SCHNEIDMILLER REALTY

Kootenai County Commercial Market Review & Forecast

2010

Activity, Trends & Indicators

1

Table of Contents

Welcome
Dear Coldwell Banker Commercial Clients & Colleagues, We are pleased to present our third annual Coldwell Banker Commercial Market Report. Access to reliable information is a powerful tool, especially in an environment of unprecedented change and challenge. The local, U.S., and global economic conditions have not made it easy for anyone involved in the real estate industry. Hopefully, our real estate report will supply information that is useful in the business decisions you may face each and every day. Thank you to the many businesses and property owners who have been willing to share critical information with our team. Your cooperation and assistance is appreciated and helps to make this report timely, accurate and useful. We would also like to extend a special thanks to our corporate sponsors; they continue to recognize the value this information brings to the general real estate and investment community in North Idaho. Those companies include Community First Bank, Auble, Jolicoeur & Gentry, Ramsden & Lyons, Riverbend Commerce Park, Greenstone, R.R. Bradley & Associates, North Idaho Title, Range and the Spokane Journal of Business. Thanks also to the support staff at Coldwell Banker Commercial. This is a huge project and we appreciate the countless hours invested on behalf of our customers and clients. As we all work through the challenging times before us, we will continue to focus on client specific solutions. Our goal is to ensure that the real estate needs of each and every one of our customer’s assignments is optimally addressed. This 2010 market report and forecast may encourage you to re-evaluate your real estate investment strategy. Our entire team of full time commercial professionals is committed to delivering the best in real estate services and solutions for you. We are prepared to help you uncover the opportunities that exist today, as well as to prepare you for the future. Let us know if we may help!

IntroductIon . . . . . . . . . . 1 E xEcutIvE Sum mary & SurvE y mEthod ology . . . 2 offI cE . . . . . . . . . . . . . . . . 3 rEtaIl . . . . . . . . . . . . . . . . 4 l an d & nEw conStructIon . . . . . 5 multI - famIly . . . . . . . . . . . 6 InduStrIal & flE x-tEch . . . . . . . . . . . . . 7 In comE producIng InvEStmEntS . . . . . . . . . . . 8 about kootEnaI count y . 9 S p onSorS & SourcES . . . . 10

Phone: (208) 765-4300 Toll Free: (800) 829-2555
2000 Northwest Blvd., Ste 200 Coeur d’Alene, ID 83814 Fax: (208) 765-9150

Best regards,

www.cbcsr.com

Gary Schneidmiller, Broker/Owner
Coldwell Banker Commercial Schneidmiller Realty

SCHNEIDMILLER REALTY

2

Executive Summary
This report provides an analysis of activity along with trends and indicators for commercial real estate in Kootenai County. We are beginning to see the pace slow in the decline of market fundamentals. While there are encouraging signs of recovery, there are still many pervasive issues that will affect commercial real estate in the coming years. Both job growth and a healthier credit market will be required for a sustainable recovery in commercial real estate. Investors with cash should be ready to capitalize on buying opportunities created by distressed selling. Owners that have been holding their property with the hope for improved terms on their loans will be forced to sell as cash flows continue to drop due to falling rents thus affecting the property values. This buying environment will ultimately build wealth for savvy investors. Tenants are also in an excellent position to find new space or renegotiate their existing leases and lock-in long term low rates. Difficult times can consequently build the greatest wealth for investors who are poised to act quickly. As we noted last year, challenges bring with them opportunities. If you are a tenant looking for lease space or an investor with cash, you will continue to have a significant advantage in the coming year.

Survey

Methodology
The latest survey expanded the number of properties surveyed in 2007 and 2008. Our survey was once again made possible through a partnership by Auble, Jolicoeur & Gentry and Coldwell Banker Commercial Schneidmiller Realty. Following last year’s methodology, the survey focuses on the most populous places in Kootenai County, namely Coeur d’Alene (45,110), Post Falls (26,500), Hayden (13,763) and Rathdrum (7,075). Our latest data set identifies 1,898 commercial properties and over 15.4 million square feet of space across all commercial property sectors.

