The Real Estate Report For Metropolitan Kansas City

2008 Block & Company Focus on the Future

To maintain and reinforce our mar- development, and investment offices in those ket position we first expanded our offices cities where we have either accumulated a with our move to the second floor of the large portfolio of properties or where our cli- Plaza Steppes in March 2006. This allowed ents have requested our presence. Regard- us the room to add new, talented individuals less of where we expand, our primary mission in those areas of expertise that provide real to provide our clients with the best real es- value to our customers. We then focused on tate services and the best implementation of a new branding for the company with a new appropriate strategies remains the same. We tagline “Real Estate. Real Strategies. Real will carry our expertise, market knowledge, Success.” This new tagline says exactly what market leading technology and commitment we are all about: real estate is our business to community involvement to all our markets and we are knowledgeable in all parts of the as we transform into a 21st century com- commercial real estate field; we develop and pany with vertically integrated services and a implement real strategies for success no mat- commitment to excellence. ter what requirement our client has. Also, While we have experienced many we changed our Market Report to “The Real exciting changes over the last several years Estate Report for Metropolitan Kansas City” and have exciting opportunities in front of to emphasize the comprehensive nature of us, we cannot fail to mention the emotional our knowledge whether it concerns market loss our Block & Company team has suffered data for office, industrial, retail, multifamily with the recent passing of one of our most properties, or real estate investment markets. beloved, long time brokers, Phil Hansen. Phil Block & Company offices admidst the 2007 We then determined it was necessary for us left his mark on the real estate community as Tour of Missouri bicycle race, which featured to expand our operations to better serve our evidenced by the many people who expressed cyslists from all over the world competeing diverse customer base; therefore we opened their grief with his passing from brain cancer in a week long race that started in Kansas a small St. Louis office in 2006 for the man- on January 5, 2008. His past work with City, MO and ended in St. Louis, MO. agement of property in that market. Only brokers throughout the Kansas City and na- one year later, we expanded our St. Louis tional real estate communities, and his un- operation into a full service commercial real tiring work with our local real estate board, Block & Company, Inc., Realtors has estate office by the name of Block Hawley was a great gift to Kansas City. His willing- grown dramatically over the last few Commercial Real Estate Services. We re- ness to go the extra mile to help his associ- years but as always, this growth has mained true to our goals and found the most ates, his clients, and his friends will not be been driven by the values instilled talented individuals in the St. Louis market forgotten. While the loss of Phil will be diffi- in our company’s associates by our who understand the market dynamics and cult, our hope is to remember his great spirit, founder, Allen Block. can benefit and leverage our existing supe- humor, and kindness to everyone he met, rior service platform. To this end, we joined as well as his profound effect on our com- lock & Company’s success has been forces with Jeffrey Hawley, a leader and pany’s success. Therefore, we are creating driven by our clear focus on enhancing veteran of the St. Louis real estate market, The Phil Hansen Scholarship Fund for college Bfinancial outcomes for our customers. and his team of knowledgeable and success- undergraduates who are looking to begin a This is the real mission of our firm: a focused ful brokers. We expect to grow this office career in the real estate field. We know how commitment by each one of our associates substantially over the coming years with the much Phil gave back to our young associ- to address our customers’ needs and goals goal of becoming the prominent leader in the ates and others throughout the community and then succeeding in accomplishing them. St. Louis real estate market. and we hope to carry on his acts of kindness The leadership of Block & Company But our vision and goals do not stop and great mentoring through this scholarship has long known that succeeding in delivering here. Our clients have asked us to look at fund. Hey Phil, thanks for the memories. on our mission will result in market leader- other markets where we can provide our level ship. However, having a mission alone does of service and real estate expertise. Accord- Contributors include: Kenneth G. Block, SIOR, not translate into market leadership without ingly, we continue to search for opportunities CCIM, Principal and Harry P. Drake, CCIM, CPM, intelligent strategies and aggressive goals. to expand and open full service brokerage, Senior Vice President Bl o c k & Co m p a n y Kansas City In c ., Re a l t o r s OVERVIEW Hi g h l i g h t s o f 2007 The federal government continued its measured focus on managing the growth of the nation’s GDP (Gross Domestic Product) causing the 2007 TRANSACTIONS:

GDP growth to slow to 2.4% from nearly 3.4% in 2006. BLOCK Again COMPLETED IT’S BEST YEAR EVER WITH TOTAL he plan, however, was not to slow GDP interest rate reset dates. In essence, econo- SALES AND LEASING TRANS- this much, as previous expectations were mists at the University of Michigan dubbed this ACTIONS IN EXCESS OF $879 Tfor GDP to be 2.8% for the year. Simply “Ponzi Financing.” MILLION. put, some things are not in the federal govern- The sub-prime woes finally became ment’s control and the unraveling of the lend- widely visible in late 2006 and early 2007 MANAGEMENT: ing market due to the sub-prime crisis in the when family after family were not able to meet summer of 2007 changed everybody’s expec- debt obligations as interest rates were adjusted BLOCK’S MANAGEMENT tations for 2007 and beyond. upward. At first, it was not quite as visible be- PORTFOLIO REACHED 20.25 million SQUARE FEET, AN To fully understand this crisis, we need cause securitization had been utilized through INCREASE OF 2.25 million to look back at how the economy got to its the CMBS and CDO markets to sell these bun- SQUARE FEET OVER 2006. present situation. When the dot.com industry dled loan packages and therefore these pools shattered in 2000, much of the money that of mortgages made individual failures less vis- DEVELOPMENT/ had been invested in the stock market flowed ible. All of the big mortgage houses purchased quickly into other sectors, including bonds, these giant pools of sub-prime loans as if they CONSTRUCTION: and one not as well known: real estate. The were AAA-rated securities but in fact, they BLOCK COMPLETED RENOVA- majority of these funds flowed into residential were simply a pool of loans which ultimately TION AND DEVELOPMENt real estate and this produced the seeds of the behaved more like junk bonds. PROJECTS IN 2007 EXCEEDING next crisis, “the housing bubble.” In June 2007, the sub-prime implosion $174 million. ADDITION- In 2001, the Federal Reserve Board finally became totally visible. The Fed lowered ALLY, BLOCK CONSTRUCTION aimed to strengthen the economy and did so the federal funds rate 75 basis points by Oc- SERVICES, LLC, COMPLETED by dropping the federal funds rate from a high tober 31, 2007 but the resulting effect was PROJECTS TOTALING OVER of 6.5% to as low as 1.0% over a 24 month minimal, resulting in an “emergency” meeting 1$54 million. 1 period ending in the middle of 2003. With this in late January where the Board voted to cut continued easing of credit, 30 year fixed rate rates 3/4 points with the goal of staying ahead INVESTMENT mortgage quotes also dropped, hitting a low of recessionary pressures. It is now expected of 5.0% by mid 2003, and buying a house for that the sub-prime crisis in the residential mar- SYNDICATION: many first time home buyers was finally a possi- ket will slow the housing sector for all of 2008 BLOCK COMPLETED $426 bility. This caused a quick rise in housing starts and into 2009. How the sub-prime crisis in MILLION IN INVESTMENT and thereafter in home prices. With the increase housing will affect commercial real estate is SALES AND RAISED OVER $84 in home values came an increase in consumer not yet known but since commercial real estate million IN EQUITY FUNDS spending as higher appraisal values produced is based upon income streams, as long as the FOR SYNDICATION OF NEW overnight equity for home owners who quickly economy stays reasonably strong, commercial ACQUISITIONS AND DEVELOP- re-leveraged their homes to extract cash. Also, properties should continue reasonably stable. MENT PROJECTS. with the high demand for housing, all kinds of There are many events that could cause a fal- new debt instruments were offered including ter in the economy, including oil prices over COMPANY EXPANSION: adjustable rate mortgages (ARM’s), loans with $100.00 per barrel, geopolitical concerns low “teaser rates,” interest only notes, nega- throughout the Middle East, Africa and North BLOCK Opened a full ser- tive amortization loans, and loans based upon Korea, and the 2008 elections with the expect- vice Commercial Real Estate office in St. Louis. a family’s stated but unverified income. All of ed redistribution of membership in both the MO called Block Hawley these were considered “sub-prime” loans and House and Senate. Other major issues such Commercial Real Estate were all based upon the belief that rapidly ris- as health insurance and immigration could also Services. ing housing values would enable borrowers to weigh heavily on the nation’s economic perfor- sell their homes at a profit before any of the mance. Forecasters still expect GDP growth by year-end 2008 due to the banking and mortgage industry dealing with the to rise to near 2.7%. They further expect the US GDP to grow fallout from the sub-prime implosion. We do expect mortgage 3.6% in 2009 although the FOMC (Federal Open Market Com- financing to stabilize over the first few months of 2008 and mittee) thinks those ranges could be closer to 2.6% in 2008 and again be readily available to long term commercial borrowers only 2.8% in 2009. The difference in these growth rates could who have a good track record. However, we can expect that come down to what happens to the price of oil and whether it loan to value (LTV) ratios will be lower, and the interest rate stays above $100.00 per barrel or it drops nearer to the $80.00 spreads over long term treasuries rates will be higher as lenders per barrel range which more accurately reflects current consump- revert to some of the safer policies of the early 1990’s. Indus- tion levels. Additionally, while unemployment dropped to a low try leaders should also remain concerned about other effects of 4.6% in October 2007, at year-end 2007 it jumped sharply on the economy, such as the value of the dollar, and trade and to 5.0% due to layoffs in the housing and mortgage industries, budget deficits, which weaken the economy. and other related sectors. The rate is now expected to hover at As discussed in the Urban Land Institute (ULI) and Price approximately 5.0% to 5.1% through the latter part of 2008. Waterhouse Cooper, LLC 2008 edition of “Emerging Trends in The economy’s performance will have an effect on the Real Estate,” real estate investments in all property types are real estate industry. As always, job growth is one of the most expected to remain very attractive in 2008, although experts important factors in determining the demand for new office and do expect a slightly lower performance as investment returns industrial space. Consumer spending is the key factor in retail continue their decline to more historical standards. As always, development and the availability of disposable income is not as the coastal markets and 24 hour cities, where absorption and positive as it was in 2005 and 2006. The national household property values are high, remain strongest. Real estate will, debt to income ratio is at the historically high level of 130% of however, still have an edge over stocks and bonds as they have disposable income, as compared to a ratio of less than 60% in had for the last several years and will continue to be the invest- the 1960’s. In essence, America is living on “borrowed money.” ment vehicle of choice by the majority of investors. Cap rates Some economists are now talking about recession while others will move up slightly in 2008, and “cash is king” buyers will talk about stagflation which was coined in the 1970’s combin- have a much stronger buying position than in 2007. ing the words stagnation and inflation. While stagflation, if it The performance of the Kansas City area economy in becomes a reality, is unlikely to be anywhere near levels seen in 2007 again mirrored the National economy in most respects. the 1970’s, the Federal Reserve must keep a close watch on The Kansas City area gross regional product (GRP) grew at our economy and be prepared to loosen or tighten fiscal policies 2.4% in 2007, the same as the US GDP. This was substantially quickly to avoid these problems. better than the FOMC’s projection of 2.2% growth in 2007. Other concerns for the real estate industry include long And, while projections last year were that GRP would grow to term financing which is not expected to be as readily available 2.6% in 2008, we now see GRP projections for the Kansas City

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Block & Company, Inc. continues to enjoy national exposure with over 68 years of operation.

Our experience now covers 191 cities in 36 states and we’re still growing. homa. The Kansas City region continues to attract more tourists each year as it adds to its recreational cultural centers. The city is fortunate to have a full array of professional and collegiate sports including the Kansas City Brigade Arena Football Club, Kansas City Chiefs, Kansas City Comets Soccer Club, Kansas City Explorer World Team Tennis, Kansas City Royals, Kansas City T-Bones, Kansas City Wizards Soccer Club, and a host of college sports teams. The Performing Arts are a significant draw as well with the $340 million Kauffman Performing Arts Center under construction, the Kansas City Ballet, Kansas City Cham- ber Orchestra, Kansas City Symphony, the Lyric Opera of Kansas City, Starlight Theatre, and many others to choose from. Muse- ums are also found throughout the metropolitan area including the world renowned Nelson-Atkins Museum of Art, Kemper Mu- seum of Contemporary Art Design, Liberty Memorial Museum of World War I, Kansas City Museum and Planetarium, American Royal Museum and Visitors Center, the Nerman Museum of Con- temporary Art, and many others. And one must not leave out other great draws such as the Kansas Speedway, Worlds of Fun, Oceans of Fun, the Kansas City Zoo, Snow Creek Ski Mountain, Union Station, the Woodlands, and four area casinos. The fact The Federal Reserve will consolidate over 1,000 employees is, Kansas City is a big city in the “Heart of America.” Those at their new building at 29th and Main. of us that live and work here understand how many choices we have to enjoy a recreational or cultural experience with our fami- area of only 2.4% for 2008 with a sharp rebound to 3.4% in lies. 2009. Plans for a new light rail system continue to move The Kansas City region should fare substantially better forward. This project could tie various parts of the far flung than the rest of the US as it relates to home values as they are metropolitan area together with better access to the expanding not expected to decline much here in 2008. In fact, in 2007 downtown core. The debate still centers on the right start for they actually rose as much as 6.0% which is quite contrary to this light rail system but a plan could be approved and put in the national economy. This is primarily due to the existing af- place over the next 24-48 months. Additionally, medical care fordability of homes in the Kansas City region. As always, em- continues to grow throughout the metropolitan area and even ployment is key to the growth of the Kansas City region, and, in or near the downtown core. While Hospital Hill has included 3 with growth of only 1.3% in 2006 and projected growth of only projects by the University of Missouri Schools of Dentistry, the .9% in 2007, it has not been a strong factor in the Kansas City Western Missouri Mental Health Group, and Truman Medical economy over the last two years. Even so, we had a substantial Center, the Children’s Mercy Hospital’s recent announcement surprise during 2007 as unemployment actually grew at a sub- of an $800 million expansion and continued expansion of the stantially faster rate than original projections with over 18,600 University of Kansas Hospital, will result in Kansas City’s urban new jobs and overall employment growth of 1.4%. Employment neighborhoods having better medical care options than ever be- growth should rise further to 2.6% in 2008, which would trans- fore. late into 34,400 new jobs. This job total would reach a level of Over the last several years we tried to point out some annual growth not seen since the 1990’s. Job growth will again of the benefits of living and working in the Kansas City Met- be concentrated in service industry sectors such as the life sci- ropolitan area. There are so many reasons why Kansas City ences, business management, food services, and telecommunica- is attractive to people outside this area. Perhaps it is because tions. Kansas City has lower business and lifestyle costs than most What is amazing about Kansas City is that it is grow- major metro areas around the country. Or maybe it is because ing in every direction. Clearly, increased activity downtown has Kansas City is one of the fastest growing major job markets in made Kansas City a focal point for national investors as the mar- the Midwest; there is a very well educated and extremely produc- ket has seen a continued influx of capital and the $9 billion of tive workforce in Kansas City. Kansas City also ranks far above total construction activity throughout the metropolitan area has the national average for per capita income, is the 5th highest caused the heads of big corporations and real estate investors ranked Metro area for business opportunity, and is ranked the alike to look more closely at Kansas City. Kansas City’s unique top major market for business development. Kansas City is also position as the major city west of St. Louis and east of Denver rated 4th on the “Top 10 List of Underrated US Cities,” ranked allows it to serve over 8 million people living within four hours in 12th for business attraction, ranked 9th for quality of life, 3rd Kansas, Missouri, Illinois, Iowa, Nebraska, Arkansas and Okla- for number of festivals, fairs, and cultural gatherings per capita, and is the 7th largest metropolitan area with low rents. Kansas Each year we report on the growth of the life sciences City also ranks #3 on the “Ten Cities to Watch” for contem- industry and we are fortunate that Kansas City has continued to porary design, ranks #1 for the best mid-sized airport (Kansas see growth in this sector. Kansas City continues to dominate the City International), and it continues to rank #1 in the Midwest animal health sphere with companies representing nearly 42% of and now #10 nationally as a place for entrepreneurs to start the $15.7 billion a year industry in the United States and nearly a business. Kansas City also continues to rank in the top 5 on 27% of the entire business worldwide. Major players located Kipplinger’s list of 50 Smart Places to Live, is recognized in the in Kansas City include Bayer Animal Health, Hills Pet Nutrition Top 20 cities nationally for availability of quality public educa- and Intevet, Inc., Boehringer Ingelheim Vetmedica, Ft. Dodge tion, and is ranked as a 5 star city and 5th in overall ranking of Animal Health, and others. Bayer Animal Health and the rest 362 metropolitan areas in the Expansion Management/Logistics of these major players have continued marching toward their Today 2007-2008 Logistics Quotient. goal of increasing Kansas City’s share of the country’s animal health market to 60% over the next 10 years and they are well on their way with increased investment in life sciences labs and “Kansas City is ranked facilities including the $150 million K-State Olathe Innovation Campus, $2.5 million Missouri Western State University Science as the second largest rail center in and Technology Incubator, and the $30 million North American the United States but continues to be headquarters and commercial laboratories of Onclmmune. The federal government’s deliberations over a site for its national ranked first by freight volume. ” bio and agro-defense facility (NABF) could bring another state of the art bioscience research facility to this region. The NABF is likely to focus much of its resources studying foot and mouth Transportation is another plus for the city. Kansas City disease, classical and African swine fevers, rift valley fever, and a is one of the least congested major urban areas in the nation host of other viruses. with three interstates, four interstate linkages, and 10 federal In the same vein, one cannot overlook the Stowers In- highways serving the metropolitan area. Kansas City is ranked stitute for medical research with its $2 billion endowment. The as the second largest rail center in the United States but con- Stowers Institute is the second largest life sciences institute in tinues to be ranked first by freight volume. Four of eight class the country and the institute plans to add another 600,000 one rail carriers, three regional lines, and a local switching car- square feet of research space every decade in perpetuity. Re- rier (Kansas City Terminal) serve the area. Kansas City is also cently more than 100 acres of land was purchased on the north served by Amtrak passenger trains four times every day. The side of 87th Street between US Highway 71 and Interstate 435 Metro area is served by thirteen major commercial airlines and and it is rumored that it could be the future site of a major their connection partners, and has over 230 daily departures new campus for the Stowers Institute. Last year’s passage of 4 with non-stop service to 70 different destinations. Kansas City Amendment II, the Missouri Constitutional measure protect- is also serviced by barge traffic on the Missouri River Corps of ing stem cell research, may propel forward their plans to build Engineer managed shipping channel which runs from St. Louis, a similar sized research facility by 2009 to add to its current Missouri to Sioux City, Iowa with seven barge lines operating 600,000 square foot facility at 1000 E. 50th Street just off the along the Kansas City portion of the Missouri River. Country Club Plaza. It also appears that a “bioscience basin” Telecommunications infrastructure in the metropolitan may be forming in south Kansas City after the recent acquisi- area is also highly advanced, reliable, and redundant. Kansas tion of the Sanofi-Aventis complex by Cerner Corporation in mid City is home to Sprint Nextel corporate headquarters as well as 2007. Cerner spent nearly $34 million to acquire the 750,000 major AT&T regional facilities. Kansas City is well known for at- square feet and will turn the campus into a new research and tracting telecommunications professionals and experienced data development headquarters for 1,350 existing employees with and call center workers due to the benefits of its location in the room for another 500 employees. central time zone With other organizations such as the Kansas City Area Kansas City continues to improve its national art rank- Life Sciences Institute (KCALSI) and their plans over the next ing now reaching 15th nationally, and in 2007 the opening of 10 years to achieve at least $500 million a year in life sciences the Bloch building at Nelson-Atkins Museum drew people from all research expenditures, the life sciences industry in Kansas City over the art world to enjoy its new amenities. Also in 2007, the is slated for substantial growth. Other stake holder institutions Nerman Museum of Contemporary Art at the Johnson County including the University of Kansas Medical Center, the Univer- Community College opened, as well the Copaken Stage at the sity of Missouri-Kansas City Health Sciences Center, Children’s Repertory Theatre. The Performing Arts community is continu- Mercy Hospital, the Midwest Research Institute, Kansas State ing its surge with more philanthropic contributions than in any University, will continue the strong focus on life sciences in this time in Kansas City’s history. The Arts Council of Metropolitan area. Also, efforts to expand the bioscience park for the life Kansas City projects that over $300 million of economic impact sciences by Kansas State University and the Kansas Bioscience will be felt in Kansas City due to the arts and culture industry. Authority at Kansas Highway 7 and College Blvd. in the south- The Power & Light District began to light up the downtown skyline in 2007 as the Sprint Center opens and hosts a slew of events, including Garth Brooks, Elton John and Hannah Montana. western portion of the metropolitan area brings another cata- a major Kansas City headquarters can change the face of our lyst for further growth in the industry. The Kansas Bioscience city with a major commitment to the downtown core. While Authority’s goal to advance research and foster the formation plans have yet to be finalized for the $400 million East Village and growth of companies is another positive for the life sciences Project, this project is getting lots of attention and something industry. This same area has also attracted the Kansas City Wiz- positive should occur in 2008. ards to the former Bannister Mall site in a world class redevelop- Last year’s approval of a 3/8¢ sales tax to finance over ment called Three Trails Development. This $943 million proj- $500 million of renovations to Kauffman and Arrowhead stadi- ect would include an 18,500 seat stadium for the Kansas City ums will begin to become reality in 2008 as this construction Wizards, 590 hotel rooms, 12 tournament quality soccer fields, begins. These improvements will dramatically change the quality 5 1.1 million square feet of retail space, and 1.6 million square of the stadiums and bring many additional features that will un- feet of office space. It is expected that this huge development doubtedly expand revenues to our community. Also, the planned coupled with Cerner Company’s investment in the Sanofi-Aventis $749 million Schlitterbahn Vacation Village in Kansas City, Kan- campus, and the rumored new campus by the Stowers Institute, sas which will bring a world class water park resort to the area could galvanize further activity in this south Kansas City corridor close to the Kansas Speedway, the Legends at Village West, and and make it one of the most exciting new development hot spots the Community America Ballpark will be other major tourist at- in the city. The Kansas City Council approved the financing of tractions in future years. This proposed resort would be planned the project in late 2007 and it is expected that this project will on 300 acres at a cost of more than $300 million and would officially move forward in early 2008. include a resort tubing park with miles of connected rivers, an Major projects continue throughout the metropolitan interactive marine park that offers snorkeling and diving, a river area and some are nearing completion. These projects will change walk, retail and entertainment venues, more than 1,800 lodg- the way we live, work, and play in the future. The $850 million ing units in a hotel, waterfront cabins, and the Treehaus resort, KC Live Entertainment District should be open in early 2008 and which would all be integrated with the water park and a “trans- will join the $276 million Sprint Center Arena which opened in portainment” river system that will carry guests throughout the 2007 and has drawn crowds far above its original projections. complex. Construction continues on the $200 million federal office build- Strong public/private partnerships continue to foster in- ing renovation, the $200 million Federal Reserve Bank of Kansas creased investment and development opportunities in all parts of City, the $135 million Bartle Hall expansion, and nearly $800 the metropolitan area. It is this vision and willingness to look at million of residential projects throughout downtown, the River far reaching benefits coupled with measured leadership that will Market, and the Crossroad and Freighthouse Districts. With continue to push Kansas City forward and make the city a great the opening of the $138 million H&R Block headquarters in the place to work and live. Kansas City Live Entertainment District it has became clear how Lead contributors include: Kenneth G. Block, SIOR, CCIM, Principal Kansas City DOWNTOWN DEVELOPMENT

