Moderator Russ Nelson

NTH

Suburban Dave Marschinke

CBRE Inc.

Minneapolis CBD Sonja Dusil

Cushman Wakefield | Northmarq

Development Tony Barranco Ryan Companies

2015 Suburban Office Update Dave Marschinke CBRE Inc.

2015 Minneapolis CBD Update Sonja Dusil Cushman Wakefield | Northmarq

2015 Office Development Update Tony Barranco Ryan Companies

Dave Marschinke – CBRE

BOMA – January 2015

13%

494 Corridor

12%

11%

24%

16%

YTD 2014 Absorption:

258,448

Vacancy Q3 2014

394 Corridor

% V

acant

YTD 2014 Absorption:

258,448

494 Corridor %

Vacant

YTD 2014 Absorption:

(144,233)

Flight to Quality – Best In Class Vacancy - Q3 2014

0%

5%

10%

15%

20%

25%

30%

4Q

00

4Q

01

4Q

02

4Q

03

4Q

04

4Q

05

4Q

06

4Q

07

4Q

08

4Q

9

4Q

10

4Q

11

4Q

12

4Q

13

YTD

601 Tower Centennial Lakes

Normandale Lakes Colonnade

Class A

601 Tower

Normandale Lakes

Centennial Lakes

Colonnade

Current Best In Class Vacancy Rate: 6.4%

Current "Class A“ Vacancy Rate: 17.3%

601 Tower

Normandale Lakes

Centennial Lakes

Colonnade

0

5

10

15

20

25

30

% V

aca

nt

Best In Class Rest of Class A

Flight to Quality – Best In Class vs. Rest of Class A Vacancy - Q3 2014

Large Space Options - Locations

Edina Corporate

Center

113,752 sq. ft.

Vacant - 2016

Large Space Options

Best Buy Headquarters

275,000 SF

GE - 1 Capital Drive

100,000 SF

Supervalu

350,000 SF

The Hartford

100,000 SF

Prudential

150,00 SF

Best Buy Headquarters

275,000 SF

Supervalu

350,000 SF

GE – 1 Capital Drive

100,000 SF

Prudential

150,000 SF The Hartford

100,000 SF

1550 Utica

50,000 SF

Normandale 8300

50,000 SF

One MarketPointe

150,000 SF

Plymouth Corporate Center

360,000 SF

Suburban Deals

Bass Creek Corporate Center

120,000 SF

The West End

7 Acres, 2 Office Towers

650,000 SF – Class A

Parkdales (6 Buildings)

560,000 Sf

62.6% Leased

The Offices at MOA

7 story, 170,000 sf

Sept. 2015 delivery

Pentagon Park

Renovated 5 Buildings, 300,000 sf

4 of 5 Buildings 90-100% Leased Phase1 of Redevelopment Started in October

Success & Opportunities

The West End

7 Acres, 2 Office Towers

650,000 SF – Class A

Opportunities

Minneapolis

Office Market

Overview

Office Space Activity Report & Summary

What’s Happening in Dynamic Minneapolis

Current Market Trends

Looking into 2015 & Beyond

Minneapolis CBD Dynamic Downtown Minneapolis

Minneapolis

Office Market

Overview

Stable? Vigorous? Trouble Ahead?

CBD Office Summary

Vacancy Trending Downward

Absorption Solid Activity

Rental Rates Trending Upward for Prime Space

Availability Large Blocks of Space Remain

Office Space Activity Report & Summary Dynamic Downtown Minneapolis

Minneapolis

Office Market

Overview Historical Vacancy Mpls CBD vs. Twin Cities

10%

12%

14%

16%

18%

20%

22%

24%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mpls CBD Twin Cities

Pe

rce

nt V

acan

t

15.9%

15.5% 15.9%

16.6%

Minneapolis

Office Market

Overview Historical Absorption Mpls CBD vs. Twin Cities

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mpls CBD Twin Cities

182,000 sf – Mpls CBD

182 272

2014 Absorption

Squa

re F

eet

(in T

housa

nds)

1,468

-1,831

272,000 sf – Twin Cities

Minneapolis

Office Market

Overview Historical Class A Net Rental Rates

$6

$8

$10

$12

$14

$16

$18

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mpls CBD Twin Cities

Mpls CBD vs. Twin Cities

MINNEAPOLIS CBD

OFFICE SUBMARKET

2012 2013 2014

Class A $15.92 $17.21 $17.78

Class B $10.34 $11.19 $11.93

Class C $10.24 $10.34 $10.62

Net

Rent

(Dolla

rs P

er

Squar

e F

oot)

