Long Island Medical Office Perspective

Long Island Medical Office Perspective Office Research Fall 2014 Demand for medical space on the upswing Medical office demand on Long Island is projected to remain strong in the long term. JLL forecasts demand will increase for medical office buildings. JLL also forecasts there will be an increase in medical leases signed in traditional office buildings. Demand will remain strong for the following reasons; the Affordable Care Act, increasing government health care spending and medical employment, and an aging population on Long Island. Though the effect of the Affordable Care Act on real estate development is considered speculative, it is projected to increase medical leasing activity. The Affordable Care Act extends coverage to millions of new patients, which will increase demand for medical space on Long Island. Health care delivery is shifted to medical office buildings from hospitals due to the Affordable Care Act. Medical leasing activity should gain momentum in the areas surrounding hospitals, known as offcampus, as shown on page seven. The Health and Human Services department projects the pace of health care spending will grow by an average of 6.0 percent a year from 2015 to 202. Health care is expected to grow to a 19. percent share of government economic spending by 202, from a 17.2 percent share in 2012. The largest private health care sector employers in Long Island in 2014 were Good Samaritan Hospital, North Shore-LIJ Health System, and Winthrop-University Hospital Association. Employment in health care and social assistance on Long Island increased.7 percent year-over-year in September 2014, to 208,900 jobs. This outperforms private sector gains of 1.8 percent year-over-year on Long Island. 2014 marks an all-time high for employment in health care and social assistance. Ambulatory health care services employment increased 2.7 percent year-over-year in September to 82,500 jobs. Hospitals on Long Island employed 57,600 people, an increase of 1.4 percent year-over-year in September. Hospital employment on Long Island reached an all-time high in September 2014. Employment in the health care sector on Long Island is projected to increase due to the aging population. JLL projects that health care employment growth will average.0 percent in the next year. According to the Long Island Index, Long Island s 55 plus population is growing by more than 2.0 percent per year, more than six times the overall rate of population growth. Key market indicators Q 2014 Supply Pricing Demand Supply,876,894 s.f. Direct vacancy rate 9.5% Total vacancy rate 9.6% Leasing activity 12 month % change -40.0% 12-month overall rent % change 5.0% Class A overall asking rent (gross) Class B overall asking rent (gross) $28.00 p.s.f. $24.40 p.s.f. 12-month forecast health and health treatment increased approximately 10.0 percent to 94,000 year-over-year. In 201 medical construction spending was $7.0 million in Nassau, the most since 2009. In 201 medical construction spending reached a six year low in Suffolk. However, in 2014, the Hampton Business District broke ground in Eastern Suffolk and is attracting the most interest from medical tenants. Queens County medical construction spending is noteworthy due to its proximity to Nassau County on Long Island. In Queens, hospitals and clinics spent approximately $16.0 million in 201, a decade high. In Nassau and Suffolk County approximately 70,000 square feet of medical space was added in 201, the most since the 2009 peak of 70,000 square feet. However, there are caveats to our medical office growth thesis. Medical users may seek retail spaces, as opposed to traditional office properties. Growth of outpatient walk-in clinics at places such as CVS and Walgreens decreases the need for traditional office space. As of mid-year 2014, the value of construction contracts for health and health treatment increased 7.0 percent to 47.0 million year-over-year in the New York-Northern New Jersey-Long Island market area according to Dodge MarkeTrack. Cumulative square footage under contract for

