CCIM Investment Trends Quarterly - 1Q 2011

RERCsCCIM
InvestmentTrends
First Quarter 2011 Report s Vol. 7, No. 1 QUARTERLY
Sponsored by:
Foreword
February 2011
Dear Readers,
As 2011 gets underway, we are seeing slightly more confidence in the economy and the commercial real estate
market. According to RERC’s survey respondents, credit is more available in some areas, while other areas are
starting to work through the distress in the market. Many brokers still say they are not seeing much activity in their
markets, but they are more optimistic about the potential for future leasing and sales as the year progresses and
as we move into 2012.
We are seeing this view backed-up by their ratings, too. Survey respondents have increased their ratings for
the national and regional economies, as well as their views of the investment conditions for all property types.
Ratings are also up for return versus risk and for value versus price. Volume is up too, particularly for large-size
properties, although it is disappointing that the aggregate price for smaller size properties is not increasing signifi-
cantly, particularly in small-town America. Demand is slowly starting to increase in some of the secondary and ter-
tiary markets, but it will be some time before most markets see significant improvement in price or rental growth.
We would like to thank those of you who have faithfully completed RERC’s research surveys during the past
year, and to let you know that we look forward to working with you again throughout the new year to collect the
information only those of you in the field can contribute. Thank you for your data, as we continue to analyze the
research, interpret the findings, and report the results for all CCIM Institute members through the RERC/CCIM
Investment Trends Quarterly.
Best wishes for a happy, healthy, and successful 2011.
Sincerely,
Kenneth P. Riggs, Jr., CCIM, CRE, MAI Frank N. Simpson, CCIM

President & CEO 2011 CCIM Institute President
Real Estate Research Corporation (RERC) President, The Simpson Company
Investment Trends Quarterly s Copyright© 2011 by Real Estate Research Corporation (RERC) and the CCIM Institute. 1
Investment Environment
With a full year of positive economic growth under our belts, are meeting these challenges and we are seeing improve-
the Dow Jones Industrial Average (DJIA) Index surpassing ment in the form of increased transaction volume, lower
the symbolic 12,000 mark, and more capital finally available capitalization rates, and price increases at some level for
to investors, we are reminded of how many hurdles the U.S. most property types.
economy has already overcome during the past few years.
There are many other obstacles yet to cross, including debt
that, according to the Federal Reserve and credit rating
agencies, is “unsustainable,” a housing market that is still
looking for bottom, and too few new jobs to drive a recov-
ery, but confidence seems to be creeping back. However,
the recent crisis in Egypt and the unrest elsewhere in the
Middle East reminds us how fragile the geopolitical climate
is and how quickly the economic stability of the U.S. (and
the world) can be affected.
The struggling economy makes the current performance of

the institutional real estate market all the more astounding.
Although there are still serious difficulties for some property
types in most markets, the commercial real estate markets
Economic Highlights
Economic Growth Expected to Increase in 2011 in 2009. The increase in the deficit is generally due to the
weak economy, along with the higher government spending
With the initial estimate of fourth quarter 2010 growth of and the tax cuts lawmakers have initiated to help stimulate
gross domestic product (GDP) at 3.2 percent, according to economic growth.
the Bureau of Economic Analysis (BEA), the U.S. economy
ended 2010 with a real GDP growth rate of 2.9 percent, Treasury officials warned lawmakers that the U.S. could hit
slightly higher than the 2.6 percent growth in 2009. Although the $14.3 trillion debt ceiling by the end of March 2011. Fur-
economic growth for fourth quarter was slightly lower than ther, debt is expected to increase to $20.9 trillion by 2017
investor expectations, it has been positive each quarter due to increased healthcare costs, an aging population, and
in 2010, and thus far, we have avoided the much-feared soaring interest, predicts the CBO. The credit rating agen-
“double-dip.” More importantly, the economy seems to have cies repeated their warnings that the U.S. needs to reverse
acquired a little more steam as we move into 2011, and the the direction of its debt if it hopes to keep its AAA rating.
Federal Reserve expects GDP to grow at a slightly higher
pace of between 3 percent and 4 percent in 2011. Unemployment Rate Starting to Decline
According to many economists, the Federal Reserve’s re- According to the Bureau of Labor Statistics (BLS), the un-
cent expansion of their quantitative easing program (QE2) employment rate declined to 9.4 percent in December 2010,
by buying $600 billion in treasuries through second quarter with nonfarm payroll employment increasing by 103,000
2011, along with their continued commitment to keeping in- during the month. Although this rate of growth does not
terest rates low “for an extended period,” is helping to stim- keep up with the addition of new entrants into the workforce
ulate stock market returns and contributing to the “wealth each month, at least it is a positive number. The economy
effect” for households. added 1.1 million jobs during the past year.
Deficit Reaches New High It is important to note that the 9.4-percent unemployment
rate is the lowest it has been in more than a year and a half,
The Congressional Budget Office (CBO) announced that but government figures also indicate that the rate declined
the federal budget deficit will reach a new record of nearly primarily because a record number of people stopped look-
$1.5 trillion in fiscal year (FY) 2011, and as a share of GDP, ing for work. There are more layoffs still to come too, as tens
is expected to increase to 9.8 percent. As a percentage of of thousands of state and local government workers receive
economic output, the 9.8-percent deficit would be the sec- pink slips as revenues fail to meet budgets this year.
ond-largest in 65 years, behind only the 10-percent level
Despite the weakness in the labor market, however, busi- coal, iron ore, and oil, to name a few—caused the CPI’s
nesses are more optimistic than they have been for some energy index to increase 7.7 percent in 2010.
time, which should help prompt future hiring. According to
a recent survey conducted by the National Association for Home Prices Expected to Decline Slightly in 2011
Business Economics (NABE), 42 percent of respondents
expect to increase jobs in the next 6 months while only 7 Although the U.S. housing market had several bright mo-
percent of companies expect to shed jobs. ments during fourth quarter 2010, the majority of indicators
showed that the market has more pain ahead. Existing home
Consumers seemed to be a little more optimistic in fourth sales increased 12.3 percent from November to an annual-
quarter as well, and opened their pocketbooks during the ized pace of 5.28 million units in December, the strongest
2010 holiday season, with total retail sales from October monthly gain since 1999, according to the National Associa-
through December 2010 up 7.8 percent from the same pe- tion of REALTORS® (NAR). In addition, new home sales
riod a year ago, according to the U.S. Census Bureau. This jumped 17.5 percent in December to a seasonally-adjusted
topped off a year of increases, with total retail sales for the pace of 329,000 homes, the strongest monthly gain since
entire year up 6.6 percent from 2009 figures, including non- the mid-1990s, according to the Commerce Department. Al-
store retail sales up 15.0 percent and auto and motor ve- though new home sales in December were up, 2010 overall
hicle dealer sales up 14.7 percent in 2010 from the previous was the worst year on record for the homebuilding industry.
year’s sales.
Also, the S&P/Case-Shiller Composite 20-city home price
Hints of Inflation index declined 1 percent in November from October, the
fourth straight month-over-month drop. San Diego was the
Although we are not seeing much inflation in the U.S.—the only city where home prices increased, while the other 19
Consumer Price Index (CPI) for all urban consumers in- cities in the index posted monthly declines. In fact, nine of
creased 0.5 percent in December 2010 on a seasonally-ad- the 20 markets (Atlanta, Charlotte, Chicago, Detroit, Las
justed basis, and 1.5 percent over the past 12 months—one Vegas, Miami, Portland, Seattle, and Tampa) hit their low-
of the global economic challenges discussed at the January est points since home values started dropping 4 years ago.
2011 World Economic Forum in Davos, Switzerland, was Projections are for home prices to decline further in 2011.
inflation. Increasing prices in some parts of the world are And then there is the foreclosure situation. According to Re-
prompting concerns in the U.S., where we also have seen alty Trac Inc., banks took back more than 1 million homes
recent increases in the price of food, energy, and raw mate- in 2010. Foreclosure filings are expected to increase about
rials/commodities. 20 percent in 2011.
But according to the Federal Reserve’s statement following CCIM Members Upgrade Economic Ratings
their January meeting, “longer-term inflation expectations
have remained stable, and measures of underlying inflation CCIM members saw the economy significantly improve
have been trending downward.” Others point out, however, nationally and across all the regions during fourth quarter
that although high unemployment may help keep the cost of 2010. This is a complete turnaround from the previous quar-
labor from increasing, higher raw material prices—wheat, ter, when respondents downgraded the national and region-
al economies. The national economy received a rating of
4.9 on a scale of 1 to 10, with 10 being high, during fourth
quarter, up significantly from a rating of 3.7 in third quarter.
On a regional basis, the South received an economic rating
of 5.7 on the same scale, followed closely by the Midwest
regional economy with a score of 5.6. The East and West
regional economies received ratings of 5.4 and 5.0, respec-
tively. Although the economy is not out of the woods, these
higher ratings show CCIM members are more confident and
optimistic about both the national economy and their region-
al economies compared to the previous quarter.
Commercial Real Estate Highlights
Commercial real estate activity was mixed during fourth RERC/CCIM Investment Trends Quarterly Survey
quarter 2010. Leasing markets exhibited increasing signs Results
of recovery, although construction activity was quite limited.
According to our sources, the bulk of new commercial real Despite the positive momentum in the stock market during
estate construction activity was related to healthcare, public fourth quarter 2010, respondents to the RERC/CCIM In-
infrastructure, and multifamily/apartment housing. vestment Trends Quarterly survey once again rated com-
mercial real estate as the top investment option among the
Banking Activity Mixed alternatives listed. As shown in Exhibit 1, their rating for
commercial real estate increased to 6.3 on a scale of 1 to
Credit activity was mixed across the U.S. during fourth 10, with 10 being high, while the rating for stocks increased
quarter 2010, and while loan demand was stable in some to 5.4. The investment ratings for cash and bonds declined
areas, it remained soft or has been declining in other areas to 4.2 and 3.8, respectively.
as we move into 2011. According to the Federal Reserve’s
Summary of Commentary on Current Economic Conditions RERC’s institutional investment survey respondents in-
issued in January 2011, commercial and industrial loans creased their buy/sell/hold recommendations during fourth
have increased, albeit only slightly (0.46 percent at small quarter 2010 over third quarter results. The hold recom-
banks, but about five times this much at large banks). How- mendation, as shown in Exhibit 2, was rated highest, earn-
ever, many CCIM members reported that credit is becoming ing a rating of 7.1 on a scale of 1 to 10, with 10 being high.
more available. However, as demand for high-quality institutional properties
increased (along with prices), the sell recommendation also
According to the Federal Reserve Flow of Funds, the level increased, jumping to 5.3 on the same scale. The buy rec-
of commercial/multifamily mortgage debt outstanding de- ommendation increased slightly to 6.4 during fourth quarter
creased to $3.2 trillion in third quarter 2010, a decrease of from 6.3 the previous quarter, but has held mostly steady (or
$42 billion (or 1.3 percent) from the previous quarter. Fore- may even be tipping downward) on a year-over-year basis.
sight Analytics reported that an estimated $1.4 trillion in
loans is set to come due between 2010 and 2014, with the The investment conditions ratings for all the major property
majority due in 2013. Multifamily mortgage debt increased types improved during fourth quarter 2010. As shown in Ex-
to $847 billion in third quarter, however -- an increase of hibit 3, the apartment sector continued to receive the high-
$2.3 billion (or 0.3 percent) from the previous quarter. est investment conditions rating, with a rating of 6.6 on a
scale of 1 to 10, with 10 being high. This was followed by
The delinquency rate for commercial mortgage-backed se- the industrial sector, which continued to receive the second-
curities (CMBS) rose by 14 basis points in January 2011, highest rating and increased to 5.2 during fourth quarter.
despite new issuances and falling treasury spreads, report- The retail, hotel, and office sector ratings improved to 4.9,
ed Trepp, LLC. This brings the percentage of CMBS loans 4.8, and 4.4, respectively, and although they remain some-
30 or more days delinquent, in foreclosure, or owned by the what low on a relative basis, CCIM members believe that
lender to 9.34 percent, the highest in history, with the value the investment potential of these property types is increas-
of delinquent loans at approximately $61.4 billion. ing.
With respect to the conditions of the banks, there were 157

