Brokerage Outlook: Illinois

• Chicago Retail

• Yorkville Retail  -New!

• Chicago Multifamily

• Chicago Office

• Chicago Industrial  -New!

Chicago Retail Martin Submitted by Dan Martin, managing director with the Arlington Heights, Illinois, office of Sperry Van Ness/Prism Commercial Real Estate. Posted 08/03/07.            What area is your expertise? • I specialize in retail and retail land in Chicago. What trends do you see presently in retail development in your area? • I am now seeing companies that previously were just buyers or holders of retail centers getting into retail center development. What type of retail product is doing well in your area? • Big-box centers that have credit tenants and big-box outlet centers are both doing well. What retailers are new to your area? • JC Penney concept stores are new to our area. Who are the active retail developers in your area? • Forest City, Tucker Development Corp., Joseph Freed and Associates and Mid America Development Partners. Please name one or two significant retail developments in your area. What impact will these projects have on the market? • Metropolitan Square in Des Plaines, Ill., is owned and developed by Tucker Development Corp. with The Fresh Market, Cheeseburger in Paradise, Talbots and Famous Footwear. The Promenade Bolingbrook in Bolingbrook, Ill., is being built by Forest City and includes Macy’s, Bass Pro Shops Outdoor World, Aéropostale and Barnes & Noble. Where is the majority of development taking place? Why is this area doing well? • Southwest of Chicago is seeing the majority of development. What area do you expect to be the next big retail development market? Why? • I believe the next retail push will be in the inner city areas, not far from the Chicago condominium market. The growth in population from condo and townhome purchases is too lucrative to pass up. Please describe the retail leasing activity in your area.  • Overall, they are steady at about a 7 percent vacancy, rents are rising, but only at a 2 percent rate. Would you like to make any additional observations about the retail market in your area? • The investment market continues to favor sellers. The economics of supply and demand, or in the case of retail product, the lack of supply, has caused cap rates to hold in the sub 7 percent range for triple net properties and 7.2 to 7.5 percent range for multi-tenant.

Yorkville Retail Artman Submitted by  Rich Artman, vice president/managing broker with the Yorkville, Illinois office of Inland Real Estate Sales, Inc.  Posted Online 05-14-08. What area is your expertise? Yorkville, Illinois/Kendall County. In March, Kendall County was named the fastest growing county in the nation, according to the U.S. Census, growing 77.5 percent from 2000 to 2007.  What trends do you see presently in retail development in your area? Because of the unprecedented growth of Kendall County since the late 1990s, there are many national retailers who have found their way to the area, and while there has been a recent slow down in the acquisition of retail land sites in the Chicagoland area, production has not stopped on existing sites.  The trend in Yorkville is going to be smaller projects with lesser known tenants over the next three to five years.  Aside from the current economic woes and tightened lending restrictions, housing demographics are the key factor of this trend. Housing has slowed from one year ago, but there are signs that it’s picking up again. There have been more sales and builders have begun to create new incentives. I expect developers to move in toward the larger population centers and seek infill and/or redevelopment projects to combat inflationary land prices and continuing lender issues. The larger population bases and smaller risk projects are going to really take off over the next three to five years.  Cities, like Yorkville, will be slightly affected by this trend as their population increases are expected to offset any slowdown of development due to existing projects already approved and on the books.  As long as people keep moving to Yorkville, retail development will be sure to follow. What type of retail product is doing well in your area? One of the area’s newest commercial centers in Yorkville is Kendall Market Place, which is nearly 800,000 square feet, has recently opened a Kohl’s and Home Depot and a Target Superstore. Menards has been thriving for over two years with no signs of slowing down, and a Super Wal-Mart recently announced plans to open a Yorkville location in 2010. These retailers are doing well in Yorkville, but because of the influx of large retailers, the trend will move into smaller centers and tenants. Retail properties that are competitive with their rates and upkeep are expected to do well. What retailers are new to your area? Jewel-Osco, Menards, Kohl’s, The Home Depot and Target Who are the active retail developers in your area? Grecco-Reggi, HRM Properties and Harlem-Irving. Please name one or two significant retail developments in your area. What impact will these projects have on the market? The recently-opened Kendall Market Place is located on Route 34, approximately two miles west of Route 47 between Yorkville and Plano, Ill. Kendall Market Place is one of the largest retail centers to be developed in Illinois over the last two years at nearly 800,000 square feet. It is being developed by Harlem Irving Companies. Other recent developments include: River North at Cannonball Road and Route 47 — 15,000 square feet Heartland Center at Route 34 and McHugh — 20,000 square feet Walnut Plaza at Route 47 and Walnut — 22,000 square feet Cozy Corner at Route 126 and Route 47 — 15,000 square feet Fountain Village at Route 47 and Route 71 — 27,000 square feet Also coming to Yorkville are Dick's Sporting Goods, Marshalls, Ulta, Dress Barn, Famous Footwear and Petsmart, just to name a few. Where is the majority of development taking place? Why is this area doing well?  Most of Yorkville’s growth has taken place on Route 34 and Route 47. As the cross roads to the county, they connect Kendall County to DuPage County, Will County, Cook County and Kane County.  Aside from Kendall Market Place and a few other large retailer anchored centers, the majority of new development projects have been smaller, unanchored strip centers. What area do you expect to be the next big retail development market? Why? I expect infill and redevelopment projects to be a serious contender throughout the Chicagoland area over the next five years.  Taking this route uses existing zoning and structures and lessens a developer’s risk, while combating inflated land prices and entitlement issues. Please describe the retail leasing activity in your area.  Activity has been steady as an influx of new property has come into the market over the last two years.  Recent economic conditions have seen retail rental prices begin to fall between $15.00 and $25.00 per square foot. In the short term, smaller retailers will be the main tenants; however, the ground work is laid for more large national retailers to come to Yorkville and the surrounding areas. Please give a measure of retail vacancy rates and a measure of available sublease space. Vacancy loss is currently about 20 percent due to the many new projects that have been developed over the last 12 months.  Developers are shaking off the affects of the slower economy by discounting rates and getting more creative with lease terms and build-out options. What types of retailers should look into your market in the coming year? What type of retail is needed? Service related retailers should be paying attention to the burgeoning housing growth that has affected Yorkville and the county as a whole. Smaller retailers are needed as well. The workforce in the area is well educated and several of the economic development corporations have set up programs to help retailers bring their business into the area. Would you like to make any additional observations about the retail market in your area? As economic conditions are improving in Kendall County, and as new centers are being built in the area, existing sites with reasonable rents will become appealing to smaller start-up tenants that would not have otherwise had an opportunity to compete.  This will have a positive effect on the local economy and will keep Yorkville’s spaces filled for years to come.

