Frederick Ross. Real Estate Market Overview. Presented by: Kevin Thomas Senior Vice President. Frederick Ross. Company.

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1 Frederick Ross Real Estate Market Overview Presented by: Kevin Thomas Senior Vice President Frederick Ross Company January 2003

2 Business Consumers

3 Source: BEA, Ross Research

4 Housing...Bust or Rust?

5 E % 15.00% 10.00% 5.00% 0.00% -5.00% % House Price Index: YOY Quarterly Home Appreciation Denver US Source: OFHEO

6 18.0% 15.0% 12.0% 9.0% 6.0% 3.0% 0.0% -3.0% 30 Year Mortgage Rates and Denver Job Growth Employment Growth 30 YR Conventional Single-Family Permits Source: Federal Reserve,BLS, Ross Research

7 Relative Business Cost by State Source: Economy.com, Ross Research

8 % 4% 3% 2% 1% 0% -1% -2% -3% -4% Denver versus U.S. Employment Growth Year-Over-Year Percentage Growth by Quarter Projection Denver Total US Source: BLS, Ross Research

9 Percent Change in Employment - Denver MSA November 02 over November 01 Special Trade Contractors Business S vcs. Communications Durable Goods Retail Trade Wholesale Trade Transportation by Air Legal Services Educational Services Federal Government Eating & Drinking Places Nondepository Institutions Local Education Health S vcs. Local Government -8% -6% -4% -2% 0% 2% 4% 6% Source: BLS, Ross Research

10 Comparative Investment Performance Various Asset Classes 50% 40% 30% 20% 10% 0% -10% % -30% Lehman Gov't/Corp Bond Index S&P 500 Index NCREIF Property Index NAREIT Price Index Source: NCREIF; JP Morgan; Lehman; Chase Securities

11 Investment Sale Volumes Dollar Volume by Various Product Classes Office Industrial Retail Source: CoStar Group, Ross Research

12 10 Year Treasury Yields Average % 14% 12% 10% Historic Office Cap Rates 8% 6% 4% 2% 0% Source: NCREIF,Federal Reserve, Ross Research

13 National Office Market Balance % % 18% 16% Square Feet % 12% 10% 8% 6% Vacancy % 2% % New Construction Absorption Vacancy Source: Oncor, Ross Research

14 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% North American Office Market 1999 to Change in Vacancy Rates Manhattan Washington, D.C. Los Angeles Chicago Houston Dallas/Ft. Worth Boston Atlanta N. New Jersey Denver Source: Oncor, Ross Research

15 Tenant Hangover Job Creation (demand) Vs. New Office Construction (supply) Landlord s Overbuild Tenant s Over-lease Source: Ross Research Services Copyright 2002, Frederick Ross Company Job Growth New Office Buildings Source: BLS,Oncor, Ross Research

16 Historical Sublease - Addition to Denver Metro Market NEW SUBLEASE SPACE (12 mo avg is 259,754 RSF) (6 mo avg is 144,092 RSF) 700, , , , , , , , , , , , , , ,745 82, ,528 62,585 15,217 0 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Source: Ross Research

17 Central Business District Vacancy Rate SF Vacant Absorption 5 YR Avg. Absorption New Construction U/C Class A Rates Sublease YE % 2.7 Million (1,300,000) 534, ,000 $26-$30 1,200,000 YE % 3.87 Million (1,100,000) 285,000 $22-$30 1,000,000 Source: CoStar, Ross Research

18 Northwest/Boulder Corridor Vacancy Rate SF Vacant Absorption 5 YR Avg. Absorption New Construction U/C Class A Rates Sublease YE % 3.2 Million 60, , ,000 $20-$24 1,000,000 YE % 3.5 Million 85,000 70,000 $18-$24 600,000 Source: CoStar, Ross Research

19 Southeast Suburban Vacancy Rate SF Vacant Absorption 5 YR Avg. Absorption New Construction U/C Class A Rates Sublease YE % 6.3 Million (2,100,000) 900, ,000 $23-$28 1,200,000 YE % 7.7 Million (500,000) 116,000 $20-$26 1,500,000 Source: CoStar, Ross Research

20 Total Office Market Vacancy Rate SF Vacant Sublease New Construction U/C Absorption 8.4 million sf YE % 15.8 Million 4 Million 1.6 Million (4.1 Million) YE % 19.2 Million 3.7 Million 720,0000 (1.9 Million) Years to 10% 2000 (Boom) Absorption 3.5 Million 5 YR Median Absorption 2.4 Million 3.0 Yrs 4.5 Yrs Source: CoStar, Ross Research

21 Denver Area Apartment Trends 8,000 7,76 1 7, % 6,000 5,669 6,445 6,355 6,604 5,8 18 5,591 5,626 5, % 9.3% 9.0% 8.0% 4,000 2, , % 2,794 2,970 2,033 1, , % 4.4% % 2, % 4,058 3, % 4.6% 4.4% 5.2% 4.7% 4,384 2, % 6.0% 5.0% 4.0% 3.0% -2,000-4, , % 1.0% 0.0% Units Added Units Absorbed Vacancy Rate Source: The Genesis Group,ARA, Ross Research

22 Denver Market Balance: Retail 6,000, % 5,000,000 New Construction Absorption Vacancy 8.8% 25.00% 4,000,000 Projection 20.00% 3,000,000 2,000,000 1,000, Source: Ross Research % 10.00% 5.00% 0.00%

23 Denver Market Balance: Industrial 6,000, % 5,000,000 4,000,000 New Construction Absorption Vacancy 9.2% Projection 25.00% 20.00% 3,000,000 2,000,000 1,000, Source: Ross Research % 10.00% 5.00% 0.00%

24 Denver Market Balance: Office 6,000,000 5,000,000 4,000,000 New Construction Absorption Vacancy 22.8% 30.00% 25.00% 3,000,000 2,000,000 Projection 20.00% 1,000, ,000,000-2,000,000-3,000,000-4,000,000-5,000, Source: Ross Research % 10.00% 5.00% 0.00%

25 Economic Clock Fed Raises Interest Rates to Cool Economy and Curb Inflation Strong Earnings High Production High Consumption High Job Growth High Wages Real Estate Expands (Development) j f m a m j j a s o n d Profits Earnings Decline Investment Stalls Layoffs Emerge Consumption Declines Real Estate Contracts (Sublet) Profitability Emerges Confidence Returns Investment Returns Consumption Grows Real Estate Emerges (Absorption and Investment) Source: Ross Research. P&L s Stabilize Capacity and Demand Balance Real Estate = Efficiency (Densification/Class Moves) Earnings Negative Job Losses Peak Cost Cutting is King Real Estate is Cut (Disposition)

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