Exhibit 1. CCIM Respondents Rate Investments
failed banks in 2010 (more than any year since 1992) but
with $92.1 billion in total assets, which was a decrease of 4Q 2010 3Q 2010
45.7 percent from the $167.7 billion in assets that failed in
2009. According to the Federal Deposit Insurance Corpo- Commercial Real Estate 6.3 5.6
ration (FDIC), nearly half of the failed banks were located Stocks 5.4 4.4
in four states: California, Florida, Georgia, and Illinois. The
FDIC’s list of “troubled banks” (those whose weaknesses Bonds 3.8 4.2
threaten their continued financial viability) increased to 860 Cash 4.2 4.8
as of Sept. 30, 2010, the highest since 1993, although the
number of bank failures is expected to decline in 2011. Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent.
Source: RERC/CCIM Investment Trends Quarterly Survey, 4Q 2010.
After declining in third quarter 2010 (see Exhibit 4), the
rating for commercial real estate return versus risk over- Exhibit 2. RERC Historical Buy, Sell, Hold Recommendations
10 10
all bounced back in fourth quarter with a rating of 5.4 on a
scale of 1 to 10, with 10 being high, indicating CCIM mem-
bers’ increased confidence in the return potential of this as-
8 8
set class versus the risk involved. 6 6
Rating
CCIM members likewise increased their return versus risk 4 4
ratings for all property types in fourth quarter 2010. CCIM Hold
Sell
members gave the apartment sector the highest return ver- 2 2
Buy
sus risk rating, with a score of 6.7 on a scale of 1 to 10,
with 10 being high. The only other property type to receive 0 0
01
02
03
04
05
06
07
08
09
10
a return versus risk rating higher than 5.0 was the industrial
20
20
20
20
20
20
20
20
20
20
4Q
4Q
4Q
4Q
4Q
4Q
4Q
4Q
4Q
4Q
sector with a rating of 5.2. At 4.9, the retail sector received Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent.
the next highest rating, followed closely by the ratings for Source: RERC Institutional Investment Survey, 4Q 2010.
the hotel and office sectors at 4.7 and 4.5, respectively. Al-
though the return on investment in the apartment and indus-
trial sectors is considered higher than the amount of risk in-
Exhibit 3. Real Estate Investment Conditions Ratings
volved, the opposite is true for the rest of the property types.
4Q 3Q 2Q 1Q 4Q
2010 2010 2010 2010 2009
CCIM members also increased their value versus price rat-
ing for commercial real estate during fourth quarter 2010. Office 4.4 3.8 4.0 3.8 3.8
This higher overall rating of 5.5 on a scale of 1 to 10, with 10 Industrial 5.2 4.5 4.4 4.2 4.1
being high, indicates that the value of commercial real es- Retail 4.9 3.9 4.2 3.7 3.8
tate is increasingly higher than the price of product, and that
properties in general are regaining their worth, albeit slowly.
Apartment 6.6 6.0 5.9 5.5 5.4
Hotel 4.8 3.9 4.2 3.8 3.8
Interestingly, the value versus price rating increased slightly Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent.
Source: RERC/CCIM Investment Trends Quarterly Survey, 4Q 2010.
for all property sectors with the exception of the apartment
sector. Although the apartment sector retained the highest
value versus price rating among the property types, the rat-
ing fell slightly to 5.3 in fourth quarter 2010 from 5.4 in third Exhibit 4. Historical Return/Risk and Value/Price Ratings
quarter, indicating that the sector may be slightly overpriced 4Q 2010 3Q 2010 2Q 2010 1Q 2010 4Q 2009
and is moving closer to equilibrium. The industrial sector Return vs. Risk
received a score of 5.2, the only property type besides
Overall 5.4 4.9 5.4 5.1 4.8
the apartment sector with a higher value than its price. As
shown in Exhibit 4, the retail, office, and hotel sectors re- Office 4.5 4.1 4.4 4.1 4.1
ceived ratings of 4.9, 4.8, and 4.7, respectively, indicating Industrial 5.2 4.8 4.8 4.7 4.7
that while the ratings are increasing slightly, the value of Retail 4.9 4.2 4.7 4.1 3.9
these property sectors is still slightly less than the price.
Apartment 6.7 6.2 6.2 6.1 5.8
On a 12-month trailing basis, total volume increased in all Hotel 4.7 4.1 4.4 3.9 3.9
property types except for the retail sector, where volume Value vs. Price
declined approximately 2 percent during fourth quarter Overall 5.5 5.1 5.2 5.5 4.7
2010. However, on a quarter-to-quarter basis, total volume
Office 4.8 4.7 4.7 5.0 4.3
increased for all property types during fourth quarter, includ-
ing retail. Industrial 5.2 5.1 5.1 5.0 4.7
Retail 4.9 4.8 4.5 4.9 4.2
In addition, the size-weighted average price per square Apartment 5.3 5.4 5.2 5.6 4.9
foot/unit for the office and apartment sectors increased ap-
Hotel 4.7 4.5 4.7 4.7 4.0
proximately 10 percent on a 12-month trailing basis, while
Ratings are based on a scale of 1 to 10, where 1 is poor and 10 is excellent.
the size-weighted average price per square foot/unit dec- Source: RERC/CCIM Investment Trends Quarterly Survey, 4Q 2010.
creased for the retail and hotel sectors decreased
approximately 5 percent (price for industrial sector Exhibit 5. What Do the Financial Markets Tell Us?
remained unchanged from the previous quarter).
Compounded Annual Rates of Return as of 12/31/2010
The 12-month trailing weighted-average capital-
ization rate decreased across all property sectors
during fourth quarter 2010. Market Indices 1-Year 3-Year 5-Year 10-Year 15-Year
Consumer Price Index1 1.25% 1.33% 2.13% 2.35% 2.42%
Although the economy remains uncertain and 2
many individuals continue to struggle on a day-to- 10-Year Treasury Bond 3.22% 3.34% 3.89% 4.17% 4.76%
day and month-to-month basis, the performance Dow Jones Industrial Average 14.06% -1.61% 4.31% 3.15% 7.91%
of the various asset classes, as reported in Exhibit
5, shows that investors are finally starting to re- NASDAQ Composite3 16.91% 0.01% 3.76% 0.71% 6.36%
gain some of the wealth they lost during the reces-
3
sion. With the stock market coming back, it is par- NYSE Composite 10.84% -6.49% 0.54% 1.38% 5.67%
ticularly interesting that the National Association
S&P 500 15.06% -2.86% 2.29% 1.41% 6.76%
of Real Estate Investment Trusts (NAREIT) Index
offered the highest returns during 2010 among the NCREIF Index 13.11% -4.18% 3.51% 7.38% 9.16%
investment alternatives that RERC regularly moni-
tors, with a performance reading of 27.95 percent. NAREIT Index (Equity REITS) 27.95% 0.65% 3.03% 10.76% 10.54%
However, institutional real estate, as represented 1
Based on the published data from the Bureau of Labor Statistics (Seasonally Adjusted).
by the National Council of Real Estate Investment 2
Based on Average End of Day T-Bond Rates.
Fiduciaries (NCREIF) Index, also offered a very 3
Based on Price Index, and does not include the dividend yield.
solid return of 13.11 percent. Sources: BLS, Federal Reserve Board, S&P, Dow Jones, NCREIF, NAREIT, compiled by RERC.
Summary
As the economy continues to take a few steps forward and • Interest rates will remain low for the foreseeable future.
few steps back in its struggle to stabilize, commercial real
estate is defying investor expectations. As a result, RERC • Surging corporate profits and solid balance sheets will
anticipates: allow businesses to boost investment and hiring (if de-
mand increases).
• Economic growth to continue at a moderate pace, and
unemployment to remain high during 2011. • Expect more banking, business, and real estate merg-
ers and acquisitions to occur in 2011.
• The administration and Federal Reserve to do all they
can to encourage economic growth and keep interest • Many characteristics of a trifurcated market will remain in
rates low “for an extended period,” including extending 2011, as the division between top properties, distressed
tax cuts, reducing payroll taxes, or buying more treasur- properties, and “the rest” continues (although there has
ies. been progress in resolving distressed properties).
• Despite increasing raw materials/commodity prices, in- • Capitalization rates further compressed during fourth
flation should remain low for the near term. quarter 2010, but are expected to begin to stabilize in
2011.
• The housing market will remain depressed and home
prices may decline further as foreclosures continue in
2011.
• Lending will expand and more capital, including CMBS,

