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www.colliersreno.com 2007 Trends Report NORTHERN NEVADA I YEAR END I 2007 REN O, NEVADA ---PAGE BREAK--- COLLIERS INTERNATIONAL 2 RENO NORTHERN NEVADA YEAR END I 2007 8.90% 6.80% 7.40% 6.10% 5.00% 5.40% $0.26 $0.29 $0.53 $0.53 $0.53 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 Series2 Series1 Trends Report C OLLI E RS INT ER NAT IONA L I R ENO, NV RisingVacancy Opens Opportunities for Northern Nevada Overview The fourth quarter 2007 saw another large amount of newly constructed industrial space added to the Northern Nevada Market. This quarter added 1.4 million square feet bringing the year end total to over 4.3 million square feet. With the huge onslaught of new construction, we have seen the vacancy rate increase throughout the year. Although, when reviewing the vacancy by submarket it is easy to see that the overall vacancy rate is not due to a large amount of existing space being added to the market but primarily comprised of the new construction being added in the McCarran submarket. With the overall vacancy rate rising from 6.8% in the third quarter to 8.9% at year’s end, primarily due to the high cube projects coming online, the Northern Nevada industrial market can now offer existing and new users several options when seeking industrial space. Some may view the increase in vacancy as negative; however, 8.9% overall is very healthy. In the past, the Northern Nevada industrial market competed with other markets such as Las Vegas, Salt Lake City, and Stockton. With vacancy rates at record lows, the Northern Nevada market didn’t have the available space to capture the larger tenants. As construction of high cube industrial space continues, our market will gain even more capacity to house large tenants. In addition, with Northern Nevada’s logistical advantages, tax advantages, and regaining the affordable housing advantage it’s easy to see that our market will become a warehousing hot spot in the future. www.colliersreno.com RENTAL RATE MARKET INDICATORS 1Q 2008* DIRECTVACANCY SUBLEASEVACANCY TOTAL VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE 4Q 2007 *PROJECTED I N D U S T R I A L I A N N UA L R E P O RT I 2 0 0 7 Overall Vacancy Average Asking Rent ---PAGE BREAK--- COLLIERS INTERNATIONAL 3 RENO NORTHERN NEVADA YEAR END I 2007 Demand 2006 was a record breaking year so the question on everyone’s mind was, will the demand levels carry over in 2007? With first quarter posting negative absorption and demand levels fizzling as the subprime residential market took grip in Northern Nevada, it was apparent that our market was starting to slow. Companies related to the home building industry either downsized or added space to the market in the form of sublease. Also, we are seeing less expansion or moving from small to medium sized users. Net absorption for the fourth quarter registered a meager 132,759 square feet, bringing the 2007 total to 1.65 million square feet, lower than the absorption levels of 2004 and 2005 and about 53% of the demand we experienced in 2006. Although the fourth quarter absorption was none too impressive, overall the majority of the submarkets posted positive year end absorption. The Sparks industrial core did have a year end of negative net absorption as companies from the core relocated to the newer buildings in the outer submarkets. Vacancy and Rent Rates As stated earlier, vacancy rates rose in 2007 due to the completion of several construction projects. The industrial market began the year with an overall vacancy rate of only but as new construction came online vacancy started to increase with the overall year end vacancy rate at 8.9%. So, while the overall vacancy rate is 8.9%, this number is heavily weighted towards larger spaces designed for larger users. With the large amount of new construction coming online one could expect rental rates to remain flat but concessions to be offered. In comparing the three major industrial areas: TRIC, the Sparks industrial core, and Stead; both the TRIC and Stead submarkets offer newer buildings in the outlying submarkets for approximately the same rental rate. The Sparks core industrial rental rate is higher but with conveniences such as a closer labor pool and amenities. Construction The majority of the development projects in Northern Nevada are located in the Tahoe Reno Industrial Center (TRIC), 8 miles east of Sparks on US 80. In the fourth quarter a total of 606,000 square feet was completed in TRIC. This list of new industrial space includes 491,400 square feet at 201 Ireland, 95,000 square feet at 500 Pittsburg Ave, and 20,000 square feet at 2999 Waltham Way. Another construction hot spot, Stead, saw the completion of the last Lear Industrial building adding 390,000 square feet. In town, Spanish Springs Corporate Park saw the first of three buildings completed adding 411,100 square feet to our market. MARKET ACTIVITY SIGNIFICANT FOURTH QUARTER TRANSACTIONS SIGNIFICANT LEASES PROPERTY ADDRESS DATE SQUARE FEET TENANT TYPE 6650 Echo Court 11/2007 156,000 BDI Laguna Industrial 1150 Trademark 11/2007 56,800 Russel Stover Warehouse/Dist. 250 Vista Blvd. 11/2007 30,000 1-800 Diapers Warehouse/Dist. )+VIK7XVIIX 4EGM½G1EVFPI SIGNIFICANT SALES PROPERTY ADDRESS DATE SQUARE FEET BUYER/SELLER TYPE 800 Stillwell Road 12/2007 119,300 800 Stillwell Partners, LLC/Bender Whse Co. Light Industrial 1IKEF]XI(VMZI 80 80 395 395 614 613 633 608 609 610 611 612 Pyramid Highway SUBMARKET MAP KEY ID SUBMARKET 1 South Meadows 2 Meadowood 3 Southwest Reno 4 Downtown 5 Airport 6 West Reno 7 Sparks 8 Northwest Reno 1 2 3 4 5 6 7 8 ---PAGE BREAK--- COLLIERS INTERNATIONAL 4 RENO NORTHERN NEVADA YEAR END I 2007 EXISTING PROPERTIES DIRECTVACANCY SUBLEASEVACANCY TOTALVACANCY NET ABSORPTION CONSTRUCTION RENT TOTAL RATE CURRENT YEAR COMPLETED CLASS INVENTORY SQUARE R ATE SQUARE R ATE SQUARE RATE PRIOR OCCUPIED 4Q-2007 TO THIS UNDER AVERAGE SQUARE FEET FEET FEET FEET 4Q-2007 QUARTER SQUARE FEET DATE QUARTER CONST ASKING SUBMARKETS AIRPORT IND. 186 6,784,220 283,958 4.2% 2,640 0.0% 286,598 4.2% 4.3% 6,497,622 6,006 58,049 - - $0.70 R&D/FLEX 1 60,636 6,650 11.0% - 0.0% 6,650 11.0% 11.1% 53,986 (55) (6,650) - - $0.65 W/D 35 2,506,332 119,278 4.8% - 0.0% 119,278 4.8% 4.9% 2,387,054 2,286 233,573 - - $0.64 TOTAL 222 9,351,188 409,886 4.4% 2,640 0.0% 412,526 4.4% 4.5% 8,938,662 8,347 284,972 - - $0.68 DOWNTOWN IND 42 658,918 89,695 13.6% - 0.0% 89,695 13.6% 10.4% 569,223 2,287 (58,179) - - $0.65 R&D/FLEX 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - - - W/D 10 604,054 79,028 13.1% - 0.0% 79,028 13.1% 11.1% 525,026 (11,892) 11,674 - - $0.50 TOTAL 52 1,262,972 168,723 13.4% - 0.0% 168,723 13.4% 10.7% 1,094,249 (9,605) (46,505) - - $0.58 MCCARRAN IND 15 1,212,032 159,324 13.1% 6,880 0.6% 166,204 13.7% 16.4% 1,045,828 128,952 1,014,638 115,000 50,000 $0.75 R&D/FLEX 0 - - 0.0% - 0.0% - 0.0% 0.0% 0 - - - - - W/D 4 2,013,918 1,593,918 79.1% - 0.0% 1,593,918 79.1% 72.4% 420,000 - - 491,400 2,072,005 $0.33 TOTAL 19 3,225,950 1,753,242 54.3% 6,880 0.2% 1,760,122 54.6% 49.0% 1,465,828 128,952 1,014,638 606,400 2,122,005 $0.37 MEADOWOOD IND 35 1,397,717 33,828 2.4% - 0.0% 33,828 2.4% 2.9% 1,363,889 7,179 10,253 - - $0.70 R&D/FLEX 1 16,870 16,870 100.0% - 0.0% 16,870 100.0% 100.0% - - - - - $0.98 W/D 13 1,694,941 31,230 1.8% - 0.0% 31,230 1.8% 1.3% 1,663,711 (8,856) 31,420 - - $0.65 TOTAL 49 3,109,528 81,928 2.6% - 0.0% 81,928 2.6% 2.6% 3,027,600 (1,677) 41,673 - - $0.74 NORTHWEST IND 55 2,385,925 14,165 0.6% - 0.0% 14,165 0.6% 0.6% 2,371,760 - 31,228 - - $0.25 R&D/FLEX 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - - - W/D 19 2,257,695 89,595 4.0% - 0.0% 89,595 4.0% 3.4% 2,168,100 (11,269) 501,451 - - $0.34 TOTAL 74 4,643,620 103,760 2.2% - 0.0% 103,760 2.2% 2.0% 4,539,860 (11,269) 532,679 - - $0.33 SOUTH RENO CORRIDOR IND 64 3,600,220 99,872 2.8% 16,239 0.5% 116,111 3.2% 3.5% 3,484,109 18,923 58,664 10,500 100,000 $0.85 R&D/FLEX 4 56,600 - 0.0% - 0.0% - 0.0% 4.5% 56,600 2,544 2,544 - - - W/D 18 2,199,428 - 0.0% - 0.0% - 0.0% 2.6% 2,199,428 56,800 157,254 - - - TOTAL 86 5,856,248 99,872 1.7% 16,239 0.3% 116,111 2.0% 3.1% 5,740,137 78,267 218,462 10,500 100,000 $0.85 SOUTHWEST IND 4 62,419 - 0.0% - 0.0% - 0.0% 0.0% 62,419 - - - - - R&D/FLEX 1 33,307 4,880 14.7% - 0.0% 4,880 14.7% 7.0% 28,427 (2,565) (4,005) - - $0.72 W/D 2 39,922 20,914 52.4% - 0.0% 20,914 52.4% 52.4% 19,008 - - - - $0.77 TOTAL 7 135,648 25,794 19.0% - 0.0% 25,794 19.0% 17.1% 109,854 (2,565) (4,005) - - $0.76 SPARKS IND 353 12,512,393 380,724 3.0% 135,406 1.1% 516,130 4.1% 4.0% 11,996,263 73,063 (478,911) - - $0.65 R&D/FLEX 4 100,214 - 0.0% - 0.0% - 0.0% 0.0% 100,214 - 8,584 - - $0.52 W/D 132 15,893,044 1,688,601 10.6% 172,440 1.1% 1,861,041 11.7% 6.3% 14,032,003 (316,678) (451,052) 411,100 - $0.37 TOTAL 489 28,505,651 2,069,325 7.3% 307,846 1.1% 2,377,171 8.3% 5.2% 26,128,480 243,615 (921,379) 411,100 - $0.43 STEAD IND 30 3,071,656 401,525 13.1% - 0.0% 401,525 13.1% 6.5% 2,670,131 163,243 416,602 390,000 - $0.36 R&D/FLEX 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - - - W/D 26 6,179,729 404,145 6.5% 137,870 2.2% 542,015 8.0% 9.1% 5,637,714 