Crown Center buildings located at 2555 Grand & 2600 Grand in Downtown Kansas City, MO were placed on the market for sale in late 2007. onstruction is still a prevailing downtown landscape fea- economic health and vitality. 6 ture, but the long years of redevelopment have begun to Can Kansas City land a national sports franchise in the Cpay dividends. The downtown story last year was antici- Sprint Arena? Hockey? Basketball? Both? Those questions re- pation. The story this year is that expectations are being met main. But any question about the viability of the arena has been and exceeded. answered this year. The 18,500 seat $276 million Sprint Center Downtown Kansas City consists of the central business officially opened in May, 2007. Concerts by Elton John, Billy district plus several neighboring submarkets. The Downtown Joel and Hanna Montana sold out within minutes. Garth Brooks Council of Kansas City defines the submarket by the Missouri immediately recognized the audience potential here and added River to 31st Street, and the Kansas state line to Troost Avenue. eight additional shows to his Kansas City stop. Downtown res- Downtown is now home to over 16,000 residents living in ap- taurants and hotels are seeing the difference this entertainment proximately 11,000 residential units. The average household venue has made, and with over 100 such events planned annu- income for the area is $61,500. Over 100,000 people are ally, the future looks bright. employed downtown. The Bartle Convention Center completed a $157 mil- For almost a decade, residential conversions have ab- lion expansion adding almost 50,000 additional square feet of sorbed much of the obsolete office and industrial inventory. ballroom space. This addition makes the ballroom in Kansas City Older buildings that no longer met modern requirements kept one of the 10th largest in the nation. Dock renovations now the downtown vacancy and absorption statistics artificially high planned for the convention center will ease freight logistics and when compared to other submarkets. Negative absorption has add another sculptural element to the building that already punc- been reversed in the last few years with vacancy rates dropping tuates the Kansas City skyline with its four distinctly ornamented from an overall 13.0% to 10.0% from 2005 to 2007. In the piers. same period of time, office product vacancy dropped from a high The growing residential community still lacks some ba- of 17.5% to a current low of 13.8% and industrial vacancy sic services. Restaurant, retail and service providers have oppor- has dropped from 9.2% to 5.9%. All areas of the downtown tunity downtown. The Freight House District has added addi- market reflect steady increases in value, absorption and overall tional residential development totaling over $80 million. There are currently nearly 1,000 residential units under construction in downtown neighborhoods accounting for over $100 million. The established residential neighborhoods in the West Side, Qual- ity Hill, River Market, Columbus Park, Crown Center, Union Hill and Longfellow enjoy an ever gaining popularity. There is a residential component planned for the proposed East Village that includes an additional 800 affordable housing units. The East Village is well defined as the 12 block area on the eastern edge of the downtown loop. Less defined are the timeline for the project, precise tenants or economic incentives. Though the proposed elements for this project remain uncertain, it is expected to be anchored by the new corporate headquarters for the J.E. Dunn Construction Company in a $60 million build- ing. In addition to the affordable housing, 80,000 square feet of retail space is proposed along with dual-use parking to be utilized by the residential and commercial tenants. Downtown street vitality has enjoyed a boost through the Downtown Community Improvement District. This is a not- for-profit organization funded through a Community Improve- ment District property tax assessment. The DCID employees promote security and maintenance within the district. They are visible force within the downtown loop wearing their yellow coats. Though their existing funding mechanism expires in 2008, it is their hope to extend the CID funding through 2018. The The 639,633 square foot office building, located at 2345 Grand in downtown Kansas City, MO, sold to Franklin Street Properties DCID model is being repeated, with recognized success, further Group for just over $74 million in 2007. south along the Main Street corridor. Spring of 2008 is the scheduled opening date for the The Richard Bolling Federal Building is in the midst of $350 million Power & Light District. The mixed use development a total renovation. At 1.2 million square feet, it is the larg- consists of seven blocks of office, residential, retail and entertain- est structure in downtown Kansas City. The project was first ment venues. Brice Bistro, Café and Lounge, The Bristol Seafood announced in 2003 and was then expected to take 10 years Grill, Famous Dave’s Barbecue, Chipotle Grill, ChinaBar and An- to complete. Costs are now expected to exceed $200 million. gel’s Rock Bar are all committed. Apartments, condominiums, During the process, the GSA has determined to consolidate and theatres, health facilities and perhaps, most discussed, a Cosen- relocate their offices. It is anticipated that they will make a tino’s Gourmet Market will be included on the site. decision in the coming year about their future location. Under 7 The Federal Reserve will consolidate over 1,000 employ- consideration is the little used area along the Missouri River. ees in their new location at 29th and Main Streets this year. This The potential impact for the northern edge of Downtown Kansas is a $200 million project adding another signature I.M. Pei build- City consists of several elements including a new Paseo Bridge, ing to the Kansas City skyline. Well under way is the Kauffman the potential GSA relocation, the proposed $50 million recon- Center for the Performing Arts at 16th and Wyandotte Streets. figuration of the Berkley Riverfront Park to include a 15 acre The final plans were completed by world famous architect Moshe natural amphitheater designed to seat over 5,000 people for Safdie. The $326 million concert, ballet and opera hall will seat outdoor events. 3,400 in two distinct theatres. Improved public transportation remains a clear need. The Kansas City Ballet has planned a renovation of the The Kansas City community has voted for expanded light rail, former Union Station Power House on Pershing Boulevard and and it is recognized that the downtown area will comprise a West Pennway. The new home for the ballet will be called the major component of any expanded public transportation sys- Todd Bolender Center for Dance and Creativity. It is considered tem. This remains an unresolved issue with the potential for an excellent adaptive use of the power building and is anticipated significant impact on downtown real estate. Development en- to cost approximately $30 million. titlements or economic incentives are also in a state of transition Children’s Mercy Hospital has announced a $800 million downtown. Political policies change with municipal administra- expansion to their existing campus on Hospital Hill. Construc- tions. It is widely acknowledged that the $4 billion spent on tion will proceed well into the next decade on education facilities downtown improvements since 2000 would not have happened and new outpatient clinics at this regional medical complex. Op- without aggressive municipal involvement. With continued pub- portunities remain strong for additional support services in and lic and private support, Downtown Kansas City can continue the around Hospital Hill. This includes the Troost Corridor which has momentum. become a draw for artists and the creative community as real estate in Crossroads has become ever more expensive. Lead contributors include: Matthew L. Levi, CCIM, Vice President Kansas City OFFICE Market Continued improvement in the office market to bottom out in 2008 and slowly begin to improve late in the year, (3) the instability of the credit markets which began in the was anticipated for 2007 and that certainly third quarter as a result of concerns about subprime mortgage was the case during the first half of the year, defaults and write-offs associated with securities backed by such but starting in the latter part of the third quar- loans, and (4) weakening of the dollar in the world market which in turn has increased U.S. trade deficits causing further uncer- ter and continuing through the fourth quarter, tainty about the strength of the economy and concerns about a that growth curve flattened out and began to possible recession. slope downward. Fortunately, the overall economy continues to grow, although at a decidedly slower pace, and the Federal Reserve has begun to make adjustments in the discount rate in an effort hile the economy continues to expand, it is growing to stem the effects of the erosion in consumer confidence and at a slower rate. Gross Domestic Product (GDP) in- consumer spending caused in part by the problems in the sub- Wcreased 2.9% in 2006 and slowed to 2.4% in 2007, prime mortgage market. The dampening effect of the housing with the majority of the decrease occurring during the last half market decline has, of course, affected the commercial real es- of the year. At the same time, about 4 million new jobs were tate market by slowing commercial property price appreciation. added and unemployment hovered around 4.6% throughout the More strict underwriting guidelines in the credit markets have year. Only in late December were there reports of unemployment begun to be felt as more conservative lending practices are intro- reaching 5%, generally considered the economic benchmark duced. The days when institutional buyers bought property to for full employment. The cause of this flattening in economic take advantage of potential big gains in prices and advantageous growth domestically can be traced to (1) higher energy costs as cap rates are over. Today investors are expecting more of their price speculation and demand for energy worldwide continues to return from cash flow rather than appreciation. Even though increase, (2) the decline in the housing market, which is expected economic trends are expected to increase at rates slower than

8 Corporate Medical Plaza III, a 60,000 square foot, three-story medical office building located at Interstate 435 and Nall in Over- land Park, Kansas, had its grand opening in late 2007, which concluded development for Corporate Medical Plaza. those experienced in 2007, the National Association of Realtors all year. From negative 268,598 square feet in the 1st quarter, is forecasting that transaction volume in office, industrial, retail it was up 132% to a positive 85,862 square feet in the 2nd 9 and multi-family will still be $300 billion for 2008, down only quarter, then ballooned to 525,488 square feet in the 3rd quar- $50 billion from 2007. ter as tenants continued to move up into better quality space, The local trends have mirrored those of the nation over before tailing off to 197,645 square feet in the 4th quarter. the past year; net absorption for the Kansas City Office mar- Still, a respectable 540,397 square feet of positive Class A space ket through the end of the fourth quarter 2007 was a positive absorption occurred during the year. 402,449 square feet and this marks the 10th straight quarter of Class B absorption recorded the biggest positive ab- positive absorption. Unfortunately, that was half the 812,372 sorption increase of all building classes primarily because Class square feet absorbed in the 3rd quarter which was up 28% over B makes up the largest portion of the market. Total absorp- the 634,625 square feet absorbed during the 2nd quarter. Still, tion for the year was a strong 1,474,239 square feet which at total absorption for the year reached 1,478,786 square feet first is very encouraging until one looks at the quarterly results. according to CoStar Group, Inc. The numbers were helped sig- The first two quarters of the year recorded positive absorption nificantly by Sprint Nextel’s occupancy of 154,000 square feet of 505,234 square feet and 513,345 square feet respectively. in the former Gateway call center in the East Bottoms, the move Then, as a further reflection of the volatility of the economy and of Farmer’s Insurance Group from their Lowell Avenue building the psychological impact the sub-prime lending crisis and the in Overland Park to 126,292 square feet in Opus’ new Corpo- housing slow down, third quarter absorption dropped by 45% to rate Ridge 3 project in Lenexa, and the reorganized Farmland 229,448 square feet and remained near that level at 226,212 Industries move into 89,000 square feet in the former TWA Ad- square feet through the end of the year. ministrative Center off Interstate 35 near KCI Airport. The Class C market bumped along through the year The dramatic 4th quarter drop off in absorption may showing none of the volume of the Class A and B segments. portend the beginning of a down cycle as talk of a potential First and second quarter absorption was a relative paltry 27,329 recession increases. Class A space absorption was up and down square feet and 35,418 square feet respectively; unexciting to Roe Corporate Center, formerly Foxhill Office Building, was recently purchased by a Block & Company, Inc. sponsored invest- ment group, and is being repositioned as a Class A office building through a complete building renovation, which will incorporate a newly expanded entrance with a redesigned building lobby and improved common areas, new enlarged high-speed elevators, new restrooms with ADA accessibility, a new parking lot and much more.

be sure but positive absorption nonetheless. As with the larger SOUTH JOHNSON COUNTY 10 A and B class categories, activity picked up later in the year with an additional 57,436 square feet absorbed during the 3rd At the end of 2007, this submarket of 25 million square quarter. This is further reinforcement of the fact that tenants feet reported approximately 2.7 million square feet available, a of Class C buildings tend to be more conservative and react to vacancy rate of 11.1%, exactly the same as the vacancy level market conditions a bit more slowly then tenants in Class A and nationally for all building classes. This is an increase compared B buildings. Absorption slid to a negative 21,408 square feet to the 10.1% reported at the end of 2006. However, 18 new during the fourth quarter, indicative of a slowing market. buildings totaling approximately 1 million square feet were added Net absorption for the year for all classes was 2,113,411 to the market during the year for all classes resulting in slightly square feet with 88% concentrated in the suburban submarkets, negative absorption beginning to be seen in the 3rd and 4th and 95% in A and B class properties. quarters, in which negative 41,998 square feet and negative The lag between identifying office market trends at 14,713 square feet were absorbed respectively. Class A proper- the national level and seeing them reflected in the local market ties reported an increase in vacancy levels during 2007 from has decreased from about two quarters in the past to a quarter 14% to 15.5% out of a total available inventory of 5.3 million or less at this time. Both nationally and locally net absorption square feet. Approximately 827,986 square feet was reported peaked in the 2nd quarter and began to drop off in the 3rd quar- vacant which included approximately 68,724 square feet of sub- ter with that trend continuing into the fourth quarter. Vacancy lease space within Class A properties. nationally for all classes was 11.1% at the end of the year, while Class B properties, which account for approximately Kansas City continued to lag behind with vacancies standing at 18.1 million square feet of this submarket, reported an increase 12.4% for all classes at the end of the year. This flattening of in vacancy levels from 9.3% to the current level of 10.8%. At absorption is a telling early warning sign of an economic slow the end of 2007, approximately 1.8 million square feet of class down and we can expect vacancy rates to continue to decrease B space remained available for lease as compared to 1.5 million but at a substantially slower rate during 2008. square feet reported vacant at the end of 2006. Only 62,335 square feet was available for sublease within the Class B proper- 7.4 million square feet, vacancy levels decreased to 10.1%, or ties compared to 72,736 square feet of sublease space at the 749,033 square feet, from the 10.7% reported at the end of end of 2006. Class C properties showed a slightly brighter pic- 2006. Class C properties reported 268,220 square feet, or ture during 2007. This small sector of 1,561,565 square feet 12.2%, available as of the end of 2007 compared to 160,607 within 170 properties reported 98,009 square feet available at square feet, or 12.3%, at year end 2006. Leasing activity re- the end of 2007 compared to 92,056 square feet vacant at the mained relatively stable during the first three quarters of the year end of 2006. but began to tail off during the third and fourth quarters with a The South Johnson County office market as a whole resulting net absorption of negative 15,570 square feet for the reported positive net absorption of 383,232 square feet during year. 2007 despite the addition of 1 million new square feet. Still, this is a decrease from the 671,762 square feet of office space ab- sorbed during the calendar year 2006 and the 833,140 square feet absorbed in 2005. Rental rates continued to show gains “The South Johnson County with an average asking rate of $20.58 per square foot as com- office market as a whole reported pared to the $20.05 reported at the end of 2006 for all classes positive net absorption of 383,232 square of properties; a gain of 3%. feet during 2007.”