will be available for investing in commercial real estate.
Snapshot of Real Estate Market Performance – 4Q 2010
Going-In Cap Rates vs. Unemployment

12% 12%
10% 10%
8% 8%
6% 6%
4% 4%
Unemployment
2% 2%
Going-In Cap Rate
Recession
0% 0%
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
20 9
10
4Q 198
4Q 198
4Q 198
4Q 198
4Q 198
4Q 198
4Q 198
4Q 198
4Q 198
4Q 198
4Q 199
4Q 199
4Q 199
4Q 199
4Q 99
4Q 199
4Q 199
4Q 199
4Q 199
4Q 199
4Q 200
4Q 200
4Q 200
4Q 200
4Q 200
4Q 200
4Q 200
4Q 200
4Q 200
4Q 200
1
4Q
Sources: RERC, BLS, NBER, 4Q 2010.
Performance Indicator Recent Data Impact on Commercial Real Estate
Office: 17.6% According to Reis, Inc., vacancy for the office and retail sectors re-
Industrial: 14.3% mained unchanged. In contrast, the apartment sector vacancy rate
Vacancy Rates Retail: 10.9% decreased. The industrial sector availability rate also fell during fourth
Apartment: 6.6% quarter, according to CBRE-EA. Smith Travel Research reported that ho-
Hotel: 57.6% (occupancy) tel occupancy increased during fourth quarter.
Office: 1.7% to 2.1% RERC’s rental rate expectations were slightly higher for the office and
Rental Rates Industrial: 1.5% to 2.0% retail sectors during fourth quarter 2010, while expected rents for the
(RERC’s surveyed rent Retail: 1.9% to 2.0% apartment and hotel sectors jumped significantly when compared to
growth expectations) Apartment: 3.1% third quarter 2010. The rental rate expectation for the industrial sector
Hotel: 3.4% fell slightly from the previous quarter.
RERC Required Returns: NCREIF Realized Returns:

Office: 8.3% to 9.3% Office: 8.8% to 16.1% RERC’s required returns declined slightly for all property sectors dur-
Industrial: 8.7% to 9.3% Industrial: 5.9% to 11.9% ing fourth quarter 2010. In comparison, NCREIF’s realized returns sig-
Real Estate Returns Retail: 8.6% to 8.9% Retail: 9.9% to 14.5% nificantly improved during fourth quarter, as all property sectors showed
Apartment: 8.0% Apartment: 18.2% positive returns.
Hotel: 10.5% Hotel: 9.0%
RERC Realized Cap Rates: NCREIF Implied Cap Rates:

RERC’s realized cap rates declined during fourth quarter for all property
Office: 6.7% Office: 6.5% to 7.2%
sectors. NCREIF’s implied cap rates declined for the office and industrial
Industrial: 7.7% Industrial: 7.2% to 7.5%
Capitalization Rates Retail: 8.2% Retail: 7.0% to 7.7%
sectors, while the rate for the hotel sector increased during fourth quar-
ter. The apartment and retail cap rates remained unchanged compared
Apartment: 6.1% Apartment: 5.9%
to the previous quarter.
Hotel: 7.1% Hotel: 6.6%
National Market Analysis
National Transaction Breakdown

12-Month Trailing Averages (01/01/10 - 12/31/10)
Office Industrial Retail Apartment Hotel
< $2 Million
Volume (Mil) $1,235 $2,509 $2,644 $1,216 $92
Size Weighted Avg. ($ per sf/unit) $81 $44 $76 $40,238 $21,941
Price Weighted Avg. ($ per sf/unit) $117 $71 $120 $67,646 $34,470
Median ($ per sf/unit) $85 $54 $81 $48,088 $23,042
$2 - $5 Million
Volume (Mil) $1,640 $2,981 $3,163 $2,222 $350
> $5 Million
Volume (Mil) $46,809 $11,941 $17,742 $27,522 $10,841
All Transactions
Volume (Mil) $49,683 $17,430 $23,549 $30,961 $11,282
Capitalization Rates (All Transactions)
Range (%) 4.0 - 11.5 5.4 - 12.0 4.0 - 11.7 4.0 - 11.1 4.7 - 8.5
Weighted Avg. (%) 6.7 7.7 8.2 6.1 7.1
Median (%) 7.5 7.9 7.8 6.5 7.5
Source: RERC.
National Market Analysis
National Transaction Breakdown

