2010 Commercial Real Estate ReportCedar Rapids | Iowa City / Coralville | Cedar Falls / Waterloo

Welcome

NAI Iowa Realty Commercial is excited to present our Eleventh Annual Commercial Real Estate Report. This report is an in-depth analysis of commercial real estate in the Greater Cedar Rapids area. Surveys are distributed annually for office, warehouse, retail and investment properties. We gathered facts and figures on over 1,600 properties; our most comprehensive survey to date. We then applied our own analysis to the data to more accurately determine the area’s activity and better predict future trends.

Data is an essential component of any facilities or investment decision. At NAI Iowa Realty Commercial, we believe that a comprehensive analysis is an important aspect of advising our clients so they are able to make wise, profitable choices.

This report reflects data gathered through the first quarter of 2010. It reflects the ongoing effects of the floods of 2008 and

the challenging economic environment. We’d like to thank the hundreds of Commercial Property Owners who took time to fill out and return our surveys. This data enables us to draw the conclusions and projections throughout the report.

Thank you for your review of this report and/or your contribution. Copies of this are available at our office or online through our website www.iowacommercial.com. Should you have any questions or comments, please contact me at 319-378-6781 or khiland@inav.net

Thank you,

Kirk Hiland Managing Broker NAI Iowa Realty Commercial

Eleventh Annual Commercial Real Estate Report

The information contained in this report is believed to be reliable, but not guaranteed. Reproduction of this publication, in whole or in part, is prohibited without permission of NAI Iowa Realty Commercial.

iowacommercial.com

Jeremy Tipton

Scott Byers • CCIM, SIOR Joanne Stevens • CCIM

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These Offi ces to Serve You

Cedar RapidsIowa City

& Coralville

319.363.2337

Cedar Falls& Waterloo

319.233.9999

Bob Holland • CCIM, SIOR

Tom Dalton Rod Eiklenborg

Aaron Saylor Fred Miehe • CCIM Matt MieheTodd Barker • MBA

Adam Clark

Kirk Hiland

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NAI Iowa Realty Commercial

Our team features specialists in nearly every aspect of commercial real estate, and we hold individual accreditations with CCIM, SIOR, MCR, ALC and GRI. Our affiliation with NAI gives us access to markets across the world. With over 3,700 brokers in 350 offices worldwide, we have vast resources at our fingertips; a global perspective combined with local expertise.

Locally, our associates have over 350 combined years of experience in:

• Site Selection

• Buyer, Seller, Landlord and Tenant Representation

• Land Development: Retail Centers, Industrial/Warehouse and Office Property

• Project Management

• Property and Lease Management

• Mergers, Acquisitions and Divestitures

• Business Brokerage

We are Iowa’s largest and most experienced commercial real estate company. Recently, we were cited as the 46th highest volume producing commercial real estate company in the Midwest, and the only firm in the state that made the list. From local investor to corporate America, we have the market information, contacts, experience and insight to meet diverse needs.

NAI Iowa Realty Commercial has office locations throughout the state of Iowa (Cedar Rapids, Waterloo, Iowa City and Des Moines). Widely acknowledged as the leader in Iowa commercial real estate, our branches are able to service Cedar Rapids, Marion, Hiawatha, Waterloo/Cedar Falls, Iowa City/Coralville, North Liberty, Muscatine, Dubuque, the Quad Cities and all surrounding communities. In conjunction with a sister office in West Des Moines, we also provide extensive coverage in central Iowa.

Investment

Today

While investment in Commercial Real Estate is gradually picking up, it continues to be controlled by unprecedented economic instability and the prior collapse of the commercial mortgage market.

While local lenders have filled the void for smaller investments, larger real estate investments, 10 million dollars plus, continue to hang fire. Collateralized Mortgage Backed Securities (CMBS) are just beginning to reappear and with the secondary market in disarray will not be a factor for sometime to come. Likewise, Insurance Company money, while available is under severe scrutiny both for the asset and the borrower. Investors have to be willing to be very patient and live by new rules in this market. This applies to both Sellers and Buyers.

TIC (Tenants in Common) investors have dried up, but the good news here is that some of their holdings are coming back on the market in this area. These properties are back not necessarily through a deficiency of the real estate, but rather due to losses in other markets.

Money as it is available is at very favorable rates between 5½ to 6½ percent. This is definitely a bright side to the investment market. Lenders are flush and see very attractive margin spreads in their loans. The caveat here though is that these loans are now being subjected to unprecedented scrutiny by not only the lenders themselves, but also by their regulators. Down payments have moved into the 20 to 30 percent range. Debt coverage ratios have escalated and of course the day of the non-recourse loan has gone away.

