Brokerage Outlook: Oklahoma

• Oklahoma City Retail

• Oklahoma City Industrial

• Oklahoma City Multifamily

• Oklahoma City Office

Oklahoma City Retail Ravencraft Submitted by Paul Ravencraft, Investment Broker with Price Edwards & Co. in Oklahoma City, Okla. Posted 03/06/08. What area is your expertise? • My specialty is retail investment sales in Oklahoma. What trends do you see presently in retail development in your area? • The Oklahoma City metropolitan area has experienced minimal local tenant turnover, but for the most part, leasing has stabilized. With the construction of new life style centers, mall tenants and even mall anchors are moving to the new open air developments. What type of retail product is doing well in your area? • Recently developed shopping centers occupied with national tenants remain the front runner for solid retail investments and, as in most markets, well-located neighborhood centers continue to be successful. Free standing retail is still solid with very few vacancies; however, the verdict is still out as to what fallout the Metropolitan area will have from nationwide store closings. What retailers are new to your area? • Conn’s is the most recent retailer to the Oklahoma City area opening one store with three more planned. Who are the active retail developers in your area? • Jackson Development, Sooner Investment Group, Blanton Property Co., Burk Collins & Co. and Larry Owsley. Please name one or two significant retail developments in your area. What impact will these projects have on the market? • The Shops @ Moore is currently being developed by Burk Collins. It’s anchored by JC Penney, Ross Dress for Less, Famous Footwear, TJ Maxx, Office Depot and PetsMart. • University North Park is located in Norman at the intersection of Interstate 35 and Robinson. It is currently under development by Sooner Investment Group. The development will include anchor tenants such as Target, JC Penney and Kohl’s, along with several other national tenants. A very upscale lifestyle center with tenants to be named is also expected. • The Shoppes on Broadway is located on the northeast corner of 33rd and Broadway in Edmond. The project is being developed by Jackson Development with expectations of mid- to late-2008 occupancies. The redeveloped center will be anchored by Hobby Lobby and Starbucks Coffee. Dirt work has started for the 232 acre “open air lifestyle community” called The Village at Quail Springs. It’s unknown how much retail will be developed at the site; however, the excellent location will force national retailers to give the site serious consideration. Where is the majority of the development taking place? Why is this area doing well? • South Oklahoma City and Norman. Both areas are under developed and have good demographics. What area do you expect to be the next big retail development market? Why? • Norman — This will be one of the next big retail markets. University North Park has broken ground and has momentum with several hundred thousand square feet of retail planned. • East Edmond — I-35 has been a focal point for planned retail development for the last 2 years. If the economy remains healthy, I’m sure a lifestyle center will start in the next year or two. • North Oklahoma City — Quail Spring Village developers have made a bold move and broken ground on their development. The verdict is still out to see if they will be able to land retail to make the development a success. Please describe the retail leasing activity in your area. • New centers are dominated by national and credit tenants paying rental rates between $18 and $35 per square foot. Neighborhood and community centers are occupied by local and regional tenants paying significantly lower rates between $7 and $15 per square foot. What major leases have been closed recently? • Conn’s Appliances recently opened one store at the Midland Center, located on Northwest Expressway and Independence, with two more scheduled to open in the next twelve to eighteen months. P.F. Chang’s China Bistro at Memorial Square, which was recently purchased by Inland, The Cheesecake Factory at Penn Square, Chipotle in Edmond, Albertson’s grocery chain sold their Oklahoma stores allowing Homeland and Williams Discount Foods to take over thirteen Oklahoma City metro stores. The Shops at Moore closed several new leases with JC Penney, Ross Dress for Less, Office Depot, T J Maxx and PetsMart. Please give a measure of retail vacancy rates. • The Oklahoma City metro area consists of seven major markets. North, Northwest, South , Edmond, West-Central, Moore-Norman, Eastern Oklahoma City. The North Oklahoma City markets, the West Central Oklahoma City market, the Moore/Norman market all have occupancy rates in excess of 90 percent and continue to be doing quite well overall. The East Oklahoma County submarket and the South submarket each have a vacancy in excess of 15 percent. The overall vacancy rate in the Oklahoma City market for year end 2007 was 11.37 percent What types of retailers should look into your market in the coming year? What type of retail is needed? • University Park North in Norman is bringing in retailers that haven’t previously been willing to locate in the Oklahoma City metro area, such as Crate & Barrel, Anthropologie and a gourmet grocer, possibly Whole Foods Market. After the completion of these leases in Norman, north Oklahoma City will benefit from those tenants needing