Current Quarter Rates (10/01/10 - 12/31/10)
< $2 Million
Volume (Mil) $282 $677 $734 $368 $33
$2 - $5 Million
Volume (Mil) $383 $893 $884 $644 $90
> $5 Million
Volume (Mil) $20,228 $5,427 $6,246 $12,444 $5,410
All Transactions
Volume (Mil) $20,893 $6,998 $7,864 $13,455 $5,534
Range (%) 4.0 - 10.0 5.4 - 10.3 4.0 - 11.7 4.0 - 10.7 4.7 - 7.5
Weighted Avg. (%) 6.6 7.4 7.8 6.3 6.1
Median (%) 7.6 7.3 7.8 6.9 6.4
Source: RERC.
National Office Property Sector
RERC Weighted Average Capitalization Rate w The majority of fourth quarter 2010 respondents to RERC’s
(12-Month Trailing Average) survey for the RERC/CCIM Investment Trends Quarterly
9% 9% stated that distressed office properties—many of them well-
located, free-standing properties—were attractively priced,
selling well, and even outselling other properties. Other re-
8% 8%
spondents stated, however, that the office sector was risky
due to oversupply.
w Office sector total volume and size-weighted average

7% 7%
price per square foot continued to trend upward on a
South West National
12-month trailing basis during fourth quarter 2010. Fur-
East Midwest
thermore, office sector volume increased by more than 40
6%
4Q09 1Q10 2Q10 3Q10 4Q10
6% percent from the previous quarter. (This volume increase
was more than for any other sector, except for the hotel
sector.) The size-weighted average price per square foot
rose approximately 10 percent from the previous quarter.
RERC Size-Weighted Average PPSF w In contrast to the 12-month trailing weighted-average capi-
(12-Month Trailing Average) talization rate, which declined to 6.7 percent during fourth
$275
South West National
$275
quarter 2010, the quarterly weighted-average capitaliza-
East Midwest tion rate increased for the first time since second quarter
$225 $225
2009.
$175 $175
w While the office sector volume and size-weighted aver-
age price for transactions that totaled greater than $5 mil-
$125 $125
lion increased during fourth quarter, volume and price for
transactions that totaled less than $2 million declined from
$75 $75
the previous quarter.
$25 $25
4Q09 1Q10 2Q10 3Q10 4Q10 w According to Reis, Inc., the vacancy rate for the office
sector remained flat at 17.6 percent during fourth quar-
ter 2010. In addition, net absorption increased 2.5 million
square feet for the quarter, the first increase since the end
RERC Price-Weighted Average PPSF of 2007. Asking and effective rents also increased during
(12-Month Trailing Average)
fourth quarter.
$500 $500
South West National
East Midwest
$400 $400
$300 $300
$200 $200
$100 $100
$0 $0
4Q09 1Q10 2Q10 3Q10 4Q10
National Industrial Property Sector
RERC Weighted Average Capitalization Rate w According to the RERC/CCIM Investment Trends Quarter-
(12-Month Trailing Average) ly survey respondents, industrial properties offered a good
9.0% 9.0% investment opportunity during fourth quarter 2010. Many
respondents said that both normal and distressed indus-
trial properties were selling well, depending on location.
8.5% 8.5%
w During fourth quarter 2010, transaction volume for the in-

8.0% 8.0% dustrial sector rose 20 percent, while the size-weighted
average price per square foot remained flat on a 12-month
trailing basis. In comparison, the quarterly size-weighted
7.5% 7.5%
South West National average price per square foot of industrial space declined
East Midwest 10 percent from the previous quarter. The 12-month trail-
7.0%
4Q09 1Q10 2Q10 3Q10 4Q10
7.0% ing weighted-average capitalization rate for the industrial
sector declined 50 basis points to 7.7 percent.
w According to RERC’s fourth quarter 2010 analysis, the

volume of industrial property transactions of less than $2
RERC Size-Weighted Average PPSF million, of $2 million to $5 million, and those of more than
(12-Month Trailing Average) $5 million each increased on a 12-month trailing basis. In
$100
South West National
$100
contrast, the size-weighted average price per square foot
East Midwest of industrial space from transactions that totaled greater
$75 $75 than $5 million increased slightly, while the size-weighted
average price of industrial space for transactions of less
than $2 million fell 5 percent from the previous quarter.
$50 $50
w According to CBRE-EA, the national industrial availability

$25 $25 rate fell by 30 basis points to 14.3 percent during fourth quar-
ter 2010. Although availability remains high, low construction
and an improving economy should further reduce availability
$0 $0
4Q09 1Q10 2Q10 3Q10 4Q10 going forward.
RERC Price-Weighted Average PPSF

$150 $150
South West National
East Midwest
$125 $125
$100 $100
$75 $75
$50 $50
$25 $25
4Q09 1Q10 2Q10 3Q10 4Q10
National Retail Property Sector
RERC Weighted Average Capitalization Rate w The majority of fourth quarter 2010 respondents to the
(12-Month Trailing Average) RERC/CCIM Investment Trends Quarterly survey stated
10% 10% that distressed retail properties were selling well due to
South West National reasonable pricing, and several respondents noted that
East Midwest the retail sector was considered an attractive investment.
Furthermore, retail sales were strengthened by holiday
9% 9% sales, though sales slowed in December.
w Compared to the previous quarter, the volume for the retail

8% 8%
sector in fourth quarter 2010 declined by 2 percent on a
12-month trailing basis, while the size-weighted average
price per square foot fell nearly 5 percent. In contrast, the
quarterly volume for retail grew 10 percent during fourth
7%
4Q09 1Q10 2Q10 3Q10 4Q10
7% quarter. The 12-month trailing weighted-average capital-
ization rate decreased 20 basis points to 8.2 percent.
w The volume of retail property transactions that totaled less

than $2 million increased on a 12-month trailing basis,
RERC Size-Weighted Average PPSF while the volume for transactions greater than $5 million
(12-Month Trailing Average) declined compared to the previous quarter, suggesting
$200 $200 that distressed or smaller properties are the primary sales
South West National in this category. The size-weighted average price per
$175
Midwest
$175 square foot of retail space decreased for all transaction
East
sizes.
$150 $150
w According to Reis, Inc., the vacancy rate for the retail sec-
$125 $125
tor remained unchanged at 10.9 percent during fourth
$100 $100
quarter 2010. In addition, the lowest number of comple-
tions was recorded since 1999, with only 594,000 square
$75 $75 feet of neighborhood/community center space brought
online during the quarter. Both asking and effective rents
$50
4Q09 1Q10 2Q10 3Q10 4Q10
$50 declined.
RERC Price-Weighted Average PPSF

$400 $400
South West National
East Midwest
$340 $340
$280 $280
$220 $220
$160 $160
$100 $100
4Q09 1Q10 2Q10 3Q10 4Q10
National Apartment Property Sector
RERC Weighted Average Capitalization Rate w The apartment sector was the most attractive property in-
(12-Month Trailing Average) vestment during fourth quarter 2010, according to respon-
8.0% 8.0% dents to the RERC/CCIM Investment Trends Quarterly
survey. Respondents said demand was strong, although
7.5% 7.5% pricing and location could be challenging.
7.0% 7.0% w Apartment sector volume continued to improve, increasing

about 30 percent from the previous quarter on a 12-month
6.5% 6.5% trailing basis. Likewise, the size-weighted average price
per apartment unit rose about 5 percent on a 12-month
6.0%
South West National
6.0% trailing basis. Quarterly apartment sector volume showed
East Midwest a steeper increase from the previous quarter, while the
5.5%
4Q09 1Q10 2Q10 3Q10 4Q10
5.5% quarterly size-weighted average price per apartment unit
remained flat, or up slightly. The weighted-average capital-
ization rate decreased 10 basis points to 6.1 percent on a
12-month trailing average.
RERC Size-Weighted Average PPU w The volume of apartment sector transactions that totaled
(12-Month Trailing Average) less than $2 million increased nearly 10 percent on a
$150,000
South West National
$150,000
12-month trailing basis, while the volume of transactions
East Midwest that totaled greater than $5 million increased approximate-
$125,000 $125,000
ly 30 percent during fourth quarter 2010.
$100,000 $100,000
w According to Reis, Inc., the national vacancy rate for the
$75,000 $75,000
apartment sector dropped sharply to 6.6 percent in fourth
quarter 2010. In addition, occupied stock increased by
$50,000 $50,000
nearly 58,000 units for the quarter, with absorption for the
year 2010 totaling over 227,000 units. Asking and effective
$25,000 $25,000 rents continued to increase at approximately 0.5 percent.
4Q09 1Q10 2Q10 3Q10 4Q10
RERC Price-Weighted Average PPU

