MELODY BALLROOM Offering Memorandum

Offering Memorandum

MELODY BALLROOM 615 SE Alder Street • Portland, OR 97214 1 NON- ENDORSEMENT AND DISCLAIMER NOTICE

Confidentiality and Disclaimer The information contained in the following Marketing Brochure is proprietary and strictly confidential. It is intended to be reviewed only by the party receiving it from Marcus & Millichap and should not be made available to any other person or entity without the written consent of Marcus & Millichap. This Marketing Brochure has been prepared to provide summary, unverified information to prospective purchasers, and to establish only a preliminary level of interest in the subject property. The information contained herein is not a substitute for a thorough due diligence investigation. Marcus & Millichap has not made any investigation, and makes no warranty or representation, with respect to the income or expenses for the subject property, the future projected financial performance of the property, the size and square footage of the property and improvements, the presence or absence of contaminating substances, PCB's or asbestos, the compliance with State and Federal regulations, the physical condition of the improvements thereon, or the financial condition or business prospects of any tenant, or any tenant's plans or intentions to continue its occupancy of the subject property. The information contained in this Marketing Brochure has been obtained from sources we believe to be reliable; however, Marcus & Millichap has not verified, and will not verify, any of the information contained herein, nor has Marcus & Millichap conducted any investigation regarding these matters and makes no warranty or representation whatsoever regarding the accuracy or completeness of the information provided. All potential buyers must take appropriate measures to verify all of the information set forth herein. Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc. © 2018 Marcus & Millichap. All rights reserved.

Non-Endorsement Notice Marcus & Millichap is not affiliated with, sponsored by, or endorsed by any commercial tenant or lessee identified in this marketing package. The presence of any corporation's logo or name is not intended to indicate or imply affiliation with, or sponsorship or endorsement by, said corporation of Marcus & Millichap, its affiliates or subsidiaries, or any agent, product, service, or commercial listing of Marcus & Millichap, and is solely included for the purpose of providing tenant lessee information about this listing to prospective customers.

ALL PROPERTY SHOWINGS ARE BY APPOINTMENT ONLY. PLEASE CONSULT YOUR MARCUS & MILLICHAP AGENT FOR MORE DETAILS.

MELODY BALLROOM Portland, OR ACT ID Z0210489

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TABLE OF CONTENTS

SECTION

INVESTMENT OVERVIEW 01 Offering Summary Regional Map Local Map Aerial Photo Floor Plan

FINANCIAL ANALYSIS 02 Tenant Summary Lease Expiration Summary Operating Statement Notes Pricing Detail Acquisition Financing

MARKET COMPARABLES 03 Sales Comparables Lease Comparables

MARKET OVERVIEW 04 Market Analysis Demographic Analysis

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INVESTMENT OVERVIEW

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OFFERING SUMMARY EXECUTIVE SUMMARY

VITAL DATA CURRENT Price $7,800,000 CAP Rate 6.52% Loan Amount $5,460,000 Net Operating Income $508,258 Net Cash Flow After Debt Loan Type Proposed New 6.54% / $156,533 Service Interest Rate / 5.00% / 30 Years Total Return 9.90% / $237,088 Amortization Rentable SF 35,528 Price/SF $219.55 Current Occupancy 100.0% Year Built 1925 Lot Size 0.38 acre(s)

EXPENSES DEMOGRAPHICS CURRENT $/SF 1-Miles 3-Miles 5-Miles Electric $24,838 $0.70 2018 Estimate Pop 20,832 212,994 444,266 Water $15,972 $0.45 2010 Census Pop 17,310 187,555 402,481 Trash Removal $4,666 $0.13 2018 Estimate HH 11,388 108,829 205,902 HVAC Maintenance $2,000 $0.06 2010 Census HH 9,170 93,905 183,391 Gas $4,129 $0.12 Median HH Income $39,911 $64,760 $66,586 Insurance $3,800 $0.11 Per Capita Income $39,089 $51,238 $45,131 Real Estate Taxes $13,498 $0.38 Average HH Income $68,425 $99,133 $96,353 Management Fee $24,215 $0.68 Other Expenses - Non Reimbursable $10,442 $0.29 Total Expenses $103,560 $2.91

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OFFERING SUMMARY INVESTMENT OVERVIEW Originally christened the Woodmen of the World Building when constructed by architect W.W. Lucius in 1925, the Melody Ballroom has hosted countless events consistently for decades in Portland utilizing multiple rooms on three floors featuring high ceilings and ornate architecture. Built as a potential bomb shelter using poured in place concrete, the building needs no seismic retrofitting and is not considered unreinforced masonry or “URM” by the city of Portland. The Melody Event Center has been hosting events since purchasing the building in 2017 after moving from leased space over the previous decades. Once settled in, the ownership embarked on major renovations including adding a two door elevator in order to make the entire building ADA accessible, and converted the basement into The Keep, a speakeasy themed private bottle club with its own event and entertainment space. In spite of being one of Portland's hottest neighborhoods, the location is a designated Opportunity Zone and as such offers the possibility of tax benefits to an investor looking to further upgrade the structure.

