Delta Associates Trend Lines 2008

trendlines® 2008
Creating Opportunities in a Changing Market

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Trends in Metro Washington, DC Commercial Real Estate | February 7, 2008
A Collaborative Publication of Delta Associates,

Partners in Excellence with Transwestern
© 2008. All Rights Reserved.
You may not copy or disseminate this report. If quoted, proper attribution is required.
To order your copy of TrendLines, contact the Publications Administrator at 703.836.5700.
trendlines 2008
®
February 2008
Foreword
To our friends, clients and colleagues: Our expectations for 2008 include:
We are pleased to provide you this eleventh annual n National Economy: Further deceleration with the
edition of TrendLines: Trends in Metro Washington, DC possibility – though not likelihood – of recession.
Commercial Real Estate. This is a collaborative publication n Regional Economy: Slower but steady growth, driven by
of Transwestern and its research affiliate, Delta Associates. our core industries.
Our purposes are to distill the trends of 2007 and to shed
n Office Market: Continued expansion, but at below-
light on pivotal forces and issues that we believe will affect
average levels of demand, accompanied by rising
the region’s economy and real estate in the period ahead.
vacancies and rents that only edge up.
n Flex/Industrial Market: Steady growth. However, new
In 2007, we experienced a cyclical change, moving from the
robust part of the economic cycle to what some believe may supply may exceed demand by year-end.
be a pre-cursor to a recession. And our real estate market n Housing Market (including condos): Methodical recovery
seems to be shifting from one that favors the landlord to one as excess inventory is reduced. But we do not look for
that favors the tenant. Both shifts are overstated to our way meaningful price traction until 2009.
of thinking, but a shift is in fact underway – from the less- n Rental Apartment Market: Strong conditions, but rising
challenging part of the cycle to one that takes more insight
vacancy due to an expanding pipeline.
to survive and make money. The icon of this shift is the
n Retail Market: Robust market conditions continue as
Credit Crunch that occurred in August. And so this annual
publication, TrendLines, is of even more importance –- as it above-average income and an inadequate development
can shed light on the path forward during a tumultuous time pipeline perpetuate low vacancy and rising rents,
in our industry. although this asset class is vulnerable to a recession.
n Capital Markets: Continued healthy performance, though
More challenges are on the horizon for 2008. Market at reduced volume. Prices should hold steady due to
conditions are expected to deteriorate modestly for most improved operating performance. Cap rates may edge
asset classes yet remain sturdy overall. High operating, up modestly.
financing, and development costs remain hurdles. While n Overall: We will find as many opportunities in our industry
money will be available to invest in commercial real estate in
in 2008 as we did in 2007. But it will take more equity,
2008, it will not be like we got used to in 2007. Also of note,
more insight, more work, and more skill.
the Washington area economy is dealing with the slowing
growth rate of Federal procurement spending, which has and
will dampen job creation and office leasing activity. We hope the information that follows helps provide insight
into these opportunities. We look forward to helping you
interpret everything you see in the market, and to being your
service partner in the successes we know you will achieve in
the period ahead.
Transwestern Delta Associates
Thomas Nordlinger Gregory H. Leisch, CRE

President, Mid-Atlantic Region Chief Executive Officer
February 2008
To Our Clients and Business Associates:
Once again, the Washington real estate market is among the strongest in the
country as our area continues to thrive and grow. Visionary companies, many
of whom are our clients, our taking the lead in this growth by reinvesting in the
region and fostering economic development through their commercial and
residential developments. These real estate projects generate jobs and provide the
foundation for our communities.
As always, the future holds uncertainty but there is much anticipation as we

begin 2008. The opening of Nationals Park, first openings at National Harbor,
the continuing revitalization of Rosslyn, and further development of Reston are
events that will shape our region for decades to come. Projects near Nationals
Park, Mount Vernon Triangle and NoMa areas will continue the resurgence of DC
neighborhoods. In addition, continued development near current and planned
transit corridors offer the potential for improved traffic flow throughout the region.
An increased emphasis on green design and development will reshape how each of
us works in the future. These initiatives give promise to the Washington region in
2008 and the years to follow.
As business and tax advisors to the real estate industry for over 30 years, we draw
upon our experience serving many of the region’s top real estate companies to
assist owners in creating tax-efficient ownership structures and developing planning
alternatives. We identify opportunities by being experts in the areas of Federal and
state tax laws that affect our clients.
We look forward to continuing to work with the real estate entrepreneurs who
are the foundation of the metropolitan Washington real estate industry as well
as investors – foreign and domestic – who recognize our area as one of the most
desirable investment markets in the United States.
As changes affect the real estate industry, we will be right here with you, advising
you on ways to profit from those changes and use them to give you a competitive
edge. To learn more about how we can help you manage your business in today’s
changing marketplace, please contact us.
Very truly yours,
Kelly P. Toole
Direct Dial 703 923 8215

ktoole@beersandcutler.com
trendlines 2008®
February 2008
Dear TrendLines Participant,
PNC is once again proud to sponsor the 2008 TrendLines Report, one of the premier
resources for the area’s commercial real estate professionals.
We understand that in today’s rapidly evolving markets you need lenders and
advisors who can do more for you. Lenders who have experienced varied economic
cycles before and have been consistently available to their customers. PNC is one
of those lenders.
We are very proud to be a member of the Washington-Baltimore real estate

community. PNC has been a presence in this market for two decades, strengthened
by our recent acquisitions of Mercantile and Riggs National Bank.
We look forward to continuing to serve the real estate communities of this area,
delivering one of the industry’s broadest platforms of products and services -
including construction, interim, and permanent financing, along with access to the
capital markets, treasury management services and best-in-class loan servicing
provided by Midland Loan Services. And with last year’s acquisition of ARCS
Commercial Mortgage, we can now deliver access to one of Fannie Mae’s top DUS
lenders.
At PNC, we combine a wider range of financial resources with a deeper

understanding of your business to help you achieve your goals.
To learn how we can bring ideas, advice and solutions to you, call us or visit
www.pnc.com/realestate.
Sincerely,
Michael N. Harreld William R. Lynch III

President Senior Vice President
PNC Bank – Greater Washington Area PNC Real Estate Finance
202-835-5513 202-835-4513
m.harreld@pnc.com william.lynch@pnc.com
trendlines 2008
®
Table of Contents
Section 1 Creating Opportunities in a Changing Market Page 12
Section 2 The National Economy Page 24
Section 3 The Washington Area Economy Page 34
Section 4 The Washington Area Office Market Page 42
Section 5 The Washington/Baltimore Flex/Industrial Market Page 54
Section 6 The Washington Area Apartment Market Page 64
Section 7 The Washington Area Condominium Market Page 74
Section 8 The Washington Area Retail Market Page 80
Section 9 Capital Markets and Investment Trends Page 92
Section 10 TrendSetter Award Recipient Page 98
Acknowledgments: The editor, Gregory H. Leisch, CRE, wishes to acknowledge and thank this
project’s research team at Delta Associates: Alexander (Sandy) Paul, President of the Transwestern
Support Group and National Research Director; and Elizabeth Norton, Mid-Atlantic Research
Director. The creative design team at Transwestern and the administrative staff at Delta have our
gratitude. Most of all, our appreciation is hereby expressed to the dozens of industry leaders who
spent their valuable time responding to questions about the future of our industry here in the
Washington area.
Representations: Although the information contained herein is based on sources that Delta
Associates (DA) and Transwestern (TW) believe to be reliable, DA and TW make no representation
or warranty that such information is accurate or complete. All prices, yields, analyses, computations,
and opinions expressed are subject to change without notice. Under no circumstances should
any such information be considered representations or warranties of DA or TW of any kind. Any
such information may be based on assumptions that may or may not be accurate, and any such
assumption may differ from actual results. This report should not be considered investment advice.
TrendLines®: Trends in Metro Washington, DC Commercial Real Estate was designed in-house
for Transwestern and Delta Associates by Ji Chang, Verónica Sandoval and Jessica Newman.
9
CREATING OPPORTUNITIES
IN A CHANGING MARKET
section
CREATING OPPORTUNITIES IN A CHANGING MARKET
CREATING
OPPORTUNITIES
IN A CHANGING
MARKET
The purpose of TrendLines® is to distill the trends of 2007 and shed light on pivotal
issues that shape our commercial real estate opportunities in the Washington
marketplace in 2008 and beyond.
In order to understand the full picture of what challenges and opportunities lay
ahead, let’s first understand the status of the economy – both at the national and
regional level – and its effect on real estate market conditions.
Last year in TrendLines we said we had transitioned into a full-fledged period

of mixed messages for the U.S. economy. This year, those messages continue
to cloud the outlook for 2008. The following messages are so mixed that 69% of
Americans believe that the nation is headed into a recession whereas only 2 in 54
leading economists believe so.
n Corporate profits remain healthy, although the number of industries under

profit pressure has increased.
n GDP growth was a healthy 4.9% on an annualized basis in the 3rd quarter,
although we know this rate cannot last.
n Consumer confidence, which in turn governs retail spending, is at a cyclical low.
n Housing, which seemed poised for a recovery in the Summer, was knocked on
its ear by the August Credit Crunch.
n The employment picture remains healthy, with 1.8 million net new payroll jobs
added in 2007. However, the growth rate slowed dramatically late in the year.
n Inflation remains under control, but it increased late in the year.
What can we decipher from the muddled economic picture? What clues can we
seize upon that will help us invest wisely in the period ahead?
A Changing Market: Trends of 2007

Identifying key trends of 2007 – in the national economy, the regional economy, and
Washington area commercial real estate – will assist us in making smart decisions in
2008. Let’s start with five key national economic trends.
12
trendlines 2008
®
National Economic Trends The Federal government designed an

aid package for those homeowners
1. Subprime Crisis / Housing Weakness / Credit Crunch hit hardest by the subprime crisis,
especially those who took on
Where did all the liquidity go? And what do sub-prime mortgages have to do with tremendous debt at the urging of some
commercial real estate? In August 2007, buyers of bonds securitized by real estate lenders. However, it could take much
assets lost faith in the value of the collateral behind those bonds. It started with of 2008 or beyond for the crunch to
pools of residential mortgages but spread to other asset classes. Once spread, the fully work through the economy, as
bond market seized up like an over-heated engine. The Fed increased liquidity and the Fed has said that an average of
lowered inter-bank borrowing rates to help cool and restart the engine, but that 450,000 subprime ARMs are scheduled
will go only so far. We need faith again in the valuation of the collateral that secures to undergo their first rate increase each
these bonds. That will take time and re-pricing, which has begun and will continue quarter in 2008.
throughout the first half of 2008.
In our view, this will work itself out over
The share of subprime mortgage holders unable to pay off their loans tripled from the course of 2008. In the meantime:
June 2005 to August 2007, leading to the Credit Crunch. The share of delinquencies Cash is king.
and foreclosures continued to rise into early 2008, as shown in the graph below.
2. The Weak Dollar
Share of Subprime Mortgages in Delinquency or Foreclosure

A weak U.S. dollar, while inconvenient
for the American traveler abroad, has
fostered exports and related domestic
jobs. And for the commercial real estate
industry, it has encouraged foreign
buyers to step into the breach left by
leveraged domestics in the wake of the
Credit Crunch. And the same is true for
U.S. companies of all types: nearly half
of U.S. M&A activity in the 4th quarter
of 2007 was by foreign buyers. We are
truly becoming a global marketplace.
The dollar fell 10% against the euro

*As of March 2007
Source: MSNBC, Federal Reserve, Delta Associates; January 2008
in 2007. The slowing U.S. economy
means that continued weakness in
the dollar’s value against other major
currencies is likely to continue in 2008,
Share of U.S. Targeted Mergers and Acquisitions with Foreign Buyers keeping U.S. assets attractive to foreign
buyers. In the meantime, capitalize
on foreign money flowing into U.S.
real estate deals.
Source: Bloomberg News, Delta Associates; January 2008
section 1 | 13
3. Inflation on the Rise; Mortgage Rates to Follow?
The threat of inflation kept the Federal Reserve from cutting interest rates early in
2007, even though the U.S. economic expansion seemed to be slowing. Through
this decade, inflation had remained under 4% per year, even as gasoline prices
drove the overall barometer higher. However, after the Credit Crunch hit in August,
and consumer sentiment declined dramatically, the Fed took action, cutting the
Federal Funds rate in September, and then again in October and December. This
loosening of monetary policy takes on the added risk of a rising inflation rate, and
indeed, the rate for the 12 months ending in November 2007 rose to 4.3% – the
highest 12-month period in 17 years.
U.S. Inflation
*12-month percentage change through November 2007

Source: Bureau of Labor Statistics, Delta Associates; January 2008
Odds makers are betting on further rate cuts. And the Congress and White
House are discussing an economic stimulus package. These activities will likely
push inflation higher. And with higher inflation would come two problems for the
economy and our industry:
n Inflation would debilitate some consumers, further handicapping a resumption

of a more robust GDP growth rate.
n Inflation often is baked into long-term borrowing rates, so mortgage rates may
rise above their current low levels. That would be bad for the economy as well
as the real estate industry.
In our view inflation will remain elevated – 4% or so – but not high. In the
meantime, lock in fixed-rate low borrowing rates and take a defensive posture
regarding inflation.
4. Slowing GDP and Job Growth
Last year was a strange one for the broadest gauge of American economic
performance: gross domestic product (GDP). After a 2.9% growth rate for all of
2006, the rate dropped to 0.6% (annualized) for the 1st quarter of 2007, then jumped
to 3.8% and 4.9% for quarters 2 and 3. Most observers believe the final numbers
for the 4th quarter will be in the 1.0% to 1.5% range, which will make the annual
average in the 2.2% to 2.6% range.
14
trendlines 2008
®
Decelerating job growth, credit market U.S. Gross Domestic Product Growth
uncertainty, and related housing market
problems should act as a drag on
GDP growth in 2008. With weakening
consumer spending, which constitutes
two-thirds of GDP, Wachovia Bank
economists estimate U.S. GDP growth
will be 2.2% in 2007 when final figures
are tallied, and 2.0% in 2008. We
concur with these estimates. The long-
term average growth rate for real GDP
is approximately 3% per annum.
What does a 2.2% GDP growth rate

mean for job creation? Job growth was
Source: Wachovia Bank, Delta Associates; January 2008
a healthy 1.8 million jobs in 2007 on an
average annual basis, but the rate of
growth was only 1.3 million jobs for the
12 months ending in December. We U.S. Payroll Jobs
expect that range for job creation in
2008 – approximately 1.2 million to 1.5
million new payroll jobs.
In our view, this level of job creation will

not generate enough jobs to sustain
office absorption levels consistent
with current construction activity
in most metro markets – including
Washington. With markets therefore
favoring tenants, in the meantime, we
recommend an aggressive leasing
posture and a selective development
outlook.
5. 40% Chance of a Recession

in 2008; What Relevance to
Recession-Resistant Washington? And the leading economic indicators index showed a modest decline during 2007,
suggesting slow growth in 2008.
As the calendar turned to 2008, the
consensus of economists seemed to Something to keep in mind: the overall U.S. economic performance can obscure
be that there was a 40% chance of a the conditions in certain regions of the country, or even certain states and cities.
recession in 2008. Most economists Even if the U.S. as a whole avoids recession in 2008, some states with slow-growth
define “recession” as two consecutive or no-growth industries – like Michigan and its auto industry, for example – may feel
quarters of negative growth in GDP. A recessionary pain. Conversely, even if the U.S. does fall into recession this year, the
Business Week poll reports that 69% of Washington region is almost certain to avoid one, with gross regional product rising
adults think a recession in 2008 is likely, at nearly 3%.
yet in its survey of economists, only
two of 54 respondents believed a U.S. In our view, the U.S. will avoid a recession. And more to the point, Washington
recession would occur this year. will remain recession-resistant.
At the same time, Global Insight, an

economic forecasting firm, puts the
chance of a recession this year at 40%.
We concur.
section 1 | 15
Regional Economic Trends Leading Economic Indicators Index
Three trends stood out in the regional

economy in 2007, as discussed below.
1. Reduced Federal
Procurement Activity
The annual change in Federal

procurement spending within the
Washington metro area has reverted
to modest growth rates. After
experiencing an unprecedented spike
*12-month percentage change through November 2007
in procurement spending from 2002 Source: Bureau of Labor Statistics, Delta Associates; January 2008
through 2004 – the aftermath of 9/11