$300,000 $300,000
South West National
East Midwest
$250,000 $250,000
$200,000 $200,000
$150,000 $150,000
$100,000 $100,000
$50,000 $50,000
$0 $0
4Q09 1Q10 2Q10 3Q10 4Q10
National Hotel Property Sector
RERC Weighted Average Capitalization Rate w CCIM members who completed the survey for the RERC/
(12-Month Trailing Average) CCIM’s Investment Trends Quarterly noted that the hotel
9.5% 9.5% sector continued to struggle during fourth quarter 2010.
Many respondents stated that distressed hotel properties
9.0% 9.0%
were selling, although confidence in the sector remained
8.5% 8.5%
low.
8.0% 8.0% w Hotel sector volume jumped 70 percent on a 12-month

trailing basis during fourth quarter 2010, while the size-
7.5% 7.5%
weighted average price per unit fell about 5 percent after
National
7.0% 7.0% steadily improving since third quarter 2009. The 12-month
East
trailing weighted-average capitalization rate dropped 90 ba-
6.5%
4Q09 1Q10 2Q10 3Q10 4Q10
6.5% sis points to 7.1 percent compared to the previous quarter.
w In contrast to the other property sectors RERC analyzes, the

hotel sector showed the same volume and size-weighted
average price trends (higher volume, lower size-weighted
RERC Size-Weighted Average PPU pricing) for all transaction levels on a 12-month trailing ba-
(12-Month Trailing Average) sis.
$150,000 $150,000
South West National
East Midwest w According to Smith Travel Research, hotel sector occupan-
$125,000 $125,000
cy increased 5.7 percent to 57.6 percent in December 2010.
In contrast, the average daily rate (ADR) declined 0.1 per-
$100,000 $100,000
cent to $98.08, while revenue per available room (RevPar)
$75,000 $75,000
rose 5.5 percent to $56.47.
$50,000 $50,000
$25,000 $25,000
4Q09 1Q10 2Q10 3Q10 4Q10
RERC Price-Weighted Average PPU

$300,000 $300,000
South West National
East Midwest
$250,000 $250,000
$200,000 $200,000
$150,000 $150,000
$100,000 $100,000
$50,000 $50,000
$0 $0
4Q09 1Q10 2Q10 3Q10 4Q10
East Region
Tr a n s a c t i o n B r e a k d o w n
East Transaction Breakdown

< $2 Million
Volume (Mil) $245 $598 $688 $206 $12
$2 - $5 Million
Volume (Mil) $374 $815 $892 $685 $50
> $5 Million
Volume (Mil) $23,295 $2,490 $5,417 $10,137 $3,581
All Transactions
Volume (Mil) $23,913 $3,903 $6,996 $11,028 $3,643
Range (%) 4.0 - 10.9 5.8 - 11.7 4.0 - 10.0 4.0 - 9.2 4.7 - 8.3
Weighted Avg. (%) 6.3 7.9 7.8 5.8 6.7
Median (%) 7.1 7.9 7.6 6.3 7.5
Source: RERC.
South Region
South Transaction Breakdown

< $2 Million
Volume (Mil) $381 $530 $813 $232 $24
$2 - $5 Million
Volume (Mil) $347 $426 $845 $369 $96
> $5 Million
Volume (Mil) $5,143 $2,670 $4,818 $7,269 $2,770
All Transactions
Volume (Mil) $5,871 $3,627 $6,476 $7,871 $2,889
Range (%) 5.8 - 10.4 7.2 - 10.0 5.8 - 11.0 4.4 - 10.1 -
Weighted Avg. (%) 7.4 7.7 8.6 6.7 -
Median (%) 8.0 7.9 8.0 7.2 -
Source: RERC.
Midwest Region
Midwest Transaction Breakdown

< $2 Million
Volume (Mil) $187 $391 $440 $140 $23
$2 - $5 Million
Volume (Mil) $148 $367 $339 $154 $51
> $5 Million
Volume (Mil) $5,293 $1,662 $2,147 $1,763 $1,198
All Transactions
Volume (Mil) $5,628 $2,421 $2,926 $2,057 $1,272
Range (%) 5.5 - 9.7 7.2 - 11.0 5.8 - 10.0 5.7 - 10.7 -
Weighted Avg. (%) 6.7 8.2 8.2 7.3 -
Median (%) 7.9 7.9 8.5 7.6 -
Source: RERC.
We s t R e g i o n
West Transaction Breakdown

< $2 Million
Volume (Mil) $422 $988 $703 $637 $33
$2 - $5 Million
Volume (Mil) $771 $1,367 $1,088 $1,014 $152
> $5 Million
Volume (Mil) $13,077 $5,107 $5,360 $8,353 $3,292
All Transactions
Volume (Mil) $14,271 $7,462 $7,150 $10,005 $3,478
Range (%) 5.0 - 11.5 5.4 - 12.0 5.0 - 11.7 4.0 - 11.1 -
Weighted Avg. (%) 7.0 7.4 8.4 5.8 -
Median (%) 7.7 7.3 7.4 6.1 -
Source: RERC.
GDP FOMC Policy Decisions
9 9 7 7
Discount Rate
7 7
Percent Change Quarter Ago
6 6
Fed Funds Rate
5 5
5 5
3 3
Percent
4 4
1 1
3 3
-1 -1
2 2
-3 -3
-5 -5 1 1
-7 -7 0 0
2Q 02
4Q 03
2Q 03
4Q 04
2Q 04
4Q 05
2Q 05
4Q 06
2Q 06
4Q 07
2Q 07
4Q 08
2Q 08
4Q 09
2Q 09
4Q 10
10
No -02
O -0 3
No -04
O -0 6
O -0 7
M -0 1
M -0 2
Ap 04
M -0 5
J u 08
S e -1 0
0
D 10
No 05
D 08
M -0 3
No 01
M -0 6
Ap 07
M 09
O 09
J u 01
-1
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
v-
p-
r-
r-
n-
-
n-
n-
ay
ay
ay
ay
ay
v
ec
ar
ec
ct
ct
ct
ct
Ja
4Q
Source: Bureau of Economic Analysis. Source: Federal Reserve.
According to the Bureau of Economic Analysis, real gross domestic product (GDP) growth The Federal Open Market Committee (FOMC) was slightly more optimisitic about the economy
increased to 3.2 percent on an annualized basis in fourth quarter 2010. This growth was at its December 2010 meeting. Recent data was stronger than expected and growth is expected
helped by strengthening demand from consumers and businesses. In addition, the final sales to increase in the near term. However, the long-term outlook was little changed. The federal
for GDP jumped 7.1 percent - the largest quarterly gain since 1984, which bodes well for funds rate remained in the 0.0-percent to 0.25-percent range, and the discount rate remained
near-term growth. at 0.75 percent.
Unemployment Manufacturing Utilization

12 12 85 85
80 80
10 10
75 75
Percent
Percent
8 8
70 70
6 6
65 65
4 4 60 60
O -01
O -06
Ja -02
Ja -07
Ap -03
Ap -08
M -00
Au -02
M -05
Au -07
0
Fe -04
Fe -09
Ju -05
Ju -10
Se -04
Se -09
M -01
M -06
No -03
No 08
Ju -03
Ju -08
D 05
D -10
-1
M -02
Ju 03
No l-03
M -03
Ju 04
No l-04
M 04
Ju 05
No l-05
M 05
Ju 06
No l-06
M -06
Ju 07
No l-07
M 07
Ju 08
No l-08
M 08
Ju 09
No l-09
M -09
Ju r-10
D -10
0
n-
ay
ay
-1
g
v
v
ec
ar
ec
ar
ec
p
p
b
b
r
r
ct
ct
n
l-
n
n
-
v-
-
v-
-
v-
-
v-
-
l
v
ar
v
ar
ar
ar
v
ar
ar
ar
ly
ec
D
a
No
Source: Bureau of Labor Statistics. Source: Federal Reserve.
The unemployment rate fell to 9.4 percent in December. Although improving from November, In December 2010, factory output increased at a 2.4-percent annual rate, down from 6.5
the employment situation was still a disappointment as the numbers fell short of expectations. percent in the third quarter. Manufacturing utilization rose slightly to 73.5 percent. With strong
Employment is expected to increase in 2011, but more economic certainty and increased demand and continued consumer spending, manufacturing utilization is expected to increase
demand is needed. further.
Consumer Price Index Retail Sales

