PricewaterhouseCoopers

Many markets seeing all-cash buyers becoming more active,
thanks in part to rising interest rates.

NEW YORK, July 17, 2006 – US commercial real estate is still perceived as a favorable allocation alternative for investors -- despite concerns about higher energy costs, rising interest rates and the possibility of higher capitalization rates down the road, according to PricewaterhouseCoopers' Second Quarter 2006 Korpacz Real Estate Investor Survey®. .

While the relative strengths of individual property sectors vary from market to market, underlying fundamentals continue to evoke a strong sentiment of confidence among investors about the future.

"With the overall economy showing continued strong gains in employment as well as high levels of consumer confidence, investors seem poised to continue their long-standing infatuation with the US commercial property markets," said William Croteau, U.S. Real Estate Sector Leader for PricewaterhouseCoopers.

"We're seeing continued faith in real estate as a target for asset allocation," added Peter F. Korpacz, Director of Global Real Estate Research for PricewaterhouseCoopers. "As long as the fundamentals continue to trend positive, investors' confidence in real estate should also remain strong."

The quarterly survey of professionals involved with the real estate industry, including institutional investors, REITs, pension funds, mortgage bankers, developers and insurance companies, identifies trends across key real estate industry sectors. Other notable findings include:

Within the national Central Business District (CBD) office market, investors continue to focus attention on new acquisitions of individual properties as well as complete portfolios.

Though recent increases in interest rates are putting the brakes on the purchasing ability of some leveraged buyers, many all-cash buyers, such as pension funds, are picking up the slack and aggressively pursuing investment opportunities in many individual markets. In fact, overall transaction activity of significant CBD office properties was up 10 percent in the first quarter of 2006, compared to the same period in 2005. Manhattan, Chicago, Los Angeles and Phoenix headed the list of most active US office markets over the past year.

In the national suburban office market, steady employment gains and limited new supply are helping to lower vacancy rates across the board while leading to increased rental rates in many individual areas. In the first quarter of 2006, the overall weighted average rental rate for the national suburban office market stood at $22.71, a full 4.50% increase over the $21.73 level recorded during the same period in 2005.

Thanks to steady demand and rising rental rates, landlords in many areas have begun scaling back on concessions and incentives used to lure tenants when the markets were softer. As vacancy rates continue to fall, many investors are also looking forward to the potential for rental increases if this positive trend continues.

The national warehouse market continues to perform well with many individual geographic markets reporting strong demand, decreasing vacancy rates and rising rental rates. With so many warehouse markets performing well, investment demand as been voracious, with a record $10.5 billion of significant industrial assets traded during the first quarter of 2006.

Industrial assets in the western part of the country continue to attract the lion's share of investor interest. In Los Angeles, for example, a total of 190 industrial assets changed hands in the 12 months leading up to April 2006. Other very active markets along the West Coast included Seattle, Orange County and San Jose. On the East Coast, industrial sales activity has been particularly robust in and around large metropolitan areas such as Boston, where 71 industrial properties were bought and sold in the 12 months leading up to April 2006, and Suburban Maryland, where 151 industrial properties were traded during the same time frame.

Like their office and warehouse counterparts, many individual flex/R&D markets across the country have seen declines in vacancy in recent months thanks to improved tenant demand and a lack of new construction. In Los Angeles County the overall vacancy rate for flex/R&D space fell to 5.4% in the first quarter of 2006. And while vacancy rates for flex/R&D space are significantly higher in many other local markets, they have been trending downward as well. For example, in Denver the overall vacancy rate for flex/R&D space declined to 16.3% at year-end 2005, while in Charlotte, it dipped to 19.2% in the first quarter of 2006.

While the national average rental rate for flex space increased 4.5% (to $9.08 per square foot) between year-end 2005 and the first quarter of 2006, many individual flex markets posted higher rates, led by the San Francisco Peninsula ($22.20 per square foot), Los Angeles/Ventura County ($16.60 per square foot), Pleasanton/ Walnut Creek, California ($15.25 per square foot), and Washington, DC ($13.03 per square foot. Individual flex markets that posted the lowest average rental rate as of March 2006 were Cincinnati ($4.00 per square foot), Nashville ($4.00 per square foot), Minneapolis ($4.60 per square foot), and Fresno, California ($4.80 per square foot).

The retail industry as a whole continues to perform well and attract investors' interest, despite a number of national retailers announcing plans to close stores or scale back on planned openings. The national regional mall market saw a total of 100 malls sold across the country during the 12 months leading up to May 2006. And while the volume of retail properties offered for sale remains heavy, total sales volume has slowed recently, with only 12 regional malls trading hands during the first quarter of 2006. One reason for the drop-off is that investors are finding fewer quality assets available for sale, according to the survey. In addition, investors are seeing overall capitalization rates begin to stabilize, with a likely upward trend in the offing.

