in today’s ever changing real estate market. Additionally, services go beyond finding a buyer
as we employ a due-diligence coordination team in addition to offering exit strategy planning. These services provide the
highest surety of a flawless sale with minimal distraction to the seller and their tenants. For information on PCG Northeast Ohio,
please visit our website at: www.cbre.com/pcgnortheastohio
For up to the minute market information, you can visit our blog at: commercialinsider.blogspot.com
for more information, please contact:
: : Scott pollock : : Steve latkovic, esq., cpa
Private Client Group Private Client Group
216.363.6467 216.363.6418
scott.pollock@cbre.com steve.latkovic@cbre.com
Cb Richard Ellis| 200 PublicSquare | Suite 2560 | Cleveland, OH 44114 | www.cbre.com/pcgnortheastohio
© 2010 CB Richard Ellis, Inc. This information has been obtained from sources believed reliable. We have not verified it and make no guarantee, warranty
or representation about it. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future
performance of the property. You and your advisors should conduct a careful, independent investigation of the property to determine to your satisfaction
the suitability of the property for your needs. Licensed Real Estate Broker
Page 5