Preferring to focus on the business of curating special events, the ownership is now looking to find an investor who understands both the stability of the Melody Ballroom as a low maintenance, high income net leased asset, and as a landmark with a rich cultural and historical significance in one of Portland's most sought after entertainment districts. This sale leaseback scenario is ideal for an investor who appreciates the ownership of a trophy asset, desires a higher rate of return than multifamily, retail or other net leased assets and is willing to take on a slightly higher amount of risk in order to ensure a current 6.5% cap rate return. There is flexibility in lease terms and investors looking forward to running the business at some point or re-tenanting are highly encouraged to take a tour and propose a lease scenario.

INVESTMENT HIGHLIGHTS

▪ NNN investment property with Current 6.5% Cap ▪ Highly desirable inner SE Portland location ▪ Original classic architecture augmented with recent major renovations ▪ Non-URM construction – no need for seismic upgrading ▪ Tenant with 20+ year history poised for long term success ▪ Great Close-In SE location at affordable rents make for possible tenanting opportunity at higher rents if a vacancy occurs

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OFFERING SUMMARY PROPERTY SUMMARY

THE OFFERING CONSTRUCTION Property Melody Ballroom Framing Reinforced Concrete Price $7,800,000 Exterior Brick Property Address 615 SE Alder Street, Portland, OR MECHANICAL Assessors Parcel Number 1S1E02BB -02800 Elevators 1 new W/ front and rear door Zoning EXd SITE DESCRIPTION Number of Floors 3 Year Built/Renovated 1925 Rentable Square Feet 35,528 Ownership Fee Simple Lot Size 0.38 acre(s) Parking 36 spots in a leased lot located on SE 7th and Washington Parking Ratio 1.38 per 1,000 SF Intersection/Cross Street SE 7th Avenue EXPENSES Gas $4,129 Electric $24,838 Water $15,972 Trash $4,666 Taxes $13,105 Insurance $3,800 HVAC Maintenance $2,000 Elevator Maintenance $3,336

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AERIAL PHOTO

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PROPERTY PHOTO

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PROPERTY PHOTO

Marcus & Millichap closes more transactions than any other brokerage firm.

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FINANCIAL ANALYSIS

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FINANCIAL ANALYSIS TENANT SUMMARY

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FINANCIAL ANALYSIS OPERATING STATEMENT

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FINANCIAL ANALYSIS PRICING DETAIL

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ACQUISITION FINANCING

MARCUS & MILLICHAP CAPITAL CORPORATION WHY MMCC?

CAPABILITIES Optimum financing solutions to enhance value MMCC—our fully integrated, dedicated financing arm—is committed to providing superior capital market expertise, precisely managed execution, and unparalleled access to capital sources providing the most competitive rates and Our ability to enhance terms. buyer pool by expanding finance options We leverage our prominent capital market relationships with commercial banks, life insurance companies, CMBS, private and public debt/equity funds, Fannie Mae, Freddie Mac and HUD to provide our clients with the greatest range of Our ability to enhance financing options. seller control • Through buyer Our dedicated, knowledgeable experts understand the challenges of financing qualification support and work tirelessly to resolve all potential issues to the benefit of our clients. • Our ability to manage buyers finance expectations • Ability to monitor and manage buyer/lender progress, insuring timely, predictable closings • By relying on a world class Closed 1,707 National platform $5.63 billion Access to set of debt/equity sources debt and equity operating total national more capital financings within the firm’s volume in 2017 sources than and presenting a tightly in 2017 brokerage any other firm underwritten credit file offices in the industry

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MARKET COMPARABLES

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SALES COMPARABLES MAP

MELODY BALLROOM (SUBJECT)

1 4531 SE Belmont St

2 Captain Couch

3 The Bossanova

4 The Frances Building

5 The Weatherly

6 Hawthorne Building

SALES COMPARABLES

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SALES COMPARABLES SALES COMPARABLES SALES COMPS AVG

Average Cap Rate Average Price Per Square Foot

8.0 $400.00

7.2 $360.00

6.4 $320.00

5.6 Avg. 5.04% $280.00

4.8 $240.00 Avg. $223.83

4.0 $200.00

3.2 $160.00

2.4 $120.00

1.6 $80.00

0.8 $40.00

0.0 $0.00 Melody 4531 SE Captain The The Frances The Hawthorne Melody 4531 SE Captain The The Frances The Hawthorne Ballroom Belmont St Couch Bossanova Building Weatherly Building Ballroom Belmont St Couch Bossanova Building Weatherly Building

