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2008 MID-YEAR
REAL ESTATE

REPORT
Prepared BY; Commercial One Brokers LLC , 500 West Main Suite 302-A, Branson Financial Center, Branson, MO. 65616

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417 -33 4-314 9

A Mid Year Market Summary

Commercial One Brokers is happy to offer our mid-year update of the Branson Area real estate market. This report will not provide the full details found in our end of year report, but it will provide a short summary and will attempt to identify trends we see for the year. We would be happy to share additional market details with any of our clients and or for a small fee with others who may have more questions about specific areas. Commercial One Brokers will continue to collect analysis and share market data with local lenders, developers and clients in order that the most informed investment decisions can be made in our market area. Stephen N. Critchfield Broker/Partner Robert R. Huels Jr. CCIM Broker/Partner Doug Edens Salesperson Hospitality Dave Schaffer Broker/Salesperson Hospitality/Consultant

VISITORS NUMBERS SHOW SMALL DECLINE IN FIRST HALF

The year started with ice storms followed by tornados and then floods. The swarms of locus were the only missing calamity so far this year. According to preliminary numbers collected by the Branson Lakes Area Chamber and CVB, visitation appears to be off approximately 7% +/-. At one time during the spring, over 400 counties in our primary markets were labeled national disaster areas by the federal government. When $4 gas is added to the equation, Branson actually performed very well. Tourism taxes collected in June when compared to the same period last year did show a small increase (+1.56%) after shortfalls in each of the first five months of the year. We believe that July and August will remain flat to perhaps a slight increase. We expect Branson is experiencing similar issues as all national tourism destinations arepeople are staying closer to home and not taking long vacations. With over 75% repeat visitation, affordable attractions and accommodationall within an easy days drive of home, Branson could perhaps benefit from the current market conditions during the remaining part of the year.

Tourism Tax Collected By Industry Calendar Year (Jan June 2008)

YEAR 2007 2008 Net Incr(Decr) Amusement 724,908 571,400 Theaters 1,130,386 1,204,935 Hotels 1,705,804 1,673,644 Campground 40,183 33,334 Nightly Rentals 285,599 260,546 Resellers 86,109 78,293 Food 382,033 379,286 TOTALS 4,355,023 4,201,438

-21.18%

6.59%

-1.89%

-17.04%

-8.77%

-9.08%

-0.72%

-3.53%

Commercial One Brokers LLC

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2008 MID YEAR REAL ESTATE REPORT

Residential Closings Slip 25.5% Behind Last Years Numbers

Total residential closings (single family and condos) for the Tri-Lakes area are down 25.5% through June 2008 when compared to the same period last year. These numbers are in line with our end of year projections that anticipated closings to be near the 2003 sales levels. Listings are up 10.6% above last years total number year to date. The Tri-lakes market is simply reflecting the national housing issues and we dont see a big local problem with over building, foreclosures and hyper-price inflation that other areas have suffered. We do expect to see some pressure on developers by year end that are holding spec homes, developed lots and or large raw land positions that must be debt serviced with fewer sales and cash flows. The softest sector of the market is generally in the $350,000 and above price ranges. It appears through the first half of the year that 73% of all sales for the entire market have occurred in the $225,000 and under price range. It is anticipated that this price segment will continue to be the most active through the balance of this year. RESIDENTIAL CLOSINGS JANUARY - JUNE 2007 VS. JANUARY - JUNE 2008 TOTAL CLOSINGS BY YEAR JANUARY - JUNE YEAR TOTAL (Jan-June)

YEAR
2007 2008

1ST QUARTER
366 277

SOURCE:

2ND TOTALS COOPER REAL ESTATE CONSULTING/TRI-LAKES MLS. QUARTER

557 410 923 687

SOURCE: Cooper Real Estate Consulting & Valuation / Tri-Lakes MLS

2003 2004 2005 2006 2007 2008

654 902 1033 1073 923 687

The condo market is a more mixed picture. After a big drop in 2007 closings, Stone County appears to be holding steady with last years performance. Taney County, on the other hand, has experienced a 39% drop in closings for the first half of the year when compared to the same period in 2007. CONDOMINIUM CLOSINGS BY YEAR

