P C G|no rth e aNst

O R Toh
H E AiSo
T OHIO
n e w s l e tte r P R IVATE CLIEN T GRO U P

february/March 2010
M onthly N ew sletter
C a p i t a l M a r k e t s | P r i v a t e C l i e n t G r oFeb
u pruary 2010

www.cbre.com/pcgnortheastohio

What Should We Expect From Commercial KEY RATES

Real Estate Debt Markets In 2010?
2/19/10 Month Ago Year Ago
Now that the commercial real estate debt markets have Tax-Exempt AAA Rated 3.12% 3.28% -
(10 year GBA rate)
begun what appears to be a long, extended process of
de-leveraging, CBRE Economic Advisors recently turned their Prime 3.25% 3.25% 3.25%
attention toward thinking about some broad industry trends and
how debt markets may evolve. Here are their thoughts on six key 5-Yr US Treas. 2.45% 2.45% 1.80%
trends that are likely to play an important role in shaping transaction
10-Yr US Treas. 3.78% 3.70% 2.76%
activity over the next several months.
LIBOR 3-Mo. 0.25% 0.25% 1.25%
MORE DISTRESS - While this trend may appear quite obvious to
market participants, expect some subtleties as to how distressed Source: Bloomberg and Wall Street Journal
assets come to market, and what types of assets comprise the
distressed pipeline in 2010. With banks reluctant to take losses
2009:
on performing assets, A Terrible
extensions will continue Year
to be thefor the Record
primary Books
CAP RATE CORNER
roperty
avenue forTrade
resolutionSearch
US Capital
of lenders’Results
Trends - January
maturing loan 21, 2010 in the
portfolios
short term. Expect some opportunistic investors to remain frustrated
NATIONAL TRENDS ON PRICING
All Types | Cleveland
over the relatively slow pace |atUS
which distressed assets migrate into
Transactions c
For thoseon
transactions, especially who thought
higher 2008
quality was a terrible year in the annals
assets.
of US commercial property investing – and who didn’t think
so? - 2009’s
Continued on page results put a surprising glow on such bleak
3 (MARKETS)
memories. With $51.9 billion in investment sales showing a
64% retreat from 2008’s $146 billion - and a 90% plunge from
CBRE 2010 MOB$522
2007’s billion - 2009
I nvestor/ limped ingloriously
D eveloper out of sight.
Survey
Provides Positive Outlook
Except that, with the year just past coming into full view, it is
The 2010 CB Richard Ellisthe
clear that Medical Office
New Year Investor/Developer
is beginning Survey than
on better footing
was sent to 596did of
thethe
old most influential
one. For medicaltype,
every property office
theinvestors,
final quarter of
developers and2009
realmarked
estate investment
an upturn, iftrusts
not a(REITs)
vibrantinone.
theBut
country,
the direction
with 120 takingclearly
the time to respond.
is more positive than one year ago, when the bottom
was nowhere in sight.
This year’s survey contained eighteen key questions about the state
of the medical Even
officethe
investor/developer
most glaring no-show market. Somethe
in 2009, of entity-level
the more deal,
showed
interesting findings signs
in the of lifeincluded
survey toward year-end,
the outlookwhen forSimon Property
medical
office capitalization rates. As most would expect, values for coreAnd
Group announced a pending $2.2 billion acquisition.
product, namely portfolio
class transactions
“A” medical were a factor
office in really
buildings just one
(MOBs), stillsector –
retail – where Cleveland
they made up almost a third of total volume; US Total
remain at cyclical highs with 87% of the respondents reporting that
overall, there were fewer than $10 billion in portfolio deals.
cap rates are below 8.50% and 37% of Reported
Past 12 months
the respondents reporting
    the one-off,
Reported
   