market exposure in other metro areas. Would you like to make any additional observations about the retail market in your area? • The overall retail market in the Oklahoma City metro area is doing very well, with only a 11.37 percent vacancy rate. New construction is at an all-time high and national retailers are looking at Oklahoma City with renewed interest. National and regional tenants are absorbing space in several large new centers, which could affect the occupancy of neighborhood and community centers. However, as history has shown, the well-located and the well-constructed centers will continue to be successful through good and bad markets. The centers with less desirable locations will experience rental rate decreases and vacancies. With fourteen centers under construction (over 25,000 square feet) local developers are confident with most national tenants perception of the Oklahoma City market.  Most retail shopping center investors in the Oklahoma City market have had a conservative ending philosophy avoiding being over leveraged. The Oklahoma City metro retail market is very stable. I feel the market will weather any threat of a short term recession. The local economy is very solid. With the city’s strong foundation from the local MAPS projects to the likelihood of an NBA franchise in 2009, Oklahoma City will continue moving forward.

Oklahoma City Industrial Puckett Submitted by Bob Puckett, industrial broker with the Oklahoma City office of Price Edwards & Company/TCN Worldwide. Posted 09/26/07. What area is your expertise? • I am an industrial broker concentrating in the Oklahoma City area. We will go statewide for significant projects. What trends do you see presently in industrial development in your area? • The only speculative construction at this time, other than a niche market in the aerospace industry, is in small single-tenant and owner occupied metal buildings. Rental rates have not kept pace with rising construction costs in the multi-tenant market. Falling vacancy rates should result in rate inflation in the near term. What type of industrial product is doing well in your area? • We are seeing positive absorption in all multi-tenant type, but especially in bulk warehouse. This is a 70 percent owner-occupied market with overall market vacancies in the 7 percent range. The heart of the market is in the 25,000-square-foot to 45,000-square-foot range. Properties in this range for both sale and lease are in steady demand. Who are the active industrial developers in your area? • At this time significant development is restricted to local developers in the small building market and one local who will do build-to-suit projects with excess speculative space. There are some major owner occupied projects under construction, which are expansions or new locations and should not affect the market as a whole. Please name one or two significant industrial developments in your area. What impact will these projects have on the market? • Gardener Tannenbaum Group, a locally owned developer, is developing bulk warehouse on a site in far west Oklahoma City. They have completed and leased 420,000 square feet of bulk warehouse and are planning a 200,000-square-foot office retail addition. The industrial development is anchored by build-to-suit projects. This development is extending the bulk warehouse market west along the developing Interstate 40 corridor. Where is the majority of development taking place? Why is this area doing well? • The Oklahoma City industrial market is centered in the southwest quadrant of the city with over half of the existing base in this area. Current development is extending this market as well as developing new industrial areas along the interstate system in other areas of town. What area do you expect to be the next big industrial development market? Why? • I see the southeast quadrant as a significant development opportunity. This area has a good interstate connection between I-35 and I-40, the main interstates that cross in Oklahoma City. Land prices are reasonable and there is abundant undeveloped, or under-developed land. Please describe the industrial leasing activity in your area. • Leasing is steady with high demand in certain niche markets such as the oil and gas industry. Please describe the industrial sales activity in your area. • Although demand remains high, investor sales have been tempered by sluggish lease rate growth and limited re-investment opportunities. Sales of owner occupied buildings remain strong. Please give a measure of industrial vacancy rates and a measure of available sublease space. • The overall Oklahoma City industrial market vacancy rate is in the 7 percent range. Multi-tenant investment grade buildings have a higher rate of 13 percent overall with bulk warehouse rates at 12 percent. Sublease space is not tracked by any published reports in Oklahoma City. 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? • Interest rates continue to encourage competitive cap rates. The best impact that low interest rates will have on the industrial market both now and in the future is to drive continued prosperity through reasonable operating capitol costs. What industries do you expect to expand in the next year to absorb a great deal of industrial space? What areas will be affected? • We expect a steady absorption of distribution companies and continuing demand for Oil and Gas industry properties.