0.6 0.6 10 10
8 8
0.5 0.5
Year To Year Percent Change
Percent Change Month Ago
6 6
0.4 0.4 4 4
2 2
0.3 0.3
0 0
0.2 0.2
-2 -2
0.1 0.1 -4 -4
-6 -6
0.0 0.0
-8 -8
-0.1 -0.1 -10 -10
-0.2 -0.2 -12 -12

0
10
0
0
9
10
0
0
10
10
Ju 8
Ju 9
Ju 0
Ja 07
Ja 08
Ja 09
M 08
M 09
M 10
0
No 08
No 09
D 10
M 08
M 09
M 10
-1
-1
Se 8
Se 9
Se 0
-1
-1
-0
-1
-1
-1
-1
-0
-0
-1
-1
l-0
l-0
l-1
v-
p-
n-
n-
v-
v-
v-
-
-
ay
-
g
p-
p-
p-
ly
ec
ec
ar
n-
n-
n-
b
ct
ay
ay
ay
ar
ar
ar
ec
Ap
No
Au
Se
Fe
Ju
Ja
No
Ju
M
O
M
D
D
Source: Bureau of Labor Statistics. Source: Census Bureau.
The Consumer Price Index (CPI) rose 0.5 percent to 220.25 in December 2010. Compared to Although retail sales rose 0.6 percent in December, this was the weakest growth since July.
a year ago, the CPI was up 1.5 percent. Thanks to widespread exuberance in the commodities However, holiday sales in total were strong and exceeded expectations. Growth is predicted
markets, headline inflation remained positive for the second consecutive reading. to continue into early 2011 due to the release of pent-up demand and increased optimism.
Consumer Confidence Housing Affordability
120 120 190 190
180 180
100 100 170 170
160 160
80 80
150 150
Index
Index
140 140
60 60
130 130
40 40 120 120
110 110
20 20 100 100
O 07
O 02
Ja 08
Ja 03
O 08
O 09
O 10
Ap 09
Ap 04
M 06
Au 08
M 01
Au 03
Fe 07
Fe 08
Fe 09
0
Ja -10
Fe 05
Ju 6
Se 10
Se 05
Ap 08
Ap 09
Ap 10
M 07
M 02
No 09
No 04
Ju 08
Ju 09
Ju 10
D 07
D 08
D 09
Au 08
D 10
Au 09
Au 10
Ju 9
11
Ju 4
D 6
0
-1
0
0
l-0
-
-
g-
g-
v-
v-
-
-
p-
b-
r-
r-
-
-
n-
n-
g-
g-
g-
n-
n-
n-
-
b-
b-
b-
r-
r-
r-
-
-
n-
-
n-
n-
ay
ay
ec
ar
ec
ar
p
ct
ct
ec
ec
ec
ec
ct
ct
ct
ct
D
O
Source: The Conference Board. Source: NAR.
After decreasing slightly in December, consumer confidence rose 7.2 points to 60.6 in January The National Association of REALTORS® (NAR) Housing Affordability Index measures whether
2011. This is only the second time the index exceeded 60 since 2008. This improvement might or not a typical family could qualify for a mortgage on a typical home. During fourth quarter
have been caused by tax cuts and improving labor market conditions. While moods are looking 2010, the index increased until December, when it fell slightly to 185.3. However this still
up, there is evidence that consumers believe the recession has not ended. indicates that a typical family is more than able to afford a median-priced home.
S&P 500 Existing Home Sales

Beginning of Month Adjusted Closing Price
1600 1600 8.0 8.0

1500 1500
1400 1400 7.0 7.0
1300 1300
1200 1200 6.0 6.0
Millions
1100 1100
1000 1000 5.0 5.0
900 900
800 800 4.0 4.0
700 700
600 600 3.0 3.0
D -03
D -04
D -05
D -06
D -07
D -08
D -09
D -10
Ap -02
Ap -03
Ap -04
Ap -05
Ap -06
Ap -07
Ap -08
Ap -09
0
Au -03
Au -04
Au -05
Au -06
Au -07
Au -08
Au -09
Au -10
-1
ar 1
Ju -02
2
ar 2
Ju -03
3
ar 3
Ju -04
4
ar 4
Ju -05
5
ar 5
Ju 6
6
ar 6
Ju -07
7
ar 7
Ju -08
8
ar 8
Ju -09
9
ar 9
Ju -10
ec 0
0
g
g
ec
ec
ec
ec
ec
ec
ec
ec
ec
r
M c-0
No l-0
M v-0
No l-0
M v-0
No l-0
M v-0
No l-0
M v-0
0
No l-0
M v-0
No l-0
M v-0
No l-0
M v-0
No l-0
M v-0
D l-1
-1
-
D
e
D
Source: S&P. Source: NAR.
The S&P 500 ended December 2010 at 1,257.64, up 0.07 percent from November. Overall, Existing home sales jumped 12.3 percent in December 2010, at an annualized rate of 5.28
the S&P 500 was less volatile during fourth quarter as it gradually increased. Stocks in general million units. This is the strongest monthly gain since 1999. However, compared to a year
are becoming more popular, though they are still considered to be more risky than commercial ago, sales are down 2.9 percent. Foreclosure processing issues persist, threatening demand
real estate. and creating uncertainty. Home prices are expected to decline further, before stabilizing in the
second half of the year.
Index of Leading Indicators Single Family Home Supply