Forecast Active requirements for health care companies total approximately 500,000 square feet, or 0.0 percent of current JLL active requirements. Health care requirements are projected to increase over the next few years and landlords are preparing to meet these requests. Rechler Equity Partners is marketing new developments for medical tenants. In Garden City office buildings are being converted into medical buildings. Also technological advances have facilitated increased use of outpatient clinics and offices over hospitals, which may boost leasing volume. Vacancy rates for medical office space on Long Island are 7.0 percent lower than traditional office vacancy rates. Vacancy rates of 9.6 percent indicate a tight medical office market, signifying a need for new developments. As medical options are limited, rents are projected to grow into 2015 in Nassau and Suffolk County. Class B medical office is the largest class of inventory, the rent premium for Class B medical office space over traditional office space on Long Island is approximately.0 percent. Nassau and Suffolk medical office rental growth should exceed 2.0 percent year-over-year to over $25.00-per-square-foot, reaching near 2008 peaks. Garden City in Central Nassau is transforming into a medical corridor. Properties are being repositioned as medical condominiums. This trend may lead to increased health care leases. In 2005, Piermont Properties converted the 55,000-square-foot building at 901 Stewart Avenue from an MCI Worldcom center into medical condos. Metropolitan Realty Associates completed a $5.0 million renovation of the 29,500-squarefoot building at 711 Stewart Avenue in 201, selling the 176,000-squarefoot retail portion for $66.2 million. Then in April 201 the 116,167- square-foot medical office portion was sold for $16.4 million to BRG Management. The 54,500-square-foot building at 62 Stewart Avenue is being converted for medical use. Also in Central Nassau, Winthrop- University Hospital is building a $95.0 million research facility at Mineola Boulevard and Second Street in Mineola. The completion of the Winthrop Research and Academic Center is scheduled for 2015. Suffolk County Developers of medical office buildings have better value propositions in Suffolk County due to constrained land supply and demand in Nassau County. The new Hampton Business District at Gabreski Airport in Eastern Suffolk has received the most interest from health care and pharmaceutical tenants. The only Class A business park in Westhampton, including 215 Roger s Way, and 205 Roger s Way, is focused on medical tenants. Also in Eastern Suffolk, Stony Brook University Medical Center continues to expand and broke ground in 201 on a $194.0 million medical research building. There are currently 12 hospitals in Suffolk County. Nassau County JLL estimates the total square footage of the Long Island Class A and Class B medical office market is approximately,876,894 square feet. The medical office inventory does not include traditional office buildings with medical occupiers. This equates to approximately 10.0 percent of the Long Island office market. Nassau County s medical inventory is projected to increase due to its proximity to New York City hospitals and medical facilities. In Nassau, the rent premium for Class B medical office space over traditional office space is 9.0 percent. At Class B medical office buildings in Nassau County, vacancy rates are about 1.5 percent lower than Suffolk County Class B medical office vacancy rates. There are currently twelve hospitals in Nassau County, St. Francis Hospital in Roslyn in Western Nassau is ranked among the best regional hospitals according to US News and World Report. Western Nassau is also the closest submarket to top New York City hospitals and medical facilities. Hence, medical office buildings in Western Nassau have the highest rental rate at $28.94, and the second lowest vacancy rate at 5.4 percent. The biggest health care lease of 2014 took place in a traditional office building in Western Nassau. ProHealth Care Associates signed a 15-year lease for 12,000 square feet at One Dakota Drive in Lake Success. ProHealth leases about 00,000 square feet at the Lake Success Quadrangle. The North Shore-LIJ Health System signed the second largest lease for 101,000 square feet at 2000 Marcus Avenue, a medical building in New Hyde Park. 2

Long Island Medical Office statistics JLL Medical Office statistics Q 2014 Inventory Direct Vacant s.f. Sublease Vacant s.f. Total Vacant s.f. Direct Vacancy Rate Sublease Vacancy Rate Overall Vacancy Rate Direct Average Asking Rent Sublease Average Asking Rent Overall Average Asking Rent Under Construction Class A Nassau N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 54,999 Class A Suffolk Class A Long Island Total Class B Nassau Class B Suffolk Class B Long Island Total 1 building 1 building 84 buildings 142 buildings 226 buildings 2,000 2,46 0 2,46 7.7% 0.0% 7.7% $28.00 N/A $28.00 2,089 2,000 2,46 0 2,46 7.7% 0.0% 7.7% $28.00 N/A $28.00 78,088 1,792,095 158,645 0 158,645 8.9% 0.0% 8.9% $26.0 $0.00 $26.0 0 2,052,799 208,155,600 211,755 10.1% 0.2% 10.% $2.1 $25.60 $2.17 0,844,894 66,800,600 70,400 9.5% 0.1% 9.6% $24.8 $25.60 $24.40 0 Overall Medical Long Island Long Island Traditional Office Class A Long Island Traditional Office Class B 227 buildings,876,894 69,26,600 72,86 9.5% 0.1% 9.6% $24.45 $25.60 $24.46 78,088 18,780,924 2,802,685 44,24,147,009 14.9% 1.8% 16.7% $0.51 $22.46 $29.97 2,588,950,761,091 249,296 4,010,87 15.9% 1.1% 17.0% $2.56 $28.77 $2.64 Traditional Office 42,449,874 6,56,776 59,620 7,157,96 15.5% 1.4% 16.9% $26.59 $2.81 $26.48 $26.00 Medical Office Rents Medical Office Vacancy 12% 10% $24.00 8% $ p.s.f. $22.00 6% $20.00 4% 2% $18.00 2010 2011 2012 201 YTD 2014 Q4 2014 Projected 0% JLL Medical Office statistics JLL is currently analyzing separate medical office and traditional office inventories. The medical statistics consist of Class A and Class B medical buildings over 5,000 square feet. The medical statistics include special purpose multi-tenant or single-tenant facilities with more than 50.0 percent of the demised space suitable for medical uses. The facilities generally include a greater number of wet stacks and special power requirements used for laboratory testing. Class A medical buildings are the most prestigious buildings with rents above average for Long Island. Class A buildings are of superior construction and finish and relatively new or competitive with new buildings.