20,500 129,950 - 545,550 $0.34 TOTAL 56 9,251,385 805,670 8.7% 137,870 1.5% 943,540 10.2% 8.3% 8,307,845 183,743 546,552 390,000 545,550 $0.35 WEST RENO IND 73 1,743,944 17,397 1.0% - 0.0% 17,397 1.0% 1.1% 1,726,547 2,181 (8,741) - - $0.75 R&D/FLEX 0 - - 0.0% - 0.0% - 0.0% 0.0% - - - - - - W/D 3 98,880 - 0.0% - 0.0% - 0.0% 0.0% 98,880 - - - - - TOTAL 76 1,842,824 17,397 0.9% - 0.0% 17,397 0.9% 1.1% 1,825,427 2,181 (8,741) - - $0.75 INDUSTRIAL MARKET STATISTICS FOURTH QUARTER 2007 ---PAGE BREAK--- COLLIERS INTERNATIONAL 5 RENO NORTHERN NEVADA YEAR END I 2007 MARKET TOTAL IND 857 33,429,444 1,480,488 4.4% 161,165 0.5% 1,641,653 4.9% 4.3% 31,787,791 401,834 1,043,603 515,500 150,000 $0.61 R&D/FLEX 11 267,627 28,400 10.6% - 0.0% 28,400 10.6% 10.6% 239,227 34 473 - - $0.86 W/D 262 33,487,943 4,026,709 12.0% 310,310 0.9% 4,337,019 13.0% 9.2% 29,150,924 (269,109) 614,270 902,500 2,617,555 $0.36 TOTAL 1,130 67,185,014 5,535,597 8.2% 471,475 0.7% 6,007,072 8.9% 6.8% 61,177,942 132,759 1,658,346 1,418,000 2,767,555 $0.43 QUARTERLY COMPARISON AND TOTALS 4Q-07 1,130 67,185,014 5,535,597 8.2% 471,475 0.7% 6,007,072 8.9% 6.8% 61,177,942 132,759 1,658,346 1,418,000 2,767,555 $0.53 3Q-07 1,118 65,474,641 4096,673 6.3% 332,785 0.5% 4,429,458 6.8% 7.4% 61,045,183 600,135 1,726,108 1,095,420 2,936,116 $0.53 2Q-07 1,112 64,021,083 4,125,871 6.4% 595,545 0.9% 4,721,416 7.4% 6.1% 59,299,667 459,872 671,659 1,575,530 2,701,301 $0.53 1Q-07 1,102 62,668,792 2,869,493 4.6% 954,017 1.5% 3,823,510 6.1% 5.0% 58,845,282 -25,578 -25,578 230,000 2,853,998 $0.29 4Q-06 1,103 61,943,264 2,339,483 3.8% 732,921 1.2% 3,072,404 5.0% 5.4% 58,870,860 45,156 2,510,137 354,202 2,924,498 $0.26 3Q-06 - 61,490,967 2,763,358 4.5% 538,097 0.09% 3,301,455 5.4% 4.7% 58,727,609 -518,626 2,464,981 - - - 2Q-06 - 61,011,398 2,244,732 3.7% 639,317 1.0% 2,884,049 4.7% 6.1% 57,637,498 1,495,870 2,983,607 - - - 1Q-06 - 61,011,398 3,740,602 6.1% - - 3,740,602 6.1% 6.8% 57,270,796 893,214 1,487,737 - - - 4Q-05 - 60,332,284 3,743,064 6.2% - - 3,743,064 6.2% - 57,150,657 594,523 - - - - INDUSTRIAL MARKET STATISTICS FOURTH QUARTER 2007 EXISTING PROPERTIES DIRECTVACANCY SUBLEASEVACANCY TOTALVACANCY NET ABSORPTION CONSTRUCTION RENT TOTAL RATE CURRENT YEAR COMPLETED CLASS INVENTORY SQUARE R ATE SQUARE R ATE SQUARE RATE PRIOR OCCUPIED 4Q-2007 TO THIS UNDER AVERAGE SQUARE FEET FEET FEET FEET 4Q-2007 QUARTER SQUARE FEET DATE QUARTER CONST ASKING ---PAGE BREAK--- COLLIERS INTERNATIONAL 6 RENO NORTHERN NEVADA YEAR END I 2007 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Airport Downtown McCarran Meadowood Northwest South Reno Corridor Southwest Sparks Stead West Reno 3Q07 4Q07 Trends We expect to see two significant leases transactions in early 2008 in the Tahoe Reno Industrial Center helping to erase the stigma of TRIC being distant from the Reno/Sparks industrial core and helping to lower the McCarran submarket vacancy rate. In addition support services will be added to TRIC to aid in the growth of the McCarran submarket which in turn will attract new companies to Northern Nevada. Vacancy rates will continue to increase as more new construction comes online. Absorption in the first quarter of 2008 will be significantly higher than the fourth quarter 2007 as these large deals are potentially closed. Going forward we expect the Northern Nevada industrial market to continue to grow and attract new companies looking for an opportunity to establish a west coast footprint. 267 OFFICES IN 57 COUNTRIES ON 6 CONTINENTS USA 95 Canada 17 Latin America 17 %WME4EGM½G EMEA 85 volume 672.9 million square feet under management 10,171 Professionals CONTACT INFORMATION Colliers International (SYFPI6&SYPIZEVH Suite 100 Reno, NV 89521 United States Tel: [PHONE REDACTED] Fax: [PHONE REDACTED] Aaron Somer AssociateIIndustrial Properties Email: [EMAIL REDACTED] Tel: [PHONE REDACTED] Christiaens Research Analyst Email: [EMAIL REDACTED] Tel: [PHONE REDACTED] 8LMWVITSVXERHSXLIVVIWIEVGLQEXIVMEPWQE]FI SR SYV [IFWMXI EX This quarterly report is a research document of Colliers International – Reno, NV. Questions VIPEXIH XS LIVIMR FI HMVIGXIH to the Research Department at [PHONE REDACTED]. GSRXEMRIH LIVIMR LEW FIIR SFXEMRIH is made as to the accuracy thereof. Colliers Nevada, 00'HFE'SPPMIVW-RXIVREXMSREPMWERMRHITIRHIRXP] of Colliers International Property Consultants, ER EJ½PMEXMSR SJ MRHITIRHIRX GSQTERMIW [MXL www.colliersreno.com TOTAL VACANCY RATES BY SUBMARKET 4Q2007 VS 3Q2007 TOTAL VACANCY RATE 6.1% 3.8% 4.5% 10.7% 54.6% 49.0% 2.6% 2.0% 3.1% 17.1% 5.2% 0.9% Continued from P. 3 With the vast amount of new industrial space being added to the market companies located within the Reno and Sparks’s industrial core who may be in functionally obsolete buildings may consider relocating to a new building for nearly the same rental rate per square foot but with more advantages. With an additional 2.77 million square feet of industrial space under construction as of the end of the year and Development Arts plans to begin construction on buildings two and three in the West America Commerce Center tenants will have their pick of space. Land As stated in the past, land within Reno and Sparks remains scare with pricing remaining in the $8 to $16 per square foot range. Industrial zoned land in the outlying areas remains abundant. Land prices in our most active submarket, McCarran, has gone up Non-rail served land, depending on the parcel size range from $2.45 per square foot to $2.75 per square foot. Rail served land, depending on the parcel size range from $3.50 per square foot to $5 per square foot. Land in the Spanish Springs Business Center remains available with 146 acres priced at $4 to $6 per square foot depending on size. 2.6% 8.3% 1.1% 8.3% 10.2% 4.4% 13.4% 2.2% 2.0% 17.1% ---PAGE BREAK--- COLLIERS INTERNATIONAL 7 RENO NORTHERN NEVADA YEAR END I 2007 Trends Report C OLLI E R S INT ER NAT IONA L I R ENO, NV Reno Apartment Market 2007 Summary Apartment cap rates dropped early in 2007, due to aggressive underwriting and low interest rates from lenders, which ended mid-year. Reno’s apartment vacancy has stayed below 5% every quarter since April of 2004 with one exception. In the spring of 2007 the vacancy rate for three bedroom units leaped from under 4% last fall to over 8% causing the overall vacancy to rise to 6.2%. This increase was due to sales incentives offered by homebuilders and cheap mortgages that were available until August. Since then, the apartment vacancy rate decreased to a more normal, overall rate of 4.5% this past October. 2007 has seen some significant investments in our market. (Table 2) Hamilton Zanze made a huge entrance into our market purchasing Vizcaya, The Lodge at McCarran Ranch, and The Village at Iron Blossom, a total of 900 units in the three acquisitions for $96.5 million. 2007 finally brought national attention to the Northern Nevada apartment market. The October issue of Apartment Finance Today ranked Reno as the 12th best apartment market nationwide. The article titled “Digging for Diamonds” ranked 86 US cities using the criteria as shown in table 3. I was pleased to have provided input and commentary on the Reno segment of the article. Several condo developments have turned to leasing as apartments. Pac West opted to sell its upscale condo projects at Waterstone and Caviata in Kiley Ranch to John Beal. This added 203 and 184 units respectively into the rental pool in the Spanish Springs area. This year I became a believer in “pro-forma” cap rates, concluding that most owners and managers emphasize occupancy over rental rate. With the overall vacancy rate below 5% landlords have the power to raise rents, and if a few tenants leave, then those units are the ones to rehab and re-lease at higher rental rates (Table 1 below). However, with the price of single family residences dropping renters may be tempted to vacate apartments and move in to empty houses, thereby causing apartment vacancy rates to increase in 2008. www.colliersreno.com MARKET INDICATORS 1Q 2008* APARTMENTVACANCY APARTMENT RENTS INVESTMENT CAP RATES ABSORPTION INVENTORY GROWTH JOB GROWTH 4Q 2007 *PROJECTED A PA RT M E N T S I A N N UA L R E P O RT I 2 0 0 7 2003 - 2007 Average Apartment Rents TABLE 1: 2003 - 2007 AVERAGE APARTMENT RENTS $ Per Month ---PAGE BREAK--- COLLIERS INTERNATIONAL 8 RENO NORTHERN NEVADA YEAR END I 2007 Construction Condomania peaked in late 2005 with the end becoming apparent in early 2006 as deals for the Virginian, Chambolle, and the Nevadan faded. In 2007, both Arterra and Wingfield Towers joined the growing list of deferred condo projects. Although condos have yet to catch the hearts of buyers some successes have emerged. The revitalization of Downtown continues as obsolete casinos are converted, as follows: The Belvedere has 139 out of its 177 units under contract; The Montage has almost 50% of its 384 units reserved with plans to start closings in early ’08. The newly constructed Palladio has closed 64 of 92 units Finally, just East of Downtown, the Grand Sierra Resort has sold just under half if its Summit condos which consist of the top 11 floors of the former Hilton hotel/casino. Aside