NORTH JOHNSON COUNTY Rental rates within the submarket increased about 3% The North Johnson County office submarket includes this year going from $15.99 at the end of 2006 to $16.49 in approximately 10.4 million square feet of office space in 478 2007. That increase is equivalent to the national average for all properties. This submarket reported an overall vacancy of slight- buildings. ly more than 1,093,453 square feet, including only 18,439 square feet of sublease space. This equates to a slight decrease in vacancy levels from the 10.8% reported at the end of 2006 to the current level of 10.5%. Class A properties, which consist CENTRAL BUSINESS DISTRICT AND of 728,903 square feet, reported an increase in vacancy levels SURROUNDING SUBMARKETS from 8.7% at the end of 2006 to 10.5% reported at the end of 2007 with 12,576 square feet of negative absorption. Within The Central Business District plus Crown Center, the the 229 Class B buildings surveyed, comprising approximately Freight House District and the West Bottoms submarkets total 11 Applebee’s International sold it’s 83,289 square foot headquarters building, located at 4551 W. 107th Street in Overland Park, Kansas to Allied National for $9.5 million. Allied plans to spend an additional $2.5 million to renovate the property. 12 23.8 million square feet in 310 buildings. Overall vacancy re- reported a decrease in vacancy from 20.7% reported as of the ported as of the 4th quarter 2007 was 13.9%. Total available end of 2006, or 417,332 square feet, to the current vacancy space was 3.3 million square feet, including 383,400 square level of 14.3% with 300,579 square feet vacant; a net absorp- feet of sublease space. Class A properties reported virtually no tion of 116,753 square feet. Within the 20 Class B buildings, activity with positive absorption of only 3,000 square feet and vacancy levels also decreased to 5.5% or 159,965 square feet vacancy of 18.7%, or 1.3 million square feet, the same as at the at the end of 2007 with 116,815 square feet of positive absorp- end of 2006. Class B properties, which make up 13.3 million tion. square feet of the overall submarket, reported a decrease in va- The Freight House District submarket increased dur- cancy with 369,541 square feet of positive absorption and a va- ing the year from 36 buildings to 65 as new rehab properties cancy rate of 9.8%. As of the end of 2006, Class B properties were brought to the market; this submarket now has 1,337,520 had a total of 1.5 million square feet vacant which decreased to square feet. Even with those added properties, the vacancy rate 1.3 million square feet available in 2007. Vacancies in the 118 has continued to decrease from 15% last year to 13.1% this older Class C properties stood at 18.7%, or just over 631,000 year, which is further evidence of the continued popularity of this square feet at the end of 2007, a 2% reduction as the result of submarket. 61,500 square feet of positive absorption during the year. The Central Business District (CBD) submarket reported The Crown Center submarket, with its residential, of- positive net absorption of only 19,494 square feet during the fice, and entertainment components totals 5 million square feet calendar year 2007 as compared with absorption of 131,106 in 44 primarily Class A & B buildings, reported a significant de- square feet during the calendar year 2006, yielding vacancy at crease in vacancy levels during the year with 229,000 square 15.5% for an inventory of 16.2 million square feet. Overall feet of absorption. Vacancy levels during 2007 decreased from rental rates, reflecting the stagnant absorption numbers, de- 15.1% to 9.5% reported at the end of 2007. Class A buildings creased from $15.86 per square foot at the end of 2006 to $15.63 per square foot at the end of 2007. square feet of the Plaza inventory, experienced a substantial in- It is expected that the opening of portions of the Power crease in vacancy levels from 6% in late 2006 to the current & Light District during 2008 in conjunction with continued ac- level of 9.7%. Of the 51 Class B properties, overall vacancy tivity at the Sprint Center will help spark a resurgence of office levels decreased from 15.9% reported at the end of 2006 to the lease activity downtown. The recent announcement of the relo- current level of 12.4% with absorption of 57,905 square feet. cation of Andrews McNeil Universal to the Boley Building and The Midtown submarket, which consists of 3.6 million JE Dunn’s construction of its headquarters campus in the East square feet in 199 buildings, reported vacancy of only 11.8% Village project will certainly help extend focus on downtown and or 425,358 square feet at the end of 2007. This is a 15% its resurgence which should improve demand for space there. decrease from the 13.9% reported at the end of 2006. The Midtown submarket is made up of primarily older Class B and C properties. Half of the total inventory within this sub market, or PLAZA/MIDTOWN 1.6 million square feet, is within 76 Class B buildings and they accounted for 221,276 square feet of the total available space. The Plaza/Midtown submarket consists of two areas: The Plaza/Midtown market reported a positive absorp- Midtown, and the Country Club Plaza which also includes the tion of only 40,061 square feet. Average rental rates, how- Brookside submarket. These submarkets contain a total of 8.9 ever, increased from the $18.60 per square foot reported at the million square feet of office space within 317 buildings. end of 2006 to $19.48 per square foot reported at the end of The Country Club Plaza submarket is the most desirable 2007. area in this submarket and contains nearly half of the total inven- tory, or 4.7 million square feet in 92 buildings. Vacancy at the end of the year stood at approximately 488,472 square feet, SOUTH KC or 10.4%, with no new buildings completed in 2007. With the 220,000 square feet mixed use West Edge project not slated to The South Kansas City submarket includes approxi- open until late 2008, leasing activity and absorption for 2008 mately 5.5 million square feet of space within 163 properties. remained flat with only 3,600 square feet of positive absorp- This active submarket reported a big overall vacancy reduction tion. from 23.2% at the end of 2006 to 9.5% at the end of 2007, Class A properties, which account for over 1.8 million or 680,122 square feet of positive absorption, leaving only

13 The 146,591 square foot Gateway East Building/Sprint Call Center, located at 1414 Genessee in Kansas City, Missouri, was purchased by JV with Orix Real Estate Capital, Inc. and Boulder Net Lease Funds, LLC in 2007 for $13 million.

520,000 square feet available for lease. This dramatic reduc- The South Kansas City submarket continued to attract tion came as a result of Cerner Corporation’s occupancy of the new and expanding companies during the calendar year 2007, former Quintiles building. Class A Buildings, which consist of with the Ward Parkway corridor activity and Cerner deal leading 14 approximately 1.57 million square feet in 8 buildings, reported a the way. The result is absorption rates comparable to Johnson substantial decrease in vacancy levels to an almost unbelievable County and a dramatic increase in rental rates from an average 3.0%, or 46,881 square feet, as a result of the Cerner deal of $13.71 at the end of 2006 to $16.07 at the end of 2007. which was signed late in 2006. Within the 82 buildings (3.3 mil- lion square feet) that make up the Class B market, vacancy lev- els also dropped from 24.7% (820,872 square feet) to 12.7% (322,740 square feet) at the end of 2007. Class C buildings “The Ward Parkway make up only 575,741 square feet within this submarket and reported an increase in vacancy from 5.8% and the end of 2006 corridor...reported a whopping to 8.3% by year end 2007. 54% decrease in vacancy levels from the The Ward Parkway corridor, which makes up approxi- mately 3.12 million square feet of the South Kansas City market, 18.6% reported at the end of 2006 to reported a whopping 54% decrease in vacancy levels from the the current level of 10%.” 18.6% reported at the end of 2006 to the current level of 10%. Class A properties within this submarket reported the greatest decrease in vacancy from 2006 with absorption of 142,219 square feet and vacancy of an incredibly low 2%. Currently, only 24,181 square feet of Class A space is available for lease in the Ward Parkway corridor. Class B properties, which consist of NORTH OF The RIVER 40 buildings containing 1.67 million square feet, also reported This market consists of approximately 8.2 million a decrease in vacancy of 20% from 20.1% (331.764 square square feet in 359 buildings and had a vacancy level of 19.9% feet) at the end of 2006 to the current level of 16.8% (85,663 (1,423,418 square feet) at the end of 2006. At the end of 2007 square feet). that rate had dropped to 1,304,942 square feet or 16% as a re- 14.4% of the overall submarket remained vacant compared to sult of 206,124 square feet of position absorption with 44,700 1,034,170 square feet, or 18.0%, at the close of 2006. Class square feet of new buildings delivered. Five Class A buildings are A properties, which include 376,662 square feet in 6 properties, located within this submarket. Vacancy levels in Class A proper- continue to have the highest vacancy at 33.6%, or 126,560 ties were 11.4% at end of 2007 compared to 0.7% at the end square feet available for occupancy, the majority of which is in of 2006. Class B properties, which comprise 5.3 million square the Interstate 70 / Highway 291 area. Class B buildings total 3.9 million square feet and report 12.4% (479,283 square feet) feet of the market, ended the year with vacancy rates of 18.2 % vacant compared to 18.4% (583,283 square feet) reported at (1,026,373 square feet). This is a significant decrease from the the end of 2006. Class C office space, consisting of 2.78 mil- 25.1% vacant at the end of 2006, and is primarily the result of lion square feet in a whopping 268 buildings, reported vacancies the Farmland move to the former TWA Administrative building of 14.5% or 404,647 square feet, a negligible increase from the and the Kansas City, Missouri purchase of the former Farmland 15.3%, or 340,853 square feet, reported vacant at the end of headquarters near the airport. Of the 160 Class C buildings 2006. containing approximately 1.8 million square feet, vacancy levels increased from 8.1% to the current level of 10.8% (196,218 “...the North of the square feet) with negative absorption of 44,616 square feet. River market reported absorption The total North of the River market reported absorption of 206,124 square feet during 2007. Rental rates rose from of 206,124 square feet during 2007. an average of $13.73 per square foot to $15.10 per square Rental rates rose from an average of $13.73 foot over the course of 2007, as is typical for strengthening per square foot to $15.10 per square foot markets. over the course of 2007, as is typical for strengthening markets.” EAST JACKSON COUNTY MISSOURI

Eastern Jackson County is a submarket which includes East Jackson County is the sixth largest market in the Blue Springs, Liberty, Independence and Eastern Kansas City, Metropolitan area and with the third most number of buildings Missouri. It includes 465 buildings with approximately 7 million at 465, is clearly populated by smaller buildings. There are cur- square feet. At the end of 2007, 1,010,490 square feet, or rently 67,100 square feet of new buildings under construction

15 Corporate Ridge Office Park, located in Olathe, Kansas, started construction on the third building totalling 87,000 square feet in 2007 at an estimated cost of $16 million.

in this market. Net absorption of office space in this submarket of the metropolitan office market. Consisting of 165 buildings during 2007 was reported at 72,762 square feet, down 3.5% and totaling 2.65 million square feet, 417,135 square feet, or 16 from 2006. With 1,010,490 square feet available, 67,100 15.7% of the submarket, was available for occupancy at the end being constructed and with less than 100,000 square feet of of 2007. This represents virtually no change from the 15.9% absorption per year, there is a tremendous amount of inventory vacancy reported available at the end of 2006. The 34 Class available to meet market demand. Following the trend across the A properties report vacancy of 18.1% or 40,259 square feet of city, rental rates increased from $14.21 per square foot at the the total inventory. The 72 Class B properties reported 19.3% end of 2006 to $16.26 per square foot at the end of 2007. or 353,483 square feet available at the end of 2007. For the 87 Class C buildings containing approximately 601,904 square “The continuation feet, vacancy levels stood at 3.9% or 19,776 square feet at year end. of aggressive development Leasing activity within this submarket produced a posi- activity in the CBD will surely tive absorption of approximately 57,130 square feet, a veloc- contribute to and create benefits ity almost identical to 2006 absorption. Rental rates remained for development in the suburban static with an average rent reported of $15.66 at the end of markets in the coming 2006 and $15.56 at the end of 2007. year.” New Construction:

Thirty one buildings totaling approximately 870,000 SOUTHEAST JACKSON COUNTY square feet were added to the market in 2007. Major addi- tions include the 150,000 square foot Applebee’s International The Southeast Jackson County office market is a small segment corporate headquarters in Olathe, which is 100% occupied, al- though the future of that property may be a bit uncertain since KC Metro area was $17.54 per square foot at the end of 2007. the acquisition of Applebee’s by IHOP. Opus Northwest opened This represents an increase of 3% over the $16.85 per square the 116,000 square foot Corporate Ridge II with Garmin In- foot average at the end of 2006 but slightly below the 6.1% ternational as the lead tenant. They also opened the 102,420 increase on a national basis reported by the National Association square foot Corporate Ridge III during the third quarter with of Realtors. The average Class A quoted rent was $21.48 at the Farmer’s Insurance Group as the tenant for the entire building. end of 2007, average Class B quoted rent was $17.03 and aver- Three medical office buildings have opened; the 62,000 square age Class C quoted rates were $13.16. In comparison, at the foot Corporate Medical Plaza III; the 60,000 square foot South- end of 2006, the average Class A quoted rent was $19.51 and ridge Medical Building just south of St. Luke’s South hospital $16.64 for Class B. The increase in both Class A and B quoted and Tegra’s 40,000 square foot Mid-America Medical Building rents reflects the overall increase in lease absorption as landlords in south Johnson County. took advantage of increased demand. It is anticipated that the gap between rents for A, B and C properties will continue to widen throughout 2008. Even with demand softening, with va- cancy continuing to decrease together with increased construc- “Construction costs tion costs for materials and labor, there will be increasing upward pressure on rents during 2008. will continue to creep up as costs of materials and delivery are impacted SUMMARY & OUTLOOK by rising energy costs and fluctuating demand domestically and abroad.” Across the country, the recovery of the office market has continued during the past year with growth during the first half of the year being spurred by office space demand in the ser- vice sector. Indicative of this, vacancies have dropped across the board and rents increased throughout the year. With commercial real estate now a part of the global Slated for opening in 2008 are the 220,000 square capital markets, investors have already begun to feel the effects foot West Edge located on the west side of the Country Club of more conservative lending practices. Hence, new construc- Plaza which will house the Bernstein-Rein advertising group; the tion will be impacted as loan underwriting guidelines are revised 154,000 square foot Hilltop in Briarcliff which is 35% preleased and tightened up. Construction costs will continue to creep up to FC Stone Trading, LLC; Pinnacle Corporate Centre II, which as costs of materials and delivery are impacted by rising energy at 124,000 square feet is being built on a speculative basis and costs and fluctuating demand domestically and abroad. The cost is experiencing heavy interest from potential tenants; Pinnacle of money and materials coupled with reduced delivery of new 17 Corporate Centre IV which at 59,496 square feet is scheduled to product will serve to keep rental rates increasing along with ab- open in mid 2008 and is already 25% leased. Opus Northwest sorption but not as much as in 2007, according to Lawrence has started construction of the 90,000 square foot Corporate Yun, Chief economist for the National Association of Realtors. Ridge I scheduled to open in the Fall of 2008 in the hot Renner Absorption is expected to continue to be relatively flat in part due Ridge/K-10 corridor. to elimination of jobs tied to housing, especially on the lending After numerous delays, JE Dunn is starting construction side, and reduced office demand. The market has already begun of their Village East project, which will include a new headquar- to see the impact of these factors locally with the closing of ters building for them on the east side of the downtown loop. mortgage loan offices and the dramatic shrinking of NovaStar. GSA has committed to locate a large new federal office building In 2008 we believe rents will continue to increase but in the downtown area and hopes to finalize a location in 2008. more likely at the rate of 2 – 2.5% nationally. Locally, we expect Meanwhile, the Cordish Group continues to move forward ag- rent increases to hover around 1% for all building classes over gressively with completion of the Power & Light District. The the entire metropolitan market. We expect the local market to continuation of aggressive development activity in the CBD will parallel the national market with positive but decreased rates of surely contribute to and create benefits for development in the absorption and increased rents albeit at a lower rate than 2007. suburban markets in the coming year. We further expect the Federal Reserve to continue to reduce the discount rate to help offset the negative impact of the slow hous- ing market and increased energy costs as a means to control Rental Rates: inflationary pressures and spur the economy to continue to in- crease and avoid a possible recession. The average full service rental rate in the buildings sur- veyed by the CoStar Group across all classes of buildings in the Lead contributors include: Estel C. Hipp, Vice President. Kansas City Industrial Market

Block & Company, Inc. Realtors represented Colony Realty Partners in their purchase of the eight building, 334,503 square foot RREEF portfolio, located in Kansas City, MO, for just over $16 million.

In the 1990’s, cities such as Memphis, Columbus, save time and money for manufacturers and distributors. From Indianapolis, Chicago, and Atlanta received the the Pacific Northwest, Burlington Northern (BNSF) has a direct 18 line through Kansas City which provides an alternate route to majority of the attention for bulk warehouse and Chicago. BNSF and the Union Pacific (UP) also run a direct line distribution center development. to Kansas City from the Port of Los Angeles/Long Beach. From the Port of Lazaro Cardenas, Kansas City Southern (KCS) offers ansas City was a well kept secret for these opportunities, a direct route, as well as points farther north. KCS also offers until recently. Now, the stars are aligning and Kansas City a route through the gulf ports of Houston and New Orleans. Kis gaining much more national and corporate attention. With ever changing global supply requirements, companies need With the US workplace having evolved into a 24/7 environment these alternate routes to diversify. This diversification provides and facility managers having to adjust accordingly, Kansas City’s increased security and a backup should anything disrupt the location in the central time zone and in the center of the country supply chain. is providing an opportunity for bulk logistics growth. Kansas Kansas City also offers the nation’s largest foreign City recently gained first tier logistics status and was ranked #5 trade zone, which allows for imported goods and merchandise out of 370 metro areas in the nation for its logistic friendliness. to arrive duty free. In many cases when value added work is Accordingly, optimism abounds. Kansas City harbors no illusion performed, the duty fees are reduced or totally eliminated. This that it can compete with areas of much higher population; land locked city is now recognized as the nation’s leading inland however, it has become a solid second-tier market. Kansas City port. With the new focus on intermodal hubs that streamline can handle the freight due to the four first-class railroads serving the distribution process and provide rail access to Mexico and the city, making it the #2 rail center in the nation. The NAFTA the West coast, there is a tremendous opportunity to leverage corridor along Interstate 35, along with Interstate 70, Interstate the NAFTA corridor and become a significant player in the global 29 and US 71, which traverses through Bentonville, Arkansas, import/export business. As more and more businesses are the home of Wal-Mart, on its way to the gulf coast, make access consolidating distribution to take advantage of cost savings by throughout the region excellent. As freight movement throughout providing the latest in warehouse automation and transportation the US continues to grow, Kansas City’s attractive corridors can advancements, Kansas City is gaining attention. It is uniquely positioned to take greater advantage in the global supply chain see a greater number of these centers changing the landscape since it does not yet have the congestion that exists in the of Kansas City in the future. With all of these factors, there has major port cities of Los Angeles/Long Beach or the distribution been a dramatic increase in big box distribution centers locating powerhouses like Chicago and Memphis. or scouting for locations in Kansas City. Kansas City has the infrastructure and capacity for It is no longer a matter of when the market will change, growth to support new distribution facilities, and, unlike the but by how much and how quickly. How is Kansas City answering problems that plague many cities in the US, there is not a the call for these large distribution centers? Answers are coming in workforce shortage for logistic companies. Kansas City has several ways; BNSF is developing a 1,100 acre, $1 billion logistics a larger and more talented workforce to pull from, with 50% park in association with San Diego based The Allen Group. This more people employed in distribution and warehousing than park will feature distribution centers, warehouses and a 350 acre the national average. Kansas City also offers better training intermodal terminal. BNSF’s intermodal facility and Logistics Park and more skilled workers. Continued growth from the corridor will build Kansas City’s stature as a major trade thoroughfare and between Houston and Kansas City, which is expecting a 40% position the area for a leading role in the global economy. Trains boom in the coming years, already has companies evaluating will be hauling container shipments from Southern California’s markets to build distribution centers and Kansas City is receiving ports and will use this facility to transfer cargo to trucks so the attention. In addition, being recognized as a potential first- goods can be hauled to regional destinations or be stored in on- tier city is generating more opportunities for large institutional site warehouse for later distribution. Since truckers must take investors to enter the market and is playing a key role in the off 10 hours for every 11 hours they drive, Kansas City’s central rising demand for new industrial development. This recognition location will allow these goods to be shipped to nearly anywhere is also helping large scale developments become less expensive to within the country within a day’s time, contributing to Kansas finance and therefore more cost effective. As retail operations City distribution growth. When completed over the next 10 to continue to move to highly automated systems for moving their 15 years, this park is projected to have in excess of 7 million goods, advancements in streamlining processes and decreasing square feet of vertical structures. This new large-scale truck the associated labor cost is creating another incentive to build intermodal and logistics hub is gaining national attention. large distribution centers. Because of this, we can expect to KCS, in partnership with Texas-Mexico Railway (TFM),

