130 Newport Center Drive, Suite 230 Newport Beach, California 92660 Phone 949.717.6450 Fax 949.717.6444

STRATEGIC MARKET ANALYSIS OF RETAIL, FINAL REPORT PREPARED FOR: OFFICE AND RESIDENTIAL REDEVELOPMENT DECEMBER 16, 2010 CITY OF FOUNTAIN VALLEY OPPORTUNITIES FOR A 250-ACRE AREA AT (DATA AS OF SEPTEMBER 2010) EUCLID AND INTERSTATE-405 IN FOUNTAIN VALLEY, CALIFORNIA The Concord Group

TABLE OF CONTENTS

EXECUTIVE SUMMARY

MEMORANDUM

EXHIBIT PACKAGE

I. OVERVIEW 1. Regional Location 2. Local Setting 3. S.W.O.T. Analysis 4. Programming Criteria 5. Employment 6. Demographic Trends 7. For-Sale Housing Metrics 8. Apartment Metrics 9. Retail Metrics 10. Office Metrics 11. Flex Metrics

II. FOR-SALE RESIDENTIAL MARKET 1. Building Permits 2. Home Closings 3. Median Closing Prices 4. Price/Rent Projection 5. Housing Distress 6. Affordability 7. Location of Key For-Sale Comparables 8. Planned and Proposed Projects – For-Sale Residential 9. For-Sale Housing Demand

CITY OF FOUNTAIN VALLEY PAGE 1 DECEMBER 16, 2010 10095.00 The Concord Group

III. APARTMENT MARKET 1. Building Permits 2. Apartment Inventory and Completions 3. Apartment Vacancy 4. Apartment Effective Rent 5. Location of Key Apartment Communities 6. Planned and Proposed Projects – Apartments 7. Apartment Demand

IV. RETAIL MARKET 1. Traffic Counts 2. Retail Inventory and Completions 3. Retail Absorption and Vacancy 4. Retail Lease Rates 5. Location of Key Retail Centers 6. Projected Annual Demand for Retail Space 7. Retail Opportunity/Gap Analysis 8. Potential Internally Generated Retail Demand 9. Planned and Proposed Projects – Retail

V. OFFICE MARKET 1. Office Inventory and Completions 2. Office Absorption and Vacancy 3. Office Lease Rates 4. Location of Key Office Nodes 5. Planned and Proposed Projects – Office 6. Demand/Supply Comparison – Office 7. Office Demand

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VI. FLEX MARKET 1. Flex Inventory and Completions 2. Flex Vacancy 3. Flex Lease Rates 4. Location of Key Flex Nodes 5. Planned and Proposed Projects – Flex 6. Demand/Supply Comparison – Flex 7. Flex Demand

APPENDIX A. For-Sale Residential Demand Model B. Apartment Demand Model C. Household Income Distribution D. Age Distribution E. Home Ownership F. Housing Turnover G. Household Size

CITY OF FOUNTAIN VALLEY PAGE 3 DECEMBER 16, 2010 10095.00 EXECUTIVE SUMMARY

The Concord Group

Executive Summary

The Industrial Area Redevelopment Project Area is generally located in the east/southeast portion of the City of Fountain Valley (“City”) along the Santa Ana River Flood Control Channel. Since the 1980s, there have been numerous additions and improvements in the area as a result of Agency for Community Development (“Agency”) efforts. While businesses such as Costco, the Southpark Business Center, Fry’s, etc. have been successful, the majority of the southern portion of the Industrial Area Redevelopment Project Area (“Project Area” – please see the map on Page 2 for exact boundaries) remains underutilized. As a first step in the evaluation of measures and policies the Agency could potentially utilize to encourage redevelopment, the City first engaged The Concord Group (“TCG”) in August 2010 to conduct a Strategic Market Analysis leading to market-driven recommendations relative to the highest and best mix of uses in the Project Area. The analysis is intended to serve as a foundation for Agency policy decisions and further planning efforts to achieve the recommended vision.

This executive summary provides a high-level overview of the findings, conclusions and recommendations resulting from the Strategic Market Analysis. TCG evaluated current and projected residential, retail and office/flex market conditions in the Project Area and greater Fountain Valley market area, conducted surveys of comparable and analogous developments, identified the overall scale of redevelopment opportunities and recommended a vision for the area to be further analyzed via physical planning and implementation strategies. Please refer to the memorandum and accompanying exhibit package that follow for further detail on the analyses TCG conducted to reach our conclusions.

Key Findings & Conclusions

• The Project Area represents a strong redevelopment opportunity, with the market potential for a mixed-use, pedestrian-friendly environment energized by retail and apartment development in the near- to mid-term (3-5 years), with for-sale residential and supporting office uses incorporated as new development begins to occur and the overall economy recovers: o Successful anchors already in place (Hyundai, Fry’s, Costco, etc.), Hyundai’s planned expansion and significant potential for additional retail development in key categories provide the foundation for a more focused sense of place and destination location for the surrounding daytime and future nighttime population o Residential uses create local activity and generate additional retail demand o Interesting public spaces to create a more desirable location for patrons/residents to frequent and walkabout o Ability to redevelop a significant sized area with a cohesive vision o Close proximity to major transportation options provides easy access and a high degree of visibility o Strong demographics – Fountain Valley is significantly more affluent than Orange County as a whole o Opportunity to become a “place to go” within the City

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 1 10095.00 The Concord Group Southern Portion of the Industrial Area Redevelopment Project Area

Net Developable Acreage

North Portion: Approx. 80 Acres (excl. Hyundai/Fry's) South Portion: Approx. 75 Acres

6 Acres Hyundai 17 Acres 25 Acres 37 Acres

Fry's 7.5 Acres 20 Acres

75 Acres

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• Although economic conditions are unfavorable at this time, the underlying fundamentals in Orange County and the Fountain Valley market area remain generally strong, especially in key product types: o Job market projected to improve in 2011 and accelerate into 2012, with improvement each year through 2015 o Consensus forecasts project for-sale values to return to growth in 2012, while retail and apartment vacancies and values have held-up relatively well o Significant retail under-supply within a five-mile radius provides opportunities to capture unmet demand, particularly in categories that fit well with the Project Area vision – specialty foodstores, entertainment uses, neighborhood-level home centers, “pubs & clubs”, etc. o No new market-rate, non-age restricted apartment product has been added in Fountain Valley for 15+ years, creating an opportunity to bring new rental stock to an emerging area and create a “captive audience” for new stores and internally- generated retail demand