SCHNEIDMILLER REALTY

3

ko o tE n a I c o u n t y n o n fa r m pay r o ll J o b S

Office
60,000 Total non-farm payroll jobs 50,000 40,000 30,000 20,000 10,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009
2,050,286 Coeur d’Alene 7.23% Post Falls 9.72% Rathdrum 8.36% Hayden 8.33%

rEvIEw In 2009, tenants had significant negotiating leverage to obtain rent concessions, tenant improvements and deferred rent. In somewhat of a role reversal, tenants were requiring financial statements from landlords. Tenants were prudent to obtain non-disturbance agreements from lenders to guarantee their leasehold interest in a property in case of foreclosure. A new office project of note is a 31,800 square foot building developed by Parkwood Business Properties. The building is fully occupied by Mountain West Bank and serves as an operations center. Idaho State Police also completed a 40,000 square foot building in north Coeur d’Alene. River View Corporate Center in Spokane Valley has recently started offering new tenants free rent for the balance of 2010 along with a full tenant improvement build out. This type of competition for new users will force some landlords that are not well capitalized to wait on the sidelines until the leasing market fundamentals improve. forEcaSt Office market fundaments typically lag the job market by approximately six months. National job growth is expected in mid-2010 which should help support a floor in rent and vacancies by year end. For now, vacancy is still on the rise and will more than likely set an all time high by the end of the year. Landlords have been offering extraordinary tenant concessions including any combination of free rent periods, moving allowances, discounted rent, favorable termination options, little or no rent escalations and turn-key tenant improvements. This trend will continue in 2010 and will require landlords to provide capital to compete for new users.

o f f I c E vaca n cy S u rv E y b r E a k d o w n

Total sq. ft.

531,032 70,796 239,778

% Vacant

5%

10%

2,891,892 Total SF Surveyed

SCHNEIDMILLER REALTY

rEvIEw Nationally retailers have closed underperforming stores in an effort to return to profitability. Our local market has not experienced a large amount of national retailers closing. The majority of the vacancies in our market can be attributed to local merchants that could not meet adequate cashflows to cover fixed overhead expenses. New retail openings in the past year were slow; however, in 2009 we saw the start of several major new projects in North Idaho. Work began on two Super Walmarts and a Winco. All three projects are slated to open in 2010.

Retail
ta x a b lE S a lE S
= % change
$1 bil
+2.9 +6 +7.9 -2.8 -10

4

The Hayden Walmart is located at the southwest corner of Highway 95 and Honeysuckle Avenue. The planned 213,000 square foot store is located on 19 acres and will include a fastfood tenant that has yet to be announced. The new Post Falls Walmart is located about a quarter mile east of Cabela’s on the north side of the Pointe at Post Falls development. Building plans call for a mid-sized store of approximately 154,000 square feet and plans include a Subway restaurant and a Smart Styles hair salon. Post Falls’ existing Walmart on the east side of town is about 200,000 square feet. According to Walmart officials, the existing store will not be changed to a Sam’s Club as had been rumored.

$1,034,826,443

$1,064,289,258

$1,128,137,116

$1,217,414,503

$1,182,778,925

-1.3

$600 mil

$300 mil

0

2001 2002 2003 2004 2005 2006 2007 2008 2009

Winco purchased 9 acres on the Northeast corner of Appleway Avenue and Ramsey Road. Preliminary plans call for an approximate 95,000 square foot store. Love’s Travel Stops & Country Stores Inc. has acquired 10 acres of land off the Pleasantview exit in the Expo at Post Falls development. Love’s plans to begin construction in early Spring 2010. The project will include a 24-hour travel center with a fueling area, fast food restaurant, and convenience store. forEcaSt The best stability in retail investments will be in grocery anchored centers. Outlying strip centers built on the urban fringe in expectations of future growth will take an extended time to fill. Tight credit and high levels of debt will hinder a surge in consumer spending so do not expect a quick recovery in retail.

r E ta I l vaca n cy S u rv E y b r E a k d o w n

4,280,448

Coeur d’Alene 8.8% Post Falls 12.35% Rathdrum 12.24% Hayden 7.12%

Total sq. ft.

