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Office Locations & Services
Valuation & CounselingDue DiligenceTransactional & Litigation SupportSpecialty Property ExpertisePortfolio ValuationDevelopment Incentives
Introduction
Real estate markets in the United States continued to improve throughout 2011. Notable news for 2011 includes:
– Continued bifurcation of many sectors• “Trophy” assets vs. Class B and C properties
– Positive Economic News• Strong performance in the Multifamily sector• Early signs of stabilization in home values• Even lower interest rates• Continued decline in cap rates• Improving Consumer Confidence & Spending although consumer
borrowing is up– Negative Economic News
• Persistent high unemployment and underemployment• European debt issues create uncertainty
A Look Into 2012 and Beyond
Values are likely to increase slowly due to a combination of improved fundamentals and a slight decrease in cap rates
High construction costs combined with sluggish demand will result in Constrained New Supply‐ Multi‐family likely to see the majority of new construction‐ Continued strong commodity prices and energy costs keep construction
costs high
Properties that are do not become functionally obsolete generally rebound to their depreciated replacement cost at some point in the cycle
New CompletionsPercentage of Existing Stock
25‐Year Average: 2.1%
Supply growth this low barely exceeds
obsolescence
Outline
• Office Market Update• Retail Market Update• Multi‐Family Market Update• Industrial Market Update
Office Market Update•Mitch Simonson, MAI – Moderator
– Steve Chirhart, TaTonka Real Estate Advisors– Scott Pollock, Cushman & Wakefield/NorthMarq– Mike Salmen, Transwestern
Office Cap Rates Decrease Slightly in 2010 and 2011
Office – CBD The Best, The Worst and The Local Markets
Top Three Markets By Vacancy…Charlotte, NC – 7.60%Boise, ID – 8.41%Philadelphia, PA – 9.20%
Local Markets…Minneapolis, MN – 15.9%St. Paul, MN – 21.3%Combined CBDs – 17.0% ‐ (Source: NAIOP)
…and the Bottom Three MarketsDallas, TX – 25.7%Syracuse, NY – 29.0%Dayton, OH – 29.0%
Office – Suburban The Best, The Worst and The Local Market
Top Three Markets By Vacancy…Nashville, TN – 8.94%Pittsburgh, PA – 9.35%Greenville, SC – 10.50%
Local Market…Minneapolis/St. Paul, MN – 19.85%
…and the Bottom Three MarketsSacramento, CA – 24.37%Las Vegas, NV– 25.93%Chicago, IL – 26.23%
Office Absorption
Submarket Name
Avg. Annual Net
Absorption (SF)
(2008-2011)
Forecast Avg. Annual
Net Absorption
(SF)(2012-2014)
Annual Net Absorption
as % of Office
UniverseDowntown (Mpls CBD) -150,000 418,000 1.5%Suburban Totals -291,000 828,333 1.7%
REIS forecasts 2012 Absorption at 985,000 square feet, or 1.3% of Office Universe of 75,583,000 square feet
Minneapolis CBD Office Market Cycle
Suburban Office Market Cycle
December 2011 Class A Office Sales
West End Towers, St. Louis ParkTwo Buildings, 484,104 SF, $147/SF
Two Marketpointe, Bloomington236,000 SF Building and 5.75 acre vacant land parcel, About $240/SF building area plus vacant land
December 2011 Class A Office Sales
Cargill Building, Hopkins254,915 SF, $273/SF
The Colonnade, Golden Valley359,655 SF, $140/SF
Retail Market Update•Michelle D. M. Koeller, MAI, MRICS – Moderator
– Jen Helm, Cushman & Wakefield/NorthMarq– James McComb, McComb Group Ltd.– Herb Tousley IV, Exeter Realty
Retail Cap Rates Decrease Slightly in 2010 and 2011
Retail The Best, The Worst and The Local Markets
Top Three Markets By Vacancy…San Francisco/Oakland, CA – 3.83%Los Angeles, CA – 4.78%Washington, D.C. – 4.88%
Local Market…Minneapolis/St. Paul, MN – 8.29%
…and the Bottom Three MarketsHouston, TX – 16.23%Dayton, OH – 18.31%Providence, RI – 20.00%
Retail Absorption
Minneapolis/St. Paul Market
Avg. Annual Net
Absorption (SF)
(2008-2011)
Forecast Avg. Annual
Net Absorption
(SF)(2012-2014)
Annual NetAbsorption
as % of Retail
UniverseMetro Area
Totals -351,000 435,667 0.66%
REIS forecasts 2012 Absorption at 332,000 square feet, or 0.5% of Retail Universe of 66,184,664 square feet
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
CURRENT RETAIL TRENDS
INAUGURAL ST. THOMAS-INTEGRA VIEWPOINT EVENT
McComb Group, Ltd.