1.6 1.6 13 13
1.4 1.4
Percent Change Quarter Ago
12 12
1.2 1.2
1.0 1.0 11 11
0.8 0.8 10 10
Months
0.6 0.6
9 9
0.4 0.4
0.2 0.2 8 8
0.0 0.0
7 7
-0.2 -0.2
-0.4 -0.4 6 6
10
10
0
0
10
0
0
0
10
10
09
10
10
0
10
10
0
10
0
10
0
-1
-1
-1
-1
-1
-1
-1
-0
-1
-1
r-1
-1
l-1
l-1
-
v-
p-
n-
g-
n-
v-
v-
p-
b-
n-
ay
n-
g
ar
ec
b
ct
ay
ec
ar
ec
ct
Ap
No
Ju
Au
Ap
No
No
Se
Ju
Fe
Ju
Ja
Au
Se
Fe
Ju
Ja
M
O
M
O
M
D
Source: The Conference Board. Source: NAR.
The Conference Board’s Index of Leading Indicators rose 1 percent in December 2010, indi- During fourth quarter, the monthly home supply continued to steadily decrease, with the De-
cating that the pace of recovery should increase in 2011. Compared to a year ago, the index cember 2010 single-family home supply declining to 8.1 from the previous month. This re-
grew 5 percent, and is more broad-based than previously. Economic growth has accelerated mains considerably higher than the normal rate of around 6.0 months, but demand for housing
in recent months, and consumer spending is expected to strengthen with help from reductions is expected to increase as job growth increases.
in payroll taxes.
Scope & Methodology
The analysis provided in the RERC/CCIM Investment Trends Quarterly is conducted by Real Estate Research Corporation (RERC). The information is gathered in raw form from surveys sent to
CCIM designees and candidates, and from sales transactions collected from various sources, including CCIM members, various key commercial information exchange organizations (CIEs), the
media, assessors’ offices, RERC contacts in the marketplace, and other reliable public and private resources. All sales transactions are aggregated, analyzed, and reported on by RERC. Additional
data and forecasts are provided courtesy of the REALTORS® Commercial Alliance and Torto Wheaton Research.
Published quarterly, the RERC/CCIM Investment Trends Quarterly report provides timely insight into transaction volume, pricing, and capitalization rates for the core income-producing properties.
RERC Definitions
Capitalization Rate: The capitalization rate is defined as the first year “stabilized” net operating income (NOI) (NOI is before capital expenditures – tenant improvements, leasing commissions,
reserves – and debt service) divided by the present value (or purchase price). Capitalization rates included are transaction-based medians and price-weighted averages.
RERC Capitalization Rate and Ranges: Capitalization rates and ranges listed throughout this report are based on RERC’s proprietary realized capitalization rate model, which includes available
transaction-based capitalization rates, NCREIF Index Returns, and other market factors, but is heavily weighted toward transaction-based capitalization rates for each property type within each market.
Price-Weighted Average: The price-weighted average is developed through weighting each asset based on the gross sales price. Therefore, larger dollar properties are given more weight than the
smaller dollar properties, with the weighted average reflecting more weight towards institutional real estate.
Size-Weighted Average: The size-weighted average is developed through weighting each asset based on its gross square footage – simply an aggregation of all the gross sales prices divided by
the aggregation of the gross square footage.
National/Regional Market Analysis: RERC ranks the investment potential of the metros and property types it covers based on various space market and financial market criteria, including pricing,
capitalization rates, vacancy rates, and other factors.
Investment Conditions Rating: A rating of 1 through 10 (with 10 being high) reflecting survey respondents’ collective views of the investment environment for a particular property type in comparison
with other property types. The rating may take into account supply and demand, economic conditions, pricing, rental rates, or other factors.
NCREIF Definitions
NCREIF: The National Council of Real Estate Investment Fiduciaries (NCREIF) is an independent organization dedicated to the compilation, validation, and distribution of performance data for the
institutional real estate investment community.
Total Return: The total return includes appreciation (or depreciation), realized capital gain (or loss), and income. It is computed by adding the income and capital appreciation return on a quarterly
basis.
Implied Cap Rate (Income Return): The implied capitalization rate measures the portion of return attributable to each property’s NOI. It is computed by dividing the total NOI by the total quarterly
investment.
Capital Appreciation Return: The capital appreciation return measures the change in market value adjusted for any capital improvements/expenditures and partial sales divided by the average
quarterly investment.
Annual and Annualized Returns: Annual returns are computed by chain-linking quarterly rates of return to produce time-weighted rates of return for the annual and annualized periods under study.
For time periods beyond 1 year, the annualized returns are expressed as the annual compounded rate of return.
Allocation: The distribution, expressed as a percentage of the overall investment, in a particular geographic area by property type.
For a detailed description of the proceeding returns, as well as the calculations used by NCREIF to derive these figures, please visit http://www.ncreif.org/indices.
The combined returns are the weighted average of the returns for each property type according to the proportionate market value of properties surveyed relative to the total market values surveyed
during a time period.
RERC Defined Regions and MSAs
West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming
Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin
South: Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee, Texas
East: Connecticut, Delaware, Kentucky, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia,
Washington D.C., West Virginia
Metropolitan Statistical Area (MSA): A geographic unit comprised of one or more counties around a central city or urbanized area with 50,000 or more population. Contiguous counties are
included if they have close social and economic links with the area’s population nucleus.
With a few exceptions, the MSAs within this report coincide with the U.S. Office of Management and Budget’s December 2005 definitions for each MSA. For example, St. Paul, Minn., and Bloom-
ington, Minn., as well as many other suburbs, are included within the Minneapolis MSA.
Note of Caution: It is imperative to exercise caution when comparing the data contained herein to previous reports published by RERC. The data herein is not “fixed,” and will be updated and
changed as additional transaction information is gathered and analyzed.
Disclaimer: This publication is designed to provide accurate information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering
legal or accounting service. The publisher advises that no statement in this issue is to be construed as a recommendation to make any real estate investment or to buy or sell a security or as
investment advice. The examples contained in the publication are intended for use as background on the real estate industry as a whole, not as support for any particular real estate investment or
security. Although the RERC/CCIM Investment Trends Quarterly uses only sources that it deems reliable and accurate, Real Estate Research Corporation (RERC) does not warrant the accuracy of
the information contained herein.
Acknowledgements
RERCsCCIM Investment Trends QUARTERLY
RERC Editorial Staff
The RERC/CCIM Investment Trends Quarterly is produced by Publisher

Real Estate Research Corporation (RERC) in association with Kenneth P. Riggs, Jr.
CFA, CRE, FRICS, MAI, CCIM
and for members of the CCIM Institute.
Editor-in-Chief
Barb Bush
Real Estate Research Corporation
Lead Analyst
Founded more than 75 years ago, Real Estate Research Corporation Brian Velky, CFA
(RERC) was the nation’s first independent real estate firm that specialized
in both real estate research and analysis. Recognized as a pioneer in the Research Analysts
art of real estate management and for monitoring key sectors of the econ- Greg Philipp
Kyle Corcoran
omy that influence the real estate industry, RERC has retained its place as Cliff Carlson
one of the industry’s leading real estate investment trends analysts through Charles Gohr
the publication of such reports as Expectations & Market Realities in Real David Kelly
Estate and the RERC Real Estate Report. Today, RERC is known for its Lindsey Kuhlmann
research publications and market studies, commercial property valuations, Meredith Steffen
Ye Thway
complex consulting assignments, portfolio Morgan Westpfahl
management and technology services, and
independent fiduciary services. Layout & Design
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The CCIM Institute Data Management

Scott Hamerlinck
Since 1969, the Chicago-based CCIM Institute has conferred the Certi- Ben Neil
Daniel Warner
fied Commercial Investment Member (CCIM) designation to commercial
real estate and allied professionals through an extensive curriculum of 200 Production Committee
classroom hours and professional experiential requirements. Currently, Terri Cotter
there are 9,000 CCIMs in 1,000 markets in the U.S. and 31 additional coun- Nicole Hardy
tries. Another 7,000 practitioners are pursuing the designation, making the
institute the governing body of one of the largest commercial real estate Research Assistant
Jeffrey Harms
networks in the world. An affiliate of the National Association of Realtors®,
the CCIM Institute’s recognized curriculum, networking programs, and
powerful technology tools such as the Site To Do Business (site analysis CCIM Institute
and demographics resource) and CCIMREDEX (commercial property data
exchange), impact and influ- President
Frank N. Simpson, CCIM
ence the commercial real es-
tate industry. Visit www.ccim. President-Elect
com, www.stdbonline.com, Leil Koch, CCIM
and www.ccimredex.com for
more information. First Vice President
Wayne D’Amico, CCIM
Copyright Notice for RERC~CCIM Investment Trends Quarterly Treasurer