from this small list of condo projects it may be some time before Northern Nevada warms up to the condo lifestyle, as apartment conversions have lagged. My opinion is that apartment conversion deals occurred in 2005 as a temporary transition as buyers were reluctant to accept sub-six % cap rates on acquisitions. • • • • Predictions In 2008 cap rates will continue to rise gradually due to tighter underwriting and market uncertainty. This rise will be tempered by ongoing downward pressure from the four trillion dollars baby boomers are inheriting and their own cash that they are now investing for retirement. Also, downward pressure on cap rates will continue from the billions of cash that recycles annually via 1031 exchanges. In 2008, the overall apartment vacancy will likely increase to 5% due to renters becoming home buyers and renters moving out of 3 bedroom apartments into rental houses. Rents should increase by only 3% due to the competition from houses. Also, 2008 will be another great year to buy apartments as underwriting will drive an increase of half of a percent on existing income, with pricing power still firmly in the landlord’s lap. MARKET ACTIVITY SIGNIFICANT 2007 TRANSACTIONS SALES TABLE 2 PROPERTY BUYER PRICE UNITS PRICE/UNIT Manzanita Gate AAPI - American Asset Partners $46,220,000 324 $142,654 Brookside AAPI - American Asset Partners $10,000,000 113 $88,496 Waterstone at Kiley Ranch John Beal $45,000,000 203 $221,675 0EOIWMHI:MPPEKI Home Suites Cromer Investments $10,000,000 249 $40,161 Vizcaya Hamilton Zanze The Village at Iron Blossom Hamilton Zanze $96,500,000 (3 properties) 900 (3 properties) $107,222 The Lodge at McCarran Ranch Hamilton Zanze 80 80 395 395 614 613 633 608 609 610 611 612 Pyramid Highway SUBMARKET MAP KEY ID SUBMARKET 1 South Meadows 2 Meadowood 3 Southwest Reno 4 Downtown 5 Airport 6 West Reno 7 Sparks 8 Northwest Reno 1 2 3 4 5 6 7 8 ---PAGE BREAK--- COLLIERS INTERNATIONAL 9 RENO NORTHERN NEVADA YEAR END I 2007 267 OFFICES IN 57 COUNTRIES ON 6 CONTINENTS USA 95 Canada 17 Latin America 17 %WME4EGM½G EMEA 85 volume 672.9 million square feet under management 10,171 Professionals CONTACT INFORMATION Colliers International (SYFPI6&SYPIZEVH Suite 100 Reno, NV 89521 United States Tel: [PHONE REDACTED] Fax: [PHONE REDACTED] Floyd Rowley, CPA, CCIM Sr. Vice PresidentIInvestment Properties Colliers Investment Services Group Email: [EMAIL REDACTED] Tel: [PHONE REDACTED] Christiaens Research Analyst Email: [EMAIL REDACTED] Tel: [PHONE REDACTED] 8LMWVITSVXERHSXLIVVIWIEVGLQEXIVMEPWQE]FI SR SYV [IFWMXI EX This quarterly report is a research document of Colliers International – Reno, NV. Questions VIPEXIH XS LIVIMR FI HMVIGXIH to the Research Department at [PHONE REDACTED]. GSRXEMRIH LIVIMR LEW FIIR SFXEMRIH is made as to the accuracy thereof. Colliers Nevada, 00'HFE'SPPMIVW-RXIVREXMSREPMWERMRHITIRHIRXP] of Colliers International Property Consultants, ER EJ½PMEXMSR SJ MRHITIRHIRX GSQTERMIW [MXL www.colliersreno.com 12 Reno, Nev. 1.4 4.8 3.6 0.7 76 TOP APARTMENT MARKETS IN THE US 8EFPI ---PAGE BREAK--- COLLIERS INTERNATIONAL 10 RENO NORTHERN NEVADA YEAR END I 2007 Trends Report C OLLI E R S INT ER NAT IONA L I R ENO, NV Reno Investment Sales - 2007 Excluding the huge, once in a lifetime, DP industrial portfolio sale, investment sales in Washoe County were down in 2007, falling just below the 2004 level. However, deals over $10 million grew from 48% of the total dollar volume in recent years to 61% in 2007, reflecting more institutional investment in our market. Each property sector, office, industrial, and retail, had one transaction that dominated the sector. The largest office deal in 2007 was the purchase of 100 West Liberty by Chawin Properties for $38.2 million. This building was originally built as the headquarters for Porsche USA in 1987, and was renamed Museum Tower a few years ago. This spring, after the building achieved 100% occupancy for the first time since its construction, it met all the criteria an institutional buyer requires, including an A list of long-term, credit tenants. After I spent some time convincing them, Capstone Partners and NBS Realty Capital finally agreed to sell the property. This decision came at an extremely fortunate time, as just a few weeks after the contract was signed, the credit markets tightened and the sub-prime melt-down began. The other large office deal was the Magnolia South Meadows and Double R properties sale out of bankruptcy to the Flocchini family for $20.5 million. The industrial market was dominated by the sale of DP’s industrial portfolio to Prologis for approximately $1.85 billion. This was by far the largest industrial transaction our market has ever seen. DP owned 12 million square feet out of its total 25 million square feet portfolio in the Reno/Sparks market. Prologis now owns over one half of the twenty-eight million square feet of institutional-grade industrial product in Northern Nevada. The other major industrial transaction was the sale of Passco’s Southern Way portfolio consisting of five buildings in Sparks to NBS Realty Capital for $25.3 million in January. Giving into the pressure to sell their local portfolio, Wall Street Properties sold their five shopping centers portfolio in the Reno/Sparks markets for $182 million to Kimco Realty Trust, a large national retail REIT. The shopping centers included in this transaction are shown in Table 1. In addition, I sold Sierra Meadows Plaza on South Virginia Street to a 1031 investor from Los Angles. This was a classic value-add deal as the sponsors upgraded the property physically and, with the help of the Colliers Retail leasing team, repositioned the tenants to gain full occupancy, helping the investors to realize a 37% IRR. www.colliersreno.com MARKET INDICATORS 1Q 2008* MARKETVELOCITY CAP RATES JOB GROWTH 4Q 2007 *PROJECTED I N V E S T M E N T S I A N N UA L R E P O RT I 2 0 0 7 ---PAGE BREAK--- COLLIERS INTERNATIONAL 11 RENO NORTHERN NEVADA YEAR END I 2007 National Investment Trends For the fourth year in a row, fluctuations in the 10-year treasury have played only a minor role in investment transactions. What did have a large effect was the end of crazy terms that lenders were quoting, which allowed buyers to offer lower cap rates and still justify their deals. When the markets closed on April 24th, an offering of Collateralized Mortgage Backed Securities (CMBS) remained unsold for the first time. Lender’s tightened their loan underwriting overnight. This had an immediate effect of increasing cap rates. The increase caused many deals in the second quarter to crater and many more to be re- traded. Investment sales nationally again set a record, in 2007 with a total volume of $451 billion, 40% ahead 2006’s record. Just like the end of the dot com era, the deals early in 2007 got crazier and larger, which is likely to be the peak for several years. However, the last 100 days have been times unlike any other. Retail and consumer spending is tenuous at best, job growth is down, with this negative trend is almost certain to continue. The effect of skyrocketing oil prices is more than real, but consumers and businesses will surely become more vocal about rising energy bills in 2008. Ross Moore, Senior Vice President and Director of Market & Economic Research at Colliers International stated, “While many economists indicate a 50% chance of a recession, we see little evidence that a recession will occur. We keep close watch on four important indicators: employment, industrial production, personal income and consumer and business sales – and we believe each of these will remain in positive territory as 2008 unfolds. Indeed, as the November jobs report has shown, the employment climate seems to be holding up in the face of challenges in financial markets.” Three key determinants for 2008’s commercial real estate market will be: 1. The supply and pricing of credit, 2. The single family housing market 3. Energy prices That being said, the downward movement in the U.S. dollar is causing concern around the globe and is something that could be a catalyst for further uncertainty. On the plus side, from a real estate perspective, the weak U.S. dollar is beginning to call into question the whole trend towards off-shoring – as it’s becoming more difficult for U.S. companies to justify setting up operations overseas for cost reasons. While a good number of key sectors of the national economy will be treading water at best, growth areas in 2008 will include exports, health care, education, telecom / multimedia and hospitality and tourism (specifically for destinations sought out by overseas visitors). Indeed, foreigners are expected to feast on anything American – most notably real estate, consumer goods and colleges / any type of advanced education. MARKET ACTIVITY SIGNIFICANT 2007 TRANSACTIONS RETAIL SALES TABLE 1 PROPERTY BUYER SELLER PRICE D’Andrea Marketplace Kimco Realty Corporation Wall Street Properties $38,010,311 6IH½IPH4VSQIREHI ;EPP7XVIIX4VSTIVXMIW McQueen Crossing Kimco Realty Corporation Wall Street Properties $37,140,924 Galena Junction Kimco Realty Corporation Wall Street Properties $32,093,834 Sparks Mercantile Kimco Realty Corporation Wall Street Properties $30,616,252 4ER4EGM½G6IEPX] 4ER4EGM½G6IEPX] Sierra Meadows Plaza Los Angeles Investor Walnut Creek Investors $11,200,000 80 80 395 395 614 613 633 608 609 610 611 612 Pyramid Highway SUBMARKET MAP KEY ID SUBMARKET 1 South Meadows 2 Meadowood 3 Southwest Reno 4 Downtown 5 Airport 6 West Reno 7 Sparks 8 Northwest Reno 1 2 3 4 5 6 7 8 ---PAGE BREAK--- COLLIERS INTERNATIONAL 12 RENO NORTHERN NEVADA YEAR END I 2007 267 OFFICES IN 57 COUNTRIES ON 6 CONTINENTS USA 95 Canada 17 Latin America 17 %WME4EGM½G EMEA 85 volume 672.9 million square feet under management 10,171 Professionals CONTACT INFORMATION 8LMWVITSVXERHSXLIVVIWIEVGLQEXIVMEPWQE]FI SR SYV [IFWMXI EX This quarterly report is a research document of Colliers International – Reno, NV. Questions VIPEXIH XS LIVIMR FI HMVIGXIH to the Research Department at [PHONE REDACTED]. GSRXEMRIH LIVIMR LEW FIIR SFXEMRIH is made as to the accuracy thereof. Colliers Nevada, 00'HFE'SPPMIVW-RXIVREXMSREPMWERMRHITIRHIRXP] of Colliers International Property Consultants, ER EJ½PMEXMSR SJ MRHITIRHIRX GSQTERMIW [MXL www.colliersreno.com As the economies of Asia, the Middle East and Russia become increasingly strong, we have seen a schism in America – particularly, a divergence between gateway cities such as New York, Miami, Los Angeles and the “Rest of America”. Look for this trend to become more pronounced with a handful of cities showing surprising strength against a fairly sluggish economy. “On a positive note, as we all know, 2008 is an election year – and you’d have to go back more than a quarter of a century to encounter a recession during an election year,” remarked Ross Moore. “This time around, the key is the credit markets – and we watch this very closely. If lenders pull back on all fronts, we’d change our viewpoint and could almost guarantee a recession. Credit is the economy’s lifeblood, but we predict the subprime fallout will neither infect the larger economy nor drag the commercial real estate markets down into the red.” Investment Sales - Key Findings Since the onset of the credit crunch in mid August, the national investment sales market has slowed significantly. What was expected to be a minor blip has turned into a major event. Following the credit woes in August, the immediate reaction by many was that things would almost certainly get back to normal post Labor Day, as the Federal Reserve and other central banks intervened and provided the required liquidity. To some extent markets did begin to function as they had done earlier in the year, but there was also a sense that the “other shoe had yet to drop.” As write downs continued and debt became more difficult to source – and more expensive once found – markets nationwide began to see deals collapsing or falling out of contract as buyers fully digested the turmoil gripping credit markets around the globe. While underlying leasing fundamentals hadn’t changed significantly, the capital markets were offering very little good news and deals that had looked highly attractive just a few months ago were now nowhere near meeting required rate-of-return thresholds. The central issue remains debt, both the availability and price. Until the credit markets settle down it is highly unlikely the investment sales market will return to anything resembling normal until the following issues are addressed: If you can’t price money, how can you price real estate? If everybody is sitting on their hands, how can a market function normally? Banks, pension funds, and insurance companies have lots of money to lend, but without the CMBS market operating at normal capacity, transaction levels will be severely reduced. Treasury yields are going lower, but spreads are increasing at a greater rate keeping borrowing costs high. Top tier markets are still attracting multiple bids, but many of the rest are nearing a “no bid” environment If the consensus view is prices will be lower a year from now, why not wait? - even for well capitalized investors. Will the “smart money” lead the market down? - Locking in returns and buying back into the market 12 or 18 months from now? How should vacancy be priced? - It used to be a positive, but not so any more. How will the different product types (office, retail, industrial, and multi- family) react to a slower economy? What event will move the market? Will the real estate veterans of the 1980s and early 1990s react different ly to the younger generation who haven’t seen a down market before? Predictions - 2008 The first quarter, and probably the second quarter of 2008, will be very quiet with no privatizations or large portfolios trading and significantly less single asset sales. Sellers will be reluctant to sell and buyers still highly cautious. For the balance of 2008 much will depend on the Federal Reserve, both in terms of setting monetary policy and providing reassurances that the banking system is sound and credit still available. Lastly, all eyes will be on the occupier market to see if net operating income (NOI) can offset almost certainly rising cap rates. Hopefully the economy will come to the rescue. • • • • • • • • • • • Colliers International (SYFPI6&SYPIZEVH Suite 100 Reno, NV 89521 United States Tel: [PHONE REDACTED] Fax: [PHONE REDACTED] Floyd Rowley, CPA, CCIM Sr. Vice PresidentIInvestment Properties Colliers Investment Services Group Email: [EMAIL REDACTED] Tel: [PHONE REDACTED] Christiaens Research Analyst Email: [EMAIL REDACTED] Tel: [PHONE REDACTED] ---PAGE BREAK--- COLLIERS INTERNATIONAL 13 RENO NORTHERN NEVADA YEAR END I 2007 Trends Report C OLLI ER S INT ER NAT IONA L I R ENO, NV Northern Nevada Ready For Relocating Companies Summary 2007 will be year for the record books! Unfortunately, it will not be on the positive side. This was the first year we have had negative net absorption. For those unfamiliar with net absorption, it means less office space was occupied at the end of the year than at the beginning of the year. This goes hand in hand with one of the slowest office construction years in the last decade. As discussed ad nauseam in the business press, the main culprit was the slow down in residential sales and construction. Virtually every home builder in the Northern Nevada area either reduced the amount of office space they occupied by subleasing or closed down their office completely. In addition to home builders, several mortgage companies, title companies, engineering firms, and residential real estate firms also contracted. This created the largest amount of sublease space in the history of the area totaling approximately 250,000 square feet. Most of the sublease space was in the South Reno Corridor Sub-market, which totaled over 140,000 square feet. Even with the large amount of sublease space added to the market the leasing market was not completely quiet. In the South Reno Corridor submarket Employers Insurance consummated an 80,000 square foot build to suit lease at the third and final building in the Reno Tahoe Tech Center. They plan to occupy the new building in the first quarter of 2008. Also in South Reno Corridor, Greater Nevada Credit Union sublet 14,000 square feet in the Northern Nevada Corpo- rate Center. Alere Medical increased their presence in South Meadows with a 15,000 square foot lease in the MLSG Building. In addition, there were notable transactions in the Meadowood Sub- market. The NevDex Office Park captured several leases in the 15,000 square foot range in their fourth and final building on Kietzke Lane. New tenants to the park included Schnieder National, Morgan Stanley and Sutton Place. Apollo College entered the market with a 10,000 square foot lease in Mountainview Corporate Center at the end of Kietzke Lane. Downtown remained quiet with a few relocations from the suburbs back to downtown and expan- sions by some of the major law firms. McDonald Carano expanded to over 24,000 square feet in the Museum Tower. This building also achieved 100% occupancy for the first time in its history and sold for a record price. Downtown continues to draw interest from firms looking for amenities within walking distance of their office. www.colliersreno.com MARKET INDICATORS 1Q 2008* 4Q 2007 *PROJECTED O F F I C E I A N N UA L R E P O RT I 2 0 0 7 VACANCY RATE RENTAL RATE 8-Bar Chart Page 1 12.20% 11.60% 12.50% 12.14% 12.90% 14.30% 15.60% $1.74 $1.68 $1.72 $2.13 $2.15 $2.09 $2.06 0.0% 3.0% 6.0% 9.0% 12.0% 15.0% 18.0% 2Q 06 3Q 06 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 Series2 Series1 RENTAL RATE Overall Vacancy Average Asking Rent VACANCY SUBLEASEVACANCY TOTAL VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE ---PAGE BREAK--- COLLIERS INTERNATIONAL 14 RENO NORTHERN NEVADA YEAR END I 2007 building up for sale for reasons cited earlier in this report. Tanamera completed a 15,000 square foot building in the RTTC Town Cen- ter for Shultz Financial Group. Colliers Inter- national is a tenant in that building. And last- ly, Trammell Crow completed a 36,000 square foot building in Sierra Corporate Center. In 2008 we expect little new construction af- ter the completion of the 80,000 