Industry Overview COMPETITIVE LANDSCAPE

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1 INDUSTRY PROFILE Commercial Real Estate Brokerage and Management QUARTERLY UPDATE 2/8/2010 SIC CODES: 6512, 6531 NAICS CODES: , Industry Overview The US commercial real estate brokerage and management industry includes about 25,000 companies with combined annual revenue of about $30 billion. Major companies include CB Richard Ellis, Jones Lang LaSalle, and Cushman & Wakefield. The industry is fragmented: the 50 largest companies account for one-third of industry revenue. The industry includes sales and leasing brokers and agents for nonresidential property, as well as property managers. Many companies combine these functions. Owners of commercial property who perform their own leasing and property management aren't included in this industry. Commercial real estate financing is not included in this industry. COMPETITIVE LANDSCAPE Demand, which is driven by the volume of commercial real estate transactions, is heavily influenced by real estate vacancy rates. The profitability of individual companies depends on efficient operations. Large companies have advantages in performing a full range of services in multiple markets. Small companies can compete effectively by specializing in local markets. Average annual revenue per worker is over $200,000 for brokers and agents, but under $100,000 for property managers, reflecting the more labor-intensive nature of the business. PRODUCTS, OPERATIONS & TECHNOLOGY Commercial real estate brokers and agents buy and sell commercial real estate property and lease space within commercial buildings. Most owners of commercial real estate property, including individuals, companies, and REITs, don't occupy their property but instead lease space to others. Property managers are typically involved in the day-to-day operations of a commercial property, such as rent collection, maintenance and repair, security, cleaning, trash disposal, providing activities for tenants in common areas, and providing special items such as telecommunications, Internet access, cable, office and food services, and landscaping. The services depend on the type of property being managed. While some services are performed by the property manager's employees, many are contracted out to specialists. Brokerage, leasing, and property management operations vary according to the type of property. Major types of commercial property are office buildings, retail space and shopping centers, and warehouses and industrial buildings. Some commercial buildings also include apartments; buildings that mix apartments, offices, and retail space typically more difficult to manage. Brokers and agents are typically paid a commission that's a percentage of the sales price of a property or of the leasing amount. Property managers are paid a fee that depends on the level of service they provide, but is also related to the amount of space they manage. A large company may have 50 million square feet under management. Computer technology is used to list available properties and commercial space on the Internet, and is used by property managers to monitor individual leases and manage services. SALES & MARKETING Typical customers are owners and buyers of commercial real estate, companies that want to lease commercial space, and individuals who want to rent an apartment.

2 Apartment rental depends highly on direct-to-consumer advertising in newspapers and on the Internet. Leasing commercial space may involve a broker or agent at either end of the transaction, advertising in trade magazines, and using Internet databases similar to residential multiple listing services (MLS). Buying and selling large properties and getting contracts for managing large properties depend heavily on personal relationships and referrals. Broker commissions for leasing commercial space are around 5 percent of the entire lease amount, which may cover several years. Lease rates are quoted in annual dollars per square foot of space ($/sq ft). FINANCE & REGULATION Commercial brokers, agents, and property managers deal with large amounts of cash, and property managers can have high monthly cash flow. Sales brokers may have highly uneven cash flow, as large commercial sales may take many months to arrange, and commissions are paid at closing. Leasing brokers may have significant receivables because a portion of leasing commissions typically aren't paid until a tenant starts to make payments, often months after signing a lease. Because most costs in this industry relate to people, inventories and capital investment are insignificant, except for larger companies that also own real estate. Commercial real estate brokers and agents are licensed by the states. Disclosure requirements for property sales and leases vary from state to state, as do tenant rights regulations. REGIONAL & INTERNATIONAL ISSUES Most companies in the industry are primarily local or may serve a few markets. Some companies have a regional or national presence, and only a handful have international operations. The growth of national companies has been fostered by large customers, especially large retailers and REITs, that have leasing needs or property to manage in numerous local markets. HUMAN RESOURCES The brokerage segment of the industry depends heavily on the skills and connections of individuals. Individual brokers and agents are usually paid on a commission structure, which may pay them the majority of the commissions they bring into the company. Average hourly industry wages in commercial property management are moderately higher than the national average. Industry Employment Growth Bureau of Labor Statistics Average Hourly Earnings & Annual Wage Increase Bureau of Labor Statistics

