Houston’s Office Market First Quarter 2010 Henry Hagendorf, CCIM, LEED AP

1. Houston’s Office Market First Quarter 2010Henry Hagendorf, CCIM, LEED AP VP, Office and Healthcare Investments

2. Really Bad Things Effecting the Office Market • Job Growth: A little locally but none nationally. Worse in other cities/states/countries • Houston Recovery: Tied to the Texas recovery which is tied to the U.S. recovery which is tied to the Global economy – we seem to be getting better but the U.S. and Global economies are reportedly getting worse • Credit Markets: Not fully recovered • Continental Airlines Merger: Merger with United will be bad for the CBD and other submarkets

3. Really Bad News Effecting The Office Market • EXXON: Consolidation and relocation will hurt the Greenspoint submarket • NASA: Apparently no longer a friend of Washington. Crucial to the Clear Lake area and surrounding submarkets • Oil Prices: $80 per barrel is supposed to be really good news for Houston – right? Why no need for more office space? • BP Oil Spill: HUGE but TBD • Patient Protection and Affordable Care Act – dba: Healthcare Reform – Tax Increases?????

4. Job Losses Related To Recessions 1990-91 2001 1981-82 2008-09 Source: BLS, Grubb & Ellis

5. Unemployment Rate Houston 8.5% Note: Houston’s unemployment is lower than the National average Source: BLS, Grubb & Ellis

6. Annual Job Gains / Lost, Houston Source: BLS, University of Houston Institute for Regional Forecasting

7. Houston Office Statistics First Quarter 2010 Source: Grubb & Ellis

8. Net Absorption vs. Vacancy Rate

9. Office Vacancy Rates by Class Source: Grubb & Ellis

10. Performance by Top Office Building Owners

11. Office Vacancy Rates by Submarket 2010-Q1 Winners & Losers Source: Grubb & Ellis

12. Average Citywide Asking Rents $29.65 $19.85 $15.66 Note: Class A rates are $10/SF or 50% higher than Class B rates. There does not seem to be a noticeable flight to quality. Average $/SF/Year Full Service Gross * As of 1st Quarter 2010

13. Office Asking Rents – Class A $36.54 $27.96 Note: Average overall $29.65 Average Class A $/SF/Year Full Service Gross * As of 1st Quarter 2010

14. Office Asking Rents – Class B $25.85 $18.86 Note: Average overall $19.85 Average Class B $/SF/Year Full Service Gross * As of 1st Quarter 2010

15. Houston Sublease Space Available 4.66 MM Note: Good News – The sublease market is not growing

16. Nearly 8.4 million SF (59 Buildings) of new construction has delivered since 2008 Leasing activity within these new projects have been steady but cumulative vacancy is 50.7 percent vacant Only 1.8 million square feet of speculative construction underway i.e. MainPlace (10% leased), EcoCentre at Lake Pointe (under construction). Numerous potential troubled assets that have been recently delivered with vacancy exceeding 50% Houston Office Construction Statistics

17. Three Eldridge Place Energy Crossing I Westchase Park Bldg 1 Granite Towers Phase II Eldridge Oaks – Phase I Square Feet 350,000 SF 305,528 SF 239,114 SF 272,361 SF 210,968 SF Year Built Oct 2009 Mar 2009 Aug 2009 Sep 2009 Leased 0% 0% 19.4% 38.1% 39.5% Direct Space Available 350,000 SF 305,528 SF 192,771 SF 168,621 SF 123,906 SF $22 – $24 NNN $22.50 NNN Negotiable $22.50 NNN $19.50 NNN Quoted Rental Rate Leasing Company Transwestern CB Richard Ellis Stream Realty Partners Simmons Vedder Partners Granite Properties Owner Transwestern Behringer Harvard Opus West Simmons Vedder Partners Granite Properties Large Blocks of Space in New ProjectsTrophies or Train Wrecks Sep 2009

18. Houston Office Investment Trends

19. Top 20 Office Investment Markets – Q1 2010 Source: Real Capital Analytics

20. Houston Tenants Can Expect: • Asking rents will hopefully bottom out late 2010 or early 2011. • Net absorption: Remain in moderate negative territory as businesses cut overhead and/or reduce their SF. • Very aggressive landlords: Don’t loose a tenant and roll out the red carpet for all good prospects. • Sublease Options: Will continue to compete with landlords. • Distressed Sales: Could have an impact on certain submarket rents. Lower investment basis could allow new owners to ask for even lower rents.

21. Really Good News: • Houston: Best office market in the U.S. • Houston: Getting very positive press nationally and internationally and attracting global investor interest. • Energy Prices: HIGH and getting HIGHER. • Energy Demand: Increasing. Does the U.S. have the “@?<#$*%$” to meet the demand (offshore drilling?) • U-Haul: Houston #1 out of 50 cities for one-way destination rentals. • Labor Availability: Houston and Texas provide strong labor pools (and labor for your pools), strong infrastructure, low costs of living and a business friendly local and state government.

22. Update on “Green” Buildings

23. Houston LEED Office Building Inventory Inventory Breakdown

24. Houston LEED Certified Office Space Trends Total # Projects Achieving Certification Per Year Total SF Achieving Certification per Year

25. LEED Certified Office Buildings by Submarket 8 Buildings 3 Buildings 6 Buildings 9 Buildings 1 Building

26. Houston LEED Certified Office Buildings Chase Tower 1,683,893 SF LEED, Gold CBD Williams Tower 1,476,973 SF LEED, Gold Uptown/Galleria First City Tower 1,333,312 SF LEED, Gold CBD One & Two Shell 1,792,214 SF LEED, Gold CBD 919 Milam 542,919 SF LEED, Silver CBD

27. Houston’s Office Market First Quarter 2010Henry Hagendorf, CCIM, LEED AP VP, Office and Healthcare Investments