19 started the NAFTA railway in 2003 and now KCS is in partnership is igniting new development all over the metro. The area is in dire with Centerpointe Properties of Chicago to develop a 1,400 acre need of large speculative developments to accommodate these intermodal and distribution site at the former Richards-Gebaur new opportunities and it appears that some developers are now Air Base in Southeast Kansas City. KCS has been developing a ready to step up and fill that need. nearby rail transfer center since 2000. When this development With companies like Kellogg’s searching the Kansas is complete, there will be over 18 million square feet of space City marketplace for up to 1 million square feet, it is good for the distribution of goods. This intermodal will increase with timing that three new speculative building developments the use of “just in time” delivery and will have an underground recently were announced, including a 600,000 square foot bulk business park that will be co-developed by local company Hunt- distribution center being developed in Olathe, Kansas, available Midwest Enterprises, the owner of the largest underground for occupancy in Fall 2008. This new distribution center will be commercial park in the world – Subtropolis, which is located in located at 167th Street and Long Elm Road, near the Gardner Kansas City North. intermodal. Another announcement for 500,000 square feet of The KCI Intermodal Business Center’s master plan was industrial development located near the New Century Air Center released in June 2007. KCI opened over 30 years ago and of in southwest Johnson County is set to begin a 151 acre site its 11,000 acres of property, barely 3,000 acres are currently that can accommodate up to 2 million square feet of distribution developed. This new development will create an “airotropolis,” space, and will be located at 175th & Interstate 35, also near an air traffic driven city within a city. Unlike the two intermodals the Gardner intermodal. Right now it is awaiting rezoning being developed in cooperation with BNSF and KCS, the goal approvals. Plans include a high-thru put cross-dock, expandable with the airotropolis is to create a high tech air cargo facility that facility, with significant trailer parking on site. With 32 to 36 would in many ways do for air travel what the newer truck/rail foot clear ceilings, and one dock per 4,500 square feet of space, hubs will provide for ground transport. Although these efforts it is designed to meet the growing needs of distributors. Other are not near the scale of those in Dallas or Denver, they are, projects include Midwest Commerce Center in Kansas City in many ways, a 100% departure from previous development North/Northland Park for 500,000 and 650,000 square foot efforts in the marketplace. The Kansas City Aviation Department projects which are now on the drawing boards. is now marketing 800 acres of this development, although, since During the next 10 years, analysts expect rail line traffic it is publicly owned, it cannot be sold and instead will be land to continue climbing with the increase in offshore manufacturing leased. The new development, known as Skyport, will work for and rail’s fuel efficiency edge over trucks, along with the public those companies who want to be near the airport and do not frustration toward highway congestion. Industrial developers need to own their facility. With KCI being the largest air cargo will select locations close to intermodal hubs to take advantage handler in a six state region, there should be a strong draw to of the cost of transporting goods. With these factors in place, Skyport. it appears the trends to larger, centralized warehousing and As the market continues this astonishing transformation distribution centers will continue for the foreseeable future and 20 to larger bulk warehousing, changes are evident with 6 million Kansas City is well positioned to capitalize on these trends. square feet of industrial leases completed since 2004. The average bulk lease of 260,000 square feet far exceeds the average of 50,000 square feet just a few years ago. So much “With Kansas is happening in Kansas City that it is setting the market up for dramatic change. All things are coming together in making City’s logistics infrastructure Kansas City bounce to the top of the site selectors’ lists, and seeing explosive growth, it is igniting those lists determine where distribution facilities will be located. Examples of where the market is going include major transactions new development all over the such as the 400,000 square foot distribution center for Pacific metro.” Sunwear in Olathe, Kansas, the 702,000 square foot facility for Musician’s Friend in Kansas City North, the 450,000 square foot Kimberly-Clark distribution facility in Gardner, Kansas, and other facilities exceeding 250,000 square feet for Case New PRODUCT TYPEs Holland, Federal Express, American Eagle Outfitters, Corporate Express, and Medline. However, each of these large transactions had to be “built to suit” and that takes anywhere from 12 to INDUSTRIAL & WAREHOUSE 18 months after decisions are made on size and location, etc. The market is now starting to see users who say they need the Although industrial and warehouse space covers space immediately, which is leading to a development of sites a broad range of users, it primarily serves users seeking to that are ready to build within the intermodal parks, as well as store and distribute industrial and consumer products. Newer pure speculative construction of large distribution facilities. With developments have focused on high cube distribution space Kansas City’s logistics infrastructure seeing explosive growth, it characterized by ceiling heights of 24 feet and higher, large Block & Company, Inc. Realtors represented Colony Realty Partners in their purchase of the 833,667 square foot Botts Road Industrial Building, located at 14100 Botts Road in Kansas City, MO. bays, ESFR sprinkler systems, cross-dock loading, and large truck construction for early 2008 delivery, and there is indication maneuvering and parking areas. The balance of the product that the southern markets will have new announcements in early typically is for users seeking light manufacturing/assembly 2008. In addition, it is likely that there will be more build-to- facilities because of the strong transportation infrastructure and suit activity in this product type and that Lee’s Summit will well-educated workforce available within Kansas City. At the end continue its high level of activity. Of the 1.737 million square of 2007, bulk industrial/warehouse space totaled 225.2 million feet available, only about 78,000 of that is sublease space, square feet in 4,720 buildings. In 2007, net absorption was so it would appear that tenant stability in this product type 3.5 million square feet. This brought the vacancy rate down is good. As in the past, when vacancies drop, rates firm, as from 9.0% in 2006 to 6.0% in 2007. Rental rates climbed was generally the case in 2007 within this product type. Rates slowly throughout 2007 and are expected to continue to rise stood at $7.81 per square foot at year end 2007, compared through most of 2008 as supply tightens and absorption remains to 2006 year end average of $7.35 for gross leases. 2008 positive. Average quoted rates for this product type stood at should see this product type remaining stable, especially if the $4.73 per square foot gross at year end. office market continues to firm causing would-be office users to 21 take flex space due to rental cost concerns.

FLEX SPACE UNDERGROUND DEVELOPMENT This product type offers space from 16 to 24 foot ceiling heights, with much higher automobile parking ratios than In addition to the traditional industrial/warehouse and the more traditional industrial/warehouse facilities. Generally, flex space as noted – all built above ground- there is over 22.8 there is more elaborate landscaping, a higher finish level including million square feet of subsurface space throughout the Metro showroom and office space, that comprises between 25.0% and area, which is now at 95.0% occupancy. The subsurface or 50.0% of a tenant’s space, and more glass space to accommodate underground developments are unique to Kansas City in that it is that finish. Generally, these tenants are quasi office users with home to nearly 90.0% of the Country’s developed underground a distribution or light assembly group, who want to keep their space. This subsurface warehouse space will always have a operations under the same roof. significant effect on the above ground warehouse distribution The statistics for this product type improved during market. The cost to construct 100,000 square feet subsurface 2007. About 935,000 square feet was leased creating a is one third of what it would cost to construct 100,000 square net absorption of approximately 52,000 square feet. New feet above ground. With the cost of construction being less, construction delivered in 2007 was up at 443,000 square feet the result is that the rental rates for subsurface warehouse/ and 284,000 square feet of that was in Lenexa with 52,000 in distribution/ manufacturing space is generally significantly lower Olathe. The overall vacancy factors did not change much with than the comparable space above ground. For those companies the current 2007 rate at 15.2%, compared to last year just at that can utilize clear heights of 16 feet or less, there are a number 15.7%. At this time there is 85,000 square feet of product under of advantages to the subsurface property, particularly lower lease rates resulting from the low cost of construction. Also, the develop an additional 5 million square feet. Meritex Subsurface subsurface space, being 75 feet to 100 feet below the surface, and Carefree Industrial represent significant competition as offers constant year round temperature of 65 degrees. This well. Meritex Subsurface is proposing to add additional space of constant year round temperature requires significantly less utility about 300,000 square feet in 2008. Rush Creek Underground consumption, thereby lowering the operating and occupancy cost in Liberty, Missouri, originally opened in 2004, is proposing for the tenant. Manufacturers whose manufacturing processes to construct up to 1.5 million square feet at average rents of function in the subsurface space seem to have a real advantage $3.00 per square foot. Solar Woods Business Park at Interstate because in most instances the productivity of the laborers and 435 & Truman Road, which is being developed by Dean Realty technicians increases because the employees are not subject to Company, is proposing development of multiple building spaces, the extreme temperatures associated with the above ground approaching 1 million square feet above ground and 4.7 million space. Nearly 12.0% of the total Metropolitan Area industrial square feet subsurface. square footage is subsurface. The lower cost to construct, lease, and occupy subsurface property will always have a detrimental pull on the above ground lease rates. However, not every user MAJOR MARKETS can take advantage of this type of space because of limited ceiling heights and reduced usable interior space resulting from the massive limestone columns that support the subsurface interior. Conversely, for many food storage and distribution JOHNSON COUNTY companies, as well as storage and light assembly users who do not create pollutants and who require constant temperature, the Johnson County, Kansas makes up the southwest portion of the benefits are exceptional. metropolitan Kansas City market and is well served by Interstates Space Center of Kansas City, which owns, leases and 35 and 435. Interstate 435 is the loop highway that encircles manages Space Center Executive Park’s 4.7 million square feet the metropolitan area. Most development in Kansas City has and Space Center Summit’s 1.5 million square feet for a total closely followed the paths of these major highways and, in many of 6.2 million square feet leads the Kansas City subterranean cases, has encouraged developers to produce planned business development market along with Hunt Midwest which owns 4.8 parks with protective covenants in place. These planned parks million square feet of subsurface space with the capacity to go from straight forward space with few amenities to those that

22 Block & Company Inc., Realtors began development on four new buildings totalling 163,381 square feet in College Crossing Business Park, an office warehouse development at College Boulevard and Interstate 35. include generous landscaping and appeal to the image-conscious around for new projects throughout the 159th to 175th Street user that requires flexible, yet efficient space. With excellent ac- corridors along I-35, as analysts predict that rail volumes will cess to the KCI airport, Downtown Kansas City, a multitude of continue climbing over the next ten years and that locations hotels, restaurants, and upscale retail and residential subdivi- near intermodal hubs will provide the best economics for trans- sions, Johnson County will continue to lead all of the industrial porting goods. Notable projects that are planned include a new submarkets again in 2008. 601,829 square foot speculative state of the art warehouse and Year after year, the Johnson County market remains an distribution center being developed at 167th Street and Lone attractive area for most of the region’s industrial projects. New Elm in Olathe, Kansas. This project, which is being developed by 23 construction has been consistent with the expansions of busi- a fee developer on behalf of Sun Life Insurance, will have excel- nesses in the area and most of this market’s growth continues lent proximity to the intermodal. With a 32 to 37 foot ceiling to the south and west. Space under construction at the end of clearance, 58’ x 50’ column spacing, 138 dock high doors and 2007 was in excess of 470,000 square feet in 19 buildings, and 98 trailer parking spaces, this project will be the largest specu- about 21,000 square feet (5.9%) of this was preleased. Newly lative project of its kind ever to be developed in Kansas. Also approved tax abatements and incentives throughout Johnson planned is the Midwest Commerce Center in Gardner which is a County’s cities are also key drivers for new development in this 517,000 square foot speculative distribution center with 32 to market. 36 foot clearance, 50 dock high doors (expandable to 106) with Announced in 2007, and a hot topic for 2008 and be- cross dock access, and planned trailer parking for 150. The yond, is the new 1.2 billion dollar intermodal facility planned in Midwest Commerce Center, when fully developed, will contain Gardner, Kansas by Burlington Northern Railroad. Surrounding nearly 2.3 million square feet of bulk warehouse at 56 Highway the intermodal will be the new Kansas City Logistics Park. When and I-35, just southeast of the New Century Airport. Other fully developed, it is estimated that the project will have 1,000 large build to suit projects, such as Kellogg’s 1.2 million square acres of land for an intermodal facility for BNSF and 7 million foot search throughout the metro area, are causing multiple de- square feet of distribution and warehouse facilities. The logistics velopers to obtain options on large land parcels and are causing park will be adjacent to Interstate 35, State Highway 56, and more land parcels to come to the market. the BNSF intermodal facility that should be operational by 2009. The Johnson County Market hit a 3 year low in vacancy Build to suit sites will be available and speculative facilities are at 6.0% in 2007, down from 7.1% and 7.3% at year end 2006 being considered. Gardner officials have considered incentives, and 2005 respectively. This overall vacancy trend may be at- such as tax increment financing, to help boost interest in the de- tributed to continued absorption of space as well as minimal velopment and the surrounding area, just as many other Johnson speculative construction. Owners are still providing concessions County cities are doing. Many industrial developers are scouting in rent and hearty tenant finish allowances, especially with newly The 400,000 square foot Pacific Sun Building at 167th and Highway 169 in Olathe, KS is the first of many industrial buildings in the Olathe/Gardner corridor along Interstate 35.

constructed buildings. The combined average rent for all product amount. Additionally, 143,116 square feet in industrial product types in this market was at $6.66 per square foot gross, which was available for sublease which was half as much as in 2006. is down $.22 from the previous year. Separating out the space This could be due in part to company restructurings and desire to rates into warehouse/industrial and flex building segments, the be in newer space. respective average rates were $6.39 per square foot for indus- There are 329 owner-occupied buildings contain- trial compared to $6.61 in 2006 and $8.92 per square foot for ing 18,319,314 square feet or 38% of the market, of which flex, compared to $7.03 in 2006. The increases in flex rates 134,506 square feet is vacant, a mere .73 %. With 246,594 reflect the increased construction costs for smaller projects with square feet available for lease in this product type, Lenexa, Kan- higher tenant finish ratios. sas continues to be the leader in owner-occupied product type Although 2007 leasing remained steady from the previ- with over 8,513,257 square feet. New tax abatement offerings 24 ous year, historically low interest rates prompted businesses to in Lenexa follow those offered in Olathe, and are sure to create consider purchasing their space because of the perceived benefits even more activity in this market. The flex market had positive of ownership. With the sub-prime shake up in 2007, the mar- net absorption of 127,978 square feet and the industrial market ket for owner occupied facilities has slowed due to indecision by had positive net absorption of 1,313,133 square feet, which cre- many would be buyers. However, there was very little product ated a total positive net absorption of 1,441,111 square feet by for sale which promoted the first industrial condo building to be year end 2007. built. Building 28 in Pine Ridge Business Park saw three condo Notable leases this year signed in the Johnson County units sold and the bulk of the remaining space was leased, leaving submarket included SCP Distributors with 41,000 square feet, 13,000 square feet of the 60,500 available. Building 29 also Dri Duck Traders with 55,104 square feet at Kansas Commerce was to be offered as condos, but the 56,000 square foot build- Center, G.H. Imported Merchandise with 120,000 square feet ing constructed in 2007 was 100% leased by tenants seeking at the Silpada West Building in Renner Business Park, Marel USA quality new construction. with 31,536 square feet at Pine Ridge Business Park and a re- There are a total of 1,396 flex and industrial buildings newal and expansion of 54,904 square feet for Graebel Reloca- within this market totaling 50,367,702 square feet and grow- tion in the Kansas Commerce Center. Johnson County is expect- ing. Activity for older buildings in Johnson County remained ed to see continued growth and absorption due to a consistent steady in 2007, yet newer buildings outshined them with greater corporate migration to this high-profile submarket. lease up success. Lease rates were competitive for the current in- Johnson County continues to draw the majority of the ventory but the newer buildings provided the ability to truly start region’s new development since a large number of existing busi- from scratch and customize a space with generous tenant fin- nesses continue to utilize space in flex developments. Examples ish allowances. Of the total market, flex buildings represented of new developments in Johnson County include: The College 5,476,272 square feet in 209 structures and there was 25,406 Crossing development at I-35 and College Boulevard including square feet of flex available for sublease which is double the 2006 three new flex buildings containing approximately 128,000 square feet, along with a one story office building of 36,000 opment so cars and trucks can get in and out of this heavily used square feet, multiple small buildings of 15,000 square feet industrial area. The Front Street redevelopment project, which planned in Deerfield Park in South Johnson County and Pine has been highly anticipated, has been put on hold until 2009 at Ridge West with its 54 acres of developable ground, along with the earliest. The more utilized Interstate 35/Paseo Bridge is ex- land in Southlake, Renner Ridge, Lackman Place and other high pected to be replaced starting in 2008 which is the cause of the quality environments. These examples represent the high quality delay in redevelopment of Front Street. There was fear by exist- buildings and prime ground available for immediate development. ing and future tenants during 2007 that the Paseo Bridge would Therefore, expect to see continued absorption in 2008 which will close during the time of construction, which caused vacancies in create pressure for additional new developments as well as push Executive Park to increase from 9.0% to 11.0% in 2007. Nev- rents upward. ertheless, net bulk industrial absorption was a positive 190,657 square feet in this submarket, due to big build to suits being completed for Corporate Express and Musician’s Friend, which EXECUTIVE PARK MARKET/NORTHLAND PARK expanded the market footage. MODOT has assured the city that the Paseo Bridge will not be shut down, which has caused The Executive Park/Northland Park submarket includes relief to many of these Tenants. those areas immediately north and south of the Missouri River Average rental rates responded to the vacancy trends, on the east side of Downtown Kansas City. Interstate 35 services with lease rates decreasing to $4.59 from $4.62 per square foot this market on the west with Interstate 435 on the east. The by year-end for warehouse space and holding steady at $7.07 sub market now totals 31 million square feet with around 5 mil- for flex. Although average asking lease rates for flex properties lion square feet developed underground. remained the same, the effective rates saw slight increases. Ef- Executive Park is Kansas City Missouri’s premier Indus- fective rates for bulk warehouse/distribution space ranged from trial Park and consists of 1,200 acres of developed industrial $3.00 to $6.58 per square foot. land that was built nearly twenty-five years ago. Front Street, Noteworthy leases included Menlo Worldwide Logistics’ the main road that links together the Executive Park buildings lease of 203,000 square feet in Executive Park as well as Lanter and gets thousands of trucks, customers, and workers to and Distribution’s lease of 47,000 square feet. American Tire and from these buildings and to Interstate 435 and Interstate 35, is Rent-A-Center leased property in the Hunt Midwest Building to- chronically congested. The road is in desperate need of redevel- taling 125,000 square feet.