Chicago Multifamily DePasquale Submitted by Ralph DePasquale, senior investment advisor with Hendricks & Partners. Posted on 09/21/07. What trends do you see presently in multifamily development in the Chicago metropolitan area? • There are definitely a number of cranes up in the city but the suburbs are seeing very little multifamily development. Downtown continues to see mostly condominium development. The suburbs currently have about 1,400 units under construction. That includes all the collar counties so that is a very low number for a population of more than 8 million.            Please name some significant developments that have or will take place in the area, and the impacts they will have on the market. • Chicago has not seen anything significant happen. The slow down in suburban condominium conversions has helped potential investors be more competitive with regard to purchasing communities. With the rate of foreclosures going up on single-family homes, as well as new restrictions on mortgages, we have seen a significant jump in occupancies and even some very positive rent growth. More positive news would be landing the Olympics in 2016. Where is the majority of development taking place? For what reason? • As I mentioned above, most development is occurring downtown, with both rental and for-sale condominium. The suburban market continues to see development of for-sale product such as townhouses, but on a much slower pace. Within the downtown market, the South Loop area is seeing tremendous development and has become one of the hottest areas in the country. What developers are new to the Chicagoland market? • No new developers in the market. What types of projects are being developed and what types of tenants are developers looking to attract? • New developments are still geared towards higher-end, young professionals in the downtown markets. Suburban developments are also targeting this group with Class A projects with strong amenities. What is the range for rental rates for new apartment units in Chicago? For older properties? • Looking at rents for urban Chicago, we find rents in the $2.10 to $2.60 per foot for Class A and $1.60 to $2.00 for Class B. Suburban Chicago would be $1.20 to $1.50 for Class A and $.80 to $1.10 for Class B. Vacancy rates? • Vacancy rates have really declined in the past six months to a year with some suburban markets reporting at low as 2.5 percent, but an overall rate of about 4.5 percent. Downtown still seems to be hovering in the 3 to 4 percent range. What submarket or corridor should people keep an eye on for the near future? Why? • The South Loop in downtown Chicago continues to grow rapidly. It offers great proximity to the Central Business District (CBD), as well as museums and parks. It has also been a little more affordable, although that is changing quickly. The northwest suburban corridor to Rockford will be prominent for sometime. With the growth of Rockford and the northwest suburbs of Chicago due to corporate headquarters and distributions hubs, this area has excellent long term potential for sustained growth. How do you think the market will continue to grow? • Jobs and population growth are the keys. You cannot have a growing development market for multifamily, or anything else really, without both. Chicago has been one of the few Midwest cities that have seen both. Modest, but at least positive. Being the financial center of the Midwest and the distribution hub of the country, Chicago should continue to thrive.