• Despite the overall strong opportunity the Project Area represents, there are some market and regulatory constraints exist that must be addressed: o Historically high office vacancies with new speculative construction demand at least seven years out o Very few land trades in the local area, with the majority of sales occurring and depressed prices o The existing M-1 Light Manufacturing zoning limits potential retail redevelopment scenarios o Fragmented ownership patterns and lack of incentives to property owners for participating in any redevelopment efforts

• Based on the results of our market-based analyses, TCG identified the following scale of opportunity for the Project Area. The figures below represent the “stabilized supportable” opportunity (i.e. assumes stabilized market/economic conditions, as well as the appropriate regulatory policies/incentives in place), and also do not include Hyundai’s expansion: o Retail: 1MM+ square feet, equivalent to approximately 75+ acres (approximately 0.3 “F.A.R.” or “floor-to-area ratio”) ƒ Neighborhood/community level, focusing on tenants in key opportunity categories ƒ Potential for additional internally generated demand from Project Area residents o Apartments: 300-350 units, equivalent to approximately 8.5-10 acres (approximately 35 units/acre) ƒ Rental and retail product should be incorporated first given relative market health ƒ Residential base is crucial to activating the Project Area and help further create a sense of place o Attached for-sale residential: 200+ units, equivalent to 12.5+ acres (approximately 16 units/acre) ƒ Incorporated after Project Area redevelopment efforts are underway ƒ Mixed-use, pedestrian friendly vision will help drive higher home values o Office/Flex: 25K-50K+ square feet, equivalent to 1-4 acres (approximately 0.3 “F.A.R.” or “floor-to-area ratio”) ƒ Limited opportunity in the mid-term due to economic downturn and high vacancy levels ƒ Ancillary/professional office opportunities in longer-term in relation to Hyundai expansion

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 3 10095.00 The Concord Group Implementation & Next Steps

• To create the market-driven vision outlined above, further physical land planning and regulatory/zoning issues will need to be analyzed and evaluated in order to continue the process of creating a cohesive overarching vision for the Project Area that will produce a more pedestrian-friendly focus, thus lessening the “one-stop then leave” perception of the area. Issues to be addressed include, but are not limited to: o Create a land plan that physically lays-out the vision for the Project Area, including locations for the recommended residential and additional commercial uses, public spaces that promote walkability, etc. o Make a more concerted effort to solicit input from local businesses, land owners and other key stakeholders early-on and throughout the planning process o Capitalize on existing anchor tenants (Hyundai, Fry’s, Costco, Staples, etc.), as well as the planned Hyundai expansion, and consider making the Hyundai/Fry’s area the early focus of the planning efforts o Establish a mixed-use overlay zone or Specific Plan to allow for residential and commercial development in the Project Area o Actively seek out and solicit private sector developers/tenants to locate in the area, particularly tenants in key under-supplied categories identified in the study (entertainment uses, Henry’s/Sprouts, restaurants/pubs, Ace Hardware, bookstores, etc.) o Provide an entitlement process and business incentives that encourage moving the Project Area to the next level, potentially including expediting project approval processes, allowing for more creative development standards, researching possible public/private partnerships, transit strategies, etc.

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 4 10095.00 MEMORANDUM

The Concord Group

______Memorandum

To: City of Fountain Valley From: The Concord Group Date: December 16, 2010 Re: Strategic Market Analysis of Retail, Office and Residential Development Opportunities for a 250-Acre Area at Euclid and Interstate-405 in Fountain Valley, California ______

1. Introduction

The City of Fountain Valley (“City”) is evaluating the opportunity to redevelop a ±250-acre area located along Interstate-405. The contiguous parcels (“Property” or “Project Area”) are bordered by Talbert Avenue to the north, Ellis Avenue to the south, Ward Street to the west and the Santa Ana River to the east. The Property is currently occupied by various retail, office and light industrial uses.

In an effort to advise the City in determining the vision as well as the supply/demand relationship and opportunity for (re)development, the City required a comprehensive analysis of current market conditions related to retail, office and residential development in the Fountain Valley market area. As such, The Concord Group’s (“TCG”) objective was to identify the optimal supply and product that maximizes the opportunity of the Property while minimizing the risks inherent to any large scale (re)development effort. Specifically, we: (1) defined the appropriate trade/market area for retail, office and residential uses and analyzed the opportunity for each use; (2) determined the supportable square footage for each land use based on demand drivers and economic growth; (3) defined the product and optimal location; and (4) reviewed and assessed any land plans for the Property. As part of the process, we addressed pivotal questions concerning the market’s current and future ability to support the scale of the (re)development scenarios. Collectively, the recommendations derived from these analyses help ensure that the highest and best mix of retail, office and residential uses will be planned for the Property.

This memorandum provides an overview of the findings, conclusions and recommendations resulting from our study. Please refer to the exhibit package that follows for further detail on the analysis and methodology used to reach our conclusions.

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2. Market Area and Local Context (Exhibits I-1, I-2 & IV-1)

The Market Area for the subject site – the geographic source of demand and competitive supply – is defined as a five-mile radius around the Property, and generally includes the cities of Fountain Valley, Costa Mesa, Huntington Beach, Santa Ana and Westminster. (Please see Figure 1 on the following page for a map of the Market Area). The site is located in the City of Fountain Valley, within a short drive of multiple shopping centers, many of which are anchored by big box retailers. Approximately 290,000 cars per day drive by the Property on Interstate-405 providing a high degree of regional visibility for the Project Area. While Brookhurst Street to the west carries a higher volume of cars, approximately 30,000 cars pass through the Project Area on Euclid Street and Ellis Avenue, creating strong visibility for an increased retail development opportunity. Figure 2 provides the local setting on the subject site.

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Figure 1 – Market Area Delineation

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Figure 2 – Local Setting

Bella Terra -Bed Bath & Beyond, Burlington Coat Factory, Kohl's, Staples, Whole Foods (coming soon)

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Hilton, Holiday Inn Courtyard by Costa Mesa Square Marriot -Target, Henry's Marketplace

John Wayne Target, Kohl's, Airport Jo-Ann Fabrics Stater Bros, Ralphs, Starbucks

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3. Demand Drivers (Exhibits I-5 & I-6)

Current economic conditions in Orange County are poor, with more than 100,000 jobs lost in 2009. However, over the long-term, Orange County has proved a solid economic performer, averaging over 20,000 new jobs per year over an entire economic cycle. Consensus forecasts (Moody’s, LAEDC, CSULB, Chapman University and CSUF) call for flat to slightly-negative job growth in 2010, with a return to job creation in 2011. The 5-mile radius Market Area consists of more than 650,000 people living in 192,000 households, of which Fountain Valley accounts for 10%. The Fountain Valley area is characterized primarily by growing and mature families, with an average household size of 3.1 persons and an average age of 40.8 years. The median household income in the Fountain Valley submarket is approximately $89,000, which is 27% higher than the Market Area as a whole. The local area also has a significantly higher concentration of Asian households than the Market Area as a whole – 32% compared to 18% - potentially creating an opportunity for retail tenants targeted to this specific audience.