square foot Employers Insurance building. Any other new building will most likely be a build-to-suit for a tenant with unique enough requirements that the existing inventory of buildings will not work. We expect costs to remain in line with 2007 pricing as sub contractors have become more aggressive in their pricing to offset any commodity price increases. As mentioned earlier, the year finished with negative net absorption of 86,838 square feet. This is the first year on record with negative net absorption. Normally, we see approxi- mately 210,000 square feet of net absorption in buildings over 10,000 square feet. Perhaps the increased impact of the smaller garden of- fice building, which had less exposure to the residential real estate market, had an impact. While we do not expect 2008 to be robust, we do expect the net absorption to be positive, albeit less than the traditional average. continued from p.1 The year finished with a respectable vacancy rate of 12.7% for direct lease space. However, when you add in sublease space it jumps to 15.6%. This will put a damper on any new speculative construction in 2008. We expect the only new construction will be build-to- suits. In addition, when Employers Insurance moves into their new office, it will vacate its current three buildings, thus adding another 76,000 square feet of vacant space to the mar- ket. When we take into account our average annual absorption, we should have enough vacant space to handle normal demand for over two years with no new construction. Going forward the area will once again be attractive to firms considering a relocation to Northern Nevada. Home prices are now more affordable. Office lease rates are flat or down, depending on the submarket, with some great deals on sublease space. And of course, we still have a great tax advantage over California. When the California market real- izes the Nevada benefits, we could see a boom- town once again. Construction 2007 was a slow year for construction of build- ings over 10,000 square feet with only three buildings completed. Reynen and Bardis completed a 32,000 square foot building at Rock and Longley. They have since put the MARKET ACTIVITY SIGNIFICANT 2007 TRANSACTIONS 80 80 395 395 614 613 633 608 609 610 611 612 Pyramid Highway SUBMARKET MAP KEY ID SUBMARKET 1 South Reno Corridor 2 Meadowood 3 Southwest Reno 4 Downtown 5 Airport 6 West Reno 7 Sparks 8 Northwest Reno 1 2 3 4 5 6 7 8 SIGNIFICANT LEASES PROPERTY DATE TENANT SQUARE FEET 10375 Professional Circle 06/2007 Employer’s Insurance 80,000 (SYFPI)EKPI'SYVX ;SSH6SKIVW 745 W Moana Lane 09/2007 AT & T 18,000 5390 Kietzke Lane 09/2007 Schneider 16,000 10615 Professional Circle 08/2007 Alere Medical 14,000 5390 Kietzke Lane 06/2007 Morgan Stanley 14,000 5390 Kietzke Lane 06/2007 Sutton Place 12,000 (SYFPI)EKPI'SYVX 4&7 (SYFPI6&PZH 8VM2IX)QTPS]IV+VSYT ---PAGE BREAK--- COLLIERS INTERNATIONAL 15 RENO NORTHERN NEVADA YEAR END I 2007 EXISTING PROPERTIES DIRECTVACANCY SUBLEASEVACANCY TOTALVACANCY NET ABSORPTION CONSTRUCTION RENT TOTAL RATE CURRENT YEAR COMPLETED CLASS INVENTORY SQUARE R ATE SQUARE R ATE SQUARE RATE PRIOR OCCUPIED 4Q-2007 TO THIS UNDER AVERAGE SQUARE FEET FEET FEET FEET 4Q-2007 QUARTER SQUARE FEET DATE QUARTER CONST ASKING SUBMARKETS DOWNTOWN A 4 547,696 80,922 14.8% 4,244 0.8% 85,166 15.5% 14.0% 462,530 (8,283) 3,303 - - $2.10 B 16 501,505 77,001 15.4% 33,755 6.7% 110,756 22.1% 22.8% 390,749 3,814 (22,945) - - $1.56 C 19 376,252 58,228 15.5% - 0.0% 58,228 15.5% 17.0% 318,024 5,820 11,932 - - $1.18 TOTAL 39 1,425,453 216,151 15.2% 37,999 2.7% 254,150 17.8% 17.9% 1,171,303 1,351 (7,710) - - $1.67 SOUTH RENO CORRIDOR A 29 1,061,178 124,010 11.7% 106,199 10..0% 230,209 21.7% 19.3% 830,969 (24,624) (104,075) - 80,000 $2.06 B 6 133,191 26,454 19.9% - 0.0% 26,454 19.9% 19.9% 106,737 (9,557) - - $1.80 C - 0 0 0.0% - 0.0% - 0.0% 0.0% - - - - - - TOTAL 35 1,194,369 150,464 12.6% 106,199 8.9% 256,663 21.5% 19.4% 937,706 (24,624) (113,632) - 80,000 $2.03 MEADOWOOD A 32 1,632,864 169,121 10.4% 31,982 2.0% 201,103 12.3% 10.0% 1,431,761 (5,442) 17,934 35,291 - $2.02 B 21 571,043 54,417 9.5% 4,440 0.8% 58,857 10.3% 8.8% 512,186 (8,860) 805 - - $1.52 C 2 53,760 1,497 2.8% - 0.0% 1,497 2.8% 2.8% 52,263 - 803 - - $1.25 TOTAL 55 2,257,667 225,035 10.0% 36,422 1.6% 261,457 11.6% 9.5% 1,996,210 (14,302) 19,542 35,291 - $1.88 SOUTHWEST A 1 22,200 2,405 10.8% - 0.0% 2,405 10.8% 10.8% 19,795 - (2,405) - - $2.10 B 11 265,828 35,146 13.2% 3,120 1.2% 38,266 14.4% 13.7% 227,562 (1,839) 21,167 - - $1.57 C 13 239,563 16,761 7.0% - 0.0% 16,761 7.0% 6.6% 222,802 (1,025) (13,613) - - $1.22 TOTAL 25 527,591 54,312 10.3% 3,120 0.6% 57,432 10.9% 10.3% 470,159 (2,846) 5,149 - - $1.43 AIRPORT A 1 37,500 0 0.0% - 0.0% - 0.0% 0.0% 37,500 - - - - - B 16 476,989 89,807 18.0% 1,440 0.3% 91,247 19.1% 15.3% 385,742 9,322 9,966 32,376 - $1.57 C 16 421,242 56,851 13.5% 420 0.1% 57,271 13.6% 18.5% 363,971 20,463 (13,753) - - $1.26 TOTAL 33 935,731 146,658 15.7% 1,860 0.2% 148,518 15.9% 16.2% 787,213 29,785 (3,787) 32,376 - $1.37 SPARKS A - 0 0 0.0% - 0.0% - 0.0% 0.0% - - - - - - B 1 15,279 15,279 100.0% - 0.0% 15,279 100.0% 0.0% - - - - - - C 2 30,699 6,500 21.2% - 0.0% 6,500 21.2% 21.2% 24,199 - 7,932 - - $0.89 TOTAL 3 45,978 21,779 47.4% - 0.0% 21,779 47.4% 16.4% 24,199 - 7,932 - - $0.59 WEST RENO A - 0 0 0.0% - 0.0% - 0.0% 0.0% - - - - - - B 3 43,100 2,028 4.7% - 0.0% 2,028 4.7% 0.0% 41,072 11,072 - - - $2.20 C - 0 0 0.0% - 0.0% - 0.0% 0.0% - - - - - - TOTAL 3 43,100 2,028 4.7% - 0.0% 2,028 4.7% 0.0% 41,072 11,072 - - - $2.20 SUBURBAN TOTAL A 63 2,753,742 295,536 10.7% 138,181 5.0% 433,717 15.8% 11.8% 2,320,025 (30,066) (88,546) 35,291 80,000 $2.01 B 58 1,505,430 223,131 14.8% 9,000 0.6% 232,131 15.4% 11.6% 1,273,299 9,695 22,381 32,376 - $1.57 C 33 745,264 81,609 11.0% 420 0.1% 82,029 11.0% 12.7% 663,235 19,438 (18,631) - - $1.23 TOTAL 154 5,004,436 600,276 12.0% 147,601 2.9% 747,877 14.9% 11.9% 4,256,559 (933) (84,796) 67,667 80,000 $1.76 MARKET TOTAL A 67 3,301,438 376,458 11.4% 142,425 4.3% 518,883 15.7% 13.6% 2,782,555 (38,349) (61,894) 35,291 80,000 $2.02 B 74 2,006,935 300,132 15.0% 42,755 2.1% 342,887 17.1% 15.2% 1,664,048 13,509 7,313 32,376 - $1.57 C 52 1,121,516 139,837 12.5% 420 0.0% 140,257 12.5% 14.8% 981,259 25,258 (31,957) - - $1.21 TOTAL 193 6,429,889 816,427 12.7% 185,600 2.9% 1,002,027 15.6% 14.3% 5,427,862 418 (86,838) 67,667 80,000 $1.74 QUARTERLY COMPARISON AND TOTALS 4Q-07 193 6,429,889 816,427 12.7% 185,600 2.9% 1,002,027 15.6% 14.3% 5,427,862 418 (86,838) 67,667 80,000 $1.74 3Q-07 189 6,333,081 762,168 12.0% 143,469 2.3% 905,637 14.3% 12.9% 5,427,444 (97,763) (86,538) 15,000 115,291 $1.68 2Q-07 193 6,348,081 708,624 11.1% 114,250 1.8% 822,874 12.9% 12.4% 5,525,207 (23,495) 28,144 0 0 $1.72 1Q-07 194 6,390,115 705,520 10.9% 92,971 1.4% 798,491 12.4% 12.5% 5,591,624 51,639 51,639 0 0 $2.13 4Q-06 192 6,399,683 751,692 11.7% 48,006 0.07% 799,698 12.5% 11.6% 5,599,985 19,428 223,100 65,918 0 $2.15 3Q-06 190 6,311,853 713,795 11.3% 17,501 0.28% 731,296 11.6% 12.2% 5,580,557 77,413 203,672 - 65,918 $2.09 2Q-06 186 6,273,067 761,103 12.7% 8,820 1.0% 769,923 12.2% 15.9% 5,503,144 118,330 166,330 - 189,408 $2.06 1Q-06 184 6,288,894 904,080 14.8% 64,738 1.1% 968,818 15.9% 0.0% 5,384,814 - - - - - OFFICE MARKET STATISTICS FOURTH QUARTER 2007 ---PAGE BREAK--- COLLIERS INTERNATIONAL 16 RENO NORTHERN NEVADA YEAR END I 2007 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Downtown South Reno Corridor Meadowood Southwest Airport West Reno 3Q07 4Q07 267 OFFICES IN 57 COUNTRIES ON 6 CONTINENTS USA 95 Canada 17 Latin America 17 %WME4EGM½G EMEA 85 volume 672.9 million square feet under management 10,171 Professionals CONTACT INFORMATION Colliers International (SYFPI6&PZH Suite 100 Reno, NV 89521 United States Tel: [PHONE REDACTED] Fax: [PHONE REDACTED] 8MQ6YJ½R7-36''-1 Managing Partner 7IRMSV:MGI4VIWMHIRX`3J½GI4VSTIVXMIW )QEMP Tel: [PHONE REDACTED] Christiaens Research Analyst Email: [EMAIL REDACTED] Tel: [PHONE REDACTED] 8LMWVITSVXERHSXLIVVIWIEVGLQEXIVMEPWQE]FI SR SYV [IFWMXI EX This quarterly report is a research document of Colliers International – Reno, NV. Questions VIPEXIH XS LIVIMR FI HMVIGXIH to the Research Department at [PHONE REDACTED]. GSRXEMRIH LIVIMR LEW FIIR SFXEMRIH is made as to the accuracy thereof. Colliers Nevada, 00'HFE'SPPMIVW-RXIVREXMSREPMWERMRHITIRHIRXP] of Colliers International Property Consultants, ER EJ½PMEXMSR SJ MRHITIRHIRX GSQTERMIW [MXL www.colliersreno.com TOTAL VACANCY RATES BY SUBMARKET 4Q2007 VS 3Q2007 TOTAL VACANCY RATE Vacancy & Rents As mentioned earlier, the direct vacancy rate increased from 11.7% at the end of 2006 to 12.7% at year end 2007. The most dramatic increase was in sublease space with 0.7% in 2006 compared to 2.9% at the end of 2007, which is an increase of over 140,000 square feet. The total vacancy including sublease space was 15.6% at year end. The submarkets fairing the best were Southwest and Meado- wood. The South Reno Corridor suffered the most due to a plethora of sublease space. Rent was basically flat for the year. Several building raised rates early in the year, but as the sublease space began to accumulate, con- summated