For the most part, 2009 was the year of
Closed/Contract when Closed/Contract
that cap rates for core product are below 8.00%. Newly Offered
even those investors with larger horizons were rarely able
Total Volume (in mil.) to simultaneously find both the
$159.7     and the capital
stomach $424.5
to Total Volume (in mil.) $61,511.4    
In contrast, there
# of Properties
continues
take to be in
down assets a wide spread 16
quantity. in cap
   
rates between 31 # of Properties 3,754    
care medical product and class “B” facilities, with over 82% of the
Total respondents
sf reporting thatdragged
cap rates 1,943,5419.00%
    and 36% 3,971,913 Total sf 1,082,465,562    
As the year onare
andabove
the waning tide of
of investment
Price/the
sf respondents reporting that cap rates are over
$88.9 9.50%
   
sales volume began its slow turn, cap rates continuedfor class
$137.6
in just Price/ sf $68.7    
“B” off campusone product.
direction: up. Only apartment caps climbed fewer than
Range (in mil.) $3.7-$34.0     $5.1-$50.0 Range (in mil.) $0.5-$590.3    
100 basis points year-over-year, but then, only apartment
Continued
Avg. Property $ (in on
mil.)page 4 (SURVEY)
investors $10.0
had government-sponsored    
enterprises Fannie $13.7 Avg. Property $ (in mil.) $16.4    

Wghtd. Cap Rate and Freddie pitching in on financing.

8.59%     8.09% Wghtd. Cap Rate 7.61%    

SeeRate
Mean Cap highlights from the 2010 Mortgage 7.86%     Bankers 8.42% Mean Cap Rate
In sales volume for all property types, there was an eerie uniformity in the rate of descent vs. 2008 sales levels, as
7.78%    
Source: Real Capital Analytics
Association Conference on page 4.
subtype after subtype plunged by more than 60%. CBD office, usually the king of subtypes, fell the hardest for any
sector with meaningful volume, down 78%, while humble strip centers turned out to be the jack of all trades: strips
were down a relatively bearable 36% as the only subtype to endure a year-over-year decline of less than 50%.
Page 1
 P C G|no rth e a st oh i o february/March 2010

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MARKET SNAPSHOT
Office YTD Under
Existing Inventory Vacancy
Net YTD Construction Quoted
Market # Buildings Total RBA Direct SF Total SF Vacancy % Absorption Deliveries SF Rates
Downtown
368 42,658,451 5,232,400 5,374,738 12.6% (149,662) 0 525,000 $17.32
Cleveland
East 352 13,762,585 1,416,614 1,459,808 10.6% (93,412) 155,583 0 $18.37
Lorain County 488 5,451,126 514,170 514,170 9.4% (30,150) 0 0 $16.03
Medina County 375 2,978,241 267,837 269,798 9.1% 80,224 50,200 82,240 $16.36
Northeast 446 6,994,420 962,027 970,992 13.9% (54,839) 1,300 0 $15.42
South 322 9,903,202 1,237,812 1,290,877 13.0% (27,909) 0 0 $18.76
Southeast 150 3,033,104 300,475 318,208 10.5% (54,617) 0 0 $18.99
Southwest 456 7,790,742 683,880 686,450 8.8% 28,094 0 0 $16.97
Summit County 1,535 27,452,786 2,213,466 2,430,560 8.9% (148,694) 162,471 32,600 $15.89
West 431 9,099,020 1,154,366 1,156,368 12.7% (90,313) 26,000 0 $15.90
Totals 4,923 129,123,677 13,983,047 14,471,969 10.95% (541,278) 395,554 639,840 $18.70