In the national power center market, the performance of individual big-box and discount retailers varied from location to location. Even so, many continued to outperform traditional merchants in terms of year-to-year retail sales growth. As a result, investor interest remains very strong for well-located power centers that offer a diverse tenant mix and high barriers to entry. While some investors expressed concern about the possibility of rising overall cap rates, most were optimistic that this would be offset by increases in net operating income. National power center investors also recognize a "bigger is better" factor, according to the survey, as they expressed a distinct preference for big-box versus "mom-and-pop" sized stores which are seen as carrying more risk and higher levels of overall capitalization rates (OAR)s.

The national strip shopping center market continues to attract interest from many investors, but total sales volume in this sector fell by as much as 12% between the first quarter of 2005 and the first quarter of 2006. One reason for this decline, especially among grocery-anchored centers, is increased competition for big-box merchants and bulk warehouse retailers -- a situation that is further reflected by a continuing spate of grocery store closing, bankruptcies and consolidations across many geographic markets.

At the same time, many investors report that available assets are priced at premium levels, even though overall capitalization rates appear to have stabilized or begun to rise. The apparent gap in bidding versus asking price will likely be further exacerbated by growing competition from new centers. Shopping center industry analysts expect available space to increase by 377 million feet in 2006, resulting in a 20-basis-point rise in the national vacancy rate by the end of the year.

Transaction volume in each net lease segment -- sale-leaseback, 1031 exchange, and triple-net-leased properties -- remained at vigorous levels during the first quarter of 2006.

The sheer volume of net lease transactions has resulted in a tighter variance between OARs for investment grade and sub-investment grade tenants. As a result, investors are placing greater emphasis on the underlying fundamentals of the real estate in a net lease transaction. Given the shrinking gap between short-term and long-term interest rates, transaction activity may be further stimulated in the sale-leaseback sector as corporations seek alternate methods of raising capital.

In fact, sale leasebacks have emerged as a popular long-term capital source for convenience store ("c-store") operators, the survey finds. While the c-store sector historically has been dominated by REITs, an increasing number of institutions, including private 1031 investors, are considering c-store acquisitions due to their higher yields in the competitive retail investment market. Generally, c-stores backed by corporate credit are more appealing than those with franchise credit. Thus, in lieu of corporate credit, the valuation of the underlying real estate is critical. One drawback to c-store investments as a long-term player in the net lease market is their dependence on fuel sale revenues since pricing pressures exist from other retailers.

The winter months saw a jump in interest rates, a drop-off in concessions, sluggish apartment absorption and a general slowdown in condo conversions. Fort Lauderdale, Los Angeles and Orange County each reported the lowest apartment vacancy rates nationwide.

After a record number of condo conversions in 2005, the first three months of 2006 saw only 14,000 units converted -- the lowest level since mid-2004. Part of the reason may be related to rising interest rates. While rising interest rates typical strengthen the multifamily market, the return of some condos to rental units may have a short-term negative effect on apartment market fundamentals. This effect may be especially evident in markets such as South Florida, where a large number of investors entered the condo market with the intent of capitalizing on a housing trend.

At the same time, rising interest rates and overall capitalization rates are reducing margins in many apartment transactions, thereby pricing many leveraged buyers out of the market. As a result, the slowdown in condo conversions remains in evidence, dropping to 15% of all sales during the first quarter of 2006. By comparison, condo conversions accounted for approximately 25% of total apartment sales in 2005.

By geographic market, Broward County and Orlando continue to see significant activity, but sales have slowed significantly in Tampa, Naples/Sarasota, Phoenix and Las Vegas, when compared to 2005.

The second quarter 2006 Korpacz Real Estate Investor Survey® provides detailed overviews of national retail markets, including regional mall, power center and strip shopping center overviews; overviews of 14 major office markets; and national overviews of the Flex/R&D, Warehouse, Apartment, Net Lease, and National Development Land markets. The report also features up-to-date commentaries concerning Valuation Issues, Technology News and Trends, Economic News, and the Real Estate Capital Markets.

Each quarterly issue of the survey also contains current, prior-quarter, and year-ago rates, cash flow assumptions, and other criteria used to analyze real estate investments; more than 40 tables, including Yield Comparisons, Dividend Comparisons, Key Value Indicators by market, Marketing Time, Institutional-Grade vs. Noninstitutional-Grade Property rates, and Forecast Periods and Growth Rates.

One year online or electronic (PDF) subscriptions to the survey can be purchased for $350 at www.pwcreval.com.

Members of the media can obtain an electronic copy (.pdf) of the full report by contacting Thomas Derr at: thomas.derr@us.pwc.com or phone: (646) 471-8268.

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries work collaboratively using Connected Thinking to develop fresh perspectives and practical advice.

“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

The PricewaterhouseCoopers real estate group is part of the firm's financial services group, one of the leading providers of integrated professional services to major financial services organizations. Our integrated approach to problem-solving involves an international network of real estate accounting, tax and business advisory professionals who can quickly mobilize to form highly qualified teams to respond to a client’s opportunity or challenge.