– the annual change in spending has
inched up from $1 billion in 2005 to an
Annual Change in Federal Procurement Spending
estimated $1.4 billion in 2007.
Washington Metro Area
The Federal government is the number

one core industry in the region. And
procurement spending is the number
one driver of Federal economic activity.
As such, a slow down in this activity
does not bode well for the regional
economy. And the slow down in this
activity in fact led to a slow down in job
growth in the region.
In our view there will not be a

resumption of procurement spending
growth in this decade to the levels seen
earlier in this economic cycle. That
means we should be prepared for a *Estimate
more modest rate of job growth in Source: GMU Center for Regional Analysis, Delta Associates; January 2008
the region.
16
trendlines 2008
®
2. Slowing Job Growth Payroll Job Growth

Washington Metro Area | 1981 - November 2007
The easing of procurement spending
growth has affected metro area job
creation, as $1 billion in additional
Federal contract spending creates
roughly 7,000 new jobs. Since 2004,
annual employment growth in the
Washington metro area has edged
down each year. In the 12 months
ending November 2007, job growth fell
below the 15-year average of 45,000
jobs per annum.
Regardless, the Washington metro area

experienced a 1.4% rate of job growth *12 months ending in November 2007
over the past 12 months, compared to Note: Data restated since 2000 consistent with redefinition of metro area in March 2005
1.1% nationally.
With slower job growth should come

a reduced development pipeline, but GDP and GRP Growth
that has not happened. U.S. vs. Washington Metro Area | 2000 - 2007
3. Vulnerability to
U.S. Economic Cycle
The Federal government helps to

buffer the Washington metro area
from national economic cooling, given
the vast number of Federal agencies
located in the metro area. Despite this
buffer, the metro area is vulnerable to
national economic cycles. As national
GDP growth wanes, Washington metro
GRP growth follows suit, in part due
to the greater diversity of the regional
core industries, compared to 30 years Source: Global Insight, GMU Center for Regional Analysis, Delta Associates; January 2008
ago. Regardless, the Washington

metro area consistently outperforms
the growth of the nation by an
flex/industrial, continue their ascent in compared to retail. The flex/industrial
average of 170 basis points.
the expansion phase, while multifamily market has the potential to enter the
and office product are making their way contraction phase over the next 12
through the contraction phase of the months, as we project new supply
Regional Real Estate Trends cycle. will outpace demand in 2008. Retail
remains robust, with ample room for
So, how did the region’s real estate 1. Retail and Flex/Industrial Markets expansion, given the limited amount
perform in 2007? And what might it of retail space in this underserved
mean for 2008? Despite a cooling economy, the retail metro area.
and flex/industrial markets continue
At year-end 2007, the product types to expand, as vacancy declined, rents 2. Office and Apartment Markets
in the Washington metro area were at rose, and the pipeline was controlled
different positions in the real estate during 2007. The flex/industrial market Although among the best markets in
cycle. Two product types, retail and is further along in the expansion phase the nation, the office and apartment
section 1 | 17
product types have made their way into Commercial Real Estate Market Position
the contraction phase of the market Washington Metro Area | Year-End 2007
cycle. These product types experienced
rising vacancy, softer absorption than
the long-term average, restrained rent
growth, and an engorged pipeline in
2007.
3. Condominium Market
The Washington metro area condo

market is at the tail-end of the
contraction phase. This product type is
now self-correcting, as developers have
either cancelled or reverted projects Source: Delta Associates; January 2008
to apartments given current market
conditions. This action helped to
reduce the pipeline and stabilize prices
in the second half of 2007. Investment Sales
Washington Metro Area | 1999 - 2007
4. Investment Sales
Investors continued to funnel record

amounts of capital to Washington
metro area assets in 2007, most notably
to office and multifamily product.
The metro area experienced record
investment sales volume from 2005
to 2007 for all product types listed
in the adjacent graph, as each year
outperformed the 10-year annual
average of $8.6 billion.
Note: Whole-company and portfolio sales are excluded
Washington area cap rates declined Source: Real Capital Analytics, CoStar COMPS, Delta Associates; January 2008
slightly in 2007 for each product
type listed in the following graph.
However, cap rates in use at year-end
for shopping purposes were above the Average Cap Rates
rates in use a year earlier. This is a result Washington Metro Area | 2002 - 2007
of the August Credit Crunch.
Source: Real Capital Analytics, Delta Associates; January 2008
18
trendlines 2008
®
Three Key Factors to Watch in 2008
1. The Economy: Job Growth and Consumer Sentiment

n They have the potential to drive the recovery of the housing market. Job
growth has been healthy but decelerating, while consumer sentiment has
been declining rapidly. Both need to stabilize to support a housing market
rebound.
n Will they fuel office demand? With job creation the most closely linked
indicator to office demand, a more optimistic outlook by the business
community is essential for demand to remain near our region’s long-term
average absorption of 8.1 million SF per year.
2. Supply Trends: Developer Discipline

n Groundbreakings have ebbed – good news for supply/demand
fundamentals going forward.
n The future of rental rates depends on how well inventory remains under
control.
3. Capital Flows: The Credit Crunch Effect

n All assets are being re-priced. How will real estate compare with stocks?
n Deal volume will determine cap rates, and prices will be driven by
performance. With the Credit Crunch forcing highly-leveraged buyers from
the market, how aggressive will the remaining bidders be?
The Path Forward: Focus on Operating Performance and Re-Positioning

Creating Opportunities
Focus on improving the performance of what you own. Or buy to reposition.
If these are the trends of 2007 and the
signposts of 2008, what is the path An example of re-positioning in the current cycle is Vornado’s approach in Crystal
forward? City. When it became clear that the Patent and Trademark Office was leaving for
Alexandria, and that the Pentagon’s BRAC plan was going to force other tenants out
We see two major avenues to success: as well, Vornado turned its focus to rehabilitating Crystal City’s image. It invested in
the streetscapes and brought a renewed sense of life to the neighborhood through
n Focus on performance restaurants, entertainment, and retail. It also began to consider alternative uses for
enhancement. existing assets, such as residential options for some of the older office stock.
n Invest and develop in niches. Another example of re-positioning and improving operating performance, while
accessing underutilized FAR: the height additions to the K Street office inventory.
Owners along that major corridor are taking full advantage of FARs to maximize
their return on investment.
And still others are buying tired Class B apartments and neighborhood shopping
centers and upgrading them with improved rental results.
section 1 | 19
Development and Investment Niches:

Brains Will Beat Brawn
On the development and investment side of the business, it is a tricky time.
But there are opportunities even as the overall pipeline in some product types is
engorged.
Cash Is King. After the Credit Crunch, the highly-leveraged buyers found that their
financing was too expensive or simply dried up, and they largely withdrew from the
market. There is still competition bidding for superior assets, but the buyers are
those with cash to spend. And development margins are thin enough that cash will
be rewarded over those with a heavy debt burden.
Be a Niche Player. Success in 2008 will come to those who have the market
knowledge and skill to ferret out deals that will outperform market-wide averages.
Keep in mind that niche players come in three varieties: those who work in
geographic areas, those who focus on specific product types, and those who find
the narrow intersection between those two worlds.
Geographic Plays. Examples of this niche include development and investment:
n Near transit infrastructure, especially Metro. As traffic congestion gets worse

and the remedies remain long-term (such as HOT lanes on the Beltway, and the
ICC), sites proximate to Metro remain highly desirable.
n Close to jobs, such as inside the Beltway, where employment prospects remain
strongest. There are sound opportunities outside the Beltway, but they are
harder to find and come with greater risk.
n In submarkets with better supply/demand fundamentals. While office
construction in the District remains high, the vacancy rate remains low enough
that rent growth should continue throughout 2008 and perhaps beyond. On
the residential side, new condominiums in the District continue to experience
rising prices, despite sluggishness elsewhere.
Product Type Plays. Examples of this niche include development and investment in:
n Mixed-use communities with access to everyday necessities and amenities,

such as groceries, banking, and entertainment. With rising traffic congestion
in the metro area, residents increasingly desire a community with work/play
convenience.
n Infill areas, which will become paramount in the coveted core submarkets, as
existing buildings age past usefulness and people continue to seek out urban
communities for homes and offices.
n Environmentally friendly buildings with LEED certification, which are
becoming a trend in the metro area. We expect this trend to continue, with
government regulation and demand from tenants.
n Industrial submarkets near ports, airports and interstate highways. These
nodes are favored, as product distribution to the metro area remains high,
backed by a robust retail market.
20
trendlines 2008
®
n Demographically-supported product, such as senior/student housing and

medical offices. With 15 universities and colleges in the metro area, each with
a growing student body, demand for student housing is on the rise. As the
baby boomer demographic ages, demand is rising for senior housing and
medical offices, as a greater population will be taking advantage of health care
resources.
The Right Product in the Right Submarket. We believe development and

investment opportunities continue to exist in the Washington metro area for all
asset classes, as a handful of submarkets are ripe for development due to superior
supply/demand fundamentals.
For example, the following submarkets are ready for multifamily and office
development due to low vacancy, rising rents, and limited pipeline:
n Bethesda/Chevy Chase
n Rosslyn-Ballston Corridor
n Tysons Corner
The Bethesda/Chevy Chase and Rosslyn-Ballston Corridor submarkets are popular

close-in submarkets that offer multiple Metro-served, 24/7 environments and access
to retail. The future expansion of Metro to Tysons Corner will position Tysons as a
favored location. These submarkets do have drawbacks, but on the whole they are
still ripe for well-considered development projects.
Although not established as a submarket yet, the Capitol Riverfront (a.k.a. The
Ballpark District) will be a notable competitor for multifamily and office in the near-
term as entertainment and commercial development transforms this submarket into
a 24/7 destination.
We hope the information in the rest of this report aids you in making the best
possible decisions to meet your particular business objectives. Best wishes for
success in 2008 and beyond.
section 1 | 21
THE
NATIONAL
ECONOMY
section
THE NATIONAL ECONOMY
THE
NATIONAL
ECONOMY
Economy Remains Sturdy Enough to Avoid Recession

U.S. economic growth slowed in late 2007, as the Credit Crunch resulted in layoffs
and retarded improvement in what had been a stabilizing housing market. As
2008 begins, nearly half of polled economists believe the nation is headed into a
recession in 2008. We are not among them, but 2008 will be a slow-growth year. So
slow it may feel like a recession. To us, numerous positive indicators suggest the
expansion will continue, at least at a modest pace:
n The employment picture remains healthy, with 1.8 million net new payroll jobs
added in 2007. However, the growth rate slowed dramatically late in the year.
n Inflation remains under control, yet it increased late in 2007.
n Corporate profits remain healthy, although the number of industries under
profit pressure has increased.
n GDP growth was a healthy 4.9% on an annualized basis through the 3rd quarter,
although we know this rate cannot last.
n A weak U.S. dollar, while inconvenient for the American traveler abroad, has
fostered exports and related jobs. And for the commercial real estate industry,
it has encouraged foreign buyers to step into the breach left by leveraged
domestics in the wake of the Credit Crunch.
n Interest rates remain low – both long-term as well as short-term rates. This
bodes well for the economy as a whole as well as our real estate industry in
particular.
By contrast, however, numerous negative indicators suggest caution for 2008:
n The credit market is tight, with lenders strengthening loan requirements and
some forms of debt simply not available. A near-term rebound in the housing
market is less likely.
n Consumer confidence is at a 26-month low – and the second lowest since the
early 1990s. A spooked stock market is not helping. And with our economy 70%
driven by the consumer, this does not bode well for GDP growth in 2008.
n Oil prices remain high, squeezing consumers on gasoline and home heating
costs.
n The leading economic indicators index is at its two-year nadir. This also
suggests 2008 will see tepid growth.
24
trendlines 2008
®
While the national economy is fragile, Oil Prices

on balance we see more positive than
negative. Specifically, we expect the
economy to perform as follows in 2008:
n GDP growth: 2.0% to 2.3%.

n Payroll job growth: 1.2-1.5 million.
n Monetary policy: Accommodating.
n The housing market: Gradual
stabilization leading to traction by
2009.
Although Washington is often

described as recession-resistant, the *Price as of December 31, 2007
Note: 12 month averages of WTI NYMEX prices
slowing national economy plays a role Source: GASearch; January 2008
in Washington’s performance through

its influence on interest rates, capital
flows, and pricing/cap rates. Thus, our
review of the real estate market begins U.S. Gasoline Prices
with the national economy.
Construction costs remain a problem

for developers, as many new projects
are unlikely to achieve the rents needed
to generate an adequate return on
cost. Developers have been trying to
push rents to make pro formas work,
but considerable new supply in the
office and apartment pipelines have
made that harder to do for properties
in more congested sub-markets.
Compounded with credit problems,
we expect some projects to be shelved Note: Prices are for regular-grade gasoline as of year-end
Source: Department of Energy; January 2008
for now.
Oil prices hit $100 per barrel in

November and again in the earliest
days of 2008. (The average price for U.S. Inflation
2007 was $72.34 per barrel.) Prices
have tripled since 2003. The consensus
of energy industry analysts is that
OPEC would like to see the price settle
between $70-80 per barrel.
Gasoline prices were on the rise again

early in 2008. In early January, the
national average for regular-grade
gasoline was $3.11/gallon.
Inflation and Interest Rates. Inflation

rose toward the end of 2007. Prices
were up 4.3% during the 12 months * 12-month percentage change through November 2007
Source: Bureau of Labor Statistics; January 2008
section 2 | 25
ending in November after rising 2.5% Federal Funds Rate

during 2006. The Fed’s strategy from
2003-06 of raising short-term interest
rates kept inflation for core goods and
services under control. With inflation
still fairly low and increased volatility
in the financial markets, the Fed cut
the Federal Funds Rate by 50 basis
points to 4.75% on September 18, then
another 25 points to 4.50% on October
31, then another 25 points to 4.25% on
December 11.
Source: Federal Reserve Board; January 2008

Job growth is moderating as credit
is tightening, leading to the rate
cuts. The reductions in the Federal
Funds Rate should benefit consumers,
investors, and homebuyers, although
consumers’ perception of a slowing
U.S. Existing Home Sales
economy is likely to offset some of the
benefit derived from a looser monetary
policy.
Housing. Although U.S. housing is

better described as hundreds of local
markets rather than a single national
market, the overall housing market
had appeared to be stabilizing in the
Summer – until the August Credit
Crunch. Existing homes sold at an
annualized volume of 5.0 million
units through November 2007. This
figure declined throughout 2007, and
Note: Through November 2007; annualized
the decline was exacerbated by the Source: National Association of Realtors; January 2008
disruptions in the credit market.
On the bright side, mortgage rates

have been declining lately – to 5.87%
for a fixed-rate 30-year mortgage. Annual Change in Existing Home Sale Prices
While many potential buyers are taking
more time to make a decision than they
were earlier in this cycle, prices have
not declined substantially in most major
markets, particularly those with barriers
to new construction and significant job
growth.
Credit. The August 2007 Credit

Crunch has yet to work its way through
the housing market. However, the
December agreement between the
White House and the nation’s largest
lenders should offer some relief for * 12-month percentage change through Q3 2007
Source: National Association of Realtors; January 2008
26
trendlines 2008
®
subprime borrowers who face sharp Capital Investment in Equipment and Software
increases in their adjustable interest
rates. We expect improving conditions
for the housing market in 2009.
Nationally, according to the National

Association of Realtors (NAR), the
average price of a home that sold
during the 3rd quarter of 2007 declined
2.0% compared to a year earlier.
Among major metros, price changes
ranged from -7.1% (Las Vegas) to +8.6%
(San Francisco/Oakland) during the
12 months ending in September. Las
*Through Q3 2007, annualized
Vegas prices had risen to unsustainable Note: Figures are seasonally adjusted
levels (with 48.7% growth in 2004 and Source: Bureau of Economic Analysis; January 2008
14.4% growth in 2005), and were almost

certain to decline. By contrast, job
growth in the SF Bay Area has been
stronger this year, generating demand Purchasing Managers’ Index
for housing.
Business spending on equipment

and software continues to increase.
Spending in this category was $988.7
billion in 2006, and was $1.019 trillion
for the first nine months of 2007 on
an annualized basis. As a result,
professional services companies
are hiring at a steady pace to fulfill
demand, keeping the unemployment
rate at or below 5%.
Manufacturing. Production in the Note: Through December 2007

Manufacturing sector slowed in late Source: Institute for Supply Management; January 2008
2007. The Purchasing Managers’

Index was at 47.7 in December 2007,
compared to 51.4 at the end of
2006. (A rating under 50 indicates U.S. Payroll Jobs
sector contraction.) Even when the
manufacturing sector expands, it has
been shedding jobs due to productivity
gains. This sector lost 212,000 jobs
during the 12 months ending in
December 2007.
Payroll jobs rose by 1.8 million in 2007

on an average annual basis, compared
to an increase of 2.5 million during
2006. The pace of job creation eased
in the second half of 2007. The growth
of well-paying jobs remains solid,
however: over the 12 months ending
Source: Bureau of Labor Statistics; January 2008
section 2 | 27
in December, the Professional/Business U.S. Unemployment Rate