Recently completed medical sales transactions Address Submarket Buyer Seller s.f. Price and $p.s.f. 1728 Sunrise Highway, Merrick, NY 1/6/2014 Central Nassau Capital Square Realty Advisors 1728-172 Sunrise Realty LLC 17,714 100 Charles Lingbergh Boulevard, Uniondale, NY 1/12/201 Central Nassau Nassimi Realty Corporation Bostwick Laboratories 70,000 N/A $7,000,000 $95 15 Bond Street, Great Neck, NY 8/1/201 Western Nassau 14 Park Place LLC Louis S Purchase 17,41 $5,250,000 $0 Barstow Medical Center, 29 Barstow Road, Great Neck, NY 8/1/201 Western Nassau Barstow Holding LLC Barstow Development Co LLC 22,500 $7,400,000 $29 Garden City Square Office, 711 Stewart Avenue Garden City, NY 4/1/201 Western Nassau Benedict Properties Metropolitan Realty Associates JV Angelo Gordon 117,500 $16,400,000 $140 Bethpage Medical Center, 4277 Hempstead Turnpike, Bethpage, NY 1/1/201 Eastern Nassau Prohealth Realty LLC Andover Capital Corp 6,48 $8,500,000 $22 410 Lakeville Road, Great Neck, NY 1/4/2012 Western Nassau North Shore Long Island A.L.L. Associates LLC 100,000 $8,500,000 Jewish Hospital $280 925 Stewart Avenue, Garden City, NY 12/1/2012 Western Nassau LBKC Associates LLC Cardiovascular Medical Associates 28,000 $7,018,750 $251 Investment perspective According to JLL s healthcare group, returns on medical office buildings in 2014 are outperforming other real estate sectors as investors seek long-term cash flow. Also, tenants typically sign long-term leases of 15 to 20 years. Prices for medical office buildings on Long Island are projected to increase due to constrained supply. Due to high taxes on Long Island, many medical users own rather than lease properties. The Nassau County medical office investment sales market is active, while the Suffolk County medical office sales market has not experienced significant transaction volume in 2014.

Long Island Medical Office submarket overview Long Island medical leasing activity Long Island medical inventory by submarket 200,000 Leasing activity 1% 14% 5% Central Nassau Southern Nassau psf 150,000 100,000 22% 26% Central Suffolk Eastern Nassau Western Nassau 50,000 0 2010 2011 2012 201 2014 16% 5% Eastern Suffolk Western Suffolk Long Island medical average asking rents by submarket Long Island medical vacancy rates by submarket psf $5.00 $0.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 $28.94 $22.19 $2.64 $24.12 $24.2 $24.74 $25.10 psf 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 4.90% 5.40% 5.60% 9.80% 10.60% 1.80% 14.20%

Select health care leases in medical office buildings in Nassau and Suffolk County since 201 Tenant Address Submarket s.f. Type Northshore LIJ 2000 Marcus Avenue, Lake Success Western Nassau 100,000 New Riverhead Care Center 1146 Woodcrest Avenue, Riverhead Eastern Suffolk 61,00 New Northshore LIJ 600 Community Drive, Manhasset Western Nassau 50,000 Renewal Antech Diagnostics 1111 Marcus Avenue, Great Neck Western Nassau 49,000 Renewal United Healthcare Group 2950 Expressway Drive South, Islandia Central Suffolk 7,500 Renewal Medsave USA 49 Wireless Boulevard, Hauppauge Central Suffolk 27,02 New Catholic Health Services of Long Island (CHS) 506 Stewart Avenue, Garden City Central Nassau 27,000 New Northshore LIJ 2200 Northern Boulevard, East Hills Western Nassau 25,000 New St. Francis Hospital 2200 Northern Boulevard, East Hills Western Nassau 20,000 New Zwanger Pesiri 110 Bi-County Boulevard, East Farmingdale Western Suffolk 15,000 Renewal Hospice of New York 99 Sunnyside Boulevard, Woodbury Eastern Nassau 15,000 Renewal Northshore LIJ 250 East Main Street, Bay Shore Central Suffolk 11,000 New Long Island Vision Management 100 Motor Parkway, Hauppauge Central Suffolk 10,000 Sublease Health Solutions Plus 48 South Service Road, Melville Western Suffolk 9,450 Renewal Linden Care 10 Crossways Park Drive, Woodbury Eastern Nassau 8,600 New Allied Pediatric of NY 711 Stewart Ave, Garden City Central Nassau 5,000 New North Island Hematology and Oncology 2500 Nesconset Highway, Stony Brook Eastern Suffolk 5,000 New Long Island Eye Surgical Care PC 110 Marcus Boulevard, Hauppauge Central Suffolk 4,500 New Northshore LIJ 200 W Main Street, Babylon Western Suffolk 4,120 New