Chicago Office Watts Submitted by Michael Watts, senior vice president with the Chicago office of J.F. McKinney & Associates Ltd. Posted 7-28-06. What area is your expertise? • downtown Chicago office leasing What trends do you see presently in office development in your area? • Chicago is still a tenants' market — but landlords are getting happier every day. As vacancy is gradually falling, concessions are gradually falling. Within that context, several specific trends are playing themselves out. First, in office leasing, higher views mean higher rents. Do you want to see the sailboats on Lake Michigan from your Chicago office window? You'll have to find it first — and then you'll have to pay for that view. While good views of the lake and city have always warranted premium rents, this has never been more true. Offices that are on the higher floors with appealing views are commanding significantly higher rents and demonstrating lower occupancy rates than their lower counterparts. In fact, while the overall downtown office vacancy rate is approximately 15 percent, space in premium offices with views is coming in at less than 6 percent vacant. Second, new development planning is being driven by rising construction costs. The cost of raw materials is so high right now that it does not make sense to build a standard cookie-cutter building — tenants will only pay premium rents that justify the cost of construction in the highest-quality, Class A+ office towers, with all the bells and whistles of a state-of-the-art facility and world-class architecture. Who are the active office developers in your area? • Active office developers continue to be the "usual suspects" in this marketplace. The John Buck Company, Hines, Higgins Development Partners and Fifield Companies are considered the most active in the downtown market. Please name one or two significant office developments in your area. • The next two new 1 million-square-foot-plus office towers are not scheduled to be delivered until 2009 or 2010. These two projects include the 1.3 million-square-foot Hines project at 300 North LaSalle, anchored by law firm Kirkland & Ellis, as well as the 1.1 million-square-foot Mesirow Stein building at 351 North Clark, anchored by law firm Jenner & Block. What impact will these projects have on the market? Both of these projects will bring Class A+ office towers to the River North area for the first time. This location north of the Chicago River provides access to retail and lifestyle amenities that are located outside the traditional central business district. Additionally, the timing of these two new projects is fortuitous for the overall health of the office market. The leasing market will have 3 more years to finish absorbing the 5 million square feet of office space brought online in this last big round of office development. Where is the majority of development taking place? Why is this area doing well? • Right now, the two largest new projects that have been announced are located in River North. However, the majority of development since the turn of the millennium has been in the West Loop area, thanks to its proximity to expressways and commuter rains, as well as the availability of quality sites. This market is not full of older office product like the Central Loop submarket and thus offers more new development opportunities versus redevelopment potential. What area do you expect to be the next big development market? Why? • The West Loop will continue to be the most active market for new development, since the trends that have driven development in this area in the recent past will continue to attract new projects. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • The West Loop and River North are doing quite well, with many firms relocating from outgrown offices to new buildings in these two submarkets. Conversely, the Central Loop continues to suffer flight of its traditional base, the financial and legal sectors, to the West Loop. The East Loop, which includes the Millennium Park area, will benefit over the long term from the conversion of selected historic buildings from office to residential use as well as its proximity to Millennium Park. Please give a measure of office vacancy rates. • Vacancy rates in the downtown Chicago office leasing market are around 14.9 percent for overall Class A and B properties. This is an improvement over year-end 2005, when the same properties were approximately 16.8 percent vacant. If you look at the upper floors of buildings with city and lake views, the vacancy rate plummets to 6 percent, and thus that type of space is in some ways a market of its own. Sublease space in downtown Chicago has stabilized to historic norms at around 3 million square feet, down from nearly 6 million square feet in 2001. 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? • Rising interest rates mean the cost of acquiring a building rises for the high-leverage investor. As this trend continues over time, fewer highly leveraged owners enter the market. As a result, pension funds and other institutional sources of capital should become more active as owners of an increasing percentage of downtown properties. This trend is beginning to take effect but will continue to gain momentum if rates creep up during the next 18 months. As the cost of owning property rises in tandem with increased demand for office space, rents will continue to rise as well. While there is still a significant amount of capital chasing downtown office buildings, most buyers are focused on properties that are 90 percent leased or more. This requirement has arisen because of the expense to install new tenants in a softer market. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? • The negligible job growth that this area has seen in recent years has been coupled with companies' becoming more efficient with their use of space. The result is that while a few net jobs have been added to the regional economy, companies are not leasing the commensurate amount of additional office space. 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? Hyatt Center in Chicago • The last few years of office leasing transactions have been dominated by large law firm leases. However, that craze is coming to an end. The tenants that are currently driving the most demand for office space are financial services companies. For example, two hedge funds recently leased approximately 13,000 square feet at 71 South Wacker (Hyatt Center). Copia Capital leased 6,000 square feet, while Chicago Fundamental took 7,000 square feet. This is exemplary of the current growth pattern of new financial services companies: lots of modest-sized leases that together represent a significant trend. Because these firms tend to be image-conscious, they seek Class A space in newer buildings. As a result of this growing sector, service firms that support financial companies are also expanding. For example, Computer Discount Warehouse recently expanded its downtown space significantly, and Morningstar will expand by almost 100,000 square feet when it 22 West Washington in Chicago moves into its new headquarters at 22 West Washington in 2008. Would you like to make any additional observations about the office market in your area? • With the downtown office market beginning recovery, many tenants are using this period of time to "trade up." Many companies that once looked into Class B properties are currently able to afford Class A rents on a Class B budget. This trend is temporary, as rents are on the rise — but it has been the case for the last several years.

