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INVESTMENT SERVICES REPORT -ST. PAUL | YEAR END 2018 STATE OF THE MSP MARKET & 2019 OUTLOOK Strong 2018 leads to even stronger 2019

Looking back at 2018, it was a great year for commercial real estate estate product type for the past several years and we don’t in Minneapolis-St. Paul. There were some major capital market sales foresee this trend slowing down. in all product types across the metro with pricing and competition »» Office product will continue to trade at a steady pace with remaining as fierce as ever. This Investment Services Report, investors favoring urban assets and updated, well-located published annually by the Colliers International | Minneapolis-St. suburban assets. Paul office, is designed to track notable transactions and provide thoughtful reflection on the the previous year, while also looking to »» Retail product will continue to evolve in the market, with the future of our industry into 2019. the stable economy in the Twin Cities continuing to inspire interest in retail investment. We are looking to this new year with optimism knowing that over »» Multifamily product deliveries will slow their frantic pace and the past decade the Twin Cities have become a true “18-Hour City,” assets of all classes will continue to see investment movement. with services, amenities and job opportunities similar to those in the largest markets. In addition, Minneapolis-St. Paul continues We at Colliers International | Minneapolis-St. Paul are looking to attract top talent for our diverse industry base and consistently forward to a bright 2019 and are excited to help our clients and ranks highly as a prime location to live, work and play. partners achieve their capital investment goals to make this one of the best years yet! We believe Minneapolis-St. Paul will continue to see momentum in our marketplace for the coming year, notwithstanding some challenges, but with overall fundamentals that are very strong WILLIAM WARDWELL and local and national demand for all investment product types EVP, Managing Director-Brokerage remaining steady. Colliers MSP

Key 2019 Local Investment Trends 952 897 7828 [email protected]

»» Industrial has been the best performing commercial real INSIGHT EXPERT

STATE OF THE CURRENT DEBT MARKET A glimpse into 2019 debt and equity finance

Given the current drop in treasuries, commercial real estate investors in the U.S. are feeling very confident. This is considering U.S. 10-YEAR U.S.TREASURY 10 Year Treasury Closing ValueCLOSING VALUE* the fourth interest rate hike in 2018. The outlook for cap rates in 3.3 3.2 2019 remains on a high note. The debt and equity markets for 3.1 this year are highly fluid. Financeable product types are good 3 in the retail, office and multifamily markets, and strong in the 2.9 2.8 industrial sector. There has been a flight to quality out of the 2.7 stock market starting in the fourth quarter of 2018. This should 2.6 further compress the bond and treasury markets. Because of this, 2.5 May July April June March August

investors seeking yield will jump more heavily into the commercial October January Febuary December November real estate market. September *source: cnbc.com Life companies will probably increase their projections in 2019. CMBS is alive and well. With 10 year swaps, the index eased back MICHAEL STROBER down to the 275 range and rates have come way in. Even with Executive Managing Director spreads at 190-220, we are still looking at 4.5-4.95 pricing. Life Capital Markets | USA company spreads are averaging 130-150 for all product types. This puts pricing back down to the 4% level. 813 559 7005 [email protected] 2019 is slated to be an exciting year in commercial real estate. INSIGHT EXPERT

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International STATE OF THE U.S. MARKET & 2019 OUTLOOK The long economic expansion looks to slow, property markets will follow

Since the Great Recession officially ended in June of 2009, our U.S. property markets have clearly benefited from the late cycle economy has recorded more than 110 consecutive months of fiscal stimulus that fostered this year’s strong economy. positive growth–the second longest in our nation’s history, and Fundamentals in all sectors are as strong or stronger than they soon to become the longest, if (as seems most likely) we can were at the peak of the last cycle, and vacancy rates are at their sustain the growth into next summer. lowest points in at least a decade. Key Takeaways We’ve also enjoyed 97 straight months of job growth, already the longest in our history. Indeed, many young adults have »» Despite current strength in economic drivers, slower known nothing but an improving economy and favorable job economic and job growth will soon begin to challenge prospects for the entirety of their professional careers. property fundamentals. »» Tapering global growth, fading fiscal stimulus and rising These conditions have supported a long bull run in financial interest rates are combining to slow our economy, markets generally, but especially in property markets. We while escalating trade tensions represent a significant reported last year that occupancy rates and rents for most downside risk. Expect a material slowdown (but not property types, in most markets, are above their long-term necessarily a recession) by mid-2020. averages and at or near their high points in this cycle; conditions have generally improved further in the 12 months since. »» The industrial sector will continue to be the top performing property type, and the sector most favored by investors. But if the economic skies are still mostly sunny, there are Much of its gains have come at the expense of the gathering clouds on the horizon: rising inflation and interest beleaguered retail sector, where the shakeout is still far from rates, slowing global growth and a flattening yield curve, over, despite recent successes in omnichannel retailing. among other end-of-cycle signals. And there are clear signs that the best years of this property cycle are now behind us. »» The multifamily sector’s strong demand shook off the Investment returns are barely half their 2015 level. supply challenges of the past couple of years. It will perform relatively well during a downturn due to structural changes Almost everything seems to be going well with the U.S. and cyclical dynamics favoring renting over homebuying. economy: households are consuming, businesses are investing, manufacturers are producing and the government »» Supply and demand dynamics in the office sector have is spending. Surveys of both consumers and business leaders remained broadly balanced. This notoriously cyclical sector remain near multi-decade highs, which translates into stronger should perform relatively well in the next downturn, as consumer spending and business investment. A pickup in construction has been moderate and the new coworking government spending is also helping, fueled by the January segment may provide a downside buffer. 2018 Bipartisan Budget Act—government contributions to GDP »» Though property markets peaked for this cycle in 2015, growth this quarter were the strongest since early 2016. leasing and sales transaction activity remain robust and pricing firm. Both may slow sharply in the next two Add it all up and the U.S. economy is on track this year to record years, along with price appreciation and rent growth. its strongest performance of this cycle. But below the surface, signs are emerging that after almost a decade of uninterrupted, »» Tenants and investors alike should adopt more if fitful growth, a slowdown is starting to take hold. Business defensive strategies in advance of the slowdown. investment is slowing in response to downshifting global growth, Tenants will want to seek out flexible terms, while tensions with our trading partners are escalating and interest rates landlords look to shed underperforming assets. are trending up, making borrowing more expensive and riskier. Rising interest rates are also constraining the housing market. Often early indicators, home sales and home price appreciation ANDREW NELSON are cooling—potentially signaling an end to this economic cycle. Chief Economist Colliers International | USA Nonetheless, today’s economic conditions remain robust and 415 288 7864 supportive of strong property fundamentals, with vigorous job [email protected]

growth given the lowest rate of unemployment in 50 years. INSIGHT EXPERT

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International INVESTMENT SERVICES TEAMS Our experts in industrial, office, retail and multifamily investment services

BOB POUNDS AMY SENN Senior Vice President Vice President 952 897 7753 952 897 7833 [email protected] [email protected]

TIM PRINSEN LORI POUNDS CCIM Senior Vice President Senior Real Estate Analyst 952 897 7748 952 897 7820 [email protected] [email protected]

MARK KOLSRUD SIOR TED BICKEL Senior Vice President Senior Vice President 952 897 7790 952 837 3097 [email protected] [email protected]

DAVID BERGLUND JEFF BUDISH Senior Vice President Vice President 952 897 7789 952 897 7755 [email protected] [email protected]

COLIN RYAN TED GONSIOR Senior Vice President Senior Vice President 952 837 3093 952 897 7744 [email protected] [email protected]

PIA ROBERTSON CCIM BRADY DEVORE Senior Real Estate Analyst Associate 952 837 3080 952 374 5825 [email protected] [email protected]

PETE CARBONNEAU LAUREN PANZER Financial Analyst Real Estate Analyst 952 374 5860 952 837 3018 [email protected] [email protected]