3 Recent Developments INDUSTRY INDICATORS US corporate profits, an indicator of commercial real estate demand, fell 6.6 percent in the third quarter of 2009 compared to the same period in The bank prime loan rate, which indicates changes in the rates available for real estate financing, remains at 3.25 percent as of the week of January 13, 2010, unchanged from the same week in The value of US nonresidential construction spending, a driver for commercial real estate brokerage and management demand, fell 4.4 percent in the first eleven months of 2009 compared to the same period in MONTHLY NEWS US Realtors See Office Vacancy Rates Rising This Year Dow Jones News Service, 23 February, 2010, 359 words WASHINGTON (Dow Jones)--Realtors predict the U.S. commercial real estate sector won't improve until next year. The National Association of Realtors said Tuesday it sees vacancy rates climbing in 2010 for offices, industrial, and retail. Realtors to have more input on code revamp San Antonio Express-News, 18 February, 2010, 714 words Alamo Heights officials are delaying implementing revamped building code revisions - an ordinance overhaul affecting commercial and residential construction - in an effort to gain more input from real estate brokers. At its Feb. 8 regular... REAL ESTATE AGENT RATES UP, COMMISSIONS FALL HOME VALUE DROP, TAX CREDIT CITED AS PAYMENTS FELL 6.2% The Baltimore Sun, 14 February, 2010, 576 words Real estate agents these days are charging more and earning less. The dollar value of agents' commissions skidded to its lowest level in seven years in 2009, according to recent studies by a real estate consulting firm and the Bloomberg... QUARTERLY INDUSTRY UPDATE Jones Lange LaSalle Drives Future Growth - While some rivals are reducing costs through layoffs and office closures, leading real estate services firm Jones Lang LaSalle is recruiting top talent and expanding globally. Jones Lang LaSalle has announced plans to open an office in Cairo in early 2010, and is positioning itself for growth in key Asian markets, including Singapore and China. Real estate firms that can grow certain areas of their business despite falling revenues and a tight lending environment should emerge ahead of their competitors during the next market upswing, which is expected to begin in April Office Vacancies Moderate - The steep rise of US office vacancy rates, a driver of commercial real estate transactions, slowed in third quarter 2009, according to Grubb & Ellis. Although still high at 17 percent, the national vacancy rate reflected a slower pace of deterioration relative to the first and second quarters of A sustained moderation trend could reflect improved leasing activity among commercial office properties. However, a full recovery

4 may take some time; some forecasts push recovery out to All-Cash Investors to Benefit - Predicted fire sales of premium commercial properties in the near future present significant opportunities for investors with cash to achieve windfall bargains. Distressed sellers of commercial properties, both banks and investors holding substantial real estate portfolios, are expected to shed properties over the course of the next year, according to the Urban Land Institute. Value declines up to 50 percent from 2007 prices for ordinary transactions will create additional opportunities. Commercial brokers with clients who can fund purchases with cash should benefit from such sales. Business Challenges CRITICAL ISSUES Demand for Services Cyclical - Demand for commercial real estate services can vary sharply from year to year. The volume of brokered transactions and the amount of space under management can fall more than 10 percent per year. Demand for commercial real estate is closely tied to the economy. Demand Depends on Local Conditions - Lease and vacancy rates and rents can vary in different markets. Office space may lease for $20 per square foot in Omaha and $90 in New York. Local vacancy rates can double or triple in a year, depending on the strength of the local economy. OTHER BUSINESS CHALLENGES Brokerage Depends on Key Employees - Commercial brokerage depends on the contacts and efforts of individual brokers. Top brokers largely work independently and often take clients with them if they join a different company. Brokerage management consists mainly of recruiting new brokers and keeping top brokers happy. Few Economies of Scale - Despite the growth of some very large companies catering to customers with national holdings, the industry remains fragmented because of its local nature. Small local brokers can know a market as well as larger competitors. Property management is often mainly a matter of contracting and supervising local service providers, with few costs that can be spread over a larger operation. Dependence on Large Customers - A large portion of a broker or property manager's business may come from a small number of large customers. Brokers or managers of office space, in particular, may provide service to owners of multiple properties. The growth of REITs has accelerated the concentration of commercial property ownership. Trends & Opportunities BUSINESS TRENDS Rapid Growth of Residential Property Management - Jobs in property management grew at a 3 percent annual rate during the last decade, nearly twice the rate for the economy in general. Demand for services grew partly due to strong growth in apartment and condo construction, more than 3 million in the last decade. The sharp rise of home prices made apartments and condos a more affordable alternative. Demand Growth for Office Space - Growth of the US financial sector and business services in the past decade fueled construction of office space, when jobs grew 16 percent in financial services and 25 percent in business. Largely due to this demand, $450 billion of new office space was built. Corporations Lease More Real Estate - As with other types of services they outsource, US corporations own and operate less of their own real estate than they used to. Office space, warehouses, and even manufacturing facilities, are more likely to be leased through brokers and agents. Real estate made up 32 percent of corporate assets in recent years, compared to 55 percent 10 years ago. INDUSTRY OPPORTUNITIES Internet Marketing - To reach more customers, commercial brokers use the Internet, which allows potential customers to look at a wide variety of properties. Features can include virtual tours, blueprints, and geographical data. In addition to developing their own websites, many brokers work with listing sites like LoopNet and other Internet marketing services.