Our global real estate professionals offer in-depth experience in a wide range of financial accounting and reporting issues, global tax solutions, investment fund structuring, capital market transactions, securitization issues, technological applications, systems and operations; due diligence and transaction support, and valuation management.

PricewaterhouseCoopers First Quarter 2006 Korpacz Real Estate Investor Survey®

Sees Investor Frenzy Subsiding While Fundamentals Stay Strong

Vacancy rates decline across downtown and suburban office markets, study finds

NEW YORK, April 4, 2006 – While underlying fundamentals continue to improve across each sector of the commercial real estate marketplace, a drop-off in the number of quality offerings has helped ease the frenzy of interest that investors have shown in recent months, according to the newly released PricewaterhouseCoopers first quarter 2006 Korpacz Real Estate Investor Survey®.

“A growing U.S. economy, steady gains in employment and limited levels of speculative construction continue to have a positive impact on the real estate industry's underlying fundamentals," said Peter Korpacz, director of PricewaterhouseCoopers’ Global Strategic Real Estate Research Practice. "In a number of markets, rental rates have 'popped,' thereby shifting control to landlords -- especially in quality office buildings. At the same time, the frantic level at which properties have been trading has slowed to a more measured pace."

"With fundamentals shifting in favor of landlords and numerous investors still looking to place capital into commercial real estate, investment interest remains very strong," said William E. Croteau, PricewaterhouseCoopers' U.S. Real Estate Sector Leader. "This level of interest will likely continue as long as real estate investments maintain their competitive performance edge."

Some of the steadiest improvements have occurred in the office sector, where numerous central business district (CBD) and suburban office markets are experiencing declines in overall vacancy. Out of the 31 downtown office markets tracked by Cushman & Wakefield, 25 saw dips in overall vacancy between the fourth quarters of 2004 and 2005; while 38 out of 40 suburban office markets tracked by C&W during the same period saw vacancy declines.
With vacancy rates improving, many landlords are starting to increase rental rates on both renewal leases and new deals. In the first quarter of 2006, the 14 individual office markets tracked by the Korpacz survey showed an average initial year market rent growth rate of 2.43% -- that's 56.77% above the average for the first quarter of 2005 (1.55%) and 64.32% above the average for the first quarter of 2004 (0.90%).
While overall capitalization rates seem to be stabilizing in many areas, hot markets such as Manhattan and Washington, DC will continue to command top prices, thanks to relatively low overall cap rates and steady investor demand.

Additional findings, by sector, include the following:

Retail

Even though year-over-year same store sales rose in December, 2005, a number of investors express concern that higher energy prices, a slowdown in the nation's housing market and rising interest rates may undermine consumer spending patterns in 2006, thus dampening the demand for retail investment. But while many investors continue to show interest in regional mall opportunities, aggressive pricing and a bid/ask gap -- the difference between what buyers are willing to pay vs. what sellers are willing to accept -- has dramatically slowed the pace of transactions, especially for Class-A assets.

National power center assets continue to attract active interest from investors, thanks to the ability of many big-box retailers and discount merchants to post positive year-over-year retail sales gains. Still, investors need to exercise caution in which power center assets they choose to pursue, as a number of major retailers posted strong gains in December, while a number of other large discount retailers have announced plans to close significant numbers of stores.

In the national strip shopping center market, the pace of transactions has slowed somewhat. Even so, investors continue to seek out opportunities and acquire assets. In 2005, the three most active markets for strip shopping center sales were Los Angeles ($1.7 billion), Phoenix ($1.2 billion) and Houston ($1.2 billion). Though Los Angeles recorded the highest sales volume for 2005, Houston experienced the strongest year-over-year gain in volume, with an increase of 126.0%.

Office

Steady growth in office-based employment is helping to reduce the average overall vacancy rate in the national CBD office market. The survey cites a report from Economy.com that found nonfarm employment in January 2006 rose by 193,000 workers, with approximately 21,000 (11.0%) in the financial activities sector. Overall, the U.S. unemployment rate fell to 4.7% in January 2006, the lowest rate since mid-2001. Combined with limited additions to supply, the expanding corporate employment sector helped bring the national CBD office market to 12.5% at year-end 2005, the lowest rate reported in over ten quarters. But while the national average trends well, vacancy rates in individual markets still vary. The three tightest downtown markets in the country were Midtown South (7.4%), Washington, DC (7.2%) and Brooklyn (6.9%). The three downtown markets with the highest overall vacancy rates were silicon Valley (27.4%), Dallas (27.3%) and Houston (21.8%).

As with its CBD counterpart, steady employment gains and limited amounts of new construction are helping to keep overall vacancy rates in the national suburban office market on a downward trend. In 2005, Approximately 12.4 million square feet of new suburban office space came on line, according to Cushman & Wakefield. This compares with 13.8 million square feet of new space added in 2004, and 17.4 million square feet in 2003. While at least some amount of new speculative space was recorded by most of the 40 suburban office markets tracked by C&W, Northern Virginia reported the largest addition -- approximately 1.7 million square feet in 2005, or approximately 20% of the national total for this market segment. The Phoenix suburban office market also reported a sizable increase in speculative office space, adding approximately 950,000 square feet in 2005.