Oklahoma City Multifamily Goodspeed Submitted by Carmen Goodspeed, broker associate with the Oklahoma City, Oklahoma, office of Price Edwards & Co./TCN Worldwide. Posted 09/14/07. What area is your expertise? • As a multifamily specialist with Price Edwards & Co., I focus mainly on multifamily properties within the Oklahoma City metropolitan area and the surrounding submarkets. What trends do you see presently in multifamily development in your area? • Apartment development in Oklahoma City has begun to show signs of slowing down. Historically over the past 10 years, the Oklahoma City multifamily market has absorbed around 1,000 units per year. However, in 2006 approximately 575 new multifamily units came on line. This adjustment in construction of new apartment units should have a positive impact on occupancy and rental rates. In addition, gone are the days of tax credit developments. Developers of new product have begun offering market rate, mixed-use developments combining retail, office, as well as rental housing. Downtown Oklahoma City also is seeing the conversion of historic office buildings into either rental housing units or for-sale condominiums. Who are the active multifamily developers in your area? • The Aduddell Mortgage Group, specializing in student properties and the Gardner-Tannenbaum Group, Henderson Properties, McSha Properties, and Lindsey Properties have recently developed apartment properties in the Oklahoma City metropolitan area. Please name one or two significant multifamily developments in your area. What impact will these projects have on the market? • Early 2007 saw the opening of the first new multifamily property in the Central Business District (CBD) of Oklahoma City. Legacy Summit at Arts Central, a mixed-use project consisting of 257 luxury for rent units, a parking garage and 11,000 square feet of ground-level retail space was developed by a local developer, Henderson Properties. Legacy’s location allows tenants to take advantage of the substantial growth and success of the downtown and Bricktown entertainment areas. Since its opening, Legacy Summit at Arts Central has had a positive effect on the area and the community as a whole, creating an anticipation for downtown housing. Where is the majority of development taking place? Why is this area doing well? • The majority of development in Oklahoma City is taking place in the downtown area where, according to various city and state housing studies, there is a need for 7,000 housing units. Deep Deuce and Bricktown, Oklahoma City’s historic and entertainment districts, have seen an influx of for-sale condominium development by local investors and developers. What area do you expect to be the next big development market? • I think the major development in Oklahoma City metropolitan area will continue in the CBD, Bricktown and Deep Deuce. What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing? • With a few exceptions, most metropolitan areas of the are enjoying a favorable leasing climate. The southwest sector of Oklahoma City has the most improved occupancy at 92 percent; the submarkets of Midwest City and Dell City reporting the lowest occupancies at 88 percent; and the submarkets of Edmond and Norman report the highest occupancies of 96 percent and 95 percent. Please give a measure of apartment vacancy rates. • The overall vacancy rate for the metropolitan area of Oklahoma City and the surrounding suburban markets is approximately 9 percent. According to the Price Edwards & Co. 2006 multifamily survey, occupancies rose from 90 percent in 2005 to 91 percent in 2006. Please give a measure of condo sales activity in the area. • Oklahoma City did not experience the condominium sales activity reported in most other areas of the country. Oklahomans typically want to own the land under their building. Therefore, the emergence of Oklahoma City’s condominium market has been a result of a market gap in a unique area. With around 1,000 units either under construction or on the drawing board, condominium developers are offering a lifestyle to a particular market. The majority of these developments are in Bricktown, the adjacent Deep Deuce, and now Automobile Alley. 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 the next year? • Although interest rates are always a concern for investors, a rise in interest rates can be viewed as a positive sign for the Oklahoma City multifamily market. As first-time homebuyers find it more difficult to finance new homes, they will remain in rental housing. What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market? • Total employment in the Oklahoma City metropolitan area is up 1 percent from 2006. This positive growth came in spite of the closing of the General Motors Plant. The local unemployment rate is holding fairly stable around 3.8 percent, almost a full point below the national average. Citing Oklahoma City’s low cost of living and job growth, Forbes Magazine ranked the metropolitan area as the ninth most affordable, as well as, one of the best cities to find a job. Would you like to make any additional observations about the multifamily market in your area? • The Oklahoma City multifamily market continues to offer investors and developers stability and value not found in other, more volatile regions of the country.