Charles C. Connely IV, CCIM
Copyright© 2011 by Real Estate Research Corporation (RERC) and the CCIM Institute. All rights
reserved. No part of this publication may be reproduced, duplicated, or copied in any form, includ- Executive Vice President/CEO
ing electronic forwarding or copying, xerography, microfilm, or other methods, or incorporated into Henry F. White, Jr.
any information retrieval system, without the written permission of RERC and the CCIM Institute.
Contributors
Sergio A. Adame Nemont Realty South Brion Costa Marcus & Millichap Los Angeles, CA
Due Diligence Research Dahlem Realty Com-
Denise Adams Raleigh, NC Jim Dahlem Louisville, KY
Group LLC pany, Inc.
The Advantage Realty Skip Duemeland Duemelands Minneapolis, MN
Patrick Agee Tuscaloosa, AL
Group, Inc.
Rekast Realty Group,
Jay Amoruso Re/Max Precision Realty Hartford, CT Donald Dyche Atlanta, GA
LLC
Sage N. Andress Sunmark Realty Tampa, FL Eshenbaugh Land
Bill Eshenbaugh Tampa, FL
Company
Noah Balanoff CB Richard Ellis Northern New Jersey
Deegansanglyn Com-
David Fanney New York, NY
Sperry Van Ness/The mercial Real Estate
Bo Barron Western Kentucky
Barron Group Century 21 Realty
Christopher Felix West
American Real Estate Management
J. Paul Basinger Youngstown, OH
Specialists
W. Darrow Fiedler KW Commercial Los Angeles, CA
Tray Bates Bates Commercial LLC Corpus Christi, TX
Tri-Oak Commercial
Gregory Fitzgerald South
Campana Resources, Group
Brian Bell San Antonio, TX
LLC
Patrick Fitzgerald BankUnited Orlando, FL
Besaw and Associates
Tim J. Besaw Milwaukee, WI NTS Development
Realty Ltd. Tony Fluhr Louisville, KY
Company
Bohm Commercial Real
Jon Bohm Minneapolis, MN Pan American Real
Estate Christopher Fojo Orlando, FL
Estate Advisors LLC
Chase Brieman CB Richard Ellis Madison, WI
John Foley Hess Realty Central Pennsylvania
Broussard Realty &
Terry Broussard New Orleans, LA Coldwell Banker Com-
Appraisal Bob Fredrickson Seattle, WA
mercial Danforth
East Carolina Commer-
Heidi Burgess Eastern North Carolina Mark Freitas Craig L Michalak, Inc. Seattle, WA
cial Inc.
Fred Caminite Kelly Capital, LLC South Sentry Commercial
Robert Gardner Las Vegas, CA
Realty Advisors
Grandbridge Real Estate
Tony Carlson Minneapolis, MN Brenda Garretson CB Richard Ellis New York, NY
Capital
Realty Capital Advisors, Coldwell Banker Com-
Quentin Caruso Orlando, FL Gerald M. Garvin Sacramento, CA
Inc. mercial NRT
Susan Cerone RealtyUSA Commercial East Jeremy Greena-
Greenamyre Rentals, Inc. Kansas City, MO
myre
Clifford Commercial Real
Kent Clifford Las Vegas, NV Jag Grewal Ian Black Real Estate Tampa, FL
Estate
Coates Commercial Century 21 Boston Co.
Patrick Coates Tulsa, OK Laura Hankins Midwest
Properties, LLC Realtors
Barry Comiskey WCPMI Dallas, TX Daigle Commercial
Daren Hebold Maine
Group
Contributors
F.G. Buddy Hege Gibson Smith Realty Co. Charlotte, NC Joe Milkes Milkes Realty Valuation Dallas, TX
Scott Hensley Piedmont Properties Charlotte, NC Commercial Properties
Nick Miner Phoenix, AZ
Inc
Nye Commercial Advi-
Scott Hileman Tampa, FL Mueller & Associates,
sors, Inc Dale Mueller Hampton Roads, VA
Inc.
Gary Hunter Colliers International Seattle, WA
Troy Muljat Muljat Group Bellingham, WA
Steve Jacquemin S.J. Financial Group, Inc. St. Louis, MO
Scott Naugle RPIMLLC Washington D.C.
Michael P. Jakubiec
Michael Jakubiec Investment Real Estate, Chicago, IL Ed Nutting Marcus & Millichap Atlanta, GA
Inc. RE/Max Commercial
Marc Oram Miami, GA
Block Real Estate Ser- Associate
Bruce Johnson Kansas City, MO
vices, LLC Wedge Management,
Edward B Partridge San Antonio, TX
Todd Kamps Kwekel Companies Midwest Inc.
Andy Kay Lifestyles Real Estate San Francisco, CA Shad Phipps CB Richard Ellis Columbus, OH
Art Kelley Tucson, AZ Davide F. Pio Security Pacific San Francisco, CA
Kenneth Krawczyk K.S.K. Services Inc. Milwaukee, WI Luciano H. Rappa Kaizen Realty Partners Miami, GA
Christina Kurtz- Coldwell Banker Com- Peter Rasmusson Lee & Associates Northern New Jersey
Orlando, FL
Clark mercial Commercial Choice
David Reese Midwest
Chris Leon Realty World San Francisco, CA Realty, Inc
Lester & Associates James P. Robert- Long Commercial Real
Mike Lester Oklahoma City, OK Tucson, AZ
Realty son Estate Services
Lidstrom Commercial W. Robinette SPC Commercial Coeur d'Alene, ID
Tim Lidstrom Minneapolis, MN
Realtors Lidstrom Commercial
Dan Robinson Southern Minnesota
Re/Max Commercial Realtors
Michael Lunn Chicago, IL
Property Solutions Magnusson Balfour
John Robinson Maine
Ned Madonia Triskelion LLC Las Vegas, NV Commercial
Coldwell Banker Com-
Reni Della Maggiore The Duncan Co., Inc. Sacramento, CA Henry Rogers Northeast Florida
mercial Benchmark
Russell Malayery Marcus & Millichap Atlanta, GA Coldwell Banker Com-
Scott M. Schmitt Minneapolis, MN
Coldwell Banker Com- mercial
Karl Dee Maret Tampa, FL
mercial NRT Jose M Serrano New Miami Realty Corp Miami, GA
Baker Storey McDonald
Allen C. McDonald Nashville, TN Michael Shaffer Skogman Comercial Cedar Rapids, IA
Investments, LLC
Kayvan Mehr- Cynthia Shelton Colliers International Orlando, FL
Sperry Van Ness Washington D.C.
bakhsh
R. Tom Smith Coast/Sperry Van Ness Portland, OR
Adler Realty Services
Nicole Messer Miami, GA
LLC
Contributors
Ernest Soble Commercial

Stephen M. Soble San Antonio, TX
Properties, Inc.
Aukamp Brokerage &
Linda Sorkin Charlotte, NC
Consulting
Dewey Struble Sperry Van Ness Reno-Sparks, NV
Duke Suwyn Colliers International Western Michigan
Sperry Van Ness/The
Julius Tabert Denver, CO
Group Commercial LLC
Barbara Tarin Tarin Real Estate San Antonio, TX
Teran and Associates,
Juan Teran Tucson, AZ
Inc.
Cheri Thomas
Craig Thomas
Newmark Knight Frank
Marcus & Millichap
Nashville, TN
South
Thank you to all
who shared
David Thomas KW Commercial Atlanta, GA
Nick A. Tillema Access Valuation, LLC Indianapolis, IN
Joe Turner AllSouth Alabama
Mark Vellinga
Maurice Walker
Graham Organization
Birch Advisors
South Dakota
Baltimore, MD
information
for this report.
First Community Credit
Elgin Weaver Houston, TX
Union
Steven Weil Coldwell Banker South
Frank Weiskopf Rwalty Executives South
Dean Weitenhagen Fleetwood CRES Iowa
Jeff Wilke Graham & Company Huntsville, AL
Rober Wilson Remax SW Houston, TX
Dave Winder Lee & Associates Boise, ID
Jim Wright Jim Wright Company Killeen-Temple, TX
Mizrach Realty Associ-
Daniel Zelonker Miami, GA
ates

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RERCsCCIM

Best wishes for a happy, healthy, and successful 2011.

Kenneth P. Riggs, Jr., CCIM, CRE, MAI Frank N. Simpson, CCIM

The struggling economy makes the current performance of

With respect to the conditions of the banks, there were 157

set class versus the risk involved. 6 6

• Lending will expand and more capital, including CMBS,

Going-In Cap Rates vs. Unemployment

Sources: RERC, BLS, NBER, 4Q 2010.

Performance Indicator Recent Data Impact on Commercial Real Estate

RERC Required Returns: NCREIF Realized Returns:

RERC Realized Cap Rates: NCREIF Implied Cap Rates:

National Transaction Breakdown

National Transaction Breakdown

w Office sector total volume and size-weighted average

w During fourth quarter 2010, transaction volume for the in-

w According to RERC’s fourth quarter 2010 analysis, the

w According to CBRE-EA, the national industrial availability

RERC Price-Weighted Average PPSF

w Compared to the previous quarter, the volume for the retail

w The volume of retail property transactions that totaled less

RERC Price-Weighted Average PPSF

7.0% 7.0% w Apartment sector volume continued to improve, increasing

RERC Price-Weighted Average PPU

8.0% 8.0% w Hotel sector volume jumped 70 percent on a 12-month

w In contrast to the other property sectors RERC analyzes, the

RERC Price-Weighted Average PPU

East Transaction Breakdown

South Transaction Breakdown

Midwest Transaction Breakdown

West Transaction Breakdown

Source: Bureau of Economic Analysis. Source: Federal Reserve.

Unemployment Manufacturing Utilization

Source: Bureau of Labor Statistics. Source: Federal Reserve.

Consumer Price Index Retail Sales

-0.2 -0.2 -12 -12

Source: Bureau of Labor Statistics. Source: Census Bureau.

S&P 500 Existing Home Sales

1600 1600 8.0 8.0

Source: S&P. Source: NAR.

Index of Leading Indicators Single Family Home Supply

Source: The Conference Board. Source: NAR.

The RERC/CCIM Investment Trends Quarterly is produced by Publisher

The CCIM Institute Data Management

Copyright Notice for RERC~CCIM Investment Trends Quarterly Treasurer

Art Kelley Tucson, AZ Davide F. Pio Security Pacific San Francisco, CA

Ernest Soble Commercial

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