transactions were at rental rates similar to 2006. New buildings leased space in the $2.05 to $2.30 per square foot full service range and second generation class A buildings leasing between $1.90 and $2.05 per square foot full service. Sublease rates ranged from $1.00 for an introductory rate with stabilized rent between $1.70 and $1.80 per square foot full service. Sublease rates will keep pres- sure on any rent increases in the early part of 2008. +EVHIR3J½GI Last year we felt that the reign of the garden office market appeared to be coming to a close. While this appears to be true, the fall is taking much longer than anticipated. Construction totaled 183,000 square feet in 2007. Most of which was in the Reno Tahoe Tech Center 17.8% 17.9% 19.4% 21.5% 9.5% 11.6% 10.3% 10.9% 16.2% 15.9% 0.0% 4.7% Town Center and Longley Professional Campus. Our absorption this year was approximately 100,000 square feet, which led to an increased overall vacancy of 17.2%, versus 16.5% last year as construction exceeded demand. Rents for properties have stayed in the range of $1.95 to $2.00 per square foot modified gross for new product while existing property may have room to fall to the $1.85 to $1.90 per square foot modified gross. Sale prices for new product have risen to as high as $230 per foot for a building shell, or 20% - 30% over sale prices four years ago. Construction costs are stable at $55-$70 per foot for interior build-outs. Therefore, a new building could run as high as $300 per foot. If loan values remain constant then it is still possible to make this high number work, however, we expect existing properties to come on the market in 2008 to take advantage of the lack of new supply and high prices for new product. 2008 will be indicative of the demand for Garden Office going forward, as potential tenants will still have ample opportunities to purchase their own office space. Construction should most likely stay in the same 75,000 square foot range, with absorption exceeding that in 2008. Rents and sales prices should remain constant. Overall, we expect few new developments in 2008. ---PAGE BREAK--- COLLIERS INTERNATIONAL 17 RENO NORTHERN NEVADA YEAR END I 2007 7.80% 8.05% 8.17% $1.76 $1.77 $1.84 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 2Q 07 3Q 07 4Q 07 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 OverallVacancy Average Asking Rent Trends Report C OLLI E R S INT ER NAT IONA L I R ENO, NV Overview For the first half of 2007, cash registers kept ringing up sales in spite of the wobbly housing market, soaring gasoline prices and high levels of debt. Although consumer confidence began to diminish later in the year, some retailers continued to seek expansion opportunities while others pulled back. Signs of weakness began appearing toward year end as lease-up times grew longer, mom and pop and start-up activity diminished and rents in many properties slid backwards for the first time in years. The good news is that locally, retail industry fundamentals remained strong as most new developments planned or under construction were in- fill sites or catching up to the housing boom of the last several years. Vacancy While activity slowed from the pace of the past five years, Washoe County had positive absorption of approximately 600,000 square feet in a total inventory of 14.05 million square feet tracked by Colliers. The vacancy rate increased from 7.9% year-end 2006 to 8.17%. Overall average asking rents rose to $1.84 with shop space rent in prime, street-front and end-cap locations reaching up to $3.50 per square foot. Annual ground rents for full service restaurant pads soared up to $175,000 in the new regional open-air centers while purchasing pad sites became almost impossible. Development costs such as water rights, sewer hook up fees and Regional Transportation fees increased significantly, raising already high development costs, especially for restaurants. www.colliersreno.com RENTAL RATE MARKET INDICATORS 1Q 2008* DIRECTVACANCY SUBLEASEVACANCY TOTAL VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE 4Q 2007 *PROJECTED R E TA I L I A N N UA L R E P O RT I 2 0 0 7 Retail Industry Fundamentals Remain Strong In 2008 ---PAGE BREAK--- COLLIERS INTERNATIONAL 18 RENO NORTHERN NEVADA YEAR END I 2007 Construction 740,000 square feet of retail space was completed in 2007. Cabela’s opened their 125,000 square foot super fishing and hunting store, considered the Disneyland for outdoor enthusiasts. All eyes are on them as they are the first development in the state to take advantage of STAR bonds where they can keep up to 75 percent of the sales tax generated by their store over 20 years to re-pay the bonds. It is estimated that they will attract up to 3 million additional visitors annually. Stores were also added throughout the year at Sparks Galleria, Sparks Crossing, Spanish Springs Shopping Center; Phase II of Ridgeview Plaza, Summit Sierra and Damonte Ranch Town Center. Active Tenants Due to the aging of baby boomers, drug stores are one of the strongest sectors in retail and remained active throughout the year. Long’s acquired the area’s Rite-Aids, CVS Caremark (the nation’s largest drug store chain) aggressively sought new locations and Walgreen’s continued to expand. Trader Joe’s opened their second location in Douglas County and PetsMart, Ross, Famous Footwear, Office Depot, Charlotte Russe, Starbucks, Red Robin, California Automobile Association and Lowe’s in Fernley added new stores and restaurants to the trade area. The Vitamin Shoppe, Massage Envy and Galaxy Theaters in Carson City opened their first stores in our market. Store closings were minimal throughout the year and included TinStar and Charley’s Steakery in Summit Sierra, New Balance and Rick’s Furniture, although reopening under another name in a smaller location. Under Construction As of first quarter 2008, approximately 856,000 square feet of retail space is under construction including Legends at Sparks Marina, which is easily the largest retail development in the history of Sparks and will total over 1.1 million square feet upon completion. It is estimated that the development could increase the city’s sales tax revenue by 50%. Deals are reportedly done with Target, Best Buy, T-Rex, Imax 13-Screen Theater, Saddle Ranch Chop House, ard House, Brooks Brothers, Off Broadway Shoes, Olympia Gaming with 40 to 50 other retailers and restaurants in various stages of negotiations. Scheels All Sports, 248,000 square feet and advertised as “the largest sporting goods store in the world”, will open fall 2008 with the balance of the center opening in 2009. Wal-Mart recently pulled out of out of the development as they cut back store expansions nationally. Other significant retail developments under construction are comprised of Eagle Landing, Los Altos Crossing, Pioneer Meadows, Sparks Galleria Phase II, Summit Sierra Phase II and Virginia Plaza. Another 2.84 million square feet is proposed over the next few years. New/Expanding Tenants The downturn in residential growth hasn’t stopped the aggressive roll out of British retailing giant Tesco’s new U.S. venture, Fresh & Easy Neighborhood Market. Tesco is the third largest retailer in the world with 3200 stores in 12 countries. The openings of 14 new stores in Southern California and Las Vegas in December marked a major milestone for the company. believe Tesco could have up to 1,000 stores within the next five MARKET ACTIVITY SIGNIFICANT YEAR END TRANSACTIONS SIGNIFICANT LEASES PROPERTY ADDRESS DATE SQUARE FEET TENANT TYPE 5150 Mae Anne Ave. 10/2007 94,000 Kohl’s Community Center 3300 - 3400 Kietzke Lane 2007 51,096 Kietzke Furniture Community Center 5150 Mae Anne Ave. 2007 30,537 Ross Community Center SIGNIFICANT SALES PROPERTY ADDRESS DATE SQUARE FEET BUYER/SELLER TYPE 4905 - 4995 SVirginia Street 2007 130,054 Kimco Realty Corp./Wall Street Properties Retail Vista Blvd. 2007 116,782 Kimco Realty Corp./Wall Street Properties Retail 7)6SFF(VMZI /MQGS6IEPX]'SVT;EPP7XVIIX4VSTIVXMIW6IXEMP 80 80 395 395 614 613 633 608 609 610 611 612 Pyramid Highway SUBMARKET MAP KEY ID SUBMARKET 1 South Meadows 2 Meadowood 3 Southwest Reno 4 Downtown 5 Airport 6 West Reno 7 Sparks 8 Northwest Reno 1 2 3 4 5 6 7 8 ---PAGE BREAK--- COLLIERS INTERNATIONAL 19 RENO NORTHERN NEVADA YEAR END I 2007 years as 500 deals are already signed with 32 in Las Vegas alone. The exciting news is that Northern Nevada is on their radar. Whole Foods, that acquired Wild Oats in 2007, is under construction with their first location in Reno as they complete their 50,000 square foot prototype in a portion of the old Shopko building on South Virginia. They are scheduled to open early summer while the existing Wild Oats store is expected to close. Other active and possible expanding tenants include: • Best Buy • Bonefish Grill • Burlington Coat Factory • CVS • Home Depot • Kohl’s • Office Depot • Quick serve and fast food restaurants • Raley’s • Ross • Sephora • Sports Authority • Sportsman’s Warehouse • Staples • Target • Walgreen’s 2008 Forecast The year started laden with more store closing announcements and news of retailers