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International Research & Forecast Report >

INDUSTRIAL INVESTMENT SERVICES MINNEAPOLIS-ST. PAUL | YEAR END 2018

U.S. NATIONAL INDUSTRIAL TRENDS Industrial sector extends its outperformance into fourth consecutive year

»» The industrial market is benefiting from a confluence U.S. Industrial of cyclical and structural factors: support from the Average Price Per SF prolonged U.S. economic expansion is being augmented US Industrial Price ($/SqFt) by demand from rapidly evolving e-commerce and $100 logistics dynamics. About a third of post-Great Financial $90 Crisis (GFC) demand for industrial space has been $80 $70 attributed to e-commerce, a trend expected to continue. $60 $50

»» Construction volumes are significant and rising, but $/SF $40 thus far, have been more than offset by robust demand. $30 As of Q3 2018, average vacancy was a low 4.9%, while $20 rent gains continue to be strong. $10 $- »» Although virtually all metro markets now have industrial 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 projects underway, the nation’s dominant distribution hubs—Southern California’s Inland Empire, Dallas-Fort Worth, Atlanta and Chicago—represent a quarter of the U.S. Industrial 268 million square feet currently underway. Transaction Volume US Industrial Volume ($) »» Looking beyond 2019, significant headwinds loom: labor shortages and rising wages; escalating trade 90 disputes with major trading partners and expectations 80 of reduced global growth in the coming year. With 70 domestic economic growth also forecasted to slow, 60 industrial space demand is expected to step down from 50 its recent frenetic pace. Billions 40 30 20 2019 Industrial Outlook 10 0 The industrial sector will continue to be a leading product 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 type but will moderate from its recent fever pitch.

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International MINNEAPOLIS-ST. PAUL INDUSTRIAL TRENDS Industrial investment sales

»» Local and regional owners and developers are digging into Minneapolis-St. Paul Industrial possibilities in Opportunity Zone areas. The same level of Average Price Per SF Minneapolis Industrial Price ($/SqFt) interest is not yet being seen from institutional investors, $80 as the opportunities are too granular at this time. $70 »» Flex/Office Showroom product broke the $100-price- $60 per-square-foot ceiling in 2018. Most noteworthy is $50 the Greenfield Office Industrial Portfolio, which sold $40 $/SF for $116/SF. This high sale price benchmark has set $30 a new price point standard for this type of product $20 going into 2019. $10 $- »» Flex/Office Showroom cap rates currently hover 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 between 7.5% to 9%. Rates are expected to compress in 2019, based on product investment demand.

»» Value-add investment opportunites remain the most Minneapolis-St. Paul Industrial coveted product type. Transaction Volume

»» The majority of large transactions have been secured Total Industrial Sales Volume through investors that partner with local operators 1.4 backed by national or international capital. The 1.2

frequency of this structure is increasing. Capital inflows 1 remain strong and the trend is expected to continue. 0.8

»» There is no bottom on cap rates for new Office Billions 0.6

Warehouse or Bulk buildings with 28-foot clear height 0.4 or higher. Cap rates are nearing the 5.5% mark for new, high-quality product. 0.2 0 »» Blended rental rates are increasing for industrial 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 product, specifically because of the amount, size and quality of the office portion of the build-out.

»» Rising new construction pricing is leading to overall rent growth, which is positively impacting the investment market.

Industrial properties continue to be the commercial real estate product type that peak the most investment interest due in part to lower tenant improvement costs and a growing tenant pool.

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International MARKET SPOTLIGHT LARGEST LOCAL INDUSTRIAL Industrial market sees historic sales volume TRANSACTIONS IN 2018 At the close of the fourth quarter of 2018, the Minneapolis- St. Paul industrial investment market experienced the highest total gross sales in the past decade, ending the year at roughly $1,020,000,000.

The flow of institutional capital Greenfield MN Industrial Portfolio | 11 properties | 850,069 SF | $70.25M seeking industrial real estate in the Twin Cities market continues to be at an all-time high. The predominate focus for institutional capital continues

to be on large portfolios. Capital & Typerion Partners Portfolio | 9 properties | 838,846 SF | $50.8M

Acquiring sizeable portfolios allows institutions to place significant dollars in a short period of time, while at the same time they instantly gain a market presence. The increase comes from all buyer groups (institutions, REITS and private equity) investing in the Twin Cities market, due in part to the fact that the Minneapolis-St. Paul metro is considered a secondary market. This allows for higher Greenfield Office Industrial Portfolio | 2 properties | 374,924 SF | $43.6M returns than in major metropolitan markets.

Additionally, when we reach this stage of the investment cycle, capital begins to seek markets that do not have significant swings in values, and the Twin Cities is one of the most stable markets in North America.

That said, the outlook for industrial investment sales into Greenfield US Light Industrial Portfolio | 7 properties | 994,184 SF | $42.9M 2019 appears to be positive, considering the 10-year treasury continues to be lower than all of 2018. Industrial product continues to be the bell of the ball in commercial real estate, due to its low cost of capital needed to operate.

It will be interesting to keep an eye on both interest rates and the activity of institutional interest in the Twin Cities into 2019, as both will have an impact of real estate pricing. Altus Properties Portfolio | 4 properties | 612,945 SF | $40.4M

Red Rock Industrial Building | 10100 89th Ave N | 319,000 SF | $27.7M

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International NORTHEAST INDUSTRIAL SUBMARKET VAC RATE 6.1% | 2018 ABSORPTION 189,000 | NEW CONSTRUCTION LEASING HIGHLIGHTS 1,099,200 SF NORTHEAST The strongest leasing areas of the Northeast have been newer, modern buildings in infill locations, with new construction on the northern side of the market impacting VACANCY NET ABSORPTION RENTAL RATE the overall statistics. This submarket continues to maintain 2019 OUTLOOK below average vacancy and higher-than-average rents, due to the amount of centrally-located buildings in the market. SOUTHWEST SOUTHWEST VAC RATE 5.5% | 2018 ABSORPTION 224,000 | NEW CONSTRUCTION The Southwest is the largest Office Showroom market in 784,956 SF the metro area. Rental rates are higher in this submarket than in any other market, due in part because of the fact that demand for quality product in this submarket is strong. Construction has slowed in this market, except for the far Southwest, which limits new inventory and increases VACANCY NET ABSORPTION RENTAL RATE demand for the best-located buildings. 2019 OUTLOOK

ST. PAUL EAST St Paul East covers most of the east metro but also the ST. PAUL EAST Midway district, the area between Minneapolis and St. Paul, VAC RATE 7.3% | 2018 ABSORPTION 525,000 | NEW CONSTRUCTION connecting the two cities. The Midway has an abundance 693,055 SF of older product available, but the prime location keeps the Midway in high demand. The overall submarket had 524,000 square feet of positive absorption in 2018, marking it a great year for this submarket. VACANCY NET ABSORPTION RENTAL RATE WEST / NORTHWEST 2019 OUTLOOK The West/Northwest has been the most active submarket, both in terms of leasing and new construction in the metro area for the last five years. Due to unrivaled highway WEST / NORTHWEST access and several large, move-in-ready developments, VAC RATE 8.2% | 2018 ABSORPTION 648,000 | NEW CONSTRUCTION 975,255 SF expectations are that this submarket is expected to continue leading the way in new construction in 2019.