5 Expanded Services - Many companies have expanded the services they offer to include brokerage and property management, analytical services, and access to financing sources. To counteract demand cycles, some companies have also expanded into residential property management services. Foreign Investors - Foreigners hold large investments in US commercial real estate, and the long-term decline of the US dollar has encouraged more investment. While only large real estate brokers have foreign offices, regional or local brokers use traditional marketing approaches to promote their markets and services to foreign investors. Residential Overbuilding - High construction levels over the past several years have created a glut of new residential properties in many local markets, including single family homes, condos, and apartments. Many of these properties will remain empty for years and will need to be properly managed to remain in salable condition. Commercial lenders may own many of these properties. Executive Insight CHIEF EXECUTIVE OFFICER - CEO Assessing Local Conditions Local real estate conditions can change rapidly; as such, brokers and agents must have access to the latest information about prices, rents, and other data. Although some information appears on commercial MLS, many companies maintain extensive local contacts to gauge supply and demand. Planning for Expansion or Contraction Because commercial real estate markets are highly cyclical, companies are usually either expanding or contracting. During expansions, brokerages may open additional offices or enter new markets. The easiest form of expansion is to hire brokers, with established customers, from other companies. CHIEF FINANCIAL OFFICER - CFO Negotiating Contract Terms with Customers Because of the variability of properties and services, contracts can vary greatly from project to project. Brokers and leasing agents are usually paid a percentage of what a property or lease is worth. Property managers are typically paid a flat rate depending on the number of units or amount of space they manage and the services they provide. Determining Compensation for Employees Compensation is the largest expense for real estate service companies. During periods of high demand, companies may have to increase compensation contracts to retain top employees. Property managers typically have various types of performance measures built into their compensation formula. CHIEF INFORMATION OFFICER - CIO Improving Access to Databases To improve market knowledge, companies need access to detailed information about rents and space. Commercial equivalents of MLS are still underdeveloped and fragmented. A company may need to be a member of several listing systems to get broad market coverage. Expanding Website Features Websites have become an important marketing tool for brokers and property managers. Some sites have public and private portions to allow clients access to privileged information. Some allow property managers to access information about individual units, and to schedule activities like maintenance and painting. HUMAN RESOURCES - HR Recruiting New Professionals Brokers typically expand their business by hiring experienced professionals who bring their clients with them. Because employers are unwilling to let top employees go, verifying the desirability of new brokers is often difficult. To identify

6 desirable new employees, companies need to cultivate a large number of relationships within the industry. Ensuring Contractor Compliance Property managers typically hire contractors to do labor-intensive work such as cleaning, waste management, and landscaping. Contractors have a financial incentive to hire workers at low wages, sometimes illegal immigrants. Although their legal requirements aren't always clear, management companies may scrutinize contractors to ensure compliance with labor laws. VP SALES/MARKETING - SALES Attracting Foreign Investors US real estate is attractive to many foreign investors. Companies that can provide both brokerage and property management are most useful to foreigners, who are often passive investors. US companies may be able to promote themselves to foreigners through contacts with foreign banks. Evaluating Growth Opportunities Companies can grow by expanding into new markets or providing new services, such as brokerage and management for residential properties. The large amount of construction in recent years has produced massive inventories of unsold residential property in some markets. Overbuilding of commercial space also provides management possibilities. Financial Information COMPANY BENCHMARK INFORMATION Real Estate Property Managers - (NAICS: 53131) 12 Month Rolling Data Period Last Update September 2009 Small Company Data Sales < $1,526,780 Table Data Format Median Values US Private Company Data Aggregate Small Company Company Count in Analysis Income Statement Net Sales 100% 100% Gross Profit 86.5% 86.5% Operating Income 5.2% -1.4% Net Profit After Tax 2.3% -1.8% Balance Sheet Cash 15.6% 7.4% Accounts Receivable 1.3% 1.8% Inventory 0% 0% Total Current Assets 19.6% 11.3% Total Fixed Assets 14.6% 27.4%

