1Alliance or Downtown New York | Lower Manhattan Real Estate Market Overview 2009

COMMERCIAL OFFICE MARKET

The Lower Manhattan ofce market showed thestress of the economy as the national recessionand credit crunch continued throughout 2009.Rents steadily declined and total square footageof leasing activity hit its lowest level this decade.However, the year ended on a positive note asvacancy declined for the rst time in ve quarters,and the downtown market saw an uptick in leasingactivity. Lower Manhattan began and ended theyear with the lowest vacancy rate nationwide, asign of relative market stability compared to other business districts.

Alliance

for Downtown New

York

LOWER MANHATTAN

REAL ESTATE MARKET YEAR IN REVIEW 2009

Leasing Activity

The number of transactions completed in 2009increased 6% over 2008, and 84% of deals thisyear were new leases. However, the predominanceof small leases (with 75% of transactions under 10,000 sf) did little to support total leasing activity,which ended the year at 2.89 million sf in 2009, a 7%decline over 2008, and a steep 58% drop from themarket peak in 2006. In addition to taking smaller spaces, Downtown tenants signed short-term dealsin an effort to defer their long-term commitments untilmore certain economic times, and 37% of deals wereless than 5 year terms.

Lower Manhattan Oce Market Summary

Source: Cushman & WakefeldSource: CoStar

Top Leases Signed During 2009

Tenant NameAddress SF Leased Quarter SinedExpirationIndustry

Gap, Inc. 40 Worth265,082Q32030ApparelStroock & Stroock & Lavan LLP180 Maiden Ln223,424Q42019Professional ServicesDepository Trust & Clearing55 Water St200,392Q42012FIREThe China Center1 World Trade Center189,910Q12034FIREClaremont Preparatory School25 Broadway163,932Q32030EducationSchool Construction Authority26 Broadway183,171Q22039GovernmentSonnenschen, Nath and Rosenthal2 World Financial Center135,000Q1Professional ServicesDaiwa Securities32 Old Slip112,270Q1FIRELockwarden Bissel1 World Financial Center110,000Q1Professional ServicesCountry Wide Insurance Company40 Wall St109,000Q3FIREAT&T77 Water St101,144Q42018CommunicationsBrisbois Bisgaard & Smith77 Water St75,000Q4Professional ServicesInteractive Data Corp100 Church St65,000Q12025FIREHerzfeld & Rubin, P.C.125 Broad56,322Q22029Professional ServicesPhoenix Constructors100 Broadway55,547Q12019Professional ServicesMTA3 World Financial Center54,970Q42020GovernmentMTA3 World Financial Center54,970Q12019GovernmentIronshore Holdings1 State Street Plaza54,000Q12022FIREAce Usa Inc140 Broadway52,412Q42019FIREArch Insurance Group1 Liberty Plz51,506Q42020FIRE

Q4 08Q1 09Q2 09Q3 09Q4 09Q4 08Q1 09Q2 09Q3 09Q4 09

Class A $53.25

$49.08

$48.47 $45.96 $43.78 6.6%

7.3%

8.1% 9.8% 8.7%Class B $44.57

$40.83

$39.34 $37.50 $37.18 7.4%

8.2%

8.4% 9.4% 9.7%Class C $40.10

$39.90

$39.41 $37.97 $37.10 11.0%

10.8%

11.8% 12.0% 13.0%Overall $47.86

$44.58

$43.81 $42.01 $40.36 7.4%

8.1%

8.7% 9.9% 9.6%

Average Asking RentsTotal Vacancy

2Alliance or Downtown New York | Lower Manhattan Real Estate Market Overview 2009

Despite these negative trends, several notabletenants signed large leases in 2009, and ve of thecity’s top 20 deals were in Lower Manhattan. Gap,Inc. signed a 20 year lease for 265,000 sf at 40 WorthStreet to consolidate and move their operationsfrom Midtown to Lower Manhattan. Additionally, lawrm Stroock & Stroock & Lavan LLP inked a 10 year lease for over 223,000 sf at 180 Maiden Lane. Theyear’s largest transactions also included Vantone’sChina Center which signed the rst deal at 1 WorldTrade Center for almost 190,000 sf. Educationalinstitutions were big players in Lower Manhattanin 2009, with Claremont Preparatory’s 164,000 sf lease at 25 Broadway and the School ConstructionAuthority’s 183,000 sf lease at 26 Broadway.Both deals were for high schools with openingsscheduled for 2010 and 2011 respectively.

Vacancy

Lower Manhattan vacancy ranked among the lowestof any business district nationwide throughout2009. However, there was a considerable uptickduring the rst three quarters and the vacancy ratereached 9.9% in Q3 2009, up 36% from Q3 2008 asrms shed employees in an effort to lower overheadcosts. The year ended on a positive note with aquarter-to-quarter decline in vacancy to 9.6% in Q42009. This was the rst quarterly decline since thecollapse of Lehman Brothers in Q3 2008.Sublease availability also ended the year ona positive note. After peaking at 2.7% of totalinventory in Q3 2009, the share of sublease spacedropped to 2.2% in Q4 2009. The drop is primarily

Lower Manhattan Leasing Activity

Source: CB Richard Ellis

1 million2 million3 million4 million5 million6 million7 million8 million20022003200420052006200720082009

Lower Manhattan Oce Market Trends

Source: Cushman & Wakefeld

-$10$20$30$40$50$602002 2003 2004 2005 2006 2007 2008 20090%2%4%6%8%10%12%14%16%Overall Rents Total Vacancy

