Conditions of the Chicago Real Estate Market

Conditions of the Chicago Real Estate Market Downtown Office Market 2015 March 12, 2015 presented by: David J. Gelfand Executive Vice President Colliers International david.gelfand@colliers.com

Square Footage Economic Trends > Improving Chicago Area Unemployment Numbers 12.2% in December 2011 > Favorable lending environment 4,000,000 9.6% in January 2014 6.2% in December 2014 > Migration of Large Tenants from suburban office market 27 companies have relocated headquarters to downtown Chicago since 2011 > Growing Tech sector transforming neighborhoods and buildings 3,652,913 > No major new construction deliveries between 2011-2014 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 1,892,460 1,897,981 1,745,968 1,504,364 782,400 479,000 665,000 933,710 0 0 0 0 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Costar; Colliers International Research 2

Workplace Trends > Footprint Compression 15% - 40% average Space Reduction while simultaneously increasing head count > Proliferation Co-working/Collaborative Spaces/ Incubators/Accelerators > Additional Trends Increased productivity Knowledge-sharing Message-oriented design/cultural branding Technology resulting in flexibility and mobility Work anytime and anywhere Cloud Wi-Fi Mobile Workplace enhancement via social media The Googlization of Chicago 3

Tenant Amenity Trends Upgraded Conference Centers Fitness Centers Tenant Lounges Bike Rooms Co-working Spaces Wi-Fi Roof Decks Concierge Indoor Driving Range 4

Chicago Office Investment Market Highlights > $4.3 billion of Chicago CBD office properties traded in 2014 Largest value since pre-recession levels 26 buildings totaling more than 15.5 million square feet sold 9 buildings under contract or sold in 2015 to date > Record breaking Office Building Sales prices 300 N. LaSalle 1,302,901 SF Sale Price: $850 million Price PSF: $652 353 N. Clark 1,184,000 SF Sale Price: $715 million Price PSF: $604 Willis Tower 3,781,045 SF Sale Price: $1.5 billion* Price PSF: $397* > High Vacancy Buildings Still Trading = Buyer Optimism * Projected 311 W. Monroe 387,790 SF Vacancy: 63.3% Golub purchased for $44 million ($113/SF) in 2012 Sold to Glenstar/Prudential Insurance for $58 million ($150/SF) in 2014 5

Chicago Office Market Highlights > Falling overall vacancy rate of 12.6% Best since pre-recession levels 6

Chicago Office Market Highlights > Year-end positive net absorption of 1.4 million square feet Best since pre-recession quarters 7

Chicago Office Market Highlights > Average direct asking gross rental rates rose to $35.11/SF An increase of 7.2% from the prior year $39.66 $35.11 $32.50 $24.92 8

Vacancy (%) Vacancy Rates by Submarket 20.0% River North and West Loop submarkets continue to outperform other downtown submarkets. 15.0% 10.0% 14.4% 14.2% 12.9% 15.7% 15.3% 15.7% 16.1% 14.9% 15.3% 13.6% 10.4% 8.3% 13.0% 12.5% 11.4% 5.0% 0.0% Central Loo p East Loo p North Michigan Ave. River North West Loo p Source: Costar; Colliers International Research Source: CoStar; Colliers International Research 2012 2013 2014 9

River North Insights River North is the tightest of all CBD submarkets with single digit vacancy Home to residential and restaurant/ entertainment corridor coupled with new office development and redevelopment. Infiltration of many of the City s tech companies transforming old warehouses and lofts into a lively office environment Rebirth of the Merchandise Mart into flagship for innovation 1871 Large blocks of space scarce in River North causing repositioning in other submarkets to attract tech tenants 10

River North Highlights Only submarket with a single-digit vacancy rate at 8.3% - more than a 200 basis points less than prior year 2014 absorption relatively small at 33,568 SF is reflective of limited available choices Future relocations of expanding tech tenants such as Google and Go Health should result in greater absorption Growing technology sector continues to absorb the little remaining unique space options in River North Upward movements on River North rental rates to $35.25/SF average represents a 5.3% increase over prior year 11

West Loop Insights Continues to be preferred choice for high profile tenants, professional service firms, financial service firms and corporate users Proximity to transportation and the outstanding Wacker corridor vistas are a perceived plus Highest concentration of Class A and Trophy Buildings and home to the newest Class A Trophy Buildings in 444 W. Lake Street and 150 N. Riverside Plaza 12

West Loop Highlights Current 11.4% vacancy lowest since mid-2008 Over 562,000 SF of positive net absorption strongest of all CBD submarkets Highest amount of Class A space availability 3,266,780 SF (direct and sublease space) Average Direct West Loop gross rents increased 5.8% over past year Positive demand and upward rent momentum should continue in the near future 13

The Sterlingization of Chicago 1KFulton 1000 W. Fulton Fulton West 1330 W. Fulton 121 W. Wacker 564 W. Randolph 325 W. Wells 111 N. Canal 400 S. Jefferson Fulton Market Developments 626 W. Jackson 300 W. Adams Source: www.sterlingbay.com/portfolio/featured-properties 14

