State of Atlanta’s Office Market September 23, 2011 Appraisal Institute – Atlanta Area Chapter

1. State of Atlanta’s Office MarketSeptember 23, 2011Appraisal Institute – Atlanta Area Chapter

2. 2009 Capital Markets Report 2009 What a difference a year makes….Ouch!!!!!

3. 2010 Capital Markets Outlook 2010 What HAPPENED to the last year….???

4. 2011 Capital Markets Report 2011 What a difference a year makes….!!!!!

5. 2009 Atlanta Office Capital Markets Outlook • Deleveraging is not pretty! • As of 9/30/2009, only one Atlanta office investment sale YTD over $10 million • Values are down approximately 40% to 50% from peak • Market leasing fundamentals continue to deteriorate = NOI Pressure • Capital being extremely cautious – “Early is the new wrong”! • Investors taking a conservative approach to underwriting

6. 2010 Atlanta Office Capital Markets Outlook • Deleveraging is STILL not pretty, but we ARE slowly getting there! • NINE (9) Atlanta office sales closed YTD • Total Atlanta office sales volume = $163 million • Atlanta outside of top 20 markets in US for investment sale volume ($) • Atlanta in top 5 US markets w/ high probability of CMBS defaults

7. 2011 Atlanta Office Capital Markets Outlook • Still in the Deleveraging stage, but lenders making headway • Twenty-Five (25) Atlanta office sales closed YTD • Total Atlanta office sales volume = $660 million (Four x 2010 volume) • Anticipate $1.2 Billion in total Atlanta Office transactions for 2011 • Atlanta still outside Top 10 markets, but YTD #14 (vs. outside top 20 in 2010) • Atlanta continues to have high debt distress levels (#5) • One of only 8 markets nationwide where non-distress sale activity outpaces distress sale activity (measured by $ value) - Good & Bad… • Capital gaining confidence – investment activity strengthens • Market fundamentals? – where are the office jobs?

8. Big Picture “Commercial Real Estate is a bright spot in an otherwise gloomy investment market” PwC Real Estate Investor Survey – Q3 2011

9. 2012 Office Capital Markets Outlook • Anticipate more product coming to market in Q 4 2011 early 2012 as capital seeks yield – 10 year Treasury at 1.8%..... • Institutional Capital seeking stability / core / credit – willing to pay up • Lenders will continue to “work out” of problem assets via note sales, short sales, REO • Continued focus on recapitalizations, but VERY slow to occur and VERY time consuming – frustration factor is high • Transaction velocity should continue to improve, unless capital market disruptions derail – big question…

10. …An End to Extend & Pretend? Real Capital Analytics July 2011

11. 2011 Atlanta Office Investment Activity • The 2011 volume of investment sales is expected to increase over SIX times that of 2010 • YTD volume at $661 million • Pipeline of additional Atlanta Office transactions expected to close by YE = $500 million • Concerns over when rents will grow in Atlanta… • Forecast growth of 3.7% over the next 6 years (avg. = .6%) • Compare to Charlotte @ 17.2% over the same period (avg. = 2.86%) • Are we missing something?

12. Atlanta Annual History & Forecast 1999-2016

13. Average Price PSF Atlanta Office Sales Pricing begins to recover

14. 2011 Atlanta Office Investment Activity • Foreclosure activity will likely peak in Q4 / Q1-Q2 2012, but still far fewer than expected in this cycle • More workouts anticipated versus foreclosures – slow and painful • Shallow pool for “commodity” suburban product

15. Buyer and Seller Profiles – Q2 - 2011 Real Capital Analytics July 2011

16. Where’s the Capital? Who’s Buying? • REITs (Public and Private) • Private High Net Worth • Opportunity / Value Add Funds • Institutional Capital (Advisors/Funds) • Private Equity Funds (Debt & Equity) • Users • Offshore Capital (still very limited except DC & NYC)

17. Where’s the Capital? Who’s Buying? REITs • Parkway Properties • Commonwealth REIT • Piedmont Office Realty Trust • Highwoods Properties • Rosemont Realty • In-Rel Management • America’s Capital Partners • Levin Properties • Jackson Oats Shaw • Atlanta Property Group Private Captial / Funds

18. Where’s the Capital? Who’s Selling? • Owners of Core Assets – Stabilized rent roll and credit • Banks (Large well capitalized) – Notes and REO • Special Servicers – only most highly distressed and small • REITs and Institutional Funds culling their portfolios of non-fit assets • Opportunity Funds with limited life funds selling as needed

19. Atlanta Leasing Trends / Fundamentals • Leasing activity sporadic from sub-market to sub-market • Vacancy Rates have remained flat at 20% for past 12+ months • Buckhead remains the favored market for tenants • While Midtown, Buckhead and Central Perimeter remain favorites of investors, vacancy rates highest in these sub-markets.

20. Tenants Still Hold Pricing Power…

21. Case Study

22. Case Study

23. Case Study

24. Case Study

25. Case Study

26. Case Study

27. Case Study

28. Today’s Underwriting • Rental Rates • Rent Growth - When? • Leasing Costs • Concessions • Operating Expenses • Capital Expenses

29. Valuation • In-Place Returns • Leveraged Returns • Replacement Cost

30. State of Atlanta’s Office MarketWill YowellVice ChairmanCB Richard Ellis, Inc.Capital Markets – Institutional Group404-923-1475 – will.yowell@cbre.com