2,154,097 356,229 935,757

% Vacant

5%

10%

7,726,531 Total SF Surveyed

SCHNEIDMILLER REALTY

$1,063,750,457

$900 mil

+7.7

+4.1

$935,720,163

$923,395,375

$994,007,517

5

Land &New Construction
b u I l d I n g p E r m It S u m m a ry 2 0 0 9
pErmItS va l u E

rEvIEw There has been a massive population influx in Kootenai County over the last decade. The growth rate has slowed considerably in the past years, and as a result, speculative land acquisitions were mostly absent in the market.
unItS

ko o t E n a I c o u n t y t o ta l

Residential Commercial Multi-Family Total

729 240 10 979

$132,190,205 $78,722,234 $9,032,644 $219,945,083

729 98 827

Residential lots platted in Kootenai County dropped from 1,152 in 2008 to 501 in 2009, a 56.5 percent decrease. This is a 79.7 percent decrease from the 2006 peak of 2,462 lots platted. Coeur d’Alene, Harrison and Hayden reported the largest drop in lots platted among incorporated cities in Kootenai County. Building permits in Kootenai County also dropped from 1,567 in 2009 to 979 in 2010. The total value of the building permits decreased from $300,776,743 in 2008 to $219,945,083 in 2009, a decrease of 26.9 percent year over year. forEcaSt Land will be a tough sell as investors with cash are looking for yield from investments rather than banking on speculative appreciation. Those who have the staying power to hold for future growth will be able to purchase land at prices we may never see again. Expect another slow year in development. New commercial developments will not pencil for investors that have incredible buying opportunities on existing properties priced well below replacement cost. Users that require a specialized build-to-suit property should take advantage of the low construction and land costs.

p oSt fall S

Residential Commercial Multi-Family Total

243 45 4 292 248 103 4 355

$36,423,142 $22,057,890 $3,868,916 $62,349,948 $34,980,471 $25,353,592 $3,620,000 $63,954,063 $8,091,842 $0 $0 $8,091,842 $8,996,443 $23,785,761 $499,900 $33,282,104 $43,698,307 $7,524,991 $1,043,828 $52,267,126

243 50 293 248 32 280 43 0 43 40 4 44 155 12 167

c o E u r d ’a lE n E

Residential Commercial Multi-Family Total

Residential Commercial Multi-Family Total
h ay d E n

r at h d r u m

43 0 0 43 40 33 1 74 155 59 1 215

Residential Commercial Multi-Family Total Residential Commercial Multi-Family Total

k o o t E n a I c o . u n I n c o r p o r at E d

3500 3000

lo t S p l at tE d I n ko o tE n a I c o .

2500 2000 1500 1000 500 0

Coeur d’Alene Hayden Post Falls Rathdrum Spirit Lake Dalton Gardens Harrison Bayview County

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

SCHNEIDMILLER REALTY

rEvIEw Unemployment rose to 10.6 percent in the Coeur d’Alene metropolitan statistical area by year end 2009; as a result, household creation slowed and apartment vacancy was up in all unit types. The overall vacancy rate rose from 3.5 percent in September 2008 to 6.7 percent in September 2009. The shadow condo and housing stock has continued to dilute the traditional tenant pool and has negatively impacted rents. Moreover, extended turn-over periods together with tenant concessions have also converged to squeeze the bottom line of apartment operators. The rent pressure is especially noticeable in the newer apartment stock as this segment generally commands higher rental rates. Conversely, the older and more affordable stock has been impacted to a lesser degree. The highest overall vacancy rate of 10.2 percent was reported in units built after 1995. Class B & C apartments built between 1975 and 1984 performed better with an overall vacancy rate of 2 percent. Multi-family sales volume reported in the Coeur d’Alene MLS remained fairly static with a 5.2 percent decrease year over year. In the absence of one notably large sale in Coeur d’Alene in 2009, MLS sales would have declined significantly. Nearly 50 percent of the reported sales activity in the 2-4 unit category was related to foreclosures, REO or otherwise distressed property. forEcaSt The emphasis should now be on tenant retention, efficient operation and creating value for your tenant base. As we move toward an economic recovery, multifamily investors should pay close attention to the employment market. Job growth will quickly create an increase in demand and shore up rent declines in the apartment market. Echo boomers that have been forced to live with parents or double up with roommates will quickly begin to rent when they find the income to afford a monthly payment.
ko o tE n a I c o u n t y a pa r t m E n t m a r k E t S u rv E y S E p tE m b E r STudio 1 Bdrm 2 Bdrm l o t S p l at tE d 1 BATh 2009