4. For-Sale Residential Market Conditions (Exhibit I-7 and Section II)

Market conditions in both Orange County and the Market Area have declined significantly over the past two years. County building permit issuances reached a historical low of 2,143 in 2009 as new construction activity slowed dramatically. The Market Area has historically accounted for 11% of total County issuances since 1980, as the majority of new construction took place in the less built-out environments of South County. When job growth is compared to permit issuances, it becomes clear that Orange County is a net importer of labor and is undersupplied in terms of housing stock – over the last 30 years, the County has averaged 1.6 jobs created per housing unit compared to a national and statewide 1.0 ratio. Consensus forecasts call for a slight increase in permit activity in 2010, as the housing market begins to recover.

New home sales volume in the County dropped steadily from 7,400 in 2002 to 1,587 in 2009, a decrease of nearly 80%, while new home sales in the Market Area are down 82% from peak levels. Median new home prices as of 2Q10 had decreased 14% from their 2005 peak in Orange County ($709K to $6104K), and 43% from peak in the Market Area ($948K to $537K). While sales volume and prices have fallen sharply since peak levels, there are signs indicating that we may have reached a bottom in 2009. New home sales in Orange County were up 79% on a year-over-year basis in 2Q10, while the Market Area has seen same quarter sales increase for four consecutive quarters. Year- over-year median new home prices have increased in both areas for three consecutive quarters as well. On a resale basis, volume has been trending up since 2007 in the County and Market Area, as buyers take advantage of distressed properties and governmental incentives. Consensus forecasts from Global Insight and Moody’s Case-Shiller project flat resale home prices through 2010, with a return to appreciation in 2011 into 2012.

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Another positive sign in terms of a housing market recovery is a countywide improvement in affordability metrics. During the 2005-06 housing market peak, 52% of the median household income in Orange County was needed to purchase a median priced resale home, an amount propped up by exotic lending instruments and predatory lending practices. As of the second quarter of 2010, resale home affordability in Orange County had returned to cycle-average levels, with 31% of income required to purchase a median priced home. Along with affordability returning to more normalized levels, housing distress (Notice of Defaults, Auction Notices and Bank Repossessions) is showing signs of decline, particularly in Fountain Valley where only 1 in every 543 housing units received a foreclosure filing in July, accounting for 1% of the County total.

There is a limited number of currently selling new home communities in the Market Area, although recently sold-out projects in Fountain Valley (San Marino, Tremont, etc.) achieved strong values and sales rates. The majority of new construction activity is located to the south in Irvine (Woodbury/Portola Springs) and surrounding areas, given the generally built-out and supply-constrained local environment. A total of approximately 3,000 for-sale units are in various stages of the planning process within the Market Area, the majority of which are at Pacific City – a mixed-use development in Huntington Beach that is on-hold – or in various high-rise buildings proposed for the area surrounding South Coast Plaza. Other significant projects that have been approved include the Amstar Red Oak Project (440 condominiums) and The Bungalows at Blue Canvas (201 townhomes), both of which are in Huntington Beach. Approved projects in Fountain Valley include the Lemongrass Residential Development (16 single-family homes on a 2.95-acre site) and the Summerstone Villas (12 condominiums on a 0.77-acre site). The map on the following page (Figure 3) shows the location of actively selling and recently sold- out new home projects.

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Figure 3 – Location of Key For-Sale Comparables

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CITY OF FOUNTAIN VALLEY December 16, 2010 Page 7 10095.00 The Concord Group

The Concord Group projected demand for new for-sale homes over the next five years in Orange County and the Market Area based on household growth, propensity to buy versus rent, household turnover and percentage of residents who buy/rent new units. In Orange County, TCG identified a potential annual demand for approximately 6,900 new for-sale residential units over the next five years in "buildable" price ranges (i.e. product that is actually being built and selling for $220K+). Comparatively, the County averaged 6,530 new home sales per year from 1988 through 2009, reaching a recent peak of 7,400 in 2002. The Market Area’s capture of County demand is projected at approximately 6%, equivalent to 430 new homes per year in "buildable" price ranges (i.e. $220K+) in the Market Area. Comparatively, the Market Area averaged 410 new home sales per year from 1988 through 2009, peaking at 925 sales in 1998.

5. Apartment Market Conditions (Exhibit I-8 & Section III)

There are approximately 204,000 institutional grade apartments in Orange County, of which the Fountain Valley/Westminster submarket accounts for approximately 5%. While the majority of new rental inventory has been in the Platinum Triangle area near Anaheim Stadium and in South County cities, two projects have been completed in Fountain Valley over the last ten years: Palm Island – a 456-unit market rate seniors development, and Jasmine – a 152-unit affordable seniors community. Vacancy rates in both Fountain Valley/Westminster and Orange County had remained below 5% from 1996 through 2007, maintaining effective full occupancy. However, both are projected to reach levels not seen in 15 years in 2009 and 2010, largely due to worsening employment conditions. Total vacancy now sits at 6.4% and 6.6% in the Fountain Valley/Westminster submarket and the County, respectively, but is projected to improve to 3.6% in 2012. Median rents in Orange County currently sit at $1,440/month, a 4.8% decrease over the past year. Rents in the Market Area are 10% below the County ($1,290/month). REIS projects rents in both areas to return to strong appreciation by 2012.

The existing apartment communities in the local area are relatively old and achieve rents at a significant discount to new communities in more desirable locations closer to South Coast Plaza. There are only two communities currently planned in the Market Area. The Westside Lofts located in Costa Mesa have been approved and are planned for 156 units with 41,500 square feet of commercial space. Phase II of Bella Terra in Huntington Beach includes a proposed 253 unit apartment community. The map on the following page (Figure 4) shows the location of actively selling and recently sold-out new home projects.