Steadily improving fundamentals are helping to fuel an increasingly brisk level of transactions in the national flex/R&D market. In 2005, a total of 623 flex/R&D properties, totaling $10.7 billion were sold -- representing a 32.0% increase over 2004. During the same period, the average sale price rose 8.0%, reaching $103.000 in 2005. Approximately 10.0% of this sector's total sales volume was concentrated in San Diego. Other markets reporting strong sales performances in 2005 were Boston, Los Angeles and Dallas. In addition, Philadelphia finished the year strong. While reporting a comparatively low sales volume in 2005 ($300.0 million) Philadelphia reported one of the highest year-over-year sales volume increases between 2004 and 2005 (+250.0%). As a result, the Philadelphia flex/R&D market posted the ninth highest sales volume in 2005, compared with a ranking of 33 in 2004.

Warehouse

Falling vacancy rates, together with a perceived opportunity for rising rental rates, are drawing interest in new development activity throughout the national warehouse market, but particularly in secondary industrial markets such as Columbus, Ohio and Savannah, Georgia. In fact, according to CB Richard Ellis, more than one-third of the U.S. warehouse construction stars in the third quarter of 2005 were located in secondary industrial markets, the survey reported. Another secondary port seeing rising investor interest for warehouse distribution is Houston, where growing demand has helped lower the rate of available industrial space from 9.8% in the fourth quarter of 2004 to 6.9% in the fourth quarter of 2005. Other industrial markets that posted low availability rates at year-end 2005 include Cincinnati (6.4%), Las Vegas (5.3%), Salt Lake City (5.9%) and Long Island (4.8%). By comparison, markets that posted high availability rtes at year-end 2005 include Boston (199%), Austin (19.1%), Jacksonville (17.7%) and Atlanta (16.1%).

Apartments

Underlying fundamentals in the national apartment market have continued to strengthen in recent months, thanks to a variety of factors including rising interest rates, higher construction costs and in particular, a seemingly endless spate of condo conversions. According to the survey, approximately 117,900 rental units were converted to condominiums in 2005, compared with 67,300 in 2004 and 17,800 in 2003. Combined with an increase in demand, the apartment sector vacancy rate fell to 5.7% by year-end 2005, its lowest annual vacancy rate since 2001. In addition, sales of apartment properties to condo converters more than doubled during the time period from 2004 (325 properties) to 2005 (784 properties), a huge increase over the 2003 total of 100 apartment properties sold to condo converters. Even so, some respondents foresee a slowdown in the trend as financing for condo conversions appears to be increasingly difficult to get.

Net Lease

Sales activity continues to take place across each segment of the net lease market -- sale-leaseback, 1031 exchange, and triple-net-leased properties -- and involving all property types and credit ratings, according to the survey. Net lease deals involving niche property types such as medical, educational and student housing are also on the rise and seem to be increasing in popularity among buyers.

Top-rated states for net lease property investments have remained fairly consistent over the past quarter. States offering the greatest number of properties for sale as compared to state population include Texas, Florida, California, Illinois and Indiana, Arkansas and Georgia, representing 43.3% of the total net leased property offerings in the fourth quarter of 2005.

National Lodging Highlights

Despite a temporary spike in energy prices and widespread damage in the Gulf areas, the U.S. economy continues to achieve above trend growth rates, with U.S. real gross domestic product (GDP) growing by 4.3% during the third quarter of 2005. By way of comparison, the U.S. lodging industry experienced revenue per available room (RevPAR) growth of 8.4% in 2005, according to PricewaterhouseCoopers' Hospitality and Leisure Group. While all chain scale segments continue to achieve robust RevPAR gains, the luxury segment leads the industry, reflecting year-over-year growth of 11.5%. As the number of meetings and conventions continue to increase, both upscale and midscale-with-food-and-beverage segments of the lodging industry are expected to perform well over the next two years, the report says.

Geographically, the West South Central region of the U.S. had the greatest rise in occupancy (+8.3%) during 2005 compared to 2004, primarily due to the influx of evacuees and relief workers resulting from Hurricane Katrina. The east South Central region of the U.S. also reported impressive gains (+4.9%) during the same time period. The New England region posted some of the weakest results, with a decline in occupancy of 0.7% during 2005.

The first quarter 2006 Korpacz Real Estate Investor Survey® provides detailed overviews of national retail markets, including regional mall, power center and strip shopping center overviews; overviews of 14 major office markets; and national overviews of the Flex/R&D, Warehouse, Apartment, and Net Lease markets. The report also features up-to-date commentaries concerning Valuation Issues, Technology News and Trends, Economic News, and the Real Estate Capital Markets, as well as a semiannual report on the National Lodging Market.

One year online or electronic (PDF) subscriptions to the survey can be purchased for $350 at www.pwcreval.com.