January 2012
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
1990 2000 2011 2016Characteristic Census Census Estimated EstimatedPopulation 2,542,631 2,968,806 3,314,929 3,455,173 Households 961,627 1,136,615 1,285,939 1,338,939 Families 649,907 744,303 827,409 853,514
Growth RatePopulation 1.56 % 1.01 % 0.83 %Households 1.69 1.13 0.81Families 1.37 0.97 0.62
Source: U.S. Census, Scan/US, Inc. and McComb Group, Ltd.
POPULATION AND HOUSEHOLDSMINNEAPOLIS-ST. PAUL MSA
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
Source: U.S. Census Current Population Survey.
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
Income Number Percent
<$10,000 63,588 4.9 %$10,000 to $14,999 48,074 3.7$15,000 to $19,999 48,460 3.8$20,000 to $24,999 51,548 4.0$25,000 to $29,999 55,621 4.3$30,000 to $34,999 58,021 4.5$35,000 to $39,999 58,059 4.5$40,000 to $49,999 115,976 9.0$50,000 to $59,999 112,570 8.8$60,000 to $74,999 152,431 11.9$75,000 to $99,999 194,892 15.2$100,000 to $124,999 126,863 9.9$125,000 to $149,999 71,356 5.5$150,000 to $199,999 67,382 5.2$200,000 to $249,999 20,756 1.6$250,000 Plus 40,342 3.1 Total 1,285,939 100.0 %
Median Household Income $62,514Average Household Income $78,944
Source: Scan/US and McComb Group, Ltd.
MINNEAPOLIS-ST. PAUL MSA HOUSEHOLD INCOME DISTRIBUTION: 2011 ESTIMATE
74.7%
25.3%
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
Store November December
Nordstrom +5.6 % +8.7 %Saks +9.3 +5.8Macys/Bloomingdales +4.8 +6.2Kohl's -6.2 -0.1JCPenney -2.0 +0.3Target +1.8 +1.6Costco +9.0 +7.0TJX +4.0 +8.0Gap -5.0 -4.0Limited Brands +7.0 +7.0
Retail Index +3.1 +3.4
Source: Company reports and Thompson-Reuters.
SAME STORE SALESNOVEMBER AND DECEMBER, 2011
Website Total Shoppers1 Amazon.com 67,265,934 2 Walmart.com 31,776,242 3 Target.com 28,929,813 4 Netflix.com 19,896,476 5 Bestbuy.com 16,686,433 6 Sears.com 14,788,791 7 Dell.com 14,252,185 8 JCPenney.com 13,905,718 9 Homedepot.com 13,679,305
10 HP.com 12,585,559
Source: Retail Info Systems.
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
TOP 10 ONLINE RETAILERS IN 2009
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
Retail Market Cycle
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
TWIN CITY FOOD FIGHT
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
Store 2002 2007 Dollars Percent
Grocery Stores 4,793.1$ 4,240.5$ -$552.6 -11.53 %Supermarkets 4,699.9 4,155.2 -544.7 -11.59
Specialty Food Stores 113.3 150.1 36.8 32.48
Discount Stores 2,836.9$ 2,486.1$ -$350.8 -12.37 %Department Stores 1,130.1 858.9 -271.2 -24.00Warehouse Clubs & Supercenters 1,029.9 2,791.9 1,762.0 171.08Dollar Stores 52.9 112.6 59.7 112.85
Source: U.S. Department of Commerce.