Services sector accounted for 24% of
new jobs. Even though some service
fields are experiencing slower growth,
the well-educated service workforce
is exerting growing dominance over
manufacturing in terms of job creation.
The U.S. unemployment rate is 5.0%

as of December 2007, comparable to
a decade ago. The unemployment
rate has been at or below 5% since
November 2005. However, it was on
the rise late in the year, contributing Note: Through December 2007; seasonally adjusted; shaded bars represent recessions
to recession fears and a decline in Source: Bureau of Labor Statistics; January 2008
consumer confidence.
The trade deficit pulled back a bit in

2007, as the cheap dollar made U.S.
exports more attractive to foreign U.S. Trade Deficit
consumers. The deficit was $704
billion in the first ten months of 2007
on an annualized basis. The federal
budget deficit contracted in 2006,
but spending still exceeded revenues
(2007 data was not available as of this
writing). The Congressional Budget
Office (CBO) estimates the 2006 budget
deficit was $248 billion; the wars in Iraq
and Afghanistan, as well as homeland
security efforts, are driving massive
government spending. The CBO
currently projects that the budget will
return to surplus territory in FY 2012, * Through October 2007; annualized
Source: U.S. Census Bureau, Bureau of Economic Analysis; January 2008
but that assumes no recession before
then and no major additional spending
beyond what is currently planned. The
CBO’s estimated U.S. budget deficit for
2007 was $158 billion.
Federal Budget Deficit
* Projected by the Congressional Budget Office

Source: Office of Management and Budget, Congressional Budget Office; January 2008
28
trendlines 2008®
Dow Jones Industrial Average Stock Market. After a strong

September and October, the Dow
Jones Industrial Average has slid since,
closing the volatile year at 13,265, up
802 points, or 6.4%, but down from its
Autumn peak. Problems in the credit
markets largely were responsible for the
tumult. Additional rate cuts from the
Fed in early 2008 may stabilize the Dow,
but most observers feel the bull market
is over for a while.
Consumer sentiment declined

Note: Through December 2007 precipitously during 2007. The high
Source: Dow Jones, Yahoo! Finance; January 2008 price of oil, modestly declining home
prices, and the roiled financial markets
took a toll on consumer confidence.
The University of Michigan’s monthly
index of consumer sentiment registered
75.5 in December 2007. This is the
Consumer Sentiment
lowest level since October 2005 and the
second-lowest since the early 1990s.
Consumer expectations have declined
in part due to expectations of higher
inflation, a likely result of the Fed’s rate
cuts. In line with weakened consumer
expectations, the holiday shopping
season was sluggish, with just 1.7%
growth compared to 2006, the
lowest rate of growth since 2002.
The leading economic indicators

index edged down in November, to
Source: University of Michigan, Federal Reserve Bank of St. Louis; January 2008 136.3. The index is now at its lowest
point since March 2005. The index
declined modestly through most of
2007, suggesting that the national
economic expansion will continue –
but will be sluggish – in 2008. We are
Leading Economic Indicators Index seeing evidence of that: a healthy but
decelerating job growth rate along with
a variable (but still up for 2007) Dow.
Note: Through November 2007. 1996 = 100

Source: The Conference Board; January 2008
section 2 | 29
Economic Outlook
We expect the U.S. economy will expand over the next 12 months, although at
a very modest rate. Decelerating job growth and credit market uncertainty should
act as a drag on GDP growth. The policies of the Federal Reserve should keep
inflation under control, though it is likely to accelerate modestly.
Real GDP growth (on an annualized basis) was 4.9% in 3rd quarter 2007, according
to the Bureau of Economic Analysis, after a 3.8% annualized rate in 2nd quarter
2007. The 3rd quarter rate was revised upward from BEA’s preliminary estimate of
3.9%. Despite the improvement, Wachovia Bank economists estimate U.S. GDP
growth will be 2.2% in 2007 when final figures are tallied, and 2.0% in 2008. We
concur with this estimate, given the credit market problems, recent job growth
trends, and the unstable situation in the Middle East. We believe that 2009 will be a
better year for the U.S. economy. The long-term average growth rate for real GDP
is approximately 3% per annum.
The key factors affecting national economic performance in 2008 are likely to be oil
prices, the credit market, and the housing market. As always, the possibility exists
that a terrorist event could jolt economic progress.
National Payroll Job Growth Summary

U.S. payroll job growth remains healthy, adding 1.8 million positions in 2007 on an
average annual basis. Those gains represent a growth rate of 1.3%. The pace of job
growth slowed in 2007; in 2006, nearly 2.5 million net new payroll jobs were created,
as shown below:
Job Change % Change

2007 1,800,000 1.3%
2006 2,478,000 1.9%
2005 2,273,000 1.7%
2004 1,433,000 1.1%
2003 -357,000 -0.3%
2002 -1,485,000 -1.1%
2001 40,000 0.0%
30
trendlines 2008 ®
12-Month Payroll Employment Change Through November 2007
Job Change Job Change

Metro Area # % Metro Area # %
New York 80,000 0.9% Denver-Boulder 24,000 1.7%
LA Basin Austin 22,500 3.0%
Riverside/San Bernardino/Ontario 39,600 3.1% Orlando 22,500 2.0%
Los Angeles/Long Beach/Glendale 30,400 0.7% Oklahoma City 21,400 3.7%
Orange County (Santa Ana/Anaheim/Irvine) (2,200) -0.1% St. Louis 20,800 1.5%
Subtotal LA Basin 67,800 1.0% Baltimore 16,300 1.2%
Dallas/Ft. Worth 63,500 2.2% Raleigh-Durham 16,200 2.1%
Houston 58,800 2.4% San Antonio 15,500 1.9%
Atlanta 52,500 2.2% Charlotte 15,400 1.8%
Seattle 44,400 2.6% New Orleans 15,200 3.1%
Chicago 42,800 0.9% Portland (OR) 14,600 1.4%
Washington, DC 40,400 1.3% San Diego 13,300 1.0%
Phoenix 32,000 1.6% Tampa-St. Pete 12,400 0.9%
San Francisco Bay Area Kansas City 11,400 1.1%
San Francisco/San Mateo/Redwood City 14,400 1.5% Indianapolis 10,200 1.1%
San Jose/Sunnyvale/Santa Clara 11,700 1.3% Las Vegas 10,100 1.1%
Oakland/Fremont/Hayward 3,700 0.3% Memphis 8,500 1.3%
Subtotal Bay Area 29,800 1.0% Jacksonville 7,600 1.2%
Philadelphia 28,800 1.0% Sacramento 5,600 0.6%
Salt Lake City 27,500 4.4% Minneapolis-St. Paul 4,700 0.3%
Boston (Metropolitan NECTA) 26,500 1.1% Nashville 4,300 0.6%
South Florida Pittsburgh 3,000 0.3%
Miami/Miami Beach/Kendall 11,900 1.1% Cincinnati 3,000 0.3%
West Palm Beach/Boca Raton 8,800 1.5% Columbus (OH) 2,700 0.3%
Fort Lauderdale 5,700 0.7% Cleveland 1,800 0.2%
Subtotal South Florida 26,400 1.1% Detroit (Detroit/Warren/Livonia) (33,300) -1.7%
section 2 | 31
THE
WASHINGTON AREA
ECONOMY
section
THE WASHINGTON AREA ECONOMY
THE
WASHINGTON AREA
ECONOMY
As the Current Cycle Winds Down,

Region Remains Resilient
Prepared with the invaluable assistance of Dr. Stephen Fuller
Economic performance in the Washington metro area appears to have peaked in

this cycle in 2004. In 2007, we can characterize the region’s economic performance
as sturdy, as new jobs continue to be created and the metro area relishes a low
unemployment rate. But job creation is now running at or slightly below the 15-year
average of 45,000 per annum. Overall, the Washington area economy continues to
expand, but at a slower pace than experienced in the past four years.
Year-End 2007 Economic Highlights
n Payroll Employment: 3.0 million at November 2007.

n Job Growth: 40,400 during the 12 months ending November 2007, compared
to 49,900 in 2006.
n Unemployment Rate: 3.0% at November 2007, unchanged from one year ago.
n Coincident Index: 119.5 at October 2007, down from 120.0 one year ago.
n Leading Index: 108.3 at October 2007, down from 110.0 one year ago.
n Inflation: prices increased 4.5% during the 12 months ending November 2007.
n Housing Prices: declined 0.3% in the 12 months ending September 2007,
compared to rising 6.3% in 2006.
Job Growth
With 3.0 million payroll employment jobs, the Washington metro area ranks the
fourth largest job base among metro areas, behind New York, the LA Basin and
Chicago.
Payroll employment increased 40,400 in the Washington metro area over the 12
months ending November 2007 – an average pace of about 3,400 jobs per month.
Compared to other metro areas, the Washington metro area is seventh for job
growth – migrating to the middle of the pack, while other markets caught up.
34
trendlines 2008
®
Payroll Job Growth The Washington metro area experienced

Washington Metro Area | 1981 Through November 2007 a 1.4% rate of job growth over the past
12 months, compared to 1.1% nationally.
Northern Virginia created 54% of these

jobs while Suburban Maryland created
24% and the District the balance.
The ascent of New York, LA, Dallas,

and Houston as superior job creators
to Washington is not unexpected in the
mature part of the business cycle. They
are either larger (New York and LA) or
faster growing (Dallas and Houston).
And their Core Industries serve them
*12 months ending in November 2007 well during more robust periods
Note: Data restated since 2000 consistent with redefinition of metro area in March 2005
of national economic conditions,
compared to Washington’s Core
Industries which serve it well during
Payroll Job Growth
Large Metro Areas | 12 Months Ending November 2007
weaker periods of national economic
performance.
Job Growth by Sector

The service-providing sector accounted
for 95% of the job growth in the
Washington metro area during the 12
months ending November 2007. The
goods-producing sector accounted for
the remaining 5%.
The top three sectors leading job

Source: Bureau of Labor Statistics, Delta Associates; January 2008 growth in the metro area over the
past 12 months are Professional and
Trends in Employment by Major Sector Business Services, Retail Trade, and
Washington MSA (In 000’s of Payroll Jobs) Leisure and Hospitality.
Nov. 2006 Nov. 2007 12-Mo. Growth 15-Yr. Avg.
The Professional and Business
Prof./Bus. Svs. 673.2 692.1 18.9 18.8
Services sector gained 18,900 jobs
Retail Trade 278.4 283.8 5.4 1.0 during the last 12 months, just above
Leisure/Hosp. 248.6 253.2 4.6 4.3 the 15-year average of 18,800.
Other 175.4 178.9 3.5 3.9
Government 648.6 650.8 2.2 3.7 The Retail Trade sector gained 5,400
new jobs in the past 12 months,
Constr./Mining 192.8 195.0 2.2 3.3
well ahead of the 15-year average,
Financial 161.6 163.8 2.2 1.5
as consumers have a high level of
Edu./Health 325.1 326.9 1.8 7.6 disposable income in the metro area.
Whole. Trade 70.1 70.3 0.2 0.2
Transport/Util. 64.8 64.8 0.0 0.3 The Leisure and Hospitality sector
Manufacturing 63.0 62.8 -0.2 -0.6 gained 4,600 new jobs in the previous
12 months, 7.0% above the 15-year
Information 98.4 98.0 -0.4 1.0
average of 4,300.
Total 3000.0 3040.4 40.4 45.0
section 3 | 35
Unemployment Rate Unemployment Rates

Large Metro Areas | November 2006 vs. November 2007
The Washington area unemployment

rate was 3.0% at November 2007,
unchanged from one year ago. Today’s
unemployment rate is below the
average unemployment rate of the
1990s, which was 3.9%.
The Washington metro area holds the

lowest unemployment among large
metro areas and compares favorably to
the national rate of 4.7% in November
2007.
Coincident and
Leading Indices
The Washington Coincident Index, Coincident Index
which represents the current state of Washington MSA | October 2006 - October 2007
the metropolitan area economy, was
119.5 in October 2007 – which is 110
basis points below the 10-year average.
The current index is slightly lower than
120.0 one year ago.
The Washington Leading Index, which

forecasts area economic performance
over the next 18 months, is 108.3 at
October 2007, which is 210 basis points
below the 10-year average. In addition,
the current index is below 110.0
achieved one year ago, which suggests
the regional economy will continue its Source: GMU Center for Regional Analysis; January 2008
cyclical cool-down.
Consumer Price Index

Leading Index
Washington MSA | October 2006 - October 2007
Overall inflation in the Washington/
Baltimore region increased from
3.6% during the 12 months of 2006
to 4.5% during the 12 months ending
November 2007. The sharp increase is
attributed to rising prices in energy and
transportation.
Source: GMU Center for Regional Analysis; January 2008
36
trendlines 2008
®
Consumer Price Index (CPI)

Washington/Baltimore Region | 1998 - 2007
Housing Prices
House prices declined 0.3% in the
Washington metro area during the
12 months ending September 2007
according to the Office of Federal
Housing Enterprise Oversight (OFHEO).
Although demand for housing has
slowed, we expect demand to pick up
pace in 2009. Increased demand and
a decline in construction in 2008 will
stabilize pricing, leading to an uptick
in sales activity, with improvement in
market conditions appearing in 2009.
*12 months ending in November 2007

Source: US Commerce Department, Delta Associates; January 2008
Region’s Core Industries
The Washington area’s gross regional
product (GRP) was $356.3 billion in
Percent Change in House Prices
Washington MSA | 2000 - 2007 2006, an increase of 7.5% compared to
2005.
Approximately one-third of the GRP

was generated by the Federal govern-
ment – the region’s most important
Core Industry. A Core Industry is one
that imports capital and exports a good
or service. Total Federal spending in
the Washington metro area was up in
2006 to $116.5 billion, a 4.0% increase
from 2005.
Federal procurement increased by

*12 months ending in September 2007 4.0% in 2006, after increasing by only
Source: Office of Federal Housing Enterprise Oversight; January 2008
2.5% in 2005. Although procurement
spending in the metro area remains
Core Sectors of the Economy
solid, spending growth has eased
Washington Metro Area significantly, after growing by 19.0% in
2004 and 16.9% in 2003. As procure-
2005 2006 ment spending growth eases, so does
$ %GRP $ %GRP job growth, given that roughly 7,000
GRP in Billions new jobs are created per $1 billion in
Total Federal $s $112.0 33.8% $116.5 32.7% additional Federal contract spending
(graph on following page).
Portion Procurement $52.4 15.8% $54.5 15.3%
Technology $51.2 15.4% $54.3 15.2%
Building Industry $20.3 6.1% $21.4 6.0%
Int’l Business $17.3 5.2% $17.8 5.0%
Hospitality $7.2 2.2% $7.4 2.1%
Other $123.5 37.3% $138.9 39.0%
Total GRP $331.5 100.0% $356.3 100.0%
Note: 2005 figures are actuals; 2006 figures are estimates. Procurement figures do not include US Postal Service and FAA purchases
Source: Dr. Stephen Fuller, Delta Associates; January 2008
section 3 | 37
Baby Boomers’ Impact Federal Procurement Spending

on the Job Market
Baby Boomers, born between 1946
and 1964, are currently 43 to 62 years
of age. This cohort currently makes
up almost half of the workforce in
the Washington metro area. As this
segment of the population ages closer
to retirement, its participation in the
labor force is expected to decline.
The U.S. population in 2012 will

have more people in the age 55 to
65 bracket and fewer in the 35 to 45
bracket, according to the Census Source: Dr. Stephen Fuller, Delta Associates; January 2008
Bureau. According to the Council of
Economic Advisors, this decline will
lead to a shortage of experienced
The District, with a new convention center, might lose some business to National
workers and wages are likely to be
Harbor, as convention attendance is projected to flatten or decline over the next
under pressure – adding to inflation.
few years, according to the Washington Business Journal. Tourism officials are
prepared to ask the city for $10 million per year through 2011, which will fund a new
In a metro area already with a
marketing campaign.
chronically low unemployment rate,
how will Washington fare during this
period? Foreclosures Impact County Budgets
The Credit Crunch has transformed into an increase in foreclosures throughout the
Funding Tourism
nation. Although faring better than most metro areas, foreclosures were up to 79 for
every 10,000 Washington area households at the 3rd quarter, up from 11 one year
National Harbor is expected to open
ago, according to the Center for Regional Analysis.
the Gaylord Convention Center, the
first phase of its $2 billion mixed-use
As the housing market ebbs from its peak performance of a few years ago, local
project, to attendees in the Spring of
county officials are seeing the impact on county budgets, as several counties have
2008. As the mixed-use development
relied on the real estate tax to add significant revenue to their bottom line.
progresses – with all the bells and
whistles to make it a destination spot
– other locales in the metro area might Rate of Foreclosures
feel the pinch. Washington Metro Area | November 30, 2007
Jurisdiction Foreclosures/10,000 Units

