Brokerage Outlook: Arkansas

• Central Arkansas Office

• Central Arkansas Multifamily

• Arkansas Retail

• Arkansas Industrial

Central Arkansas Office Submitted by Stuart S. Mackey, CCIM, vice president – brokerage with Little Rock, Arkansas-based The Hathaway Group TCN Worldwide. Posted 1-10-06. What area is your expertise? • I work throughout the Central Arkansas market, primarily in the Little Rock MSA. What trends do you see presently in office development in your area? • The market has not had any large speculative development within the last 10 years. Most new construction is user-driven with a majority of the development pre-leased before construction starts. The tenants in these new developments are business owners who run their own offices and are able to choose a location within the market. The office development has been growing on the west end of the market, closer to the residential areas than the CBD. The buildings are 70 to 85 percent leased up at delivery to the market, providing immediate return for the investors and flexibility for growth by the primary tenants. The CBD has had some new construction but it is primarily GSA-driven. The other CBD development that is occurring is mixed-use construction with a majority of the space developed being residential space with limited retail, services or office included in the project. Who are the active office developers in your area? • The active developers are local groups that have been developing within the market over the years. Tower Investment has recently purchased some office buildings in the CBD, but it will be converting 80 percent of those buildings to residential use. Please name one or two significant office developments in your area. What impact will these projects have on the market? • Richard Sheppard Arnold Courthouse, $83 Million Project at 501 W. Capitol Ave, Little Rock, Arkansas • Heifer International Center, $30 Million, 97,000 square feet on 28 acres w/$100 million of development planned, 4th and Shall Street, Little Rock, Ark • The Centre at Ten, $11.5 Million Project, 113,000 square feet on 10.7 acres, Highway 10 and Sam Peck, Little Rock, AR • The Richard Sheppard Arnold Federal Courthouse expansion and remodeling downtown will provide some stability in the CBD due to the presence of this large office user. It will, however, also create some vacancies, due to the GSA moving out of leased spaced and into the new building, in a submarket that has more space available than any other submarket in Little Rock. • The same good growth creating some vacancy is true for the Heifer International Center. This is a new world headquarters for this non-profit that will include not only Heifer’s offices but a welcome center and “Global Village.” This commitment from Heifer to stay in Little Rock allows other non-profits to see value in our market and reclaims some older industrial areas just east of downtown. Its location next to the William J. Clinton Presidential Center (a $165 Million development with 100 new jobs) creates a new submarket within the greater Little Rock market. • The Centre at Ten has delivered a mid-size office building that provides a link between the Cantrell/I-430 node of office and The Ranch office park. These areas stretch along the Highway 10 Corridor and provide a northern submarket for west Little Rock. Where is the majority of development taking place? Why is this area doing well? • West Little Rock has the most office product in the pipeline and has done the best job creating opportunities for office development over the last 4 years. It’s proximity to the interstates provide a shorter commute for workers, and the size of parcels for development have given this area a leg up on development downtown, midtown, or in North Little Rock. What area do you expect to be the next big development market? Why? • The I-430 Corridor is displaying the initial signs of being the new market for development. Retail development has located along the corridor and several developers are looking to bring new product to the market that will be planned with retail, hotels and office space. This area is has great access to the white collar workers in west Little Rock and those traveling in from Conway, Bryant, and North Little Rock. Several developers — local and national — have been optioning land and working on programs to bring additional office space to their developments. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • West Little Rock is doing well in office leasing while the CBD has the highest vacancies. Please give a measure of office vacancy rates. • The Greater Little Rock area has an occupancy rate of 83.1 percent with 1.9 Million square feet available for lease. • West Little Rock has an occupancy rate of 84.6 percent. Please give a measure of available sublease space. • There is little significant sublease space available in the central Arkansas area. What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market in 2006? • The market drives forward like a cruise ship and is difficult to turn on a dime. Commercial development here is similar; small adjustments can be made easily, but a complete change of direction is difficult. Everyone here is expecting the rates to go up and have planned for some movement in the rates. We are hearing that they should be leveling off mid to late this year. Interest rates will change, but without a dramatic change, most development here will continue with some small modifications to touches within the project. The finish out might not be the type originally planned, but the deal should move forward. We have not had significant speculative construction and there does not seem to be a change to the historical construction trends at this time. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? • Unemployment has been relatively low here recently and some recent economic announcements show growth in job market. Cardinal Health (a Fortune 16 company), Pinnacle Business Solutions and FTD.com have opened new call centers, creating more than 1,000 new jobs. The Little Rock Regional Chamber is targeting certain industries that it feels will have the biggest impact to the greater Little Rock market, including aviation, biotech/medical research, non-profit organizations, and information technology. These companies would further reinforce Little Rock’s broad market base that has allowed Little Rock to ease through the highs and lows of individual sectors within the overall market. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in 2006 to absorb a great deal of office space? What areas will be affected? • Professional offices would appear to be the most likely leader in absorption for the coming year for a couple of reasons. Professional offices have been a little behind the other types for the last year, catching their breath after strong growth the previous 3 years, and should have a good year this year. Additionally, the hurricanes that hit the coast are creating opportunities here in the Little Rock market that will eliminate some of the vacancies and provide a better year for occupancies within the market. The variety of office tenants in Little Rock, from health care to aviation, colleges to governments, and headquarters to non-profits means that identifying a single growth area is difficult. Much work is being done to not limit growth to a single type as well as work to retain the office users — large and small — that are currently calling Little Rock home. Would you like to make any additional observations about the office market in your area? • The biggest challenge we have here is getting people into the market. The strong medical community and headquarters for Stephens Investments, Axiom, Alltel, Arkansas Blue Cross Blue Shield, and Dillard’s bring in people unfamiliar with the market and they all report that, once people move to the Little Rock market, they understand what a treasure we have here. If they can get people to visit for more than a couple of days, the people will find a new home. From outside the area, Little Rock is perceived as rural and limited, but there are great things happening here. • Economic growth is evident in manufacturing, multifamily housing, retail, and office. The airport is being upgraded, the Clinton School of Public Policy is about to complete it first year, the University of Little Rock campus opened a new school of business last year and a new athletic facility this year. The university will open a new Cyber College next year, and additional new dormitories evidence the commitment to the city from government sector to the market. Central Arkansas is surrounded with opportunities to enjoy time outside with venues for hiking, fishing, hunting, and boating, as well as having some of the best golf courses around. The market offers a world famous Arts Center, a Repertory Theatre drawing talent from New York and Chicago, an Opera Company located in a 100-acre setting with indoor and outdoor performance facilities, a new Game and Fish Center, gardens, Windsong Performing Arts Center, and has broken ground for a new baseball park for the Arkansas Travelers.

