Westdale Mall Market Analysis AECOM Economics October 2013

Executive Summary Beginning in February of 2013, AECOM Economics (formerly ERA) • Retail sales in Cedar Rapids have been recovering at rates equal was engaged by Frew Development to assess real estate market to or above state averages since 2010, which is significant, given a conditions in the Cedar Rapids Metropolitan Area (MSA), focused on slower pace of job growth locally. the Westdale Mall. Our analysis includes study of broader economic • Two competitive retail projects were identified; The Fountains, as metrics for the Cedar Rapids area, as well as study of retail, office, well as a proposal to expand the Lindale Mall. The Fountains has hotel, residential and senior housing markets. The effort also builds secured City incentives and appears ready to move forward. from a prior 2007 market study for Westdale Mall completed by ERA at the request of the City of Cedar Rapids. The 2007 effort included a • Rents paid by national chains appear to be approaching $15 / demographic assessment of Cedar Rapids, identification of target square foot NNN, with a small number of centers at $20 / SF. markets that would be supportive of mall revitalization, and case • The US retail industry is still recovery mode, and retailers are just studies of shopping center projects and mixed use communities. beginning to focus on new (albeit generally smaller stores), even as Having completed the analysis, our core findings include: the internet continues to alter many retailer business plans. Economic and Demographic Context • The analysis showed that the SW side appears under served in apparel, shoes, jewelry, & accessories, electronics, miscellaneous, • Cedar Rapids MSA employment growth compare favorably with book stores, and food & beverage. statewide benchmarks, and unemployment rates are enviably below Midwestern peers. • Between 1990 and 2009, the Cedar Rapids region added about 250,000 SF of retail space per year, linked with big box stores. • Although the recession did not hit Cedar Rapids with the same Presuming that the market can sustain population growth of 0.9% intensity, the region’s pace of job recovery since 2010 is lagging and income growth of 3.5%, average annual growth in retail space compared to other Iowa metros. Returning to pre-recession growth of about 140,000 SF per year is anticipated. However, for the short- rates would suggest an increase to 1,900 new jobs/year, versus the term, it is not clear that sufficient national chain tenants exist to meet current pace of about 900-1,000 jobs/year. this demand. • The expectation is for the Cedar Rapids market to return to historic • From a tenanting standpoint, health care tenants are seen as more form, i.e. steady growth, anchored by manufacturing and health likely in the future. care. Evolving economic linkage between Iowa City and Cedar Rapids broadens trade area potentials for Westdale. Prognosis: For the defined trade areas around Westdale, the analysis identified incremental potential spending support between 2013 and Retail Market 2017 for up to about 260,000 square feet of retail space tied to defined • Estimated “competitive” retail vacancy for the SW side is about 3%, primary and secondary markets. Reflecting a conservative approach, compared to national retail vacancy over 12% (Q4 2012 CBRE). the analysis did not expressly presume capture from tertiary markets across Cedar Rapids or Iowa City. With the proper tenant mix, • Cedar Rapids MSA pull factors are modestly positive, suggesting competition for regional lifestyle oriented retail and entertainment that existing retail offerings largely serve local residents. should be an expectation. • The Lindale Mall area supports a majority of regional retail space, albeit with a preponderance of older (>15-year old) retail buildings, with limited sites available for new larger scale retail projects. Page 2 Executive Summary Hotel Market a small share of units built since 2000. Analysis of a core set of competitive hotels revealed a reasonably • While the overall senior market appears strong, the historic trend is attractive market, with growth in room demand and high occupancies the majority of seniors choose to age in place. With a significant (69%), offset by reduced (but still positive) growth in average daily rate. share of boomers now entering retirement, how this trend may shift Although the reopening of the convention hotel will increase supply, the will be critical. combined new hotel and convention venue will allow the region to support larger events. There are a number of brands not yet in the local Prognosis: “Reasonable” Solid population growth expectations are market, including Hilton Garden Inn and Drury. in place for the regional market, which align with a competitive Westdale site, suitable in our view for residents who work in either Prognosis: “Positive but Tight” The market is positioned to support Cedar Rapids or Iowa City. Although overall residential unit values are additional rooms; timing to market will be important for this segment. very affordable, the market does include several projects (older as well as newer) which are supporting higher rents and attractive Residential Market condominium pricing. Core findings include: Office Market • From a residential standpoint, the Westdale site is viewed as a The local market is reacting to several forces: competitive location for people who currently work in Iowa City, as well as those who work locally. For this reason, our residential 1. Modest net growth in employment for traditional sectors that use approach looked at demand growth in both MSAs. office space, with stronger growth in medical employment. • The Cedar Rapids MSA has an unusually low cost of living index 2. A considerable supply of older and arguably obsolete space in the factor for housing, 25% below the average for all MSAs. In spite of market, with overall Vacancy levels above 20%. this factor, the analysis identified relevant market premiums for recently-built condominiums (1bedroom @ $150/sf), as well as a 3. A small supply of contemporary office space, class A or otherwise. small sample of rental units priced above $1/SF/month. For the 4. Concern over evolving decisions at Rockwell regarding their space rental market, newer units are not priced at a premium to older units, needs. which is significant. Prognosis: “Less than ideal”. A near term market that is going to be • There are very few modern “urban” rental units in the market, and in tenant driven, with gradual recovery toward an average pace of about general, walkability is limited. For boomer age segments in 50,000 SF of new office construction per year within 2-3 years, with particular, sites with walkability will be a differentiator. older but not historic buildings being competitively challenged, which • Senior housing markets are expected grow in the near-term, linked will dampen rent growth. A lack of modern space in the market is one with identified strong growth in 55-64 and 65 to 74 age groups across clear driver of new space. Iowa City and Cedar Rapids. Based on experience, we would More precise Westdale site implications are noted on the following anticipate a gradual shift from condominium and age restricted units page. to projects offering a continuum of care over the next 20 years. From a real estate standpoint, as projects move toward the continuing care model, the business case is increasingly influenced by insurance and payments for services, rather than monthly rent payments. Locally, a sample of about 900 units was identified with several operators, with

Page 3 Westdale Site Development Implications

Projected Target What The Plan Calls Annual Market Growth Regional Context Project Drivers Project Opportunity Timing Use Range Market For Retail sales growth of 3.4% Project has 250,000 SF of Attractive occupancies, with should drive demand for about anchor space + Retention of Project sustains SW at 40% Primary: rents that are generally Plan of 432,000 sf of $80 to $90 million per year in 50,000 sf in-line tenants. market share. Tenanting success Retail / Cedar Rapids supportive of new retail/restaurant requires 11-35% new retail sales. @ sales of Upsides include new market will link with growth of specific short-term Restaurant Secondary: construction; growth is to the 132,00 sf of incremental $300/SF this could theoretically entrants, chains needing a 2nd store clusters, beginning with Iowa City south, rather than the north. retail over initial 3 years. support about 260,000 SF of store, and tenants relocating restaurants and possibly apparel. SW is underserved. retail space per year. from older space. Further growth in regional health Clinic and outpatient centers link care employment. Gradual shift Good: Regional Plan of 105,000 sf strongly Cedar Rapids Healthcare has become a with demand for doctors offices. Medical / over time from hospital care to demographics are supportive; supported by Market Study 2-10% & Iowa City significant tenanting option in Linkage with retail and residential short-term Medical Office outpatient and clinic based care, Challenge: continued and evidenced by active MSA's retail environments. should be complimentary, with favoring medical office pressure on health care costs early demand of 30,000 sf. deliberate planning. construction

Demand growth at 7.6% since Proximity to US 30, airport, Up to 200 rooms. Although Plan incorporates the Cedar Rapids Target set of upper market 2010 versus supply growth at and Univ. of Iowa demand; growing, market is stable but not upper middle market Hotel 2-5% short-term MSA hotels occupancy at 68% 6.8%; revenue growth at generally a supportive use for deep. Hilton Garden Inn is one prototype of a national 8.4% the project. example of the quality expectation chain (136 rooms).

Overall market of 8,000 - 10,000 new units through 2017. 55-64 age household growth Initial focus on condominium, Cedar Rapids Primary competition is with While flexible, Plan calls for Urban/walkable share estimated thru 2017: 3,207; 65-74 age with consideration of age Residential 2-10% & Iowa City downtown. Opportunity for 100 to 75-100 "For-Sale" units short-term at 200-300 units, with growth household growth through restricted units. Parking ratios MSA's 150 units within five years above retail. toward 5% of regional inventory 2017: 4,900 will be important. over 10 yrs.

Chains include Lucky Strike and Primary: SW market includes a Alignment with other lifestyle Pinstripes. Cinema, based on Cedar Rapids Broader market income and Plan allows for 40,000 SF Entertainment 1-10% “newish” 12-screen cinema elements, particularly a tenant interest in digital option, or short-term Secondary: population growth of entertainment uses. and an older bowling center presumed restaurant cluster an arts cinema. 40,000 to 80,000 Iowa City SF. Segment is rent sensitive.

Local market is dominated by Grocery opportunities tend to Plan's flexibility can Target and Walmart, along with Alignment with lifestyle SW Side either be larger floor plate Initial judgment is focused on a accommodate from 20,000 Grocery 1-5% Aldi, Fairway, and 2 Hy-Vee's. program, more prepared mid-term Trade Area >70,000 SF or smaller floor smaller floor plate grocer. SF to 80,000 SF grocery Econo Foods building remains meals, specialty foods plate (<20,000SF) formats. empty, with a lease in place.

General preference for condo Plan can accommodate up 55-64 age household growth Cedar Rapids Existing market has a small or higher end rental rather than Senior housing is supportable as to 100 Senior Housing units Senior thru 2017: 3,207; 65-74 age 2-10% & Iowa City percentage of senior housing senior housing, due to the separate and distinct from higher in a location complimentary mid-term Housing household growth through MSA's options latter's more limited support for end rental or condo demand. to medical uses campus on 2017: 4,900 retail Williams Blvd.

Plan allows for an Upside opportunity: Smaller exchange of 48,000-60,000 Slow recovery through 2014; A Supporting Use: 30,000 to Core Demand of 20,000 SF to tenants motivated to leave SF of office-over-retail (in 2 Office / Cedar Rapids Owner-Users will drive 40,000 SF total, excluding 1-10% 30,000 SF / year excluding older space; professional phases) as alternative to slowly Financial MSA demand for larger blocks of medical. Financial & professional medical services firms interested in residential-over-retail office space services will be drivers lifestyle locations depending on market Page 4 demand. Table of Contents

Demographic and Economic Analysis Page 6

Retail Market Analysis Page 20

Residential Market Analysis Page 39

Hotel Market Analysis Page 61

Office Market Analysis Page 65

Overall Considerations Page 70

General Limiting Conditions Page 72

Page 5 Demographic and Economic Analysis

Introduction The Demographic and Economic Analysis places the Cedar Rapids region in a broader context, focused on how the region has performed in terms of: • Population and income growth • Gross domestic product • Employment and unemployment The analysis is used to judge the competitive position of the region, and any strategic threats and opportunities.

Page 6 Regional Map Population by MSA

Population in Cedar Rapids MSA Annual Change in Population, 1990-2011 2.5% 300,000

250,000 2.0% 200,000 1.5% 150,000

100,000 1.0%

50,000 0.5% 0 0.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Cedar Rapids MSA Des Moines MSA Iowa City MSA Iowa Benton County Jones County Linn County Source: U.S. Census Source: U.S. Census

• More than 258,000 people live in the Cedar Rapids MSA which • A consolidated Cedar Rapids / Iowa City market would support includes the counties of Benton, Jones and Linn. about 411,000 residents in 2010, and has added about 40,000 residents since 2000. • Cedar Rapids MSA population is growing faster than the state, but slower than neighboring MSAs. Over the past 20 years, population • Cedar Rapids’ share of consolidated employment has decreased has grown an average of about 1% annually compared to 1.4% in slightly over the past 10 years, falling from 64.3% down to 62.8%, Iowa City MSA, 1.6% in Des Moines MSA and 0.5% for the state reflecting a stronger population growth rate in Iowa City overall.

2000 2002 2004 2006 2008 2010 CAGR Cedar Rapids 121,360 122,230 122,301 123,647 125,871 126,490 0.4% Cedar Rapids MSA 237,950 242,099 245,108 249,524 255,503 258,310 0.8% Des Moines MSA 483,243 496,276 511,257 532,738 553,644 571,938 1.7% Iowa City MSA 132,173 136,056 140,149 143,698 148,799 152,950 1.5% State of Iowa 2,929,067 2,934,234 2,953,635 2,982,644 3,016,734 3,050,202 0.4% Source: U.S. Census

Page 8 Regional Population

• Among the cities in the area surrounding the Westdale Mall, Regional Population, 2001-2011 Cedar Rapids is the largest with nearly 128,000 residents in 2011. 140,000 120,000 • Marion is the next largest city with almost 69,000 residents. 100,000 80,000 • However, the population is growing faster in the smaller cities around Cedar Rapids. 60,000 40,000 • Since 2001, population grew at an average annual rate of 0.5% in 20,000 Cedar Rapids compared to 2.4% in Marion, 2.1% in Coralville and 0 0.7% in Hiawatha. 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 • MSA population projections point to growth beyond 300,000 Cedar Rapids Coralville Hiawatha Marion residents by 2035. Source: US Census

Change in Regional Population, 2001-2011 Population Projections for Cedar Rapids MSA 4.5% 350,000 4.0% 300,000 3.5% 3.0% 250,000 2.5% 2.0% 200,000 1.5% 150,000 1.0% 0.5% 100,000 0.0% 50,000 -0.5% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0

Cedar Rapids Coralville Hiawatha Marion 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Source: US Census Source: US Census, Woods & Poole

Page 9 Long Range Population Growth Expectations

• Long range plans prepared by the Linn County Regional Planning Commission reinforce both the current density of population in communities north of the Cedar River, as well as the considerable future population growth expectations for areas south of the River, including Westdale. • The table below shows that while the three districts north of the Cedar River are projected to account for about 170,000 residents by 2040, areas south of the River are expected to grow at a considerably faster annualized rate (1.7% per year versus 1.1% per year).