The City of Alexandria recently
approved $1.3 million in funds for Prince William 262
promoting tourism. Alexandria, located Loudoun 219
directly across the river from National Prince George’s 127
Harbor, is devising a marketing plan Montgomery 53
that will attract visitors from National Fairfax 34
Harbor. According to the Washington
Alexandria 34
Business Journal, the marketing
campaign will include brochures, videos Arlington 27
and ad placement. In addition, other District 22
upgrades will be made, including a Source: GMU Center for Regional Analysis; January 2008
trolley service that runs on King Street.
38
trendlines 2008
®
For example, Fairfax County projects a shortfall of roughly $220 million,

Montgomery County projects a $61 million loss, and Prince William County
estimates a $51 million shortfall, according to the Washington Business Journal.
The District’s transfer and recordation revenue is projected to decline to $309
million in 2009, from $330 in 2006. Prince George’s County projects a decline to
$165.9 million in 2009, from $221.8 million in 2007.
Although county budgets will feel the pinch of the housing slowdown in the
near-term, we expect conditions to firm faster in the Washington area than in
other metro areas. We expect that consistent demand and a decline in construction
will stabilize pricing and market conditions by 2009.
Washington Area Outlook

We expect the Washington metro area economy to progress in 2008 at a
modest pace. Although growth has slowed compared to the past four years, we
predict conditions will remain sturdy during the next two years.
The Professional and Business Services sector should continue to lead job growth,
as government contractors and law firms spur growth in this sector. If the 2008
election favors Democrats, procurement spending could shift from Northern
Virginia’s defense contractors to Suburban Maryland’s health contractors.
In consultation with Dr. Stephen Fuller of George Mason University, we project

that 43,400 new payroll jobs will have been created in the Washington area in
2007, once the numbers are finalized in March. Job growth will edge down in 2008
to 37,600 and rise to 39,000 in 2009.
Payroll Job Growth

Note: Data restated since 2000 consistent with redefinition of metro area in March 2005
Source: Dr. Stephen Fuller, Delta Associates; January 2008
section 3 | 39
THE
WASHINGTON AREA
OFFICE MARKET
section
THE WASHINGTON AREA OFFICE MARKET
THE
WASHINGTON AREA
OFFICE MARKET
Ranking Well Nationally; Office Market Cools

as Capital Continues to Flow at Record Levels
Although the region is in a cool-down, it continues to rank among the
strongest office markets in the nation. The metro area ranked 5th in lowest
overall vacancy and 2nd in absorption among metros at year-end.
Office Vacancy Rates

Selected Metro Areas | Year-End 2007
Net Absorption of Office Space

Selected Metro Areas | 2007
Source (for both): CoStar, Delta Associates; January 2008
42
trendlines 2008
®
2007 Market Highlights
n Net absorption: 5.4 million SF, compared to 6.8 million SF in 2006 and a
long-term average of 8.1 million SF.
n Overall vacancy rate: 9.1%, up from 8.5% one year ago.
n Direct vacancy rate: 8.0%, up from 7.5% one year ago.
n Pipeline (U/C and U/R): 20.6 million SF, up from 16.8 million SF a year ago.
n Pipeline pre-lease rate: 28%, compared to 35% a year ago.
n Rents: Increased 2.2%.
n Investment sales: $13.7 billion, inclusive of two portfolio sales and two com-
pany sales, compared to $13.8 billion in 2006. Average sale price: $369/SF.
The Washington metro area office Net Absorption of Office Space

market continued its cool down from Washington Metro Area | 1980 - 2007
its peak in 2004 – absorption edged
down to 5.4 million SF while vacancy
ticked up to 9.1%. Rents on average
moved up 2.2% metro wide.
Net Absorption: Resilient

But Below Average
Net absorption of office space totaled
5.4 million SF in 2007, compared to 6.8
million SF in 2006 and the long-term
average of 8.1 million SF per annum.
Source: Delta Associates; January 2008
Northern Virginia experienced higher

absorption levels compared to the
District and Suburban Maryland due Net Absorption of Office Space
Washington Metro Area | 2007
to several pre-leased deliveries and
stronger gross leasing activity during
2007. However, each substate area
remains below its long-term absorption
average.
Sublease space increased by 472,000

SF in 2007, compared to a decrease
of 526,000 SF in 2006. Sublease space
currently represents just 1.1% of
standing inventory.
Net absorption of Class A space

totaled 4.8 million SF, which accounts
for 89% of the total absorption for all Source: Delta Associates; January 2008
class types. In 2006, Class A absorption

totaled 7.8 million SF.
section 4 | 43
Net Absorption of Office Space and Change in Sublease Space

2006 vs. 2007 (000s of SF)
Direct Space Sublease Space

Net Absorption Absorbed or Returned
2006 2007 2006 2007
Market
NOVA 3,875 3,155 450 (260)
Sub MD 240 920 (55) (194)
District 2,695 1,296 131 (18)
Total 6,810 5,371 526 (472)
Gross Leasing: Gross Leasing Activity

Below Average
Gross leasing activity totaled 28.0
million SF during 2007. Northern
Virginia captured 46% of the lease
deals inked during the year in the
Washington metro area. The District
accounted for 32% and Suburban
Maryland accounted for 22%.
For historical perspective, the

accompanying chart reflects the
distribution of activity by type of tenant
from 2003-2007.
* Preliminary figure subject to re-benchmarking in Q1 2009
Note: Data updated each quarter
There are 797 buildings with contiguous Source: CoStar, Delta Associates; January 2008
blocks of available space that are
10,000 SF or greater, compared to 769
available blocks one year ago. 49% of
the total blocks are located in Northern Office Leasing Activity by Sector
Virginia. Washington Metro Area | 2003 - 2007
The largest block of available space

is 1.4 million SF at Constitution
Center, the former Department of
Transportation headquarters. This
space is currently under renovation and
is expected to deliver by Spring 2010.
* Legal, Financial, Business Services

** Preliminary figure subject to re-benchmarking in Q1 2009
Source: CoStar, Delta Associates; January 2008
44
trendlines 2008
®
Buildings with Contiguous Blocks of Available Space

Washington Metro Area | December 2007 The chart at left depicts the breakdown
of contiguous available space by block
size.
Vacancy Rate:
Edged Up Over the Year
The Washington area’s overall
vacancy rate was 9.1% at year-end
2007, up from 8.5% one year ago.
The Washington metro area direct

vacancy rate was 8.0% at December
2007, up from 7.5% one year ago.
Note: Includes buildings under construction or renovation
Source: Delta Associates’ analysis of CoStar data; January 2008 The sublease vacancy rate increased
10 basis points in 2007, compared to
declining 20 basis points in 2006.
Direct Office Vacancy Rate
Washington Metro Area | 1980 - 2007 The Washington area overall Class A
vacancy rate was 10.1% at year-end
2007, up from 8.6% one year ago. The
Washington area direct Class A vacancy
rate is 8.7% at December 2007.
Construction:
Up in 2007
There is 20.6 million SF of office
space under construction or
renovation in the Washington metro
area at December 2007, up from 16.8
million SF one year ago.
With high construction and operating
costs, coupled with easing demand and
increased credit difficulty, we expect
Vacancy Rates and Vacant Space (All Classes) construction levels to ease in 2008.
Washington Metro Area | December 2006 vs. December 2007
28% of the space under construction
December 2006 December 2007
is pre-leased at December 2007,
Vacancy Rate
down from 35% a year ago.
Direct 7.5% 8.0%
Sublet 1.0% 1.1% Since 2004 pre-lease rates on recent
Vacant Space (Millions of SF) deliveries in the Washington metro area
Direct 27.0 29.9 have declined. Projects set to deliver
during 2008 and 2009/2010 are 23%
Sublet 3.7 4.2
and 34% pre-leased, respectively. These
Source: CoStar, Delta Associates; January 2008 pre-lease rates are subpar, given the 10-
year average pre-lease rate is 55%.
section 4 | 45
Office Space Under Construction

Washington Metro Area (Millions of SF)
Substate Area December 2005 December 2006 December 2007

NOVA 8.2 9.5 8.0
Sub MD 1.7 2.7 3.3
District 7.8 4.6 9.3
Total 17.7 16.8 20.6
Leasing on Recent Deliveries and Projects U/C or U/R

Note: Recent deliveries are based on % leased upon delivery
Construction Starts
Source (All charts on this page): CoStar, Delta Associates; January 2008
Construction began on 15.7 million SF in 2007, compared to 14.7 million SF in 2006.
Groundbreakings edged up in the metro area during 2007, primarily due to several
renovation projects starting in the District. The most notable renovation project is
1.4 million SF at Constitution Center.
Approximately 9.9 million SF of office space, including renovations, delivered

in the Washington metro area in 2007, compared to 13.4 million SF in 2006.
46
trendlines 2008 ®
Projects that delivered during 2007 came online at 36% pre-leased, compared to
2006 projects delivering at 59% leased.
Office Space Deliveries

Note: Delivery totals include renovations

Supply vs. Demand: Vacancy to Continue to Edge Up

We expect demand to remain healthy during 2008, but given the amount of
space under construction, vacancy is very likely to rise over the next two years:
n From 9.1% today to approximately 11.3% by December 2009.
We expect vacancy to rise in each substate area, particularly in the District, as

construction levels remain high relative to demand, as indicated in the following
chart.
Office Space Demand and Deliveries

Washington Metro Area | 24 Months Ending December 2009
However, we believe that the vacancy rate will be slightly greater outside the
Beltway, as demand is lighter compared to inside the Beltway.
section 4 | 47
n The overall vacancy rate inside Office Space Demand and Deliveries
the Beltway is projected to rise to Washington Metro Area | 24 Months Ending December 2009
10.0% over the next 24 months,
from 7.2% today.
n We expect overall vacancy to rise
to 13.0% outside the Beltway by
December 2009, from 11.5% today.
Rents: Rising
The average effective office rent
increased 2.2% in the Washington
metro area during 2007, compared to
rising 2.7% in 2006.
n Rent growth was 3.8% for

submarkets located inside the
Beltway. Overall Vacancy Rate vs. Effective Rent Change
n But rents flattened to 0.4% growth Washington Metro Area | 1995 - 2007
for outside the Beltway submarkets.
n Better buildings in better
submarkets outperformed these
regional averages.
We anticipate rents will slow or stabilize

inside the Beltway in 2008, as the
spread above the Rent Equilibrium
Zone in this submarket will be slight.
Rents may stall or edge down during

2008 outside the Beltway, as we project
vacancy to rise 300 basis points above
the top of the zone in this part of the
metro area.
Investment Sales: Match Comparative Investment Sales Volume

Office Buildings | 2000 - 2007
Record Volume of 2006
2007 sales volume totaled $13.7
billion, compared to $13.8 billion in
2006. The 2007 sales volume included
four significant transactions, the Starco
and Columbia Equity Trust portfolio
sales and the Equity Office Properties
and Republic Property Trust company
sales, which added $4.3 billion to the
sales volume.
The 2006 total included three large

transactions, the Mark Winkler
portfolio sale and CarrAmerica and Source: CoStar, Real Capital Analytics, Delta Associates; January 2008
48
trendlines 2008
®
Trizec company sales. These major NCREIF Return Index1

transactions have been taking a larger Office Properties
share of the market. With changes in Metro Area 12-Month Total Return at 3rd Quarter 20071
credit market conditions, we do not
Boston 45.34%
expect this trend to continue into 2008.
New York 40.43%
Sales prices averaged $369/SF Houston 28.38%

in the Washington area for 2007 Los Angeles 27.52%
transactions, inclusive of company and San Francisco 25.72%
portfolio sales. For all of 2006, sales National Average 22.78%
prices averaged $319/SF.
Denver 19.27%
Phoenix 19.06%
The average cap rate for office assets
in the Washington metro area is Chicago 17.31%
6.1%, with the District achieving an Washington 15.44%
average cap rate 5.4%. Cap rates are Wash. Suburbs 15.58%
showing signs of increasing and we Wash. CBD 15.22%
believe will continue this trend in 2008,
Atlanta 11.93%
due to shifts in:
Dallas 11.43%
n The cost of debt 1
NCREIF compiles return based on its members’ $108.2 billion office porfolios
The index includes both current income and capital appreciation returns
n Asset re-allocations Source: Delta Associates, based on data in NCREIF’s 3rd Quarter 2007 Real Estate Performance Report
n Risk premium spreads
Return vs. Pricing - Core Office Assets

Investment Returns Washington Metro Area | 1985 - 3rd Quarter 2007
Are High But Below

National Levels For
the First Time in a Decade
Total returns (cash flow plus
appreciation) realized in the
Washington office market were
15.44% for the 12 months ending
September 2007. This compares to
the national rate of 22.78%, which
continues to rise gradually.
Source: NCREIF, Delta Associates; January 2008
National returns are ahead of

Washington returns for the first time in
a decade, as demand for Washington
metro area assets skyrocketed over the remain strong, but capital appreciation is likely to plateau with current pricing
past two years, causing property values already at elevated levels.
to increase and returns to ease.
Land Sales: Exceed 2006
We expect the Washington area to
remain among the premier investment We recorded seven notable land sales in the metro area, totaling $371 million
markets in the nation in 2008, although in 2007, which exceeds the $342 million achieved in 2006.
returns from other markets are closing
the gap as market fundamentals With easing demand and shifting market conditions, land sales are likely to ease in
in those cities improve relative to 2008. Although transactions picked up in 2007, developers could hold these parcels
Washington. Income returns should for development in the next cycle.
section 4 | 49
The Washington Area Office Market Outlook

The Washington metro area office market is healthy but cooling from its peak
of 2004.
For 2008 we see demand below the long-term average, vacancy edging up, and
rent growth modest.
Although demand should remain steady, we expect it will not be able to keep pace
with the level of available space due to robust construction activity. Construction
levels should ease over the 12 months, as rising construction costs and lackluster
rent growth make new development harder to justify.
Regardless, the Washington area office market remains a top performing market in
the nation even under softer conditions.
Market Outlook:
n Overall Vacancy: Expected to increase from 9.1% to 11.3% by December 2009.

n Leasing Activity: Should remain healthy in 2008, but off pace compared to
prior years.
n Construction: Each substate area should experience a decline in new
construction, with the exception of renovations.
n Rents: Expected to stabilize in 2008.
n Investment Sales: Activity should remain solid, but off the peak of the past
two years.
The key to success in this asset class in 2008 and beyond is to avoid debt, improve
operations at existing assets, and select investment and development opportunities
that have one or more of these characteristics:
n Transportation-favored
n Close-in
n Tenant-driven
n Medical-related
n In a submarket with a low pipeline
n Low land cost basis
50
trendlines 2008
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section 4 | 51
THE
WASHINGTON/BALTIMORE
FLEX/INDUSTRIAL MARKET
section
THE WASHINGTON/BALTIMORE FLEX /INDUSTRIAL MARKET
THE
WASHINGTON/
BALTIMORE
FLEX/INDUSTRIAL
MARKET
Strong Performance Characterizes This Asset Class

The Washington/Baltimore flex/industrial market turned in a strong performance
in 2007. Net absorption was above-average, construction eased, and rents increased
2.8%. And prospects are good for continued sturdy performance in 2008.
2007 Market Highlights
n Net absorption: 6.6 million SF, compared to 4.3 million SF in 2006 and 5.4
million SF 10-year average.
n Overall vacancy rate: 9.5%, down from 9.8% one year ago.
n Direct vacancy rate: 8.8%, down from 9.3% a year ago.
n Under construction: 6.4 million SF, down from 10.1 million SF one year ago.
n 24% of the space under construction is pre-leased, compared to 21% a year
ago.
n Rents: Up an average of 2.8%.
n Investment sales: $1.5 billion, compared to $1.9 billion in 2006. Average sales
price: $80/SF.
Largest U.S. Flex/Industrial Markets

Year-End 2007
54
trendlines 2008
®
Flex/Industrial Vacancy Rates

Select Metro Areas | Year-End 2007
National Context
The Washington/Baltimore flex/industrial
market, at 334 million SF, is a mid-scale
market where the primary function is
regional distribution and accommodation
of R&D and low-cost office uses. With
the exception of some older product
in the Baltimore area, there is little
manufacturing in this region.
As shown in the accompanying graph,

the Washington/Baltimore region’s
overall vacancy rate, at 9.5%, is just
above the national average of 8.4%.
Net Absorption: Strong