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SALESMARKETING COMPARABLES TEAM

SALES COMPARABLES

4531 SE BELMONT ST CAPTAIN COUCH MELODY BALLROOM 4531 SE Belmont St, Portland, OR, 97215 24 NW 2nd Ave, Portland, OR, 97209 615 SE Alder Street, Portland, OR, 97214 1 2

rentpropertyname1 rentpropertyname1 rentpropertyname1

Asking Price $7,800,000 Close of Escrow 3/30/2017 Close of Escrow 12/29/2017 Price/SF $219.55 Days On Market 1051 Sales Price $4,630,262 CAP Rate 6.52% Sales Price $3,800,000 Rentable SF 17,742 Year Built 1925 Rentable SF 23,010 Price/SF $260.98 Occupancy 100% Price/SF $165.15 Year Built 1912 CAP Rate 7.47% Occupancy 100% Year Built 1976 Occupancy 100%

rentpropertyaddress1 rentpropertyaddress1 rentpropertyaddress1 NOTES NOTES 23,010 SF office building that sold for $3.8M fully leased with high rental Ground floor Office and Retail, second floor Office, brick walls, unique rates providing a 7.47% cap rate (8% cap @ asking price of $3,550,000). Historic space; ADA upgrade, new roof, HVAC, lots of skylights. Originally Providence Health System is anchor tenant Since 2006; three story constructed as the Phillps Hotel in 1904, after historical renovation in the building all elevator served; ADA Compliant Restrooms; recently installed 1970s, the building was renamed Captain Couch Square; occupancy: 85% new roof, gutter and HVAC system. Insulated masonry concrete with a occupied/100% leased. concrete foundation; each floor has ADA compliant restrooms.

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SALESMARKETING COMPARABLES TEAM

SALES COMPARABLES

THE BOSSANOVA THE FRANCES BUILDING THE WEATHERLY 722 E Burnside St, Portland, OR, 97214 3632 SE Hawthorne Blvd, Portland, OR, 97214 516 SE Morrison St, Portland, OR, 97214

3 4 5

rentpropertyname1 rentpropertyname1 rentpropertyname1

Tenants Type Close of Escrow 5/13/2016 Close Of Escrow 4/25/2018 7 Bdr 0 Bath Close of Escrow 7/31/2018 Sales Price $2,500,000 Sales Price $3,500,000 4 Retail Sales Price $20,000,000 Rentable SF 15,900 Price/SF $234.66 1 Office Rentable SF 63,608 Price/SF $157.23 CAP Rate 3.50% Price/SF $314.43 CAP Rate 5.25% Year Built 1911 CAP Rate 5.50% Total Apartment Year Built 1907 7 Year Built 1928 Units Occupancy 100% Total Commercial Occupancy 94% 5 Suites Key Tenants Echo Theater Portland Cider Co. rentpropertyaddress1 Harlow rentpropertyaddress1Peet's Coffee rentpropertyaddress1 NOTES NOTES Frontage - 102' on E Burnside St, 64' on SE 8th Ave NOTES 12 story skyscraper in SE Portland, 70,000 SF gross, retail tenants Bank of Bossanova Ballroom - 8,900 SF; Wurst - 2,300 SF; Le Pigeon - 1,770 SF On market for 7 months, initial asking price of $3,750,000, transaction in America, Nirvana Cafe and the Portland Running Company; office tenants escrow for 69 days, 1031 exchange. Main tenant is the Echo Theater. are a mix of financial/ mortgage, zoned C2, office space lease rate is Significant deferred maintenance building-wide, specifically with 2nd story $18.00 SF gross with negotiable terms in length. Pro Forma Cap rate is apartments. 6.3%, current is 5.5%. The property was not formally on the market.

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SALESMARKETING COMPARABLES TEAM

SALES COMPARABLES

HAWTHORNE BUILDING 307 SE Hawthorne Blvd, Portland, OR, 97214

rentpropertyname1 rentpropertyname1 rentpropertyname1

Tenants Type Close Of Escrow 9/25/2018 1 Retail Sales Price $6,000,000 3 Office Price/SF $210.53 CAP Rate 3.50% Year Built 1923 Total Commercial 4 Suites

Key Tenants Big Ads, Inc. Program Management rentpropertyaddress1 rentpropertyaddress1 rentpropertyaddress1 Anderson Dabrowski

NOTES The building has ground-floor, storefront retail space. The upper floors have Downtown views, wood floors, and high ceilings. Sold with the entire 3rd floor vacant for potential owner user.

