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Development Land

Mike Gregg
“Borrow 50 cents? Sorry, I‟m staying out of
the sub-prime lending market.”
Topics
• New Construction Building Permits
• Development Land Values
• Overview of Several Development Projects
• Development News
• Development Land Forecast for 2008
Kootenai County Permits
New Construction Residential Building Permits*
Year Total Units Single Family Units Multifamily Units

2001 1344 1083 261


2002 1414 1266 148
2003 1837 1674 163
2004 2365 2090 275
2005 2688 2288 400
2006 1599 1208 391
2007 1410 823 474
2008 127 101 26
Source: US Bureau of Census C-40 Series
Construction Monitor – 2008 Numbers

*Does not include condo units


Development Land - Price Per Acre Since 2004
Address/Area City Acres Sold Date Price/Acre Comments

Lancaster Hayden 80 1/26/2008 $30,000 Take Down Schedule

Highway 41 & Prairie Rathdrum 50 Fall 2007 $130,000 Improvements

Highway 41 & Lancaster Rathdrum 300 2/22/2007 $30,000 Motivated by 1031 Exchange?

Interstate 90 x Beck Post Falls 234 11/17/2006 $86,000 Commitment from Cabela's,
improvements, and TIF/URD

Lancaster x Meyer Road Rathdrum 45 5/16/2006 $66,000 In City Limits & Zoned

Atlas Rd, CdA Cd'A 320 10/13/2005 $20,000 Adjacent to City Limits & Services

Atlas/Prairie Hayden 48 8/1/2005 $17,000 Adjacent to City Limits

Hwy 41 (South of Prairie) Post Falls 192.5 6/17/2005 $35,500 Annexed ($12k/acre city fee)

Hwy 41 & Prairie Post Falls 147 1/27/2005 $20,400 Frontage on 41 & Prairie

Hwy 41 (South of Prairie) Post Falls 192.5 1/13/2004 $11,100 Adjacent to City Limits

Hwy 41 & Hayden Rathdrum 152 6/7/2004 $13,000

Hwy 41 & Prairie Post Falls 124.2 6/18/2004 $13,900 Adjacent to City Limits

Source: Coeur d’Alene Multiple Listing Service


Overview of Existing Developments
• Riverstone
• Tullamoore
• Philips Edison Development Company (Prairie)
• Montrose Business Park
• EXPO at Post Falls
• Riverbend Commerce Park
• The Pointe at Post Falls
Riverstone
Phillips Edison
Montrose Business Park
EXPO at Post Falls
New Developments on the Horizon
• Hughes Development
• Hayden Canyon
Hughes Development
Hayden Canyon
Forecast
• Land values & Building permits will return to a
“historical pace”…
• More opportunities in 2008 for Developers to joint
venture or structure takedown schedules…
• Some land values for finished lots may decline, while
values for specialized land categories will remain flat
or increase slightly…
• Development deals will continue to close throughout
2008…
Office
Craig Hunter, CCIM
Investor Questions
• What‟s going on in the Market and where is the “GAP”?
• What type of building or location?
• What could I anticipate rent to be?
• Is there tenant demand?
• What is the absorption time?
• CAN I MAKE MONEY?
Real Estate Cycle
Real Estate Cycle
EXPANSION
Space becomes difficult
to find, rents rise rapidly
toward new construction
levels, and prices
continue to increase.

Construction activity
increases dramatically,
but vacancy remains
normal or lower. This
phase can last for a few
months or years.
Efficient Design
USF/RSF = EP
16,830/20,806 = 81%
Class A Space
• Quality of Construction
• Exceptional finish, amenities and location
• New or built in the past 5 years
• Modern technology
Class B Space
• Older buildings needing updating or new construction
• Lesser quality interior finishes and amenities
• Possibly more efficient design than new “Class A”
• More affordable space for tenants
Class C Space
• Older, with obvious signs of “functional obsolescence”
• ADA, Parking, HVAC, Technology, Location
• “GRINDER”
• “Value add projects”
Class A Space
• Rents - $16-$24, NNN
• Net Charges - $5.50-$6.50 psf
• Vacancy - 4%-5%
• Interior Finish Cost - $60-$100 psf
Class B Space
• Rents - $12-$15, NNN
• Net Charges - $4.00-$5.50 psf
• Vacancy - Less than 3%
• Interior Finish Cost - $35-$50 psf
Class C Space
• Rents - $8-$12, NNN
• Net Charges - $3.00-$4.00 psf
• Vacancy - 8% or higher
• Update Tenant Improvements Lessor/Lessee
Investor Decisions
• Hold and do nothing
• Refinance and pull equity out
• Sell
• Great time with low Cap Rates 6.5%-8%
• Capital Gains Taxes at 15%
• Low interest rates
• “Grind”
• Add Value with Facelift / Increase Rents
• Scrape and Start Over
Tenant Decisions
• What will the actual cost be over the term of the
lease?
• Will a better location or image increase cash flow?
• What will be the relocation expense?
• What are the TI costs to remodel vs. new build outs?
• Who is paying for the Tenant Improvements?
• Can I sublease my space to allow my company to
move into a better space and location?
• Lease vs. Own analysis
• How will these decisions affect our bottom line?
Summary
• Quality tenants will continue to move into high profile,
Class A space
• New designed, high efficient buildings will be very
successful, due to the affordability for tenants
• Value-add projects are risky, but can be the best way
to create wealth

Thank You!
Retail
Paul Scott
NAR Forecast

Consumer
Confidence

Retail Real Estate Vacancy Rates


Residential Growth Patterns Drive Retail Real Estate Needs
Transaction
Volume

Capitalization Rates
Retail Lease Rates

What Effect do Traffic Counts & Age have on Lease Rates?