Oklahoma City Office Brown Submitted by Cordell C. Brown, vice president investment division with the Oklahoma City, Oklahoma, office of Price Edwards & Company/TCN Worldwide. Posted 08/03/07. What is your area of expertise? • I am an office investment specialist in Oklahoma City. What trends do you see presently in office development in your area? • The Oklahoma City office market has been steadily improving during the last five years. The yearend 2006 Price Edwards & Company Office Market Summary described suburban leasing activity this way, “As a frame of reference, at the end of 2002 the Class A suburban vacancy rate stood at 34.6 percent. At the end of 2006, it stood at 5.6 percent.” In October 2006 the first totally speculative office building to be constructed in years came on line. That building contained 42,000 square feet of Class A space and is currently 80 percent occupied. Another 120,000 square feet of new speculative construction is expected to come on line in 2007. Expectations are that the new space will be quickly absorbed. Additionally, the resurgence of the oil and gas industry and strong growth in the medical sector has driven an increase in owner occupied office buildings. Who are the active office developers in your area? • In the general office category Mass Development is very active in commercial development. They brought the 42,000-square-foot building on line in 2006 and have plans on the drawing board for an additional 100,000 square feet of Class A office in addition to their ongoing retail development. Another major developer in a more specialized area is the Presbyterian Health Foundation, which is developing the Presbyterian Health Foundation Research Park. This 1 million-square-foot development is more than half completed and is virtually full. It should be noted that the foundation subsidizes some of its tenants that conduct biomedical research. Precor-Ruffin Properties which owns a number of existing office and retail properties has entered the market with the development of a 50,000-square-foot single tenant office building. Please name one or two significant office developments in your area? • At the intersection of the Kilpatrick Turnpike and Interstate 235 Precor-Ruffin Properties recently broke ground on a major 50-acre office development known as Market Center. Currently, Market Center has 50,000 square feet of build-to-suit office under construction for the General Services Administration (GSA). The remaining property is being developed with infrastructure. Large office building sites will be available for sale or on a build to suit basis. Approximately ten acres of the Market Center development is reserved for a small office component. South of Market Center, Broadway 122 is developing 30 acres of land for office use. Plans call for three 60,000-square-foot Class A office buildings along with garden offices and office warehouse buildings from 3,300 square feet to 20,000 square feet. Rates are being quoted at $23.50 per square foot for Class A space on a gross lease basis. Occupancy will be available in spring 2008. Where is the majority of development taking place? Why is this area doing well? • The majority of office development continues to take place along the Memorial Road (Kilpatrick Turnpike) corridor with most of that development currently being along a three-mile stretch of road bounded on the east by Quail Springs Mall and on the west by the Mercy Health Center complex. Primarily due to an abundance of developable land, this area has seen ongoing development for the last decade. Big-box retailers, restaurants and service businesses have moved in along with office and medical users and the area has experienced a mini-boom in development. Large tracts of land in the area remain available, promising continued activity for speculative office developers and owner users. What area do you expect to be the next big development market? Why? • The Memorial Road corridor will continue to be the big play in office development in the near term. That said, approximately 2.5 miles east of Quail Springs Mall the Kilpatrick Turnpike intersects with I-235. From the Kilpatrick Turnpike south for several miles I-235 shows promise of being a strong office play in the future. This area has long been underdeveloped. The recent construction of user owned medical and office