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8 LEASE COMPARABLES MAP

MELODY BALLROOM (SUBJECT)

1 Eastside Exchange

2 Washington High School

Olympic Mills Commerce 3 Center

4 Burnside Trolley Building

5 Historic Cully Bldg

6 532 SE Ankeny St

7 Everest Building

8 East Bank Lofts

9 Wonder Ballroom

10 Holocene

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LEASE COMPARABLES AVERAGE OCCUPANCY

Avg. 88.35%

100

0 Melody Eastside Washington Olympic Burnside Historic 532 SE Everest East Bank Wonder Holocene Ballroom Exchange High School Mills Trolley Cully Bldg Ankeny St Building Lofts Ballroom Commerce Building Center

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LEASE COMPARABLES AVERAGE RENT PER SQUARE FOOT

$37

$33

$30 Avg. $25 $26

$22

$19

$15

$11

$0 Melody Eastside Washington Olympic Burnside Historic 532 SE Everest East Bank Wonder Holocene Ballroom Exchange High School Mills Trolley Cully Bldg Ankeny St Building Lofts Ballroom Commerce Building Center

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LEASEMARKETING COMPARABLES TEAM

MELODY BALLROOM EASTSIDE EXCHANGE WASHINGTON HIGH SCHOOL 615 SE Alder Street, Portland, OR, 97214 123 NE 3rd Ave, Portland, OR, 97232 1300 SE Stark St, Portland, OR, 97214

1 2

rentpropertyname1 rentpropertyname1 rentpropertyname1

Asking Rent/SF $15.37 Survey Date 10/23/2018 Survey Date 10/23/2018 Year Built 1925 Rentable SF 100,000 Rentable SF 78,348 Occupancy 100% Available SF 3,610 Available SF 17,643 Lease Type NNN Asking Rent/SF $28.00 Asking Rent/SF $36.00 Lot Size 0.38 acre(s) Year Built 1925 Year Built 1923 Occupancy 96% Occupancy 85% Lot Size 2.2300 Lot Size 1.2700 Parking Ratio 1.00/1,000 SF Parking Ratio 0.26/1000

rentpropertyaddress1 rentpropertyaddress1 rentpropertyaddress1 NOTES NOTES $28.00 NNN for 3,610 SF of available class B office space AKA 531 SE 14th Ave.

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LEASEMARKETING COMPARABLES TEAM

OLYMPIC MILLS COMMERCE CENTER BURNSIDE TROLLEY BUILDING HISTORIC CULLY BLDG 107 SE Washington St, Portland, OR, 97214 2705 E Burnside St, Portland, OR, 97214 330-338 SE Martin Luther King Jr Blvd, Portland, OR, 97214

3 4 5

rentpropertyname1 rentpropertyname1 rentpropertyname1

Survey Date 10/23/2018 Rentable SF 18,815 Rentable SF 9,600 Rentable SF 108,264 Available SF 3,795 Available SF 3,200 Available SF 7,275 Asking Rent/SF $24.00 Asking Rent/SF $24.00 Asking Rent/SF $28.00 Year Built 1911 Year Built 1884 Year Built 1920 Occupancy 80% Occupancy 67% Occupancy 93% Lease Type Gross Lease Type NNN Lot Size 0.9200 Lot Size 0.4900 Lot Size 0.1100 Parking Ratio 1.06/1,000 SF Parking Ratio 2.08/1,000 SF

rentpropertyaddress1 rentpropertyaddress1 rentpropertyaddress1 NOTES NOTES NOTES $27-29 SF $24.00 Full Service Gross for 3,795 SF of 1st floor office space. $24.00 NNN for 1,800 - 3,200 SF of 3rd floor office space.

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LEASEMARKETING COMPARABLES TEAM

532 SE ANKENY ST EVEREST BUILDING EAST BANK LOFTS 532 SE Ankeny St, Portland, OR, 97214 819 SE Morrison St, Portland, OR, 97214 537 SE Ash St, Portland, OR, 97214

6 7 8

rentpropertyname1 rentpropertyname1 rentpropertyname1

Rentable SF 7,000 Survey Date 10/23/2018 Survey Date 10/23/2018 Available SF 1,200 Rentable SF 18,499 Rentable SF 38,000 Asking Rent/SF $26.04 Available SF 1,850 Available SF 4,421 Year Built 1907 Asking Rent/SF $28.00 Asking Rent/SF $26.70 Occupancy 83% Year Built 1972 Year Built 1912 Lease Type NNN Occupancy 99% Occupancy 81% Lot Size 0.2300 Lease Type NNN Lease Type NNN Parking Ratio 2.60/1,000 SF Lot Size .20 Lot Size 0.23

rentpropertyaddress1 rentpropertyaddress1 rentpropertyaddress1 NOTES NOTES NOTES $26.04 for 1,200 SF of 1st floor office space. Creative office offered at $28 SF NNN: 24 Hour Availability, Air $22.00 - 29.50 NNN for 1,060 - 1,732 SF with a total of 4,421 SF of Conditioning, Bicycle Storage, Bus Line, Central Heating, Conferencing available 2nd-4th floor office space. Facility, High Ceilings, Natural Light, On Site Management, Shared Shower Facilities, Wi-Fi