Retail Lease Rates

Northwest Boulevard
22,000 CPD - $24-$26

Lease Rates affected by Traffic Counts, Age, & Condition of Project


Retail Lease Rates

Highway 41 Corridor
15,000 CPD - $21-$24

Northwest Boulevard
22,000 CPD - $24-$26

Lease Rates affected by Traffic Counts, Age, & Condition of Project


Retail Lease Rates

Highway 95
28,000 CPD - $15-$18

Highway 41 Corridor
15,000 CPD - $21-$24

Northwest Boulevard
22,000 CPD - $24-$26

Lease Rates affected by Traffic Counts, Age, & Condition of Project


Retail Lease Rates
Government Way
15,000 CPD - $7.50-$9

Highway 95
28,000 CPD - $15-$18

Highway 41 Corridor
15,000 CPD - $21-$24

Northwest Boulevard
22,000 CPD - $24-$26

Lease Rates affected by Traffic Counts, Age, & Condition of Project


Second Generation Upgraded Projects
Multi-Family
Glenn Sather
2007 Review
Sales Volume – 50% +/-

Values – 10-12% +/-

Unsold Stock – 150% +/-

New Construction Permits


The Good News
Vacancy Rates

Rents
Forecast
• Lower Vacancy Rates
• Higher Rents
Investments
Mike King
“30,000 ft. View”
• Strong Fundamentals
• Values Supported
• Financing Spreads
Local Trends Review
• CAP Rates Rising
• Debt Markets Changing
• Consumer Spending
• Housing Market Effects
• Continued Development
Forecast & Trends
• LEED Certified “Green Building”
Buildings are #1 user of energy resources.

US Buildings account for:


39% of total energy consumption
71% of electricity consumption
39% of CO2 emissions
30% of raw materials use
30% of waste output
12% of potable water consumption
Forecast & Trends
• LEED Certified “Green Building”

McGraw-Hill Estimates:
• 8-9% Decrease in Operating Costs
• 7.5% Increase in Building Value
• 6.6% Return on Investment
• 3.5% Occupancy Increase
• 3% Rent Increase
Forecast & Trends
• LEED Certified “Green Building”
• Economic Stimulus Package
• Capital Gains Tax Changes
• Commercial Forecast
“A National Perspective”
Rick Davidson
President & COO
In the News
“House of Cards”
“Oil hits a new high point”
“Stocks surge on FED news”
“Malls, Offices may Slump
although less Steeply than
Homes”
“Fear Stalks a Market”
“Trouble Ahead – but no
Subprime”
“Six months after the first
rate cut”
“Slower growth, but no
recession - forecast”
“U.S. employers slash 63,000
jobs in February”
International Overview
Fastest Growing Occupancy
Cost Markets
Singapore
82.6%
Moscow, Russia
64.5%
Mumbai, India
55.0%
Manila, Philippines
51.8%
Oslo, Norway
51.8%
Asia GDP Growth
China
11%
Philippines
6%
Singapore
7%
India
8%
Viet Nam
8%
AsiaPac
Tokyo
Tight Supply
Prime rents rise 53.6% YTD
Hong Kong
Rapid rental growth in CBD
Sydney
Positive Absorption
Flight to Quality
Latin America
Buenos Aires
Vacancy & absorption at normal levels
CAP rates recovering
Panama City
Improving economy
Vacancy declines 10%
Mexico City
36% decline in vacancy rate
2 million SF new delivered by „08
EMEA
London
Office vacancy at 5 year low (3.6%)
West End most expensive lease market in world
($329/SF)
Frankfurt, Paris, Stockholm, Madrid
Increased demand
Rental growth continues to rise
Domestic Overview
Office

Vacancy (12.8%)

Rents (5-6%)

Absorption

Supply
Industrial

Vacancy (9.5%)

Rents (3.5%)

Absorption

Supply
Retail

Vacancy (7.5%)

Rents

Absorption

Supply
Multi-Family

Vacancy (5.6%)

Rents

Absorption

Supply
Capital Markets
Capital Markets

$1 Trillion in Sales

32,000 priced over $10m

Sales in 2007 last 2 quarters


Debt
Conduit lenders are silent

Underwriting has tightened

Bridge loans and construction


financing difficult to obtain

Favorable Libor & Treasury


Indexes
Equity & Debt Spreads
Buyer Profile
Office
Yields by Buyer Type
Industrial
Yields by Buyer Type
Retail
Yields by Buyer Type
Multi-Family
Yields by Buyer Type
Summary
Wrap Up
• Historic levels of institutional capital

• Underwriting criteria and view of


markets has tightened

• “Institutionalization” of our industry


Market Summary
• Expect yields to increase 5-15%
• Hold core assets
• Drive NOI
• Increase cash flow
• Sell low quality assets now
• Future flight to quality
• Brain power v. manufacturing markets
• Develop Buy, Hold & Sell Strategies
• Opportunities for Residential Land Tracts
• Keep Some Powder Dry