Annual

2000 2040 Growth District V 18,710 28,102 1.0% District IV 54,120 96,544 1.5% District III 37,650 45,248 0.5% Sub-Total 110,480 169,894 1.1%

District VI 35,096 66,867 1.6% District I 13,736 27,721 1.8% District II 13,519 27,580 1.8% Sub-Total 62,351 122,168 1.7%

Grand Total 172,831 292,062 1.3% Source: LCRPC

Page 10 Household Income

• Across the Cedar Rapids MSA, the share of households earning Distribution of Household Income, 2011 less than $25,000 represented about 20 percent of total households in 2011, the same percentage as Des Moines and Cedar Rapids less than Iowa City and the U.S. MSA Des Moines • Over the next 5 years, the distribution of household income in the MSA Cedar Rapids MSA is expected to improve with fewer households Iowa City MSA in the lower income categories and more in the upper income ranges. Iowa

• This change is occurring faster in Cedar Rapids than in the other U.S. MSAs. The number of households earning $150,000 or more is 0% 20% 40% 60% 80% 100% expected to grow 7.3% annually from 2011 through 2016. This compares to 6.2% in Des Moines, 7.0% in Iowa City, 5.3% for all Less than $25,000 $25-$49,999 $50-$74,999 of Iowa and 3.8% nationally. $75-$99,999 $100-$149,999 $150-$199,999 $200,000+ Source: ESRI

Change in Household Income, Cedar Rapids MSA 30,000 25,000 20,000 15,000 10,000 5,000 0 ------$15 $25 $35 $50 $75 $100 $150 $24,999 $34,999 $49,999 $74,999 $99,999 $15,000 $149,999 $199,999 Less than than Less $200,000+

Source: ESRI 2011 2016

Page 11 Growth in GDP

Cedar Rapids GDP, 2001-2011 • GDP for all industries in the Cedar Rapids MSA reached nearly $14.6 billion in 2011. $16,000 Government

Other • All sectors experienced growth in GDP since 2001. $14,000 Manufacturing, despite experiencing declining Information employment, had a surge in GDP from 2001 to 2011, $12,000 Leisure and hospitality increasing nearly $1.3 billion. Education and health $10,000 services Professional and business • Financial activities also had strong growth, increasing by services nearly $1.1 billion in economic value. $8,000 Financial activities Transportation and utilities • Since 2001, GDP has been growing at an average annual $6,000 Retail trade rate of 4.5 percent. While faster than the U.S. overall,

Wholesale trade this pace of growth is somewhat slower compared to $4,000 Manufacturing surrounding metro areas across the state of Iowa.

$2,000 Construction

Natural resources and $0 mining 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: US Bureau of Economic Analysis

Average Annual Change in GDP, 2001-2011

5.4% 4.7% 4.7% 4.5% 3.9%

Cedar Rapids Des Moines Iowa City MSA State of Iowa U.S. MSA MSA Page 12 Source: US Bureau of Economic Analysis Unemployment

Unemployment Rate Employment in Cedar Rapids MSA 12% 160,000 140,000 120,00010% 100,000 80,0008% 60,000 40,000 6% 20,000 0 4% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Goods Producing Service Providing 2% Source: Iowa Workforce Development

0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cedar Rapids MSA Des Moines MSA Iowa City MSA Iowa U.S.

Source: US Bureau of Labor Statistics

• Since 1990, the unemployment rate in Iowa has been lower than national averages, even factoring in the period since 2008.

• The unemployment rate of Cedar Rapids has been equal to or greater than the state average since 2001.

• Unemployment peaked in the Cedar Rapids MSA during 2010 at 6.2 percent, more than 3 points lower than the national average.

• These trends point to an underlying resiliency in the Iowa Economy.

Page 13 Broader Economic Considerations Annualized Change in Total Employment, Statewide Market Comparisons – Job Creation by MSA, Noted Periods

• Rates of employment growth for the Cedar Rapids MSA compare Iowa favorably with statewide benchmarks. Rates of job creation since 2010 are comparable (1.0% annual growth) are comparable to levels Ames achieved between 2003 and 2012. Notably, the MSA sustained stronger rates of job creation between 2003 and 2007, suggesting Cedar Rapids that the recovery is lagging. Des Moines • For perspective, rates of job creation in the MSAs of Ames, Dubuque, Iowa City, and Waterloo have recovered to pre-recession (2003-2007) Dubuque levels. Rates of job creation across the state have also accelerated to pre-recession levels. Iowa City Since 2003 Statewide Market Comparisons – Goods Producing Employment Sioux City 2003 - 2007 Employment data from BLS was used to evaluate the importance of Waterloo-Cedar Since 2010 goods production in each MSA across Iowa. Key findings include: Falls • The share of goods producing jobs has decreased only slightly from 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 2003 to 2012, at about 20% of employment • Cedar Rapids, Iowa City, Sioux City, Dubuque, and Waterloo all % of Employment in Goods Producing exhibit a similar focus on goods production, all with at least 18% of Sectors of the Economy employment focused in goods production Iowa • Iowa City, Des Moines, and Ames all exhibit a different employment 2002 makeup, with a significantly lower percentage of goods producing Ames jobs, generally less than 15%. 2012 • In this respect, growing alignment between Cedar Rapids and Iowa Cedar Rapids City is important, in that it provides access to a more diverse market Des Moines of people. Regional Factors Dubuque

Iowa’s current 5% unemployment rate needs to be viewed against rates Iowa City in adjacent states. For example, rates in Illinois (9%), Wisconsin (7%), and Michigan (8.9%) are much higher, reinforcing the reality of a still Sioux City weak Midwestern Region. Waterloo-Cedar Falls Page 14 5% 10% 15% 20% 25% Employment by Sector • The sector that experienced the most job growth in the Cedar Cedar Rapids MSA Emploment by Sector Rapids MSA was education and health services with 4,600 jobs added since 2000. Natural resources and construction • There was considerable job growth in transportation, warehouse and utilities (2,000 jobs), finance and insurance (1,600 jobs) and Manufacturing government (1,300 jobs).

Wholesale trade • Sectors with the largest jobs losses include information (-2,200 jobs), manufacturing (-900 jobs) and professional and business Retail trade services (-700 jobs).

Trans., warehouse • Despite jobs losses from 2000 to 2011, the manufacturing sector and utilities represents the largest employment sector in the Cedar Rapids MSA, 15.4% of all jobs. Information • There was a slight decline in jobs in the retail sector however, it remains among the largest sectors in the region with nearly Financial activities 16,000 jobs.

Professional and business • Employment factors noted on this page are not entirely comparable with noted findings on future pages. Education and health

Leisure and hospitality

Other services

Government

0 5,000 10,000 15,000 20,000 25,000

2000 2011

Source: Iowa Workforce Development Where Workers Live Data from the U.S. Census Bureau’s On the Map tool provides information about employment not only by where Where People Who Work in Cedar Rapids Live the jobs are located, but were workers live, providing a 100% sense of people’s commutes. We looked at residential data 90% by zip code from 2002 to 2010 for Cedar Rapids and Iowa 80% 70% City workers. Importantly, while not capturing all of the 60% employment in the region, just these two cities, our 50% approach covers a majority of the jobs in these areas. 40% Insights include: 30% 20% • In 2002, of the 90,700 people working in Cedar Rapids, 10% 73 percent lived within the Cedar Rapids MSA. In 2010, 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 there were 103,500 people working in the city and only 67 percent lived in the Cedar Rapids MSA. Live in Cedar Rapids MSA Live in Iowa City MSA Live elsewhere Source: U.S. Census Bureau • Of those working in Cedar Rapids, 7 percent live in the Iowa City MSA, a relatively small increase from 2002. Where People Who Work in Iowa City Live • Similar trends occurred in Iowa City with more workers 100% living outside the MSA by 2010. 90% 80% • In 2002, nearly 8 percent of the people working in Iowa 70% City lived in the Cedar Rapids MSA. This increased to 60% 10 percent by 2010. 50% 40% Maps follow that clearly show the distribution of workers 30% 20% across the region. 10% 0% The reader should exercise care in comparing employment 2002 2003 2004 2005 2006 2007 2008 2009 2010 data on this page with prior information, as sources such Live in Cedar Rapids MSA Live in Iowa City MSA Live elsewhere as the US Bureau of Labor Statistics / Iowa Workforce Source: U.S. Census Bureau Development rely on different ways of tracking employment compared to this tool

Page 16 Where Workers Live

Page 17 Changes in Where Iowa City Workers Live

This map frames the annualized change by zip code for where people who work in Iowa City live. The data shows changes from 2002 to 2010. The analysis points to considerable growth in Benton County, as well as southern Linn County. Broadly, many people who work in Iowa City have also selected residential locations to the west, including Iowa and Keokuk Counties.

While the share of Iowa City workers living in Benton County is relatively small, it has grown rapidly since 2002, an average of 9 percent each year through 2010.

County 2002 2004 2006 2008 2010 CAGR Benton 160 160 290 310 310 9.2% Jones 210 160 280 280 330 5.9% Linn 3,600 3,930 4,120 3,800 4,060 1.5%

Economic / Demographic Findings

Findings build from the conclusion that the Cedar Rapids Area, much number of people who work in Iowa City choose to live in Linn like the entire state of Iowa, has an established tradition of steady County. For this reason, our study is also presumes a stronger growth, and low unemployment, while avoiding the economic peaks economic “pull” for Cedar Rapids to the south over the long-term, and valleys experienced by other regions. Findings include: placing the Westdale site in a more favorable regional location. • Rates of employment growth for the Cedar Rapids Metropolitan • A combined Iowa City and Cedar Rapids market is consequential in Statistical Area (MSA) compare favorably with statewide size, with about 411,000 residents through 2010. While the Cedar benchmarks. Unemployment rates remain enviably below Rapids MSA represents 60% of this larger market, the Iowa City Midwestern peers. MSA growth rate is stronger (1.5% versus 0.8% annually). • Although the recession did not hit Cedar Rapids with an intensity • Local voters recently approve a referendum for a new casino in seen elsewhere in the Midwest, the region’s pace of job recovery Cedar Rapids, which lays the groundwork for a formal application to since 2010 is lagging compared to other Iowa metros. Returning to the Iowa Gaming Commission. A downtown location appears to be pre-recession growth rates would suggest an increase to 1,900 new likely. As casinos typically include restaurant and entertainment jobs per year, versus the current pace of about 900-1,000 jobs per elements, the evolving nature of this program will need to be year. monitored in relation to Westdale. • The Cedar Rapids Area draws notable strength from a local • The flood had a major impact on neighborhoods in and around manufacturing sector which has remained quite resilient downtown with a total of about 5,000 housing units that were comparison with broader declines in manufacturing which have damaged. Since the flood, City officials indicated that roughly 3,500 occurred across the Midwest. When combined with other sectors have been renovated. Broader Corps of Engineers decision- such as health care, it is apparent that the local economy is driven making regarding flood protection remains a major element, with to a relevant extent by private sector activity, which is significant. clearer plans to protect the eastern side of the river. Flood protection for the western side of the river remains in debate locally. • Rockwell Collins is a major regional employer, with a particular concentration of owned and leased space on the NE side of Cedar • Further reinforcing the generally positive economic performance for Rapids. Although they are a diversified aerospace company, the region, we noted that Eastern Iowa Airport supported about concerns about federal spending reductions should be of concern 492,260 enplaned passengers in 2012, an increase of about 30,000 locally over the next 24 months. passengers over 2010 levels, reflective of annual growth of about 2%. • Although Cedar Rapids and Iowa City are defined as separate Metropolitan Statistical Areas by the US Census, interviews reinforce the sense that these two regions are growing closer together economically. US Census data shows that an increasing

Page 19 Retail Market Analysis

Introduction The Retail Market Analysis folds in several overlapping components: • Summary of national retail sales trends which have implications for the local market, particularly the impact of internet spending • Discussion of trends regarding national chains that are expanding or closing stores • Analysis of local trade area demographics in the Cedar Rapids area • Review taxable retail sales for Cedar Rapids and Iowa City compared to statewide metrics • Assessment of retail inventories and vacancy • Demand and supply implications for Westdale

Page 20 Retail – National Perspective

Although the amount being spent on general retail has grown Comparison of Retail Sales, Percentage of Total, substantially since 1992, how retail dollars are being spent has changed considerably, reflecting a shift in consumer preferences over By Year, 192 and 2012 time. Significant changes include: Building mat. and garden equip. and 9.1% • The most significant decline occurred amongst food and beverage supplies 8.5% (grocery) stores, falling from 25.7% share of all general retail dollars in 1992 to an 18% share in 2012. Growth in big box & 8.3% Clothing and clothing access. stores super store formats is a partial explanation. 6.9%