Members of the media can obtain an electronic copy (.pdf) of the full report by contacting Thomas Derr at: thomas.derr@us.pwc.com or phone: (646)471-8268

“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

PricewaterhouseCoopers Fourth Quarter 2005 Korpacz Real Estate Investor Survey®

Foresees Favorable Trends and Few Setbacks

NEW YORK, January 10, 2006 – Steady declines in vacancy rates in downtown and suburban office markets across the country, a leveling-off of overall capitalization rates, and a continued deluge of equity and debt capital into real estate are combining to keep investors' hopes soaring into the new year, according to the newly released PricewaterhouseCoopers fourth quarter 2005 Korpacz Real Estate Investor Survey®.

“Last year, 75 percent of central business district (CBD) markets posted year-over-year declines in overall vacancy, compared to only 25 percent recording such declines between 2002 and 2003," said Peter Korpacz, director, PricewaterhouseCoopers’ Global Strategic Real Estate Research Practice. "At the same time, in suburban office markets, 80 percent of CBD markets saw year-over-year declines last year, as compared with only 29 percent between 2002 and 2003."

“As vacancy rates continue to edge down in each sector of the industry and with alternative investment options still being viewed dubiously by investors, capital continues to flow into each sector of the real estate industry from a range of sources -- private, public, institutional, and especially foreign investors,” Korpacz said.

Special Report: Domestic Self-Storage

One key beneficiary of the continued improvement in real estate fundamentals has been the self-storage industry, according to Charles Ray Wilson, CRE, MAI, and chief economist at Self Storage Data Services, Inc., whose commentary on the sector is featured in the new edition of the Korpacz Real Estate Investor Survey®. But while capital has continued to flow into this segment, some potential problems have begun to arise. Chief among these is the concern that pricing is ahead of, and not supported by current underlying fundamentals. As a result, overall capitalization rates may have reached a plateau, as more and more self-storage investors are beginning to realize the magnitude by which net incomes must increase in order to achieve anticipated yields, Wilson writes.

In addition to pricing concerns, many self-storage investors need to pay more attention to what drives demand instead of simply looking for new deals to do, Wilson notes. Also, investors who continue to purchase new assets need to better recognize and quantify the differences in the location and quality of a self-storage asset as they relate to the risk and value of the investment. In addition, investors need to be aware of a growing trend among taxing authorities nationwide to focus on reassessing self-storage properties upon the transfer of ownership. Sudden, unforeseen tax increases can have a devastating impact on yields, Wilson writes.

Retail

In spite of higher energy prices, consumer spending in the retail sector has continued strong in recent months. Even so, some survey participants expressed concern that rising heating costs could dampen their overall performance results. As many regional malls continue to perform well, investment demand has remained strong, and has helped bring a slight decrease in the average overall capitalization rate (OAR) for many mall classifications.

The national power center market continues to attract active interest from investors, thanks in part to impressive year-over-year retail sales performances by a number of big-box retailers and discount merchants. Still, investors need to exercise caution in which power center assets they choose to pursue, as a number of major retailers posted strong gains in September 2005, including Costco, Wal-mart and Target, while a number of other large discount retailers announced plans to close significant numbers of stores.

Tough competition and aggressive pricing in the national strip shopping center market has led to a tail-off in transaction growth, although many investors still express significant interest in grocery-anchored strip centers. At the same time, a lack of quality offerings and a growing desire to build new centers -- rather than buying existing ones -- is encouraging new development. In fact, neighborhood/community shopping centers placed first in terms of development potential, scoring a 6.22 on a scale of 0 (abysmal) to 10 (outstanding) in the recently released Emerging Trends in Real Estate® 2006 survey published by PricewaterhouseCoopers LLP and the Urban Land Institute (ULI).

Office

The national central business district (CBD) office market continues to improve, with this sector's overall vacancy rate falling from 13.7% to 13.1% between the second and third quarters of 2005. By way of comparison, this sector's overall vacancy rate was 14.8% in the third quarter of 2004 and 15.5% in the third quarter of 2003. According to the report, the three top-performing CBD office markets over the past year are all located in California: San Francisco, Oakland, and Orange County, where overall vacancy rates fell an average of 360 basis points between the third quarters of 2004 and 2005. Another CBD market that continues to perform well is Phoenix, which posted an overall vacancy rate of 15.4% in the third quarter of 2005, a decline of 230 basis points from the third quarter of 2004. In the Emerging Trends in Real Estate® 2006 survey, Phoenix scored a 6.27 on a scale of 0 (abysmal) to 10 (outstanding) in terms of investment potential, the same as New York City. For development potential, Phoenix scored a 6.28 among Emerging Trends respondents.