Industrial YTD Under

Existing Inventory Vacancy
Net YTD Construction Quoted
Market # Buildings Total RBA Direct SF Total SF Vacancy % Absorption Deliveries SF Rates
Akron Ind 1,528 61,809,261 4,710,454 4,899,610 7.9% (494,754) 0 0 $3.37
Downtown Ind 805 29,076,213 2,610,682 2,610,682 9.0% (125,184) 0 0 $4.10
East Ind 174 9,435,450 733,206 772,416 8.2% (79,288) 0 0 $6.87
Medina County Ind 505 17,614,791 1,640,794 1,640,794 9.3% (448,554) 0 7,919 $4.22
Northeast Ind 1,625 66,166,273 5,405,065 5,413,830 8.2% (449,798) 5,280 0 $3.17
Outlying Lorain Ind 156 6,321,288 2,709,304 2,709,304 42.9% (70,131) 0 0 $2.36
South Ind 823 35,268,954 2,043,847 2,085,401 5.9% (227,725) 0 14,000 $4.86
Southeast Ind 1,755 89,962,367 7,013,056 7,144,606 7.9% (480,572) 0 0 $4.28
Southwest Ind 1,070 54,298,456 3,580,847 3,580,847 6.6% (666,517) 28,500 0 $4.46
West Ind 1,051 41,526,867 2,355,899 2,359,499 5.7% (528,208) 0 0 $3.46
Totals 9,492 411,479,920 32,803,154 33,216,989 11.16% (3,570,731) 33,780 21,919 $4.12

retail
Existing Inventory Vacancy YTD Under
Net YTD Construction Quoted
Market # Buildings Total RBA Direct SF Total SF Vacancy % Absorption Deliveries SF Rates
Downtown
308 7,381,232 321,917 326,152 4.4% 40,766 71,280 78,083 $14.32
Cleveland
East 584 12,296,161 806,280 806,280 6.6% 86,094 0 0 $12.98
Lorain County 1201 15,729,604 1,379,095 1,422,575 9.0% 8,743 201,296 52,705 $9.55
Medina County 802 9,970,745 683,196 696,996 7.0% (87,185) 0 0 $12.10
Northeast 1196 22,927,735 2,456,164 2,593,992 11.3% (261,573) 111,400 0 $9.99
South 526 11,581,047 1,169,528 1,244,848 10.7% (484,558) 0 10,000 $8.31
Southeast 187 3,873,263 579,752 673,267 17.4% (44,806) 0 0 $14.08
Southwest 1152 22,489,260 1,624,287 1,667,352 7.4% 98,793 397,512 24,800 $11.37
Summit County 3020 37,090,595 2,697,872 2,925,232 7.9% (553,935) 49,351 20,000 $9.75
West 771 15,311,571 886,181 964,348 6.3% (19,985) 0 0 $12.70
Totals 9,747 158,651,213 12,604,272 13,321,042 8.8% (1,217,646) 830,839 185,588 $11.52

Source: CBRE, CoStar Group, Inc.