• Department stores have also seen their share of spending 3.0% Electronics and appliance stores decrease 2.9%

• The internet has had a massive impact on retail, as evidenced by 25.7% Food and beverage stores an increasing share of retail spending, growing from 5.5% in 1992 18.4% to 12.7% in 2012. It also continues to impact the business plans of retailers, such as Best Buy. 14.1% Food services and drinking places 15.3% • While larger format building material stores (Lowes/Home Depot) have dramatically altered the market for home improvement Furniture, home furnishings, electronics 3.6% supplies, their share of retail sales peaked in 2006. and appliance stores 2.8%

14.4% General merchandise stores Retail Sales Per Person, Noted Years 7.0% $18,000 6.2% Health and personal care stores $16,000 8.0%

3.9% $14,000 Miscellaneous store retailers 3.5% $12,000 5.5% Nonstore retailers $10,000 12.7%

$8,000 Sporting goods, hobby, book, and music 3.4% stores 2.6% $6,000 2.8% Warehouse clubs and superstores $4,000 11.3% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Page 21 1992 2012 Source: U.S. Census Bureau Source: U.S. Census Bureau Retail – National Trends

Overall Sales Trajectory a seamless experience model that delivers a consistent shopping experience across all customer touch points. • Retail sales spending increased 1.1 percent in February 2013 compared to the previous month. Even after excluding gas, autos • Pressure has been growing on Congress to address the sales tax and building supply, core retail sales rose 0.4 percent. January exemption for interstate online retail sales. State and local sales had been better than expected as well. While two months do governments, joined by some business interests, are pressing for not make a trend, 2013 Q1 may perform better than expected in the sales tax issue to be addressed as tax receipts for retail sales spite of higher taxes and gasoline prices. continue to drop due to the growth of online shopping.. • The impact of Federal sequestration and any future changes Retail Sector Perspectives resulting from Federal budget cuts are still unclear. • Spending at health and personal-care stores dropped 0.9% in 2012, • Younger adults are still living at home waiting for the economic perhaps as a function of heavy discounting to increase sales and recovery to be sustaining. Retail sales depend on household growth traffic volume. The industry seems to struggle to increase sales and and new household formation according to a life cycle pattern. The revenues. “normal” pattern has been disrupted due to the “Great Recession”. • Chain pharmacies see retail clinics as a way to drive traffic into With small improvements in jobs creation, retail sales will rise. stores. Visits to retail clinics increased four times from 2007 to • Starbucks and Dunkin Donut have announced expansion plans, 2009. Retail clinic performance varies greatly from chain-to-chain. while others have announced cutbacks. Without solid evidence of CVS-owned Minute Clinics represent the most growth in the in-store consumer demand growth demonstrated by increasing sales, most clinic business, with about 550 locations. Minute Clinics and chains will be slow to grow locations, even as under performing Walgreens’ Take Care Clinics, with 355 locations, represent two- stores are closed. out-of-three retail clinics in the U.S. • Large format retailers continue to look for more market share in • With the announced merger of Office Depot and OfficeMax, the saturated areas. Wal-Mart has announced plans to add 115 new office supply business will change. The combined business should outlets at less than 60,000 square feet to put it in position to be in a more competitive position versus sector leader Staples. Both compete with Dollar General, Walgreens and supermarkets in chains had been closing locations already; as the store territories locations that would not support a superstore format. Wal-Mart will overlap by about 50 percent, additional stores are expected to be using its Neighborhood Markets format to compete in smaller close. The office supply sector has become a cost-driven towns, its Mercado de Wal-Mart in Hispanic communities and a commodity business. Linking online sales to in-store, contract sales, smaller Wal-Mart on Campus format. and a high sales volume/low costs approach now define success in this sector. • As a result of the continuing growth of online sales, smart phone ownership and social media, retailers as diverse as Macys, • The Ascena Retail Group’s Fashion Bug women’s apparel stores Nordstrom, Saks, Walgreens and Target are using an “omni- final 432 closings will happen in 2013. The group will focus on the channel” strategy in response to the growth of mobile technology Lane Bryant and Catherines Plus Sizes stores. and consumer demand for convenience. Omni-channeling presents

Page 22 Retail – National Trends

Retail Sector Perspectives • Simon Property is remodeling 15 to 20 malls a year, adding such amenities as electric-car charging stations and stadium-seating • There is considerable consolidation among U.S. apparel retailers in theaters. Mega-churches have taken over former anchor spaces. response to weaker sales . Abercrombie & Fitch closed 180 of its under-performing stores in lower tier cities. American Eagle Restaurant Sector Perspectives Outfitters and Limited Brands are pursuing a similar strategy. • Starbucks has announced major expansion in the U.S., including • Fashion retailer H&M continues its aggressive expansion in the adding or expanding 900 drive-through locations over the next five U.S. Currently, the chain has about 200 stores in 30 states and years. Dunkin Donuts plans to add 330-360 total stores in 2013. plans to add 325 in beginning 2013. The chain has expanded to the • Bob Evans Farms Inc. has sold its Mimi’s Cafe chain to Le Duff Midwest in the past few years with stores in Illinois, Minnesota and America Inc.; Ignite Restaurant Group Inc. acquired Romano’s Wisconsin, but has yet to open a store in Iowa. Macaroni Grill from Golden Gate Capital; and Landry’s Inc. is trying • JC Penney continues to try to revamp itself through its “shops” to acquire Ark Restaurants Corp. merchandising and pricing strategies. The most recent • Fast Casual restaurants make up 27.25% of total food service announcement of the introduction of the Canadian Joe Fresh sales. Limited-service restaurants are estimated at $173.8 billion in fashion line is an attempt to compete in the “Fast Fashion” annual sales (NRA). approach taken by European retailers Zara and H&M. Penney’s has announced it will roll out the new line in its bigger and more • 5 Guys Burgers, Jimmy John’s, Chipotle Mexican Grill, BJs trafficked stores. If successful, this move could help JC Penney re- Restaurant & Brewery and Cheddar’s are the top five chains in establish itself as a poplar price point apparel retailer; if sales growth in the US. unsuccessful, expect more closings to follow. • Reduced household spending and changing eating habits continue • Gymboree’s children’s apparel store Crazy 8 has announced plans to hurt fine dining. Full-service restaurants saw sales growth last to open 90 new outlets in 2013. Crazy 8 is already in Iowa with two year of 8.1 percent. Most of the shift in sales has been to Quick stores. Service. • Other stores with significant expansion plans in 2013 include Dollar • A growing emphasis on Asian food bodes well for restaurants with a General, Subway, Five Guys, Pizza Hut, Family Dollar, CVS, pan-Asian orientation such as Pei-Wei Asian Diner (owned by P.F. Chipotle, Ace Hardware, H&M, and Starbucks. Chang). • According to CoStar, only one traditional enclosed mall has been • Many restaurants focus on Millenials, but it's their slower income built since 2006. Malls are physically changing to new formats – rise has caused cutbacks in food away spending. “inside-out” with retailers facing outside rather than inward; non- • Baby Boomers continue to work longer, aren’t cutting back as much retail uses such as educational and health care; “exploded” formats and have a greater need for convenience. that reopen the center promenades and courtyards and converting them to Main Street-styles with parking.

Page 23 Retail Trade Area – Regional Perspective AECOM delineated a primary trade area for this effort, focused on a five-mile radius around the Westdale site, bordered to the north by the river. For perspective, we also delineated a similar 5-mile trade area anchored by the Lindale Mall as well. The following pages summarize relevant demographic metrics for these areas. Based on experience, a 5-mile trade area tends to drive retail spending for convenience items, grocery purchases, a share of restaurant spending, and personal services.

Page 24 Retail Trade Area – Population Characteristics

AECOM delineated two trade areas for this effort. We identified a core local 5 mile ring from Mall to the River trade area around Westdale, effectively a 5-mile radius around the mall West d ale Lindale location, bounded to the east by the River. This local market reflects Population demand for local goods and services, such as groceries and local services. 2000 57,454 104,134 We also evaluated a similar trade area surrounding the Lindale Mall to 2010 62,874 113,850 provide context. 2011 63,507 114,762 2016 66,249 119,510 To understand destination market potentials, we also defined a secondary trade area for Westdale, which extends to a larger 30-minute drive time, CAGR 2000-2010 0.91% 0.90% generally south and west of the site. Maps defining these trade areas are on CAGR 2010-2016 0.88% 0.81% following pages. An array of demographic metrics were extracted from these trade areas, starting with core population and household measures. Households 2000 23,874 42,134 • The total population living within 5 miles of Westdale is smaller (63,507 2010 26,744 46,885 residents) compared to the Lindale trade area (114,762 residents) 2011 27,023 47,254 • Population growth for the Westdale area is expected to increase at a 2016 28,351 49,441 faster rate (0.88% per year) through 2016 compared to the Lindale area (0.8% per year). This growth rate would result in about 2,180 new CAGR 2000-2010 1.14% 1.07% residents by 2016 around Westdale. CAGR 2010-2016 0.98% 0.89%

• Rates of household formation for Westdale are stronger, with historic Average Household Size growth of 1.14% per year compared to Lindale, with about 1.07% growth 2010 2.31 2.35 per year. This rate of growth would result in about 1,064 new households 2011 2.31 2.35 through 2016. 2016 2.30 2.34 • Faster growth in households compared to population points to a smaller CAGR 2010-2016 -0.07% -0.07% average household size trajectory.

Key take away: Median Age 2010 34.9 36.7 Rates of household formation for the Westdale area are stronger compared 2011 35.0 36.8 to the Lindale trade area. 2016 35.6 37.3

CAGR 2010-2016 0.33% 0.27% Source: US Census, ESRI

Page 25 Retail Trade Area – Income Characteristics 5 mile ring from Mall to the River The combination of income and population growth is a core driver of retail West d ale Lindale sales potential. Our analysis looked at the two trade areas in terms of Share of Households by Income, 2011 households by income between 2011 and 2016, and several key trends were < $15,000 9.8% 8.5% noted. $15,000 - $24,999 10.7% 10.0% $25,000 - $34,999 10.5% 9.5% • For Westdale, current forecasts point to considerable growth in households $35,000 - $49,999 17.4% 15.0% earning more than $75,000, increasing from 29% of households in 2011 to $50,000 - $74,999 22.7% 18.8% 38% of households in 2016. The rate of growth is 5.7% $75,000 - $99,999 14.9% 15.3% $100,000 - $149,999 11.2% 15.2% • Forecasts also indicate that the share of households earning more than $150,000 - $199,999 1.9% 4.3% $100,000 is expected to increase from 14% to 18% of total households, $200,000+ 0.9% 3.4% growing at a 5.5% annual rate.

Share of Households by Income, 2016 • While the Lindale trade area has a larger percentage of households in these < $15,000 9.0% 7.9% upper income sectors, the rate of growth in households moving into or up $15,000 - $24,999 8.0% 7.0% from the $100,000 level is growing at a slower rate, about 4.4%. $25,000 - $34,999 7.7% 6.8% $35,000 - $49,999 12.7% 10.9% $50,000 - $74,999 24.5% 19.7% $75,000 - $99,999 19.9% 19.2% Key takeaway: $100,000 - $149,999 14.3% 18.0% $150,000 - $199,999 2.9% 6.6% Although the Westdale core trade area is smaller, household income factors $200,000+ 1.1% 3.8% are projected to grow at faster rates over the next 5 years.