STONE
Mid-Yr Full-Yr

TANEY
Mid-Yr Full-Yr

2005 69 143 2005 153 323

2006 91 151 2006 166 343

2007 51 103 2007 175 341

2008 56 2008 106

__________________________________ Residential Sales Drop Too 2003 Levels Under $225,000 Price Ranges Still Active Condo Market Also Softens

SOURCE: Cooper Real Estate Consulting & Valuation / Tri-Lakes MLS

__________________________________

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Retail Occupancies Drop Slightly

Even with a softening of the local residential marketsthe retail sector appears to be holding its own. It is clear that the newer retail locations that have commanded higher rates are slower to rent and the older centers with lower rental rates have shown more leasing activity in the first half of the year. Our leasing experience for 2008 thus far has been a slight slow down in the inquiries from the typical Branson Mom & Pop businesses and an almost abrupt halt to the franchisee and chain inquiries. Several companies are still considering area locations but new inquiries do seem to be coming at a much slower pace. Still in demand are smaller (less than 1500 sf.) spaces for start up and very specialized retailers. The older but well maintained centers have stabilized and have little vacancy with the rates ranging from a low of $8.00 per square foot to $13.00 per square foot per year. The newer off 76 properties are still demanding $15.00 to $18.00 per square foot per year. The newer centers are showing slightly slower absorptions due in part to the cost of infill in our opinion. Older spaces will usually require less infill costs and lower rents, so retailers are glad to take advantage of expenditures made by the previous tenants. On Highway 76 (the Strip) asking rents appear to be backing off a bit from the $21.00 a sq ft. and up for very good locations to $18.00 a ft for others. There is not a large supply of vacant space, but activity has slowed enough to cause the re-evaluation of asking prices by some landlords. A few very good locations with excellent existing infill and beautiful dcor are still available. Merchants report slower sales but most seem to believe in the future and are already talking about next year. In researching the market for this report we found several retailers who have recognized a change in the spending patterns of their customers and are re-inventing their inventory and product line to accommodate these apparent changing market demands. There is no doubt that this springs slow start to the year put pressure on many retail tenants. As we study the most recent state retail sales tax numbers and talk with tenants in our centers, visitors are spending less. It also appears that when they make a purchase they are buying something unique and may not necessarily be buying the most inexpensive items. We believe that customers are not buying as many crafts, tee shirts, quilts and other normal tourist trinkets typically bought in the past. They are buying more expensive, higher quality consumer items, quality art and other unique items that may not be available in their home towns. Not only will merchants have to re-think the merchandise offered, but they will also have to spend more on training the sales staff as to how to present a more upscale product as well. We believe that these changing consumer attitudes are a reflection of the new demographics that are beginning to visit Branson as well as a function of the current economic conditions. In any case, area merchants are going to have to perhaps re-think the merchandise they offer as well as the look and quality of their store and location.

Mid-Year Retail Vacancy Rate PERIOD

December 31, 2007 Thru June 30 2008

VACANCY RATE
8.59% 10.27%

Source: Commercial One Brokers LLC. Located in the Branson city limits and consisting of multi-tenant buildings that are a minimum of 5000 sq ft

1. A total of 34,600 sq ft of additional retail space (not included are the big box, single-tenant retail built in Branson Hills) has been added to the total retail inventory during the first 6-months of this year. 2. There was a total of 4.406 less sq ft of total retail space occupied mid-year when compared to the end of last year.

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2008 MID YEAR REAL ESTATE REPORT

Office Occupancy Rates Continue to Improve

The areas office market showed good improvement thanks to the recent commitment by the Veterans Administration to lease nearly twenty-four thousand square feet of The Executive Center for the VAs new Branson clinic. The Veterans lease accounted for nearly all of the net positive office absorption for the first half of the year. The overall occupancy rate has now improved to 81% and when the Veterans move in, area-wide occupancy should exceed 90%. We doubt that these occupancy rates will last due to the start of construction of a new 32,000 sq ft speculative office located on Hwy. 248 in Manchester Village. We believe that this new building will find a market over the next twelve to eighteen months from the ever expanding medical community. It is becoming apparent that the Hwy 248 corridor is slowly becoming the new medical mile in Branson. Rental rates are expected to remain steady at approximately $14 - $16 a sq ft NNN for new, well located spacebut landlords will be forced to offer move in concessions to good tenants such as periods of free rent and or generous tenant finish allowances during the initial lease-up. It is our belief that a market exists for a well located condominium office product consisting of small spaces1200 to 2500 sq ft that business owners could park directly at their front door while building equity. The tighter financing market however will make a development of this type extremely hard to finance without some significant pre-sales.