Flex/industrial net absorption totaled
Flex/Industrial Net Absorption 6.6 million SF in the Washington/
Washington/Baltimore Region | 1997 - 2007 Baltimore region during 2007,
compared to 4.3 million SF during 2006.
The 2007 absorption level exceeded
the 10-year annual absorption average
of 5.4 million SF per annum.
The 2007 absorption total was boosted

by pre-leased deliveries and healthy
gross leasing activity.
Sublease space increased by 481,000

SF during 2007, compared to
increasing by 158,000 SF in all of 2006.
Sublease space represents only 0.7%
Source: CoStar, Delta Associates; January 2008 of the standing inventory – not material
enough to impact rents.
Flex/warehouse and bulk warehouse

space accounted for the majority
Location of Flex/Industrial Inventory and Absorption
Washington/Baltimore Region | 2007 of the region’s total net absorption
during 2007. Although assisted by
Inventory at 12/2007 Net Absorption (000s of SF) pre-leased deliveries, healthy leasing
(Millions of SF) Direct Space Including Sublet activity played a notable role as well in
Metro SF % SF % SF %
boosting absorption for these property
types.
Washington 169.3 51% 3,396 51% 3,315 54%
Baltimore 164.9 49% 3,236 49% 2,836 46% Net absorption of newer space (built
Total 334.2 100% 6,632 100% 6,151 100% after 1987) totaled 6.2 million SF
during 2007, compared to 5.1 million
SF during 2006. For newer space, the
Washington metro area absorbed 3.0
million SF and the Baltimore metro area
absorbed 3.2 million SF.
section 5 | 55
Type of Flex/Industrial Inventory and Absorption

Washington/Baltimore Region | 2007
Inventory at 12/2007 Net Absorption

(Millions of SF) 2007
Type of Space SF % SF
Bulk Warehouse 103.3 31% 2,670,000
Flex/Warehouse 197.7 59% 3,268,000
Flex/R&D 33.2 10% 694,000
Total Flex/Industrial 334.2 100% 6,632,000
Gross Leasing Activity: Healthy

Leasing activity in the Washington/Baltimore region totaled 21.5 million SF
during 2007. The Baltimore metro area accounted for 58% of the total SF leased
in the region during the past six months. Washington accounted for the balance of
42%.
Bulk warehouse space accounted for 43% of the total SF leased in the region during
2007. Flex/warehouse accounted for 41% and flex/R&D accounted for 16%.
There are 751 buildings with contiguous blocks of available space over 10,000 SF
in the Washington/Baltimore region. The largest block of space is 1.2 million SF
located at 2800 Eastern Boulevard in the Baltimore County East submarket.
Gross Leasing Activity

* Preliminary figure subject to re-benchmarking in Q1 2009

Note: Data updated each quarter
56
trendlines 2008
®
Percent of Total SF Leased by Product Type

Buildings with Contiguous Blocks of Available Space

Washington/Baltimore Region | December 2007
Note: Includes buildings under construction or renovation

Vacancy Rate: Down

The region’s overall flex/industrial vacancy rate ticked down to 9.5% at year-
end 2007, from 9.8% one year ago. The Washington area’s overall vacancy rate is
120 basis points lower than the Baltimore area’s rate.
The region’s direct flex/industrial vacancy rate was 8.8% at December 2007, down
9.3% one year ago.
The region’s overall vacancy rate for newer product (built since 1987) ticked down to
10.8% at year-end 2007, from 11.7% one year ago. The region’s direct vacancy rate
for newer product is 10.1%, down from 11.0% a year ago.
section 5 | 57
Construction: Flex/Industrial Vacancy Rate

Declined During 2007
The amount of flex/industrial space
under construction in the region is
6.3 million SF at year-end 2007, down
from 10.1 million SF one year ago.
Space under construction is 24% pre-

leased at December 2007, up from
21% one year ago. The Washington
area’s pre-lease rate is 45%, compared
to the Baltimore area’s at 7%
Construction starts eased notably

during 2007. Groundbreakings totaled Direct Flex/Industrial Vacancy Rates
5.8 million SF during the past 12 Washington/Baltimore Region | All Space at:
months, compared to 11.9 million SF
in all of 2006. The Dulles Corridor and Market Year-End 1996 Year-End 2000 Year-End 2007
Baltimore County West submarkets Wash/Balt Region 12.3% 7.3% 8.8%
were the leaders in starts during the Wash/Balt Subs. 10.4% 6.1% 8.9%
year. Balt/Wash Corr. 10.8% 7.5% 7.7%
Wash. Metro Area 10.5% 6.2% 8.3%
6.4 million SF of flex/industrial space
Balt. Metro Area 14.5% 8.4% 9.3%
delivered in the region during 2007,
compared to 6.5 million SF in 2006.
31% of the space delivered during Flex/Industrial Space Under Construction and Pre-Leased
Year-End 2006 and Year-End 2007 (Millions of SF)
the year was leased upon delivery,
compared to 32% during 2006. At 12/2006 At 12/2007
Metro Area
SF U/C % Pre-leased SF U/C % Pre-leased
Supply vs. Demand: Washington 3.7 40% 2.8 44%
Vacancy to Edge Up Baltimore 6.4 10% 3.5 7%
Regional Total 10.1 21% 6.3 24%
The regional flex/industrial vacancy
rate likely will tick up to 10.2% by
year-end 2008, from 9.5% today. Leasing on Recent Deliveries and Projects U/C or U/R
Washington is likely to see a rate of Washington/Baltimore Region | 2004 - 2008
9.4% and Baltimore a rate of 11.1%.
Rents: Up 2.8% During 2007

Flex/industrial rents in the
Washington/Baltimore region
increased 2.8% during 2007, the
same rate of increase experienced in
2006.
Rents for flex/warehouse space and

flex/R&D space increased at a higher
rate, where vacancy remained low,
Note: Recent deliveries are based on % leased upon delivery
compared to bulk warehouse space. Source (All charts on this page): CoStar, Delta Associates; January 2008
58
trendlines 2008 ®
Flex/Industrial Space Deliveries and Pre-Leasing

Metro Area Millions of SF Delivered % Pre-leased

Washington 3.4 36.2%
Baltimore 3.0 25.5%
Regional Total 6.4 31.1%
Projected Year-End 2008 Vacancy Rates

Washington/Baltimore Region Flex/Industrial Market (Millions of SF)
Washington Baltimore
Regional Total
Metro Metro
Inventory
Inventory at 12/07 169.3 164.9 334.2
Pipeline Thru 12/081 4.2 4.7 8.9
Inventory at 12/08 173.5 169.6 343.1
Supply2 vs. Demand
Vacant Space at 12/07 15.1 16.6 31.7
New Supply Thru 12/08 4.2 4.7 8.8
Avail. Space at 12/08 19.2 21.3 40.5
Demand Thru 12/08 3.0 2.4 5.4
Vacant Space at 12/08 16.2 18.9 35.1
Vacancy Rate2
Vacancy at 12/07 8.9% 10.1% 9.5%
Vacancy at 12/08 9.4% 11.1% 10.2%
1
Pipeline equals buildings under construction and those planned that may deliver by year-end 2008
2
Includes sublet space
Rent Growth by Product Type

% Change
Submarket
December 2006 to December 2007
Bulk Warehouse 1.9%

Flex/Warehouse 2.9%
Flex/R&D 3.1%
section 5 | 59
Flex/industrial rents should continue to rise at a moderate pace during 2008, The key to success in this asset class in
as tenants continue to seek space. Given the amount under construction and easing 2008 and beyond is to avoid debt,
demand, we expect rents to rise 1.5% to 2.5% over the next 12 months. improve operations at existing
assets, and select investment and
Investment Sales: Strong development opportunities that
have one or more of the following
Flex/industrial investment sales volume totaled $1.5 billion in the Washington/ characteristics:
Baltimore region during 2007, compared to $1.9 billion in 2006. There were a
n Transportation-favored, like ports,
handful of multiple building deals during the year, which boosted the sales volume.
airports and Interstates – near
Sales prices averaged $80/SF during 2007, down slightly from $88/SF achieved Dulles Airport or the Port of
during 2006. A handful of deals lowered the average sales price. For example, Baltimore
Landover Centre II in Suburban Maryland sold for $11.3 million ($55.15/SF) and 2800 n Submarkets with a low
Eastern Boulevard sold for $37.5 million ($19.56/SF) in Suburban Baltimore. development pipeline – I/95
and I/395 in Northern Virginia or
We expect investment sales activity to remain solid during 2008, as property Montgomery County in Suburban
performance remains healthy. Investors will likely remain interested in the Maryland
Washington/Baltimore flex/industrial market, given its long-term, stable nature. n Low land basis
However, the Credit Crunch is likely to filter leveraged buyers from the market and
n Tenant-driven
reduce the number of bidders for each available asset.
Land Sales: Solid

Flex/industrial land sales volume totaled $149.7 million in the Washington/
Baltimore region during 2007, compared to $167.6 million in 2006. The average
price per land SF was $8.16, or $355,497 per acre.
The most notable land sale during 2007 was 47.4 acres at 44901 Russell Branch
Parkway in the Dulles Corridor purchased by Visa USA for $19.8 million. The buyer is
planning a flex/industrial park, called Russell Branch Parkway Industrial Park.
The Washington/Baltimore Regional Flex/Industrial Outlook

The Washington/Baltimore flex/industrial market should remain healthy during
2008. We expect leasing activity for flex/industrial space to remain strong, but off
the peak levels experienced during the robust part of the cycle.
Market Outlook:
Overall, strong population and economic growth will continue to fuel steady
expansion of the flex/industrial market in the Washington/Baltimore region in the
period ahead.
n Overall Vacancy: Given modest pre-lease rates on pipeline projects, we project

overall vacancy will rise to 10.2% by year-end 2008.
n Leasing Activity: Should remain healthy in 2008, but off pace compared to
prior years.
n Rents: Regardless, rents should increase 1.5% to 2.5% over the next 12 months,
as market conditions remain favorable.
n Investment Sales: Although we expect investment sales volume to remain
healthy, the Credit Crunch could withdraw some capital from this market.
60
trendlines 2008
®
section 5 | 61
THE
WASHINGTON AREA
APARTMENT MARKET
section
THE WASHINGTON AREA APARTMENT MARKET
THE
WASHINGTON AREA
APARTMENT MARKET
Sturdy Market Performance, Even As Pipeline Balloons

The Washington metro area continues to be one of the better apartment
markets in the nation due to:
1. A sturdy job market.

2. A transient work force that has produced a large pool of Class-A renters by choice.
3. A stalled condo market that has turned would-be condo purchasers into renters.
4. An expensive for-sale market that has turned cash-strapped buyers into renters.
However, this otherwise solid market began to show stress in the 4th quarter of
2006 that continued through 2007 due to:
n “Shadow rentals” from a cooling housing market

n Condominium developers reverting to rentals
n A ballooning pipeline of supply
n A moderating jobs market
National Context
The Washington metro area is the 3rd largest apartment market in the U.S., next to
New York and Los Angeles.
At 3.7% stabilized vacancy, Washington enjoys the 3rd lowest vacancy rate in
the U.S. – behind only NY and LA. While this is 80 basis points higher than last year,
most of the increase is due to Class B apartment performance, which is stressed by
the shadow rental market and condo rentals.
Net Absorption during 2007, at 5,042 units, was 1st in the U.S. and the highest
we have seen since 3rd quarter 2006. Absorption at new projects held steady at 17
units per project per month – and this is particularly noteworthy as the number of
projects marketing doubled since 2006.
64
trendlines 2008
®
Largest Apartment Markets

2007
Other Year-End
2007 Highlights
Rent increases for all investment grade
product dipped below the long-term
average of 4.4% per annum – to 1.8%
since December 2006. Class A rents
grew by 1.3% during 2007, compared to
4.0% at year-end 2006.
n Quality, high-rise product inside

the Beltway increased 2.5% while
Class A gardens outside the
Beltway grew just 0.8%.
Note: Excludes NYC and includes only those units in projects of 20 or more units n Even high-rise within the Beltway
was sensitive to pipeline: the
District, with four projects in lease
Lowest Apartment Vacancy Rates Among Major Metro Areas
Year-End 2007 up, experienced rent growth of
4.3%, while Alexandria, with seven
projects leasing up, registered just
0.5% growth.
Concessions at Class A projects

continued to move higher, to 4.8% of
face rent, compared to year-end 2006,
which was 2.4% of face rent. The 1st
quarter of 2007 was the first time the
market had witnessed an increase in
four years.
Pipeline. After a long decline in the

early-2000s, the 36-month pipeline of
1/ The largest 71 apartment markets in the U.S. | * 2nd Quarter data except for Washington, Baltimore, and Philadelphia are as of 4th Quarter 2007 on-coming apartment product declined
Source: REIS and Delta Associates; January 2008
to 18,000 units by 2005. That was a
critically low supply. Since then, it has
Annual Net Absorption of Class A Apartments
ballooned to 36,951 units in December
Major Apartment Markets | 12 Months Ending December 2007*
2007, largely driven by the reversion of
condominium projects.
Concessions
Concessions doubled for all Class
A projects, from 2.4% to 4.8%
during 2007. The increase was most
pronounced in Northern Virginia, where
Class A rent growth was 0.6% as a
result of the increase in concessions.
Concessions also markedly increased in
Suburban Maryland and in the District.
1/ The largest 71 apartment markets in the U.S. | * Wash = 12 Months Ending 12/07; Others 6/07
Source: REIS and Delta Associates; January 2008
section 6 | 65
Concessions for all Class A properties Concessions for All Class A Properties*
(that is, those filling up as well as those Washington Metro Area
replacing turnover) averaged 4.8% Year-End 2004 Year-End 2005 Year-End 2006 Year-End 2007
metro-wide at year-end 2007 – and are
No. VA 3.9% 2.6% 2.7% 5.8%
back up to where they were at the end
Sub. MD 5.8% 2.4% 2.1% 3.4%
of 2004 (see table at right).
District 5.9% 2.4% 2.7% 3.3%
Concessions for projects currently filling Metro-Wide 4.7% 2.5% 2.4% 4.8%
up, and not yet stabilized, are indicated
* Includes those filling up as well as those replacing turnover
in the table at right. Source: Delta Associates; January 2008
The rates are up in response to the

increased number of projects currently
Concessions for Unstabilized Class A Properties
in lease up – 41 compared to 20 at year-
end 2006.
Year-End 2004 Year-End 2005 Year-End 2006 Year-End 2007
Pipeline No. VA 5.0% 3.8% 6.0% 9.5%
Sub. MD 8.7% 3.8% 6.0% 8.4%
The pipeline grew significantly District 9.3% 2.7% 5.4% 7.9%
in response to the recent robust Metro-Wide 6.5% 3.7% 5.9% 9.0%
performance of the apartment
market and because of developers Source: Delta Associates; January 2008
reprogramming condo projects in

light of the slowing condominium
market. The pipeline continued
Pipeline Activity Since 1997
to grow during 2007, particularly in Washington Region (Units Likely to Deliver In Next 36 Months*)
Northern Virginia.
The District’s 36-month pipeline of

projects grew to 7,126 units as of
December 2007 – a large jump from
earlier in the year. This figure includes
only those units that we believe are
probable to move forward as planned.
Currently, vacancies remain low – down
slightly to 3.1% from 3.2% one year ago
– and rent growth is the strongest in the
region at 4.3% per annum. However,
with over 1,700 units expected to *Assumes attrition factor
deliver in 2008, occupancy rates will be Source: Delta Associates; January 2008
under pressure.
Northern Virginia’s 36-month pipeline n Up 0.8% for all investment grade units.
grew to 17,120 units. As a result, we
n Down 0.3% for Class A garden apartments.
expect supply to exceed anticipated
n Up 2.3% for Class A high-rise apartments.
demand through 2008 and into 2009,
and vacancy is likely to edge up.
Positive rent growth in the Vienna garden apartment submarket, amid overall
As the pipeline continued to grow over negative garden rent growth, is a testament to the value of limited pipeline volume
the past 21 months, rents slowed or (no new projects have delivered in the submarket since 2004) combined with Metro
retreated slightly. For example, during access.
2007 rents were:
66
trendlines 2008
®
Suburban Maryland’s pipeline grew to over 12,700 units by year-end 2007.