slowing expansion plans. There appears to be a wave of conservatism that is hitting the consumer; however, there are a significant number of retailers that will continue to stay healthy through this cycle as they have been through it before. Many successful retailers will pull back somewhat and focus on existing unit profitability. Store closings do create opportunities for some tenants that have learned how to be successful in their niche and will now be able to get locations not available to them in the past. Landlords with marginally functioning shopping centers will also have the opportunity to redevelop and reinvent their properties. Are we “over-retailed” yet? We are asked that question more than any other. Retailers were just meeting the demands of the consumer, who were addicted to credit and therefore boosted retail sales the last several years. Now that credit has almost disappeared, consumers are spending less. An interesting question is whether people will continue to live on less once the economy turns around. If that is the case, then we will all be able to determine if we are over-retailed. Caution and uncertainty will most likely characterize 2008. Although it has never been so difficult to make projections, I believe the local retail market should stay in remarkably good shape. Hopefully, vacancy rates will remain stable with a possibility of inching up. Rents, particularly in new developments with excess shop space and older B &C properties, could decrease and Landlords may need to consider incentives as retail brokers report that some tenants are now pushing back on rents, re-trading deals and even trying to renegotiate existing leases. And while the tenant pool may drop off to some extent with lease-up times and negotiations taking longer, deals will get done. The housing market will eventually recover and retail will once again have rooftops to follow. RETAIL AT A GLANCE GLA (SF): 14,046,877 OVERALLVACANCY RATE: 8.17% ABSORPTION: 600,000± COMPLETED 2007: 503,254 UNDER CONSTRUCTION: 856,291 PROPOSED/PLANNED: 2,838,491 AVERAGE RENTS: $1.84 RENTS (NEW): $2.50 - $3.50 LANDVALUES (FINISHED): $11 - $22 PSF NNN’S: $0.31 - $0.77 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00% 55.00% 60.00% 65.00% 70.00% 75.00% 80.00% 3Q07 4Q07 TOTAL VACANCY RATES BY SUBMARKET 4Q2007 VS 3Q2007 TOTAL VACANCY RATE 6.29% Airport Kietzke Meadowood North Valleys NE Reno NE Sparks NW Reno Park Lane Reno Redev. South Reno SouthVirginia SW Reno Sparks Industrial Spanish Springs Sparks Redev. West Sparks 9.43% 22.17% 15.72% 4.47% 4.47% 8.51% 10.06% 28.00% 54.08% 7.13% 7.12% 8.28% 8.54% 16.24% 16.29% 54.13% 60.56% 3.25% 3.97% 0.43% 0.00% 4.90% 6.17% 0.00% 0.00% 3.97% 3.80% 7.83% 75.21% 8.71% 8.66% ---PAGE BREAK--- COLLIERS INTERNATIONAL 20 RENO NORTHERN NEVADA YEAR END I 2007 RETAIL MARKET STATISTICS FOURTH QUARTER 2007 EXISTING PROPERTIES DIRECT VACANCY SUBLEASE VACANCY TOTAL VACANCY NET ABSORPTION CONSTRUCTION RENT CLASS TOTAL INVENTORY SQUARE FEET SQUARE FEET RATE SQUARE FEET RATE SQUARE FEET RATE 4Q2007 RATE PRIOR QUARTER CURRENT OCCUPIED SQUARE FEET Q2007 YEAR TO DATE COMPLETED THIS QUARTER UNDER CONST. AVERAGE ASKING COMMUNITY CENTER AIRPORT 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 KIETZKE 1 275,400 71,969 26.13% - 0.00% 71,969 26.13% 46.77% 203,431 56,840 - - - $1.25 MEADOWOOD 5 768,585 48,669 6.33% - 0.00% 48,669 6.33% 7.97% 719,916 12,600 - - 50,000 $1.95 NORTH VALLEYS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NE RENO 1 35,000 35,000 100.00% - 0.00% 35,000 100.00% 80.29% - (2,824) - 19,617 - $2.65 NE SPARKS 2 439,526 38,433 8.74% 2,240 0.51% 40,673 9.25% 9.57% 398,853 1,400 - - - $1.85 NW RENO 1 273,960 5,362 1.96% - 0.00% 5,362 1.96% 1.96% 268,598 - - - - $2.50 PARK LANE 1 233,118 114,922 49.30% - 0.00% 114,922 49.30% 46.33% 118,196 (6,928) - - - $1.25 RENO REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SOUTH RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 S. VIRGINIA 1 92,098 0 0.00% - 0.00% - 0.00% 0.43% 92,098 400 - - - $0.00 SW RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SPANISH SPRINGS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SPARKS REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 WEST SPARKS 4 918,001 118,335 12.89% - 0.00% 118,335 12.89% 13.42% 799,666 4,838 - - 22,000 $2.00 TOTAL 15 2,760,288 360,721 13.07% 2,240 0.08% 362,961 13.15% 12.84% 2,600,758 66,326 - 19,617 72,000 $1.74 FREESTANDING AIRPORT 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - 0 - $0.00 KIETZKE 3 52,499 0 0.00% - 0.00% - 0.00% 0.00% 52,499 - - 0 - $0.00 MEADOWOOD 2 243,363 0 0.00% - 0.00% - 0.00% 0.00% 243,363 - - 0 - $0.00 NORTH VALLEYS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - 0 - $0.00 NE RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - 0 - $0.00 NE SPARKS 1 17,280 0 0.00% - 0.00% - 0.00% 0.00% 17,280 - - 0 - $0.00 NW RENO 1 125,000 0 0.00% - 0.00% - 0.00% 0.00% 125,000 125,000 - 125,000 - $0.00 PARK LANE 4 81,157 11,615 14.31% - 0.00% 11,615 14.31% 27.13% 69,542 10,399 - 0 - $1.35 RENO REDEV. 3 60,067 36,000 59.93% - 0.00% 36,000 59.93% 59.93% 24,067 - - 0 - $0.00 SOUTH RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - 0 - $0.00 S. VIRGINIA 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - 0 - $0.00 SW RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - 0 - $0.00 SPANISH SPRINGS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - 0 - $0.00 SPARKS REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - 0 - $0.00 WEST SPARKS 1 106,898 0 0.00% - 0.00% - 0.00% 0.00% 106,898 - - 0 - $0.00 TOTAL 15 686,264 47,615 6.94% - 0.00% 47,615 6.94% 10.34% 638,649 135,399 - 125,000 - $1.35 REGIONAL CENTER AIRPORT 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - $0.00 KIETZKE 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 MEADOWOOD 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NORTH VALLEYS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NE RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NE SPARKS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NW RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 PARK LANE 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 RENO REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SOUTH RENO 1 613,800 11,293 1.84% - 0.00% 11,293 1.84% 1.84% 602,507 - - - 34,001 $3.33 S. VIRGINIA 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SW RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SPANISH SPRINGS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SPARKS REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 WEST SPARKS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 TOTAL 1 613,800 11,293 1.84% - 0.00% 11,293 1.84% 1.84% 602,507 - - - 34,001 $3.33 ---PAGE BREAK--- COLLIERS INTERNATIONAL 21 RENO NORTHERN NEVADA YEAR END I 2007 RETAIL MARKET STATISTICS FOURTH QUARTER 2007 EXISTING PROPERTIES DIRECT VACANCY SUBLEASE VACANCY TOTAL VACANCY NET ABSORPTION CONSTRUCTION RENT CLASS TOTAL INVENTORY SQUARE FEET SQUARE FEET RATE SQUARE FEET RATE SQUARE FEET RATE 4Q2007 RATE PRIOR QUARTER CURRENT OCCUPIED SQUARE FEET Q2007 YEAR TO DATE COMPLETED THIS QUARTER UNDER CONST. AVERAGE ASKING POWER CENTER AIRPORT 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 KIETZKE 2 433,277 59,461 13.72% 7,674 1.77% 67,135 15.49% 16.38% 366,142 3,850 - - - $1.65 MEADOWOOD 6 1,518,736 16,588 1.09% 28,788 1.90% 45,376 2.99% 2.98% 1,473,360 (54) - - - $2.13 NORTH VALLEYS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NE RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NE SPARKS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - 248,000 $0.00 NW RENO 2 463,278 0 0.00% - 0.00% - 0.00% 0.00% 463,278 - - - - $0.00 PARK LANE 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 RENO REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SOUTH RENO 2 747,629 3,657 0.49% - 0.00% 3,657 0.49% 0.00% 743,972 (3,657) - - 19,530 $0.00 S. VIRGINIA 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SW RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SPANISH SPRINGS 3 1,048,528 42,590 4.06% - 0.00% 42,590 4.06% 3.98% 1,005,938 (6,959) - 12,000 92,014 $2.83 SPARKS REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 WEST SPARKS 2 172,991 15,000 8.67% - 0.00% 15,000 8.67% 8.67% 157,991 - - - - $1.00 TOTAL 17 4,384,439 137,296 3.13% 36,462 0.83% 173,758 3.96% 3.95% 4,210,681 (6,820) - 12,000 359,544 $1.97 SPECIALITY RETAIL AIRPORT 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 KIETZKE 1 24,753 0 0.00% - 0.00% - 0.00% 0.00% 24,753 1,321 - - - $0.00 MEADOWOOD 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NORTH VALLEYS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NE RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NE SPARKS 1 12,800 0 0.00% - 0.00% - 0.00% 0.00% 12,800 - - - - $0.00 NW RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 PARK LANE 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - 52,000 $0.00 RENO REDEV. 2 31,212 30,394 97.38% - 0.00% 30,394 97.38% 95.74% 818 - - 12,000 - $2.50 SOUTH RENO 1 94,500 0 0.00% - 0.00% - 0.00% 0.00% 94,500 - - - - $0.00 S. VIRGINIA 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SW RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SPANISH SPRINGS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SPARKS REDEV. 