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 P C G| no rth e a st oh i o
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www.cbre.com/pcgnortheastohio
Continued from page 1 (MARKETS)
Over the past year, distressed assets increased markedly,
reaching some $172 billion at the end of 2009-a fourfold
increase from year-earlier levels, according to Real Capital
Analytics. Undoubtedly, the pipeline of distressed loans will see
rapid growth, particularly in the development and hotel sectors,
with income and occupancy shortfalls causing some bank
lenders to finally throw in the towel, accept losses, and move
to restore the health of their balance sheets. Distressed hotel
deals will also continue to rise sharply as the industry struggles
to right itself after an historical decline in revenue over the past
year. A gradual recovery in hotel fundamentals by late-2010
will help to stem the tide of distress in the sector. Also, expect
plenty of small-loan bank deals, busted developments and
nonstandard property types that will require difficult valuation
and resolution processes.
“MIDDLE OF THE FAIRWAY” DEALS - The return of life
companies, private funds, mortgage REITS and CMBS
issuers will help support lending to high-quality sponsors on
high-quality assets with stable leasing profiles. Growing
competition for larger deals with high-quality sponsors could
result in a number of larger, syndicated deals among bank
and life companies. Deals with significant sponsor or leasing
issues will continue to lack lending opportunities and will
face significant restructuring challenges.
A TWO-TIERED DEBT MARKET - At the same time, expect
growing bifurcation of the real estate capital market, consisting
of: (i) low-leverage capital becoming more plentiful from
the above sources, which will compete for business with the
best sponsors and (ii) distressed deals in which opportunistic
funds take advantage of deeply discounted note sales or
restructuring situations on troubled assets. It is likely that loan
pricing will continue its trend of gradual improvement for the
top tier assets as more capital flows into the sector; meanwhile,
pricing expectations for distressed assets will remain highly
discounted and uncertain.
MULTIFAMILY LIQUIDITY - Tracking the decline in sales
transaction and refinances, agency multifamily originations
were off by more than 30% for the year ended in the third
quarter of 2009, according to the MBA loan origination survey.
However, this decline was not as dramatic as the more than
50% decline registered for all commercial and multifamily
lenders over this time period. Expect the multifamily sector
to continue to benefit from GSE lending. There is the risk,
however, that lending volume may suffer under the weight of
higher defaults and worsening credit issues, as well as eventual
Page 3
february/March 2010
regulatory moves to reduce the overall size of the agencies’
investment portfolios.
CONSERVATIVE UNDERWRITING - Conservative underwriting
is here to stay for the time being-a reflection of the relative
lack of capital and the prospect that many property leases
will rollover into markets where rents and occupancies have
declined significantly. However, as lenders see that markets
are beginning to bottom out and the prospect of recovery in the real
estate market takes hold, look for average loan-to-value
ratios to eventually increase to a 70% LTV standard. First
mortgage loans will require 25- to 30-year amortization terms,
significant rollover escrows, and cash management features.
MORE CMBS DEALS - In late 2009, three single-borrower
CMBS deals came to market, the first new issue deals since
early 2008. Look for several more small-sized, low-leverage,
single-borrower CMBS deals to come to market in 2010.
As warehousing and hedging risks are gradually resolved,
expect issuers to dip into the securitization market with larger
multi-borrower deals. CMBS loans will remain conservatively
sized at 50-60% LTV, leaving little room for rating agency
interpretation over sizing AAA-rated bond proceeds. For the
market to expand to higher levels of leverage, investors are
likely to require higher levels of confidence regarding the
rating agency model, the alignment of interest among various
parties to the securitization, and a consensus that real estate
fundamentals are on the mend. In particular, investors will
need to have more confidence that loan originators have
significant funds at risk, or “skin in the game”.
With improving levels of price discovery for low-leverage
deals, expect financing under the Term Asset-Backed
Securities Loan Facility (“TALF”) to become less relevant for
successful deal execution. The TALF program for new issue
CMBS, which is scheduled to expire at the end of June, provides
low-cost financing to buyers of AAA-rated CMBS. After successfully
re-starting the new issue market, the number of future
TALF trades may be rather slim over the next few months.
However, the program will continue to provide benefits
through effectively providing insurance or a “backstop” against
adverse changes in pricing and widening loan spreads.
For more insights from CBRE Economic Advisors, visit them at
www.cbre-ea.com.
 2-5 years (30%), followed by 5-7 years (20%). Of those
that selected over 10-years for their hold period, 51%

P C G|no rth e a st oh i owere health care REITs and 27% were medical2010
february/March ofce
developers.
n e w sle tte r
www.cbre.com/pcgnortheastohio
What is the average hold time frame for your medical
* Continued from page 1 (SURVEY) Wofce isinvestments?
hat the average hold time frame for your medical
office investments?
Pricing should hold steady as demand is expected to 33%
outweigh supply in 2010 with 52% of the survey respondents 30%
reporting that available medical office product for purchase
(supply) will be the same as it was in 2009, while 55% 20%