AIRPORT / SOUTH OF THE RIVER Airport/South of the River is the smallest submarket, both by area and amount of industrial product. The location of VACANCY NET ABSORPTION RENTAL RATE 2019 OUTLOOK this submarket has great access to the whole metro area. However, it has been constrained by having the lowest vacancy rate and low inventory for Office Warehouse and Bulk Warehouse. Construction has been below demand, but AIRPORT / SOUTH OF THE RIVER VAC RATE 4.6% | 2018 ABSORPTION 184,000 | NEW CONSTRUCTION new projects are on the horizon for this submarket in 2019. 130,000 SF

VACANCY NET ABSORPTION RENTAL RATE 2019 OUTLOOK

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International Research & Forecast Report >

OFFICE INVESTMENT SERVICES MINNEAPOLIS-ST. PAUL | YEAR END 2018

U.S. NATIONAL OFFICE TRENDS Office market gained speed during 2018 after flat 2017 performance

»» Fewer construction deliveries, combined with healthy net U.S. Office absorption, reduced office vacancy to 11.8% from 12% by Average Price Per SF Q3 2018. Two dozen metros have single digit vacancy — US Office Price ($/SqFt) generally tech-driven markets like San Francisco, Austin $300 and Seattle, as well as rapidly growing second-tier cities $250 like Orlando, Nashville and Portland. $200 »» The largest vacancy changes have happened in the nation’s suburban office markets. Central business $150 $/SF districts (CBD's), where vacancy is lower but $100 construction is more significant, have held steady. $50 »» WeWork and other providers of coworking office space $- have joined technology companies by signing sizable 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 leases in a growing number of cities. Rent growth has strengthened in response to renewed demand pressures. U.S. Office »» Although the office sector’s construction pipeline is Transaction Volume large and continues to expand, it remains well below the US Office Volume ($) levels reached in previous up-cycles, thanks to more 160 conservative lending practices, widespread construction labor shortages and escalating costs. 140 120

»» Unlike the industrial sector, new office supply remains highly 100 concentrated in certain markets, with two-thirds of all new 80

construction in progress, located in only 10 metro markets. Billions 60

40 2019 Office Outlook 20 0 Conditions in the office market are likely to soften as 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 progresses.

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International MINNEAPOLIS-ST. PAUL OFFICE TRENDS Office investment sales

»» Stabilized assets are readily selling in the CBD; Minneapolis-St. Paul Office examples from 2018 include the Retek or Target Plaza Average Price Per SF Minneapolis Office Price ($/SqFt) 3 building, 33 S 6th Street and . $200 »» Suburban assets are seeing investment activity in $180 $160 certain markets. The I-394 Corridor has seen a number $140 of different buildings trade hands in 2018: The West $120 End Towers and 505 Waterford, while the I-494 $100 Corridor has lost favor with institutional investors. $/SF $80 $60 »» The value-add component in the CBD is a challenge to $40 investment sales, as there is aggressive competition $20 $- from a leasing perspective. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 »» The push to go urban has hurt every suburban market except the I-394 Corridor. Minneapolis-St. Paul Office »» There has been an increase in investment sales within Transaction Volume the creative office product type, as buyers are chasing Total Office Sales Volume what tenants want. 2 1.8 » » Office properties require significant capital for tenant 1.6 improvements. Building a creative office environment 1.4 can be financially beneficial by minimizing future build- 1.2 out costs. 1 Billions 0.8 »» To stay competitive in the market, suburban assets 0.6 need to have both neighborhood and building amenities. 0.4 0.2 »» Parking in the CBD's is still an issue for tenants and 0 investors. The Twin Cities do not have the transit 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 infrastructure or population density to support the minimization of parking for building tenants, as the majority of commuters still drive to work.

Institutional capital investment remains aggressive in certain markets and many institutional buyers who are looking at suburban assets often have other assets in the Minneapolis metro.

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International MARKET SPOTLIGHT LARGEST LOCAL OFFICE Class A trophy & creative office reign supreme TRANSACTIONS IN 2018

The office investment market in Minneapolis-St. Paul is following national trends, which show high transaction activity and interest for Class A trophy and creative office product types.

Stabilized Class A trophy buildings represented the most investments in the Twin Cities this year, with three large towers selling in 2018, along with several smaller CBD 33 South Sixth/City Center, Minneapolis | 1,618,206 SF | $320M buildings. There are several more CBD buildings on the market at the close of Q4 2018, which are expected to trade hands in early 2019. The West/Northwest submarket, home to the lowest vacancy rates and top rental rates, saw four buildings larger than 250,000 square feet sell in 2018.

Trophy assets that are holding top

of market rents and consistent Capella Tower, Minneapolis | 1,401,230 SF | $255M occupancy are attracting buyers from large investment groups, some new to market, but most with history in the Twin Cities.

While Minneapolis is not a premier office market from a Target Plaza 3, Minneapolis | 498,768 SF | $171M national perspective, those investors that know the market tend to continue to invest and keep a presence in their portfolio. A highly-educated, stable and diverse economy provides a comparatively safe market for office users and therefore investors.

The other main product type that saw high investment activity in 2018 was creative office buildings. Local investors and regional groups with Twin Cities experience continue to express high demand for creative office buildings. Brick West End Towers, St. Louis Park | 2 buildings | $115.5M and timber and unique buildings with history have seen a lot of leasing activity over the last five years and investors are following the trend. Creative office properties in and around urban Minneapolis have been the most active, with Northeast Minneapolis seeing a portfolio of creative office buildings trading hands in 2018.

The Colliers MSP Investment Services Teams have had great success marketing and selling creative office in the last few Prime Therapeutics HQ, Eagan | 410,000 SF | $98.5M years. Investor demand is following tenant demand. Creative office benefits from “built-in coolness,” which decreases long-term tenant improvements and in turn increases returns over that of traditional suburban and CBD office. Private equity and institutional investors are eager to have this product type in their portfolios. This trend shows no sign of slowing, so the forecast is bright for this product type going into 2019.

Marquette Plaza, Minneapolis | 522,000 SF | $88.4M

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International MINNEAPOLIS CBD OFFICE SUBMARKET LEASING VAC RATE 14.3% | 2018 ABSORPTION 539,000 | AVG NNN RATES 17.19 HIGHLIGHTS

MINNEAPOLIS CBD The Minneapolis CBD had a positive 500,000 square feet of leasing this year, which is considered a very strong, positive year for this submarket. 2019 expects to see three new office VACANCY NET ABSORPTION RENTAL RATE 2019 OUTLOOK building deliveries, which will add nearly 1.2 million square feet of multi-tenant office space to the submarket. Vacancy will likely rise and new availabilities will open as tenants seek ST. PAUL CBD the latest and greatest spaces for their company needs. In VAC RATE 16.1% AVG | 2018 ABSORPTION (-153,000) | NNN RATES 12.81 2018, there were a number of large CBD office building sales, with several sales forecasted into 2019. Top Investment Sales: 33 S 6th, Capella Tower, Target Plaza 3, Marquette Plaza, T3.

ST. PAUL CBD VACANCY NET ABSORPTION RENTAL RATE The St. Paul CBD has been strongly affected by several large 2019 OUTLOOK vacancies from tenants either leaving the market or not finding success. However, there has been positive leasing in WEST / NORTHWEST buildings that have been recently modernized. Top Investment VAC RATE 10.9% AVG | 2018 ABSORPTION 233,000 | NNN RATES 16.40 Sale: Lafayette Park Portfolio.

WEST / NORTHWEST The West/Northwest has been the best performing suburban submarket for the last five years and continued that trend into the end of 2018. This submarket had 233,000 square VACANCY NET ABSORPTION RENTAL RATE feet of positive absorption, most of which was centered in 2019 OUTLOOK the West End district. This submarket has the lowest vacancy rate of any of our submarkets and the highest rental rates outside of Minneapolis CBD. There are no major construction SOUTHWEST completions expected in 2019. Top Investment Sales: West VAC RATE 14.2% AVG | 2018 ABSORPTION 234,000 | NNN RATES 15.04 End Towers, 505 Waterford Park, Cantel Medical HQ.