Approximately 610 new apartment units per year are supportable in the Market Area, 535 of which have rents above $1,200/month. The Fountain Valley/Westminster submarket has an annual base capture of 35% of total Market Area demand (215 total units, 185 above $1,200/month) and an upside capture of 65% (400 total units, 345 above $1,200/month). Fountain Valley/Westminster’s base capture of total Market Area demand is based on the area's current percentage of total apartment inventory, while the potential upside capture assumes successful redevelopment of the Project Area and surrounding areas, including new resident-serving retail tenants, increased employment opportunities, improved public spaces, etc. that would create a more desirable residential destination.

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 8 10095.00 The Concord Group

Figure 4 – Location of Key Apartment Communities

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CITY OF FOUNTAIN VALLEY December 16, 2010 Page 9 10095.00 The Concord Group

6. Retail Market Conditions (Exhibit I-9 & Section IV)

Orange County consists of approximately 126 million square feet of retail space, of which the Market Area accounts for 22% (28 million sf). The majority of Market Area retail space is located outside of Fountain Valley, as the city only accounts for 11% of total space (3.1 million sf). There was very little new space added in 2009, largely due to decreasing consumer expenditures, and no retail has been built in the Market Area through 2Q10. Retail vacancy rates in Orange County, the Market Area and Fountain Valley remained below 4% through 2007 before spiking in 2008 and 2009. There has been significant negative absorption of retail space in the County in 2010 causing vacancy rates to hit historical highs of 6.1% in the second quarter of 2010. However, Fountain Valley has actually seen positive retail absorption thus far, decreasing the vacancy rate from 5.4% in 2009 to 4.1% currently. Lease rates in all three areas have decreased significantly since 2007 – more than 10% in Fountain Valley – with the Market Area achieving rents that are 13% higher than the County.

The Project Area is located between two major retail concentrations – South Coast Plaza and Bella Terra/Westminster Mall – each approximately four miles away along Interstate-405. Other major retail centers within close proximity include The District at Tustin Legacy, The Block at Orange and Westfield Mainplace. Two significant retail projects are current moving through the planning process in the Market Area. The first – Pacific City in Huntington Beach – is approved for approximately 215,000 sf of retail space. The developer began work on the necessary infrastructure, but the project is now on-hold due to weakened economic conditions. Phase II of Bella Terra has also been approved for an additional 154,000 sf of retail. Please see the map on the following page (Figure 5) for key retail center locations.

TCG conducted multiple demand analyses each utilizing different methodologies in order to scale the opportunity for retail uses in the Project Area. Based on the average annual expenditure in a retail center and target sales per square foot assumptions, there is demand for approximately 145 million sf of retail space in the County, 33 million sf in the 5-mile radius Market Area and 3 million sf in Fountain Valley. When this demand is compared to the existing space, all three areas show an undersupply of retail uses, including 350,000 sf in Fountain Valley. General Merchandise/Department Stores capture the majority of non-automotive spending in each area, with Grocery and Home Repair not far behind. On a sales per square foot basis, Fountain Valley and the 5-Mile Radius area underperform the County, although this is largely due to a general lack of luxury/upscale retailers as well as some under-utilized retail space.

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 10 10095.00 The Concord Group

TCG then looked at retail spending by category for Orange County, the 5-Mile Radius area and Fountain Valley, as well as total retail square footage potential and retail sales per square foot in order to further analyze the opportunity by category. "Net opportunity for retail sales" is defined as a positive gap between household expenditures and retail sales by type for a given geography; a negative gap is referred to as "retail sales leakage". The net opportunity for those categories where the gap (household spending minus retail sales) was positive in the 5-Mile Radius area is approximately 2.5 million square feet, and approximately 1.4 million square feet within Fountain Valley, although this figure does include some retail types that might not be compatible with the Project Area (i.e. gas stations, car dealerships, etc.). The categories that present the greatest opportunity, and also fit the "character" of the Project Area (i.e. does not include department stores, automotive uses, etc.) include home centers (i.e. Ace Hardware), specialty foodservice stores (Sprouts, Henry’s), entertainment/pubs & clubs (wine bars, gastropubs, restaurants, potentially a movie theater), book stores (neighborhood scale), beer/wine/liquor stores (wine stores, specialty beers), optical goods stores and convenience stores (to service drive through traffic and daytime population).

Finally, TCG assessed the potential for internally generated retail demand if residential uses are incorporated in the Project Area. Fountain Valley currently has approximately 55 square feet of retail per person. Using this metric and comparing it to the average household size of 3.06 persons, anywhere from 85,000 to 170,000 sf of new additional retail space will be demanded in the Project Area, depending on how many residential units are developed.

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 11 10095.00 The Concord Group

Figure 5 – Location of Key Retail Centers

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CITY OF FOUNTAIN VALLEY December 16, 2010 Page 12 10095.00 The Concord Group

7. Office/Flex Market Conditions (Exhibit I-10 & I-11; Sections V & VI)

Orange County has approximately 218 million square feet of conventional office and flex space in 8,803 buildings, with the Market Area accounting for 23% (51 million sf). The majority of Market Area conventional office/flex space is located outside of Fountain Valley, as the city only accounts for 7% of total space (3.5 million sf). The Market Area added a total of 68,000 sf of office in 2009, significantly less than the 350,000 sf it added on average from 1996 through 2008, and has not added any flex space since 2007. Note that these figures include only conventional and professional office, and therefore do account for the 162,000 square feet of medical office space added in the Orange County Memorial Medical Center expansion. Vacancy rates for both office and flex are at or near historical highs in the County, Market Area and Fountain Valley largely due to the worsening employment situation, and lease rates have decreased significantly since peaking in 2007.

The Project Area is located within the Airport Area submarket, the largest concentration of office space in the County. Although the Class A office buildings that typically locate around the airport are performing poorly, the Fountain Valley market has a significantly lower vacancy rate. In terms of flex space, the Airport Area and South County submarkets account for more than half of all Orange County space at over 22 million square feet each. Similar to conventional office space, the Fountain Valley submarket outperforms other areas in terms of flex occupancy levels, although achieves slightly lower rents.

Despite the challenging current office/flex market conditions, Hyundai recently announced plans to spend $150 million building a new North American headquarters on the site of its current offices within the Project Area. Although the project will take at least a year to build and won’t be completed until the end of 2012 at the earliest, it is anticipated to generate about 1,500 construction jobs and increase the space of its current headquarters to 468,000 sf, allowing the company to double its corporate staff to approximately 1,400 employees. The expansion will provide an opportunity for supporting/ancillary office uses to locate within the Project Area, as well as retail tenants that cater to a daytime population (restaurants, etc.). Apart from the Hyundai expansion, there is a little more than 660,000 sf of office currently in the planning process in the five-mile radius Market Area, nearly all of which is located closer to John Wayne Airport. Two large flex projects are proposed in Fountain Valley – the 80,000 sf Yakult headquarters and the future phases of Southpark Business Center which have approximately 1.1 million sf in remaining entitlements.