Q1 08Q2 08Q3 08Q4 08Q1 09Q2 09Q3 09Q4 090%2%4%6%8%10%12%14%

Lower Manhattan Midtown

SubleaseDirectDirectSublease

Direct and Sublet Vacancy Rates

Source: Cushman & Wakefeld

50%60%70%80%90%100%

Q1 08Q2 08Q3 08Q4 08Q1 09Q2 09Q3 09Q4 09

Lower Manhattan Taking Rent Index

Source: CB Richard Ellis

attributed to four sublease deals at 77 Water Streettotaling 239,360 sf.Throughout the year, total and sublease vacancy inthe Midtown market was consistently much higher than Downtown. Midtown’s vacancy spiked in the rsthalf of the year and then stabilized in the second half at about 12%. Sublease vacancy was consistently3% to 3.5%. The absorption of Midtown’s cheapsublease space is crucial to real estate marketrecovery since these deals have seen some of thebiggest markdowns during the economic downturn,putting downward pressure on pricing across the city,including Lower Manhattan.

Rents

Lower Manhattan’s overall asking rents ended theyear at $40.36 and Class A asking rents were $43.78.Steady quarterly declines combined for a substantial16% decrease in overall asking rents and an 18%drop in Class A rents. However, the taking rent indeximproved during the second half of the year, showingthat price adjustments are better meeting marketdemand.Midtown’s decline in average rental rates outpacedDowntown for the rst three quarters, resulting in asteep year-over-year drop of 23%, ending the year at$61.82 per sf. Absolute comparisons are even moreindicative of this trend. Midtown’s Q4 2009 overallasking rents represent an $18 per sf drop over lastyear, while Lower Manhattan’s overall asking rentsdropped only $7.50 per sf. Prices Downtown mayneed to adjust further to compete with low-priced

3Alliance or Downtown New York | Lower Manhattan Real Estate Market Overview 2009

sublease space and precipitously falling rents in theMidtown market.

Sales

With Manhattan’s transactional volume at a 20-year low, the Downtown market saw just threecommercial sales during 2009, all in the secondhalf of the year. These prices set a new standard for pricing in the Lower Manhattan market that is wellbelow where prices had been just a few years ago.First in July, ve-story 45-47 Park Place sold for atotal $4.85 million or $207 per sf. The building hadbeen damaged on 9/11 and remained vacant.In August, Developer YoungWoo Associates andKorea-based Kumho Investment Bank closed on70 Pine and 72 Wall Street for a total $150 millionor $128 per sf. Real Estate experts estimate thatthis is a mere one-third of the price the buildingscould have garnered during the market peak.Here, patient capital sought long-term opportunityin investing during a down market where capitalimprovements and a high quality of life suggesthigh returns when market conditions improve.Former owner AIG plans to vacate the buildings atthe end of 2010 and consolidate their space at 180Maiden Lane.Then in December, 90 Water Street sold for a total$1.35 million or $292 per sf. The narrow ve-storybuilding had no roof and was delivered vacant.The new owner, a private individual, will rehab thebuilding as the home of his architectural rm, FaheyDesign Build.Finally, owner Philips International and brokeragerm Newmark Knight Frank began proceedingsto convert 40 Rector Street into ofce condos.The building is currently vacant and has beenundergoing major capital improvements, includinga new lobby and window replacements.

Source of transactional information: Massey Knakal

INDUSTRIES & EMPLOYMENT

4%5%6%7%8%9%10%11%1/08 3/08 5/08 7/08 9/08 11/08 1/09 3/09 5/09 7/09 9/09 11/09City State Nation12/09

Unemployment Rates

Source: NYS Department o Labor, US Department o Labor

Major Industries by Employment

Source: NYS Department o Labor, Alliance or Downtown New York

FIRE28%Professional12%Government35%Other 27%

Source: Cushman & Wakefeld

Q1 08Q2 08Q3 08Q4 08Q1 09Q2 09Q3 09Q4 09

$10$30$50$70$90MidtownMidtown SouthLower Manhattan

Overall Asking Rents

The weak real estate market reected the increasein unemployment during 2009, as the city’sunemployment rate climbed steadily throughout theyear reaching 9.8% in July, surpassing the nation(then at 9.4%) for the rst time since the onset of theGreat Recession. By October, the rate reached a 16-year high of 10.3%, and ended the year at 10.4%, upconsiderably from 7.2% a year earlier.Lower Manhattan’s total employment also declinedin 2009, dropping 3.5% from 316,780 at the end of 2008 to 303,760 in Q2 2009 (the most recent dataavailable). The FIRE sector (Finance, Insurance andReal Estate) saw the largest declines, falling 9% to84,370 during the rst half of the year. The drop intotal employment marks a 4.6% decrease from thepost-9/11 employment peak in 2007 of 318,500.Despite declining employment, there was a net gainof 23 businesses located in Lower Manhattan duringthe rst half of 2009.Professional Services, Government and FIRE arestill the mainstay of Lower Manhattan industries, andin 2009 these sectors were dominant on the list of largest employers.Professional Services were also dominant amongrms that relocated to Lower Manhattan during 2009,comprising 55% of relocations. However, cumulativerelocations since 2005 highlight the ongoingdiversication of the local economy. ProfessionalServices again led the way with 37% of totalrelocations, followed by Creative Services (18%),Nonprots (15%), and the FIRE sector (14%).