25 NORTH KANSAS CITY/RIVERSIDE was completed in 2005. Construction of this levee system was the first of many steps necessary to implement the required The North Kansas City/Riverside submarket, north and infrastructure for the Horizons project to become reality. The west of Downtown Kansas City, totals just more than 21.5 million fact that this project is moving forward is highly desirable to square feet as of year-end 2007, and vacancies stood at 5.5% many incoming and existing tenants as the Horizons property with no change from year end 2006. The average asking lease has immediate access to I-635 and is minutes from I-35, I-70, rate was $6.29 on a triple net basis at year end, up from $5.37 I-29. It is in close proximity to Downtown and the Kansas City at the end of 2006. This market has limited land availability, International Airport. All of these access related features are especially in North Kansas City, and generally includes a broad significant factors in attracting cutting-edge development. mix of both manufacturing and warehouse/distribution product. Notable deals which took place in 2007 included 24/7 Even so, close proximity to GM/Fairfax and Ford/Claycomo plants Express Logistics which leased 97,000 square feet in the Paseo keeps this market volatile as it moves up or down in correlation Industrial District and Exhibit Associates which leased 56,000 with the current situation of the automotive manufacturing and square feet in the same industrial park. In Riverside, Avery sales market. Dennison leased 74,880 square feet and Shurtape Technologies leased 28,000 square feet.

“...the KCI Intermodal KCI AND AIRWORLD Business Center, will be an 800 acre multi-use planned development, with The KCI/Airworld Industrial submarket is defined as the group of roughly 70 warehouse, bulk warehouse, distribution, 2,700,000 square feet of buildings and flex buildings in Northern Platte County, Missouri adjacent planned...” to the Kansas City International (KCI) Airport on the north end of the metropolitan area. This submarket has a total inventory of just under 4.2 million square feet as of year-end 2007, representing under 2% of the total Kansas City industrial market. The buildings in North Kansas City are typically older Due to its close proximity to the KCI Airport, this submarket than the buildings in Riverside. Leases range from $2.50 per has a large dependence on air- freight transportation and related square foot to $3.25 per square foot gross. It is important businesses. to note that the majority of these aging older warehouse/ The total submarket vacancy rate was a stable 6.9% distribution complexes suffer from some functional obsolescence, as of year end, nearly matching the 2006 year end rate and 26 such as limited turning radius, shallow truck courts, narrow the 2007 overall industrial market rate of 7%. Rental rates column spacing, aging infrastructure, limited parking for trailer averaged $5.63 per square foot for the submarket, significantly storage and employee’s. With the lower property taxes and a higher than the overall industrial market average of $4.88 per lack of an earnings tax for individuals and corporations, this square foot. This was attributable to the relative size of the market is a strong competitor to the Executive Park/Northland submarket and demand for companies needing space near the Park market. airport, with rates ranging $4.95 per square foot, triple-net, The non-owner occupied buildings in Riverside generally for second generation bulk warehouse space to $12.00 per are more modern and have substantially larger truck courts than square foot, gross, for newer flex space. There is an abundance the buildings in North Kansas City. The rates and the quality of of undeveloped land available and marketed for spec and build these buildings make them highly competitive with buildings in all to suit opportunities. Although no tax abatements are to be the other submarkets. Along with North Kansas City, Riverside offered on further developments, there are foreign trade zones also has no earnings tax for individuals and corporations. and enterprise zones already in place offering 10 year, 50% tax North Kansas City and Riverside are both centrally abatements as an incentive for these projects. located and have immediate interstate access to the majority of Noteworthy developments planned or underway in the metropolitan area highways which is why these facilities are the submarket include the KCI Intermodal Business Center, highly utilized. which will be an 800 acre multi-use planned development, with The Riverside Horizon’s Development Project which was 2,700,000 square feet of buildings planned for the initial phase. introduced in 2006 began Phase I of the project connecting KCI Logistics Centre One will be available in the third quarter of I-635 and Horizons Pkwy (the main road to the development). 2008, with 525,000 square feet, expandable to over 1,000,000 The Horizon’s property is open to exciting, new development square feet. Build to suits will be available from 50,000 square opportunities, consisting of approximately 800 acres of feet and up. An expansion of this project was announced late in developable property, most of which is owned by the city. The 2007 including additional operation space for Forward Air, Inc., project is located within the 500 year flood-protected area which a national logistics service provider for the air cargo industry. Furthermore, the City of Kansas City signed a 60-year be the proximity to the airport, availability of reasonably priced ground lease for a 200 acre, $150,000,000 exhibition hall and land, and strong retail growth in the area specifically in the I-29/ convention center complex for heavy equipment manufacturers Barry Road corridor. and operators at KCI, with KC Expose, LLC, a joint venture of Uniworld, Inc. and SWD Communities. It will include four large buildings, including a 262,500 square foot arena style special WYANDOTTE COUNTY events center, with bench seating for 6,000 people and other facilities, including a 258,000 square foot agriculture building, A majority of the Wyandotte County industrial submarket a 200,000 square foot heavy equipment machinery building, is located in four clusters. These include Fairfax, Turner, and a 60,000 square foot truck and accessory building. Armourdale, and Edwardsville. Fairfax is notable for its large Additionally, Skyport, LLC purchased 160 acres manufacturing facilities, including Sunshine Biscuits, General adjacent to AirWorld Center in August 2007. The group Motors, Saint-Gobain, and Owens-Corning. Turner, currently plans to provide development – ready sites for warehouses of home to the area’s largest intermodal facility, is most notable 100,000 square feet to 1,000,000 square feet. Also, Watkins for warehouse/distribution and cross-dock facilities. It is likely & Company began construction of the 13.76 acre, 135,000 though that with BNSF’s intermodal project in Gardner, Kansas square foot seven building Equity Plaza at Tiffany Springs office that the Turner facility will soon become less of a draw in this condominium development, with one building completed as of submarket. Armourdale, once a center of heavy manufacturing, year end 2007. now primarily consists of small shops converted to office/ Subsequently, the City of Kansas City Aviation warehouse uses and new, infill warehouse/distribution buildings Department approved leasing 300 acres just west of KCI for the built on the sites of former manufacturing facilities. Edwardsville development of KCI Motorsports Park which will be operated had been a small pocket of heavy manufacturing until just a by Fast Track, LLC and whose initial phase is slated to open in few years ago when city officials began luring developers and spring 2008 as the second phase begins construction. large distribution warehousers to this area just north of the In all, the Platte County Economic Development Council thriving Johnson County submarket. As a result, this submarket estimates there is currently a total of about 1.1 million square experienced notable industrial activity in 2007. feet of planned or in-process developments in the KCI/Airworld Wyandotte County’s total industrial inventory of close industrial submarket at a total estimated cost of over $76 Million. to 39.8 million square feet primarily consists of warehouse and Driving factors for the development in this market continue to bulk distribution space. This warehouse/distribution space totals

27 nearly 39.2 million square feet, while light industrial and flex added and invested in speculative inventory. Prime Development space totals less than 600,000 square feet. The warehouse/ continued its redevelopment strategy near the Central Industrial distribution spaces are, for the most part, more functional, newer, District by breaking ground on a new 105,000 square foot and thus more desirable. Light industrial and flex spaces on the distribution center on the former site of a Union Pacific intermodal other hand tend toward functional obsolescence and vacancy facility. In nearby Fairfax, Privatera Realty Holdings acquired the rates reflect this condition. Warehouse/distribution inventory former Case New Holland manufacturing facility and has offered saw 4.1% vacancy in 2007. Light industrial and flex products the space for lease. had 11% vacancy at years end. With net absorption of nearly 440,000 square feet in 2007, availability overall remains tight and rental rates should move upward in 2008 to reflect the low EAST JACKSON COUNTY/DOWNTOWN vacancy. Once again, Wyandotte County’s most notable deals in The Eastern Jackson county submarket is one of the 2007 were in warehouse/distribution product. MWI Veterinary Metro area’s largest submarkets. This submarket encompasses Supply, new to the Kansas City market, leased 105,000 square all the outlying suburban industrial areas on the Missouri side of feet of distribution space on Midpoint Drive in Edwardsville. In the state line, as well as the Central Industrial District. With just Armourdale, Prime Development leased the remaining 50,000 over 89 million square feet, and the majority of that square foot- square feet of its 101,000 square foot speculative building to age being located within industrial neighborhoods, the Eastern RanPak, completed in 2006, and USF Distribution renewed Jackson county submarket contains more than 35% of the total its lease of 52,000 square feet on River Park Drive. Also, in metropolitan inventory. The overall vacancy rate at the end of Armourdale, the newly formed Freight Concepts subleased 2007 stood at 7.0%, down from 8.4% in 2006. Vacancy rates 106,000 square feet from Federated Department Stores at 45 were at 6.6% in the newer, more modern buildings. Leasing ac- Osage. Attraction and retention of these companies can once tivity in 2007 totaled 1.62 million square feet, which resulted in again be attributed to Kansas City’s central location, economical a positive net absorption of 1.287 million square feet. With the operating costs, and the relatively new Kansas tax abatements lack of modern industrial parks in East Jackson County and the for real estate, machinery and equipment. Central Industrial District, vacancy and rental rates did not move Elsewhere in Wyandotte County, owners and developers a great deal. Newer facilities, with more convenient highway

28 Block Fund III purchased a 249,662 square foot industrial portfolio in Riverside, MO at year end 2007. access and considerably better loading, continue to attract ten- trial areas being almost functionally obsolete; multi-story indus- ants into the planned industrial parks and suburban locations. trial buildings, many of these buildings have seen adaptive reuse This often causes those firms that are growing to move to other as offices, residential and loft space. The trend in this market in metropolitan submarkets. 2008 will be minimal growth of industrial product, as has been The biggest news in this market is the Kansas City Port seen over the past seven years, stabilized occupancy and rental 29 Authority’s agreement with CenterPoint Properties of Chicago rates, and a continued decrease in the supply of the older multi- to redevelop the former Richards-Gebaur Air Force Base into story industrial properties. Rental rates range from $1.12 per a 1,400 acre intermodal facility. This project has transferred square foot to $8.00 per square foot net in one-story buildings hands and is on schedule to start construction in early 2008. with average rates of $3.36, gross, per foot in 2007. Much It is estimated to be worth over $500 million and is expected of the upside gain on rates comes from the newer and more to generate more than 4,000 jobs. This project will consist of modern construction in the suburbs. Lee’s Summit is riding a more than 18 million square feet of distribution, manufacturing demand surge that began about five years ago. With a vacancy and commercial facilities, including underground facilities, over rate near 4%, there are few options for tenants seeking space in a long-term build-out period. Kuecker Equipment is the first this portion of the submarket. project to break ground on a new distribution–warehouse facil- Other notable transactions include Murphy Tractor and ity with an expected completion done in August 2008. Also, Equipment Company’s 9 acres that are under contract in the the National Nuclear Security Administration has received final Santa Fe Trail Business Park at 87th & I-435. They could start congressional approval from the House committee to develop a building a new showroom this year and relocate from their cur- $400 million plant by the summer of 2008. Other big news rent Executive Park location. Other major leases include a in this market was the announcement by Damon Purcell Con- 218,000 square foot facility acquired by Gensys on East 85th struction Company of their purchase of 75 acres of undevel- Street from John Deere, and Restaurant Depot’s new 55,000 oped property at 87th Street and I-435/Bruce Watkins Freeway square foot distribution center in the West Bottoms. directly east of the Bannister Mall redevelopment project for the Kansas City Wizards and the related retail. The site could Lead contributors include: Michael R. Block, CPM, Principal; Gene house as much as 700,000 square feet of industrial product. Elsas, Vice President; Zach Hubbard, Sales Associate; Jason Allen, With a large amount of inventory in the central indus- Sales Associate and Scott Cordes, Sales Associate. Kansas City RETAIL Market

Northridge Plaza, a 209,052 square foot retail center located at 15100 W. 119th Street in Olathe, KS, was purchased by GDA 30 Real Estate Services in 2007 for nearly $43 million. Block & Company, Inc. Realtors represented the seller. 2007 was another big year for retail space population of 2 million in October of 2007, one wonders wheth- construction with developers delivering almost 3 er we have reached a tipping point in the amount of retail space being delivered. million square feet of retail space to the market. Last year’s report indicated that one of the primary driv- ing factors in the booming retail expansion was the strong resi- s in 2006, this was more than double the average delivery dential development and resale market. Many people believe that over the last 20 years. That fact and the crisis in the the recent strength in consumer spending has been fueled in part Ahousing market should have a significant impact on the by the refinancing of home equity. Essentially, consumers have market for the next several years. According to the ICSC (Inter- been borrowing the funds necessary for this consumption by us- national Council of Shopping Centers), the national average for ing the equity in their homes. Beginning in 2006 and accelerat- retail space per capita in major markets is 22.9 square feet. In ing in 2007, the housing market softened, prices flattened and the Kansas City market, there are over 38.9 square feet of retail dropped in some areas, inventories grew and home loan interest space per person; up by 2+ square feet per person over last rates moved up. In addition, many of the loans made to sub-prime year. Surprisingly, vacancy rates actually dropped from 10.1% and even better borrowers have had the interest rates reset, re- to 9.4% over the same period. Because much of the absorption sulting in massive increases to monthly payments. The resulting was by newly formed small businesses, it will be important for crisis in the lending markets has affected both the residential landlords to watch these new businesses closely as their success market and commercial markets with owners of retail centers be- or failure may portend the direction of the market in general. ginning to feel the effects. A number of retailers have seen sales There are at least 2.3 million square feet of additional suddenly drop beginning in the spring of 2007 without any of retail space under construction at this time. Even though the the typical fundamental causes such as new competition or road Kansas City Metropolitan Statistical Area (KCMSA) topped a construction. For example, paint, decorating and home furnish- ing stores in all parts of the city have experienced this sudden are being priced out of the higher end market. These smaller chill. Additionally, and due to fundamentally different factors, retailers with little depth or staying power are being relegated Blockbuster and Hollywood Video/Movie Gallery have together to second generation developments. Big-box lease rates vary de- announced that they will close about 5,000 stores nationwide pending on both location and local building codes, which can due to changes in the video market. The aggregation of all these increase construction costs and therefore rental rates. New big reasons indicate that vacancy rates will increase in 2007. box lease rates are in the range of $9.14 to $16.25 per square Most of the new construction is in Lifestyle Centers, foot. Existing second generation larger spaces are priced in the new urban centers, and mixed-use developments. Major projects range of $4.00 to $9.00 per square foot. Even lower yet, some recently opened or under construction are the expansion of Zona former K-Mart spaces have gone for $2.50 per square foot. New Rosa, Corbin Park in Overland Park, expansion of The Legends Class A retail rates for well located anchored conventional retail in Kansas City, Kansas and the East Gateway in Mission, Kansas. centers continue in the range of $18.00 to $28.00 per square The major announcement of 2007 was the Three Trails project foot and Class B small shop space rates range from $10.00 to at Interstate 435 & Bannister Road. This proposed $949 million $18.00 per square foot. mixed-use center, led by LANE4 Group, is to be anchored by a In Kansas City, restaurants, drug stores and banks con- soccer complex including a stadium for the KC Wizards. The tinue to expand with residential growth pushing pad site land development will add 600,000 square feet of retail by 2010. prices to new levels. New high profile locations continue to show Also announced was the development of The Falls, an 860,000 strong sales, which increases the demand for freestanding sites. square foot retail development anchored by a 160,000 square It’s rare to find available second generation pads in good areas. foot Bass Pro Outdoor Adventure Store at the southwest corner Land costs rose further in 2007, especially in the suburbs, as of Interstate 70 and Highway 291 in Independence, MO. Addi- a result of demand driven by strong retail expansion. The com- tional mixed use projects are planned for all areas of the metro. petition for premier sites in new centers has been intense with Lease rates continue to see upward pressure for small prime shopping center pad sites commanding between $18.00 shops in new Class A specialty centers and Lifestyle projects pri- and $26.00 per square foot. Large tracts of land for new retail marily due to the increased costs of construction. Rates in the developments are valued from $4.00 to $7.00 per square foot. range of $27.60 to $37.70 per square foot, with net charges However, the market is now seeing the beginning of an oversup- in the range of $5.00 to $10.00 per square foot depending on ply of these pad sites in some fringe markets where developers the specific city and property location, are the norm. With rates need these higher pad sales to achieve desired investment re- at these levels, many local retailers and independent operators turns.

31 Bannister Mall closed it’s doors in 2007, making way for the Three Trails Redevelopment, a nearly $1 billion complex set to be anchored by an 18,500-seat Kansas City Wizards Soccer Stadium. The complex will sit on 467 acres and boast 1.1 million square feet of retail, 1.6 million square feet of office space, 590 hotel rooms and 12 tournament level soccer fields. ner of northeast Flintlock and Highway 52. Briarcliff Village is now open and well leased. One proposed center at Maplewoods “The new Interchange Parkway and M-1 did not materialize, having failed to draw lead tenants due to its inferior location. Tiffany Springs Market Cen- at Interstate 70 and Blue Valley ter will open late in 2008 with Target, Home Depot, Best Buy, 32 Parkway is a primary factor in fueling retail Sports Authority and JC Penney. The biggest story in the North- development in the Independence area land is the continued success of Zona Rosa, Briarcliff and the Tu- ileries. A 500,000 square foot expansion of Zona Rosa is under previously starved for new retail.” construction at this time for delivery in early 2008. The expan- sion will include Dillard’s and Old Navy. Briarcliff and Tuileries continued to fill with high-end tenants paying top rents. This is attributable to the continued influx of high income families to the SUBMARKET OVERVIEW tonier neighborhoods popping up north of the river.