TCG utilized an employment driven model to assess future demand for new office/flex space. Based on employment projections by sector, the current level of unoccupied office inventory, projected demand and anticipated delivery of new space, the Orange County market will reach effective stabilized occupancy (90%) in 2015-16. Historically there is a three-year lag between new demand and actual deliveries, implying an opportunity for new office/flex development in 2018-19.

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 13 10095.00 The Concord Group

Figure 6 – Occupied Office Inventory versus Vacancy

200 20.0%

150 15.0%

100 10.0% Vacancy Rate

Occupied Inventory (Millions SF) (Millions Inventory Occupied 50 5.0%

0 0.0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011 2012 2013 2014 2015 2016

O.C. Occupied Inventory O.C. Vacancy

8. S.W.O.T. Analysis (Exhibit I-3)

Based on the findings from our study, as well as our experience in the market and with similar redevelopment projects, TCG conducted an analysis of the strengths, weaknesses, opportunities and threats relative to the Project Area, the results of which are in displayed in the matrix (Figure 7) on the following page.

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 14 10095.00 The Concord Group

Figure 7 – S.W.O.T. Analysis

STRENGTHS WEAKNESSES

▪ Strong demographics - Fountain Valley is significantly more affluent than O.C. as a whole ▪ Access and circulation are poor, especially compared to alternate local retail destinations

▪ Successful destination anchors already in place - Hyundai, Fry's, Costco ▪ I-405 off-ramp at Euclid is traffic-flow inhibiting and can become congested at times

▪ In close proximity to major transportation routes and John Wayne Airport ▪ Existing zoning limits potential redevelopment scenarios

▪ Despite current economic slowdown, underlying fundamentals in Orange County ▪ Current performance across product types has been poor, with rising vacancies and remain strong: decreasing values: ▪ Job market projected to improve in 2011 and accelerate into 2012 ▪ Historically high office vacancies with new construction demand at least 7 years out; ▪ Similarly, consensus forecasts project for-sale and apartment values to return to new home values back to early-2000s levels strong growth in 2012 ▪ Very few land trades, with any sales occurring at depressed prices

▪ Visibility from both northbound and southbound I-405 is strong ▪ I-405 bisects the Project Area, potentially hindering the realization of a cohesive vision

▪ Both retail and apartment occupancies and values have held up relatively well given ▪ The City/Redevelopment Agency does not controlparcels within the Project Area, again making economic downturn a cohesive redevelopment vision more difficult to implement

OPPORTUNITIES THREATS

▪ Ability to redevelop a significant sized area with a cohesive vision ▪ Further deterioration in employment outlook and land use markets

▪ Built-out environment limits the potential for other similar large-scale redevelopment ▪ Fountain Valley resident base is mature, somewhat limiting the opportunity for an urban, opportunities within the market area "hip", mixed-use environment

▪ Bring residential into Project Area, creating a captive" audience" for retailers and addt'l demand ▪ Potential for current landowners to pushback against any plans for redevelopment in the area

▪ The Community Development Agency does have available resources ▪ Fragmented ownership patterns and a general lack of initiative to invest in the area

▪ Significant retail under supply within a 5-mile radius provides opportunities to capture ▪ Office market not likely to return to normalized levels for 5-7+ years due to overbuilding unmet demand during previous cycle and severe losses inoffice-using industries (i.e. F.I.R.E.)

▪ No new market-rate, non- age restricted apartment product added in the area for 15+ years - ▪ Not a "traditional" residential area - will need to get residents to buy into the opportunity to bring new stock toemerging area redevelopment vision

▪ Retail "opportunity gaps" exist in categoriesthat fit well in the vision - home centers, ▪ Must differentiate from established retailnodes nearby - South Coast Metro, Bella Terra specialty foods, "pubs & clubs", book stores, etc. and Westminster Mall

▪ Residents desire a "place to go" in the city- project area size, existing anchor tenants and ▪ The Community Development Agency has notprovided adequate incentives for property opportunities in key retail categories can begin to fill this void owners to be interested in participating in redevelopment efforts CITY OF FOUNTAIN VALLEY December 16, 2010 Page 15 10095.00 The Concord Group

9. Market Opportunity (Exhibit I-4)

Figure 8 below summarizes the scale of the opportunity for the Project Area and key findings and conclusions generated by our analysis. (Note: the office/flex opportunity does not include Hyundai’s expansion; it will be important to prepare for ancillary/supporting office demand generated by Hyundai’s increased presence in the area).

Figure 8 – Programming Criteria

Density/ Base Supportable Stabilized Supportable Product Type FAR Units or SF Acres Units or SF Acres Comments Residential ▪ Attached for-sale 14-18+ du/ac 75-100 units 4-7 200+ units 12.5+ ▪ Stabilized assumes successful redevelopment of the Project Area; i.e. create a more desirable residential area/capture addt'l demand ▪ Apartments 25-40 du/ac 150-200 units 4-6 300-350 units 8.5-10 ▪ Rental product incorporated first given relative market health Retail ▪ Neighborhood/Community 0.25-0.35 350,000 sf 25-30 1MM+ sf 75+ ▪ Current unmet retail demand of approx. 350K sf in Fountain Center(s), focusing on key tenants Valley, and more than 4.5MM sf in the 5-Mile Radius area ▪ Nearly 300K sf of additional demand available in Fountain Valley in key retail categories; 400K in greater 5-Mile Radius ▪ Stabilized assumes a higher capture of overall 5-Mile Radius retail development than current levels ▪ Potential for additional internally generated demand from area residents; approximately 55 sf per resident in Project Area Office/Flex ▪ Professional Service Office 0.25-0.35 0 0 25,000-50,000+ sf 1-4 ▪ Limited opportunity in mid-term due to economic downturn and high vacancy levels; potential for some medical office uses ▪ In longer-term, some ancillary/professional service office may be feasible, especially in relation to Hyundai's expansion; flex opportunity limited by future Southpark Business Center plans

Total Square Footage/Acres: /1 590K - 670K sf 30-45 1.5MM - 1.6MM+ sf 100+ /1 Total square footage assumes an average apartment size of 900 sf, and an average condo/townhome size of 1,400 sf; total acreage assumes for-sale at 16 du/acre, apartments at 35 du/acre, and retail/office/flex F.A.R. of 0.3

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 16 10095.00 The Concord Group

10. Recommendations & Vision

TCG envisions the redevelopment of the Project Area into a mixed-use environment energized by retail and apartment development in the near-term, with for-sale and supporting office uses incorporated as new development occurs and the overall economy recovers. With existing anchor tenants in place, Hyundai’s planned expansion and the significant potential for additional retail development in key categories, the Project Area represents a very strong opportunity to become a destination location for the surrounding daytime and nighttime population. Two local developments that are relatively similar in terms of vision are University Town Center in Irvine and Metro Pointe in Costa Mesa. Each incorporates a significant retail component and office uses, along with surrounding residential product. Moreover, both centers have retail tenants that cater to both daytime and nighttime patrons while still differentiating themselves from nearby competitive/comparable locations. It is this type of “horizontal and vertical” mixed-use development that TCG recommends for the Project Area which will be able to capture retail and resident demand from a larger area than the area currently does, thus becoming a catalyst for further development as the area becomes a more established destination.