SOUTHWEST The Southwest saw positive leasing momentum, due almost entirely to the lease up of large blocks of Class A space. VACANCY NET ABSORPTION RENTAL RATE

The market continues to be strong for well-located Class A 2019 OUTLOOK product and slower for older or isolated B and C buildings. Top Investment Sale: 9320 Excelsior Crossings. ST. PAUL SUBURBAN ST. PAUL SUBURBAN VAC RATE 15.5% AVG | 2018 ABSORPTION 374,000 | NNN RATES 13.15 St. Paul Suburban is the largest submarket by area, stretching an area that covers most of the east metro. The strong positive absorption figure is due to a new 380,000-square- foot build-to-suit building for Prime Therapeutics that was completed this year. Top Investment Sale: Prime Therapeutics HQ. VACANCY NET ABSORPTION RENTAL RATE 2019 OUTLOOK

AIRPORT / SOUTH OF THE RIVER Airport/South of the River ended the year with negative AIRPORT / SOUTH OF THE RIVER absorption, mostly due to Prime Therapeutics vacating their VAC RATE 16.2% AVG | 2018 ABSORPTION (-219,000) | NNN RATES 12.84 leased multi-tenant space to move into a new building in a neighboring submarket. The Airport/South of the River submarket also stretches into part of the I-494 Corridor next to the MSP Airport, an area that has more leasing activity than south of the river. Expectations for 2019 suggest slower leasing gains and an overall steady submarket in 2019. VACANCY NET ABSORPTION RENTAL RATE 2019 OUTLOOK

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International Research & Forecast Report >

RETAIL INVESTMENT SERVICES MINNEAPOLIS-ST. PAUL | YEAR END 2018

U.S. NATIONAL RETAIL TRENDS Retail real estate evolves due to e-commerce disruption, among other factors

»» Traditional “brick and mortar” retailers are struggling U.S. Retail to remain competitive in today’s rapidly innovating retail Average Price Per SF environment. Retailer bankruptcies and store closures US Retail Price ($/SqFt) remain exceptionally high, despite the favorable consumer $250 and business environment, with announced store closings outpacing planned openings by 80% in 2018; Toys 'R' Us, $200 Gap, Mattress Firm, Sears and Kmart are among the high- profile victims. $150

»» Although this shakeout will continue, an upturn in $/SF $100 consumer spending during 2018 has provided the industry with some breathing room. Same-store sales and foot $50 traffic are growing again at a variety of traditional retail chains, and their new internet initiatives are gaining $- traction. Although retail sales growth no longer translates 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 as directly into demand for retail space, surviving chains are beginning to benefit from competitors’ store closures. U.S. Retail »» Construction of new retail space has been at Transaction Volume historically low levels for a decade, allowing overall US Retail Volume ($) sector vacancy to gradually trend down and rents to 100 stabilize. New mixed-use projects, often with a limited 90 retail component, are beginning to replace obsolete 80 retail properties as (ironically) “last mile” fulfillment/ 70 distribution centers for e-retailers. 60 50 »» The retail real estate market continues to split: well- Billions 40 located, well-tenanted centers are healthy and increasingly 30 dominant, while Class B/C malls and centers continue to lose tenants and become candidates for redevelopment. 20 10 0 2019 Retail Outlook 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The retail sector will continue to evolve in 2019. A slowing economy and higher inflation make it the most vulnerable sector, despite the uptick in consumer spending.

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International MINNEAPOLIS-ST. PAUL RETAIL TRENDS Retail investment sales

»» Grocery-anchored shopping centers are still considered Minneapolis-St. Paul Retail the safest investment, however, this doesn't mean these Average Price Per SF assets have been easier to sell. SuperValu was acquired Minneapolis Retail Price ($/SqFt) in 2018 for its distribution network, leaving retail centers $250 anchored by its subsidiary, Cub Foods, in question. Many investors are waiting for clarification about the future $200 operation before purchasing these centers. $150

»» There have been a lot of new entrants into the Twin $/SF Cities grocery market in the past few years, such as $100

Hy-Vee. However, with these new grocers, existing $50 players may struggle, as population growth is not projected to grow fast enough to fully support all $- existing and new stores. Those with multi-channel 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 sales (online and in-store) and/or a unique category component will succeed. »» If selling a retail asset with a box tenant, that tenant Minneapolis-St. Paul Retail Transaction Volume either needs to be #1 in their category, or in one of the few, fast-growing retail segments. Many investors may Total Retail Sales Volume view box tenants as a risk, due to the expansion of online 1.4 retailing from Amazon, Target and Walmart, so buyers are 1.2 proceeding with caution with these assets. 1

»» Many retail investment transactions in 2018 were 0.8 secured through 1031 exchanges or local, private Billions 0.6 investment equity groups with deep, local networks and intimate knowledge of the Minneapolis retail market. 0.4 0.2 »» Grocery-anchored and new retail construction are seeing cap rates of 50% to 75% basis points higher 0 than a year or so ago. Some owners are choosing to 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 hold their properties or taking them off market, because

The #1 trend in the retail investment market in the Twin Cities is “price discovery” — buyers and sellers have vastly different opinions on pricing. Buyers are pricing on perceived future risk, while property owners are experiencing solid cash flows, due to high occupancy and a stable rent roll.

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International MARKET SPOTLIGHT LARGEST LOCAL RETAIL Investor expectations misaligned on pricing TRANSACTIONS IN 2018 The retail investment market in the Twin Cities saw strong fundamentals across the board in 2018—low vacancy, steady rent growth, ample supply and strong, good-credit tenant activity. However, this is not the case in other larger markets where the aforementioned fundamentals are trending in the other direction. This is typical of

Minneapolis-St. Paul because of the conservative approach CityPlace Shopping Center, Woodbury | 185,000 SF | $77.8M to bringing new retail product into the market.

A related trend is the flood of investment offerings across the country. Due to an increasing concern of the future of retail, there has been a decrease in capital flows into REITs and larger syndicates, which creates pressure to sell larger properties. Given the large number of opportunities abroad, we have seen less activity from national buyers looking to place capital in Minneapolis-St. Paul, where few value-add Crystal Center, Crystal | 214,062 SF | $27.6M opportunities exist. We expect this to change in 2019, as local fundamentals have held strong and the market has not been overbuilt over the past development cycle.

The ebb and flow of capital markets across different Gaviidae Commons, Minneapolis | 48,256 SF | $24.5M U.S. markets has caused a misalignment on pricing expectations from investors outside of .

Returns in Minneapolis-St. Paul are often lower than Fresh Thyme Shopping Center, Bloomington | 58,379 SF | $19M what is targeted by the value-add funds searching across the country.

However, there is still a strong appetite from local, private investors, particularly in movement across asset classes. With the stable, strong liquidity in the market, many portfolio owners are taking the opportunity to reconfigure their portfolio into assets where they see future fundamentals staying strong, whether it be industrial, retail, 16705 County Road 24, Plymouth | 106,924 SF | $16.4M office, multifamily or even specialized uses.