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LEASEMARKETING COMPARABLES TEAM

WONDER BALLROOM HOLOCENE 128 NE Russell St, Portland, OR, 97212 1001 SE Morrison St, Portland, OR, 97214

9 10

rentpropertyname1 rentpropertyname1 rentpropertyname1

Survey Date 11/14/2018 Survey Date 11/26/2018 Rentable SF 12,414 Rentable SF 18,800 Asking Rent/SF $11.90 Asking Rent/SF $13.32 Year Built 1914 Year Built 1949 Occupancy 100% Occupancy 100% Lease Type NNN Lease Type NNN Lot Size .33 Lot Size 0.43 Parking Ratio 2.78/1,000 SF

rentpropertyaddress1 rentpropertyaddress1 rentpropertyaddress1 NOTES NOTES Currently on market, unpriced Holocene rents 5,000 SF NNN with 6% annual increases: Year 1 = $13.32 SF Year 2 = $14.16 SF Year 3 = $15.00 SF Year 4 = $15.96 SF Year 5 = $16.92 SF

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MARKET OVERVIEW

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MARKET OVERVIEW PORTLAND-VANCOUVER OVERVIEW

The Portland-Vancouver metro is located near the confluence of the Columbia and Willamette rivers and stretches across the Oregon border into Washington State. The region is composed of Multnomah, Clackamas, Columbia, Washington and Yamhill counties in Oregon, and Clark and Skamania counties in Washington. Mount Hood and the Cascade Range stand to the east, and the Oregon Coast Mountain Range lies to the west. The metro contains approximately 2.4 million residents, with more than 640,000 people residing in Portland, the area’s most populous city.

METRO HIGHLIGHTS

HIGH POPULATION GROWTH The Portland-Vancouver metro has recorded more than 20 years of positive net migration thanks to expanding industries.

ALTERNATIVE-ENERGY INDUSTRY Alternative-energy companies are attracted to the local educated workforce and research institutions and are moving to the region.

LOW BUSINESS COSTS The cost of doing business is among the lowest on the West Coast, supported by no state income tax in Washington and no sales tax in Oregon.

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MARKET OVERVIEW

ECONOMY ▪ Lower land costs than other West Coast metros, a skilled labor pool and affordable, abundant power attract companies to the region. The favorable tax structure, with no state income taxes in Washington and no sales tax in Oregon, also lures businesses. ▪ The metro’s economy has shifted from timber to industries that include athletic and outdoor activities, clean tech, advanced manufacturing and software. ▪ A diverse group of companies based in the metro include Nike, Daimler, Oregon Iron Works, Intel and IBM.

MAJOR AREA EMPLOYERS

Providence Health & Services Oregon Health and Sciences University Portland State University Kaiser Foundation Health Plan of the NW Legacy Health System Nike, Inc. Wells Fargo Fred Meyer Stores U.S. Bank * Forecast Intel Corp.

SHARE OF 2017 TOTAL EMPLOYMENT

11% 15% 13% 10% 6% MANUFACTURING PROFESSIONAL AND GOVERNMENT LEISURE AND HOSPITALITY FINANCIAL ACTIVITIES BUSINESS SERVICES

18% 6% + 15% 2% 4% TRADE, TRANSPORTATION CONSTRUCTION EDUCATION AND INFORMATION OTHER SERVICES AND UTILITIES HEALTH SERVICES

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MARKET OVERVIEW

DEMOGRAPHICS

▪ The metro is expected to add nearly 120,000 people over the next five years, resulting in the formation of nearly 64,000 households. SPORTS ▪ A median home price well above the U.S. level means 60 percent of households can afford to own their home, which is below the national rate of 64 percent. ▪ Of residents age 25 and older, 35 percent hold bachelor’s degrees, and 13 percent have also obtained a graduate or professional degree.

2017 Population by Age

6% 19% 6% 30% 26% 14% 0-4 YEARS 5-19 YEARS 20-24 YEARS 25-44 YEARS 45-64 YEARS 65+ YEARS EDUCATION

2017 2017 2017 2017 MEDIAN POPULATION: HOUSEHOLDS: MEDIAN AGE: HOUSEHOLD INCOME: 2.4M 948K 37.9 $63,000 Growth Growth U.S. Median: U.S. Median: 2017-2022*: 2017-2022*: 4.9% 6.7% 37.8 $56,300

QUALITY OF LIFE The metro contains more than 37,000 acres of parks and provides numerous outdoor opportunities, including activities at Mount Hood and on the Hood River. The metro lies 60 miles east of the Pacific Ocean, with 330 miles of beaches along the Oregon coast. ARTS & ENTERTAINMENT Professional sports teams represent basketball, soccer and hockey. Cultural activities can be found at various local venues, including the Portland Art Museum, World Forestry Center Discovery Museum and the Portland Children’s Museum, and plays are staged at the Portland Center for the Performing Arts. Major colleges and universities including Lewis and Clark, Pacific University, the University of Portland and Portland State University. The University of Oregon and Oregon State University are nearby.