In the national suburban office market, declining speculative new construction -- due in part to high construction costs -- and an improving job market are helping to fuel a continuing recovery. A total of 5.27 million square feet of speculative office space was under construction in 40 suburban office markets during the first nine months of 2005. By way of comparison, for the first nine months of 2003, this total was 8.44 million, and for the first nine months of 2004, the total was 6.41 million. But even though overall vacancy rates continue to fall, few investors express confidence that now is the best time to buy suburban office assets. In fact, the Emerging Trends in Real Estate® 2006 survey) found that 20.4% of respondents believe that 2006 will be the best time to buy suburban office assets. At the same time, 35.6% of respondents said that 2006 will present the best time to "hold" suburban office properties, while the remainder (43.9%) said that 2006 will be the best time to "sell" suburban office assets.

Overall, most investors tend to view flex/R&D acquisitions as "opportunistic" and involving greater risk, particularly compared to traditional warehouse investments. Even so, steadily improving fundamentals and the anticipation of higher returns are drawing some investors to this category. In fact, R&D industrial assets are likely to give investors one of the highest unleveraged returns in 2006, according to Emerging Trends in Real Estate®. One market singled out in the Korpacz survey was Philadelphia, where the vacancy rate in flex/R&D fell to 12.8% in the third quarter of 2005, marking a decline of 170 basis points from the prior quarter. Another flex/R&D market singled out is Portland, where the vacancy rate fell to 10.4% in the third quarter of 2005. Other cities where buyers of flex properties have been especially active during 2005 include San Jose, San Diego and Los Angeles.

Warehouse

Steady returns and strengthening fundamentals are also leading many investors to seek opportunities in the national warehouse market. Sales activity has been described as extremely brisk in the western region of the U.S, where a total of 349 warehouse assets were reported sold during the first 10 months of 2005. Approximately 30% (105) of these warehouse properties were located in Los Angeles. Seattle, with a total of 44 assets sold, had the second highest number of warehouse transactions on the West Coast. Other regional warehouse markets identified as performing well include Chicago, where a total of 102 warehouse properties sold during the first 10 months of 2005, and Northern New Jersey, where industrial vacancies amounted to a low 7.7% in the third quarter of 2005...

Apartments

The market for apartments has seen increased demand in recent months. The overall vacancy rate in the third quarter of 2005 amounted to 5.8% -- down from 6.4% in the prior quarter and 6.6% a year earlier. Part of the reason for the decline can be traced to an increase in renter demand, as well as a steady increase in the rate of condo-conversions. In the third quarter of 2005 alone, approximately 33,600 apartments were converted to condominiums, with a total of 84,000 condo-conversions occurring at the time the Korpacz survey was completed. By comparison, 2004 saw a total of approximately 66,000 conversions. The high level of competition among "condo converters" has caused prices to remain elevated and led to further declines in overall capitalization rates in many areas. Key markets where condo-conversions have been especially hot include Orlando, Tampa, Broward County and Phoenix. Overall, condo-conversions made up 43.0% of the total apartment sales in the third quarter of 2005, the survey found.

Net Lease

In the national net a reduction in the number of properties being offered for sale has led to bidding wars on the best quality assets being offered. And while sales activity has continued to occur in each segment of the net lease market -- sale-leaseback, 1031 exchange, and triple-net-leased properties -- high real estate prices and the ability to access equity have helped spur a growing number of sale-leaseback transactions. Overall, the number of net lease offerings nationwide declined in the third quarter of 2005, when 6,898 worth a combined value in excess of $23.1 billion were up for sale. This compares to a total of 9,324 available properties, with a combined value of over $27.9 million only one quarter earlier. This represents a 27.0% drop in the number of available properties and a 17.2% decrease in their cumulative value in only three months time. Top-rated states for net lease property investments have remained fairly consistent over the past quarter, with states offering the greatest number of properties for sale as compared to state population. These states include Texas, Florida, California, Arkansas and Georgia, which altogether totaled 45.3% of the total net leased property offerings in the third quarter of 2005.

National Development Land

Positive economic factors are prompting developers to look closely at opportunities for new land development in each of the commercial property sectors. According to the survey, some of the most attractive opportunities over the near term include infill housing and mixed-use projects, age-restricted communities, and resort/second-home building. The survey goes on to list the top ten markets offering the best prospects for commercial/multifamily development for the coming year. Listed one to ten, they are: Washington, DC, San Diego, Northern Virginia, Orange County, Los Angeles County, Riverside/San Bernardino, New York City, Maryland suburbs, Phoenix, and Fort Lauderdale/West Palm Beach. While development land opportunities are opening up across all segments in the real estate industry, caution is still an important watchword, the survey warns: "Even in niche real estate markets, such as self-storage, medical and student housing, fundamentals can be easily imbalanced if too much product gets built too quickly."

The fourth quarter 2005 Korpacz Real Estate Investor Survey® provides detailed overviews of national retail markets, including regional mall, power center and strip shopping center overviews; overviews of 14 major office markets; and national overviews of the Flex/R&D, Warehouse, Apartment, Net Lease, and Development Land markets. The report also features up-to-date commentaries concerning Valuation Issues, Technology News and Trends, Economic News, and the Real Estate Capital Markets, as well as a special report on the Domestic Self-Storage Market.

One year online or electronic (PDF) subscriptions to the survey can be purchased for $350 at www.pwcreval.com.