Actual Rent Per Rentable Square Foot

Multi-Family

6
h I S t o r I ca l a pa r t m E n t vaca n c I E S
Overall Vacancy Rate
$0.80

$0.70

$0.60
4% 2.9% 6/15 3.8% 9/15 5.6% 12/15

$0.50 $0.80

3/15

2000

$0.70

$0.60
4.8% 5.6% 6/15 5.2% 9/15 3.2% 12/15

$0.50 $0.80

3/15

2001

$0.70

$0.60
4.5% 4.3% 6/15 2.5% 9/15 3.8% 12/15

$0.50 $0.80

3/15

2002

$0.70

$0.60
6.9% 9% 6/15 6.4% 9/15 6.5% 12/15

$0.50 $0.80

3/15

2004

$0.70

$0.60
5.2% 3.8% 6/15 3.2% 9/15 4.6% 12/15

$0.50

3/15

2005

$0.80

$0.70

$0.60
3.1% 7.2% 6/15 5.7% 9/15 6.9% 12/15

$0.50 $0.80

3/15

2006

$0.70

2 Bdrm 2 BATh

3 Bedroom 2 BATh

oTher

All

$0.60
4.2% 1.6% 6/15 4.3% 9/15 5.1% 12/15

$0.50 $0.80

3/15

2007

Market Vacancy Avg. Rent Rent / NRSF Units Surveyed Complexes

1.9% $408 $0.85 52 2

5.1% $573 $0.829 374 11

9.8% $631 $0.733 481 12

9.6% $753 $0.71 344 9

16.3% $879 $0.762 104 5

0.0% $ $

6.7% $673 $0.768 1360 13
$0.70 $0.60
4.3% 3.3% 6/15 3.5% 9/15 6.9% N/A

$0.50 $0.80

3/15

2008

$0.70

$0.60
4.6% 5.6% 6/15 8.7% 9/15 5.1% N/A

$0.50

3/15

SCHNEIDMILLER REALTY

2009

7

Industrial& Flex-Tech
I n d u S t r I a l vaca n c I E S ko o tE n a I c o u n t y

1,334,859

Coeur d’Alene 10.28% Post Falls 3.24% Rathdrum 7.11% Hayden 9.63%

Total sq. ft.

1,991,162 377,190 1,125,982

rEvIEw Post Falls continues to report the lowest industrial vacancy in Kootenai County. Industrial vacancy in Coeur d’Alene rose from 4.87 percent in 2008 to 10.28 percent in 2009. Hayden reported a 9.63 percent vacancy rate; however, Hayden vacancy appears to be dropping due to recent leasing activity. Advanced Input Systems completed a 54,000 square foot expansion developed by Parkwood Business Properties. In August 2009, Western States CAT opened a new 55,765 SF industrial/retail building on Highway 95 in north Hayden.