Chicago Industrial Swartchild Submitted by Jim Swartchild, executive vice president with the Chicago office of Paine/Wetzel ONCOR International.  Posted online 08-12-08. What area is your expertise? Chicago Metropolitan Market What trends do you see presently in industrial development in your area?  1). A slowing in closing of sales and execution of leases.  2). A 1.3 percent rise in vacancy rates. Our Midway and South Cook County markets, however, have experienced the highest vacancy rates at 12.3 and 11.1 respectively.  3). Quarterly absorption in fourth quarter 2007 was a positive of 3.5 million square feet to first quarter 2008, which was a negative absorption of 2.5 million square feet.  4). Leasing activity has dipped 10 percent from same time last year.  5). Average sales prices have increased for Industrial product from $59.48 square feet fourth quarter 2007 to $61.81 first quarter 2008 even though sales during those two periods have dropped from 3,750,000 square feet to 3,250,000 square feet (first quarter 2008). Approximately 12 million square feet of projects are under construction at this time and much of the space has yet to lease to the first tenants.  What type of industrial product is doing well in your area?  Across the board:  From 20,000 square feet to 1 million square feet, with a more rapid conclusion to sales and leases on the smaller product. Who are the active industrial developers in your area?  ProLogis, OPUS, First Industrial, CenterPoint, IDI, Panattoni, Pizzuti, Ridge Realty Trust, AMB, Duke, TCB, and Liberty Property Trust. Please name one or two significant industrial developments in your area. What impact will these projects have on the market? Minooka Ridge and Opus Development. 860,000 square feet was sold to Macy’s for $38 million. Many other national developers are here. Where is the majority of development taking place? Why is this area doing well?  Southwest of Chicago and Interstate 80. Lower priced, large farm sites, 500,000 square feet to 1 million square feet projects planned.  Major east-west artery between New York and California and many large logistics tenants.  Also two major intermodals projects are here for the BNSF and UP rail companies.  These are the major United States east-west carriers. What area do you expect to be the next big industrial development market? Why?  Continuing further out in the southwest corridor. 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 the next year?  One more year, and they will begin to firm up. The Chicago industrial market has always been somewhat bullet proof in that it may swing 10 percent up or down but the swings are always quite small compared to more volatile markets, and more volatile products (e.g.:  Office).  Our market consists of 1.3 billion square feet (only New Jersey and Los Angeles have similar numbers) and the Chicago market is always fairly active. What industries do you expect to expand in the next year to absorb a great deal of industrial space? What areas will be affected?  Continued high demand for third party logistics users as major corporations continue to outsource their trucking and warehousing to vendors. Chicago is also a major market for food users.