Fire Barn & Shoppes at St. Anthony Village, Minneapolis | 42,266 SF | $16.4M

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International RETAIL PRODUCT TYPE HIGHLIGHTS

MINNEAPOLIS CBD anchor tenants, owner investments made to reposition and Small vacancies occurred in the Minneapolis CBD office redevelop regional centers like these with new, exciting towers, leading to an increased vacancy of 10.7%. Retail tenants have helped restore investor confidence in this asset leasing in the CBD cooled slightly. Due to increasing class. total occupancy costs, tenants are looking to landlords to negotiate flexible lease terms. The spike in vacancy is COMMUNITY CENTERS predicted to be short-lived. The retail market isn’t overbuilt The best performing retail product type in 2018 were and there is potential money for investors to redevelop. community centers with a positive absorption of nearly Construction is on the horizon, notably The Dayton’s Project, 85,000 square feet on the year. Occupied spaces in which will headline growth and future absorption. Top community centers brought in new, unique tenants to the Investment Sale: ($24.6M). market from a handful of big box vacancies. Fitness centers and new grocers backfilled closures in community centers REGIONAL CENTERS that attract a high number of consumers. The vacancy rate Regional Centers have been through a string of ended the year at the same point it began in 2018 at 4.4%. redevelopment projects to attract new shoppers, after Top Investment Sale: CityPlace Shopping Center ($56.6M). large block closures by Sears and JCPenney. For example, when Sears closed in the Eden Prairie regional center, NEIGHBORHOOD CENTERS an uncertainty about large vacancies was a concern for The product type affected the most by retail closures were buyers and sellers alike. However, not long after the neighborhood centers, recording negative absorption of closure, Scheels announced redevelopment plans for 60,000 square feet at the close of 2018. A number of the Sears vacancy with a brand-new store and exciting, department stores and Toys 'R’ Us locations have increased fresh amenities. Another example of regional center the vacancy rate in neighborhood centers to 8.7%. It's redevelopment is Edina’s Southdale Center, where Life possible landlords may find it more difficult to attract Time Fitness converted a former 120,000-square-foot qualified tenants, due to rental rate increases and assets JCPenney into a fitness and wellness center packed with available in less-than-desirable locations. Top Investment amenities. Although regional centers are continuing to lose Sale: Village Ten Center ($21.7M).

INTERSTATE MSP RETAIL TRADE AREAS 94 INTERSTATE MINNESOTA 10 35 101 MINNESOTA YTD ABSORPTION 65 5 LARGEST RETAIL TRADE AREAS

COON INTERSTATE RAPIDS BLAINE 35W

INTERSTATE 94 SOUTHDALE 61 NORTHTOWN MINNESOTA 610

MAPLE INTERSTATE GROVE 35E 5,958 SF

INTERSTATE

MINNESOTA 694 INTERSTATE 55 494 BROOKLYN INTERSTATE CENTER 694 MAPLE GROVE 12

MINNESOTA 169 36 STILLWATER

MINNESOTA MAPLEWOOD INTERSTATE 100 MINNESOTA 694 47 ROSEDALE INTERSTATE -18,338 SF 35W

MINNESOTA 55 INTERSTATE

INTERSTATE 35E RIDGEDALE WEST 394 END MINNEAPOLIS INTERSTATE WOODBURY INTERSTATE INTERSTATE 94 494 94 MINNESOTA 7 ST. PAUL INTERSTATE WOODBURY 35W 52

INTERSTATE 35,447 SF MINNESOTA MINNESOTA 494 7 5 MINNESOTA SOUTH 62 ROBERT

INTERSTATE SOUTHDALE 35E INTERSTATE EDEN 494 ROSEDALE PRAIRIE 10

MINNESOTA MINNESOTA 41 EAGAN 55 MINNESOTA COTTAGE 5 GROVE 35,549 SF

INTERSTATE 35W

MINNESOTA 169 77 MINNESOTA SHAKOPEE 13 212 BURNSVILLE

BURNSVILLE APPLE MINNESOTA VALLEY 3 -72,276 SF

52

INTERSTATE 35 169 Minneapolis-St. Paul Investment Services Report | Year End 201861 | Colliers International

MINNESOTA 13 Research & Forecast Report >

MULTIFAMILY INVESTMENT SERVICES MINNEAPOLIS-ST. PAUL | YEAR END 2018

RAPID GROWTH SHOWS SIGNS OF STABILIZATION

Overview Vacancy & Rental Rates Continuing a theme witnessed over recent years, total sales volume will likely reach another record in 2018. During the $1,300 3.5% current investment cycle, transaction volume has increased $1,250 3.0% year-over-year at a rapid pace. After breaking the $1B mark $1,200 2.5% in 2015, sales volume has been close to $2B annually, placing $1,150 2.0% the Twin Cities among the nation’s leaders in year-over-year multifamily sales growth. $1,100 1.5% $1,050 1.0%

While the investment sales market shows little sign of $1,000 0.5% weakening, new construction counts are expected to gradually 2015 2016 2017 2018 decline over the next 12-18 months. After delivering a record Average Rental Rate Vacancy Rate number 5,435 units in 2018, 2019 will see roughly 1,000 fewer units developed, moderating closer to the supply lines of 2016 and 2017. Total Sales Volume

$2.00

Notable Market Statistics $1.75 The Minneapolis-St. Paul economy continues to boast one $1.50 of the lowest unemployment rates in the country, currently $1.25 $1.00 hovering around 2.0%. With over 28,000 jobs added in Billions the last 12 months, the wider metro area benefits from $0.75 the headquarters of 18 Fortune 500 companies as well $0.50 as large local employers like the University of Minnesota. $0.25 $0.00 The local workforce ranks eleventh in the country in terms 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 of education, with 41% achieving a bachelor’s degree or higher and an average annual household income of $69,000, topping the national average by 29%. Total Metro Units Completed

Great employment opportunities paired with a healthy 10,000 population growth rate, averaging around 1% per annum over the last 5 years, has led to a strong rental market. This 8,000 strength is best exemplified by the 97.6% occupancy rate, 6,000 which is just 0.2% below its 2-year high. Surprisingly, the metro has also experienced the highest rental rate growth 4,000 in the Midwest at 3.6%, contrary to its history as a slow- 2,000 growth market. 2015 2016 2017 2018 2019* * Estimated completions based on units currently under construction.

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International NEW CONSTRUCTION As we reach the likely pinnacle in new construction deliveries With absorption showing signs of weakening, particularly in this year, many developers agree that a gradual decline in new delivery-heavy submarkets such as Downtown Minneapolis deliveries is a welcome change from the torrid pace we have and Uptown, a change of pace should lead to healthy witnessed over the past four years. A total of 15,100 units rebalancing for the market. Even as overall vacancy rates have hit the market during that time period. stand below the 5% equilibrium, Class A concessions have

Units Completed

2.500

2.000

1.500

1.000

500

0

University East Uptown Lakes North Minneapolis South Minneapolis Southeast St. Paul Downtown St. Paul Southwest SuburbanSoutheast Suburban Northwest SuburbanNortheast UniversityNortheast Suburban Summit MacGroveland South Central Suburban North Central Suburban Downtown Minneapolis 2016 2017 2018 2019* * Estimated completions based on units currently under construction.

By the Numbers: Noteworthy Multifamily Trends

MINNEAPOLIS BROWNSTONESMinneapolis Brownstones- AVERAGE SALE INCOME LEVELS NEEDED FOR RENT PRICE PER UNIT Average Sale Price Per Unit Assuming 1/3 income rule, income levels for a 1-bedroom: $200,000

$180,000 $160,000 $54,000 $37,800 $140,000 New ($1,500 rent) Existing ($1,050 rent) $120,000

$100,000 Based on MSP per capita median of $37,000 and $15 minimum

$80,000 wage of $31,200. Rent based on 1-bedroom averages under new and existing properties, as defined above. $60,000

$40,000

$20,000 NEW PRODUCT PUSHING RENTS HIGHER

$0 How much higher is rent in new versus existing properties: 2010 2011 2012 2013 2014 2015 2016 2017 2018

BANK DEBT QUOTES* Q3 2015 Q3 2018 42%+ 43%+ 48%+ Studio/Efficiency 1 Bedroom 2 Bedroom TYPE 7-year fixed 7-year fixed

INTEREST RATE 4.60% 5.20% New construction defined as built since 2005. Existing defined as AMORITIZATION 25 years 20 years built prior to 2005. All numbers are from Minneapolis-St. Paul inventory over 50 units. LOAN TO VALUE 75% 70% DEBT CONSTANT 6.75% 8.05%

*actual quotes from local bank for similar multifamily property built 1960- 1980, not representative of current quotes, only used as a comparison

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International New Construction, cont'd LARGEST LOCAL MULTIFAMILY risen in an increasingly competitive lease-up environment. TRANSACTIONS IN 2018 The expected slowdown in new development should reduce the risk of sudden, significant softening.