MSA RETAIL SALES TRENDS 2002 AND 2007(In Millions of Dollars)
Change
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
Store 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Walmart Supercenter 9 13 16 21 26 38 42 43 48 51 SuperTarget 7 10 11 15 18 21 24 25 25 26 Costco 2 2 3 3 4 4 5 5 6 6 Sam's Club 12 13 13 13 13 13 13 13 13 13 Cub Foods 31 35 35 39 41 42 44 45 45 46 Trader Joe - - - - - 2 3 5 6 6 Aldi - 5 9 13 16 22 23 27 28 29
Source: Retailer Websites.
NUMBER OF STORESMINNESOTA2002 TO 2011
McCOMB GROUP, Ltd.R E A L E S T A T E A N D
R E T A I L C O N S U L T A N T S
Dollar Dollar FamilyYear General Tree Dollar
2006 8,260 3,219 6,300 2007 8,222 3,411 6,400 2008 8,362 3,591 6,571 2009 8,828 3,806 6,655 2010 9,372 4,055 6,785
Increase 1,112 836 485 Supercenter Equivalent 50 46 19
Source: NRF Stores.org and store websites.
DOLLAR STORE GROWTH; 2006-2010
Retail Market Cycle
Apartment Market Update•Dan Mueller, MAI – Moderator
– Abe Appert, CBRE– Gina Dingman, Everest Real Estate Advisors – Steve Schachtman, Steven Scott Management
Apartment Cap Rates Decrease in 2010 and 2011
ApartmentsThe Best, The Worst and The Local Market
Top Three Markets By Vacancy…Minneapolis/St. Paul, MN – 2.46%San Jose, CA – 3.09%New York, NY – 3.10%
Local Market…Minneapolis/St. Paul, MN – 2.46%Mpls./St. Paul has the lowest vacancy of surveyed markets22 of 59 markets have vacancy at or below 5.0%
…and the Bottom Three MarketsSarasota, FL – 9.50%Columbia, SC – 11.00%Houston, TX – 11.88%
Apartment Absorption
Minneapolis/St. Paul Market
Avg. Annual Net
Absorption (Units)
(2008-2011)
Forecast Avg. Annual Net Absorption
(Units)(2012-2014)
Annual NetAbsorption
as % of Multi-family
UniverseMetro Area
Totals 1,559 1,122 0.72%
REIS forecasts 2012 Absorption at 1,057 units, or 0.68% of Apartment Universe of 155,270 units
Apartment Market Cycle
Industrial Market Update•Jeffrey A. Johnson, MAI – Moderator
– Ben Applebaum, WelshInvest– Dave Jellison, Liberty Property Trust– Greg Miller, Interstate Partners– Arvid Povilaitis, Meritex
Industrial Cap Rates Decrease in 2010 and 2011
IndustrialThe Best, The Worst and The Local Markets
Top Three Markets By Vacancy…Los Angeles, CA – 5.04%Houston, TX – 5.77%Orange County, CA – 5.91%
Local Market…Minneapolis/St. Paul, MN – 12.23%
…and the Bottom Three MarketsLouisville, KY – 18.47%Raleigh/Greensboro, NC – 20.03%Boston, MA – 20.77%
Industrial Absorption
Minneapolis/St. Paul Market
Avg. Annual Net
Absorption (SF)
(2008-2011)
Forecast Avg. Annual
Net Absorption
(SF)(2012-2014)
Annual NetAbsorption
as % of Industrial Universe
Metro AreaTotals 548,000 2,115,000 1.88%
REIS forecasts 2012 Absorption at 1,528,000 square feet, or 1.3% of Industrial Universe of 112,256,490 square feet
Industrial Market Cycle
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