7 Other Non-Current Assets 65.8% 61.3% Total Assets 100.0% 100.0% Accounts Payable 1.1% 0.1% Total Current Liabilities % % Total Long-Term Liabilities 4.3% 2.6% Net Worth % % Financial Ratios (Click on any ratio for comprehensive definitions) Quick Ratio Current Ratio Current Liabilities to Net Worth 24.0% 3.0% Current Liabilities to Inventory 952.0% 215.0% Total Liabilities to Net Worth 58.5% 4.0% Fixed Assets to Net Worth 15% 0% Collection Period Inventory Turnover NA NA Assets to Sales 49.0% 71.0% Sales to Working Capital Accounts Payable to Sales 1.0% 0% Return on Sales 2.0% -2.0% Return on Assets 3.5% 3.5% Return on Investment 23.0% 86.0% Interest Coverage Financial industry data provided by Fintel -- offering leading benchmarking with a database of over 900 industries. Utilize financial analysis through profitability, liquidity, sustainable growth rate, business valuation, custom research, and other tools. Visit us on the web at to find out how we can help you. ECONOMIC STATISTICS AND INFORMATION Annual Construction put into place - Census Bureau VALUATION MULTIPLES

8 Commercial Real Estate Brokerage and Management Acquisition multiples below are calculated using at least 9 private, middlemarket (valued at less than $1 billion) industry transactions completed between 10/1997 and 9/2008. Data updated every six months. Last updated: September Valuation Multiple MVIC/Net Sales MVIC/Gross Profit MVIC/EBIT MVIC/EBITDA Median Value MVIC (Market Value of Invested Capital) = Also known as the selling price, the MVIC is the total consideration paid to the seller and includes any cash, notes and/or securities that were used as a form of payment plus any interestbearing liabilities assumed by the buyer. Net Sales = Annual Gross Sales, net of returns and discounts allowed, if any. Gross Profit = Net Sales - Cost of Goods Sold EBIT = Operating Profit EBITDA = Operating Profit + Noncash Charges SOURCE: Pratt's Stats (Portland, OR: Business Valuation Resources, LLC) To purchase more detailed information, please either visit or call Industry Forecast The output of US real estate businesses, which includes commercial property management, is forecast to grow at an annual compounded rate of 5 percent between 2009 and Data Published: October 2009 Real Estate Growth Stabilizes Slowly First Research forecasts are based on INFORUM forecasts that are licensed from the Interindustry Economic Research Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro" approach to modeling the economy captures the links between industries and the aggregate economy. First Research Industry Growth Rating The First Research Industry Growth Rating reflects the expected industry growth relative to other industries, based on INFORUM's forecasted average annual growth for the combined years of 2010 and INFORUM forecasts were prepared by the Interindustry Economic Research Fund, Inc. Demand: Depends on business occupancy Need efficient use of labor Risk: Slow economy cuts commercial space

9 First Research Industry Drivers Changes in the economic environment that may positively or negatively affect industry growth. Data provided by First Research analysts and reviewed annually. Interest Rates: Change in prime and related interest rates Construction Spending: Change in the overall level of commercial and residential construction spending Weblinks & Acronyms Industry Websites Commercial Property Executive Commercial real estate news. Commercial Property Price Index Developed by the MIT Center for Real Estate, for apartment, industrial, office, and retail properties. Construction Spending New spending on residential and commercial construction. Cushman & Wakefield Global research reports on industrial, office and retail sectors. Grubb & Ellis Statistics about national and local office markets and other commercial real estate. Marcus & Millichap Research reports customized by property type and local market. MPF YieldStar News and reports on multi-family housing. National Association of Realtors Legislative issues. Industry statistics. National Real Estate Investor Commercial real estate information by segment: industrial, office, multifamily, etc. Real Property Association of Canada News. Society of Industrial and Office Realtors Industrial and office market reports.

10 The Canadian Real Estate Association Advocacy, events, and resources. Glossary of Acronyms CBD - central business district MLS - multiple listing service The purpose of the Profiles is for sales call preparation and general business and industry analysis. Profiles provide general background information only and are not intended to furnish detailed information about the creditworthiness of any individual borrower or purchaser or to be used for making any loans, leases or extension of credit to any individual borrower or purchaser. First Research, Inc. is not an investment advisor, nor is it in the business of advising others as to the value of securities or the advisability of investing in securities, and the Profiles are not intended to be relied upon or used for investment purposes. Copyright 2010, First Research, Inc. All Rights Reserved. This information cannot be copied, sold or distributed in any manner without the written permission of First Research, Inc.