$17.78

$16.47

Minneapolis

Office Market

Overview Historical Office New Construction Mpls CBD vs. Twin Cities

0

200

400

600

800

1000

1200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mpls CBD Twin Cities

Sq

ua

re F

ee

t (in

Th

ou

sa

nd

s)

954

0 0 19 0 0

178

523

225 158

332

Minneapolis

Office Market

Overview Large Blocks of Available Space 80,000 Square Feet +

111 Washington Square

300,000 SF

Fifth Street Towers

87,000 SF - 100 Tower

86,000 SF - 150 Tower

901 3rd Ave

260,000 SF

Marquette Plaza

111,000 SF US Bancorp Center

120,000 SF

IDS Center

83,000 SF 100 Washington Square

84,000 SF

Gaviidae I

125,000 SF

Minneapolis

Office Market

Overview Large Blocks of Available Space 100,000 Square Feet +

111 Washington 901 3rd Ave Marquette Plaza US Bancorp

Center

Gaviidae I

Minneapolis

Office Market

Overview Notable 2015 Minneapolis CBD Transactions

18,500 SF 116,000 SF

132,000 SF

28,000 SF 29,000 SF

29,705 SF

31,384 SF

54,444 SF

Dynamic Downtown Minneapolis

53,000 SF

45,000 SF 20,000 SF

24,000 SF

76,000 SF

Minneapolis

Office Market

Overview Beyond the Statistics

DOWNTOWN MINNEAPOLIS

RENAISSANCE

Dynamic Downtown Minneapolis

Minneapolis

Office Market

Overview

Housing & Hotels

Vikings Stadium

Super Bowl 2018

Transit Expansion

Nicollet Mall Renovation

Mayo Clinic Square

= Evolution to a 24/7 City

Beyond the Statistics Dynamic Downtown Minneapolis

Minneapolis

Office Market

Overview Minneapolis CBD Office Trends

Confidence & Consolidation Reduction of Square Footage Per Employee

Transaction Velocity & Long Term Commitment

Corporate Commitment to CBD

Wells Fargo / Be the Match / Center Point Energy / Xcel Energy

Spec Office Space Announced

Target Field Station – UP

T3 - Hines

Dynamic Downtown Minneapolis

Minneapolis

Office Market

Overview

Abundant Vacancy

1.5 Million Square Feet in 2016/2017

TCF / Wells Fargo / Excel / Center Point

Flexibility & Mobility

Continued Evolution of Work Environments

Continued Renovation and Repurpose Nieman Marcus / Gav I & II / Macy’s / Soo Line

Baker Block / Northstar / 510 Marquette

Looking Ahead Dynamic Downtown Minneapolis

Minneapolis

Office Market

Overview Looking Ahead Dynamic Downtown Minneapolis

BOMA Presentation By Tony Barranco, VP of Development

Ryan Companies US, Inc.

January 15, 2015

WHEN IS IT TIME TO BUILD?

TYPICAL MULTITENANT OFFICE DEVELOPMENT CYCLE

BOMA

WHEN IS IT TIME TO BUILD?

TYPICAL MULTITENANT OFFICE DEVELOPMENT CYCLE

Occupancy (X)

+ Rents (Y)

+ Return on TPC is (Z)

= Time to build

BOMA

WHEN IS IT TIME TO BUILD?

TYPICAL MULTITENANT OFFICE DEVELOPMENT CYCLE

Occupancy (X)

+ Rents (Y)

+ Return on TPC is (Z)

= Time to build

BOMA

We usually like to have an anchor

tenant and financing too…

BOMA

United Health

1,478,700 SF

Be The Match

220,000 SF

Target North Campus

650,000 SF

Wells Fargo

1,100,000 SF

NOTABLE NEW CONSTRUCTION

BOMA

Xcel Energy

220,000 SF

Toro

75,000 SF

NOTABLE NEW CONSTRUCTION

CenterPoint Energy

100,000 SF

BOMA

T3 (Hines)