NORTHLAND KANSAS CITY, MISSOURI, EAST JACKSON COUNTY MISSOURI PLATTE COUNTY AND CLAY COUNTY Retail in Eastern Jackson County continues to expand The Northland retail submarket remains one with several new shopping center developments. The new Inter- of the fastest growing segments in the metropolitan area. De- change at Interstate 70 and Blue Valley Parkway is a primary velopment along Barry Road and Highway 152 from Interstate factor in fueling retail development in the Independence area pre- 29 east to Interstate 35 in Liberty has seen the most activity. viously starved for new retail. The city of Independence recently Wilshire Plaza and two additional centers, totaling 400,000 approved a bond issue for construction of a new 5,800 seat square feet, located at Interstate 35 and Highway 152 made arena for the area southeast of the intersection of Interstate 70 it to market in 2006 and those centers filled in 2007. Liberty and Interstate 470. This should bring a large number of visitors Triangle on the northeast side of Interstate 35 and Highway 152 and therefore increased retail sales to the area. Construction has a new Lowe’s, Hy-Vee and 400,000 square feet of additional continues on The Falls at Crackerneck which, due to some design retail space. The Shoal Creek Plaza project planned for 400,000 changes, should come to the market with 70,000 square feet square feet is currently under construction at the southwest cor- of retail space in February 2008, in addition to the 160,000 square foot Bass Pro retail store set to anchor the center. The Interstate 35 and 119th Street that is now open. The Crate & Falls will also include a 220 room hotel and an 18,000 square Barrel center at 119th & Roe recently announced that Dean & foot conference center. Delucca will move from its current location on the northwest Over the next five years, developers plan to bring up to corner of 119th Street & Roe. 600,000 square feet of retail space to market. Retail growth Shawnee Mission Parkway in Northwest Johnson Coun- continues, but more slowly, throughout the 40 Highway, Inter- ty has also seen continued significant growth. New retailers in state 70 and Highway 291 intersections. Even though Noland the area include nearly all the big box retailers. Although slower Road at 40 Highway experienced a boost when Hy-Vee took the to come to fruition than planned, several new shopping centers former K-Mart location, it also lost Best Buy. This intersection in western Shawnee on 7 Highway are now open and develop- continues to be a second tier location compared to M-291 and ers are prospecting for tenants. The development of the new 39th Street. The Blue Ridge Mall at Interstate 70 and Blue Ridge centers on Shawnee Mission Parkway has led to a number of Boulevard is being redeveloped by Red Development Company, older centers closing, resulting in a number of big box vacancies. and the new Wal-Mart was completed in 2007. The center has Some of those spaces have been sitting vacant for several years, about 133,000 square feet of additional space for lease. signaling that this area is somewhat overbuilt. Another active area is Blue Springs with numerous pro- posed additional retail developments. Block & Company, Inc. is planning a new 900,000 square feet center near the new Home KANSAS CITY, KANSAS Depot and Wal-Mart at Interstate 70 and Adams Dairy Parkway WYANDOTTE COUNTY with expected delivery in 2009. At 40 Highway and 7 Highway developers are proposing redevelopment on three of the four cor- The Kansas Speedway at Interstate 70 and Interstate ners. Both areas are vying for the remaining national retailers not 435, the 780,000 square foot Nebraska Furniture Mart, Cabe- presently represented in this market. Residential growth in Blue la’s 175,000 square foot retail store, the T-Bone’s minor league Springs, both north and south of Interstate 70, moves forward baseball stadium, the Great Wolf Lodge and numerous restau- at a steady pace, spurring strong retail development. Activity rants continue to thrive. The Legends, an 800,000 square foot along Highway 7 can be seen as far south as Colbern Road where Lifestyle shopping center, which opened in early 2006, also con- a number of small strip centers are planned. A grocery anchored tinued to prosper, leading the way for additional developments center is planned for the NE corner of Highway 7 and Colbern currently planned for the area. Plaza at the Speedway, a $144 Road. million, 92-acre development planned by Block & Company, Inc. Extremely strong growth has exceeded expectations in near the Speedway on Parallel Parkway, announced five new pro- the Lee’s Summit area as retail development pushes to all cor- posed “everyday retail” tenants, which have residents in Western ners of this city. The largest new development in Lee’s Summit, Kansas City, Kansas excited. They include Kohl’s, OfficeMax, The Summit Woods Crossing Shopping Center located at Inter- Michael’s, Sports Authority and Best Buy. In addition, several state 470 and 50 Highway, is nearly 100% occupied. The Walk national casino operators have submitted competing proposals 33 at Lee’s Summit was a 700,000 lifestyle center in the planning for a $650-$850 million dollar casino/ hotel, and retail develop- stage; however it ran into political difficulties due to the large tax- ment in the immediate vicinity of the track. payer subsidy requested by the developers, Greenpoint Develop- ment, now appears to be dead. Summit Fair is being planned for a spring 2008 opening at the SEC Interstate 470 and Highway DOWNTOWN/MIDTOWN/PLAZA AREA 50 comprising 550,000 square feet. Smaller retail developments SOUTH KANSAS CITY, Missouri are continuing to pop up along Highway 50 on the east side of the city. The resurgence of downtown/midtown resi- dential space is a significant driving force for the creation of new retail in the core city. Condominium prices are reaching and JOHNSON COUNTY KANSAS exceeding $1 million in several properties and buyers of these properties are fueling the demand for more and better retail op- New development in this submarket continues to be be- tions in the Downtown – Midtown area. tween 119th Street and 135th Street from State Line Road to In conjunction with this Midtown resurgence, Block & Interstate 35. The most active corners are 135th Street and State Company, Inc. Realtors has continued the expansion of the suc- Line, 135th Street and Metcalf/Blue Valley Parkway, 135th Street cessful Midtown Marketplace (Costco, Home Depot) by add- and Blackbob and all along 151st Street. New retail buildings and ing another 8,000 square feet of shops. Planning is underway small developments are coming on line throughout the Johnson for redevelopment of the old Trinity Hospital Campus to include County area. Notable projects include Corbin Park, Cormac’s about 450 residential units and though the retail and office 1.1 million square foot center under construction at 135th Street components of the plan appear to have been eliminated, the & Metcalf, Cornerstone at 135th Street & Nall (partly completed continuing development of housing will reinforce existing retail and opened) and a 450,000 square foot Bass Pro project at SEC in the area. The new Kansas City Power and Light District, a contains 270,000 square feet and is a concept that Wal-Mart 425,000 square foot retail development with Consentino’s Gour- tried but abandoned in favor of the smaller concept (195,000 met Market as the grocery store anchor is nearly open in down- square feet) such as the new store at Blue Ridge Crossing. While town Kansas City. Some restaurants including Angel’s Rock Bar, the retail space is not slated to come to market until 2010, the Maker’s Mark Bourbon House and Cheeseburger Lounge, Flying mere possibility of the development has increased interest in this Saucer Draught Emporium, Peachtree Restaurant, McFadden’s area from retailers. Sports Saloon, Vinino and Bristol are already open and the entire Further south, Grandview is seeing new development on project is slated to open in Spring, 2008. Though it will follow the south side of Highway 150 and along Highway 71 where the opening of the Sprint Center by 6 months, expectations for the new Harley Davidson test track will be located. The former the success of the district are high. The project also includes K-Mart on the west side of Highway 71 at 139th Street was 2,000 residential units. This district is the cornerstone of about redeveloped and anchored by a new Red X, but that store was $2 billion in redevelopment in the city’s downtown area that only open for a short time. The new Target, Home Depot, Lowe’s includes retail, office, residential and the new 22,000 seat Sprint and Kohl’s in Belton/Raymore continue to do well and additional Arena. developments are planned to take advantage of the increased traffic in the area. Additional growth of super and junior boxes are being proposed in Raymore, as residential development con- “With employment growth tinues its strong pace in this area. Block & Company has plans for a proposed 400,000 square foot center at Highway 58 and continuing, the consumption base for Dean Street in Raymore, Missouri across from the new Lowe’s the national and local economies should and WalMart. expand, thus driving the demand side for retail products.” OUTLOOK

Retailers have high hopes for increased aggregate con- As in prior years, the Plaza continues to prosper and sumer spending. With employment growth continuing, the con- show strong sales per square foot resulting in the city’s highest sumption base for the national and local economies should ex- rents and occupancies. A number of tenants have relocated or pand, thus driving the demand side for retail products. However, expanded. Construction of several new shops and restaurants there are countering influences at work as well. Much of the added to the Plaza’s desirable tenant mix. National eateries tend consumption that has been fueled with borrowed funds has run to target the Plaza first when planning an entrance to the Kansas out of steam. Many homeowners were caught off-guard by the City market. The “West Edge” mixed use project on the west sudden increase in their mortgage payments when their “teaser” 34 side of the Plaza will have 26,967 square feet of retail and res- rates expired and their rates were reset. With housing prices taurants together with 203,000 square feet of office and a 128 depreciating in some areas, these homeowners are now finding room hotel. themselves not only out of money, but in some cases out of their East of the Plaza is the new Blue Parkway Town Center, homes as well. Evidence of this can be seen in the Holiday 2007 with a grocery anchor. This center is the only new shopping sales results. For example, Target had been expecting a 3.0% to center in Midtown since 2005. The grocery has not been highly 5.0% increase in same store sales over 2006. In fact, they now successful and recently changed hands. The developers are hop- believe that they may instead suffer a 1.1% decline. Consumers ing that the new operator will fare better and that those increased are on the lookout for big sales and often finding 50 to 70% off. sales will lead to additional demand for small shop space. Land Those types of discounts are killing margins and therefore put- acquisition is still under way for the Citadel Plaza at 63rd Street ting heavy pressure on smaller tenants that do not have the same & Prospect Avenue. This grocery anchored center is expected staying power of anchor retailers. These factors will contribute to ultimately comprise about 250,000 square feet of shops and to a number of small tenant failures over the next 12 to 18 restaurants. The overall project involves demolition of the Metro months which will result in an increase in vacancies, and in some Plaza center to create an office park and redevelopment of the cases, reduction of rents and reduction in property values. Also, Landing Shopping Mall at 63rd & Troost Avenue. on-line sales were up 18% in 2007 and will continue to increase. The 95th Street and Interstate 435 area, which includes This trend will put an even greater squeeze on some tenants that the now closed Bannister Mall, is the bright star in this submar- cannot compete in the on-line market. ket. As mentioned above, the Kansas City Wizards have com- Although the overall outlook remains optimistic in terms mitted to a new development that will tear down the now closed of the viability of retail, taking a careful look at the underlying Bannister Mall. It, along with Benjamin Plaza, has suffered large space market fundamentals and the effects of interest rate hikes vacancies for many years. A redevelopment of this entire area is on consumer spending and housing development is prudent. highly desirable. Upon opening its new Blue Ridge Mall store, Lead contributors include: Stephen J. Block, Principal; Richard B. Hamill, Wal-Mart closed their Hypemart in Benjamin Plaza. The store CCIM, Vice President. Kansas City Investment Market

Block & Company, Inc. Realtors represented Colony Realty Partners in the purchase of Financial Plaza, a four building, 292,245 35 square foot office complex located in the heart of Johnson County in Overland Park, KS. Both locally and nationally, 2007 was another lion at the time of the collapse but then tapered off dramatically banner year with investment sales exceeding the through the remainder of the year. For 2008, this market will vibrant market of 2006. be dramatically reduced as many tranches of these same loan portfolios are still being discounted in an effort to sell them. he velocity of investment sales continued at an unusually The National Real Estate Investor and Marcus & Mil- high pace as public and private investment capital flooded lichap Real Estate Investment and Brokerage Company again did Tmarkets throughout the country. For the last several years their analysis of expectations by investors for 2008. While only Block & Company has analyzed statistics prepared by Real Capi- 20.0% of the respondents believe the economy will be stronger tal Analytics which have shown the continued rise in US pen- in 2008, 62.0% of respondents still expected to invest more sion fund investments in real estate. 2007 was no exception funds in real estate even with the uncertain debt markets. In with pension fund investment activity rising to nearly $71 billion essence, investors see the greater value of real estate as they from $60 billion in 2006. While this increased activity was sig- compare it to other investment alternatives such as bonds and nificant, perhaps foreign investment activity was even more re- equities. Even though cap rates have compressed over the last markable as it increased dramatically due to the “cheap dollar.” couple of years, they still remained nearly 180 to 225 basis Foreign investors were able to buy significantly more real estate points higher than those in other parts of the world. For 2008, for substantially lower prices than even a year earlier. 2006 investors with cash and low leverage will have substantially more saw the all time high of $169 billion of CMBS issuances but this opportunities to acquire properties in all areas of the United activity, amazingly, increased on a percentage basis through the States at cap rates that are expected to be anywhere between 25 first half of 2007 until the “sub-prime implosion” that occurred and 100 basis points higher than in 2007. Additionally, some in early summer. CMBS issuance had reached nearly $148 bil- of the phenomenal price increases that occurred in 2007, along The 101,470 square foot HOK Sport Venue Headquarters, located in Kansas City, MO, was purchased by Orix Real Estate Capi- tal, Inc. in 2007 for just over $19 million.