Central Arkansas Multifamily Submitted by Edward Penick Jr., CCIM, associate broker with Little Rock-based The Hathaway Group TCN Worldwide. Posted 1-10-06. Click here to see the largest multifamily transactions closed in 2005 What area is your expertise? • Central Arkansas investment property, including multifamily, industrial, office and retail. What trends do you see presently in multifamily development in your area? • Continued strength — increased rental rates will more than offset increases in expenses in categories such as utilities, interest, expense and cost of repairs and maintenance. There will be pressure on cap rates to rise with increased inflation and higher interest rates. However, demand for quality real estate investment products for 1031 and other requirements will maintain a reasonable lid on cap rates. Who are the active multifamily developers in your area? • ERCand Lindsey & Associates Please name one or two significant multifamily developments in your area. What impact will these projects have on the market? • General Properties is Foothills Phase II in North Little Rock for owner the Matthews Family. The project will have 300 units available in 2006, and up to 600 units in the future. • Owner ERC is developing Highland Pointe on Cantrell Road in Little Rock. It will feature 200 units. Where is the majority of development taking place? Why is this area doing well? • River Market District and areas along the river in North Little Rock. Leading this development is the $165 million Clinton Library. The library recorded more than 490,000 visitors in its inaugural year, exceeding estimates by almost 200,000. Adjacent to the library, construction began on the international headquarters for Heifer International. This 97,000-square-foot building on 28 acres east of downtown Little Rock is the first phase in a planned three-phase $100 million development. What area do you expect to be the next big development market? Why? • From the Central Business District to midtown (University Avenue area) and north along the river. Projects such as Lafayette Square, 300 Third Tower, Riverfront Apartments, Riverfront Tower, Stephens-Dickey Baseball Park, Lion’s World Services for the Blind, University of Arkansas for Medical Sciences, Midtown Shoppes and Shackelford Crossing. What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing? • Older units (B and C Class) are slightly slow. However, the demand as a result of the displaced Gulf Coast residents late in 2005 has pushed occupancy levels up in these classes. Class A continues to have strong demand. Please give a measure of apartment vacancy rates. • Overall, Central Arkansas is Class C – 93 percent, Class B – 95 percent and Class A – 95 to 96 percent. Please give a measure of condo sales activity in the area. • In the past, condo sales have not been a large portion of the residential activity. However, in recent years, condo activity in the River Market to midtown areas has increased dramatically. Empty nesters who sell their large homes are buying condos to enjoy security, low maintenance, amenities and the other advantages of urban living. What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in 2006? Although interest rates will climb in 2006 (8 percent prime rate by year-end 2006), other economic factors such as employment, demand for housing and retail sales, the multifamily market will grow steadily in 2006. What is the status of job growth/ (un)employment rates and what bearing will it have on the multifamily market? • The diversity of the economy has generally insulated Central Arkansas from wide swings in job growth and correspondingly high unemployment rates. Current unemployment is low at about 4 percent to 4.5 percent and it should only increase slightly during the coming year and have no impact on the multifamily market.