facilities, service providers and the current office development activity at the intersection has the area under close scrutiny by developers. This is the area in which Precor-Ruffin Properties and Broadway 122 are developing their respective sites. What areas are doing well with office leasing? Which areas are struggling with office leasing? • All of the suburban office markets are doing well. Aggregate vacancy for all suburban office markets EOY 2006 was 8.8 percent. The West Submarket was the only suburban market to experience an increase in vacancy. That increase is attributed to that submarket being primarily driven by light and moderate industrial use with only 642,000 square feet of office space in the entire submarket. The “struggling” market is the Central Business District (CBD). Class A vacancy is 14.9 percent with Class B vacancy at 16 percent. However Class C vacancy is 60 percent. Obviously the Class C vacancy skews the other numbers when you look at the submarket as a whole. One building, the former Kerr McGee headquarters building containing about 500,000 square feet may come on the market. Currently, the building is tied up in litigation but rumors continue to circulate that a buyer is in the wings pending resolution of the litigation. The City of Oklahoma City is also supporting efforts to stabilize the CBD occupancy by offering free and reduced cost parking to major tenants moving into or staying there. Please give a measure of office vacancy rates for Oklahoma City. The Oklahoma City CBD contains 5,226,112 square feet. Class A vacancy is 14.9 percent. Class B vacancy is 16 percent. Class C vacancy is 60 percent. The Northwest Submarket contains 4,853,322 square feet. Class A vacancy is 6.5 percent. Class B vacancy is 10.6 percent. Class C vacancy is 10.5 percent. The North Submarket contains 3,121,207 square feet. Class A vacancy is 0.8 percent. Class B vacancy is 7.3 percent. Class C vacancy is 13 percent. The Midtown Submarket contains 593,768 square feet. There is no Class A space in the Midtown Submarket. Class B vacancy is 2.4 percent. Class C vacancy is 1.1 percent. The West Submarket contains 642,091 square feet. Class A vacancy is 5.6 percent. Class B vacancy is 8.8 percent. Class C vacancy is 12.4 percent. 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 the next year? • Because of lower construction costs in the Oklahoma City market, lower interest rates add to the appeal of Oklahoma City as a place to live and work. Forbes.com ranks Oklahoma City as fourth best in terms of low cost of doing business. At the time of this writing, current interest rates are having a positive impact on the Oklahoma City office market. Rate increases, will of course, have a negative impact on returns therefore creating downward pressure on pricing. The near term rates will continue to have a positive effect on office development. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? • Since August of 2006, unemployment in Oklahoma City has remained steady at 3.8 percent. Job growth continues, particularly in the petroleum, health and high-tech sectors. These sectors will continue to absorb office space in the foreseeable future. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand in the next year to absorb a great deal of office space? What areas will be affected? • The oil and gas industry is absorbing space at a strong and steady pace. As long as this sector of the economy stays strong, it will be the gorilla in the Oklahoma City office market. Right now, it appears that this sector will continue to grow. Several of the countries largest independent oil and/or gas producers are located in Oklahoma City and they continue to grow at a significant pace. The affect of this steady growth is to lease up vacancies and drive up rental rates. Would you like to make any additional observations about the office market in your area? • Construction of multi-tenant office buildings saw a significant increase over the last year and that trend will continue at least for the near term. Underwriters here still remember the bust of the 80’s and they continue to underwrite with a wary eye. It is not likely to see the market overbuilt anytime soon. Consequently, lease rates will continue to move up and vacancies will remain low. Oklahoma City’s economy will probably out pace the national economy over the next 12 months.