with the practice of “flipping” which occurred in many 24 hour ies as low as 3.9% by year-end 2007 and 10 year treasuries and coastal cities, should be dramatically lessened as real estate got more downward pressure early in 2008 with the Fed’s un- prices drift lower throughout the year. planned 3/4 point rate cut. While normally the reduction in 10 36 year treasuries is great news for investment sales activity, due to the CMBS and mortgage market collapse, traditional long “In essence, investors term lenders either were scared and exited the financing market see the greater value of real or made only quotes with interest rate floors at 6.0% to 6.5%. Debt financing became difficult to obtain in the latter part of the estate as they compare it to other year but even so, investment sales activity increased over 13.0% investment alternatives such as from 2006 to a total of nearly $307 billion. This was the 11th bonds and equities.” consecutive year of increased real estate investment activity and while cap rates declined to about 6.1% for all property types in 2007 during the first half of the year, they quietly inched The economy continued reasonably strong in 2007 upward to approximately 6.25% by year-end 2007. although the gross domestic product “GDP” grew at a rate The National Council of Real Estate Investment Fidu- of only 2.4%, down from 3.5% in 2006 and 3.4% in 2005. ciary Index (NCREIF) now tracks over $260 billion of pension Unemployment fell to 4.6% in the late fall but then jumped owned real estate. In 2007, it showed the actual cash returns to 5.0% right at year-end, as compared to 4.7% at year-end from investments declined again slightly to 5.75% from 5.9% in 2006, and 5.1% in 2005. GDP is expected to advance 2.7% 2006 and 6.2% in 2005. However, overall investment returns in 2008 and increase further again to 3.6% in 2009. In short, in 2007, which included income appreciation for all sectors, the forecasts are still optimistic as we move forward the next were still excellent as they exceeded 14.9%, although down 12 to 24 months. Interest rates held stable for most of 2007 from 16.0% in 2006 and 19.18% in 2005. These returns are with 10 year treasuries in the upper 4.0% to low 5.0% range. still attractive compared to other investment vehicles, although Once the CMBS crisis hit in June, long term interest rates fell it is clear that these same returns have decreased continuously dramatically through the rest of the year with 10 year treasur- over the last 24 months. The NCREIF noted that annual returns on institutional real estate investments averaged 12.7% over the a seller’s market to a buyer’s market. With the lack of high lever- last 10 years which exceeds the 8.4% return generated by the age debt and the elimination of many interest only type financing S&P 500 Index of entity returns. Individual cap rates for proper- vehicles, buyers that are looking to be long term holders and that ties according to the NCREIF averaged approximately 5.5% for have significant cash will be powerful buyers. Sellers will have multi-family, 6.45% for industrial, 6.2% for retail and 6.0% for to face the fact that cap rates will be moving upward between office, all of which were slightly lower than in 2006. The contin- 25 and 100 basis points and that buyer interest on investment ued availability of pension fund money, foreign investment activ- sale packages will be reduced to a smaller group of buyers that ity, insurance company capital and private equity funds caused have lots of cash and use less debt. The majority of the buyers in the decline in cap rates. Declining cap rates coupled with the 2008 will be refocusing on property operations to increase valu- increases in net operating income, strong occupancy, and better ation as compared to creating value from leverage financing. global transparency has allowed real estate to continue as an at- tractive investment alternative to the traditional bond and equity markets. “While pension funds will Pension funds have come to like real estate as an asset class because they have provided excellent performance in all continue to be the largest source property types, a better and cleaner exit strategy, and a much of capital for investment acquisitions in more global appeal as technology continues to improve transpar- 2008, we do expect foreign investment ency in the market. Pension funds’ need for solid cash flows activity to increase substantially in the and portfolio diversification are driving factors as they look to coming year.” provide a consistent source of long term income to meet their obligations. In 2007, pension funds increased the percentage of their investments in real estate to 13.1% up from the 12.7% in 2006, and we expect that trend to continue in 2008. While pension funds will continue to be the largest In Emerging Trends in Real Estate 2008, it was noted source of capital for investment acquisitions in 2008, we do that the real estate business had changed fundamentally over expect foreign investment activity to increase substantially in the last 15 years. Today, fewer people put their own money into the coming year. Investors from the Middle East, China, Japan, deals as Wall Street has been so successful in attracting other Australia, South Korea and Germany will, for a variety of rea- people’s monies and making fees off of those investments. Real sons, increase their real estate investment activity in the United estate is now viewed as a commodity asset with a yield coupon States. As such, 2008 will continue a sort of “changing of the and is being bought and sold like bonds. Even the breakup of the guard” in the ownership of US real estate. However, while the Equity Office Property Trust portfolio by The Blackstone Group United States continues to be the world’s number one real estate after their acquisition showed how easy real estate properties investment safe haven, increasingly larger investment activity is could be sold in super sized multibillion dollar portfolios, with moving to Asia and Europe, as well as to emerging economies ever greater fees and profits being generated. But at the end 37 like China and India. of the day, the properties had not changed; they were the same Looking at all investment activity in 2007 from pen- buildings with the same tenants and for the most part the same sion fund investment, tax exempt endowments, life insurance NOI’s. That methodology in 2008 will not be as readily available companies, foreign investment activity, private equity funds, and and it will be back to real estate acquisitions as usual with a focus high net worth individual investors, the aggregate reached $127 on real estate fundamentals once again. billion up from the $118 billion in 2006. However, the REIT The TIC (tenant in common) vehicle remained a strong privatization trend of 2006 slowed dramatically in the latter part investment vehicle in 2007. The TIC vehicle is a structure which of 2007 as the availability of CMBS and CDO financing was allows buyers and sellers of real estate to avoid capital gains reduced and nearly eliminated. It’s clear now that the huge taxes by trading into real estate. In 2007, over $10.4 billion of privatization of Equity Office Properties Trust by The Blackstone taxes were avoided by TIC investment activity which was 15.0% Group in 2007 was the high for the privatization market. Pri- higher than in 2006. However, with fallout from the collapse of vate equity buyers will still remain a strong influence in invest- CMBS and CDO issuances (one of the most commonly used debt ment activity as they have seen substantial long term cash flows financing vehicles) high interest only LTV financing was elimi- and profits in their previous activities and will continue to look nated from the TIC arsenal. This was perhaps the most critical for future opportunities in the REIT market. Until REIT regula- step in bringing a long term property to the market and will make tion requirements change, which currently favor low leverage it much more difficult for TIC sponsors to purchase properties at financing, private equity firms will continue to use higher lever- the escalated prices that they became accustomed to without age to acquire REIT’s. Therefore, we expect the REIT industry this financing. In 2008, true TIC investment activity will be to continue consolidating as those REITS that are improperly reduced substantially as deals do not “pencil out” like they did managed or focused are acquired. when TIC sponsors could use interest only debt with high loan to The most prevalent theme in 2008 will be the shift from value ratios. Combine this with the peculiar difficulties common in TIC sponsorships, such as difficult decision making problems and development expertise through its affiliate Block & Com- on leasing, financing, and selling property due to up to 35 own- pany, Inc., Realtors as well as strong relationships with similarly ers in one TIC entity. staffed companies across the country that they use to maximize In the Kansas City market, 2007 was another great property cash flows and sale profits. year for investment activity. Kansas City is becoming a more vis- ible investment market and is becoming better known across the country by institutional buyers who previously lacked interest. Kansas City now has a multitude of national and international “The investment players investing locally including RREEF, Capital Lease Funding, Inc., CBL & Associates Properties, Inc., Colony Realty Partners, climate in Kansas City has become PASSCO Real Estate Enterprises, Inc., Cobalt Capital Partners, more inviting for these institutional LaSalle Investments, Multi-Employer Property Trust, and Inland players because they can achieve investment Real Estate Corp. The city has also seen numerous new players come into the market in 2007 including TA Real Estate Servic- returns here that are higher than those es, RS Miller Equity, First Industrial Realty Trust, HSA Acquisi- obtainable in primary markets and/or tions, DCT Industrial Trust, Inc., Orix Real Estate Capital, Inc., CW Capital, Glenstreet Properties Group, SVN Equities, LLC, 24 hour cities.” Stonecreek Properties, and a host of others. The investment climate in Kansas City has become more inviting for these institu- tional players because they can achieve investment returns here that are higher than those obtainable in primary markets and/or 24 hour cities. Investment returns as much as 100 to 150 basis points higher can be found in Kansas City depending on the type OFFICE MARKET and quality of the property. In 2007, the demand for office investments in Kansas City outpaced the remarkable activity in 2006 and 2005. Again, PRIVATE INVESTOR ACTIVITY both local and national office investors were more visible during 2007 as investors were attracted to improving market funda- Private investors have always had a competitive advan- mentals such as lower vacancies, higher rents, and increased tage over out of town institutional investors particularly on deals absorption. And as new building construction prices continued to increase to as high as $180.00 to $220.00 per square foot, in the $5 million to $20 million size. It is the simple fact that acquisition prices seemed very attractive and were substantially they know the buyers and the sellers, they know the peculiarities 38 lower than these replacement costs. of the market, and they have relationships with local govern- 2007 saw considerably more transactions than 2006 ments that allow them to be more knowledgeable about local both in large portfolios and smaller one off investment sales. conditions. However, there continues to be a slow changing of However, no one sale was as large as the $286 million sale of the guard with out of town institutional investors with significant the Corporate Woods office park to Stolz Real Estate and Eur- money and low debt requirements making inroads into the local dang Capital Management, Inc. in 2006. There were never market. Also, on large portfolio sales, the local buyers simply the less some significant sales in the market place including the do not have the capital nor visibility that the large institutional 1,135,196 square foot Summit Tech Center sale to The Sover- buyer has nor are local buyers as viable when it comes time for a eign Group, the 300,000 square foot Financial Plaza complex to disposition this size. Colony Realty Partners, the 639,633 square foot 2345 Grand There has been a significant increase of private investor Avenue office building to Franklin Street Properties Group, the activity locally as investors on the east and west coasts have 144,000 square foot H&R Block building to American Century found that investments in the central core of the country provide Investments, the 127,747 square foot Farmers Group building them with higher and more stable investment returns than those to Cleveland Chiropractic College and the 101,470 square foot available in their particular markets. Many of these investors are HOK Sport Venue Headquarters to Orix Real Estate Capital. There were also some smaller sales that were significant includ- attracted to private equity funds that have local expertise driving ing the 84,656 square feet Compass Corporate Centre to TIC investment acquisition, brokerage, and management functions. Capital, the 145,427 square foot 6363 College Blvd. to 6363 Locally managed Block Income Funds is an example of a private Company, LLC, led by Larry Bridges, the 99,768 square foot equity fund that has attracted investors from all over the country Perceptive Software Building to Stonecreek Properties, and the and continues to show strong investment returns that exceed 263,612 square foot Glenwood Plaza office complex to The Li- returns obtainable by those same investors in their home mar- onstone Group. kets. Also, Block Income Funds has the management, leasing, Class A properties, which are newer office buildings lo- Block & Company, Inc. Realtors represented CRP Investments in the purchase of Ingersoll-Rand, a 253,440 square foot industrial property, located at 2119 E. Kansas City Road in Olathe, KS. cated in prime locations, showed capitalization rates declining foot Southcreek Office Portfolio and the 1.7 million square foot slightly to a range between 6.9% and 8.2% while capitalization Southlake/Lenexa Industrial Park Portfolio. Both of these port- rates for Class B buildings ranged from 8.25% to 9.35%. Class folios are expected to sell in early 2008. 39 A properties continued to sell at a premium of about 75 to 95 basis points over Class B properties due to differences in loca- tion, quality, and expectations for appreciation. In 2007, there INDUSTRIAL continued to be an increasing number of buyers that focused on Class A properties which drove those capitalization rates lower The industrial sector saw a very high volume of invest- than those rates on Class B properties. Prices for Class A prop- ment sales activity as large portfolios and single assets were erties continue to rise with a range of about $124 to $200 per being brought to the market in 2007. Many of these sellers square foot. Overall prices again increased in 2007 over 2006 concluded that the market was at a high point, and rushed prop- by nearly 6.6%. erties to market in hopes of getting record prices. The portfolios The most significant office investment activity occurred brought to the market in 2007 were not as large as those in in south Johnson County although activity was seen in the Coun- 2006 but still included the 334,503 square foot RREEF port- try Club Plaza, Midtown, and in some eastern submarkets in- folio sold to Colony Realty Partners and the Cobalt National cluding Lee’s Summit, Independence, and Blue Springs. Also in Portfolio which included approximately 1.7 million square feet 2007, user/investor activity continued strong but again primar- in Kansas City. The Cobalt portfolio was under Letter of Intent ily in the smaller freestanding buildings of 5,000 to 30,000 at year end 2007. In the case of the Cobalt Portfolio, their square feet. Purchase prices for these buildings rose with some partner, USAA, determined that the opportunity to sell the entire as high as $275.00 to $300.00 per square foot but that is pri- national portfolio at a high price was economically desirable even marily due to the high cost of construction and replacement for though much of the portfolio had been owned for less than 2 these smaller facilities. years. It remains to be seen whether they achieve the level of At year-end, there were two significant office portfolios pricing that they had expected as this portfolio closes in 2008. that were on the market including the nearly 1 million square Other significant transactions included the 253,440 square foot Ingersoll-Rand building to CRP Investments, LLC, tate Corp., the 206,000 gla Creekwood Commons Shopping the 154,000 square foot Hunt Midwest Industrial building to Center to Copaken White & Blitt’s Income Fund, the 209,252 HSA Acquisitions, the 226,576 square foot 1508 N. Chouteau gla Northridge Plaza Shopping Center to GDA Real Estate Ser- Trafficway to First Industrial Realty Trust, the 702,000 square vices, the 127,162 gla Pinnacle Village to PASSCO Companies, foot Musician’s Friend building to LaSalle Investments, and the LLC, and the 74,059 gla Regency North Whole Foods Center to 72,600 square foot Park Place 95 complex to a local investment Regency North Retail, LLC. group led by Ernie Fleisher. As always, there were a large number of smaller centers New development activity again was limited in 2007 that were disposed of in 2007 as investors flocked to the desir- with only a few industrial facilities being constructed by devel- able retail sector. Some of the smaller sales included 29,363 oper/long term holders of property. Kansas City’s industrial gla Four Colonies Plaza, the 80,286 gla Blackbob Marketplace, market may change dramatically however in 2008 and beyond the 151,478 gla 95 Metcalf Square to CW Capital, and the with a multitude of large bulk industrial buildings and intermod- 57,977 gla Price Chopper Center. al centers planned throughout the Metropolitan area. In two Development activity continued strong throughout the cases, institutional owners including Sun Life and USAA have be- Metropolitan area although projects such as the Mission Shop- come equity partners in these industrial projects and may begin a ping Center redevelopment, the Metcalf South Shopping Center new wave of investment activity in our marketplace. Intermodal redevelopment, the Metro North Mall center developments, and projects planned by Burlington Northern in Gardner, Kansas and others have stalled due to slowed planning activity and mar- by KC Southern in Grandview, Missouri also may provide ad- ket conditions. Capitalization rates for Class A retail centers ditional activity and possible future investment sales as they get ranged from 6.2% to 6.8% and Class B shopping center cap underway in the coming 12 to 18 months. rates ranged from 6.9% to 8.4%. Capitalization rates again dropped in 2007 with Class With the planned strong retail development activity A property capitalization rates ranging from 6.9% to 7.6% throughout the market place, we again expect a strong invest- and Class B property capitalization rates ranging from 7.9% to ment year in 2008 in the retail sector as many developers at- 9.1%. tempt to take their profit while the investment market remains attractive.

“Capitalization rates MULTI-FAMILY

for Class A retail centers In 2007, multi-family cap rates had little movement ranged from 6.2% to 6.8% and from 2006 primarily because the single family residential market 40 had been so strong. However, we did see a slight strengthening Class B shopping center cap rates in rates toward the end of 2007 after the sub-prime mortgage fallout with many homebuyers sidetracked and forced to rent. ranged from 6.9% to 8.4%.” We expect that this change in marketplace dynamics will im- prove occupancy in the multi-family sector and will again cause a reduction in cap rates in 2008. As in 2006, there were again a number of significant sales including the 550 unit Mansion Apartments to Mansion Apartments, LLC, the 448 unit Skyler Ridge project to The Pe- terson Companies, the 356 unit The Lakes at Lionsgate South RETAIL PROPERTIES and the 360 unit Lakes at Lionsgate North to Lionsgate N/S Associates, the 483 unit Woodbridge Apartment Complex to an Retail investment activity as well as development activity investment group out of Philadelphia and the 300 unit Maple remained strong in the Kansas City Metropolitan area in 2007. Ridge Apartment Complex to Vision-Maple Ridge, L.P. out of Consumer spending continued to be the key factor causing this Denver, CO. increased development activity and that, combined with strong Class A product capitalization rates ranged from 5.65% residential growth for the first half of the year, sponsored more to 6.35% while Class B capitalization rates range from 6.7% to shopping center development in farther slung locations. Also, 8.4%. The large spread in capitalization rates between Class A an arsenal of investment and economic incentives to developers and Class B product again was due to the quality of the proper- allowed these projects to proceed in areas where the market ty, the location, and long term condo conversion opportunities. seemed too early to support them. While condo conversions are not planned in the near future since Some of the more significant sales included the this market has been glutted, the opportunity for conversion 223,881 gla Pavilions at Hartman Heritage to Inland Real Es- in the future is still a significant plus for investors. We expect Block & Company, Inc., Realtors represented PASSCO Companies, LLC in the purchase of Pinnacle Village, a 127,162 square foot shopping center located at 119th Street and Blue Valley Parkway in Overland Park, KS. capitalization rates to be very similar in 2008 to what they were crease in consumer spending, a less desirable debt market, and in 2007, although there might be some slight downward move- continued threats of terrorism and instability through the world. ment due to better market fundamentals as the year unfolds. Also, as third world markets continue to grow, the availability of 41 construction materials and natural resources such as oil & gas will compress and will further increase inflation concerns. “...as third world As far as individual property sectors in 2008, we ex- pect the retail market will slow and that for the first time in markets continue to grow, several years, the multi-family market should be the strongest the availability of construction sector of the Kansas City real estate market. We expect retail materials and natural resources and industrial to run a close second behind multi-family with of- such as oil & gas will compress fice not far behind. Office products could be substantially more and will further increase attractive in 2008 provided that the economy remains stable and unemployment remains low but at this point, the economy’s inflation concerns.” direction is not totally clear in the early part of 2008. The demand for real estate will remain however as in- vestment returns in this sector have become very important to SUMMARY & OUTLOOK the institutional and private investor when compared to their returns in the bond and equity sectors. 2008 is an election The National economy should slow further in the first year and a major change on the political front is expected which part of 2008 but should stabilize and grow more quickly in the should direct investors to increasingly look to real estate as a latter half of the year approaching a composite growth rate of strong safe haven investment vehicle. With Kansas City becom- approximately 2.8% overall. Future concerns for the national ing more and more of a spotlighted city, investment activity and local investment market are very easy to pinpoint including should again be favorable in 2008. the quick rise in energy and construction costs, a projected de- Lead contributors include: Kenneth G. Block, SIOR, CCIM, Principal Investors Chart and Sales Records

OFFICE PROPERTIES SIZE (GSF/NSF) SALES PRICE / PER SF CAP RATE BUYER/SELLER Summit Tech Center $150,000,000 Buyer: The Sovereign Group 1,135,196 NSF 7.39% 800-850 NW Chipman Rd. & 777 NW Blue Parkway $132.14 Seller: Townsend Capital, LLC of Baltimore Lee’s Summit, MO 2345 Grand $74,500,000 Buyer: Franklin Street Properties Group 639,633 GSF 7.40% Kansas City, MO $116.47 Seller: Hines Interests LP and GE Real Estate Financial Plaza, Buildings I, II, III & IV $44,700,000 Buyer: Colony Realty Partners 292,245 NSF 7.24% 6700, 6800, 6900 College Blvd. & 11000 Metcalf $152.95 Seller: INVESCO Overland Park, KS H&R Block Building $18,000,000 Buyer: American Century Investments 144,000 GSF N/A 4400 Main Street, Kansas City, MO $125.00 Seller: H&R Block Farmers Group, Inc. Building $12,125,000 Buyer: Cleveland Chiropractic College 127,747 GSF N/A 10850 Lowell, Overland Park, KS $94.90 Seller: F.I.G. Holding Company (Farmers) HOK Sport Venue Headquarters $19,200,000 Buyer: Orix Real Estate Capital, Inc. 101,470 GSF 6.70% 300 Wyandotte, Kansas City, MO $189.22 Seller: Opus Estates, LLC

RETAIL PROPERTIES SIZE (GLA) SALES PRICE/SALES PRICE PER GLA CAP RATE BUYER/SELLER Pavilions at Hartman Heritage $42,600,000 Buyer: Inland Real Estate Corp. 223,881 GLA 6.72% I-70 & Little Blue Parkway, Independence, MO $190.28 GLA Seller: Dial Realty Corp. Northridge Plaza Shopping Center $42,696,531 Buyer: GDA Real Estate Services 209,052 GLA 6.80% 15100 W. 119th Street, Olathe, KS $204.00 GLA Seller: Northridge Investors, LLC Creekwood Commons Shopping Center $25,000,000 Buyer: Copaken White & Blitt Fund 206,000 GLA 7.00% Englewood & North Oak Tfwy, Kansas City, MO $121.36 GLA Seller: Peterson Brookhollow Pinnacle Village $30,900,000 Buyer: PASSCO Companies, LLC 127,162 GLA 6.63% 119th St. & Blue Valley Pkwy., Overland Park, KS $243.00 GLA Seller: 119th Street, LLC

Regency North Whole Foods Center $15,700,000 Buyer: Regency North Retail, LLC 74,059 GLA 6.98% 7401 W. 91st Street, Overland Park, KS $211.99 GLA Seller: Glenwood I/Glenwood II, LLC

INDUSTRIAL PROPERTIES SIZE SALES PRICE / PER SF CAP rate BUYER/SELLER Musician’s Friend $45,000,000 Buyer: LaSalle Investments 702,000 GSF 7.00% Hwy 210 & Norfleet, Kansas City, MO $64.10 GSF Seller: Panatonni Development Co. MidPoint Corporate Centre $21,868,000 Buyer: DCT Industrial Trust 2401 Midpoint Dr., 2440-2450 Midpoint Dr. 405,000 GSF 7.56% $54.00 GSF Seller: Rapid-Built Properties Kansas City, MO RREEF Portfolio - Executive Park $16,075,000 Buyer: Colony Realty Partners 334,503 GSF 6.41% Kansas City, MO $48.02 GSF Seller: DB RREEF Funds Ingersoll-Rand $14,850,000 Buyer: CRP Investments, LLC 253,440 GSF 6.87% 2119 E. Kansas City Rd., Olathe, KS $58.59 GSF Seller: Maefield Development Co. 1508 N. Chouteau Trafficway $7,463,682 Buyer: First Industrial Realty Trust 226,576 GSF 8.50% Kansas City, MO $32.94 GSF Seller: Ozburn-Hessey Logistics, LLC Hunt Midwest Industrial Building $9,400,000 Buyer: HSA Acquisitions 154,000 GSF 7.35% 4101 N. Kentucky Ave., Kansas City, MO $61.04 GSF Seller: Hunt Midwest Real Estate GROSS SF SALES PRICE PER UNIT MULTI-FAMILY CLASS BUYER/SELLER # OF UNITS CAP RATE AFTER RESERVES Mansion Apartments 436,698 GSF $47,564 Buyer: Mansion Apartments, LLC B- 2905 Lee’s Summit, Independence, MO 550 8.00% Seller: Independence Apartment Associates, LP Carlyle Apartments 406,965 GSF $36,009 Buyer: MCN Shawnee, LLC C+ 7530 Cody Street, Shawnee, KS 436 N/A Seller: WXI/MCN Subs Real Estate LP Skyler Ridge 388,354 GSF $67,746 Buyer: Skyler Ridge, LLC A- 7171 W. 115th Street, Overland Park, KS 448 5.9% Seller: Sentinal Ventures II Company The Lakes at Lionsgate North 332,904 GSF $83,333 Buyer: Lionsgate N/S Associates A 6704 W. 141st Street, Overland Park, KS 360 5.56% Seller: Lionsgate Apartments II, LP The Lakes at Lionsgate South 326,456 GSF $93,399 Buyer: Lionsgate N/S Associates A 6705 W. 141st Street, Overland Park, KS 356 5.70% Seller: Lionsgate Apartments II, LP Woodridge Apartments 174,568 GSF $45,565 Buyer: Woodridge Apartment Associates, LP C 13245 W. 87th Terrace, Lenexa, KS 248 7.5% Seller: Lakeview Real Estate Kansas City Multi-Family Market