Minneapolis, St. Paul, Edina, St. Louis Park, Maple Grove and Bloomington have been staple markets for developers during this cycle. As land sites become increasingly difficult to find in these markets and supply concerns become more notable, a shift to other suburban areas is becoming more evident. Woodbury, Eagan, Eden Prairie, Golden Valley and Minnetonka The Concierge, Richfield | Built 1968 | 698 Units | $95.1M are seeing an influx of new projects.

Investors should be tracking new projects in markets like Chanhassen, Chaska, Shakopee, Lakeville, Mendota Heights and Blaine to see if it spurs further efforts to deliver new product. Most of the aforementioned submarkets have seen little multifamily development over the past 20+ years.

TRANSACTION ACTIVITY Radius at 15th, Minneapolis | Built 2015 | 200 Units | $76.3M Hitting its fifth consecutive year above $1B in annual multifamily sales, the Twin Cities is seen as a leading secondary market. 2018 should see annual volume close to or just above $2B, matching or slightly exceeding 2017. This stands in contrast to historical sales volume figures, which typically hovered in the $300-$500M range. Vicksburg Village Apartments, Plymouth | Built 1990 | 334 Units | $66.2M Changing buyer profiles have played a large part in the recent uptick in sales volume. While still a privately-held, local ownership market, private equity and institutional investors from outside of Minnesota have left a large imprint on the ownership landscape. These investors target larger properties, which make their relative impact on sales volume more apparent.

While regional and national investors continue to account for Villages on McKnight, Saint Paul | Built 1969 | 540 Units | $66M the majority of total sales volume, it is clear that local owners continue to have a strong presence in the marketplace. As legacy owners continue to liquidate in a strong seller’s market, many local investors have consolidated holdings and grown their portfolios significantly during this cycle.

Our discussions with investors in the second half of 2018 continue to focus on interest rates and new construction supply. For private capital buyers, significant movement 44 North, Minneapolis | Built 2014 | 194 Units | $58.4M in interest rates in 2019 would constrict debt options and challenge cap rates for buyers relying on higher leverage debt. On the institutional and private equity side, buyers may rely less on leverage, however any vacancy upticks or slower rent growth would hinder future returns.

While there are concerns about macro and micro market factors, most investors remain bullish on the Twin Cities apartment market, especially relative to comparable secondary Variant, Minneapolis | Built 2017 | 143 Units | $50M markets and other product types.

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International SPOTLIGHT TREND: Micro Units Growing in Appeal for Residents and Developers

Out of the 6,221 units that have been added to the Twin Micro Apartmens in Minneapolis Completed SAINT Cities housing stock in 2018, 1,635 fall into the micro CAMDEN ANTHONY 1 Marshall Flats 36 units 1

2525 2nd St NE, Minneapolis MINNESOTA unit category. The micro trend also shows no sign of 65 2 Nolo Flats 71 units

602 1st Street N., Minneapolis INTERSTATE 94 MINNESOTA slowing down with 813 micro units already slated for 47 3 Variant 315 7th Ave N., Minneapolis 143 units development in 2019. For the purposes of this article, we NORTHEAST 4 The Alden Apartments 1205 Hawthorne Ave., Minneapolis 68 units will define a micro unit as any studio below 500 SF and INTERSTATE 35W MODI 2 5 75 units MINNESOTA 2015 Lyndale Ave., Minneapolis MINNESOTA 3 2 any 1-bedroom unit below 600 SF. 55 280 10 Tula Apartments 71 units 6 3009 Holmes Ave S., Minneapolis DOWNTOWN UNIVERSITY The Central The micro unit movement originated in the most 7 49 units 4 3503 2nd Ave S., Minneapolis 1 1 12 INTERSTATE 3 394 The Whit 9 13 expensive, coastal rental markets, such as: San Francisco, 8 75 units 2201 Blaisdell Ave., Minneapolis INTERSTATE 94 The Aberdeen Seattle and New York City. In these markets, it is not 9 50 units 5 INTERSTATE 500 E 14th St., Minneapolis 8 11 94 INTERSTATE 35W uncommon for micro units to be well below 400 SF and Coze Flats 48 units 10 628 University Ave., Minneapolis UPTOWN cost upwards of $3,000 per month. Cooperage 11 2304 Snelling Ave., Minneapolis 60 units 6 MINNEAPOLIS

Hub Minneapolis 431 units LONGFELLOW 12 311 Harvard St SE, Minneapolis MINNESOTA Micro units are designed to service the growing number 7 POWDERHORN 55 13 Apartments on Essex 25 units of young professionals who want to live in downtown 2618 Essex St SE, Minneapolis 14 Veterans East 48 units 5019 East 54th St., Minneapolis neighborhoods, but find themselves priced out of the 2 Micro Apartments in Minneapolis luxury, new construction apartment buildings that Under Construction populate many central business districts. From a 1 City Club Apartments NOKOMIS 1000 , Minneapolis 307 units

INTERSTATE rental rate perspective, micro units can be seen as an Lume 35W 2 408 4th St SE, Minneapolis 25 units alternative to older construction apartments, which often SOUTHWEST 14 Micro Apartments in Minneapolis lack the modern finishes and amenities that millennial Proposed MINNESOTA 62 1 Smith Lot Apartments 175 units residents desire. 501 S 7th St., Minneapolis MINNESOTA 62 2 Former "Wash Me Car Wash" 43 units 4155 Hiawatha Ave., Minneapolis MINNESOTA A large demographic factor contributing to the viability of INTERSTATE RICHFIELD 77 4th Street Lofts 35W 3 163 units micro units and elevated demand for studio apartments 2813 4th St S., Minneapolis in general, is millennials propensity to delay marriage and thus household formation. Since 2000, the average age with an inventory of smaller, more challenging sites. of marriage for an American man has risen by 2.4 years To draw value out of these sites, builders must either to 29.2. The same can be said for women, whose average go vertical to add more units than would be allowable age of marriage has risen from 25.1 to 27.1 over the same under current zoning or draw more rental income out of period. The result is a glut of individuals that are looking every square foot of the development – thus, micro units. for a cost effective, temporary housing solution that will In the case of the former, the Twin Cities have seen a hold them over until they are ready to form a household significant increase in tower style apartment proposals and commit to a permanent living situation. in 2018, with with 5 apartment towers currently under construction in downtown Minneapolis. As for the latter, For developers, the boom in micro unit development is as micro apartments have been a viable way for developers much about millennial demographic trends as it is about to draw over $3.00 per square foot rents, from units with where we are in the economic and development cycles. standard finishes, on less than ideal sites. With 2019 marking the 10th year of one of the longest bull real estate markets on record, Twin Cities developers Building micro units can be seen as a calculated risk, have been hard at work adding 35,407 units to the as no one knows how demographic trends may affect apartment market. demand from renters in the future. Perhaps micro apartments will become the new standard of urban At the beginning of a real estate development cycle, living, maybe some projects will be converted into hotels. opportunistic builders have a large selection of sites to The only certainty is that they have arrived in the Twin choose from. These sites may become available for many Cities and are actively filling a void in demand that was reasons, including rezoning that was implemented during previously unaddressed. the recession or as a result of defunct businesses that did not survive the economic downturn. As the stock of large parcels are developed, late cycle builders are left

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International Significant Retail Sale Activity

DATE PROPERTY CITY SF SALE PRICE ($) $/SF BUYER SELLER

Dec-18 CityPlace Shopping Center Woodbury 185,000 77,800,000 420 Inland RE Group Elion Partners, Kraus-Anderson

Jul-18 Crystal Center Crystal 214,062 27,650,000 129 Rivercrest Realty Investors Paster Properties