Tomorrow

We are entering a time of the “new normal”.

Lease prices are adjusting to new economies and carrying along with them the ultimate value of the commercial real estate. Locally vacancy rates while not anywhere near national levels, have remained high and in some cases increased. The effects of unemployment and downsizing can be seen across the market.

That being said, our market has some excellent values for both tenancy and ownership. These values are adjusting into the new economy which will feature new tax, health and employment standards.

Fortunately our market is sized to handle future demands in all sectors of Commercial Real Estate.

Owners and investors have to recognize that we are in a new economy with different lending rules, different expectations of and from tenants, and unfortunately, ever-increasing government control of lending, ownership and use.

Reminders:

Owner/investors, in order to maintain and grow their commercial real estate position, must:

• Be proactive on property taxes

• Be prepared to refinance into longer term fixed money should they sense an upturn in inflation

• Recognize the ramifications of changes in capital gains taxes that may (probably will) take place

• Be available and responsive to tenants to maintain occupancy

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Central Business District

The evolution of the Central Business District continues after the Flood of 2008. Several key elements to rebuilding and or re-tenanting have now been decided on, advanced to the blueprint stage and/or started.

Municipal government has now committed to return to downtown, mixing the former City offices on Mays Island with some use of the former Federal Building on First Street. In addition, the new Events Center is moving ahead on First Avenue and Third Street with property buyouts in progress and ground breaking in 2011. The Cedar Rapids Library has chosen the “True North” site along Fourth Avenue and True North Companies will be moving to the former Library site which was flooded out in 2008. The Central Fire Station is poised to relocate to First Avenue and Sixth Street. The County offices will return to their pre-flood home on Second Street SW. The new Federal Building is moving along rapidly and giving the downtown the first look of Sky Cranes in years.

A major factor for CBD Landlords and tenants a year ago was the availability or lack thereof of steam for heating. This issue has been resolved for the most part with a reconfiguration of buildings from the Central System to private on-site systems. This is a definite factor in gross rent expense. It has been estimated that this has raised costs by as much as $.50 per square foot with sure numbers not available at this time. Occupancy is a mixed bag in the CBD with upper floors (basically undamaged by the flood) being occupied, but much main level still vacant. Overall our survey showed at this time an 85% occupancy with an average rent (spread over Class A, B, and C space) of $10.38 per square foot on a net leased basis.

As the Federal Building comes online there will be an increase in Class A-B vacancy as government offices transition to the new building. The new United Way Building will also draw some non-profit tenants out of their current space increasing vacancy.

Overall, the Central Business District has had minimal change in the last year, but 2011 and forward with the new projects underway will have significant positive impact, not only on tenancy but the overall vibrancy and excitement of the area.

Suburban Office

Suburban Office Space is a mix of good and bad. Class A space has maintained a high occupancy of 94+%. This has remained steady since the Flood when a number of offices relocated and took up some vacant Class A buildings. A softening of this market may occur as Municipal offices move back downtown, however, there has been very little new construction of Class A speculative space (basically none) in the past year so this should steady the market as offices transition.

Class B and C space continues to be troublesome with vacancy rates now exceeding 18-20% and very minimal demand. This has moved up from last year’s 15 to 18% rate. It appears that economic factors have closed some offices and caused others to consolidate. Recently NAI Iowa Realty Commercial was involved in a lease transaction where more than a third of the employees would be working from their homes. This trend has been growing over the last few years. It has an obvious impact on tenancy and also more subtle things such as parking requirements (ramps), food/service needs, daycare, etc.

Office

OFFICE RATES

$6 $7 $8 $9 $10 $11 $12 $13 $14 $15 $16

Class A

Class B

Class C

Average

$13.00—–—$15.90

$10.00-$11.00

$6.50—–-$8.50

$10.00

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Retail Recap

Retail in the Corridor area is stable with rents remaining at previous year’s levels and occupancy rates that have changed very little. National economic conditions aside, Corridor retailers have experienced steady sales. Landlords have benefited from the lack of new construction which has allowed some moderate backfilling of space as new tenants come to market. Regional malls in Cedar Rapids (Lindale), Coralville (Coral Ridge), Iowa City (Sycamore) and Waterloo (Cross Roads) have maintained high occupancy both in the Mall and outlying pads and shadow spaces.