Case Study 400 South Jefferson Street 2011 2012 As a result of a corporate restructuring and consolidation, Sara Lee sought to relocate their Downers Grove headquarters to downtown Chicago or an alternative location. 2013 2014 2015 Wish List Downtown amenities Non-high rise Outdoor space Class A systems Flexible environment Tight timeframe 15

Case Study 400 South Jefferson Street APPROACH 2011 2012 2013 2014 2015 In January, Sterling Bay purchases Class C property at 400 S. Jefferson for $10 million Colliers International begins talks with Sterling Bay about the property s potential fit for Sara Lee/Hillshire Brands Within 45 days, 234,936 SF 15-year lease transaction completed TIF incentives secured from the City of Chicago at a value of approximately $5.5 million 16

Case Study 400 South Jefferson Street 2011 2012 In December, Hillshire Brands moves into new headquarters complete with 30,000 SF roof deck and extensive signage 2013 2014 APPROACH 2015 17

Case Study 400 South Jefferson Street 2011 APPROACH 2012 2013 2014 2015 In May, Sterling Bay sells property to Cole Corporate Income Trust for over $97.5 million or $417/SF for a substantial profit. 18

Case Study 400 South Jefferson Street 2011 2012 2013 APPROACH 2014 2015 In January, Cole Corporate Income Trust sells property as part of a larger portfolio for unknown price 19

Chicago s Vanishing Office Spaces FCB Center 101 E. Erie 224,565 SF Office Hotel Oriental Theater Building 32 W. Randolph 220,606 SF Office Multi- Family Dearborn Bank Building 203 N. Wabash 137,364 SF Office Virgin Hotel 100 W. Monroe 130,976 SF Office Hyatt Hotel Gibbons/Steger Building 20-28 E. Jackson 194,000 SF Office Infinite Student Housing 360 N. Michigan 260,823 SF Office London House Hotel Old Colony Building 407 S. Dearborn 157,406 SF Office Student Housing 11 S. LaSalle 290,000 SF Office Marriott Residence Inn 29 S. LaSalle 159,973 SF Office Multi- Family 39 S. LaSalle 209,597 SF Office Kimpton Hotel Chicago Motor Club 68 E. Wacker 62,548 SF Office Hampton Inn 20

Chicago s Vanishing Office Spaces FCB Center 101 E. Erie 224,565 SF Office Hotel Oriental Theater Building 32 W. Randolph 220,606 SF Office Multi- Family Dearborn Bank Building 203 N. Wabash 137,364 SF Office Virgin Hotel Gibbons/Steger 100 W. Monroe Building 360 N. Michigan more 130,976 than SF 2 million SF Office Hyatt 20 of - 28 Office E. Jackson Space vanished Office Infinite 260,823 SF in 2014... Office London Hotel 194,000 SF Student Housing House Hotel Old Colony Building 407 S. Dearborn 157,406 SF Office Student Housing 11 S. LaSalle 290,000 SF Office Marriott Residence Inn 29 S. LaSalle 159,973 SF Office Multi- Family 39 S. LaSalle 209,597 SF Office Kimpton Hotel Chicago Motor Club 68 E. Wacker 62,548 SF Office Hampton Inn 21

New Construction 150 North Riverside 150 N. Riverside Plaza 1,214,574 SF Occupancy: First Quarter 2017 Asking Rent: $32.00 - $36.00/SF net Over 58% Leased River Point 444 W. Lake Street 1,073,100 SF Occupancy: First Quarter 2017 Asking Rent: $32.00 - $48.00/SF net Over 46% Leased 22

Additional Notable Construction 1K Fulton 1000 W. Fulton Market 689,067 SF Occupancy: 2015 Asking Rent: $26.00 - $30.00/SF net Over 90% Leased 23

What s Next? > New Class A trophy buildings poised to emerge in 2018-2019 The John Buck Company 151 N. Franklin 710,000 SF Tishman Speyer 130 N. Franklin 1.1 million SF 24

What s Next? > Existing Landlords will continue to push rental rates and new owners will look to justify climbing purchase prices and optimistic pro formas > Residential and Hotel conversion from office will continue to revitalize obsolete buildings in the CBD > Workplace strategy and delivery will continue to evolve Always will be need for some bricks and mortar Obsolete real estate will be replaced with real estate ingenuity Technology will continue to dictate the future of the workplace 25

What s Next? > Chicago will continue to be an economic engine for the Midwest > Construction costs will continue upwards > After a sustained post-recession quiet period Chicago has appeared to regain a real estate equilibrium where again: Lenders lend... Developers develop... Appraisers appraise... Buyers buy > These metrics will continue... until the next cycle of overbuilding and oversupply, falling demand or economic downturn > Future talking heads will be cautiously optimistic about the real estate landscape ahead 26

Conditions of the Chicago Real Estate Market Downtown Office Market 2015 March 12, 2015 presented by: David J. Gelfand Executive Vice President Colliers International david.gelfand@colliers.com