Approximately, 2,800 units are expected to deliver in the market during 2008,
outpacing demand. Rents for both Class A and B product have grown, however, in
part due to unexpected strong demand. Rent growth during 2007:
n Up 2.9% for all investment grade units.

n Up 2.1% for Class A garden apartments.
n Up 0.6% for Class A high-rise apartments.
Absorption
The Washington area’s apartment absorption bounced back from a soft
performance earlier in 2007.
Absorption has been consistently strong at 4,300 to 6,500 units per annum over
the past 12 years. However, absorption during the first three quarters of 2007 had
been curtailed because of a soft housing market in which frustrated sellers put
their listings up for rent, thereby siphoning off apartment demand. This created a
“shadow market” of rental units.
Net Apartment Unit Absorption for Class A and Class B Units

Net absorption declined precipitously during the final quarter of 2006, slipping
further and remaining low through the 3rd quarter of 2007. Given continued sturdy
job growth and overall demand, we believe this decline can be largely attributed to
two factors:
1. The cooling of the overall housing market and subsequent rental of housing
units of all types that are slow to sell.
2. The large number of “shadow” market condominium rentals investors placed
on the market in the latter half of 2006 and first half of 2007.
section 6 | 67
These conditions seem to have eased in the 4th quarter, as 12-month absorption
rebounded to over 3,200 units. We think these conditions will continue to ease in A Word About Our Definition
2008, thereby positively impacting apartment absorption during the first half of of Vacancy Rate
2008.
We sometimes hear from apartment
developers and managers that their
A testament to the strength of the apartment market: Absorption pace per portfolio vacancy rate is 200 to 400
project remained steady during 2007 at 17 units monthly, even as the number basis points higher than the numbers
of projects in active lease-up increased markedly from 20 to 41. we report, which places them
under unfair investor scrutiny. As a
Absorption Pace Per Project Per Month result, we thought it appropriate to
Washington Metro Area (Projects in Initial Lease-Up) describe here our term “vacancy.”
When we conduct our quarterly

surveys, we obtain information on
“units available to lease” – that is,
physical vacancy. Obtaining the
information this way, of course,
may produce several important
differences from “vacancy” as
reported in your financial statements.
Simply stated, the difference can be
characterized as:
Delta’s Definition:
Available units to lease
Operating Statement Vacancy:
Economic vacancy
Our definition (available units) may

Equilibrium Shift? therefore be understated compared
to yours (economically vacant) by
Stabilized vacancy rates increased during 2007, even as rents for Class A product our exclusion of units occupied by
continued to edge up slowly. This recent pattern may represent an emerging non-paying tenants (which we cannot
paradigm shift for the Washington market. A new equilibrium level for vacancy may know), and of units not available for
be developing, as operators experience continued rent growth at vacancy levels lease, such as employee units and
previously determined to be “too high” for this market. Additional observation of model apartments. We estimate
this phenomenon is warranted. that this adds about 100 to 150 basis
points to your definition of vacancy,
as compared to ours. Our vacancy
Effective Rental Rate and Vacancy Rate rate may also be understated,
Washington Metro Area | All Types and Classes of Apartments
compared to yours, by our exclusion
of what at present are economically
vacant, on-notice units for which a
lease to occupy in the future has
been signed (hence, they are not
currently available to lease). We
estimate that this potentially adds
another 150 to 200 basis points
to your definition of vacancy, as
compared to ours.
68
trendlines 2008
®
Demand and Supply Projections: Class A Apartment Market

Washington Metro Area | 12/07 - 12/10
Supply/Demand
and Rent Projections
We expect stabilized vacancy rates
in Northern Virginia, Suburban
Maryland and The District to edge
above 5%.
We believe that supply will outpace

demand at the metro level through
2010. As a result, we expect the region-
wide vacancy rate for stabilized Class
A apartment properties to edge up to
5.3% over the next three years. While
% = Stabilized Vacancy Rate at 12/2010
Estimated Stabilized Vacancy Rate at 12/2010: 5.3% Region-Wide
that level will remain lower than the
Source: Delta Associates; January 2008 national average, it will be the highest
we have seen in the Washington metro
area since the early 1990s.
Class A Apartment Vacancy Rate
Washington Metro Area | 2000 - 2010 Rents will likely continue to edge
up during this period, but below
the long-term average of 4.4%
per annum.
Better projects in stronger

submarkets can vastly outperform
these averages.
Washington Investment
Sales: Another Record-
Setting Year

2007 has surpassed prior record-
setting years. In 2006 , as Delta’s Year-
End Apartment Report went to press
in late December, we had identified 15
Class A Apartment Rent Growth Per Year Class A building sales (most of them
Washington Metro Area | 1998 - 2010 gardens), consisting of $1.19 billion
of multifamily Class A building sales
volume.
During 2007, we noted $1.69 billion

of multifamily Class A building
sales closed (comprising 12 garden
apartments and 8 high-rises).
The average per-unit prices for 2007

sales ran higher than 2006: 14% higher
for garden units (at nearly $250,000) and
15% higher for high-rises (at $400,000).
section 6 | 69
Having officially closed in October, the largest transaction of the year is the sale of
Archstone-Smith’s entire portfolio to Tishman-Speyer. This REIT buyout, which includes
numerous Washington metro properties, is valued at approximately $22 billion.
The explanation for these high volumes and prices?
1. What is a better alternative investment vehicle, either within the real estate
sector or even across other asset classes?
2. Strong prospects of improved operating performance as rents continue to
edge up, yielding even better net income.
3. The prospect of increasing long-term interest rates suggests a “closing window
of opportunity” to purchase the higher-performing assets with capital as
reasonably priced as it is currently.
So now, evidently, is the time to buy. And the Washington Metro is, evidently,
the place to buy:
n The regional economy is among the strongest in the country, and so

n Low vacancies and continued rent growth drive market performance to among
best-in-nation levels, and so
n Total returns are higher here.
But the recent Credit Crunch appears to be re-pricing all forms of risk – real estate
included. It is too soon to know the implications for apartment pricing, but most
observers believe cap rates have reached their cyclical low and price increases will
now be earned the old fashioned way – by performance enhancement. We believe
the apartment segment is a winner in the turmoil that follows this Credit Crunch –
with home ownership rates edging down from their cyclical high of 70%. If that is the
case, demand for this product type should remain strong. So also should demand
for this asset class.
Key Question in Washington Area

How will the cooling housing market (and moderating condominium market
in particular with its potential of reversions – condo projects reverting to a
rental program) affect the apartment market? In the short term, the confluence
of a tepid condominium market and the delivery of investor units to the “shadow”
market continue to impact net absorption. Sturdy job growth is still attracting
people to the region, but the increasing number of condominium rentals is
siphoning off a sizable portion of overall demand. However, as a countervailing
force, the recent Credit Crunch is making apartments a more viable housing
option for many. More stringent lending policies, coupled with continued high
for-sale housing costs in the region, point to more optimistic expectations for the
Washington apartment market.
Longer term, we must continue to closely monitor the large pipeline of

condominium product. As condominium demand has moderated, apartment supply
has increased as developers have surveyed their changing fortunes and have altered
their development programs. This phenomenon began in the 2nd quarter of 2006,
and while abating from its peak in the 4th quarter of 2006, its cumulative affect is
having a sizeable impact on the apartment development pipeline.
70
trendlines 2008
®
During the 3rd quarter of 2007, 16 condominium projects were cancelled, totaling Market Outlook:
3,681 units. In the 4th quarter of 2007, 18 projects were cancelled, totaling 4,367
units. Of those changing course, 13 projects with 3,840 units, were added to the
The Path Forward
Class A development pipeline. Over the last two years nearly 21,000 condominium
In this phase of the real estate cycle,
units have been reprogrammed and added to the Class A apartment pipeline.
the successful investor/developer will
use cash to:
Condo Development Pipeline Removals
Washington Metro Area | Through Year-End 2007
Invest in repositioning existing
under-performing assets and
developing new projects with superior
design features at premier sites within
submarkets that maintain a supply/
demand balance where better than
market average rent increases can be
expected.
Superior design features: As the

mixed-use moniker becomes more
prevalent at projects across the
region, what was once seen as a
niche is increasingly common. Merely
adding 1st floor retail to an otherwise
* Previous quarter’s totals are aggregate removals from the condo pipeline common project will yield diminishing
differentiation in this market. We
feel creative approaches to place-
While the overall number of altered projects is small when compared to the overall making, partnered with bold design,
supply of nearly 500,000 apartment units in the Washington region, these project and designing for niches is essential –
switches from condominium are beginning to impact the projected supply/demand niches such as student housing, seniors
balance through 2010 and beyond. This certainly bears watching during 2008 as the housing, mid-market housing in some
condo market settles out. locations and up-market housing at
others.
A corollary question: What about the “shadow” market of rental units that
individual condo owners will put on the market as they take delivery over the next Superior locations: Not just transit
24 months? In the 1st quarter of 2007, the market began to feel the impact of these access, but those submarkets with
units. Nearly 12,000 condominium units have delivered since mid-year 2006. If superior supply/demand fundamentals
estimates hold true that up to 1/3 of them were purchased as investor units, this are keys to success in the period ahead.
sudden “delivery” of nearly 4,000 units to a cool condominium market may have And by our analysis there are many
added nearly as many available “rental” units to the Washington metro area. submarkets with good supply/demand
fundamentals that warrant attention
While the existing “shadow” rentals do not compete as effectively due to a lack of and development in the period ahead.
mass marketing and professional management, their sheer number will continue
to impact the market. While the shadow market can not compete with apartments Demographically-driven solutions:
in terms of marketing budgets because they are individually-owned, they compete Seniors housing, student housing, are
on price, as investors seek to obtain at least some cash flow from tenant rentals, two such niches warranting attention at
to cover an investor’s mortgage. Therefore, their impact on the B market, which the right location.
has more comparable amenities, has been even more dramatic. However, these
units have become a countervailing force to dampen demand somewhat for the Low land cost basis: A pipe dream?
“institutional-grade” Class A rental market as well. Their impact, as well as that of Perhaps a necessity to compete in the
other non traditional rentals, should dissipate over time, as the countervailing forces period ahead.
of more exacting lending policies and continued high for-sale prices drive more
people to rent rather than own.
section 6 | 71
THE
WASHINGTON AREA
CONDOMINIUM MARKET
section
THE WASHINGTON AREA CONDOMINIUM MARKET
THE
WASHINGTON AREA
CONDOMINIUM MARKET
Prices Are Steady; Pipeline Continues to Decline,

but Not as Rapidly as Sales Velocity
It is hard to believe if you read the popular press, but new condo unit prices are
steady.
However, sales velocity is way down in the second half of 2007 compared to the
first half. Little wonder:
n The August Credit Crunch removed at least one-third of the buyers due to the
end of exotic mortgages and loans to investors. Jumbo loans became much
more expensive – so many high end buyers are on the sidelines too.
n Demand is off its peak, as job growth, while still near the region’s long-term
average, is lower than it has been since 2002.
n Consumer confidence is at its lowest level since Hurricane Katrina. Consumers
simply are not in the mood to buy.
n And then there is the buyer conundrum: Interest rates and prices are not
rising, so what is the hurry in making a decision?
Even though the inventory of condominiums continues to decline, the main driver
behind the reduction has more to do with project cancellations and less to do with
contract sales.
Year-End 2007 Highlights
n Volume. Way down in the second half of the year: (defined as net binding
contracts written with security deposits up) 3,905 units were sold in 2007 –
about the same as in 2003.
n Concessions. Surprisingly, concessions are down in 2007 by 90 basis points
from 2006 – to 3.7% of the purchase price.
n Pipeline. Down 6,601 units during 2007 – 27% – to 17,607 unsold condominium
units that are actively marketing in the metro area at year end 2007. More
importantly, there now is 4.5 years’ worth of inventory of product on the market
at current rates of sales velocity. History tells us that at 2.5 to 3.0 years and
below, prices move up smartly. Some submarkets are there, but as a whole, the
metro has some “cure time” ahead of it.
74
trendlines 2008
®
n Prices. Condo prices held steady New (and Conversion) Unit Sales by Jurisdiction
in 2007, as viewed by two different 2007
sources of data. Resale prices
Jurisdiction Group # of Units Sold*
during the past 12 months were
Prince William/Loudoun 1,092
down by only one percent. Same-
store new condo prices (after District of Columbia 996
concessions) were up by about Prince George’s 719
one-half a percent metro-wide. Montgomery 505
n Sales pace. Contract cancellations Fairfax/Falls Church 250
continue to have an impact on net Anne Arundel/Howard 173
sales pace. As projects get closer Arlington/Alexandria 170
to delivering, buyers get second
Metro Total 3,905
thoughts about going through with
closing on their units. In today’s *Binding contracts executed
environment, a good sales pace
per project is 3 to 5 units per
month.
New Condominium Sales Trend
Sales Activity Declines

Further
The August Credit Crunch slowed sales
velocity in the latter part of 2007. For
the year, there were 3,905 units sold
in the metro area. The local condo
submarkets with the lowest and highest
average prices per SF (Prince William/
Loudoun and the District, respectively) Effective Prices Holding Steady;
had the most condo sales in 2007. Concessions Down From a Year Ago
As in prior quarters, select submarkets During the past twelve months, re-sale prices have declined in the District and
had more contract cancellations than Northern Virginia. In Loudoun and Prince William County, the price decline was in
contract sales. This was the case in the double-digits. In Suburban Maryland, prices continue to appreciate.
Arlington/Alexandria, Fairfax/Falls
Church, and Anne Arundel/ Howard. Same-store new condo sale prices edged up slightly from a year ago, due to
While two years ago there were more fewer concessions being offered. The District showed the most strength as prices
than 4,000 contract sales in Arlington/ increased there by 2.6%. However, annual average price change since 2004 shows
Alexandria, due to multiple quarters a decline metro-wide of 1.2%. The most severe price decline in the past three years
of contract cancellations, there were has been in Prince William and Loudoun Counties, where prices have gone down on
only 170 sales in 2007 – the least of any average by 3.7% each year. On the other end of the spectrum, in Prince George’s
jurisdiction in the metro area. County, prices have increased by 7.1% per annum.
section 7 | 75
THE WASHINGTON AREA CONDOMINIUM MARKET
Median Condominium Resale Prices Concession rates declined in the

Percentage Increase in 2006 and 12 Months Ending 11/07 District and Northern Virginia. While
Median Price Increase Suburban Maryland was the only sub-
state area to see an increase in the
Sub-State Area 2006 11/06 – 11/07
concession rate, the increase was only
Suburban MD 5.9% 2.2%
slight in nature. High-priced jurisdictions
Northern VA -0.3% -6.2% such as the District and Arlington/
The District -5.6% -1.4% Alexandria currently offer the lowest
Metro Average -0.1% -0.9% concession percentage.
Source: MRIS, Delta Associates; January 2008

Pipeline Declines Further
New Condominium Price Change The number of unsold condominium
2006 - 2007 units in projects currently marketing
now stands at 17,607. Of this total,
Sub-State Area Price Change Before Concessions Price Change After Concessions
14,243 units are under construction or
Suburban MD 1.1% 0.9% delivered, with the balance not under
Northern VA -1.8% -0.5% construction but actively marketing. In
The District 1.6% 2.6% addition, there are 13,386 units planned
Metro Average -0.5% 0.4% with sales likely to begin within the next
36 months.
Note: “Same store” sales
The currently marketing pipeline
has been declining since early 2006.
New Condominium Prices Per SF* Condo availability has dropped by 32%
Washington Metro Area | Year-End 2007 metro-wide since the peak in March
2006. The most dramatic decline in
condo availability since December 2006
occurred in Fairfax/Falls Church, where
inventory has dropped by 56%. The only
jurisdiction to see an increase in condo
product during the past 12 months is
Anne Arundel/Howard.
Condos are being removed from the

pipeline for the following reasons: (1)
Switched back to rental; (2) Unconverted
back to a rental project after sales began;
* Reflects prices of condo projects currently selling, so averages should not be (3) Reprogrammed their initial condo
compared from quarter to quarter since locations of projects change each quarter project plans to a for-rent regime; or (4)
Cancelled plans altogether.
Concessions as a Percentage of Average Sales Price by Sub-State Area Even though there were about 3,900
Year-End 2006 And Year-End 2007 new condo sales in 2007, condo
availability declined by almost 6,600
% of Sales Price units during the same time period.
Sub-State Area YE 2006 YE 2007 At least 2,700 unsold units were removed
Suburban MD 3.6% 3.8% from the actively marketing condo
Northern VA 5.4% 4.1% pipeline in 2007 due to cancellations or
The District 3.5% 2.5%
reversions back to the apartment market.
On the following page is a graph showing
Metro Average 4.6% 3.7%
the trend of condo units removed from
Source: Delta Associates; January 2008 the development pipeline.
76
trendlines 2008
®
Sales Pace 36-Month Condominium Market Pipeline