1 12,764 9,600 75.21% - 0.00% 9,600 75.21% 7.83% 3,164 (8.600) - - - $1.65 WEST SPARKS 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - - TOTAL 6 176,029 39,994 22.72% - 0.00% 39,994 22.72% 11.92% 136,035 (7,279) - 12,000 52,000 $2.30 STRIP RETAIL AIRPORT 2 85,384 16,804 19.68% - 0.00% 16,804 19.68% 13.83% 68,580 (5,508) - - - $2.30 KIETZKE 2 66,539 11,633 17.48% - 0.00% 11,633 17.48% 17.48% 54,906 - - - - $1.00 MEADOWOOD 13 511,081 41,665 8.15% - 0.00% 41,665 8.15% 5.43% 469,416 (13,899) - - - $1.75 NORTH VALLEYS 4 76,671 31,351 40.89% - 0.00% 31,351 40.89% 34.22% 45,320 (5,115) - - - $1.50 NE RENO 2 52,672 12,415 23.57% - 0.00% 12,415 23.57% 13.77% 40,257 (5,160) - - - $1.75 NE SPARKS 7 190,364 16,159 8.49% - 0.00% 16,159 8.49% 8.49% 174,205 - - - - $2.25 NW RENO 9 286,331 112,572 39.32% 6,201 2.17% 118,773 41.48% 37.58% 167,558 (10,805) - - - $1.85 PARK LANE 12 525,457 22,122 4.21% 2,400 0.46% 24,522 4.67% 3.93% 500,935 (3,897) - - - $1.55 RENO REDEV. 2 31,639 8,050 25.44% - 0.00% 8,050 25.44% 17.86% 23,589 (2,400) - - 18,473 $2.75 SOUTH RENO 7 155,398 38,616 24.85% - 0.00% 38,616 24.85% 21.42% 116,782 (5,337) - - 28,650 $2.10 S. VIRGINIA 1 13,228 0 0.00% - 0.00% - 0.00% 0.00% 13,228 13,228 - - - $0.00 SW RENO 3 45,918 0 0.00% - 0.00% - 0.00% 0.00% 45,918 - - - - $0.00 SPANISH SPRINGS 2 86,162 7,410 8.60% - 0.00% 7,410 8.60% 13.48% 78,752 14,589 - - 34,228 $0.00 SPARKS INDUST. 1 5,099 0 0.00% - 0.00% - 0.00% 0.00% 5,099 5,099 - 5,099 49,518 $0.00 SPARKS REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 WEST SPARKS 2 198,803 6,038 3.04% - 0.00% 6,038 3.04% 2.24% 192,765 (1,578) - - - $0.85 TOTAL 69 2,330,746 324,835 13.94% 8,601 0.37% 333,436 14.31% 12.27% 1,997,310 (20,783) - 5,099 130,869 $1.78 ---PAGE BREAK--- COLLIERS INTERNATIONAL 22 RENO NORTHERN NEVADA YEAR END I 2007 EXISTING PROPERTIES DIRECT VACANCY SUBLEASE VACANCY TOTAL VACANCY NET ABSORPTION CONSTRUCTION RENT CLASS TOTAL INVENTORY SQUARE FEET SQUARE FEET RATE SQUARE FEET RATE SQUARE FEET RATE 4Q2007 RATE PRIOR QUARTER CURRENT OCCUPIED SQUARE FEET Q2007 YEAR TO DATE COMPLETED THIS QUARTER UNDER CONST. AVERAGE ASKING RETAIL MARKET STATISTICS FOURTH QUARTER 2007 NEIGHBORHOOD CENTER AIRPORT 1 102,907 950 0.92% - 0.00% 950 0.92% 0.00% 101,957 (950) - - - $2.15 KIETZKE 1 106,622 0 0.00% - 0.00% - 0.00% 0.89% 106,622 950 - - - $2.15 MEADOWOOD 1 67,290 0 0.00% 3,200 4.76% 3,200 4.76% 6.87% 64,090 1,421 - - - $2.80 NORTH VALLEYS 4 338,847 10,448 3.08% - 0.00% 10,448 3.08% 2.70% 328,399 (1,308) - - - $2.10 NE RENO 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 NE SPARKS 3 457,617 22,722 4.97% - 0.00% 22,722 4.97% 4.68% 434,895 (1,312) - - - $1.45 NW RENO 4 474,874 13,270 2.79% 1,300 0.27% 14,570 3.07% 2.38% 460,304 (3,245) - - - $2.30 PARK LANE 1 102,938 2,500 2.43% - 0.00% 2,500 2.43% 2.43% 100,438 - - - - $1.65 RENO REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SOUTH RENO 4 458,110 28,510 6.22% - 0.00% 28,510 6.22% 4.95% 429,600 (5,854) - - - $1.95 S. VIRGINIA 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 SW RENO 2 182,480 14,082 7.72% - 0.00% 14,082 7.72% 6.13% 168,398 (2,891) - - - $1.50 SPANISH SPRINGS 2 218,866 1,500 0.69% - 0.00% 1,500 0.69% 0.69% 217,366 - - - 207,877 $1.60 SPARKS REDEV. 0 0 0 0.00% - 0.00% - 0.00% 0.00% - - - - - $0.00 WEST SPARKS 3 309,360 8,340 2.70% - 0.00% 8,340 2.70% 1.94% 301,020 (2,340) - - - $1.87 TOTAL 26 2,819,911 102,322 3.63% 4,500 0.16% 106,822 3.79% 3.24% 2,713,089 (15,529) - - 207,877 $1.86 PROPERTY TYPE TOTALS AIRPORT 3 188,291 17,754 9.43% - 0.00% 17,754 9.43% 6.29% 170,537 (6,458) - - - $2.30 KIETZKE 10 959,090 143,063 14.92% 7,674 0.80% 150,737 15.72% 22.17% 808,353 62,961 - - - $1.25 MEADOWOOD 27 3,109,055 106,922 3.44% 31,988 1.03% 138,910 4.47% 4.47% 2,970,145 68 - - 50,000 $1.75 NORTH VALLEYS 8 415,518 41,799 10.06% - 0.00% 41,799 10.06% 8.51% 373,719 (6,423) - - - $1.85 NE RENO 3 87,672 47,415 54.08% - 0.00% 47,415 54.80% 28.00% 40,257 (7,984) - 19,617 - $2.65 NE SPARKS 14 1,117,587 77,314 6.92% 2,240 0.20% 79,554 7.12% 7.13% 1,038,033 88 - - 248,000 $1.35 NW RENO 17 1,623,443 131,204 8.08% 7,501 0.46% 138,705 8.54% 8.28% 1,484,738 110,950 - 125,000 - $2.00 PARK LANE 18 942,670 151,159 16.04% 2,400 0.25% 153,559 16.29% 16.24% 789,111 (426) - - 52,000 $1.28 RENO REDEV. 7 122,918 74,444 60.56% - 0.00% 74,444 60.56% 54.13% 48,474 (2,400) - 12,000 18,473 $2.75 SOUTH RENO 15 2,069,437 82,076 3.97% - 0.00% 82,076 3.97% 3.25% 1,987,361 (14,848) - - 82,181 $2.22 S. VIRGINIA 2 105,326 - 0.00% - 0.00% - 0.00% 0.43% 105,326 13,628 - - - $1.00 SW RENO 5 228,398 14,082 6.17% - 0.00% 14,082 6.17% 4.90% 214,316 (2,891) - - - $1.45 SPANISH SPRINGS 1 5,099 - - - 0.00% - 0.00% 0.00% 5,099 - - - 49,518 $0.00 SPARKS INDUST. 7 1,353,556 51,500 3.80% - 0.00% 51,500 3.80% 3.97% 1,302,056 7,630 - 12,000 334,119 $2.83 SPARKS REDEV. 1 12,764 9,600 75.21% - 0.00% 9,600 75.21% 7.83% 3,164 (8,600) - - - $1.65 WEST SPARKS 12 1,706,053 147,713 8.66% - 3.00% 147,713 8.66% 8.71% 1,558,340 920 - - 22,000 $1.87 MARKET TOTAL 150 14,046,877 1,096,045 7.80% 51,803 0.37% 1,147,848 8.17% 8.05% 12,899,029 146,215 - 168,617 856,291 $1.84 QUARTERLY COMPARISON AND TOTALS Q4-2007 150 14,046,877 1,096,045 7.80% 51,803 0.37% 1,147,848 8.17% 8.05% 12,899,029 146,215 - 168,617 856,291 $1.84 Q3-2007 156 13,863,911 1,071,724 7.73% 44,472 0.32% 1,116,196 8.05% 7.80% 12,747,715 37,795 - 50,936 986,390 $1.77 Q2-2007 152 13,785,274 1,037,443 7.50% 37,911 0.30% 1,075,354 7.80% 7.20% 12,709,920 213,584 - 283,701 1,144,894 $1.76 Q1-2007 144 13,484,726 968,676 7.20% 19,714 0.15% 988,390 7.33% 0.00% 12,496,336 - - - - $0.00 ---PAGE BREAK--- COLLIERS INTERNATIONAL 23 RENO NORTHERN NEVADA YEAR END I 2007 267 OFFICES IN 57 COUNTRIES ON 6 CONTINENTS USA 95 Canada 17 Latin America 17 %WME4EGM½G EMEA 85 volume 672.9 million square feet under management 10,171 Professionals CONTACT INFORMATION Colliers International (SYFPI6&SYPIZEVH Suite 100 Reno, NV 89521 United States Tel: [PHONE REDACTED] Fax: [PHONE REDACTED] Roxanne Stevenson SeniorVice PresidentIRetail Properties Email: [EMAIL REDACTED] Tel: [PHONE REDACTED] Christiaens Research Analyst Email: [EMAIL REDACTED] Tel: [PHONE REDACTED] 8LMWVITSVXERHSXLIVVIWIEVGLQEXIVMEPWQE]FI SR SYV [IFWMXI EX This quarterly report is a research document of Colliers International – Reno, NV. Questions VIPEXIH XS LIVIMR FI HMVIGXIH to the Research Department at [PHONE REDACTED]. GSRXEMRIH LIVIMR LEW FIIR SFXEMRIH is made as to the accuracy thereof. Colliers Nevada, 00'HFE'SPPMIVW-RXIVREXMSREPMWERMRHITIRHIRXP] of Colliers International Property Consultants, ER EJ½PMEXMSR SJ MRHITIRHIRX GSQTERMIW [MXL www.colliersreno.com MARKET OVERVIEW RETAIL CENTERS: UNDER CONSTRUCTION/PLANNED/PROPOSED SIGNIFICANT CENTERS UNDER CONSTRUCTION PROJECT SQUARE FEET Spanish Springs Shopping Center 7,200 Paradise Plaza 7,400 960 - 970 S McCarran Blvd. (old SPCA) 10,800 Wild Creek Commerce Center 14,600 Montage 18,473 Los Altos Crossing 27,028 Galena Crossing 28,650 Summit Sierra 34,001 Stanford Crossing 43,737 Towne Center at Virginia Lake 52,000 Pioneer Meadows 57,000 Eagle Landing 67,564 Sparks Galleria 87,042 Legends at Sparks Marina 248,000 SIGNIFICANT CENTERS PLANNED/PROPOSED (OVER 10,000 SF) PROJECT SQUARE FEET (SYFPI6+EPPIVME 12,000 Paradise Plaza 14,500 Sharlands Centre Point 17,000 Somersett Town Square 19,617 Kiley Ranch Marketplace 24,000 Airport Gateway 24,400 Calle De La Plata 28,520 North McCarran Crossing 29,280 9720 SVirginia Street 30,928 Stead Crossing 32,500 Somersett 35,000 Summit Sierra 52,500 Damonte Ranch Town Center 55,000 Northtowne Commons 59,432 Canyon Center 59,806 Longley Town Center 60,500 Shoppers Square 62,300 Pioneer Meadows 81,950 Village at Whites Creek 90,000 Sparks Galleria 112,272 Damonte Ranch Town Center 174,982 Super Wal-Mart 225,000 Reno Design District 255,848 Kiley Ranch Marketplace 516,000 Legends at Sparks Marina 876,413 ---PAGE BREAK--- ---PAGE BREAK--- COLLIERS INTERNATIONAL 25 RENO NORTHERN NEVADA YEAR END I 2007 HȐȽɄ<оȃȐHɄɕɜȐɑ OFFICE SPECIALISTS 8MQ6YJ½R7-36''-1 Sr. Vice President/Managing Partner Melissa Molyneaux Associate Email: [EMAIL REDACTED] R&D/INDUSTRIAL LEASING AND SALES Barry Brown Sr. Vice President Email: Thomas de Jong Associate Email: [EMAIL REDACTED] INVESTMENT REAL ESTATE SALES Floyd Rowley, CPA, CCIM Sr. Vice President Email: [EMAIL REDACTED] RETAIL SPECIALISTS Roxanne Stevenson Sr. Vice President Email: [EMAIL REDACTED] Shawn Smith, CCIM Senior Associate Email: [EMAIL REDACTED] PROPERTY MANAGEMENT Mary Davis Sr. Portfolio Manager Email: [EMAIL REDACTED] Kathy Williams Property Accountant Email: [EMAIL REDACTED] OPERATIONS Christiaens Research Analyst Email: [EMAIL REDACTED] Kevin Annis, CCIM Senior Associate Email: [EMAIL REDACTED] Aaron Somer Associate Email: [EMAIL REDACTED] Sales Associate Email: Rick Casazza Sr. Vice President Email: [EMAIL REDACTED] Katina King Broker Assistant Email: [EMAIL REDACTED] 6SFIVX0E'LERGI Property Manager Email: [EMAIL REDACTED] Hillary Moreira Graphic Designer Email: [EMAIL REDACTED] ---PAGE BREAK--- www.colliersreno.com