Mar-18 Gaviidae Common (Retail Condo) Minneapolis 48,256 24,550,000 509 Kingsbarn Realty United Properties

Aug-18 Life Time Fitness Eden Prairie 145,896 23,616,853 162 Spirit Realty Capital Gramercy

Jul-18 Village Ten Center Coon Rapids 211,568 22,300,000 105 Sterling Organization IRC Retail Centers

Jul-18 Shannon Square Shoppes Arden Hills 97,638 19,400,000 199 Sterling Organization IRC Retail Centers

Jul-18 Fresh Thyme Shopping Center Bloomington 58,379 19,000,000 325 Sara Investment United Properties

Sep-18 Plymouth Station Plymouth 106,924 18,100,000 169 Slate Retail REIT Hans Hagen Homes

Nov-18 Fire Barn & Shoppes at St. Anthony Village Minneapolis 42,266 16,400,000 388 Falcon Ridge Partners Daniel E. Hunt

May-18 Walgreens St. Paul 15,632 15,968,000 1,021 Darrick Walker RIDA Development

Jun-18 Stadium Village Shopping Center Minneapolis 13,026 14,900,000 1,144 University of Minnesota Trautz Properties

Feb-18 Albertville Crossing Albertville 104,500 13,156,000 126 PECO III Hempel Properties

Feb-18 The Shops at Wedgwood Maple Grove 26,207 12,800,000 488 Crow Holdings Told Development Co.

Mar-18 Northtown Village Coon Rapids 184,113 11,100,000.00 60 Ho Lee World Class Cap Group

Apr-18 Timber Crest Lakeville 59,595 N/A N/A Viking Partners Avalon Group

Mar-18 Dunkirk Square Maple Grove 85,322 10,200,000 120 Sara Investment IRC Retail Center, Prudential RE Investors

Oct-18 Zanebrook Shopping Center Brooklyn Park 80,586 6,725,000 83 Mark Haymaker The Goodman Group

Mar-18 Ridgecrest Market Savage 12,062 6,218,000 516 Com'l Prtnrs Exchange Co. Told Development Co.

Significant Multifamily Sale Activity

PRICE YEAR SIZE SALE DATE PROPERTY CITY BUYER SELLER PER UNIT BUILT (UNITS) PRICE ($) ($)

Dec-18 BT&A Construction Portfolio 31 properties - 1,865 separate buyers BT&A Construction 250,000,000 -

Dec-18 The Concierge Richfield 1968 698 JRK Investors Group Soderberg Apartment Specialists 95,100,000 136,246

TE Miller Solhem MN Solhem Company, TE Miller Oct-18 3 properties - 308 LaSalle Investment Management 88,850,000 - Apartments Development

Jul-18 Radius at 15th Minneapolis 2015 200 Timberline Real Estate Ventures North Bay Companies 76,300,000 381,500

Ginkel Properties MN Oct-18 5 properties - 636 Sage Apartment Communities Ginkel Properties 73,913,000 - Apartments

LaSalle Minneapolis Nov-18 2 properties - 241 LaSalle Investment Management Clarion Partners 68,475,000 - Apartment Purchase

Aug-18 Vicksburg Village Apartments Plymouth 1990 334 TH Real Estate (TIAA) Pinnacle Property Management 66,175,000 198,129

Nov-18 Villages on McKnight St. Paul 1969 540 Bigos Management Kleinman Realty 66,000,000 122,222

Nov-18 44 North Minneapolis 2014 194 Harrison Street Real Estate Capital DRA Advisors 58,400,000 301,031

Jan-18 Bader MN Apartments 2 properties - 190 Mesirow Financial Bader Development 57,300,000 -

Nov-18 Variant Minneapolis 2017 143 TH Real Estate (TIAA) The OPUS Group 50,000,000 349,650

Oct-18 Solhavn Minneapolis 2013 137 LaSalle Investment Management TE Miller Development 42,100,000 307,299

Jan-18 Millennium West End St. Louis Park 2015 158 Abacus Capital Group Luxe/DLC Residential 40,875,000 258,703

Mar-18 Ellipse on Excelsior St. Louis Park 2010 134 Mesirow Financial Bader Development 39,500,000 294,776

Mar-18 River South Burnsville 1971 304 Priderock Capital Partners Redwood Capital Partners Llc 37,300,000 122,697

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International Significant Industrial Sale Activity

DATE PROPERTY CITY SF SALE PRICE ($) BUYER SELLER

Mar-18 Greenfield MN Industrial Portfolio 2018 850,069 70,250,000 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners 7805 Hudson Road Woodbury 138,732 10,963,419 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners Rowland Pond I & II Minnetonka 120,709 9,802,621 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners 4600 Nathan Lane North Plymouth 85,528 8,499,382 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners Oakdale Interstate Center Oakdale 100,600 7,437,625 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners Technology Park VII Eden Prairie 89,672 7,282,146 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners 2905 Northwest Boulevard Plymouth 84,765 6,883,655 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners 6321-6325 Bury Drive Eden Prairie 73,278 6,157,715 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners 9600 54th Avenue North Plymouth 50,021 4,553,241 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners 7550 Meridian Circle Maple Grove 49,827 4,046,386 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners 7400 Flying Cloud Drive Eden Prairie 32,137 2,609,804 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners 2955 Xenium Lane Plymouth 24,800 2,013,975 Artemis RE Partners, Eagle Ridge Partners Greenfield Partners Jan-18 Capital & Typerion Partners Portfolio 838,846 50,800,000 Investcorp Capital Partners, Tryperion Partners Shingle Creek Commerce Center I Brooklyn Center 146,250 7,894,709 Investcorp Capital Partners, Tryperion Partners 6840 Shingle Creek Parkway Brooklyn Center 112,426 7,661,106 Investcorp Capital Partners, Tryperion Partners Midwest Business Center Plymouth 98,847 5,842,165 Investcorp Capital Partners, Tryperion Partners 11100 Jefferson Highway N Champlin 133,949 5,645,638 Investcorp Capital Partners, Tryperion Partners 7500-7546 Washington Sq Eden Prairie 73,000 5,230,768 Investcorp Capital Partners, Tryperion Partners Kasota Industrial Center II Minneapolis 86,055 5,114,691 Investcorp Capital Partners, Tryperion Partners 2530 Kasota Avenue St. Paul 78,502 4,964,259 Investcorp Capital Partners, Tryperion Partners 7251-7329 Washington Avenue South Edina 52,217 4,479,488 Investcorp Capital Partners, Tryperion Partners 7180 Northland Circle North Brooklyn Park 57,600 3,816,747 Investcorp Capital Partners, Tryperion Partners Meadow View Industrial Eagan 77,750 7,800,000 Brian Leitgeb; Terry DeSylvia Interstate Development Nov-18 Greenfield Office Industrial Portfolio 374,924 43,625,000 Eagle Ridge Partners, Artemis RE Partners Greenfield Partners Golden Hills Business Park I, II, & III Golden Valley 260,124 30,267,209 Eagle Ridge Partners, Artemis RE Partners Greenfield Partners Westside Business Park Hopkins 114,800 13,357,766 Eagle Ridge Partners, Artemis RE Partners Greenfield Partners Jun-18 Greenfield US Light Industrial Portfolio 994,184 42,907,486 Investcorp, Capital Partners Greenfield Partners Mounds View Business Park G Mounds View 352,598 13,760,914 Investcorp, Capital Partners Greenfield Partners Lyndale Distribution Center Bloomington 165,744 7,734,677 Investcorp, Capital Partners Greenfield Partners Highway 101 Distribution Center Rogers 168,000 6,965,324 Investcorp, Capital Partners Greenfield Partners Building 2 Mounds View Business Park A Mounds View 113,256 6,779,430 Investcorp, Capital Partners Greenfield Partners New Brighton Corporate Center New Brighton 97,750 3,814,909 Investcorp, Capital Partners Greenfield Partners