University Town Center

Metro Pointe

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To create the vision outlined above, the City of Fountain Valley should put in place a mixed-use overlay zoning or Specific Plan allowing for residential and commercial development in the Project Area. In order to facilitate the redevelopment and entice private sector developers/tenants to locate in the area, it will be necessary to go outside the local area and actively market the opportunity that the Project Area represents. If the private sector is not solicited, it will not be possible to capture the additional residential and commercial square footage necessary to create a true mixed-use destination, which can only be effectively accomplished by a person(s) dedicated to business attraction/retention such as an Economic Development Director. Guiding principles and other key considerations include:

- Continue the process of creating a cohesive overarching vision for the Project Area that will produce a more pedestrian-friendly focus, thus lessening the “one-stop then leave” perception of the area; - Incorporate the opportunity for residential development to create a “captive audience” thereby establishing a draw that would encourage potential retailers to locate in the Project Area; - Capitalize on existing anchor tenants (Hyundai, Fry’s, Costco, Staples, etc.), as well as the planned Hyundai expansion, and consider making the Hyundai/Fry’s area the early focus of the planning efforts; - Create a promenade that incorporates public art and water features, thus making a more desirable location for patrons/residents to frequent and walkabout; - Seek out at least one or two additional mid-size anchor tenants (Ace Hardware, Sprouts, Henry’s, movie theater, etc.); - Make a more concentrated effort to solicit input from local businesses and land owners throughout the planning process; - Provide an entitlement process and business incentives that encourage moving the Project Area to the next level, potentially including expediting project approval processes, allowing for more creative development standards, researching possible public/private partnerships, transit strategies, etc.; and - Consider moving civic facilities to the Project Area.

* * *

The above assignment was completed by Andrew Boyum under the direction of John Shumway. Please refer to the exhibit package that follows for further detail on our findings. Should you have any questions regarding the data or conclusions generated by the analysis, feel free to contact us at 949-717-6450.

CITY OF FOUNTAIN VALLEY December 16, 2010 Page 18 10095.00 EXHIBIT PACKAGE

The Concord Group I. OVERVIEW

The Concord Group EXHIBIT I-1

REGIONAL LOCATION ORANGE COUNTY SEPTEMBER 2010 GaGa r r de de n n GrGr ove ove

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d d d d d d d d d The Concord Group 10095.00 Maps.xls: Reg NeNe w w por por t t BeBe ach ach EXHIBIT I-2

LOCAL SETTING ORANGE COUNTY SEPTEMBER 2010

Bella Terra -Bed Bath & Beyond, The Project Area is generally bound by Talbert Burlington Coat Factory, Kohl's, Staples, Whole Foods Avenue to the north, Ellis Avenue to the south, (coming soon) Ward Street to the west and the Santa Ana River to the east. The area is within a short drive of many Brookhurst Fountain Valley retail shopping centers anchored by big box stores. Plaza Regional Hospital South Coast Plaza, a major entertainment and -Sam's Club, - 405 beds America's Tire tourist venue, is 4 miles east of the subject site, while the new Bella Terra lifestyle center is located Residence Inn, Courtyard Costa 4 miles to the northwest. Courtyard by Mesa by Marriot Marriot

Costco Orange Coast Memorial Bristol Place Trader Joe's, Big Lots, Rite - 230 beds -Target, Michael's Aid, In-N-Out, Petco The Home Depot Project Area South Coast Collection Bed Bath & Beyond, Ross, TJ -Linder's Furniture, Lazy Boy, Maxx, Sports Authority, FV Promenade Bristol Center Custom Sofas, etc. Starbucks, Von's -Ralph's, Rite Aid, TJ -Office Depot, Staples, ZPizza, The Maxx, Applebee's Vitamin Shoppe South Coast Plaza -Nordstrom, Macy's, Sak's Fifth Avenue, Sport Chalet, Crate and Ikea Barrel, Border's, Sear's, The Westin Callen's Corner Bloomingdales -Albertson's, Starbucks

Hilton, Holiday Inn Courtyard by Costa Mesa Square Marriot -Target, Henry's Marketplace

John Wayne Target, Kohl's, Airport Jo-Ann Fabrics Stater Bros, Ralphs, Starbucks

10095.00 Maps.xls: Loc Page 1 of 2 The Concord Group EXHIBIT I-2 LOCAL SETTING PROJECT AREA SEPTEMBER 2010

Net Developable Acreage

North Portion: Approx. 80 Acres (excl. Hyundai/Fry's) South Portion: Approx. 75 Acres

6 Acres Hyundai 17 Acres 25 Acres 37 Acres

Fry's 7.5 Acres 20 Acres

75 Acres

10095.00 Maps.xls: Loc2 Page 2 of 2 The Concord Group EXHIBIT I-3

S.W.O.T. ANALYSIS PROJECT AREA; FOUNTAIN VALLEY SEPTEMBER 2010

STRENGTHS WEAKNESSES

▪ Strong demographics - Fountain Valley is significantly more affluent than O.C. as a whole ▪ Access and circulation are poor, especially compared to alternate local retail destinations

▪ Successful destination anchors already in place - Hyundai, Fry's, Costco ▪ I-405 off-ramp at Euclid is traffic-flow inhibiting and can become congested at times

▪ In close proximity to major transportation routes and John Wayne Airport ▪ Existing zoning limits potential redevelopment scenarios

▪ Despite current economic slowdown, underlying fundamentals in Orange County ▪ Current performance across product types has been poor, with rising vacancies and remain strong: decreasing values: ▪ Job market projected to improve in 2011 and accelerate into 2012 ▪ Historically high office vacancies with new construction demand at least 7 years out; ▪ Similarly, consensus forecasts project for-sale and apartment values to return to new home values back to early-2000s levels strong growth in 2012 ▪ Very few land trades, with any sales occurring at depressed prices