CAGR 2011-16 < $15,000 -0.6% -0.6% $15,000 - $24,999 -4.8% -5.9% $25,000 - $34,999 -5.1% -5.6% $35,000 - $49,999 -5.2% -5.2% $50,000 - $74,999 2.5% 1.8% $75,000 - $99,999 7.0% 5.7% $100,000 - $149,999 6.0% 4.4% $150,000 - $199,999 9.3% 9.7% $200,000+ 4.0% 3.1% Source: US Census, ESRI

Page 26 Retail Trade Area – Regional Perspective

AECOM delineated a secondary trade area for this effort, focused on a 30-minute drive time from Westdale, constrained to the east and south by natural features. This broader secondary market represents a resident population where retail offerings at the Westdale site would be assumed to be generally more attractive from a geographic standpoint, compared to areas such as Lindale or the Coral Ridge Mall. Demographics related to this market follow. Secondary Retail Trade Area

Secondary 30 Minute Trade Area for Westdale The 30-minute trade area focused on a larger group of residents for 2000 2010 2011 2016 which a redeveloped mall site would be their primary shopping Population 79,447 87,561 88,483 92,299 location. Key findings include: Households 31,742 36,125 36,515 38,296 • The broader secondary market had a population of nearly 88,500 0 - 4 5,885 5,862 6,138 residents and is forecast to grow to 92,300 by 2016, making it a 5 - 9 5,907 5,942 6,109 larger long term economic opportunity compared to the NE side 10 - 14 5,919 5,972 6,232 of Cedar Rapids. 15 - 19 6,646 6,684 6,524 20 - 24 5,960 6,053 6,039 • Total households in the secondary market are forecast to 25 - 34 11,785 11,937 12,566 increase from 36,515 to 38,296 through 2016. 35 - 44 11,489 11,516 11,442 45 - 54 12,601 12,640 12,030 • Similar to national trends, the share of the population over the 55 - 64 10,006 10,234 11,409 age of 65 is projected to grow increasing from 31.5 percent of the 65 - 74 5,967 6,198 7,888 population in 2010 to 36.1 percent by 2016. 75 - 84 3,640 3,672 3,934 85+ 1,757 1,772 1,988 • Growth in higher income households is also expected. The share of households earning more than $100,000 is projected to grow at Households by Income a 5.7% annual rate through 2016. The share of households with <$15,000 3,436 3,268 more than $100,000 in income will increase to 21.3 percent of all $15,000 - $24,999 3,545 2,724 households in 2016, up from 16.9 percent in 2011. $25,000 - $34,999 3,619 2,710 $35,000 - $49,999 5,806 4,412 $50,000 - $74,999 8,066 9,008 $75,000 - $99,999 5,881 8,030 $100,000 - $149,999 4,834 6,286 $150,000 - $199,999 899 1,349 $200,000+ 429 509 Total 36,515 38,296

Median HH income $53,969 $64,258 Source: US Census and ESRI

Page 28 Cedar Rapids Area Retail Sales Trends

Percent Change in Retail Sales from Perspective Previous Year, 2002-2012 15% AECOM reviewed taxable retail sales data for Cedar Rapids and Iowa City, looking at historic trends from 2002 through 2012. Key findings 10% were noted: • Retail sales decreased across the Cedar Rapids area at a lower rate 5% compared to Iowa City in 2010 (5.7% decrease compared to a 10.7% decrease) 0% Cedar Rapids MSA Iowa City MSA • Since 2010, retail sales have recovered in both areas, at annualized -5% rates of 3.6% and 3.9%, respectively, both slightly above statewide averages. -10% • Stronger retail performance since 2010 is notable, given previous findings related to a slower pace of employment growth over the -15% same period. Presuming that the local economy returns to pre- Source: Iowa DOR recessionary form in the near term, current growth rates in retail sales should be sustainable. Percent Change in Retail Sales by Store Type, 2010 to 2012 For the Cedar Rapids MSA, not all retail sectors have recovered 8% evenly. The analysis of IDOR data showed that Apparel, Services, Specialty Retail, and Eating and Drinking Places had stronger 6% annualized growth since 2010. Weaker recovering sectors included grocery stores, general 4% merchandise, and home furnishings, the latter of which saw a decrease in sales over the noted period. Slower performance in these sectors is 2% notable, given the sizeable footprint of Walmart and Target, both of whom sell groceries as well as home furnishings, in addition to general 0% merchandise. Apparel Building Eating Food General Home Service Specialty -2% materials and dealers merch. furn. retail drinking -4%

Source: Iowa DOR

Page 29 Cedar Rapids – Retail Pull Factor Analysis

To further evaluate local sales potentials, we studied retail pull factors for the Cedar Rapids and Iowa City MSAs. The intent of the Income Adjusted Pull Factor for Retail Sales, analysis is to establish relative levels of retail attraction and drawing 1998-2012 power for each metro area. Pull factors are ratios that compare local 1.45 and state per capita retail sales, with adjustments for population and 1.40 income differences. Our approach begins with Iowa Department of Revenue sales data, and then calculates pull factors, with an 1.35 adjustment for differences in per capita income. The following is a 1.30 guide to interpreting pull factors: 1.25 • Pull factor less than 1.0 = community losing retail sales to adjacent jurisdictions 1.20 • Pull factor of 1 = resident retail spending balances with store 1.15 sales 1.10 • Pull Factor greater than 1 = the community is an importer of retail 1.05 sales above what the resident market would support. The analysis reinforces key trends that influence demand potentials 1.00 Cedar Rapids MSA Iowa City MSA for new retail development in Cedar Rapids. Key findings include: 1998 1999 2000 2001 2002 2003 2004 2005 • On an income adjusted basis, pull factors for Cedar Rapids are slightly above 1.0, which is positive. The implication being that 2006 2007 2008 2009 2010 2011 2012 the MSA serves a modestly broader regional trade area than its Sources: Iowa DOR, US BEA resident base would otherwise support. For Iowa City the analysis did note that one primary reason for the decrease • Overall pull factors have increased slightly since the recession in pull factor was a dramatic decrease in taxable retail sales in the home ended in 2010, growing from 1.05 to 1.07 furnishings sector. Between 2010 and 2012, this sector saw a decrease • By comparison, Iowa City has traditionally supported significantly from $238 million down to $90 million in sales. Further conversations with higher pull factors, but decreasing to the 1.2 range since 2010. IDOR have been attempted to clarify this unusual change. • For Iowa City, store performance has fallen prior to 2010, when The following page summarizes more detailed pull factors for Cedar Rapids pull factors peaked at about 1.38 for overall retail activity. Even by retail sector. so, the analysis suggests that Iowa City’s trade area is roughly 20% larger than that of Cedar Rapids, a point which impacts our analysis.

Page 30 Cedar Rapids – Retail Pull Factor Analysis

Retail pull factors were also evaluated by sector, as shown to the right. As before, pull factors greater than 1 speak to the strength of Income Adjusted Pull Factors for Cedar Rapids retail offerings in a community that attract buyers from outside. At the same time, factors below 1.0 point to retail sectors where sales MSA are leaking to other communities. Implications include: 1.40

• Apparel has trended at about 0.8, pointing to a relevant leakage of 1.20 apparel dollars to other markets (likely Coral Ridge Mall). 1.00 • Building materials has been a stronger performer, with grown from about 0.85 to about 1.09 from 2002 to 2012; this factor has 0.80 likely been related to repairs associated with recent flooding. • Eating and drinking has sustained a pull factor of about 1.0 0.60 suggesting that the local market is largely driving demand in this sector. 0.40

• Food dealers (grocery stores) spending reflects a trend similar to 0.20 Apparel, with a sustained pace of about 0.8 over the noted period. With Grocery stores competing with larger formats such as Target 0.00 and Walmart, this finding isn’t a surprise. 2002 2007 2012 • Home Furnishings saw a decrease in store pulling power over the Apparel Building materials Eating and drinking noted period, falling from over 1.2, down to about 0.9 – a Food dealers General merchandise Home furnishings significant shift. Service Specialty retail stores Total • Services and Specialty Retail remain areas of local strength, with pull factors generally above 1.2. Sources: Iowa DOR, US BEA Food dealers = grocery stores Key Findings include: • For Westdale, improvement in Apparel will only link with the development of an apparel and accessories cluster, anchored by national chains. • Grocery offerings link with the identification of stores that are either smaller than 20,000 SF, or larger than 60,000 SF. Trader Joes has been particularly effective in growing the smaller store market, along with Aldi.

Page 31 Cedar Rapids Retail Perspective Inventory Percentage of Retail Retail Space Built by Year, The retail inventory and vacancy estimate was Deliveries by Decade, Cedar Rapids supported by data from local brokerage companies, as well as COSTAR, and field inspections. Current Cedar Rapids Region tenancy by store type was also estimated from 2000 SW NE these and other sources. In general, the regional Before retail market has been divided in to Southwest 1970 2001 (SW) and Northeast (NE) sections, with the river serving as the border. Focusing on space in retail SW NE 2002 use, the following metrics were noted based on the sample of properties covered: 1970 to 2003 • SW: 2,188,600 SF 1979 • NE: 3,748,200 SF 2004

The analysis showed that the SW side represents 2005 about 37% of estimated regional retail inventory. 1980 to Related demographics suggest that the Core SW 1989 side trade area, approximately a 5-mile radius 2006 around the Westdale Mall site, south and west of the river, supports about 35% of regional 2007 population. 1990 to 1999 2008 When compared to resident populations in each trade area, the following population per SF factors were noted: 2009 2000 to • Westdale Primary: 34 SF per capita 2009 2010 • Westdale Secondary: 24 SF per capita • Lindale: 32 SF per capita 2011 2010 to Given current population growth forecasts, the 2012 population per square foot metric for the larger 2019 secondary trade area would fall to about 23 SF per 2013 capita by 2016, lower than the Lindale area. 0% 25% 50% 75% 100% 0 100,000 200,000 300,000 400,000 500,000

Page 32

Cedar Rapids Retail Perspective SW Side % of Regional Inventory, 2013 Year of Construction care (i.e. Walgreens / CVS) appear well represented on the SW side, along with Analysis of year of construction data for retail general merchandise stores such as Home Furnishings projects shows that space built on the SW Walmart and Target). Although the SW side has a median year of construction of market appears to have a more significant 1994. For the NE side, the median year of Home Improvement share of restaurants, the field surveys construction is 1991. The data suggests that pointed largely to a preponderance of fast the SW side has seen improvement in its food dining options, as opposed to family Jewelry share of total regional inventory, increasing dining. from about 20% during the 1970’s to about Cinema 35% since 2010. The more advanced (i.e. With the arrival of Kohl’s on the SW side as older) age of space on the NE side was noted a second store in the market, other retailers as a competitive factor in the study will need to contemplate a second store Books opening around a revitalized Westdale Mall Store Share Analysis as well. Sporting Goods When AECOM focused on a comparison of the core 5-mile trade areas for the SW and NE Miscellaneous sides of Cedar Rapids, we determined that the SW side supports 35% of trade area population and households. The 35% factor Health & Personal Care was used to judge the allocated share of retail inventory (square footage) by store type for Electronics both trade areas. The adjacent chart identifies each retail category present on the SW side of Shoes Cedar Rapids, showing it in percentage terms related to the larger Cedar Rapids market. Apparel & Accessories The analysis showed that the SW side is under served in: Restaurants • Apparel, shoes, jewelry, & accessories

• Electronics Food & Beverage • Miscellaneous General Merchandise • Book stores • Food & beverage 0% 20% 40% 60% 80%

Page 33

Trade Area Retail Potential Taking the analysis to its logical conclusion, the following table breaks down estimated incremental retail spending for the defined 5-mile trade area and larger secondary 30-minute trade area for Westdale. The analysis presumes noted factors of average store sales per square foot (based on AECOM experience) which, when aligned with estimated growth in households and related spending projected spending, yield estimates of supportable space forecast between 2013 and 2017. For the primary market, the analysis identified a potential for about 193,000 square feet of space, with an additional 71,000 square feet of potential space identified from anticipated growth in the secondary market. The majority of space demand has been identified in segments such as food at home (grocery), as well as restaurants and bars.

Estimated Growth in Incremental Retail Spending Potential, 2013 to 2017, Noted Trade Areas

Total Net 30-Minute Incremental 5-Mile Trade Square Retail Sector sales / sf Drive Time Retail Sales Area Demand Footage of Demand Retail Apparel & Accessories $6,192,410 $300 20,600 7,600 28,200

Watches & Jewelry $919,355 $300 3,100 1,100 4,200 Foot wear $997,448 $300 3,300 1,200 4,500

Movie / Theater Admissions $730,304 $300 2,400 900 3,300 Electronics $7,094,456 $300 23,600 8,700 32,300 Pets $2,475,303 $300 8,300 3,100 11,400 Toys / Games $706,798 $300 2,400 900 3,300 Sports Equipment $673,888 $300 2,200 900 3,100 Books $743,411 $300 2,500 900 3,400 Food at Home $21,516,497 $500 43,000 15,900 58,900 Restaurants and Bars $18,560,250 $300 61,900 22,800 84,700 Household Furnishings $5,901,791 $300 19,700 7,400 27,100 Totals $66,511,911 193,000 71,400 264,400

Page 34 Cedar Rapids Cinema Perspective

Cinema Discussion U.S./Canada Box Office Receipts & Admissions (in billions) Going to the movies remains a popular past time in the U.S., however, 2011 saw fewer admissions and slightly lower 1.8 revenues from 2010. According to the Motion Picture 1.6 Association of America Inc.’s 2011 Theatrical Market Statistics 1.4 analysis, more than two thirds of the U.S./Canada population – $10.60 1.2 $10.58 $10.20 $9.63 $9.63 $9.29

221.2 million people – went to the movies at least once in 2011 $9.17 $9.15 $9.09

1.0 $8.82

for a total of 1.29 billion admissions, slightly fewer than the 1.33 $8.11 $7.51 billion from 2010. The decline in attendance and revenues can 0.8 $7.33 $6.86

0.6 $6.22

be attributed to Avatar’s record breaking 3D box office $5.82 $5.27 $5.18 $5.03 $5.02 $4.90 performance in 2010. In 2011, box office receipts in the U.S. 0.4 $4.80 $4.56 $4.46 $4.25 and Canada reached $10.2 billion down from $10.6 million in 0.2 2010 but up from the $9.1 billion in 2002. The most frequent 0.0 moviegoers are 12 to 24 year olds.