* Forecast Sources: Marcus & Millichap Research Services; BLS; Bureau of Economic Analysis; Experian; Fortune; Moody’s Analytics; U.S. Census Bureau

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PORTLAND METRO AREA

Robust Tech and Healthcare Hiring Fuel Demand For Quality Office Spaces Office 2018 Outlook

Booming healthcare, technology sectors bolster demand for office space, keeping 3.3 Construction: vacancy tight. A relatively lower cost of doing business compared to other West Deliveries pick up considerably from the Coast metros and a growing population of young professionals is driving corporate million sq. 480,000 square feet completed the previous growth in the Portland metro. Gains in the tech and healthcare sectors in particular ft. will be year as 3.3 million square feet is completed are bolstering demand for quality office space marketwide. Companies including completed metrowide. Amazon and Google are expanding their footprints and healthcare firms have added more than 13,400 employees during the past 12 months. Elevated demand has 40 basis point Vacancy: pushed the vacancy rate to one of the lowest among the major metros in the first Net absorption of 2.6 million square feet will increase in vacancy quarter while vacancy in medical office buildings hovered in the tight 3 percent band. not outpace completions, lifting vacancy to 9.6 percent in 2018. Construction accelerates. The tight vacancy rate is making it increasingly difficult for tenants to find quality space and as a result, construction will pick up considerably Rents: this year. Development is on track to reach its highest level in over 10 years in 2018. 1.4% increase in A chunk of supply additions are build-to-suit, including roughly 1.3 million square feet asking rents The average asking rent climbs to $25.92 per of Nike’s headquarters expansion. An additional 722,000 square feet of space is square foot, adding on to the 4.8 percent designated for medical office use, the majority of which is leased, minimizing impact increase posted the prior year. on vacancy in medical office buildings.

Investment Trends • Relatively higher returns and lower entry costs than in nearby California and Washington keep out-of-state buyers active in the Portland metro. Average first-year returns can be up to 100 basis points higher in Portland than in other West Coast major markets. • Demand has picked up for assets in Portland’s CBD during the past 12 months ending in March. Elevated demand lifted the average price up nearly 20 percent for office buildings, to around $300 per square foot. Properties in the area change hands with first-year yields in the mid-5 percent band on average. • Heightened tenant interest in Clark County has bolstered investors’ appetites for assets here. The majority of sales were of Class B buildings in Vancouver. Cap rates in Clark County are roughly 100 basis points higher than the metro average. * Cap rates trailing 12 months through 1Q18; 10-Year Treasury up to March 29 Sources: CoStar Group, Inc.; Real Capital Analytics

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PORTLAND METRO AREA

1Q18 - 12-Month Trend

EMPLOYMENT CONSTRUCTION VACANCY RENTS

increase in total square feet basis point increase in increase in the 2.0% employment Y-O-Y 576,000 completed 30 vacancy Y-O-Y 4.4% average asking rent Y-O-Y Y-O-Y • During the year ending in the first • Completions declined • Metrowide vacancy ticked • Building on a 2.5 percent quarter, roughly 23,400 positions considerably from the 1.4 down 30 basis points during increase the prior year, the were created. Hiring was led by million square feet completed the past 12 months to 9.7 average asking rent climbed education and health services the prior annual period. The percent. Nearly 840,000 4.4 percent during the past 12 with the addition of 14,900 jobs. Southeast, Southwest and square feet was absorbed months to $25.40 per square • The unemployment rate has held Lloyd District submarkets during this time. foot. steady in the high-3 percent band received the majority of • Vacancy in Class B/C office • Above-average rent growth in March. The tight rate is making deliveries last year. space fell 60 basis points was recorded in the CBD. it difficult for employers to find • More than 2.5 million square during the past four quarters Here, rent for marketed space quality workers and is restraining feet of office space is to 9.6 percent. Class A rose 6.7 percent during the hiring. underway metrowide, with vacancy, on the other hand, year to $32.19 per square foot completion dates scheduled held steady at 9.7 percent year in the first quarter. Rent in the through 2019. over year. CBD is the highest metrowide.