Arkansas Retail Hornibrook Submitted by Pete Hornibrook, CEO of Little Rock, Arkansas-based Rector Phillips Morse, Inc./CORFAC International. Posted 1-6-05. What area is your expertise? • Central & Little Rock, Arkansas area & Northwest Arkansas What trends do you see presently in retail development in your area? • The present trends are area strip shopping centers, lifestyle centers and Wal-Mart expansion. What type of retail product is doing well in your area? • Target- and Kohl’s-anchored centers. What retailers are new to your area? • The following retailers are new to the area: Saks’ Parisian, Williams-Sonoma, Pottery Barn, Restoration Hardware, Lowe’s Home Improvement Centers, Kohl’s and Starbucks. Who are the active retail developers in your area? The following are active retail developers in the area: Belz-Burrow Development Group, Clary Development, Strode Properties Co., Schickel Development, The Ashley Company and Atlanta-based Tricore Partners. Please name one or two significant retail developments in your area. What impact will these projects have on the market? • Alcoa Exchange Shopping Center, located at I-30 and Aloca Road in Bryant, Arkansas. It is a 300,000-square-foot building anchored by Kohl’s and Target. Tricore Partners is the owner and developer. • Pleasant Ridge Town Center, located at 11525 Cantrell Road in Little Rock. It is a 300,000-square-foot building anchored by Saks’ Parisian and developed by Schickel Development Company. Where is the majority of development taking place? Why is this area doing well? • The majority of development is taking place in West Little Rock, Springdale and Jonesboro. The area is doing well because of great demographics. What area do you expect to be the next big retail development market? Why? • The next big retail development market will be West Little Rock and south of Little Rock along I-30 in Benton/Bryant, Arkansas. Please describe the retail leasing activity in your area. • The retail leasing activity is currently good in the area. What major leases have been closed recently? • Saks’ Parisian at Pleasant Ridge Town Center, 11525 Cantrell Road in Little Rock Please give a measure of retail vacancy rates. • Vacancy in the Little Rock area is about 12 percent. Would you like to make any additional observations about the retail market in your area? • The residential subdivisions are plentiful, growth is good.

Arkansas Industrial Hornibrook Submitted by Pete Hornibrook, CEO of Little Rock, Arkansas-based Rector Phillips Morse, Inc./CORFAC International. Posted 1-6-05. What area is your expertise? • Central Arkansas, Northwest Arkansas, Northeast Arkansas and the Southern Delta of Arkansas. What trends do you see presently in industrial development in your area? • The trend in industrial development is the user sector of 15,000 square feet to 60,000 square feet. There is also some demand for distribution with a minimum of 35-foot ceiling height. What type of industrial product is doing well in your area? • Transportation, manufacturing, auto truck parts and distribution centers are holding firm in our area. Single-tenant office/warehouse is also doing well. Who are the active industrial developers in your area? • The active industrial developers in the area include RPM Realty Fund; Little Rock Port Authority, Central Arkansas; Regional Chamber of Commerce; Haas Properties, LLC; and Commercial Realty, LLC Please name one or two significant industrial developments in your area. What impact will these projects have on the market? • Two significant industrial developments include: - Boen Plaza Phase I & II located at Interstate 430 and Colonel Glenn Corridor in Little Rock. The developer is Leonard Boen , Boen & Associates. - Interstate 430 and Maumelle Blvd in North Little Rock Where is the majority of development taking place? Why is this area doing well? • Interstate 165 in North Little Rock. It is doing well because it is near the airport, level farmland, and easy to develop. • Interstate 430 and Maumelle Blvd. in North Little Rock. It is doing well because it is located at a major interstate corridor. • Interstate 430 and Colonel Glenn Rd. in Little Rock. It is doing well because it is located at a major interstate corridor. • Northwest Arkansas: Springdale and Bentonville (Wal-Mart vendors and J. B. Hunt Transportation) What area do you expect to be the next big industrial development market? Why? • I expect the next big industrial development market to be on the Interstate I-430 corridor with potential growth near the new 630 Bypass in North Little Rock. West Memphis, Arkansas, will have an impact with the new auto parts manufacturing plant. Please describe the industrial leasing activity in your area. • It is good for existing facilities. Please give a measure of industrial vacancy rates. • The vacancy rate is running about 7 percent in central Arkansas. What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market in 2006? • Current interest rates have very little effect on the industrial market. Interest rates in 2006 should hold firm. What industries do you expect to expand in 2006 to absorb a great deal of industrial space? What areas will be affected? • Transportation, distribution centers and auto parts facilities will expand in 2006. Would you like to make any additional observations about the industrial market in your area? • The market is stable. The land prices are holding.