TRENDS 2012COMMERCIAL REAL ESTATE MARKET UPDATE

January 31, 2012

Houston’s Brag Book2011-2012 Headlines

“Houston driving Texas' growth, economist says”

“Houston ranks as North America’s fastest-growing metro area”

“Strong year for jobs in Houston”“Houston MSA personal income increased 5.5% in 2011”

“Houston remains popular with foreign real estate investors”

“Houston tops U.S. retail job growth” “High-end retail thriving in Houston”

“Houston gains most retail trade jobs in U.S. since 2007 “

HOUSTON OFFICE

HOUSTON OFFICE MARKET INDICATORS

YE 2010 YE 2011

CITYWIDE NET ABSORPTION (SF) 476K 2.6M

CITYWIDE AVERAGE VACANCY 16.0% 15.5%

CITYWIDE AVERAGE RENTAL RATE $23.08 $23.20

CLASS A RENTAL RATE

CBD $35.00 $40.00

SUBURBAN $27.00 $31.00

CLASS A VACANCY

CBD 10.4% 14.3%

SUBURBAN 17.5% 14.4%

79% of leases

we tracked in

2011 were

energy industry

tenants

HOUSTON OFFICE

ABSORPTION, NEW SUPPLY & VACANCY RATES

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

-1,000,000

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Net Absorption New Supply Vacancy

HOUSTON OFFICE

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Rolling 12-mo. Total Quarterly Vol.

0

50

100

150

200

250

300

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

3%

5%

7%

9%

11%

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

Sales by Total $ (mil)

Average Cap Rate (Yield)Average Price ($) Per SF

Data Source:

HOUSTON INDUSTRIAL

HOUSTON INDUSTRIAL MARKET INDICATORS

YE 2010 YE 2011

CITYWIDE NET ABSORPTION (SF) 4.8M 4.4M

CITYWIDE AVERAGE VACANCY (%) 6.2% 5.2%

CITYWIDE AVERAGE RENTAL RATE ($) $5.33 $5.45

NEW SUPPLY DELIVERED (SF) 2.3M 1.7M

4Q UNDER CONSTRUCTION (SF) 200K 2.9M

Build-to-suit

and spec

construction on

the uptick as

vacancy

decreases to

5.2%

ABSORPTION, NEW SUPPLY & VACANCY RATES

HOUSTON INDUSTRIAL

0%

1%

2%

3%

4%

5%

6%

7%

8%

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Absorption New Supply Vacancy

HOUSTON INDUSTRIAL

Sales by Total $ (mil)

Average Cap Rate (Yield)

Data Source:

0100200300400500600700800900

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Rolling 12-mo. Total Quarterly Vol.

Average Price ($) Per SF

0

20

40

60

80

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

3%

5%

7%

9%

11%

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

HOUSTON RETAIL MARKET INDICATORS

YE 2010 YE 2011

CITYWIDE NET ABSORPTION (SF) 2.8M 1.8M

CITYWIDE AVERAGE VACANCY (%) 8.0% 7.2%

CITYWIDE AVERAGE RENTAL RATE ($) $14.85 $15.13

NEW SUPPLY DELIVERED (SF) 393K 687K

4Q UNDER CONSTRUCTION (SF) 231K 617K

HOUSTON RETAIL

Restaurant

owners expanding

Houston footprint

ABSORPTION, NEW SUPPLY & VACANCY RATES

HOUSTON RETAIL

0%

2%

4%

6%

8%

10%

12%

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Absorption New Supply Vacancy

HOUSTON RETAIL

Sales by Total $ (mil)

Average Cap Rate (Yield)Average Price ($) Per SF

Data Source:

0

500

1,000

1,500

2,000

2,500

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Rolling 12-mo. Total Quarterly Vol.

0

50

100

150

200

250

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

3%

5%

7%

9%

11%

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

HOUSTON MULTI-FAMILY

HOUSTON MULTI-FAMILY MARKET INDICATORS

YE 2010 YE 2011

UNITS ABSORBED 15,722 14,036

CITYWIDE AVERAGE VACANCY (%) 14.1% 12.5%

CITYWIDE AVERAGE RENTAL RATE ($) $723 $749

UNITS DELIVERED 3,852 4,963

4Q UNDER CONSTRUCTION 2,367 2,831

Class A

apartments

had lower

than average

vacancy of

6.6% in

December

2011

HOUSTON MULTI-FAMILY

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

Units Absorbed Units Delivered Vacancy

ABSORPTION, NEW SUPPLY & VACANCY RATES

HOUSTON MULTI-FAMILY

Sales by Total $ (mil)

Average Cap Rate (Yield)Average Price ($) Per SF

Data Source:

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Rolling 12-mo. Total Quarterly Vol.

0

20,000

40,000

60,000

80,000

100,000

120,000

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

3%

5%

7%

9%

11%

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

HOUSTON HOTEL MARKET INDICATORS

YE 2010 YE 2011

TOTAL UNITS 72,111 74,450

CITYWIDE AVERAGE VACANCY (%) 44.7% 42.0%

CITYWIDE AVERAGE DAILY RATE ($) $88.66 $92.50

UNITS DELIVERED 4,244 2,339

HOUSTON HOTEL

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Supply Vacancy

SUPPLY & VACANCY RATES

HOUSTON HOTEL

HOUSTON HOTEL

Sales by Total $ (mil)

Average Cap Rate (Yield)Average Price ($) Per SF

Data Source:

0

200

400

600

800

1,000

1,200

1,400

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Rolling 12-mo. Total Quarterly Vol.

0

50,000

100,000

150,000

200,000

250,000

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

3%

5%

7%

9%

11%

Q1 '08 Q1 '09 Q1 '10 Q1 '11

Houston United States

2012 CONSTRUCTION COMMENTS

General contractors and subcontractors actively pursuing new hires

It is not uncommon to have at least one of the bidders decline (workload)

Construction costs have not shown significant increases, but….

We are seeing subcontractor quotes holding their prices for as little as one week due to material volatility.

Confirming that the market is still unpredictable, manufacturers are not stocking a number of standard construction items.

We are still experiencing long delivery times on light fixtures and doors.

In working with contractors that have a national presence, we continually hear

“Thank God we’re in Houston!”

2012 TRENDS

CONTINUED JOB GROWTH ESPECIALLY IN ENERGY

OCCUPANCY, ABSORPTION, AND RATES WILL INCREASE

CONSTRUCTION UPTICK IN ALL REAL ESTATE SECTORS

INCREASED DEMAND FOR LAND

VALUES WILL INCREASE NEAR TERM

OCCUPANCY COSTS WILL INCREASE NEAR & MID TERM