▪ Visibility from both northbound and southbound I-405 is strong ▪ I-405 bisects the Project Area, potentially hindering the realization of a cohesive vision

▪ Both retail and apartment occupancies and values have held up relatively well given ▪ The City/Redevelopment Agency does not control parcels within the Project Area, again making economic downturn a cohesive redevelopment vision more difficult to implement

OPPORTUNITIES THREATS

▪ Ability to redevelop a significant sized area with a cohesive vision ▪ Further deterioration in employment outlook and land use markets

▪ Built-out environment limits the potential for other similar large-scale redevelopment ▪ Fountain Valley resident base is mature, somewhat limiting the opportunity for an urban, opportunities within the market area "hip", mixed-use environment

▪ Bring residential into Project Area, creating a "captive audience" for retailers and addt'l demand ▪ Potential for current landowners to pushback against any plans for redevelopment in the area

▪ The Community Development Agency does have available resources ▪ Fragmented ownership patterns and a general lack of initiative to invest in the area

▪ Significant retail under supply within a 5-mile radius provides opportunities to capture ▪ Office market not likely to return to normalized levels for 5-7+ years due to overbuilding unmet demand during previous cycle and severe losses in office-using industries (i.e. F.I.R.E.)

▪ No new market-rate, non- age restricted apartment product added in the area for 15+ years - ▪ Not a "traditional" residential area - will need to get residents to buy into the opportunity to bring new stock to emerging area redevelopment vision

▪ Retail "opportunity gaps" exist in categories that fit well in the vision - home centers, ▪ Must differentiate from established retail nodes nearby - South Coast Metro, Bella Terra specialty foods, "pubs & clubs", book stores, etc. and Westminster Mall

▪ Residents desire a "place to go" in the city - project area size, existing anchor tenants and ▪ The Community Development Agency has not provided adequate incentives for property opportunities in key retail categories can begin to fill this void owners to be interested in participating in redevelopment efforts

10095.00 SWOT.xls: SWOT the concord group EXHIBIT I-4 PROGRAMMING CRITERIA PROJECT AREA; FOUNTAIN VALLEY SEPTEMBER 2010 Concept ▪ Mixed-use overlay/Specific Plan allowing for residential and commercial redevelopment in the Project Area ▪ Retail uses as the catalyst in the short- to mid-term, with the potential for some new apartment product ▪ As redevelopment occurs and the overall economy recovers, some for-sale residential and ancillary office uses may be incorporated ▪ Incorporate public art to create a desirable location for patrons/residents to frequent Key Considerations ▪ Overarching vision must be cohesive in order to create an appealing community ▪ Need to create a draw for retailers to want to locate in the Project Area - potential for residents as a "captive audience" ▪ Capitalize on existing anchor tenants - Hyundai, Fry's and Costco ▪ Focus on key retail tenant opportunities - specialty foodservices, home/garden center, entertainment/"pubs & clubs", book stores, etc. Density/ Base Supportable Stabilized Supportable Product Type FAR Units or SF Acres Units or SF Acres Comments Residential ▪ Attached for-sale 14-18+ du/ac 75-100 units 4-7 200+ units 12.5+ ▪ Stabilized assumes successful redevelopment of the Project Area; i.e. create a more desirable residential area/capture addt'l demand ▪ Apartments 25-40 du/ac 150-200 units 4-6 300-350 units 8.5-10 ▪ Rental product incorporated first given relative market health Retail ▪ Neighborhood/Community 0.25-0.35 350,000 sf 25-30 1MM+ sf 75+ ▪ Current unmet retail demand of approx. 350K sf in Fountain Center(s), focusing on key tenants Valley, and more than 4.5MM sf in the 5-Mile Radius area ▪ Nearly 300K sf of additional demand available in Fountain Valley in key retail categories; 400K in greater 5-Mile Radius ▪ Stabilized assumes a higher capture of overall 5-Mile Radius retail development than current levels ▪ Potential for additional internally generated demand from area residents; approximately 55 sf per resident in Project Area Office/Flex ▪ Professional Service Office 0.25-0.35 0 0 25,000-50,000+ sf 1-4 ▪ Limited opportunity in mid-term due to economic downturn and high vacancy levels; potential for some medical office uses ▪ In longer-term, some ancillary/professional service office may be feasible, especially in relation to Hyundai's expansion; flex opportunity limited by future Southpark Business Center plans

Total Square Footage/Acres: /1 590K - 670K sf 30-45 1.5MM - 1.6MM+ sf 100+ /1 Total square footage assumes an average apartment size of 900 sf, and an average condo/townhome size of 1,400 sf; total acreage assumes for-sale at 16 du/acre, apartments at 35 du/acre, and retail/office/flex F.A.R. of 0.3

10095.00 SWOT.xls: Rec The Concord Group EXHIBIT I-5

EMPLOYMENT (Non-Farm) ORANGE COUNTY 1980 THROUGH 2013

June Projection Geography 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2009 2010 2010 2011 2012 2013

Orange County Jobs (000s) 1,127 1,152 1,184 1,234 1,299 1,345 1,389 1,414 1,404 1,429 1,457 1,491 1,519 1,516 1,482 1,371 1,377 1,374 Growth (#) 11 25 33 50 65 46 44 25 -10 25 28 34 28 -3 -34 -110 -3 Growth (%) 1.0% 2.2% 2.8% 4.2% 5.3% 3.5% 3.2% 1.8% -0.7% 1.8% 1.9% 2.4% 1.9% -0.2% -2.2% -7.4% -0.2% Growth Projection Moody's/Economy.com (2Q10) -6 -6 21 27 28 LAEDC (7/10) -7 -7 18 22 CSULB (5/10) -13 16 20 Chapman (6/10) -18 21 CSUF (4/10) 722 Labor Force (000s) 1,334 1,321 1,336 1,374 1,427 1,461 1,481 1,513 1,533 1,557 1,575 1,595 1,614 1,623 1,639 1,630 1,660 1,658 Employed Labor 1,258 1,254 1,280 1,328 1,385 1,422 1,429 1,453 1,457 1,483 1,508 1,534 1,559 1,560 1,552 1,484 1,504 1,501 Growth (%) 1.7% -0.2% 2.1% 3.7% 4.3% 2.7% 0.5% 1.7% 0.2% 1.8% 1.7% 1.8% 1.6% 0.1% -0.5% -4.4% -0.2% Unemployment 5.7% 5.1% 4.2% 3.3% 2.9% 2.7% 3.5% 4.0% 5.0% 4.8% 4.3% 3.8% 3.4% 3.9% 5.3% 9.0% 9.4% 9.5%