“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

“Party on!” – PricewaterhouseCoopers Second Quarter 2005 Korpacz Real Estate Investor Survey® Finds Investors’ Enthusiasm Still Going Strong

NEW YORK, July 6, 2005 – The combination of steadily improving fundamentals across all sectors of the commercial real estate industry, slow-rising interest rates, and a lack of alternative investment options has real estate still riding high on investors’ wish lists, according to the newly released PricewaterhouseCoopers second quarter 2005 Korpacz Real Estate Investor Survey®.

“Aggressive buyers, high prices, low cap rates and virtually limitless sources of capital continue to characterize the investment side of the commercial real estate industry,” said Peter Korpacz, director, PricewaterhouseCoopers’ Global Strategic Real Estate Research Practice.

“Pent-up demand for real estate from all-cash buyers, particularly pension funds, is also expected to materialize once rising interest rates begin to push some leveraged buyers to the sidelines. The bottom line is an elongated pricing peak similar to the one that rental rates experienced in the late 1990s,” Korpacz said. “Although this elongated pricing peak has been with us for almost three years, few investors foresee an end to it anytime soon.”

Reinforcing that forecast is the fact that increases in overall cap rates will likely lag behind hikes in interest rates, which are still very low compared to historical levels, Korpacz said. At the same time, new sources of capital continue to pour into the industry, thus helping to keep demand strong.

One property sector that has seen particularly strong interest – from institutional as well as individual investors – is the domestic self-storage market, which, like most other property types, has benefited from the shift of capital from the stock market into real estate, according to Charles Ray Wilson, CRE, MAI, and chief economist at Self Storage Data Services, Inc., whose commentary on the sector is featured in the new edition of the Korpacz Real Estate Investor Survey®. Continuing strong operating performances, increasing demand, and the advent of more sophisticated financial analysis methods have led to a growing maturity for this sector, as well as a bright outlook for the future, he notes.

Key Property Market and Geographic Preferences

Retail

While the number of completed deals in the national regional mall market has declined recently, many investors are still looking for opportunities. Indeed, sales of significant retail properties amounted to $1.6 billion in February 2005, the lowest monthly volume recorded in nearly two years, according to Real Capital Analytics, Inc. Part of the reason for the decline in activity is due to high sale prices, the report says. Another is a lack of quality offerings. As one respondent to the survey notes: “Most of the better properties have sold and what is available now just doesn’t appeal to the majority of top players.”

The national power center market continues to see a high level of activity, with sales of power centers nearly doubling between the end of 2003 and the start of 2005. In the six months leading up to mid-April 2005, 59 power centers, comprising nearly 190 million square feet, changed hands, according to the report. These transactions ranged in size from $5 million to $170 million and represented an average sale price of $169 per square foot. In some instances, investors are looking at opportunities for new development. Because of the increased popularity of power center ownership, along with the current low interest rate environment, overall capitalization rates are on a downward trend in this sector, declining 4 basis points in this quarter to reach 8.00% – the lowest level ever reported for this market and a situation that is not likely to change anytime soon, according to the report.

Similarly, the national strip shopping center market is also going “great guns”, with high investor interest for both single assets and portfolios. The report notes that investors looking to purchase assets in this market will find an abundance of properties for sale, but that an increasing number of them will come with some sort of underlying risk. The high level of competition among buyers has apparently led to an increase in off-market transactions, but such deals may not be “better” deals, the report notes. In the face of high performance levels in the retail sector and strong demand for strip shopping center assets among investors, overall capitalization rates are on a downward trend, declining 14 basis points in this quarter to reach 7.72%, again the lowest level ever reported for this market in the survey.

Office

The national central business district (CBD) office market continues to demonstrate signs of steady improvement, posting gains in overall absorption and declines in overall vacancies. Even so, a number of downtown areas remain beset by soft fundamentals. Chicago, for example, experienced an increase in its overall CBD vacancy rate, going from 15.8% to 18.1% from the first quarter of 2004 to the first quarter of 2005. Other cities that saw increases in overall vacancy during the same period included Atlanta, Dallas, Philadelphia and Phoenix. Nevertheless, investor interest remains strong in these areas and elsewhere. Overall capitalization rates during this quarter dropped 26 basis points (a 55 basis point drop from the prior year) to reach 8.00%, the lowest average ever recorded in this market by the Korpacz report. But with so few investment alternatives and so much capital chasing real estate, the average cap rate could fall even further, the report notes.

In the national suburban office market, overall vacancy rates continue to decline, but much of the improvement seems to be occurring in the same top markets, such as Los Angeles and Northern Virginia. In the first quarter of 2005, this market’s overall vacancy rate fell to 18.6%, representing a decline of 170 basis points over the past year, and the seventh straight quarterly dip for this market. As more and more suburban office markets show signs of a turnaround, the crowd of potential investors continues to increase, with REITs, foreign companies, institutions and private individuals all getting into the mix. As a result a significant number of owners are putting properties up for sale. In fact, the first quarter of 2005 saw approximately $10.0 billion of suburban office properties sold, an increase of 70.0% over the first quarter of 2004.