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 3D films are attracting an ever greater audience. According to Box Office Gross Admissions the MPAA, in 2006, revenues from 3D films made up only 1 Source: MPAA percent of all revenues in the U.S. and Canada. There was little growth until 2009 when 10 percent of box office revenues came from 3D films ($1.1 billion). In 2010 with Avatar, that increased Average Admission Price for Family of Four to 21 percent ($2.2 billion) and in 2011 revenues from 3D films made up 18 percent of gross revenues ($1.8 billion). Half of all moviegoers in the U.S. and Canada viewed at least one movie NFL $309.44 in 3D during 2011. Moviegoers under 25 years old saw an average of two 3D movies. NHL $228.40

The average ticket price for a movie was $7.93 in 2011. Theme parks $199.00 Frequent comparisons are made between total admissions and ticket prices between movies, professional sports and theme parks. Though slightly lower admissions in 2011, more people NBA $193.92 in the U.S. go to movies than all professional sports combined (133 million) and theme parks (350 million). With the average MLB $107.64 price ticket for a family of four at $31.72, this is lower than all of the options above making it a frequent entertainment option for Cinemas $31.72 every demographic group. Source: MPAA

Page 35 Cedar Rapids Cinema Perspective The number of movie theaters in the US has been increasing Number of Movie Theaters in the U.S. slowly since 2003 after some consolidation in the early 2000s. 45,000 With nearly 40,000 movie theaters throughout the U.S., the industry has become quite competitive with several theaters 40,000 operating in the same market area. National measures for 2011 35,000 showed a US screen count of 39,640, an average of 7,900 people 30,000 per screen. In Cedar Rapids, cinema screens were tabulated for 25,000 both five-mile trade areas. 20,000 •SW: 12 screens or 4,787 people / screen 15,000 •NE: 21 screens or 4,958 people / screen 10,000

5,000 Tapestry data shows that households within both these trade areas do have a slightly higher than average propensity to go to 0 the movies frequently. Households in both trade areas were 4 percent more likely than the average US household to go to the 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: NATO movies at least once a month during the last 90 days.

With fewer people per screen in the trade area than national Propensity of Households to Go to the Movies averages, and only slightly higher propensities to go to the movies, the market may be at capacity. However, the key to 5 miles 5 miles attracting moviegoers and capturing market share has become from from about innovation with bigger screens, stadium seating, surround Westdale Lindale sound, and digital projection. For example, Marcus Theaters is Attended movies in last 6 months 103 107 adding new “UltraScreen” theaters to existing cineplexes with Attended movies in last 90 days: < once a month 107 111 three-story tall screens, digital surround sound and comfortable Attended movies in last 90 days: once a month 104 104 stadium seats. Some movie theater companies are now catering Attended movies in last 90 days: 2-3 times a month 92 101 to an adult audience and provide restaurant food, bars, reserved Attended movies in last 90 days: once/week or more 99 108 seating and other amenities with premier tickets. Older cinemas Prefer to see movie after second week of release 107 114 are increasingly at a competitive disadvantage, given these Source: ESRI, AECOM changes.

Page 36 Cedar Rapids Retail Perspective Retail Competition Rents Vacancy There are a number of competitive retail projects A majority of older but recently built vacant The Vacancy analysis considered both the in various planning stages across the Cedar retail spaces are advertised at between $12 total amount of vacant space, as well as a Rapids region. These include the Fountains, and $14 per SF NNN. One or two projects determination of “competitive” vacant space, which appears to be the primary competitor to were identified with rent levels approaching which excludes two larger stores in the SW Westdale. The proposed program includes $18 to $20 per SF, located near the Lindale market. These two stores include: about 36,000 SF of retail space, as well as an Mall. Rent perspective include: • Econo Foods (65,000 SF) additional 200,000 SF of office and/or retail • Westwood Plaza (70,000 SF) $6-$9/SF space. The project will benefit from a 5-year tax • Kmart (130,000 SF) abatement, in part linked with proposed • Marketplace on 1st (6,000 SF) $20-$24/SF • Old Target (63,000 SF) construction of new class A office space. Retail • Collins Road Sq. (36,900 SF) $6-$9/SF rents are advertised at $14.95 per SF NNN. Considering these three buildings, our analysis • Marion Square (1,500 SF) $12 per SF arrived at the following vacancy factors Interviews suggest that the Lindale Mall is contemplating an expansion. Conversations with • Town & Country SC (28,600 SF) $6-$9/SF • SW Total: 321,700 SF (15% Vacant) City staff only confirmed that conversations with • Czech Lane Plaza (3,400 SF) $13/SF • SW Competitive: 63,900 SF (2.9% Vacant mall ownership have not started yet. The majority of projects noted above with rents • NE Total: 128,900 SF (3.3%) There are several smaller proposed strip centers below $10 per SF were built before 1990. across the region, mostly in Marion and The SW side accounts for about 33% of Newer, post 1990 projects all appear to be Hiawatha. These smaller 8,000 to 15,000 SF competitive vacant space. sustaining rents above $12 per SF. projects are viewed as modest competitive In general, the “competitive” retail vacancy threats, only to the extent that specific restaurant measures noted here are indicative of a chains are evaluating alternative locations on the healthy market, one that could support new SW or NE side of the Region; Lincoln View development. Square in Marion is one example, with quoted rents at $15.95 per SF.

The larger Cedar Rapids / Iowa City Region continues to be influenced by the decision made several years ago to build the Coral Ridge Mall. While resulting impacts on Westdale are known, it is also interesting to watch impacts on the

Sycamore Mall in Iowa City. This mall entered bankruptcy in October 2012, related to reports that Von Maur has planned to leave the mall in

2013.

Page 37

Retail Market Findings

Core findings include: of underperforming stores as new sites are considered. • “Competitive” retail vacancy for the SW side is about 3%, compared • The analysis showed that the SW side appears under served in to national retail vacancy over 12% (Q4 2012 CBRE). apparel, shoes, jewelry, & accessories, electronics, miscellaneous, book stores, and food & beverage. • Retail pull factors for the Cedar Rapids MSA are modestly positive, suggesting that existing retail offerings largely serve local residents. • Between 1990 and 2009, the Cedar Rapids region added about 250,000 SF of retail space per year, fueled in large part by big box • While the Lindale Mall area currently supports the majority of store development. Presuming that the local market can sustain regional retail space, assessments noted a preponderance of older population growth of 0.9% and income growth of 3.5%, we (>15-year old) retail space, with limited sites available for new anticipate that future development will unfold at a slower average larger scale retail projects. annual pace, of about 140,000 SF per year. In the short-term, • Retail sales in Cedar Rapids have been recovering at rates equal to while it is not clear that sufficient national chain tenants exist to or above state averages since 2010, which is significant. As the meet this demand, one clear offset relates to tenants who choose to regional economy’s pace of job creation recovers toward historic vacate older space at the end of their lease-term, to locate in new averages, further support for retail spending is presumed. space at a roughly comparable rent. • Two competitive retail projects were identified; The Fountains, as • For the defined trade areas around Westdale, the analysis identified well as a proposal to expand the Lindale Mall. The Fountains has incremental potential spending support between 2013 and 2017 for secured City incentives and appears ready to move forward in up to about 260,000 square feet of retail space tied to defined search of tenants primary and secondary markets. Reflecting a conservative approach, the analysis did not expressly presume capture from • Current rents for newer space with national chains are driving rents tertiary markets across Cedar Rapids or Iowa City. With the toward $15 per square foot NNN, with a small number of centers at proper tenant mix, competition for regional lifestyle oriented retail $20 per SF. and entertainment spending should be an expectation. • The US retail industry is still recovery mode, and retailers are just • From a tenanting standpoint, health care tenants are seen as more beginning to focus on new stores, even as the internet continues to likely in the future. alter many retailer business plans, with one clear result being smaller store sizes. A majority of chains are still weighing closure

Page 38 Residential Market Analysis

Introduction The Residential Market Analysis folds in several components: • Analysis of changes in underlying population and household growth for the City and Metropolitan Area. • Assessment of Building Permit data by quadrant for the City • Analysis of rental apartment rates on a per SF basis • Analysis of condominium unit pricing • Assessment of senior markets • Evaluation of overall market demand growth in coming years • Discussion of senior housing trends

Page 39 General Market Perspective

Insights include: rent per square foot at or above $1.00 per square foot. In 2012, the average market rent for apartments was about $0.82 per square • Downtown housing in Cedar Rapids remains a niche market, with foot. market acceptance of two initial projects which validated the emerging interest in up-scale condominium living. For example, the • Rents in Iowa City are stronger, with some properties pricing in the Bottleworks loft condo project achieved sales premiums of up to $1.38 per sf range, linked with the impact of college students, which $200,000 to $300,000 for for units sized between 977 and 1,116 SF. drives pricing toward a per-bedroom model, rather than per unit. • The broader condominium market generally break down into three • In reviewing national cost of living indexes, it is clear that the Cedar general segments: Older existing units, pricing between $65,000 Rapids market enjoys very low housing costs, which has and $75,000. Newer suburban duplex style units pricing around implications for local market support for new construction. $150,000, and the upper end, defined by the Bottleworks project. • The flood has allowed a significant number of lower cost apartment units to enter the market. Combined with a higher than state average home ownership rate, apparent demand for higher-end apartments appears on the surface to be limited. • Local apartment markets include a very small number of “higher end” rentals. Site assessments identified 6 apartment projects with

Interviews identified a number of planned and proposed Cost of Living Index, Cedar Rapids MSA, Q2 2010 and 2012 residential projects, including: • 26 proposed rental units in the Czech Village / New Bohemia Grocery Items area. Housing • 19 downtown rental units, proposed for funded through state disaster recovery funds. Utilities • A new condominium project proposed for a site across from Transportation downtown, near the Czech Village area. Health Care On the single-family front, markets are recovering, with a couple of new subdivisions starting to move through the permitting Misc. Goods & Svcs process. Interviews suggested that developers are hesitant to Composite Index start speculative construction, however. 60 70 80 90 100 110 2010 Q2 2012 Q2 100 = average for all US Metros Page 40 Source: ACCRA Cost of Living Index Residential Demand – Cedar Rapids and Iowa City MSAs

• American Community Survey data from the U.S. Census Household Income by Age of Householder for estimates income distribution by age of householder. The Cedar Rapids and Iowa City MSAs majority of householders in the Cedar Rapids and Iowa City MSAs (72%) are between the ages of 25 and 64. < 25 • 30 percent of householders between 45 and 64 have more than 25-44 $100,000 in annual income. With more people wanting to retire in place, this is a key group to target for future housing needs. 45-64 • Nearly 20 percent of householders are over the age of 65. Of 65+ those, nearly 10 percent have more than $100,000 in annual income, approximately 3,000 households. 0% 20% 40% 60% 80% 100% • Population data for these MSAs reveals that the population over Less than $25,000 $25-50,000 $50-75,000 $75-100,000 $100,000+ 55 was 23 percent of the population in 2010 and is expected to Source: US Census grow to nearly 27 percent by 2017.

• The fastest growing segment is those between the ages of 65 and 74, projected to increase almost 5 percent annually from 2012 to Population by Age for Cedar Rapids 2017. and Iowa City MSAs 500,000 450,000 400,000 75+ 350,000 65-74 300,000 55-64 250,000 45-54 200,000

150,000 35-44 100,000 25-34 50,000 15-24 0 0-14 1990 2000 2010 2012 2017

Source: US Census and ESRI

Page 41 Residential Market Net Demand – 2012 to 2017

Net Change in Households by Age and Income -- AECOM evaluated the net change in households by age of Cedar Rapids and Iowa City MSAs, 2012-2017 householder and by income for both the Iowa City and Cedar Rapids MSAs between 2012 and 2107. The resulting analysis 6,000 of net change in households provides a clearer view of the age groups and income groups that are expected to drive 5,000 demand. AECOM selected both MSAs for housing, in part from a view that new housing built on the site should be viewed as competitive regionally. 4,000 Key findings include: 3,000 • In general, the strongest growth by age group is expected in the 55-64 and 65-74 age groups, both of which are well represented in income brackets above $75,000. 2,000 $100,000 or more • The 55-64 age group is expected to grow by 3,207 households through 2017 1,000 $75,000 to $99,999 $50,000 to $74,999 • The 65-74 group is expected to grow by a larger 4,900 households over the noted period. 0 $35,000 to $49,999 From AECOM experience, early Boomer retirements have $25,000 to $34,999 been delayed, in part due to the recession. But also, for many -1,000 $15,000 to $24,999 Boomers, the act of downsizing seems to be harder than Less than $15,000 many thought. These factors are likely to slow the rate at -2,000 which Boomers make their next housing selection.