Mounds View Business Park F Mounds View 66,836 2,608,422 Investcorp, Capital Partners Greenfield Partners Highway 101 Distribution Center Rogers 30,000 1,243,808 Investcorp, Capital Partners Greenfield Partners Building 1 Dec-18 Altus Properties Portfolio 612,945 40,400,000 DRA Advisors Altus Properties 7401 Boone Avenue North Brooklyn Park 322,751 18,990,000 DRA Advisors Altus Properties Nicollet Business Campus VII Burnsville 118,125 8,930,317 DRA Advisors Altus Properties Bloomington Business Plaza Bloomington 121,669 8,300,000 DRA Advisors Altus Properties

Cedar Lake Business Center St. Louis Park 50,400 3,063,789 DRA Advisors Altus Properties

Oct-18 SARA MN Industrial Office Portfolio 291,864 30,498,114 R2 Companies SARA Investment 1361 Tyler Street Northeast Minneapolis 158,475 17,941,000 R2 Companies SARA Investment 1515 Central Ave Northeast Minneapolis 92,421 9,174,085 R2 Companies SARA Investment 1620 Taylor Street Northeast Minneapolis 40,968 3,383,029 R2 Companies SARA Investment Oct-18 Red Rock Industrial Building Maple Grove 319,000 27,700,000 ILPT REIT United Properties Apr-18 Farallon Portfolio 508,304 27,500,000 STAG Industrial Farallon Cap Management Sportsman's Guide South St. Paul 422,727 19,999,985 STAG Industrial Farallon Cap Management Southeast Corporate Center Mendota Heights 85,577 7,500,000 STAG Industrial Farallon Cap Management

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International Significant Office Sale Activity

DATE PROPERTY CITY SF SALE PRICE ($) $/SF BUYER SELLER

Jun-18 33 South Sixth/City Center Minneapolis 1,618,206 320,000,000 198 Samsung Life Insurance HNA Group

Feb-18 Capella Tower Minneapolis 1,401,230 255,000,000 182 Shorenstein ASB Real Estate

Oct-18 Target Plaza 3 (2F-12F) Minneapolis 498,768 171,000,000 343 Menlo Equities Union Investment

Nov-18 DRA Portfolio 115,500,000 Accesso Partners DRA Advisors

Tower 1600 St. Louis Park 248,541 59,044,487 238 Accesso Partners DRA Advisors

MoneyGram Tower St. Louis Park 237,643 56,455,510 238 Accesso Partners DRA Advisors

Global Securitization Services, Ladder Capital Sep-18 Lafayette Park Portfolio 113,450,000 Arch Street Cap Advisors Global Securitization Services, Ladder Capital 444 Lafayette Road St. Paul 280,172 49,285,000 176 Arch Street Cap Advisors Global Securitization Services, Ladder Capital 500 Lafayette Road St. Paul 140,440 26,907,779 192 Arch Street Cap Advisors Global Securitization Services, Ladder Capital 520 Lafayette Road St. Paul 152,944 23,900,000 156 Arch Street Cap Advisors Global Securitization Services, Ladder Capital 443 Lafayette Road St. Paul 103,958 13,200,157 127 Arch Street Cap Advisors

Sep-18 Prime Therapeutics HQ Eagan 410,000 98,500,000 240 Artis REIT United Properties

Feb-18 Marquette Plaza Minneapolis 522,000 88,400,000 169 KBS Growth & Income REIT FRM Associates

May-18 T3 Minneapolis Minneapolis 224,000 86,800,000 388 LaSalle Investment Hines

Aug-18 Thrivent Financial Minneapolis 488,305 55,000,000 113 Hennepin County Thrivent

Oct-18 CarVal Investors Hopkins 254,915 49,500,000 194 Piedmont REIT Hines Global REIT I

Mar-18 Suntide MN Office Portfolio 49,000,000 Altus Properties Suntide Com'l Realty

Broadway Ridge Minneapolis 185,488 21,506,750 116 Altus Properties Suntide Com'l Realty

Broadway Place West Minneapolis 137,276 15,916,720 116 Altus Properties Suntide Com'l Realty

Broadway Place East Minneapolis 99,843 11,576,482 116 Altus Properties Suntide Com'l Realty

Jul-18 505 Waterford Park Plymouth 252,165 36,100,000 143 DRA Advisors CA Student Living

Jan-18 TRIA Orthopaedic Center Bloomington 103,000 35,250,000 342 Zeller Realty Corp, Sentinel Management Co. United Properties

Aug-18 9800 59th Avenue North Plymouth 167,486 31,000,000 185 Cantel Medical Transamerica

Dec-18 Former Target West Building Minneapolis 400,000 22,100,000 55 The Opus Group

Dec-18 6150 Trenton Lane Plymouth 185,000 20,000,000 108 6150 Trenton LLC UnitedHealth Group

Mar-18 330 South Second Minneapolis 193,594 19,968,750 103 Spaulding & Slye Gov Props Inc. Trust

Mar-18 Sons of Norway Building Minneapolis 60,000 15,500,000 258 Weidner Apt. Homes Eivind Heiberg

Edinborough Corporate EverWest RE Investors, DHL Apr-18 Edina 101,568 14,100,000 139 Altus Properties Center International, Alliance Com'l Ptnrs

Dec-18 8201 Norman Center Drive Bloomington 82,000 13,000,000 159 Upper Midwest Mgmt. Corp. AtWater Group

Jan-18 2016 East 28th Street Minneapolis 60,363 8,625,000 143 Schadegg Property Ryan Companies

Oct-18 Tri-Tech Plaza Minneapolis 115,452 8,600,000 74 Novel Coworking DCI Technology Holdings

Jul-18 Ridge Point Medical Burnsville 43,560 8,150,000 187 Rivoli Properties Inc. AtWater Group

Feb-18 Lasalle Building Minneapolis 78,749 7,950,000 101 Novel Coworking Stuart Companies

Sep-18 Gateway Corporate Center Woodbury 62,080 7,796,250 126 Eyde Co. CITI 2006-C5, LNR Partners

Jun-18 HealthEast Clinic Midway St. Paul 25,000 7,075,000 283 Elliott Bay Capital Trust MSP Commercial

Aug-18 1256 Penn Avenue North (4th Floor) Minneapolis 36,000 6,845,000 190 Hennepin County Thor Construction

Minneapolis-St. Paul Investment Services Report | Year End 2018 | Colliers International Local Expertise

ComprisedComprised of of RevRevenueenue ManagingManaging Global Reach 55,400,400 $27$27 22 professionalsprofessionals (U(US$)S$) (square(square feet) feet)

ComprisedComprised of of RevRevenueenue ManagingManaging EstablishedEstablished in in Lease/saleLease/sale transactions transactions TransactionTransaction value value 55,,400400 $27$27 22 8,000, $ professionalsprofessionals (U(US$)S$) (square(square feet) feet) countriescountries 8 000 $(US$)(US$) All Allstatistics statistics are are for for2017, 2017, are are in U.S.in U.S. dollars dollars and and include include aliates. aliates.

EstablishedEstablished in in Lease/saleLease/sale transactions transactions TransactionTransaction value value 8,,000 $ countriescountries 8 000 $(US$)(US$) AllAll statistics statistics are are for for 2017, 2017, are are in in U.S. U.S. dollars dollars and and include include aliates. aliates.

FOR MORE INFORMATION CONTACT:

WILLIAM WARDWELL SIOR Executive VP, Managing Director - Brokerage Services 952 897 7828 [email protected]

Colliers International | Minneapolis-St. Paul 4350 Baker Road, Suite 400 Minnetonka, MN 55343 colliersinvestmentservices.com

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Copyright © 2019, Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.