* Forecast

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PORTLAND METRO AREA

Submarket Trends

Lowest Vacancy Rates 1Q18

Y-O-Y Asking Y-O-Y % Submarket Vacancy BasisPoint Rate Rent Change Change

Yamhill County 2.6% -290 $21.82 0.0%

* 2017 Columbia County 3.4% 0 $15.00 0.0% **1Q18 Sales Trends Southeast 5.3% 40 $24.58 2.7%

Bidding Picks Up For Class A Office Buildings, Northwest 5.4% -300 $25.77 11.5% Pushing Prices Higher • The number of sales slowed during the prior 12-month period, through transactions Lloyd District 5.6% -200 $30.06 13.2% picked up for Class A properties. Increased sales of higher-tier assets lifted prices up 14 percent to $260 per square foot. Northeast 5.6% -100 $15.02 -0.7% • Average first-year returns for office assets have held steady in the low- to mid-6 percent range for the past four years. Westside 6.3% -60 $22.85 1.8%

Outlook: Investors continue to target Clark County 8.6% -200 $20.95 -0.1% properties in south western Portland, near Beaverton. Several corporate Southwest 11.1% 80 $20.95 0.9% headquarters are located here. Cap rates in the area average in the high-6 to low-7 CBD 12.9% -10 $32.19 6.7% percent band. I-5 Corridor 14.9% 160 $25.12 3.3%

Overall Metro 9.7% -30 $25.40 4.4%

* Trailing 12 months through 1Q18 Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

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PORTLAND METRO AREA

Capital Markets

• Fed raises benchmark interest rate, plots path for additional increases. The Federal Reserve increased the federal funds rate by 25 basis points, lifting the overnight lending rate to 1.75 percent. The Fed noted that inflation has broadly reached its objective, while the domestic economy is performing tremendously well as tax cuts power household spending and corporate investment. As a result, the Fed has guided toward two additional rate hikes this year, likely in September and December, while setting the stage for as many as four increases in 2019.

• Lending costs rise alongside Fed rate increase. As the Fed continues to lift interest rates, lenders are increasingly tightening margins in order to compete for loan demand. Despite these efforts, borrowing costs remain on an upward trajectory, which may prompt investors to seek higher cap rates or pursue greater returns in secondary markets. However, robust economic growth and rising net operating incomes are keeping selling prices elevated, which may widen an expectation gap as property performance and demand trends remain positive.

• Lending continues to be highly competitive. While the Fed has committed to tightening policy, global markets and foreign central banks are keeping pressure down on long-term interest rates, restraining the 10-year Treasury to the 3 percent range. Banks, commercial mortgage-backed securities (CMBS) and life insurance companies are providing debt for office assets, with leverage at banks typically capped at 65 percent. Meanwhile, life insurance companies will typically provide capital with leverage between 60 and 65 percent, with CMBS offering up to 70 percent. Lender spreads have narrowed in recent months, while 10-year loan structures will typically range between 4.25 and 5.25 percent, depending on tenancy, location, sponsorship and loan-to-value ratio. Minimum debt service coverage required is 1.3 times expected asset revenues, supporting debt yields of 8.5 percent. The national economy should Include sales $2.5 million and greater Sources: CoStar Group, Inc.; Real Capital Analytics grow strong and office demand should support a 10-basis-point decline in vacancy to 13.7 percent nationally.

36 PROPERTYMELODY BALLROOMNAME

MARKETINGDEMOGRAPHICS TEAM Created on November 2018

POPULATION 1 Miles 3 Miles 5 Miles POPULATION PROFILE 1 Miles 3 Miles 5 Miles ▪ 2022 Projection ▪ Population By Age Total Population 20,880 215,701 450,356 2017 Estimate Total Population 19,888 207,929 438,700 ▪ 2017 Estimate Under 20 7.01% 14.10% 17.56% Total Population 19,888 207,929 438,700 20 to 34 Years 41.80% 32.29% 27.65% ▪ 2010 Census 35 to 39 Years 10.94% 9.92% 9.69% Total Population 17,302 187,464 402,507 40 to 49 Years 15.72% 15.06% 15.20% ▪ 2000 Census 50 to 64 Years 17.19% 17.27% 18.06% Total Population 14,948 169,322 375,552 Age 65+ 7.33% 11.37% 11.86% ▪ Current Daytime Population Median Age 35.46 36.71 37.39 2017 Estimate 77,386 399,597 614,819 ▪ Population 25+ by Education Level HOUSEHOLDS 1 Miles 3 Miles 5 Miles 2017 Estimate Population Age 25+ 16,889 164,204 334,370 ▪ 2022 Projection Elementary (0-8) 1.55% 1.40% 2.03% Total Households 11,435 111,100 210,695 Some High School (9-11) 5.13% 2.82% 4.00% ▪ 2017 Estimate High School Graduate (12) 12.03% 10.19% 13.26% Total Households 10,713 105,619 201,822 Some College (13-15) 22.70% 19.46% 20.79% Average (Mean) Household Size 1.62 1.89 2.10 Associate Degree Only 5.76% 5.38% 6.17% ▪ 2010 Census Bachelors Degree Only 34.20% 35.26% 31.77% Total Households 9,123 93,876 183,366 Graduate Degree 18.36% 25.02% 21.15% ▪ 2000 Census Total Households 7,617 83,693 166,878 HOUSEHOLDS BY INCOME 1 Miles 3 Miles 5 Miles ▪ 2017 Estimate $200,000 or More 4.28% 7.91% 6.86% $150,000 - $199,999 3.42% 5.58% 5.35% $100,000 - $149,000 8.06% 13.54% 14.18% $75,000 - $99,999 8.97% 11.74% 12.84% $50,000 - $74,999 13.91% 16.12% 17.87% $35,000 - $49,999 11.80% 10.92% 11.87% $25,000 - $34,999 11.72% 8.96% 8.94% $15,000 - $24,999 13.25% 9.17% 8.78% Under $15,000 21.54% 14.97% 13.90% Average Household Income $61,189 $89,187 $87,125 Median Household Income $35,458 $57,233 $59,571 Per Capita Income $34,712 $45,897 $40,569