Not many new projects have been

introduced to the market in the past
few months. The average monthly sales
pace for projects that sold out during
the past two years is six units. Here are
some examples of sales pace among
the few new entrants to the market:
n In October 2007, The Cohen

Companies began sales at
Velocity – Phase I, the first
condominium project to begin
sales at the Capitol Riverfront Source: Delta Associates; January 2008
(a.k.a. Ballpark) neighborhood in
the District. Since then, 18 units
out of 200 have sold at prices
averaging $458/SF. Condominium Development Pipeline Removals
Washington Metro Area | Through Year-End 2007
n Fleet Street Condominium, the
second building to start sales at
Peterson’s National Harbor project
in Prince George’s County, began
sales in November 2007. In the first
four weeks, 93 out of 163 units sold,
averaging $500/SF.
Washington Condo Market

Outlook: The Path Forward
The Washington metro area currently
has an inventory of 17,607 units to sell,
which means it will take about 4.5 years
to sell these units at current rates of
* Previous quarter’s totals are aggregate removals from the condo pipeline
sales velocity. The only two jurisdictions Source: Delta Associates; January 2008
that are currently below the metro

average are the District (3.3 years) and
Prince George’s County (2.2 years).
Arlington, Fairfax, and Alexandria are being highly selective when targeting new projects. Opportunities exist for builders
close. to invest in niches (both geographic and product-type):
n The move-up market is tough right now – there is a home to sell before the
We believe price traction will start to
occur by late 2008 or early 2009 as the buyer can settle.
inventory-to-sales ratio gets closer n The first-time buyer market could be lucrative – no home to sell, and generally
to the 2.5- to 3.0-year range in select priced not needing a jumbo mortgage.
jurisdictions. n Boutique buildings for the empty-nester market may also be an alternative.
But location is critical here.
We believe sales will track in the 4,000 –
n Developing in close-in submarkets to take advantage of better pipeline
4,500 units range in 2008.
conditions and transit options/existing infrastructure could also prove to be
successful.
During this time in the cycle, we find
the more successful developers are
section 7 | 77
THE
WASHINGTON AREA
RETAIL MARKET
section
THE WASHINGTON AREA RETAIL MARKET
THE
WASHINGTON AREA
RETAIL MARKET
Superior Occupancy and Rent Performance Driven

by High Household Income; Sturdy Job Growth
and Continuing Under-Development of Product
The Washington metro area retail market remained a strong performer in 2007. In
fact, it continues its long run since the early 1990s due to solid employment growth,
high disposable incomes, and an under-developed pipeline of activity. While all
categories of retail are benefiting from these conditions, the focus here is on the
52.1 million SF, 299 grocery-anchored neighborhood centers:
n Vacancy declined to a chronically low level of 2.28% at year-end 2007.

n Rents increased at 3.9% in 2007, after escalating 5.7% in the prior year.
Jobs and Income Drive Demand

The retail market in the Washington metro area derives its success from job creation
and above-average income. Over the next three years, job growth is projected to
remain healthy, with the local economy creating on average 40,000 jobs per annum.
As jobs continue to expand in the metro area, retail employment is expected to

keep pace. Retail hiring increased by 5,400 positions in the 12 months ending
November 2007.
The above-average income of Washington metro area residents supports a vibrant

retail market. By 2012, the Washington metro area’s average household income is
projected to be $110,300, compared to $73,700 nationally.
Incomes in the Washington metro area grew by 21.5% from 2000 to 2007, compared
to 17.8% nationally. Compensation in the metro area has risen at a faster pace
compared to other areas, as high-level positions are difficult to fill with qualified
candidates due to a low unemployment rate; this has prompted companies to use
high salaries as a lure.
80
trendlines 2008
®
Retail Employment
Retail Inventory:
Not Enough
Year Retail Employment Change
2001 255,200 (1,700) The Washington metro area has over
2002 255,900 700 116.0 million SF of retail space, inclusive
2003 256,600 700
of all types of retail, in just over 1,000
shopping centers. Northern Virginia is
2004 263,500 6,900
home to 52% of the total metro retail
2005 268,500 5,000 inventory.
2006 269,900 1,400
2007* 283,800 5,400 With such high income and rapid
growth the metro area should have
*Employment total at November 2007; change reflects growth during the 12 months ending November 2007
Note: 2005 and 2006 have been re-benchmarked by the Bureau of Labor Statistics more retail space per capita than it
Source: Bureau of Labor Statistics; January 2008 does – just 21.3 SF per capita. This
compares to the national average of
Average Household Income 20.0 SF per capita.
Jurisdiction 2000 (Actual) 2007 (Est.) 2012 (Proj.)

Although over 12.3 million SF of retail
Washington Metro Area $80,600 $97,900 $110,300 inventory has been added to the metro
U.S. $56,600 $66,700 $73,700 area since the year 2000, the area
remains underserved as the growing
Source: Claritas Inc., Delta Associates; January 2008
population continues to demand retail
Retail Space per Capita services, particularly in the District
Select U.S. Metro Markets | 2007 of Columbia where there is just 7.8
SF of retail space per capita. There
are significant opportunities for
development of retail space inside
the Beltway to serve an underserved
population and outside the Beltway
to serve the leading edges of our
growing metro area.
The Washington shopping center

landscape is aging, as just over half
of the shopping centers are over 25
years old, while only 16% are aged ten
years or less. There are significant
Source: CoStar, U.S. Census, Delta Associates; January 2008
opportunities for renovation of the
region’s aging stock of retail space.
Retail Space per Capita
Washington Metro Area | 2007 Prince George’s County takes the lead,
as 64% of its total retail inventory is
aged 26 years or older. Of note, most
jurisdictions in the metro area have over
50% of their retail inventory in this age
range.
section 8 | 81
Grocery-Anchored Shopping Center Age Distribution

Washington Metro Area | 2007 (Share of Centers)
Shopping Center
Market Conditions
Of the total retail inventory in the
Washington metro area, 52.1 million
SF is located in 299 grocery-anchored
shopping centers, which is almost half
of the total retail inventory in the metro
area.
Given the demand for groceries at all

points of the economic cycle, grocery-
anchored shopping centers maintain Source: CoStar, Delta Associates; January 2008
the greatest stability compared to
other retail property types. Therefore,
our analysis in this report is focused on
grocery-anchored shopping centers.
Shopping Centers Aged 26 Years or Older
There are 16 notable grocery-anchored
shopping centers, totaling just over 4.5
million SF, under construction in the
metro area at year-end 2007. Four of
the 16 projects are creating shopping
centers around existing grocery stores.
Given the economic viability of grocery-
anchored shopping centers, we believe
this trend will continue.
We perform an annual survey of these

grocery-anchored shopping center
owners, and tabulate vacancy and rent Source: CoStar, Shopping Center Directory, Claritas, Delta Associates; January 2008
data.
Metro-wide vacancy remained

chronically low at year-end 2007 Grocery-Anchored Shopping Centers
at 2.28%, down slightly from 2.31% Washington Metro Area | 2007 (Millions of Square Feet)
from one year ago. The year-end 2007
vacancy rate is 98 basis points lower
than the long-term average vacancy
rate of 3.26%.
Each jurisdiction in the Washington

metro area has a low vacancy rate.
However, Arlington County, District of
Columbia, and Montgomery County
lead the pack, as each area has vacancy
below 2.0%.
Note: Estimate
82
trendlines 2008 ®
Rental rates at grocery-anchored Grocery-Anchored Shoppings Centers Under Construction

centers increased 3.9% in 2007, after Washington Metro Area | Year-End 2007
rising by 5.7% in 2006. Metro-wide
Shopping Center RBA Anchor
average rents were $33.16/SF at year-
Brandywine Crossing 730,000 Safeway
end 2007, up from $31.91/SF 12 months
earlier. Potomac Town Center 700,000 Wegmans
Dulles Landing 700,000 Super Wal-Mart
Grocery Store Wars The Shops at Stonewall 317,000 Wegmans

Wisconsin Place 305,000 Whole Foods
Food retailers in the Washington Dulles 28 Centre 300,000 Wegmans 1
metro area experienced $9.8 billion White Flint Crossing 230,000 Whole Foods 2
sales volume in 2007, a 1.8% increase
Bristow Shopping Center 200,000 Harris Teeter
from 2006 based on average per store
Metropolitan Shops 170,000 Giant Food 3
sales volume. The top three volume
producers were Giant Food, Safeway, Village Ctr @ Belmont Greene 166,000 Bloom
and Shoppers Food Warehouse. Virginia Gateway 165,000 Giant Food 3
Ashland Square 163,000 TBA
In 2007, the per store average Moorefield Marketplace 151,000 Harris Teeter
sales volume for all grocers in the
Urbana Village Center 94,000 TBA
Washington metro area was $22.5
Calverton Shopping Center 70,000 Giant Food
million. Wegmans surpassed all other
food retailers, with a $79.1 million per Kingsbrook Crossing 9,000 Giant Food 3
store average. Selling a vast selection Total: 4,470,000
of prepared dishes and offering both
1/ Using existing Wegmans as an anchor. 2/ Relocating from existing store at Congressional Plaza. 3/ Using existing Giant Food as an anchor.
organic and commercial food in an Source: CoStar, Washington Business Journal; January 2008
open-air market format has lured
shoppers to Wegmans, a unique
Grocery-Anchored Shopping Center Vacancy Rates
marketing concept that other grocers
are starting to mimic.
Sales increased by 15.5% in 2007 for

Food Lion. This growth comes after
its transformation of existing Food
Lion stores into Bloom and Bottom
Dollar stores. Food Lion converted 40
stores into Bloom Stores, a high-end
alternative, and eight stores to Bottom
Dollar, a discount alternative, as the
company attempts to broaden its
scope to capture a wider spectrum of
shoppers. Harris Teeter experienced
an 11.5% sales growth, as this brand is
opening several new locations around Source: Delta Associates; January 2008
the metro area.
To keep up with the competition, Giant

Food plans to remodel or replace 100 as consumers shifted attention to organic/specialty grocers. Safeway and Food
stores over the next three years, under Lion, direct competitors to Giant Food, have already changed formats to appeal to
the campaign “project refresh.” Since consumers. However, Giant Food stalled until recently, and now plans to upgrade
2004 sales at Giant Food have declined the product section to a fresh market concept for produce, in addition to replacing
4.8% in the Washington metro area, flooring and lighting.
section 8 | 83
Grocery-Anchored Shopping Center Vacancy Rates

Washington Metro Area | Year-End 2007
Jurisdiction Vacancy
Arlington County, VA 0.35%
Washington, DC 0.47%
Montgomery County, MD 1.55%
Fairfax County, VA 1.97%
Loudoun County, VA 2.15%
City of Alexandria, VA 2.80%
Prince George’s County, MD 2.93%
Prince William County, VA 3.82%
Grocery-Anchored Shopping Center Asking Rents

Total Grocery Sales Volume – Top Three

Jurisdiction Sales (in Millions) Percent of Total Market Volume

Giant Food $3,106 32%
Safeway $2,193 22%
Shoppers $1,258 13%
Source: Food World, Delta Associates; January 2008
Average per Store Grocery Sales Volume – Top Five

Store Sales (in Millions)

Wegmans $79.05
Costco $48.84
BJ’S Wholesale $36.23
Shoppers $32.24
Sam’s Club $30.45
Source: Food World, Delta Associates; January 2008
84
trendlines 2008®
Organic/specialty stores experienced Total Grocery Sales Growth – Top Five

strong sales growth in 2006, outpacing Washington Metro Area | 2007
traditional stores by 460 basis points.
Store Sales Increase
However, in 2007, traditional grocers
Food Lion 15.5%
outpaced organic/specialty stores by
130 basis points. A possible explanation Harris Teeter 11.5%
could be that traditional grocers have Whole Foods 10.7%
increased the amount of organic and Target 6.8%
specialty items in their stores in order to Trader Joe's 6.2%
compete with organic/specialty stores.
This, coupled with an easing economy, Source: Food World, Delta Associates; January 2008
has lured shoppers to the traditional

grocer.
With super center/club stores and Average per Store Sales Volume – By Type
traditional markets capturing customers Washington Metro Area | 2006 vs. 2007
wanting organic food at affordable
Type 2007 Growth 2006 Growth
prices, the organic/specialty niche is
feeling the pressure. In June 2007, Super Center/Club 1.6% 4.7%
the Federal Trade Commission (FTC) Organic/Specialty 0.6% 5.4%
attempted to block Whole Foods Traditional 1.9% 0.8%
from purchasing Wild Oats, another
Note: Includes only grocery stores with $2 million or more in sales
natural and organic grocery chain. Source: Food World, Delta Associates; January 2008
The FTC felt the merger would reduce
options and raise prices for consumers.
Although Whole Foods’ total sales have
increased each year, the rate of growth Whole Foods Sales Growth
has slowed since 2004. According United States | 2002- 2007
to financial press releases, in the 12
months ending September 2007, Whole
Foods states that sales increased
13.2%, compared to 22.8% in 2004.
Whole Foods is typically priced higher

than the traditional grocery store. The
company attributes the slow growth
in sales to a slowing economy and
soft housing market, which has turned
some consumers away from their
higher-end groceries. In addition,
Whole Foods argued that traditional *12 months ending 3rd Quarter 2007
Source: Whole Foods, Delta Associates; January 2008
grocers have increased competition by
offering similar food selection and store
formats. Whole Foods plans to double
its sales to $12 billion a year by 2010.
The company estimates that merging Whole Foods ultimately won and purchased Wild Oats for $565 million. This battle
with Wild Oats and closing certain shows the strong influence of the consumer dollar, as we generate two-thirds of the
locations will increase revenues by up economy with our spending power. In addition, it proves how competitive the food
to 90%. industry is and how fast it has evolved.
section 8 | 85
Retail Growth in the Population and Income Growth

Outer Suburbs
County Population Income
Population and income growth soared Loudoun, VA 63.5% 95.8%
over the past seven years for Loudoun, Prince William, VA 29.3% 63.6%
Prince William, and Frederick Counties Frederick, MD 16.0% 47.7%
– the outer suburbs. As housing prices
Washington Metro Area 11.9% 36.7%
increased at a fast pace in the early
part of the decade, these jurisdictions Source: Claritas, Delta Associates; January 2008
experienced a growing population of
people migrating to the outer suburbs
in search of affordable housing.
Commercial and Residential Growth
As people migrated, retail, housing,
Frederick, Loudoun, Prince William | 2000 - 2007
and office development followed.
The amount of retail space has grown

18% since 2000 in the outer suburbs.
Comparatively, the number of housing
units increased 38%. Office space grew
128%.
Office development increased notably

over the past seven years, particularly
in Loudoun and Prince William County,
and demand is currently having a
difficult time keeping pace. Office Source: CoStar, U.S. Census, Delta Associates; January 2008
vacancy reacted and rose in both
jurisdictions to over 13% at year-end
2007, from 6% in 2000, due to a surge
in groundbreakings. Rents are now Grocery-Anchored Shopping Center Purchases
Washington Suburbs | 1999 - 2007
starting to tick down.
Comparatively, the amount of retail

space has been slow to climb in the
outer suburbs, however. Retail vacancy
remains chronically low at 3.2% in
the outer suburbs, with asking rents
climbing 11.5% over the past year.
Given the population is projected

to rise 18% in the outer suburbs
by 2012, additional retail space is
needed to meet the demand.
* Includes large portfolio sale by CalPERS
Note: Excludes sales of regional malls and power centers; excludes properties under contract
Source: Real Capital Analytics, CoStar, Delta Associates; January 2008
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trendlines 2008 ®
Grocery-Anchored
Shopping Center
Investment Sales
Investment purchases of shopping
centers in the Washington metro area
suburbs totaled $429 million on 16
notable transactions in 2007.
The investment worthiness of

grocery-anchored shopping centers
increased to fourth place, from
seventh place in 2006, according to
our annual Market Maker survey. With
a score of 6.2 on a 10-point scale, this
product type remains attractive.
Cap rates are starting to rise for all

product types. However, according to NCREIF Return Index1 – Retail Properties
our survey, grocery-anchored shopping Select Metro Areas
centers experienced the lowest cap
Metro Area 12-Month Total Return at 3rd Quarter 20071
rate increase – just 10 basis points.
With demand for assets easing, return Chicago 16.22%
expectations for Shopping Centers Washington 14.79%
increased by 77 basis points in 2007. Phoenix 14.57%
Minneapolis 13.71%
NCREIF Returns for National Average 12.95%
Retail Properties Dallas 12.91%
Los Angeles 10.75%
According to NCREIF’s Washington Atlanta 8.60%
area retail data, the average total
investment return for the 12 months 1/ NCREIF compiles return based on its members’ $64.0 billion retail portfolios
The index includes both current income and capital appreciation returns
ending in September 2007 was 14.79%, Source: Delta Associates, based on data in NCREIF’s 3rd Quarter 2007 Real Estate Performance Report; January 2008
exceeding the national average of
12.95%. Washington’s strong market
fundamentals and high disposable
Retail Total Investment Returns
income have positioned local returns
Washington Metro vs. U.S. | 2003 - 2007
ahead of the national average, and
those of most other metro areas.
Retail investment returns are leveling

off from the growth experienced in
recent years, as the economy is
transitioning. Regardless, returns
remain solid. Given this market’s
growing population and rising
disposable income, it remains
underserved from a retail perspective.
* 12 months ending September 2007

section 8 | 87
Retail Outlook: The Path Forward

The Washington metro area retail market is robust, as the area remains
underserved and residents have high disposable incomes.
Given the health of the metro area’s retail market, vacancy rates should remain
low and rents continue to climb through 2008 and beyond for most retail
types.
Although the economy continues to transition off the robust peak of the economic
cycle, we expect retail vacancy to remain low and rents to continue to rise at
grocery-anchored shopping centers in particular. Investment sales volume is
expected to remain robust even if off its peak of 2005 - 2007, as the Washington
metro area is a premier retail market with strong property performance.
In this phase of the real estate cycle, we believe our more successful clients will use
cash to:
n Invest in repositioning existing, older centers, especially in closer-in submarkets.