-3,000

-4,000

-5,000 15-24 25-34 35-44 45-54 55-64 65-74 75+ Sources: U.S. Census, ESRI

Page 42 Housing Market Summary Housing Units by Year Built, Cedar Rapids 1939 or earlier 1940 to 1949 1950 to 1959 • Nearly 20 percent of the 57,500 housing units in Cedar Rapids were 1960 to 1969 built before 1939. 1970 to 1979 1980 to 1989 • Since 2000, almost 7,500 housing units have been built in the City. 1990 to 1999 2000 to 2004 • The majority of the housing units are stand alone units such as single 2005 or later family homes. 0 2,000 4,000 6,000 8,000 10,000 12,000

Source: US Census • More than one third of the housing units (39%) have 3 bedrooms. Two

bedroom units make up 30 percent of the housing market in Cedar Housing Units Number of Bedrooms Rapids. Studio • Importantly, the local market has a definite bias towards owner occupancy at a rate higher than state average, which is notable. 1 bedroom 2 bedrooms • Home ownership in Iowa City is much lower, reflecting the impact of the university 3 bedrooms 4 bedrooms

5+ bedrooms

Owner Occupied Housing Units 0 5,000 10,000 15,000 20,000 25,000 80% Source: US Census 70% Housing Units by Type, Cedar Rapids 60% 1-unit, detached 50% 1-unit, attached 40% 2 units 30% 3 or 4 units

20% 5 to 9 units 10% 10 to 19 units 0% 20 or more units Cedar Rapids MSA Des Moines MSA Iowa City MSA State of Iowa Mobile home

1990 2000 2010 2012 0 10,000 20,000 30,000 40,000 Source: US Census, ESRI Source: US Census Cost of Housing in Cedar Rapids

• Among the 25,600 housing units with a mortgage, 40 percent Monthly Costs for Housing Units with a Mortgage spend between $1,000 and $1,500 per month on select housing 45% costs. 40% 35% • For renters, 35 percent spend between $500 and $749 on rent. 30% Median rent was $641. 25% 20% • The share of household income spent on housing for homeowners 15% is considerably lower than for renters. More than one-third of 10% renters spend 35% or more of their income on rent. Only 15 5% percent of homeowners spend a that share on similar housing 0% costs. This cost sensitivity speaks in part to the region’s Less than $300 to $500 to $700 to $1,000 to $1,500 to $2,000 or preference for owner occupied housing. $300 $499 $699 $999 $1,499 $1,999 more Source: US Census

Gross Rent for Occupied Units Housing Costs as a Share of Household Income 40% 15.4% 35% 7.0% 34.4% 30% 11.6% 25% 9.5% 35% or more 20% 19.0% 12.8% 30-35% 15% 13.2% 25-30% 10% 20-25% 47.0% 5% 30.1% Less than 20% 0% Less than $200 to $300 to $500 to $750 to $1,000 to $1,500 or $200 $299 $499 $749 $999 $1,499 more Owner w/mortgage Renter

Source: US Census Source: US Census

Page 44 Condominium Sales Perspective

• There were 239 condominiums sold in Cedar Rapids from Average Price per Square Foot February 2011 through January 2013 according to MLS records. The average selling price was $124,300. $155

• Condos ranged in size from 1 to 4 bedrooms. The majority of $129 $122 units sold were 2 bedrooms averaging 1,150 square feet and $110 $106 $101 selling at $115,600. Four bedroom units sold at an average of $90 $125 per square foot. $60 • Newer condominiums are selling at a higher average per square foot price compared to existing older units. The premium is strongest for 1 and 2 bedroom units.

• One bedroom condos and newer condos are selling at a premium, 1 bedroom 2 bedrooms 3 bedrooms 4 bedrooms selling at higher than their list price. Source: MLS Existing Units Units Built Since 2009

• Listings in the downtown area have been helpful in supporting higher sales per square foot levels for condos. Relationship of List Price to Sales Price 1 2 Select Condo Sales per Square Foot by Year Built 3 $200 Bedrooms 4 $180 1970s $160 1990-94 $140 1995-99 $120 2000-04 Decade $100 2005-09 $80 2010-12 $60 Townhouse/2 story $40 Ranch Type $20 Other $0 NW

Area SW

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 0.85 0.90 0.95 1.00 1.05 1.10 1.15 Source: MLS

Page 45 Replacement Home Construction Impact

AECOM obtained building permit information from the City’s Homes Approved in ROOTs Program Rebuilding Ownership Opportunities Together (ROOT) program to 315 replace housing units lost as a result of the flood. The program offers down payment assistance up to 25% of the purchase price of an approved unit to income-qualified applicants.

• Currently in its third round of construction, 583 homes have been 163 approved valued at nearly $68.4 million.

96 • More than half of the homes in this program, 315 total, will be on the southwest side of Cedar Rapids. 9 • Of the 446 homes already built, 80% are single family homes. NW SW NE SE Source: City of Cedar Rapids • The average selling price is $153,300 with prices slightly higher in the northwest ($156,400) and northeast ($154,700).

Homes Approved in ROOTs Program and Built • On the southwest homes, the 235 homes sold for an average of $160,000 $151,400. $155,000

$150,000 235 $145,000 $140,000 $135,000 111 94 $130,000 $125,000 6 $120,000 NW SW NE SE Homes Average Selling Price Source: City of Cedar Rapids

Page 46 Permits for New Housing

Residential Building Permits • AECOM examined data from the City of Cedar Rapids on building Average permits for new homes since FY 2008-2009. Value per Properties Units Value Unit • Since FY 2008-2009, the City issued 1,359 permits to build 1,954 Single family 1,183 1,183 $112,694,913 $95,262 units of housing. The total value of the housing is estimated at Condo 122 488 $29,906,204 $61,283 nearly $164 million. Permits were issued for 1,183 single family Duplex 24 48 $3,581,725 $74,619 homes at an average value of $95,300. Multiple 6 124 $10,399,207 $83,865 Townhouse 24 111 $7,220,508 $65,050 Total 1,359 1,954 $163,802,557 $83,829

2008-09 397 579 $48,079,007 $83,038 2009-10 314 592 $49,760,394 $84,055 2010-11 389 470 $36,983,437 $78,688 2011-12 259 313 $28,979,720 $92,587 Total 1,359 1,954 $163,802,557 $83,829 Source: City of Cedar Rapids

• When this data was mapped, the majority of the permits (71 percent) were issued for development south of the river.

• However, the average value of the housing was higher north of the river. Single family homes were valued at an average of $122,700 north of the river and $90,100 south of the river. The price differential among condos, duplexes, townhomes and other multi-family units was somewhat smaller. Multi-family housing units were valued at $78,300 north of the river and $62,900 south of the river.

• Housing appears to be significantly more affordable south of the River.

Page 47 Apartment Pricing in Cedar Rapids

• AECOM further explored data provided to the City in 2012 by Maxfield Research, Inc. Their sample looked at 5,361 units with a Average Monthly Rent by Size of Apartment 2.1% vacancy rate and a weighted average rent of $627 per month $1,800 or $0.78 per square foot. $1,600 $1,400 • The majority of apartments surveyed are 2 bedrooms with 3,100 $1,200 units. The average size is 911 square feet with an average rent of $1,000 $683 per month or $0.75 per square foot. $800 • Monthly rents averaged $447 for studios up to $914 per month for $600 three bedroom apartments. $400 $200 • There was a surge in apartment building during the 1970s and again $0 in the 2000s with nearly 1,800 units added. Vacancies are lowest 0 500 1,000 1,500 2,000 among more recently built properties. Source: Maxfield Research, Inc.

Apartment Size and Pricing by Year Built Avg. Average Rent per Square Foot by Type of Unit Avg. Size Monthly Rent per Bldgs Units Vacancy (in ft2) Rent ft2 $0.92 1950s 1 97 4.1% 638 $495 $0.78 $0.85 1960s 6 1,292 2.3% 753 $623 $0.83 $0.75 1970s 13 1,064 2.1% 826 $658 $0.80 $0.67 1980s 2 238 2.5% 928 $799 $0.86 1990s 9 841 2.5% 851 $697 $0.82 2000s 13 1,797 1.7% 806 $563 $0.70 2010s 1 4 0.0% 906 $615 $0.68 NP 2 28 3.6% 914 $608 $0.66 Total 47 5,361 2.1% 807 $627 $0.78 49 2,065 3,100 147 Source: Maxfield Research, Inc. Studio 1BR 2BR 3BR

Source: Maxfield Research, Inc.

Page 48 Apartment Pricing in Cedar Rapids

Using the same data source, we evaluated average rent per square foot by type of apartment. Average Rent per Square Foot, 1 bedrooms $1.40 • Studios represent the smallest segment of the market with 49 units. At Cedar River Tower, which has 20 studio apartments, $1.20 rents average $1.09 per square foot. $1.00

• For 1 bedroom apartments, several properties had rents that $0.80 crossed the $1 per SF threshold. The Granite Ridge Apartments stood out as an older (1991) project that was renovated, and $0.60 supports rents of $1.14 to $1.26 per SF. The Grand Reserve also reflects higher unit pricing for 1 bedrooms. $0.40 $0.20 • The average two-bedroom unit prices at a discount to the average 1-bedroom, with few properties sustaining rents above the $1 per $0.00 SF threshold. These include 2 bedroom units at Magnolia Lane, 0 200 400 600 800 1,000 1,200 1,400 1,600 Granite Ridge Apartments and Grand Reserve. Source: Maxfield Research, Inc.

• Three bedroom apartments make up a smaller share of the sample, but exhibit stronger rents per square foot. Average Rent per Square Foot, 3 bedrooms $1.40

$1.20 Average Rent per Square Foot, 2 bedrooms $1.00 $1.40

$1.20 $0.80

$1.00 $0.60

$0.80 $0.40

$0.60 $0.20

$0.40 $0.00 0 200 400 600 800 1,000 1,200 1,400 1,600 $0.20 Source: Maxfield Research, Inc.

$0.00 0 200 400 600 800 1,000 1,200 1,400 1,600 Source: Maxfield Research, Inc. Senior Housing

In 2010, there were more than 40 million people over the age of 65 US Population Projections by Age, 2015-2060 living in the US, an age group that will grow steadily due to the aging 450,000,000 of the Baby Boomers. The adjacent chart shows population 400,000,000 projections through 2060 by age. In 2015, there will be nearly 48 350,000,000 million people over the age of 65, approximately 15 percent of the US 300,000,000 population. This is expected to reach 92 million by 2060, 22 percent 250,000,000 of the population. 200,000,000 Demand for senior housing is driven by several factors including age, 150,000,000 income, health and the desire to live in a seniors housing community. 100,000,000 Another important factor is the increasing life expectancy of seniors. 50,000,000 0 With more emphasis being placed on healthy, active lifestyles for 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 seniors this is both shaping expectation of what senior living should Less than 65 65 and older be like and extending the life of seniors. Source: US Census

The style of housing for seniors varies by level of care from • Nursing care properties specialize in providing intensive personal independent living to nursing homes. and/or healthcare services.

• Independent living properties emphasize hospitality services and a The three types of housing are often found on “campuses” that care-free lifestyle for relatively healthy seniors. encompass only 1 type of housing, or any variation. Continuing care retirement communities (CCRC) typically include all three types of senior • Assisted living properties cater to seniors who may need housing within a development. assistance with daily activities such as getting dressed and eating.

Besides housing, senior housing and Property Types by Services Provided care properties offer hospitality Skilled Nursing services (e.g., meals, transportation, Short-Term Long-Term housekeeping, entertainment and Activities, Transport, Care Post Acute Chronic concierge services), care services Type of Senior Housing Shelter Recreation Laundry Meals Services Care Care (assistance with bathing, grooming, Senior Apartments dressing, eating, medications and other Independent Living daily living activities) and medical Assisted Living services (skilled nursing, rehab Nursing Care therapy). Real estate component Services Component

Page 50 Senior Housing Supply of Senior Housing*, 2011 Q4 Based on 2010 population estimates, over 20% of the 12 million Properties Units Avg. Size households headed by persons at least 75 years old reside in senior Property Type housing and care properties. Majority independent living (IL) 3,977 860,422 216 Majority assisted living (AL) 6,921 519,586 75 According to the National Investment Center for the Senior Housing Majority nursing care (NC) 11,188 1,512,116 135 and Care Industry (NIC), there were 2.9 million units of senior Total 22,086 2,892,124 131 housing in the US among 22,100 properties (with a minimum of 25 units/beds). This data excludes 55+ senior apartments/homes in Campus Type active adult communities: CCRCs (must offer IL and NC) 1,975 628,554 318 Combined care properties 5,132 644,892 126 • Nursing care properties dominate the market both in terms of Freestanding properties (only 1 type) 14,979 1,618,678 108 number of properties and units/beds. Total 22,086 2,892,124 131

• Independent living properties average 216 units per development By Care Segment which nursing care facilities average 135 units. Independent Living 703,170 Assisted Living 539,630 • There are nearly 15,000 senior housing developments that are Memory Care 122,422 freestanding and offer only 1 type of housing type. Nursing Care 1,526,902 Total 2,892,124 * Properties with at least 25 units/beds that charge market rates. Source: NIC The demand for seniors housing and care is driven mainly by three factors: the desire of seniors for the less demanding, more carefree lifestyle offered by independent living, the desire of seniors for the socialization afforded by a community of peers, or the need of seniors for the daily personal care services offered by assisted living, memory care, and nursing care properties. However, many seniors prefer to age in place and not move from their existing home.

Senior housing, like other real estate, experienced declining construction through the toughest part of the recession, but is undergoing a slight uptick in recent months according to the NIC. Occupancy rates have remained strong, never dropping below 87 percent, though they are still not back at their peak of more than 90 percent in early 2007.

Page 51 Senior Housing Selected Metrics by Property Type, 2011 Q4 The cost of developing senior housing is similar to multi-family IL AL NC residential and 3 star hotels, ranging from $80 to $250 per square Average monthly rent $2,663 $3,568 $8,036 foot, according to NIC. The wide range in construction costs Average number of ADLs 0 2 4 accounts for the different types of senior housing, location, amount of Median number of units 168 67 120 common area space, quality of the build out and different building Median age of buildings (years) 22 14 35 code requirements. Rolling 4 quarter capitalization rate 7.5% 8.1% 12.6% Source: NIC Typically residents pay an initial entrance fee to live in a senior housing community as well as monthly rental and service fees. Some developments are condominium communities with services and home owner association fees. In the latter case, the resident owns the real estate; while in the entrance fee community, they receive a right to occupy without the direct ownership.