37 PROPERTYMELODY BALLROOMNAME

MARKETINGDEMOGRAPHICS TEAM Created on November 2018

POPULATION BY 1 Miles 3 Miles 5 Miles TRANSPORTATION TO WORK ▪ 2017 Estimate Total Population Bicycle 15.99% 10.27% 7.83% Bus or Trolley Bus 16.68% 11.88% 10.91% Carpooled 6.19% 6.17% 7.60% Drove Alone 35.77% 48.10% 56.24% Ferryboat 0.00% 0.01% 0.01% Motorcycle 0.90% 0.37% 0.30% Other Means 0.66% 0.66% 0.57% Railroad 0.19% 0.21% 0.16% Streetcar or Trolley Car 2.22% 2.30% 1.47% Subway or Elevated 0.83% 0.87% 0.68% Taxicab 0.00% 0.14% 0.09% Walked 13.25% 10.53% 6.73% Worked at Home 7.32% 8.50% 7.41% POPULATION BY TRAVEL TIME TO 1 Miles 3 Miles 5 Miles WORK ▪ 2017 Estimate Total Population Under 15 Minutes 25.67% 23.67% 21.81% 15 - 29 Minutes 40.72% 42.28% 42.59% 30 - 59 Minutes 20.35% 20.21% 22.06% 60 - 89 Minutes 2.94% 2.94% 3.25% 90 or More Minutes 1.93% 1.28% 1.30% Worked at Home 7.32% 8.50% 7.41% Average Travel Time in Minutes 25 25 26

38 PROPERTYMELODY BALLROOM NAME

MARKETINGDEMOGRAPHICS TEAM

Population Race and Ethnicity In 2017, the population in your selected geography is 19,888. The The current year racial makeup of your selected area is as follows: population has changed by 33.05% since 2000. It is estimated that 83.95% White, 4.44% Black, 0.16% Native American and 3.98% the population in your area will be 20,880.00 five years from now, Asian/Pacific Islander. Compare these to US averages which are: which represents a change of 4.99% from the current year. The 70.42% White, 12.85% Black, 0.19% Native American and 5.53% current population is 55.56% male and 44.44% female. The median Asian/Pacific Islander. People of Hispanic origin are counted age of the population in your area is 35.46, compare this to the US independently of race. average which is 37.83. The population density in your area is 6,313.07 people per square mile. People of Hispanic origin make up 5.95% of the current year population in your selected area. Compare this to the US average of 17.88%.

Households Housing There are currently 10,713 households in your selected geography. The median housing value in your area was $440,426 in 2017, The number of households has changed by 40.65% since 2000. It is compare this to the US average of $193,953. In 2000, there were estimated that the number of households in your area will be 11,435 1,494 owner occupied housing units in your area and there were five years from now, which represents a change of 6.74% from the 6,123 renter occupied housing units in your area. The median rent at current year. The average household size in your area is 1.62 persons. the time was $498.

Income Employment In 2017, the median household income for your selected geography is In 2017, there are 74,365 employees in your selected area, this is also $35,458, compare this to the US average which is currently $56,286. known as the daytime population. The 2000 Census revealed that The median household income for your area has changed by 31.79% 68.06% of employees are employed in white-collar occupations in since 2000. It is estimated that the median household income in your this geography, and 31.96% are employed in blue-collar occupations. area will be $41,450 five years from now, which represents a change In 2017, unemployment in this area is 8.34%. In 2000, the average of 16.90% from the current year. time traveled to work was 25.00 minutes.

The current year per capita income in your area is $34,712, compare this to the US average, which is $30,982. The current year average household income in your area is $61,189, compare this to the US average which is $81,217.

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