The Lakes at Lionsgate North, with 360 units totalling 332,904 square feet and The Lakes at Lionsgate South, with 356 units totalling 326,456 square feet, were purchased in 2007 for just over $63 million. Kansas City apartment owners enjoyed rising rents Clark, Pacific Sunwear, Guitar Source and Musicians Friend. In 43 2007, Kansas City added more than 18,600 jobs, which helped and lower vacancies in 2007. propel the metro population above 2 million for the first time. However, while job growth has traditionally dictated apartment he average vacancy for the entire Kansas City Metro area market trends, two different fundamental changes proved to be fell 50 basis points to 6.9%. The Plaza submarket led all the catalyst for the multi-family trends of 2007. Tsubmarkets with only 4.5% vacancy, trailed by Wyandotte The first fundamental change in the Kansas City multi- County and North Johnson County at 5.8%. Average rents in- family market was the dramatic decline in new apartment con- creased 2.7% in 2007 to $682 per unit per month, up from struction during 2007. According to the Home Builders Asso- $664 in 2006. Submarket leaders continue to be South Johnson ciation of Greater Kansas City, building permits for new, for-rent County and the Country Club Plaza, with average rents of $901 housing units fell from 2,605 units in 2006 to only 989 units per unit and $765 per unit, respectively. North Johnson County through November 2007. Experts predict multi-family construc- and Midtown posted the highest gains in average rents, with tion will bottom out in 2008 with only 500 units being added increases of 4.9% and 4.5%, respectively. Other areas showing to the market. This sharp decline can be attributed in part to declines in vacancy and positive rental increases in 2007 include the rapidly rising costs of new construction, which have become Downtown, the Northland and Wyandotte County. cause for concern for both market rate and affordable housing This is consistent with a Kansas City trend of increased developers. With increased construction costs, some developers rents and lower vacancies that began in 2005. The trend to- have decided to acquire and improve existing apartment units ward improving market fundamentals is primarily attributable to as an alternative strategy to deliver the necessary investment job growth in the area. Kansas City has been recognized by returns. Other developers have decided to convert former office Expansion Magazine as a top-tier city for warehousing and dis- or industrial buildings to rental or condominium units, especially tribution activity. This has led to several major tenants opening in the River Market, Downtown, and Freight House districts. distribution hubs in the metro area, including FedEx, Kimberly- The second fundamental change in the Kansas City multi- Quality Hill in Downtown Kansas City, MO, which is comprised of 23 residential buildings, was purchased by JTL Properties, LLC. The residential units along with the former Progress Club, street level retail space and two parking structures, has an estimated value of approximately $30 million. family market has been the impact of the slowdown of sales in for those priced at $250,000 or below. This can be attributed to the single-family housing market and the subprime mortgage a trend by empty nesters and young professionals seeking a more fallout. As lenders tighten loan requirements and families who urban lifestyle with units that are in close proximity to work, and are foreclosed upon are forced to move from single-family which have low maintenance costs and a large number of ameni- homes, the demand for multi-family housing has grown. This ties. As units are removed from the rental supply, asking rents 44 trend is expected to continue throughout 2008. for remaining rental units are expected to spike. Several planned mixed-use projects in and around the Country Club Plaza will add Property Weighted Average Weighted Average to the apartment rental supply in late 2008 and 2009, including Class Price Per Unit Cap Rate Bernstein-Rein’s $120 million West Edge mixed-use development on A $83,410 6.01% the west side of the Plaza, DST’s redevelopment of several blocks along the 50th and Main street corridor, McKenzie House’s $110 A-/B+ $55,941 6.24% million redevelopment of the Colonial Court site on the north side B $46,424 7.52% of the Plaza, Wilson Development Group’s east Plaza redevelop- B-/C+ $38,569 7.83% ment plan for a large mixed-use project and Wilson Development Group’s high-rise conversion of apartments to condominiums at C $27,642 8.32% 47th and Roanoke. ALL $49,910 6.92% Sales of multi-family properties of 20 units or more re- mained brisk in 2007, with over 8,500 units trading hands with a With increasing demand and restricted supply, owners total market value in excess of $430 million. Despite fluctuations can expect to see vacancies continue to decline by as much as in the credit markets, sales activity remained substantial during 70 basis points, while rental growth is expected to remain in the second half of the year. This is due, in part, to the continued the 2.5% range. availability of financing for apartments as compared to other com- The conversion of existing apartments into condo- mercial property types. Subsequently, sales activity is forecasted miniums has been a steady trend that has impacted the supply to remain strong in 2008, though cap rates may widen slightly of multi-family units, particularly in the Country Club Plaza, following the trends in other property types. Kansas City’s premier residential, shopping, entertainment and office destination. In spite of a weakened overall housing Lead contributors include: Aaron M. Mesmer, CCIM, Investment Sales market, sales of Plaza condos have remained strong, especially & Acquisitions BLOCK & COMPANY’S SERVICES

45

Block & Company’s extensive list of services continues to evolve based on the needs of our growing number of local and national clients, truly making us one of the midwest’s leading full-service real estate companies.

Real Estate. Real Strategies. Real Success. BLOCK Income Funds Fund III Block Fund III Conyers Logistics Center Conyers, GA IP Unity Headquarters Building Duluth, GA IP Unity Compass Point Business Center Duluth, GA Compass Point Business Center St. Charles, MO St. Charles, MO Rivergate Business Center Kansas City, MO Plaza West Shopping Center Topeka, KS 801 Blacklawn Road Conyers, GA

Brown Portfolio Brown Portfolio Riverside, MO Riverside, MO

Block Funds is a fund sponsor specializing in the creation This allows us to acquire an asset based upon the income stream of wealth for our individual and institutional partners of that asset over the expected hold period and not on unrealistic through sound real estate investment management. 2007 future assumptions and expectations. marked the closing of Block Income Fund II, L.P. and the Block Funds has gained that status due to several fun- opening of Block Income Fund III, L.P. damental philosophies we employ during the acquisition and un- derwriting process. We perform a comprehensive evaluation of he Block Funds team is in the midst of investing the eq- the asset prior to making an offer and concurrently are receiving 46 uity for Block Fund III with the expectation of having the feedback and financing quotes from our stable of lenders. These TFund fully invested sometime around the 2nd quarter of proactive steps provide sellers a comfort level in knowing that we 2008. Fund III currently has a portfolio consisting of 7 assets will close on the asset at the agreed upon contract price. Once with the first acquisition occurring in April 2007. under contract, our team completes an exhausting 130 point due Block Fund I and II are both reaching or exceeding diligence checklist to confirm our initial findings and identify any projected returns with Fund I currently paying 8.0% cash on current or future issues with the property. By expending this ex- cash and Fund II currently paying 7.5% cash on cash annu- tensive due diligence effort, our team ensures that any surprises ally. found with the asset in the future are only positive ones. Also, any The capital market correction will provide plenty of op- issues that we have identified, we take steps to mitigate as part of portunity for experienced and capable buyers like Block Funds the hold strategy. to acquire properties at good prices. The second half of 2007 Once again, we are excited about what 2008 will bring for saw a halt to conduit (CMBS) financing that has been rampant commercial real estate investors. The credit crunch in the 4th quar- over the last several years. This lack of conduit financing has ter of 2007 will help reduce sellers’ unrealistic pricing expectations eliminated many competitors from the market and opened up and provide some excellent opportunities for Block Funds, which additional opportunities for buyers like the Block Funds that will draw upon relationships going back 68 years! have excellent relationships with lending sources. Going forward, sellers will put a premium on certain- For additional information on our Block Funds or Block Fund III, ty of execution and pick buyers that will close transactions please call without any price reductions. Block Funds has an excellent Ken Block at 816-932-5551 or Brian Beggs at 816-932-5568 reputation with sellers and brokers throughout the country for or visit our website at www.blockfunds.com. closing deals when and how we say we will. This reputation also enables us to evaluate and close on many “off market” or Lead contributors include: Brian R. Beggs, CCIM, CFA, Director of “early look” transactions which eliminates the “stupid money.” Acquisitions BLOCK Construction Services Pine Ridge Business Park Building 28 Projects Pinnacle Corporate Centre IV

NewHope Bariatrics

The following are a few projects where we provided construction services in 2007:

Corporate Medical Plaza III Overland Park, Kansas (60,000 square foot medical facility lock Construction Services, LLC has experienced an- w/ underground parking garage) other banner year in the Kansas City construction mar- Bket resulting in a net volume of projects managed of Pine Ridge West Building 28 & 29 approximately $54 million dollars. This significant increase Lenexa, Kansas is a result of the overall development market continuing to (Two 59,000 square foot office/warehouse “flex” facilities) increase and gain momentum heading into 2008. In 2007, Block Construction Services was involved in the management NewHope Bariatrics and development of industrial, single story flex/office, multi Overland Park, Kansas story office, and medical product in the Kansas City market. (ASC – tenant improvement project) Construction projects are uniquely different and al- ways present many complex challenges relating to schedule, College Crossing Business Park budgeting, or just overall coordination of the process. Com- Lenexa, Kansas munication is the most important factor to insure these chal- (Four 35,000-55,000 square foot office warehouse/flex facilities) 47 lenges are addressed timely to the satisfaction of the owners we represent. With our ability to provide recommendations Pinnacle II & IV to our partners, institutional and private investors, clients and Leawood, Kansas tenants, we provide an owner’s perspective in each and every (108,000 square foot and 60,000 square foot office buildings) project we manage. Our professionals manage multi-site projects to single Roe Corporate Centre project contracts involving shell building construction, build- Overland Park, Kansas ing expansion, commercial development, build-to-suit, and ten- ($2.5 million redevelopment project) ant finish projects. We believe our success stems from our hard work and the strong staff we have brought together. MedTrak Services Owner’s expectations continue to evolve in the ever changing Overland Park, Kansas market and we can provide the necessary services to exceed ($500k tenant improvement project) their needs. We can handle all aspects of move relocation, site selection, budget evaluation, contract administration and Marel Food Services project management. Lenexa, Kansas Block Construction Services has experienced signifi- ($1.4 million tenant improvement project) cant growth since our inception in 2002 which can be attrib- uted directly to the efforts of our employees. We are currently Infolink working on potential development projects totaling over $45 Lenexa, Kansas million in value for 2008. Our firm will also be involved in the ($1.1 million tenant improvement project) management of approximately $15 million of tenant improve- ment projects in the upcoming year. Lead contributors include: Brad Simma, Director of Construction Kansas City Economic indicators National Trends costs spiked as high as 4.2% during the 2nd quarter 2007. The Fed must keep a close watch on how energy prices trickle 2007 brought new turbulence to an economy already through the economy during 2008 when considering further in- plagued by inflationary pressure and a weakening dollar. Though terest rate changes after the significant reduction of 3/4 points the goal for 2007 had been a continuation of the “soft economic during the unscheduled meeting in January. On a policy level, landing” initiated by the Fed in mid 2006, the result is far less reducing interest rates to increase consumer spending can be a easily defined. GDP growth nationally averaged a modest annu- counter productive measure if prices rise faster than the subse- alized 2.4% overall, down from the strong 4.25% seen in 2006 quent GDP spike. and a fair mark below the generally accepted target of 3.5%. In addition, the fundamentals of the U.S. economy grew Kansas City Trends and Outlook weaker as 2007 progressed. Inflationary pressure stemming from energy and material costs remains an overarching concern, Generally speaking, the Kansas City MSA tracks closely the U.S. dollar became less competitive abroad putting cost pres- to the national economic trends. In 2007 the housing market sure on importers and stressing foreign backed U.S. debt mar- had a similar effect in Kansas City as nationally. Housing starts kets, and on a consumer level, major cracks formed in the U.S. were down 35.0% in 3rd quarter 2007 in Kansas City, but the housing market early in 2007. silver lining is home prices for 2008 are expected not to decline as much locally as they will nationally. This is primarily because Housing Trends Kansas City already has affordable housing. Economic growth in the area in 2008 will mirror the The single greatest investment the typical American has national growth, starting around 1.75% in the 1st quarter and is their primary residence. Unfortunately, this asset base took a accelerating back to more sustainable levels around 3.2% at the significant hit in 2007 as adjustable rate mortgages (ARM’s) close of 2008. The primary driver of the growth is expected to had their first major adjustment since many subprime borrowers be a gradual lowering of oil prices globally (current prices cannot selected them during loose money times in 2004 and 2005. be fully explained by consumption spikes meaning speculation is The result was that many marginal borrowers could no longer inflating prices in the short term) and a general expectation that afford the adjusted payment and were forced to either foreclose interest rates are ripe to fall at least another 25 basis points 48 or increase other borrowing to make ends meet. Overall, the before the close of 2008. The overall GRP growth locally is ex- consumption that was fed by home equity inflation and easy pected to be 2.4% in 2008 and a respectable 3.4% for 2009. money over the past few years has dried up leaving over-valued Housing starts are predicted to be back on pace in 2009 as houses backed by risky debt instruments. well. For the economy as a whole, the result is two-fold. First, With respect to local employment, 2008 should exceed consumer spending drives the economy but with debt getting 2007’s modest gains with around 34,400 new jobs created by tighter and housing costs rising, the average consumer has less the end of the year. Worth noting is the composition of the job disposable income compared to just two years ago. This directly growth. For the first time in more than 5 years, the manufac- impacts business output and the Nation’s GDP. Second, unlike turing sector is expected to experience meaningful job growth. other markets that could feasibly rebound over the course of a This is based on the assumption that the dollar will not appreci- few weeks, the housing market will take time to correct. Houses ate significantly over 2008 and 2009 therefore leading to in- are less fungible than commodities and less easily valued. The creased exports of locally produced goods. The financial sector result is a market that will depress many sectors of the economy will experience somewhat slower growth than is typical due to a (e.g. construction, furnishings, mortgage lending, etc) deeper decline in mortgage origination and asset backed securitization. and longer than if other markers were to dip. Overall, the local economy will weather the slump seen in 2007 and bounce back with moderate strength in the latter Inflation part of 2008, with 2009 expected to be an even stronger year for all sectors. Keeping the Fed from acting sooner and stronger with So u r c e s : Mid-Am e ri c a Re g i o n a l Co u n c i l , Bu r e a u o f La b o r St a t i s - regard to the housing slump was the overarching concern of t i c s , Bu r e a u o f Ec o n o m i c An a l y s i s , University o f Mi s s o u ri Ec o n o m i c inflation. Core inflation (inflation calculated without food or en- De p t , Gr e at e r Ka n s a s Ci t y Ch a m b e r o f Co m m e r c e . ergy costs) remained steady during 2007, averaging very near 2.0% overall. However, inflation inclusive of food and energy Lead contributors include: Zach Batson MARKET STATISTICS 1st QT/2008 OFFICE - CLASS A Market Inventory # of Buildings Overall Vacancy 2007 Leasing Activity 2007 Net Absorption Avg. Full Service Rent Downtown 7,103,807 19 18.7% 471,907 3,017 $18.84 East Jackson County 376,662 6 33.6% 23,000 603 $19.73 Kansas City, Kansas 401,530 5 1.6% 21,736 23,862 $18.64 Midtown 1,921,374 9 9.4% 215,985 (59,173) $26.84 North Johnson County 728,903 7 10.5% 121,612 (12,576) $20.36 North of the River 723,047 5 11.4% 132,750 41,331 $20.49 South Johnson County 5,331,609 43 15.5% 1,212,567 161,231 $22.36 South Kansas City 1,571,515 8 3.0% 41,600 335,892 $17.12 Southeast Jackson County 222,391 6 18.1% 165,080 46,210 $23.79 TOTAL OFFICE - CLASS A 18,380,838 108 14.8% 2,406,237 540,397 $21.48

OFFICE - CLASS B Market Inventory # of Buildings Overall Vacancy 2007 Leasing Activity 2007 Net Absorption Avg. Full Service Rent Downtown 13,312,999 173 9.8% 592,950 369,541 $15.42 East Jackson County 3,873,095 195 12.4% 165,506 76,863 $16.59 Kansas City, Kansas 944,716 44 12.6% 132,818 23,667 $13.62 Midtown 4,464,300 132 12.7% 1,356,726 101,404 $18.55 North Johnson County 7,447,982 229 10.1% 1,746,219 183,222 $17.19 North of the River 5,634,373 194 18.2% 433,594 209,409 $14.20 South Johnson County 18,151,370 386 10.2% 2,750,473 196,249 $19.82 South Kansas City 3,339,525 82 12.7% 563,723 322,740 $16.39 Southeast Jackson County 1,831,364 72 19.3% 38,853 (8,856) $15.00 TOTAL OFFICE - CLASS B 59,049,724 1,507 11.7% 7,780,862 1,474,239 $17.03 TOTAL OFFICE CLASS A + B 77,430,562 1,615 13.25% 10,187,099 2,014,636 $19.26

WAREHOUSE/BULK INDUSTRIAL Market Inventory # of Buildings Overall Vacancy 2007 Leasing Activity 2007 Net Absorption Avg. Gross Rent KCI/Airworld 3,421,388 57 4.0% 124,940 120,372 $5.25 North Kansas City/Riverside 20,930,579 456 5.0% 737,931 172,229 $6.29 Executive Park/Northland 30,689,707 284 11.0% 777,593 190,657 $4.59 Wyandotte County 39,248,653 770 4.0% 1,040,584 436,365 $4.50 Johnson County 45,161,430 1,187 5.0% 1,322,727 1,313,133 $6.39 East Jackson County 85,746,969 1,966 7.0% 1,033,141 1,284,814 $3.62 TOTAL WHSE/BULK SPACE 225,198,726 4,720 6.0% 5,036,916 3,517,570 $4.73

LIGHT INDUSTRIAL/FLEX Market Inventory # of Buildings Overall Vacancy 2007 Leasing Activity 2007 Net Absorption Avg. Gross Rent KCI/Airworld 840,918 14 20.0% 23,625 (7,331) $7.17 North Kansas City/Riverside 608,434 11 16.0% 2,832 (94,336) $6.50 Executive Park/Northland 236,945 12 18.0% 2,265 20,822 $7.07 Wyandotte County 594,862 25 11.0% 45,391 2,678 $5.40 Johnson County 5,476,272 209 13.0% 274,766 127,978 $8.92 East Jackson County 3,389,913 137 13.0% 586,724 2,490 $6.90 TOTAL LIGHT INDUSTRIAL/FLEX 11,147,344 408 15.2% 935,603 52,301 $7.81 TOTAL FLEX + INDUSTRIAL 236,346,070 5,128 10.6% 5,972,519 3,569,871 $4.88 MARKET STATISTICS Continued RETAIL Estimated Percent Market Inventory Vacant Vacancy SF Avg. Rental Rate Under Construction South Johnson County 15,171,402 6.8% 1,026,600 $16.98 1,855,640 North Johnson County 13,605,192 8.5% 1,155,258 $11.75 5,163,000 Kansas City, KS 5,089,713 12.9% 655,649 $9.54 865,000 North of the River 11,569,547 9.2% 1,068,421 $14.51 3,165,000 Midtown/Downtown/Plaza 8,691,269 6.7% 582,969 $13.80 725,000 Independence/Blue Springs 11,755,377 10.4% 1,224,560 $10.23 1,872,500 Lee’s Summit 4,066,454 10.3% 417,006 $13.28 550,000 South Kansas City 7,669,535 15.2% 1,162,764 $10.78 0 TOTAL ALL MARKETS 77,618,489 9.4% 7,293,227 $13.02 14,196,140 Compiled by Block & Company with the assistance of CoStar

MULTIFAMILY Unit Overall Avg. Net Absorption Avg. Class A Average Class B/C Vacant Rent (w/out Market Inventory Vacancy (Units - Past 3 yrs) Rent (w/out utilities) utilities) Units South Johnson County 38,300 6.8% 2,020 $833.00 $668.00 2,604 Downtown 4,100 6.0% 660 $876.00 $468.00 246 Plaza/Midtown 2,300 4.5% 45 $938.00 $651.00 107 East Jackson County 15,800 8.2% 190 $694.00 $575.00 1,296 Wyandotte County 8,300 5.8% 248 $697.00 $506.00 481 Northland 16,400 6.5% 196 $725.00 $584.00 1,066 South Kansas City 21,700 8.0% 129 $697.00 $535.00 1,736 North Johnson County 13,000 5.8% 260 $784.00 $681.00 754 MSA TOTALS: 119,900 6.9% 3,748 $764 $603 8,287 Compiled by Block & Company with the assistance of Integra Realty Reources

COMPILED BY BLOCK & COMPANY, INC. REALTORS COMMERCIAL REAL ESTATE BROKERAGE, PROPERTY MANAGEMENT AND DEVELOPMENT 700 WEST 47TH STREET, SUITE 200, KANSAS CITY, MO 64112 PHONE: 816.756.1400 FAX: 816.932.5598 EMAIL: [email protected] WWW.BLOCKANDCO.COM Presented by Block & Company, Inc. Realtors

Block & Company Inc., Realtors 700 W. 47th Street, Ste. 200, Kansas City, MO 64112

Phone: 816.756.1400 FAX: 816.932.5598 Email: [email protected] www.blockandco.com

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