Hospitality Market Show Mixed Results

Hotel sales nationally and locally in 2008 are well off their strong 2007 sales pace. Several of the largest national hotel brokers report that property sales for 2008 will be 60-70% off those recorded in 2007. The local year-todate sales pace has also shown similar softening. Commercial One Brokers project a 40-50% drop in the number of local hotel sales in 2008 better than the national performance, but still far below 2007 figures. There are two primary reasons we believe for the slow down tighter credit markets and buyers second guessing the market to decide if this is the right time to make an investment. Occupancy for the local hospitality market continues to remain steady despite the pressures of weather catastrophes this spring and high gas prices. The total tourist tax collections for the local hospitality market in the first six months of the year report only a 1.89% decrease from last years record pace. When we analyze the local occupancy rates more closely, it appears that the market is 4-7% below last years numbers for flag hotels and even greater vacancies for non-flag properties with some exceptions. Even with lower occupancy rates, the Average Daily Rates (ADR) continues to increase for many properties. Normally during market slow downs the ADRs would drop as well. It appears with the addition of the Hilton properties; the Branson customers are selecting nicer rooms and paying for them. This is resulting in an over-all increased market ADR for the area in our opinion. With increased room rates and revenues per room, investors are more willing to pay higher prices to purchase those properties. The documented hotel sales for 2007/2008 tend to support our analysis. Of the last 18 documented hotel sales, the non-flag properties (excluding one high-quality property that will be flagged) are selling for an average of $16,400 per door key. This is only 57% of the $28,229 average reported for flagged property sales. This large price discrepancy is in direct correlation to the lower revenue per room of the nonflagged properties. It is accepted that flagged properties benefit from national marketing exposure, but it has recently come to our attention an extensive remodel on a non-flag interior corridor hotel in a 2nd tier location is also paying large returns for the new owner. The result from this extensive remodel was immediate additional market acceptance. This 81 unit hotel opened with a strong six-figure month supporting our quality sells opinion.

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Miscellaneous Thoughts, Opinions & Observations

Branson and Taney County both need an Economic Development Director as soon as possible. It is obvious to many that you cant just stop.or take a breath without falling behind. Its easy to want to take a breath when times are good, but many times that is the exact time to be even more aggressive with planned quality growth. Invested capital seeks its own level and will go to places where reasonable returns can be achieved. If we are going to over regulate and create large bureaucracies, investment will go elsewhere no matter how good the opportunities might be. After twenty months of effort, Commercial One Brokers is happy to announce that the Veterans Administration has selected The Executive Center at the intersection of Hwy 248 and Gretna Rd., as the new Veterans Clinic. Commercial One Brokers was happy to represent the Landlord in this transaction. We believe that this will be a major addition to the Branson market and will help to interest other veterans in making their home in the Branson area. The VA estimates that they will see over 8000 patients at this clinic within three years. A temporary office is currently being finished that will allow Veterans to start getting treatments before the end of September. The final 24,000 sq ft facility will be completed by years end. A trend seems to be developing both with the retail sector as well as the hospitality market. Many of the new visitors to the Branson area are buying more expensive items and are staying at more expensive, higherquality hotel properties or condominiums. The time of the $29.95 a night room and the craft store and quilt shop are quickly ending. Many long-time businesses that have had success in the past are going to have to make some changes in order to attract new customers. Many of our visitors arent going to two or three shows a day and eating a couple of buffets. Instead, they may go only to one or two shows during their entire stay and eat a couple of meals at a fine dining restaurant. It appears, if this visitor is going to go on a vacation, they are going to make it a special experienceor they wont go until they can afford it.

ROBERT R. HUELS CCIM Broker/Partner

Stephen Critchfield Broker/Partner

Doug Edens Salesperson Hospitality

Dave Schaffer Broker/Salesperson Hospitality Consultant

417-334-3149

500 West Main Street

Suite 302

Branson, MO. 6516

www.CommercialOneBrokers.com

Commercial One Brokers LLC