2011 – 4th Quarter Update

Greetings,

While not discounting the global market concerns, especially the European debt crises, our own National debt, the uncertain jobs picture and the potential for increased tensions over the Straits of Hormuz, generally the economic conditions in the US are improving, albeit at a much slower pace than hoped for. The upcoming presidential election is also adding additional uncertainty. However, from a commercial real estate perspective, the data is strengthening and should continue to build momentum into 2012.

Cap rates continue to compress and the average cap rate in the US dropped from 7.9% in the second half of 2011 from 7.9% to 7.5% from a year earlier, according to ChainLinks Retail Advisors. Cap rates for grocery-anchored neighborhood and community centers declined from 7.7% to 7.4% over the same period. The only segment of the retail market which experienced an increase in cap rates was open-air centers, which increased from 7.7% to 8%.

National retail vacancies were at 7% in the 4th Quarter 2011, down from 7.1% in the 3rd Quarter. New York City and San Francisco were the healthy markets, with vacancies with a 2.1% and 3% vacancy rate respectively. At the other end of the spectrum were Atlanta and Dallas, which posted vacancy rates at 10.2% and 9.1% respectively. Grocery anchored and community centers had the lowest overall vacancy rates at 6% and vacancy rates in regional malls actually increased from 9.3% to 9.4%, according to Reis, the data firm tracking these rates in 2000, the highest vacancy rate since the firm began tracking these rates in 2000. Meanwhile the vacancy rate at open-air centers was unchanged from the prior year at 11%.

Absorption in neighborhood and community centers saw a net increase of 3.18M square feet, the most since 2007.

National rental rates averaged $14.65 psf in the 4th Quarter, off 1.6% from a year ago and off .5% from the 3rd Quarter. Asking rents at mall properties actually increased .1% in the 4 Quarter to $38.81 psf, close to 2006 levels.

Capital markets continued their positive momentum after a setback in late summer 2011, due to the UD debt downgrade fiasco. Not only are CMBS lenders becoming more aggressive in imitating loans, banks are becoming increasingly aggressive in providing long-term, fixed rate loans.

We believe that 2012 will be similar to 2012, as well located existing properties will continue to experience positive absorption, as future development will continue to be restrained. Capital markets and side-lined equity will provide enough liquidity to insure viable investments will close.