% of Respondents
of the survey respondents reporting that the amount of 15%
When survey
investors respondents
looking to purchase were asked
(demand) will how they were
be higher than RETURN REQUIREMENTS
2009.
nancing medical ofce buildings, bank debt ranked It’s not surprising that the results for a “market”
as 2%
Fornumber
more one, followed
information onbyparticipating
debt from life
in companies,
a webinar capitalization rate for medical ofce in 2010 varied
review of the survey, please contact Steve Latkovic at
followed by rms that are using all cash from the funds widely depending
Over 10-years 7-10 yearson product
5-7 years type.
2-5 years The
Undermajority
2 years o
steve.latkovic@cbre.com or 216-363-6418. Some of the
on their balance
questions sheet.
are answered below: survey respondents (87%) indicated that a “market”
capitalization
CBRE’s debt andrate for Class
equity “A” on-campus
team PROVIDES produc
insights
What types of funding sources are you utilizing?
What types of nancing sources are you utilizing? from the 2010 Mortgage Bankers Association
would be below 8.50% and 37% of the survey
Conference
6% Bank Debt
respondents indicated that a “market” capitalization
3% 2%
Survey respondents also indicated a wide spread in their • The Debt Capital Markets are back, Las Vegas is not
SUPPLY VS. DEMAND
Life Companies
rate would
• Liquidity has returned be belowwith Life8.00% for theallocations
Cos increasing same product
9% 32%of return (IRR)
target all-cash internal rate requirements Demand
In Securitized
and contrast,should 82%
lendersoutweigh
of
back those supply
in market; in 2010
surveyed
material with 52%
indicated
increase inthatof a
All Cash effective capacity
for 2010 depending on product type. For Class “A” the survey respondents reporting
“market” capitalization rate forthat
• Lenders have overcome their fear of commercial real estate,
Classavailable medical
“B” off-campus
Credit Tenant Lease Financing
% on-campus product, 42% of the survey respondents of ce product for
product
still careful would
but bepurchase
working above
to compete (supply)
9.00% and will15%be the same
of the as
survey
Revolving Line of Credit
indicated that their target all-cash IRR for 2010 is • Annuity
was $inare2009,
itrespondents flooding lenders
while 55% liquidity accounts
indicated thatofa the survey respondents
“market” capitalization
Bond Financing • 60-65% Leverage is the new 50-55% LTV
between 10.00% and 12.49%. In contrast, 39% of the reporting that the amount
• Uprate would
to 75% LTV be above
is possible on at leastof
10.00% forinvestors
some theassets
same in looking
product.to
select
survey
16% Other target all-cash
respondents indicated that their markets;
purchase as well as recapitalization,
(demand) will be higher mezzanine,
than 2009.equity, hope
22%
IRR for Class “B” off-campus product Synthetic
for 2010 Lease Financing
is above notes, basis plays, etc
• 6% Loan Coupon is the new 8%
17.50% Where
• Positive do you
What leverage
will be aissee investment
“market”
increasingly supply/demand
capitalization
available, acrossrate for medical
for
the asset
medical
ofce inof
range 2010?ce in 2010 compared to 2009?
What is your target Internatl Rate of Return (all-cash)
What is your target Internal Rate of Return (All-Cash)
requirement for 2010?
• Competition for multi-family loans heats up as Life Co
pricing narrows gap with agency 55%terms
requirement for 2010? 100%
• The valuation
0%
3% 52%
cycle is at5%or past bottom,3%
at least
90%
6% 4% 6% 15% for better
While
100% there was a wide variation for the average hold- quality assets; 6%
38% but there14% is a divide between 39% high & low
% of Respondents