As a whole, the national flex/R&D market continues to experience increases in demand and leasing activity, with particularly strong performances occurring in various Florida and Southern California markets. According to the report, demand during this market’s recovery phase has shifted from small-scale users that typically require less than 10,000 square feet of space to numerous large-scale users that require 25,000 to 50,000 square feet. As a result, the sector’s overall vacancy rate has declined over the past year from 16.3% to 15.8%. Even so, the vacancy rate is still much higher than it was just three years ago, the report notes.

Ongoing positive signs from the nation’s industrial sector are helping to spur improvement in the national warehouse market. The 9.2% overall vacancy rate recorded in the first quarter of 2005 is the lowest in two and a half years – thanks in part to an increase in demand as well as a restraint on new construction. Individual warehouse markets that continue to perform “extremely well” include California’s Inland Empire, which experienced a net absorption of three million square feet in the first quarter of 2005, and Dallas and Philadelphia, both of which experienced net absorption levels of two million square feet in the same period. Other markets singled out for robust sales activity (single assets as well as portfolio transactions) include Los Angeles, Northern New Jersey, Chicago, Atlanta and San Diego.

In the national apartment market, sales of both single assets and portfolios continue at a furious pace, with some of the hottest individual markets including Northern Virginia, metro New York, Las Vegas, Phoenix, San Francisco and Miami. Los Angeles, Atlanta and San Diego also register well with investors, according to the report. Sales figures for all apartment properties totaled $15.6 billion in the first quarter of 2005, nearly equaling the record set in the last quarter of 2004. Condominium (condo) converters, which represent 25.0% of the market’s total sales volume, are a driving force behind elevated sale prices and depressed overall cap rates, which continue on a downward trend, declining 22 basis points this quarter to reach 6.52%, the lowest level ever reported for this market segment.

Net Lease

Steady returns, long-term appreciation and low management costs are spurring rabid interest among investors in the national net lease market, the report notes. And while sales activity continues to occur “at a feverish pace” in each segment of the net lease market (sale-leaseback, 1031 exchanges and triple-net-leased properties) soaring real estate prices are driving sale-leaseback transactions to new heights. Increasingly, the focus sale-leaseback investors is on non-investment-grade assets, the report says, noting that 33.0% of the total sale-leaseback volume for 2004 involved investment-grade assets, compared to a figure of 70.0% in 2002. This dramatic drop-off is attributed to a dwindling supply of high-quality net leased offerings, as well as a reduction in some corporate credit ratings. In addition, many investors are being “priced out” of investment-grade deals, leading them to opt for more risky deals that typically provide higher returns.

National Development Land

Buoyed by continued positive trends in each sector of the commercial real estate industry (retail, office, warehouse and apartment), speculation is growing that nonresidential construction will begin to outpace residential building by the end of 2005 and into 2006. As the nation’s economy continues to improve, many companies are expected to expand and invest in their own infrastructure by building new headquarters, satellite offices, production facilities, and so on. In addition, there appears to be growing interest among investors in the development (and conversion) of office condominiums and industrial condominiums. Rising construction costs (especially steel, along with high oil and gasoline prices) and high land prices represent potential pitfalls for development land investors in the months ahead, the report notes.

The second quarter 2005 Korpacz Real Estate Investor Survey® provides detailed overviews of national retail markets, including regional mall, power center and strip shopping center overviews; overviews of 14 major office markets; and national overviews of the Flex/R&D, Warehouse, Apartment, Net Lease, and National Development Land markets. The report also features up-to-date commentaries concerning Valuation Issues, Technology News and Trends, Economic News, and the Real Estate Capital Markets, as well as a special report on the Domestic Self-Storage Market.

The entire survey can be purchased for $375 (hardcopy) or $300 (electronic version) at www.pwcreval.com.

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders.

Unless otherwise indicated, "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership. PricewaterhouseCoopers LLP is a member firm of PricewaterhouseCoopers International Limited.

PricewaterhouseCoopers Second Quarter 2006 Korpacz Real Estate Investor Survey® finds no slowdown in US commercial property markets.

PricewaterhouseCoopers First Quarter 2006 Korpacz Real Estate Investor Survey®

Sees Investor Frenzy Subsiding While Fundamentals Stay Strong

Retail

Office

Warehouse

Apartments

Net Lease

National Lodging Highlights

PricewaterhouseCoopers Fourth Quarter 2005 Korpacz Real Estate Investor Survey®

Foresees Favorable Trends and Few Setbacks

Special Report: Domestic Self-Storage

Retail

Office

Warehouse

Apartments

Net Lease

National Development Land

“Party on!” – PricewaterhouseCoopers Second Quarter 2005 Korpacz Real Estate Investor Survey® Finds Investors’ Enthusiasm Still Going Strong

Key Property Market and Geographic Preferences

Retail

Office

Net Lease

National Development Land