The average monthly rent, according to NIC, was $2,663 for independent living properties, $3,568 for assisted living and more than $8,000 per month for nursing care facilities. The difference in rent reflects differences in the size of the unit as well as the increased services provided for residents based on how many activities of daily living (ADL) they need help with.

Occupancy rates by type of property fell during the economic recession, but are showing signs of recovery. Despite the downturn, occupancy rates did not dip below 86 percent.

Page 52 Senior Housing in Cedar Rapids • AECOM accessed city-conducted research on market rate • Rents typically are higher for this type of living due to the senior housing facilities in Cedar Rapids that provide a range added community amenities. As needs change, residents can of care from independent living to full care. There were 6 add meal service, housekeeping, laundry and other services communities offering 905 total units., with a new facility under in addition to personal care and nursing, if needed. construction. • Rents at Silver Pines, which provide more care to residents, • Most facilities offer a variety of care to address changing start at $2,720 per month. Facilities may also charge an needs as residents age, extending from simply age restricted entrance fee, reportedly $72,000 at Meth-Wick. to essentially a “nursing home” level of care. • Although not in Cedar Rapids, for perspective, we noted that • Meth-Wick Community is the oldest and the largest with 300 units at the Village Cooperative in Cedar Falls ranged in price units across the whole spectrum of care. Most recently they from $46,000 to $83,000 plus a monthly assessment to cover added 18 apartment rentals in 2010 to their campus. the operating costs, insurance, maintenance, etc. of the entire community which is determined based on equity share. • There is a new facility in development, a cooperative, with 65 one and two bedroom homes for active adults older than 55. More than 70 percent of the homes are already sold and is projected to open in 2014.

• The majority of market rate senior housing units profiled were located south of the River, 68 percent.

Adult Assist ed Memory Housing Development Year Built Ren t al Congregate Living Car e To t al Cottage Grove Place 1996 166 31 12 209 Evergreen Estates I-III 1984-2001 39 66 105 Garnett Place 1987-1993 10 44 24 78 Meth‐Wick Community 1960-2010 108 129 32 32 301 Silver Pines 1987 55 13 68 The Views 2007 44 44 56 144 Village Cooperative 2013 65 65 To t al 183 378 272 137 970 Source: Maxfield Research, Inc.

Page 53 Residential Parcel Data Residential Characteristics, 2011 AECOM examined parcel data from the City of Cedar Rapids Value per Assessor’s GIS Office. There were more than 45,000 residential Average Average Square parcels with single family or multifamily properties on them. The total Properties size (in ft2) value Foot assessed value of these residences was a combined $4.9 billion in South Side 2011. Single-Family 17,430 980 $102,800 $105 Condo 3,464 800 $68,200 $85 Combined, there are 37,120 single family homes in Cedar Rapids Multi-Family 495 1,000 $80,500 $80 which average 1,000 square feet and $114 per square foot in value. Total 21,389 950 $96,700 $102 Homes on the north side of Cedar Rapids are slightly larger than those on the south side and valued slightly higher per square foot. North Side Single-Family 19,690 1,010 $123,200 $122 The number of multi-family housing units and condos are more Condo 3,481 1,050 $87,500 $83 evenly split in terms of total numbers. However, units are bigger on Multi-Family 560 1,080 $103,500 $95 the north side. Condominiums on the south side of Cedar Rapids are Total 23,731 1,020 $117,500 $115 valued at $85 per square foot, compared to $83 per square foot for condos on the north side. This may be since the condos are newer Total on the south side. The median year built was 2001 compared to Single-Family 37,120 1,000 $113,600 $114 1985 for the north side units. Condo 6,945 930 $77,900 $84 Multi-Family 1,055 1,050 $92,700 $89 Total 45,120 990 $107,600 $109 Size of Single Family Home by Year Built Source: City of Cedar Rapids 5,000 4,500 Newer single family homes are larger than those built in previous 4,000 years as shown in the chart to the left. Among single family homes 3,500 built in the 1970s, the average size was 1,045 square feet. Homes 3,000 built in Cedar Rapids since 2000 average 1,345 square feet. 2,500 2,000 At the same, the average value per square foot is also higher for 1,500 newer homes. For homes built during the 1970s, the average value 1,000 is $111 per square foot. Homes built during the 2000s average $138 500 per square foot. 0 1812 1862 1912 1962 2012

Source: City of Cedar Rapids

Page 54 Parcel Data – Single Family Homes We next compared the value per square foot of single family homes on the north and south sides of Cedar Rapids. As shown on the Value per Square Foot by Size, South Side SF Homes previous page, homes on the south side are valued at $105 per $1,000 square foot compared to $122 per square foot for homes on the north $900 side. The adjacent charts show fluctuations in this value by size of $800 the home. Typically, smaller homes have a higher value per square $700 foot. $600 $500 While there are more homes on the north side, there range of value is $400 also higher. A 1,000 square foot home on the south side is an $300 estimated $106 per square foot, compared to $125 per square foot $200 on the north side, a 17 percent difference. As the home size $100 increases, the differential falls . A 2,000 square foot home on the $0 south side is valued at an estimated $94 per square foot compared to 0 1,000 2,000 3,000 4,000 5,000 $107 per square foot on the north side, a 14 percent difference. Source: City of Cedar Rapids

Value per Square Foot by Size, North Side SF Homes $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 0 1,000 2,000 3,000 4,000 5,000

Source: City of Cedar Rapids

Page 55 Parcel Data – Condominiums There are nearly 7,000 condominiums in Cedar Rapids, fairly evenly split among the north and south sides of the city. However, the age Value per Square Foot, South Side Condos of condos is considerably older on the north side with some units built $800 pre-World War I. Median year bulit on the north side is 1985 and $700 2001 on the south side. Condos on the north side are also larger, averaging 1,054 square feet compared to 803 square feet on the $600 south side, and vary more in size. $500

What’s interesting to note among the value per square foot for $400 condos, is that the larger in size, the higher the value among units on $300 the south side. However, there are fewer units greater than 1,500 square feet. For example, a 1,000 square foot condo on the north $200 side is valued at an estimated $86.65 per square foot, compared to $100 $84.81 on the south side. A 1,500 square foot condo is valued at $77.35 per square foot on the north side and $84.31 per square foot $0 on the south side. 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Value per Square Foot, North Side Condos $800 $700

$600

$500

$400 $300

$200

$100

$0 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Page 56 Parcel Data – Condominiums

It is clear from the adjacent table that the majority of recent Condominiums by Year Built development in the condominium market is occurring on the South Average Average Value Side of Cedar Rapids. Of the 2,550 units built since 2000, 80 percent Units size (ft2) value per ft2 (2,043 units) were built on the south side. These units also have a South higher average value per square foot on the south side than the north Pre-1949 0 side, though the units are still slightly smaller than their north side 1950s 1 1,022 $93,400 $91 counterparts. 1960s 33 545 $28,800 $53 1970s 195 804 $60,900 $76 1980s 72 759 $45,500 $60 1990s 1,120 825 $62,500 $76 2000s 2,007 794 $73,300 $92 2010s 36 971 $81,900 $84 Total 3,464 803 $68,200 $85

North Pre-1949 111 1,133 $82,400 $73 1950s 4 612 $53,000 $87 1960s 212 826 $58,800 $71 1970s 1,193 1,001 $64,400 $64 1980s 676 1,157 $97,600 $84 1990s 778 1,174 $115,800 $99 2000s 464 965 $101,900 $106 2010s 43 690 $60,000 $87 Total 3,481 1,054 $87,500 $83 Source: City of Cedar Rapids

Page 57 Parcel Data – Vacant Lots

Data from the Assessor’s office reveals 1,700 vacant parcels located throughout Cedar Rapids. Of those, 992 are on the south side of the City. Of the 1,700 vacant parcels, 439 are unuseable as designated by the City.

The parcels database from the City of Cedar Rapids contains the sales price of 235 vacant parcels that have sold since 1996, valued at $654.7 million. The average price per square foot of vacant land sold is $7.64. Land on the north side of Cedar Rapids has sold for an average of $9.39 per square foot, compared to $7.27 per square foot on the south side. In part, this may reflect basics economics. As vacant land becomes scarce, it becomes more valuable.

Analysis of CoStar data reveals that there are 79 properties currently for sale, land only. Of those, 67 are zoned commercial with 534 acres. The total selling price is $63.4 million or $118,800 per acre. That translates to roughly $2.73 per square foot. There is considerable property available for development in and around the Westdale Mall.

Page 58 Residential Demand – Cedar Rapids and Iowa City MSAs

AECOM estimated potential demand for housing units using data from the U.S. Census and ESRI forecasts. Demand was forecast for Housing Net Cedar Rapids and Iowa City MSAs combined. Population Units Housing • In 2012, the population of the MSAs was approximately 419,000 2012 418,600 181,000 with 181,000 housing units. 2017 • We projected 2017 population under a high scenario reflecting Low scenario 441,400 189,700 8,700 growth trends from the 1990’s and a low scenario reflecting trends from the 2000’s. High scenario 445,800 191,600 10,600 Sources: U.S. Census, ESRI, AECOM • Historically, there have been an average of 2.3 people per housing unit. Using this relationship, we estimate housing demand to be between 8,700 and 10,600 new units by 2017. This is an average of between 1,740 and 2,120 annual housing units. Low High • Based on historical owner / renter breakdowns for the region, Scenario Scenario there is potential demand for between 520 and 740 rental housing Average annual demand 1,740 2,120 units and 1,130 and 1,480 owner occupied units every year for the next five years. Scenario 1 Owner occupied = 65% 1,130 1,380 Renter occupied = 35% 610 740

Scenario 2 Owner occupied = 70% 1,220 1,480 Renter occupied = 30% 520 640 Sources: U.S. Census, ESRI, AECOM

Page 59 Residential Market Findings

Findings include: by insurance and payments for services. Locally, a sample of about 900 units was identified with several operators, with a small • For Residential, the Westdale mall site should be viewed as a share of units built since 2000. competitive location for people who currently work in Iowa City, as well as Cedar Rapids. For this reason, our approach looked at • While the overall senior market appears strong, the historic trend is demand growth in both MSAs. the majority of seniors choose to age in place. With a significant share of boomers now entering retirement, how this trend may shift • The Cedar Rapids MSA has an unusually low cost of living index will be critical. factor for housing, 25% below the average for all MSAs. In spite of this factor, our analysis did yield relevant market premiums for Prognosis: “Reasonable” population growth expectations are in newer construction condominiums (1bedroom @ $150/sf), as well place for the regional market, which align with a Westdale site that as a small sample of rental units priced above $1/SF. For the rental should be competitive. Although overall residential unit values are market in particular, newer units are not priced at a premium to very affordable, the market does include several projects (older as older units. well as newer) which are supporting higher rents and attractive condominium pricing. • There are very few modern “urban” rental units in the market, and in general, walkability is limited. • Senior housing markets will grow in the near-term, linked with identified strong growth in 55-64 and 65 -74 age groups across Iowa City and Cedar Rapids through 2017. Based on experience, we would anticipate a shift from condominium and age restricted units to projects offering a continuum of care toward the end of the five year period. From a real estate standpoint, as projects move further into the CCRC model, the business case is more influenced

Page 60 Hotel Market Analysis

The Hotel Market Analysis folds in several overlapping components: • Interviews with local convention and visitors bureau staff to identify tourism demand drivers • Analysis of Smith Travel Research data on local hotel conditions, as well as focused study of core competitive hotels.

Page 61 Hotel Market

Market Insights Cedar Rapids MSA Hotel Tax Collections • The local hotel market has a stronger corporate presence, and $3,000,000 benefits from overflow from some University of Iowa events. The $2,900,000 Iowa City market is more focused on health care and university related events. $2,800,000 $2,700,000 • Post 2008 post-flood during recovery efforts provided $2,600,000 considerable short term support to local hotels. This trend is reinforced in local hotel tax collections. $2,500,000 $2,400,000 • Further analysis of hotel data points to strong recovery in hotel $2,300,000 activity since FY 10, with annualized growth in revenue at a 5% rate. Since FY06, overall hotel revenue has increased at a slower $2,200,000 rate, about 2.6%. Looking back to FY 02, hotel taxes have grown $2,100,000 at a relevant annualized rate of 3.8%, which is significant. $2,000,000 FY 12 FY 11 FY 10 FY 09 FY 08 FY 07 FY 06 • Local interviews suggested that, beyond the reopening of the Convention Center hotel in downtown, there are reports of 1 or 2 other hotels looking for sites, reportedly including a Marriott Residence Inn on the SW side.

• For the SW side of town, there is a hotel-focused node at 33rd Avenue SW and I-380. This cluster saw the addition of a Fairfield Inn recently. Hotels in this area are generally older, however.

• For the SW side, CVB officials also noted the growing importance of Vets Stadium, home of the Class A Minnesota Twins Organization, and the Ice Arena, which hosts a USHL hockey team, as supportive of hotel demand.

• CVB officials also spoke of connectivity to the Amana Colonies, which currently do not have hotel room capacity, as also supportive of future growth in hotel demand.