0%

5% 10% % Vacant

15%

m a n u fac t u r I n g E m p loy m E n t ko o tE n a I c o u n t y
= Mfg. Jobs

Last year we reported that ALK Abello Source Materials Inc. opened an 85,000 square foot flex-tech facility at Lochsa and Clearwater Loop in the Riverbend Commerce Park. ALK Abello recently expanded their existing facility less than a year after receiving the certificate of occupancy on their original building. Two new office/warehouse buildings were completed across the freeway at EXPO Commerce Park. EXPO reported several land sales to new users that will begin building in 2010. forEcaSt The industrial market will begin to recover when consumer spending returns, new construction increases and retailers restock and build their inventories. It is important to note that the industrial market is the least reliant on the job market for space demands. Expect industrial to be a top performing recovery sector due to the short construction times, rebuilding of inventory and increased manufacturing activity.

5000

# Employed

4500

4000

3500

00

01

02 03

04 05 06 Year

07 08

09

g d p p E r c E n tag E c h a n g E baS E d o n c h a I n E d 2 0 0 0 d o ll a r S
8 7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7

% Change

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

SCHNEIDMILLER REALTY

Income
rEvIEw National and regional banks experienced a barrage of writedowns, loan modifications and defaults. Many banks delayed working through distressed assets until they built up their balance sheets. In the Fall of 2009, regulators allowed banks to hold onto performing loans that were technically in default due to declining values. At the dismay of many investors seeking properties to purchase from banks, this decision dramatically changed the number of quality properties returned to banks in the foreclosure process. In the short term, extensions will be the preferred resolution for lenders with maturing loans on performing assets.

8

Producing Investments
c o n S u m E rPrice c E I n d E x Consumer p r I Index

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

166.6 172.2 177.1 179.9 184 188.9 195.3 201.6 207.342 215.303 214.573
Annual Average

forEcaSt Investment property sales volume was down over 70 percent from 2008 on a national level. Expect to see an increase in 2010 over the artificially low 2009 investment sales volume. The alarming pace of decline in commercial real estate values seems to have stabilized and investors are now planning opportunistic buys. While our market experiences downward pressure on property values, it provides tremendous opportunity for buyers who have available capital to act. As property values move below replacement cost, we can expect a reappearance of investors in the market. Increased availability of credit, stability in the job market and a resurgence of transactions to establish a more accurate baseline for property values will be required for a full recovery in the investment market.
f E d f u n d S r at E
8 7 6 5 4 3 2 1 0
19-Feb-10 16-Dec-08 29-Oct-08 8-Oct-08 30-Apr-08 18-Mar-08 16-Mar-08 30-Jan-08 22-Jan-08 11-Dec-07 31-Oct-07 18-Sep-07 17-Aug-07 7-Aug-07 28-Jun-07 9-May-07 21-Mar-07 31-Jan-07 12-Dec-06 25-Oct-06 20-Sep-06 8-Aug-06 29-Jun-06 10-May-06 28-Mar-06 31-Jan-06 13-Dec-05 1-Nov-05 20-Sep-05 9-Aug-05 30-Jun-05 3-May-05 22-Mar-05 2-Feb-05 14-Dec-04 10-Nov-04 21-Sep-04 10-Aug-04 30-Jun-04 4-May-04 16-Mar-04 28-Jan-04 9-Dec-03 28-Oct-03 16-Sep-03 12-Aug-03 25-Jun-03 6-May-03 18-Mar-03 29-Jan-03 9-Jan-03 10-Dec-02

d I S c o u n t r at E

Rate Rate

wa ll S t r E E t J o u r n a l p r I m E r at E
10 8 6 4 2
17-May-00 22-Mar-00 3-Feb-00 12-Dec-01 7-Nov-01 3-Oct-01 18-Sep-01 22-Aug-01 28-Jun-01 16-May-01 19-Apr-01 21-Mar-01 1-Feb-01 4-Jan-01 7-Nov-02 27-Jun-03 14-Dec-04 10-Nov-04 22-Sep-04 11-Aug-04 1-Jul-04 13-Dec-05 1-Nov-05 20-Sep-05 9-Aug-05 30-Jun-05 3-May-05 22-Mar-05 2-Feb-05 29-Jun-06 10-May-06 28-Mar-06 31-Jan-06 11-Dec-07 31-Oct-07 18-Sep-07 16-Dec-08 30-Oct-08 8-Oct-08 30-Apr-08 18-Mar-08 30-Jan-08 22-Jan-08