A new Dick’s Sporting Goods is the anchor tenant backfilling a former Econo-Foods grocery store at the northwest corner

of Crossroads Mall. Several other as yet unannounced tenants will be filling out the balance of the 84,000 square foot space. Theisen’s is refilling a 100,000+ square foot space on 51st Street in Northeast Cedar Rapids (also a former Econo-Foods). The property which they purchased in the Spring of 2010 should be open by this fall. This is a major step forward in using up second and third generation space in Cedar Rapids. Theisen’s is also expanding into the Coralville/Iowa City market with a new store between Coralville and Tiffin which will also be opening this fall.

Unfortunately, Westdale Mall continues to wallow in foreclosure with no bright prospects for a necessary rehab effort at the present time. No announcements of major Retail Projects are in the offing at the present time.

Retail

Future Growth

As of this writing, the major office growth contemplated is in Medical Services with the possibility of a new Medical Mall and a new Cancer Treatment Center. These plans are still in progress and while they will have tremendous community impact, the influence on traditional office space should be minimal.

No major speculative office spaces are on the horizon at this time, tightened lending restrictions and tough economic conditions are limiting these opportunities.

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Industrial & Warehouse

Warehousing demand has shown a slight increase in the past year. Immediately after the flood there was a spike as tenants had to move and Landlords had to rehab buildings. Transitioning back to buildings and economic conditions have changed the occupancy rates in quadrants somewhat. The Northeast side has tightened up with a current rate of 8.5%

versus 13.6% a year ago. The Southeast side has tightened to a 5% vacancy (some of this attributable to the Farmstead plant no longer being in use or reported). The major warehousing areas on the Northwest and Southwest have increased vacancy to about 9.9%, a 4.5% increase. Marion and Hiawatha remain very tight at 2.75% vacancy. The overall today is in the neighborhood of 5.25%.

Industrial & Warehouse

Two major big boxes still sit vacant with one in excess of 100,000 square feet and another in excess of 200,000 square feet. Further south in the corridor, Coralville has a 410,000 square foot facility available.

Average rents per square foot have remained very constant for the past few years, with any changes attributable to pass through costs to tenants.

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Cedar Falls Waterloo

The Cedar Valley market continues to grow with strong, steady, sustained growth. The market is absorbing office and industrial vacancies.

• CBE Group purchased a two story 55,000 sq. ft. office building in the Cedar Falls Technology Park in late June for $5,037,500.

• Dick’s Sporting Goods has leased 45,000 sq. ft. of retail space in the former EconoFoods building near Crossroads Shopping Center in Waterloo. Approximately 20,000 sq. ft. of space remaining for lease; all under contract.

• Hy-Vee Grocery store has purchased a 12,000 sq. ft. grocery store to relocate an existing store along Ansborough Avenue in Waterloo. Their plans for the building are yet to be determined, but will probably entail redeveloping the site.

• Quik Star Convenience Store has acquired a site in Cedar Falls for a new LEED convenience store on the corner of Hwy 58 & Ridgeway for a 5-6 million dollar project.

• The City of Waterloo has acquired 20 acres of undeveloped ground across US Hwy 20 from Ansborough Avenue for anticipated future industrial and technology development. The site is adjacent and south of the Tower Park Complex.

• Two hotels are being built in South Cedar Falls near the new Target retail store. Motel 8 and Suburban Hotel Groups are building three-story hotels.

• Sakura Restaurant has acquired and built a new Japanese Steakhouse and Sushi restaurant that opened the Spring of 2010 in Cedar Falls near College Square Mall. It is a 6,000 sq. ft. restaurant that built an additional 5,000 sq. ft. for additional retail space.

• Buffalo Wild Wings is breaking ground in the spring as they plan to build a 5,000 sq. ft. restaurant across from College Square Mall in Cedar Falls with additional space for lease.

• Darden Restaurant Group has acquired a former Ground Round restaurant with plans to redevelop the site for a Long Horn Steakhouse in Waterloo near the Crossroads Shopping Center.

Population (2008)

Waterloo 66,662 Cedar Falls 38,059 Evansdale 5,056

Total 109,777

Unemployment Rate (July 2010)

Waterloo / Cedar Falls 6.3% (Down from 7.0% Feb 2010)

Commercial Property Rates*

Rent/SF Year Vacancy Property Low High Rate

Downtown Office (Prime) $6.25 $9.50 10.0%

Suburban Office (Prime) $8.00 $12.00 7.0%

Industrial Bulk Warehouse $2.00 $3.25 4.0%

Retail $7.00 $19.00 11.0%

*Rental rates include estimated taxes, insurance and maintenances.

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