6% 10% 17%
14% 80%
quality
time
90% for 8%
the respondents’ medical24%
ofce investments, 21% Above 10%
Higher
13% • The 70%residential market bottomed last year and is now
12%
80% 10-years 10% 9.50% - 9.99%
over ranked number one (33%), followed by favorably priced based on relationship to median income Same
70% 10% Above 20.00% 60% 50% 10% Fear, to Capital and then
15% • The cycle has moved past
2-5 years12%(30%), followed by
20% 5-7 years (20%). Of those 45% 38% 6% 9.00% - 9.49%
Lower
60% 17.50% - 20.00% 50%
Fundamentals, should have a longer than typical run
that 8.50% - 8.99%
50% selected over31%
10-years for their hold period, 51%
24% 15.00% - 17.49%
(1040% years or more) 46%
29% 27% were medical ofce • Banks are beginning Supply to break the extension Demand pattern, forcing 8.00% - 8.49%
were
40% health
42% care REITs and
12.50% - 14.99% 30%
borrowers to mark assets with sale or refinance on today’s 7.50% - 7.99%
30%
developers. 10.00% - 12.49% 20%
23% reality 35% 30% 34%
20% 27%
• This Below 7.50%
22% 7.50% - 9.99% 10%remains an orderly process, with abundant
MARKET FUNDAMENTALS 16% acquisition
10% 21% capital succeeding accommodating lenders as2%a limit on
8% 6%
12% Below 7.50%
Over 0% two2%thirds of1% 2%
survey
2%
0%
respondents 1%
0% (70%) project
What
0% is the average hold time frame2%for your medical price weakness
Class A On- Class A Off- Class B On- Class B Off-
• The tone and optimism at this year’s event could not
ofce investments?
Class A On- Class A Off- Class B On- Class B Off- medical ofce lease rates for 2010 to increase between
Campus Campus Campus Campus possibly have Campusimproved Campus
more than Campus Campus to last
it did compared
zero and two percent, while 10% of survey respondents
year
33% believe that medical ofce lease rates will experience
Page 4 30%
 P C G| no rth e a st oh i o february/March 2010

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RECENT INVESTMENT TRANSACTIONS

Office
Property Name City, State Sale Price Sale Date Additional Information
Point 6 Westlake, OH $2,000,000 December 2009
Retail
Property Name City, State Sale Price Sale Date Additional Information
Gabriel Brothers Plaza Kent, OH $4,500,000 December 2009 CAP rate: 9.7% (est.)
Shaker Towne Center Shaker Heights, OH $17,800,000 December 2009
Snow View Plaza Parma, OH $9,450,000 December 2009
Discount Drug Mart Dover, OH $3,243,000 December 2009 CAP rate: 8.8% (est.)
Discount Drug Mart Carrollton, OH $3,596,000 January 2010 CAP rate: 8.9% (est.)

FEATURED PROPERTY | FOR SALE RECENT TEAM SALES

Panera Plaza 200 East Market Street

2070-2074 Walker Lake Road Akron, OH 44308
Ontario, OH 44862 • Long term acute care
hospital (LTACH) anchored
• Potential of 20%+IRR for the by Select Medical.
entire project
• From marketing to close in
100 days.

Property price: $2,450,000 Property type: Medical

CAP rate: 8.65%* Buyer: Health Care REIT

Current NOI: $185,984 Purchase price: $20,500,000

*On in-place income Building size: 54,450 SF
Deal closed: December 2009

Scott Pollock and Steve Latkovic specialize in advising clients in the disposition and acquisition of income-producing
properties throughout Northeastern Ohio. We deliver our clients a seamless transaction to achieve optimal pricing
and maximum returns in today’s ever changing real estate market. Additionally, services go beyond finding a buyer
as we employ a due-diligence coordination team in addition to offering exit strategy planning. These services provide the
highest surety of a flawless sale with minimal distraction to the seller and their tenants. For information on PCG Northeast Ohio,
please visit our website at: www.cbre.com/pcgnortheastohio

For up to the minute market information, you can visit our blog at: commercialinsider.blogspot.com
For more information, please contact:
: : Scott Pollock : : Steve Latkovic, Esq., CPA
Private Client Group Private Client Group
216.363.6467 216.363.6418
scott.pollock@cbre.com steve.latkovic@cbre.com

CB Richard Ellis| 200 PublicSquare | Suite 2560 | Cleveland, OH 44114 | www.cbre.com/pcgnortheastohio

© 2010 CB Richard Ellis, Inc. This information has been obtained from sources believed reliable. We have not verified it and make no guarantee, warranty
or representation about it. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future
performance of the property. You and your advisors should conduct a careful, independent investigation of the property to determine to your satisfaction
the suitability of the property for your needs. Licensed Real Estate Broker

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