SCHNEIDMILLER REALTY

9
t r E n d S 2 0 0 9 -13 a n n ua l r at E %
0.5 2 1.5 2.5 0 Population Households Families Owner HHs Median HH Income 0 0-4 5-9 10-14 15-19 20-24 25-34 35-44 45-54 55-64 65-74 75-84 85+
180000 160000 140000 120000 100000 80000 60000 69795 1990 2000 2009 2014 108685 141814 159869

Area U.S.
3.5 3

p o p u l atI o n by ag E %
10 12 4 6 8

2009 2014
14 16

About Kootenai County

p o p u l atI o n r atE
2000-2009 Pop. Annual Rate 2009-2014 Pop. Annual Rate 2.9% 2.4%

SCHNEIDMILLER REALTY

1

2

2009 houSEhold IncomE
$75K-99K (12.1%) $100K-$149K (6.4%) $150-199K+ (1.7%) $200K+ (1.6%) <$15K (10.3%)

Kootenai County is located in the northern panhandle of Idaho. The county is part of the Coeur d’Alene, Idaho Metropolitan Statistical Area (MSA). As of the 2000 census, the county population totaled 108,685 people, 41,308 households, and 29,659 families residing in the county. The median income for a household in the county was $37,754, and the median income for a family was $42,905. There has been considerable growth since the last census and current ESRI estimates project a 2009 population of 141,814 people representing growth of over 30 percent in the past nine years. The household count in Kootenai County has changed from 41,308 in 2000 to 54,159 in the current year, a change of 3.46 percent annually. The five-year projection of households is 61,069, a change of 2.55 percent annually from the current year total.

$15K-$24K (11.3%) $25K-34K (12%) $35K-$49K (18.6%) $50K-74K (26%)

2 0 0 9 E m p l oy E d c I v I lI a n p o p u l atI o n 16 + by I n d u S t ry
0.0
Agriculture, Forestry, Fishing & Hunting Mining Construction Manufacturing Wholesale Trade Retail Trade Transportation/Warehousing Utilities Information Finance/Insurance Real Estate/Rental/Leasing Professional, Scientific & Tech Services Management of Companies/Enterprises Admin., Support & Waste Mgmt. Services Educational Services Health Care/Social Assistance Arts/Entertainment/Recreation Accommodation/Food Services Other Services Public Administration

2.0 1.7 1.2

4.0

6.0

8.0

10.0

12.0

14.0

16.0

10.7 7.9 2.0 15.4 2.3 0.8 2.7 4.5 2.7 4.6 0.1 3.3 8.4 12.8 2.5 7.6 4.5 4.3

Percentage of Employed Civilians

Sponsors Sources
SponSorS
SourcES Auble, Jolicoeur & Gentry, U.S. Census Bureau, J.P. Stravens/Planning Associates, Inc., U.S. Bureau of Labor Statistics, Idaho Department of Labor, U.S. Bureau of Economic Analysis, ESRI, Federal Reserve, Construction Monitor Inc., Coeur d’Alene Multiple Listings Service,

10

and

Coldwell Banker Commercial, Washington State University Center for Real Estate Research, Idaho State Tax Commission, North Idaho Title, Real Capital Analytics Inc., Wall Street Journal Prime Rate © 2010 Coldwell Banker Commercial Schneidmiller Realty. All rights reserved. The information contained in this report has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. Readers are encouraged to verify the data and consult their professional advisors prior to acting on any of the material contained in this report.

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Experience the resources of a powerful national presence and the agility of a local market innovator. Working with a professional who knows and understands the local marketplace is essential to making informed real estate decisions. With extensive local expertise and a world-wide network, we provide a broad range of real estate services in office, industrial, land, multi-family and retail. SpEcIalIzIng In: Property Sales & Leasing • Tenant & Buyer Representation Investment Brokerage / 1031 Exchanges Business Acquisitions & Dispositions
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