200,000 SF

MOA Office

170,000 SF

NOTABLE NEW CONSTRUCTION

Target Field Station

240,000 SF

NOTABLE OFFICE DEVELOPMENT/CONSTRUCTION

The big story in the Twin Cities office market is the amount of new space

that is delivered into the market, and how assets are repositioned after…

BOMA

BUILD TO SUIT Size Delivery

• United Health 1,478,700 SF 2015

• Target North Campus 650,000 SF 2015

• Be The Match 220,000 SF 2016

• Wells Fargo 1,100,000 SF 2016

• Xcel Energy 220,000 SF 2016

• CenterPoint Energy 100,000 SF 2015

• Toro 75,000 SF 2016

MULTITENANT

ALSO: Two spec buildings in North Loop and the Mall of America

• T3 (Hines) 200,000 SF 2016

• Target Field Station 240,000 SF

• MOA Office 170,000 SF 2015

TOTAL NEW SQUARE FOOTAGE 4,453,700!

WHY ARE COMPANIES BUILDING NEW?

With 16.6% vacancy, what factors are driving companies to build

• Attract and retain talent

• Consolidate locations

• Control their destiny

• Provide amenities (bike rooms,

common areas, fitness) – See

first bullet

• Financial Reasons, companies

have strong balance sheets –

can always monetize RE Assets

in the future

BOMA

Also: (Some notable properties coming off of the market)

• Plymouth Bldg

• Star Tribune Headquarters

• Soo Line

NOTABLE REPOSITIONING

Again, thinking about this in terms of new space that is delivered into

competitive set

• Pentagon Park

• 510 Marquette

• Ford Center

• Loose-Wiles

• Mpls School District Building

• Block E

• TCF (proposed bank

building renovation)

• Gavidae I and Gavidae II

• RBC Plaza

BOMA

TRENDS – URBAN VS. SUBURBAN

Is Urban all that?

• Urban Assets are simply performing better

Nationally – CBD assets (A&B) trade at a premium of almost 50 bps

Nationally – CBD vacancy (A&B) is almost 200 bps lower than suburban

• Trends – Not all urban, but all have important characteristics

West End bullish about office there due to location and amenities

• Access to transit and amenities remain a huge and critical draw

Transit corridors will have favor

Sell the Suburbs?

• Corporate campuses may be bucking that trend

• United Health / Target North Campus / TCF

• Suburban office will feel the most rate pressure

BOMA

TRENDS – URBAN VS. SUBURBAN

BOMA

TRENDS IN THE LABOR MARKET

The Labor Market

• Think of a future issue with skilled

labor and a time where there are

more jobs available than there are

applicants.

Office Space Consolidation

• Is office space consolidation nearing an end?

• Landlords are starting to consider parking ratios and impact on

building systems when building density reaches certain levels

BOMA

WHAT INSTITUTIONAL INVESTORS SAY ABOUT THE

TWIN CITIES OFFICE MARKET

• Returns for Mpls CBD 7 caps on inplace

with some upside

• 394 Corridor is great

• North Loop is folding into CBD

• Prefer assets near transit, especially LRT

• Historically rents not too much more than in 90s. Difference is

return expectations have changed. Deals that were 10 caps have

acceptable returns at 8 caps.

• Plenty of Capital for new deals. I see that trend continuing.

• Prefer Urban CBD

BOMA

WHERE ARE THE OPPORTUNITIES?

• Corporate BTS – can understand the

deal/credit, have good and ample

financing choices

• Like the 394 corridor

• I like Urban rehabs, favoring the Mpls CBD. I would not discount

other locations though (Uptown, NE Mpls, St. Paul). (But do not

expect rent premiums – lots of space will need to get filled)

• Plenty of opportunity/back to fundamentals.

BOMA

HISTORICAL TWIN CITIES OFFICE NEW CONSTRUCTION

BOMA

225 178 158

954

332

523

0 0 19 0 38

2200

1750

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

Squa

re F

eet

(in T

housa

nds)

HISTORICAL TWIN CITIES OFFICE NEW CONSTRUCTION

BOMA

225 178 158

954

332

523

0 0 19 0 38

2200

1750

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

Squa

re F

eet

(in T

housa

nds)

Moderator Russ Nelson

NTH

Suburban Dave Marschinke

CBRE Inc.

Minneapolis CBD Sonja Dusil

Cushman Wakefield | Northmarq

Development Tony Barranco Ryan Companies