Page 62 Hotel Market

Broader Hotel Market Indicators Number of Hotels and Rooms in Cedar Rapids • In 2013, the analysis identified 35 hotels in Cedar Rapids with 2,934 rooms. The largest share of rooms are 3,500 classified as Upper Midscale which are at the properties 3,000 such as Hampton Inn, Holiday Inn, Fairfield Inn & Suites 2,500 and the Country Inn & Suites. 2,000 • 12 hotels were added in this market between 1990 and 1,500 1999 increasing the inventory by 866 rooms. Since then, only 8 hotels have been added with 553 rooms. Hotel 1,000 rooms built since 2000 represent only 16% of inventory, 500 5 8 15 27 28 29 30 30 31 31 31 31 31 32 34 34 34 35 again reinforcing the generally older age of existing units. 0 79 89 99 Target Market Indicators - - - 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1970 - 1970 1980 1990

• Detailed analysis of 10 select hotel properties covering Pre about 1,000 rooms in Cedar Rapids was also conducted. Economy Indep Midscale Upper Midscale Upscale Upper Upscale

• Analysis of this competitive sample shows that annual Source: Smith Travel Research occupancy rates have approached 70 percent through the end of 2012.

• Revenue per available room (RevPAR) and average daily rate (ADR) have been gradually increasing overall since Competitive Hotel Set Performance Metrics, Noted Years 2007. Year ADR RevPar Supply Demand Occupancy % 2007 95.94 66.18 260,975 180,023 69.0 • Both supply and demand have growth at pace, also a 2008 101.60 77.46 260,975 198,958 76.2 generally positive sign. 2009 99.96 67.44 298,570 201,429 67.5 • Possible risks for the hotel market relate to future decisions 2010 98.17 68.28 313,105 217,761 69.5 that Rockwell Collins might make regarding their 2011 101.07 68.82 333,245 226,917 68.1 operations, which could impact hotels on the NE side of 2012 102.29 70.45 363,973 250,677 68.9 town. CAGR 1.1% 1.0% 5.7% 5.7% 0.0%

Page 63 Hotel Market Implications

Of the 10 properties examined, the largest is the Marriott with 220 rooms. The market will also be impacted by the impending re- Occupancy and RevPAR for Select Hotels opening of the former Crowne Plaza Convention Center, rebranded 78% as a Doubletree by Hilton. Among these 10 properties, demand has 76% been growing at an average annual rate of 6.8 percent since 2007. Revenues have increased 8.2 percent annually over this same time 74% period. Although with the convention center hotel closed, these 72% other properties likely experienced some increased demand from 70% the overflow, the core market appears to be reasonably strong, $77 pointing to an ability to absorb additional room supply. 68% 66% $70 $68 $69 Interviews with local officials with the Convention and Visitors $67 64% $66 bureau suggested that the new hotel and convention space would also generate additional room demand, beyond what the market is 62% currently experiencing. 2007 2008 2009 2010 2011 2012 Source: STR RevPAR Occupancy The analysis points to a local hotel market which is positioned to absorb additional supply, within reason.

Property Year Open Cl ass Rooms Hawthorn Suites by Wyndham Cedar Rapids Aug 2001 Midscale Class 82 Mainstay Suites Cedar Rapids Jun 2002 Midscale Class 75 Fairfield Inn & Suites Cedar Rapids Feb 2012 Upper Midscale Class 92 Hampton Inn Cedar Rapids Jun 1994 Upper Midscale Class 106 Hampton Inn Suites Cedar Rapids North Jan 2009 Upper Midscale Class 103 Holiday Inn Express & Suites Cedar Rapids I 380 Nov 1997 Upper Midscale Class 83 Holiday Inn Express Cedar Rapids Collins Rd May 1996 Upper Midscale Class 83 Homewood Suites Cedar Rapids North Aug 2010 Up scale Class 95 Residence Inn Cedar Rapids Jul 1997 Up scale Class 66 Marriott Cedar Rapids Aug 1988 Upper Upscale Class 220 So u r ce: STR

Page 64 Office Market Analysis

The Office Market Analysis folds in several components: • Analysis of office using sectors of the local economy • Evaluation of vacant office space across the region, as well as trends regarding new construction and supportable lease rates

Page 65 Office Using Employment Change, Cedar Rapids General Market Perspectives MSA, Noted Years Information 2003 to Demand Drivers 2012 Financial Office using employment data, as reported by US Bureau of Labor 2010 to Services Statistics, was used to frame grown in sectors that typically rely on 2012 office space. Four categories of employment were considered: Professional Information, Financial Services, Professional Services, and Education Services & Health Services. Findings included: Education & • Looking at data between 2003 and 2012, total employment in Health Services Information, Financial Services, and Professional Services has increased very slightly, from about 28,100 positions to 28,400 -2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 positions, representing 0.1% annualized growth. • Within these “typical” office using sectors, information saw the Office Space Built by Year, in Square Feet biggest decrease (1,000 jobs), which was offset by growth in financial services (400 jobs) and Professional Services (1,000 jobs). 250,000 Looking at core office using sectors, employment growth since 2003 200,000 would have been sufficient to support a net gain of about 90,000 to 120,000 SF total, or about 21,000 square feet per year in new 150,000 demand. • Health and education employment grew more substantially, 100,000 increasing from about 15,800 jobs to about 19,700 jobs, 50,000 representing growth of about 2.5%, in spite of the recession. Office Inventory Discussion 0

• Across Cedar Rapids, office construction has slowed since 2004, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 when over 200,000 SF was built. New construction since then has been about 25,000 SF per year, roughly equivalent to about 100 to Average Office Floor plate Size, by Decade 150 new office jobs per year. 25,000 • CoStar and local sources identified at least 6 proposed office 20,000 projects, including the Fountains, being proposed at present. 15,000 CoStar shows a potential for about 160,000 to 300,000 SF of office space proposed. 10,000 5,000 • Average office floor plates have been trending upward slightly since the 1960’s, with recently built buildings averaging 13,000 SF / floor. 0

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Avg. Annual Office SF General Office Market Perspectives Delivered

Office Market Trends 1959 - 1950 • Overall deliveries by year built point to a considerable period of development in the 1990’s at a pace roughly double (about 1.2 million SF) historic construction 1969 - 1960 per decade (about 558,300 sf per decade) 1979 - 1970 • The market has a relatively large supply of older space, with Class B / C accounting for about 95% of the market. The majority of office space is located 1989 - 1980 either downtown or on the NE side of Cedar Rapids.

• Rent analysis did not discern an appreciable distinction in rent between Class B 1999 - 1990 and C space. Class A rents were noted in the $15 to $16 range. For buildings built since 2005, the current average weighted rent is about $14.10 2010 - 2000 • Costar and Skogman Reality vary slightly in the amount of vacant office space. 0 50,000 100,000 150,000 Costar identifies about 1.4 million square feet vacant, and Skogman identified about 1.25 million square feet vacant. Against an identified inventory of about 6 million square feet (Costar) current office vacancy stands at about 25%. Decade Total SF % of Total Avg Building Size • It is apparent that several older and large vacant office buildings are influencing 2010 - 2000 661,272 11% 16,903 vacancy levels. 1999 - 1990 1,202,223 21% 15,461 • Assessment records suggest that Rockwell Collins owns / leases a significant 1989 - 1980 856,315 15% 44,516 amount of office space locally. Just looking at space owned adds up to about 1979 - 1970 715,893 12% 25,211 700,000 SF. As debate about the sequester evolves, aligned with a general sense that DoD spending will decrease in coming years, defense contractors are 1969 - 1960 239,742 4% 11,006 likely to consider restructuring in some fashion. On the positive side, Rockwell is 1959 - 1950 421,359 7% 32,285 relatively more diversified than other aerospace companies. Before 1950 1,734,896 30% 26,643 • Average building sizes have been trending downward since the 1980’s with a Total 5,831,700 100% 25,147 current average of about 16,000 SF per building. Source: Costar

Office Class SF By Class % Avg Year Built Avg Rent Vacancy Vacancy rate A 251,218 4.1% 1995 15.59 69,869 28% B 3,153,647 51.8% 1990 10.81 714,999 23% C 2,681,047 44.1% 1951 9.57 664,528 25% Totals 6,085,912 1,449,396 Source: Costar Page 67 National Office Use Trends

In addition, companies are reacting to both tighter economic conditions as well as a need to instill more collaboration by shifting toward open office layouts, which also reduce the amount of office space per employee. While traditional enclosed office plans required about 300 Sf per employee, newer open collaborative spaces are trending down toward 175 to 150 SF per employee. Larger companies appear to be pushing the SF per employee factor lower still, down to 130 SF per person on average. Floor Rentable Square Feet Per Person

300 275 250 225 200 175 150 125 100 75

Mobile Touchdown Mostly Mixed open workplaces workplaces enclosed and enclosed with “free with resident office workplaces address” support (e.g., workplaces (1/2 to 2/3 open) spaces for sales, consulting mobile staff and telework sites) Open collaborative Call workplaces centers (all assigned space)

Page 68 Office Market Findings

Findings include: The local office market is reacting to several forces: • Modest net growth in employment for traditional sectors that use office space, with stronger growth in medical employment. • A considerable supply of older and arguably obsolete space in the market, with overall vacancy levels above 20%. • A small supply of “contemporary” office space, class A or otherwise. • Some concern over evolving decisions at Rockwell Collins regarding their space needs. Our analysis points to a near-term market that is going to be tenant driven, with gradual recovery toward an average pace of about 50,000 SF of new office construction per year within 2-3 years, with older but not historic buildings being competitively challenged, which will dampen rent growth. A lack of modern space in the market is one clear driver of new space.

Page 69 Overall Considerations

• Market conditions in Cedar Rapids need to be viewed in broader here link with site planning factors, including: 1) the ability to context with the pace of economic recovery across the Midwest. provide a larger average unit size compared to the competition at a From this vantage point, Cedar Rapids (and Iowa) would represent similar price point, and 2) the ability to support a larger parking growth market opportunities, given that larger markets (Illinois) ratio. Particularly for the boomer / retiree segment, 1.5 to 2 cars appear to be lagging in the recovery. per unit will be hard to avoid. • The retail assessment noted attractive pace of retail sales, in • While the senior market is also seen as an opportunity, our clear context with below average employment growth. With a broader preference for the mixed use core of the project would be for a recovery under way, support for retail sales seems apparent. condominium offering, rather than age restricted or continuing care models, the latter of which are seen to align better with a health • While the local office market is viewed with trepidation, from a site care anchor. standpoint, office uses are helpful in supporting the viability of mixed use districts, particularly restaurants. From this perspective, • Lastly, also with respect to senior housing and health care, both a health care anchor would also be viewed positively. models are largely dictated by insurance payments and doctor relationships with hospitals, rather than market lease rates. As • For health care specifically, there are few US examples of mixed such, it is expected that these users should otherwise be generally use projects with truly integrated health care components. At least more willing to pay a premium for a given property, compared to one town center project in Baton Rouge (Perkins Rowe) was noted other market driven uses (retail or office). for the presence of a health care anchor. Nationally, projects that integrate health care in a lifestyle and wellness setting are moving to the forefront. Careful planning is in order, to ensure that

outcomes beneficial to retail align with health care priorities.

• The market study did identify opportunities on the residential side, with an initial focus on condominium development. Considerations

Page 70 Data Sources

The effort has relied on an array of data sources: • US Census • City of Cedar Rapids • Cedar Rapids Assessor • Cedar Rapids Bank & Trust • Cedar Rapids Metro Economic Alliance • Cedar Rapids Area Convention and Visitors Bureau • CB Richard Ellis • COSTAR • Environmental Systems Research Institute, Inc. (ESRI) • Federal Reserve Bank of Chicago • GLD Commercial Real Estate • Iowa Department of Revenue • Linn County Regional Planning Commission • Linn County Assessor • Iowa Realty • Office of Social and Economic Trend Analysis (SETA) • Skogman Reality • US Bank • US Bureau of Economic Analysis

Page 71 General Limiting Conditions

Every reasonable effort has been made to ensure that the data Possession of this study does not carry with it the right of publication contained in this report are accurate as of the date of this study; thereof or to use the name of "AECOM" or “Economics Research however, factors exist that are outside the control of AECOM and that Associates” in any manner without first obtaining the prior written may affect the estimates and/or projections noted herein. This study is consent of AECOM. No abstracting, excerpting or summarization of this based on estimates, assumptions and other information developed by study may be made without first obtaining the prior written consent of AECOM from its independent research effort, general knowledge of the AECOM. Further, AECOM has served solely in the capacity of industry, and information provided by and consultations with the client consultant and has not rendered any expert opinions. This report is not and the client's representatives. No responsibility is assumed for to be used in conjunction with any public or private offering of securities, inaccuracies in reporting by the client, the client's agent and debt, equity, or other similar purpose where it may be relied upon to any representatives, or any other data source used in preparing or degree by any person other than the client, nor is any third party entitled presenting this study. to rely upon this report, without first obtaining the prior written consent of AECOM. This study may not be used for purposes other than that for which it is prepared or for which prior written consent has first been This report is based on information that was current as of April 2013 and obtained from AECOM. Any changes made to the study, or any use of AECOM has not undertaken any update of its research effort since such the study not specifically prescribed under agreement between the date. parties or otherwise expressly approved by AECOM, shall be at the sole risk of the party making such changes or adopting such use. Because future events and circumstances, many of which are not known as of the date of this study, may affect the estimates contained therein, This study is qualified in its entirety by, and should be considered in light no warranty or representation is made by AECOM that any of the of, these limitations, conditions and considerations. projected values or results contained in this study will actually be achieved.

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