Long Island Medical Office 2014 Nassau Hospitals 1 North Shore University Hospital 00 Community Drive, Manhasset, NY 1100 2 St. Francis Hospital 100 Port Washington Boulevard, Roslyn, NY 11576 Glen Cove Hospital 101 Saint Andrews Lane, Glen Cove, NY 11542 4 Winthrop-University Hospital 259 1st Street, Mineola, NY 11501 5 Nassau University Medical Center 2201 Hempstead Turnpike, East Meadow, NY 11554 6 Syosset Hospital 221 Jericho Turnpike, Syosset, NY 11791 7 Long Beach Medical Center 455 East Bay Drive, Long Beach, NY 11561 8 Franklin Hospital Medical Center 900 Franklin Avenue, Valley Stream, NY 11580 9 South Nassau Communities Hospital 1 Healthy Way, Oceanside, NY 11572 10 Mercy Medical Center 1000 North Village Avenue, Rockville, NY 11571 11 St.Joseph Hospital 4295 Hempstead Turnpike, Bethpage, NY 11714 12 Plainview Hospital 888 Old Country Road, Plainview. NY 1180 Suffolk Hospitals 1 Good Samaritan Hospital Medical Center 1000 Montauk Highway, West Islip, NY 11795 2 Southside Hospital 01 East Main Street, Bay Shore, NY 11706 Huntington Hospital 270 Park Avenue, Huntington, NY 1174 4 Brookhaven Memorial Hospital 101 Hospital Road, Patchogue, NY 11772 5 Southampton Hospital 240 Meeting House Lane, Southampton, NY 11968 6 Veterans Affairs Medical Center 79 Middleville Road, Northport, NY 11768 7 St.Catherine of Siena Medical Center 50 Route 25A, Smithtown, NY 11787 8 Stony Brook University Medical Center 101 Nicolls Road, Stony Brook, NY 11794 9 St.Charles Hospital 200 Belle Terre Road, Port Jefferson, NY 11777 10 J.T.Mather Memorial Hospital 75 North Country Road, Port Jefferson, NY 11777 11 Peconic Bay Medical Center 100 Roanoke Avenue, Riverhead, NY 11901 12 Eastern Long Island Hospital 201 Manor Place, Greenport, New York, 11944 Recent Suffolk Medical Pipeline Property Type Address City Submarket SF (thousands) 2 Medical Office 4960 County Road 48 Southold Eastern Suffolk 14 Medical Office 60 Fleets Point Drive West Babylon Western Suffolk 10 4 Manorville Commons Mixed Use Development 496 County Road 111 Manorville Eastern Suffolk 20 6 Amneal Pharmaceuticals Expansion 50 Horseblock Road Yaphank Eastern Suffolk 00 7 Hampton Business District at Gabreski 215 and 205 Rogers Way Westhampton Eastern Suffolk 440 9 Medical Office Stony Brook University Expansion SBUMC Campus Stony Brook Eastern Suffolk 240 Recent Nassau Medical Pipeline Property Type Address City Submarket SF (thousands) 1 Medical Office 40 Jericho Turnpike Jericho Eastern Nassau 5 2 Medical Office Long Beach Medical Center 40 East Bay Drive Long Beach Southern Nassau 7 Medical Office Nassau University Medical Center 2201 Hempstead Turnpike East Meadow Central Nassau N/A 4 Medical Office 2202 Hempstead Turnpike East Meadow Central Nassau 11

2005-201 Nassau, Suffolk, Queens, medical starts and medical dollars Nassau, Suffolk, and Queens Medical Starts (s.f.) Nassau, Suffolk, and Queens Medical Starts (s.f.) 600,000 600,000 400,000 400,000 200,000 200,000 0 2005 2006 2007 2008 2009 2010 2011 2012 201 0 2005 2006 2007 2008 2009 2010 2011 2012 201 Source: Reed Construction Data Nassau and Suffolk County medical services spending ($) by zip code For more information, please contact: 24 South Service Road, Suite 204 Melville, NY 11747 +1 61 962 775 2014 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.