n Develop new life-style, mixed-use centers, especially accompanied by the
anchors of transportation and employment assets.
n Develop grocery anchored neighborhood centers in the District and on the
leading edge of our growing metro area.
n Tend to performance enhancement of existing quality assets.
88
trendlines 2008
®
section 8 | 89
CAPITAL MARKETS AND
INVESTMENT TRENDS
section
CAPITAL MARKETS AND INVESTMENT TRENDS
CAPITAL MARKETS AND

INVESTMENT TRENDS
Record-Setting Volume, Again;

All Eyes on Cap Rates as the Credit Crunch Hits
Investment sales in commercial real estate again broke records in 2007.
Real estate remained in favor despite a Credit Crunch that drove most leveraged
buyers from the market. Elevated prices and some upward movement in cap rates
did not seem to dissuade buyers, as a volatile stock market and soft bond market
did not offer much competition. Both domestic and foreign investors who sought
to capitalize on U.S. economic growth found real estate to be the best bet from a
risk-reward perspective. When the pace of that growth slowed, the weak dollar
helped foreign investors take even greater advantage, especially after the August
Credit Crunch caused highly-leveraged buyers to withdraw from the market.
Of note, in 2007, investors sought office assets, pushing the national total to $218.4
billion, an increase of 48.9% from 2006. Other product types also experienced gains.
National Investment Sales of Office Buildings

2001 - 2007
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trendlines 2008
®
Total Investment Returns: Core Commercial Real Estate

Washington Metro vs U.S. | 12 Months Ending September 2007
The Washington Metro:
Favored Investment
The Washington metro area
remains among the world’s top
investment markets for real estate.
Office building sales in 2007 in the
Washington area reached a total
volume of $10.0 billion, excluding
whole-company sales. Including those
sales, the total was $13.7 billion – on
par with the 2006 total.
Returns are more predictable in
Washington than in most other metro
areas, leading to a flood of capital
entering the market. Because office
Comparative Investment Sales Volume: Office Buildings prices escalated so much over the last
Selected Metro Areas | 2000 - 2007 several years, returns no longer exceed
the national average for that product
type. For apartments and retail,
however, returns continue to exceed
the national average.
Due to solid total returns and a strong

underlying regional economy, office
building sales in the Washington area
outpaced other major U.S. markets
in 2007. For example, even though
the LA office market remains strong,
Washington’s stability attracted more
Note: Excludes whole-company transactions
investment dollars.
Investors searched for opportunities in

every product type in Washington in
2007, with office and multifamily assets
attracting the most interest. Total
Investment Sales volume for all the product types was
$14.8 billion in 2007, up modestly
from the $14.6 billion of asset value that
changed hands in 2006.
Sales volume slowed in the latter

portion of the year following the
Credit Crunch. Evidence suggests
that cap rates edged up 25 to 65
basis points.
Source: Real Capital Analytics, CoStar COMPS, Delta Associates; January 2008
section 9 | 93
CAPITAL MARKETS AND INVESTMENT TRENDS
Cap Rates
Washington area office cap rates declined in 2007, at least until the late
Summer or early Fall. The impact of the Credit Crunch appears to be that there
has been a slight increase in cap rates used by buyers to shop for assets. We
anticipate cap rates will edge up in 2008 as the rate of capital flows slows.
The Credit Crunch has pulled highly-leveraged buyers from the market, reducing
competition for available assets. As a result, rapid price escalation is likely off the
table for 2008. Price appreciation in 2008 and beyond will be earned the old
fashioned way – by asset performance enhancement.
Cap Rates for Core Office Assets

Washington Metro Area | 2002 Through 2007
Basis Point Change in Cap Rates

By Product Type
Product Type Basis Point Change in Cap Rate 10/06-10/07

Hotels 66
Apartments 34
Office 16
Industrial/Distribution 14
Shopping Centers 10
Source: Annual survey by Delta Associates, conducted October 2007, of the region’s leading commercial real estate players
Value Increases
Strong demand, declining cap rates and improving fundamentals pushed sale
prices to new heights in 2007, although conditions moderated late in the year.
Average office sale prices rose 15.7% in the Washington metro area in 2007, after
rising 3.9% in 2006. Sales of Washington area office assets averaged $369/SF in
2007.
Similar price increases were realized in 2007 for other asset classes.
94
trendlines 2008
®
Average Office Sales Prices

Selected Metro Areas | 2007
Investment Outlook
In 2008, we expect investment dollars
to continue to flow into commercial real
estate in the Washington area, but at a
reduced volume as compared to 2005
to 2007. While it is unlikely that 2008
will bring a record-setting performance,
sales volume should remain above
average for 2008.
We expect cap rates to edge up in

2008, but prices should continue to
rise modestly on improving property
performance. Vacancy should remain
low enough in most key submarkets for
owners to push rents higher, keeping
those assets desirable to investors.
Cap Rates In Use At Year-End 2007 By Those Looking To Acquire Assets
Developers of This
Product Type All Respondents
Property Type
Apts.: High-Rise – Class A 5.62% 5.64%
Apts.: Suburban Garden – Class A 5.85% 5.85%
Apts.: Suburban Garden – Class B 6.29% 6.29%
Shop. Ctr.: Groc. Anchor – Class A 6.48% 6.43%
Office: CBD – Class B 6.55% 6.55%
Office: Suburban – Class A 6.64% 6.65%
Office: CBD – Class A 6.90% 5.90%
Industrial/Distribution: Class A 6.90% 6.80%
Office: Suburban – Class B 7.19% 7.21%
Hotels: Suburban – Class A 7.62% 7.64%
Note: Buyer’s cap rate, based on prior 12 months NOI, before reserves
Source: Annual survey by Delta Associates, conducted October 2007, of the region’s leading commercial real estate players
section 9 | 95
TRENDSETTER
AWARD RECIPIENT
section
TRENDSETTER AWARD RECIPIENT
TRENDSETTER
AWARD RECIPIENT
Each year, Transwestern and its research affiliate, Delta Associates, honor an
individual, or individuals, who have made a noteworthy contribution to the
commercial real estate industry as a whole, and to the Washington metropolitan
area in particular. This year our honoree is Oliver T. Carr, III, President and Chief
Executive Officer of Carr Properties.
2008 TrendSetter of the Year
Oliver T. Carr, III

President and Chief Executive Officer,
Carr Properties
For over 100 years, the Carr name has been associated with Washington, DC real
estate. Since founding Carr Capital in 1994 and serving as Chairman, CEO and
President of the successor publicly traded firm, Columbia Equity Trust, Oliver Carr,
III has established his own reputation for investment acumen and creating value for
his partners and investors. In engineering a merger with an institutional investment
fund to take Columbia Equity REIT private, he capitalized on two of the most
significant trends impacting our industry: the expanding flow of capital into real
estate and the growing influence of private equity.
Now, as the head of privately held Carr Properties, with a $1 billion commercial
real estate portfolio and significant resources available for new investment and
development, Oliver Carr, III has once again elevated the Carr brand to the
forefront of Washington’s commercial real estate industry. For his distinguished
record of accomplishment and continuing market leadership, we are very pleased to
honor Oliver T. Carr, III as our 2008 TrendSetter of the Year.
98
trendlines 2008 ®
Past TrendSetter Award Recipients
Benjamin Jacobs Michael Glosserman Andrew Florance Milton Peterson F. Joseph Moravec
2007 Private Company 2007 Private Company 2007 Public Company 2006 TrendSetter of the Year 2005 Public Sector
TrendSetter of the Year TrendSetter of the Year TrendSetter of the Year Chairman TrendSetter of the Year
Managing Partner Managing Partner Founder, Director, The Peterson Companies Commissioner
The JBG Companies The JBG Companies President & CEO GSA Public Buildings Service
CoStar Group, Inc.
John E. (Chip) Akridge Congressman Tom Davis Bryant F. Foulger Clayton F. Foulger Douglas M. Duncan
2005 Private Sector 2004 Public Sector 2004 Private Sector 2004 Private Sector 2003 Public Sector
TrendSetter of the Year TrendSetter of the Year TrendSetter of the Year TrendSetter of the Year TrendSetter of the Year
Chairman 11th District of Virginia Principal and Vice President Principal and Vice President County Executive
Akridge Real Estate Services U.S. House of Representatives Foulger-Pratt Companies Foulger-Pratt Companies Montgomery County
R. William Hard Anthony A. Williams Robert Gladstone Thomas M. Garbutt Michael J. Darby
2003 Private Sector 2002 Public Sector 2002 Private Sector 2001 Institutional 2001 Entrepreneurial
TrendSetter of the Year TrendSetter of the Year TrendSetter of the Year TrendSetter of the Year TrendSetter of the Year
Executive Vice President and Mayor Chairman Managing Director Principal
Principal-In-Charge, LCOR District of Columbia Quadrangle Development TIAA-CREF Monument Realty, LLC
Jeffrey T. Neal Ray D’Ardenne Daniel T. McCaffery Robert E. Burke Raymond A. Ritchey
2001 Entrepreneurial 2000 TrendSetter of the Year 1999 TrendSetter of the Year 1998 TrendSetter of the Year 1998 TrendSetter of the Year
TrendSetter of the Year Chief Operating Officer President Executive Vice President, Executive Vice President,
Principal Lend Lease Real CCR McCaffery Operations Head of the Washington, D.C.
Monument Realty, LLC Estate Investments Developments Boston Properties Office & National Director of
Acquisitions and Development
Boston Properties
section 10 | 99
A STATE OF THE MARKET OVERVIEW AND FORECAST REPORT
2007 Market Maker Survey Participants

Delta Associates thanks all of its 2007 Market Maker survey participants,
among whom are the following:
Advance Realty Group LCOR
AIMCO Lincoln Investment Management
Apollo Real Estate Advisors Manekin Corporation
Bernstein Management Corp. Meridian Group
Boston Capital Merritt Properties
Bozzuto Group Metro Management Services
Brandywine Realty Trust Mid-City Finance Corporation
Broad Street Ventures Northwestern Mutual Life
Buchanan Partners Penrose Group
Chesapeake Real Estate Group Potomac Investment Properties
Donohoe Companies, Inc. Prudential Real Estate Investors
DRI Partners PS Business Parks
Eastdil - Wells Fargo Quadrangle Development Corporation
Elm Street Development Rappaport Companies
Fairfield Residential Roadside Development
First Centrum Corporation Sidewalk Development Advisors
Gables Residential Spaulding & Slye Colliers
General Investment & Development Transwestern
GMU Institute of Public Policy Union Realty Partners, Inc.
Green Light Retail Real Estate Services Uniwest Jefferson
Holliday Fenogilo Fowler Van Metre Management Company
John Akridge Companies Velsor Properties
John B. Levy & Co. Wells Fargo Bank
Johns Hopkins University
100
trendlines 2008
®
101
Notes
102
trendlines 2008
®
103
Notes
104
trendlines 2008
®
105
Mid-Atlantic Headquarters Atlanta
6700 Rockledge Drive
Suite 400A
Bethesda, Maryland 20817 Austin
301.571.0900
Baltimore
Washington, DC
1667 K Street, NW Bethesda
Suite 300
Washington, DC 20006
202.775.7000 Chicago
Northern Virginia Dallas

8614 Westwood Center Drive
Suite 800
Vienna, Virginia 22182
Denver
703.821.0040
Detroit
Baltimore/Washington Corridor
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Suite 350
Columbia, Maryland 21046
301.621.8800 or 443.285.0700 Los Angeles
National Headquarters Miami

1900 West Loop South
Suite 1300
Milwaukee
Houston, Texas 77027
713.270.7700
Minneapolis-St. Paul
www.transwestern.net
New Orleans
Headquarters
1121 14th Street, N.W. Orange County
Suite 800
Washington, DC 20005
Phone (202) 833-3300
Philadelphia
www.driinc.com Phoenix
Headquarters Salt Lake City

500 Montgomery Street
Suite 600 San Antonio
Alexandria, Virginia 22314
703.836.5700
San Diego
www.DeltaAssociates.com
San Francisco
Transwestern is the Mid-Atlantic Region’s preeminent full-service commercial real estate firm. Northern VA
Partners in Excellence
Delta Associates, an affiliate, is a national provider of industry information, market analysis,
and feasibility consulting for commercial real estate. Washington, DC
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trendlines® 2008

Creating Opportunities in a Changing Market

6700 Rockledge Drive 1601 K Street, NW

recycled paper using vegetable-based

Creating Opportunities in a Changing Market

A Collaborative Publication of Delta Associates,

© 2008. All Rights Reserved.

Transwestern Delta Associates

Thomas Nordlinger Gregory H. Leisch, CRE

To Our Clients and Business Associates:

As always, the future holds uncertainty but there is much anticipation as we

Very truly yours,

Direct Dial 703 923 8215

Dear TrendLines Participant,

We are very proud to be a member of the Washington-Baltimore real estate

At PNC, we combine a wider range of financial resources with a deeper

Michael N. Harreld William R. Lynch III

Section 1 Creating Opportunities in a Changing Market Page 12

Section 2 The National Economy Page 24

Section 3 The Washington Area Economy Page 34

Section 4 The Washington Area Office Market Page 42

Section 5 The Washington/Baltimore Flex/Industrial Market Page 54

Section 6 The Washington Area Apartment Market Page 64

Section 7 The Washington Area Condominium Market Page 74

Section 8 The Washington Area Retail Market Page 80

Section 9 Capital Markets and Investment Trends Page 92

Section 10 TrendSetter Award Recipient Page 98

Last year in TrendLines we said we had transitioned into a full-fledged period

n Corporate profits remain healthy, although the number of industries under

A Changing Market: Trends of 2007

National Economic Trends The Federal government designed an

Share of Subprime Mortgages in Delinquency or Foreclosure

The dollar fell 10% against the euro

Source: Bloomberg News, Delta Associates; January 2008

3. Inflation on the Rise; Mortgage Rates to Follow?

*12-month percentage change through November 2007

n Inflation would debilitate some consumers, further handicapping a resumption

4. Slowing GDP and Job Growth

What does a 2.2% GDP growth rate

In our view, this level of job creation will

5. 40% Chance of a Recession

At the same time, Global Insight, an

Regional Economic Trends Leading Economic Indicators Index

Three trends stood out in the regional

The annual change in Federal

through 2004 – the aftermath of 9/11

The Federal government is the number

In our view there will not be a

2. Slowing Job Growth Payroll Job Growth

Regardless, the Washington metro area

With slower job growth should come

The Federal government helps to

ago. Regardless, the Washington

The Washington metro area condo

Investors continued to funnel record

Source: Real Capital Analytics, Delta Associates; January 2008

Three Key Factors to Watch in 2008

1. The Economy: Job Growth and Consumer Sentiment

2. Supply Trends: Developer Discipline

3. Capital Flows: The Credit Crunch Effect

The Path Forward: Focus on Operating Performance and Re-Positioning

Development and Investment Niches:

Geographic Plays. Examples of this niche include development and investment:

n Near transit infrastructure, especially Metro. As traffic congestion gets worse