80 Limited job losses are projected in 2010, followed by a 60 strong recovery beginning in 2011. 40 20 0 -20 -40 -60 Job Growth (000s) -80 -100 -120 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Historical/Consensus Forecast

Source: US Bureau of Labor Statistics; California EDD; Moody's Economy.com; LAEDC; Cal State Long Beach; Chapman University; Cal State Fullerton

10095.00 Emp.xls: EmpT The Concord Group EXHIBIT I-6 DEMOGRAPHIC TRENDS ORANGE COUNTY 2010 AND 2015 Orange County 5-Mile Radius Fountain Valley Characteristic Num. Perc. Num. Perc. Num. Perc. Comments Population 2010 3,091,673 662,612 56,515 • Fountain Valley is a relatively built-out environment in the Orange County 2015 3,238,903 682,917 58,302 context, with the southern portion of the County accounting for the majority Growth/Yr. 29,446 0.9% 4,061 0.6% 357 0.6% of projected growth over the next five years Households • The 5-mile radius area is projected to capture 12% of total household growth 2010 1,000,016 192,138 18,315 in the County over the next five years - a rate lower than its current capture Share Share of OC: 19% Share of 5mi-radius: 10% of 19% of existing households - implying an opportunity for new home 2015 1,039,212 196,688 18,826 development in the area to re-capture "fair share" demand Growth/Yr. 7,839 0.8% 910 0.5% 102 0.6% Share Share of OC: 12% Share of 5mi-radius: 11% Income (2010) • Fountain Valley is more affluent than both the 5-mile radius area and the Median $76,412 $69,949 $89,062 County as a whole Average $101,692 $88,177 $105,690 Income Distribution (2010) • Fountain Valley has a higher percentage of households earning more than Under $50K 310,794 31% 65,857 34% 4,234 23% $100K per year, and is significantly more affluent than the greater 5-mile $50-$75K 180,854 18% 37,861 20% 3,150 17% radius area $75-$100K 148,001 15% 30,637 16% 3,153 17% Over $100K 360,367 36% 57,783 30% 7,778 42% Household Size 3.1 3.4 3.1 • The 5-mile radius area has a higher percentage of families than Fountain Valley Age (2010, median) 36.3 34.8 40.8 • Fountain Valley is significantly older than the 5-mile radius area and Orange Under 35 1,487,539 48% 333,725 50% 23,867 42% County, which consist of a higher percentage of young and growing families 35-44 458,473 15% 106,237 16% 7,543 13% 45-54 453,641 15% 91,130 14% 8,556 15% 55-64 329,746 11% 64,744 10% 8,378 15% 65-74 198,488 6% 38,666 6% 4,753 8% 75-84 114,239 4% 20,060 3% 2,415 4% 85 plus 49,547 2% 8,052 1% 1,003 2% Race/Ethnicity • Whites comprise the majority of the population in Orange County, with White 1,854,756 60% 337,511 51% 31,447 56% Hispanics more prevalent in the 5-mile radius area and Asians accounting for Hispanic 506,152 16% 161,466 24% 2,969 5% nearly one-third of all households in Fountain Valley African American 53,833 2% 8,123 1% 682 1% Asian 500,274 16% 117,713 18% 18,174 32% Two or More 144,792 5% 28,872 4% 2,744 5% American Indian 21,966 1% 6,160 1% 242 0% Rentership Rate (2008) 39% 45% 25% • Much lower percentage of renters in Fountain Valley than the other two areas

Source: Claritas; American Community Survey (Census)

10095.00 Demos.xls: Summ The Concord Group EXHIBIT I-7 FOR-SALE HOUSING METRICS (Attached & Detached) ORANGE COUNTY AND 5-MILE RADIUS SEPTEMBER 2010 Orange County 1,200 12,000 Demand Trends: • 61% ownership - 610,000 owner HHs 1,000 10,000 • Approx. 150K jobs lost since peak levels - Financial Activities & Professional Services sectors particularly hurt; slight job losses projected in 2010, growth in 2011 800 8,000 • Demographically driven demand for approx. 6,900 new homes per year in "buildable" price ranges ($220K+) 600 6,000 Supply Trends: • New sales volume has dropped steadily to 1,587 in 400 4,000 2009, a decrease of nearly 80% since 2002, although strong 2Q sales (79% Y/Y) ; resale volume slightly up -

distressed homes and incentives New - Market Area Sales Home 200 2,000 New Home Sales - Orange County • 2Q10 median new home prices have decreased 14% from peak in 2005 ($709K to $610K); up 29% Y/Y 0 0 • 2Q10 resale prices down 31% from peak ($624K 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 to $430K); up Y/Y for three consecutive quarters 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 L12M • Consensus projections forecast flat prices in 2010, with modest appreciation returning in 2011 into 2012 Market Area Orange County • Majority of developable land located in Irvine/ South County - North County primarily built-out

Annual Price Quarterly Price 5-Mile Radius and Fountain Valley $1,000 Peak to Current (2Q10) $900 (New Home Prices) Demand Trends: $800 • 910 new households per year through 2015 Fountain Valley - (64%) • Strong median income of nearly $70K; Fountain Valley $700 Market Area - (43%) Orange County - (14%) significantly more affluent at $89K $600 • Demographically driven demand for approx. 430 new $500 homes per year in "buildable" price ranges ($220K+) $400 Supply Trends: $300 • New home sales volume down 80% from peak levels $200 • 2Q10 new home prices down 43% from their peak in NewMedian ($000s) Price $100 2005 ($948K to $537K); up 4% Y/Y $0 • Limited new residential development planned in the 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 near future; more than 3,000 units are in the pipeline, 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 08 08 09 09 09 09 10 10 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 majority of which are in Pacific City or South Coast 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q Metro high-rises; many projects are likely to be Market Area Orange County cancelled or significantly scaled back

10095.00 SalePricesAff.xls: FS The Concord Group EXHIBIT I-8 APARTMENT METRICS ORANGE COUNTY AND FOUNTAIN VALLEY/WESTMINSTER SUBMARKET SEPTEMBER 2010 Orange County 8.0% 8.0% Demand Trends: • 39% rentership - 390,000 renter HHs 6.0% 6.0% • Negative 2008-09 employment growth limiting short- 4.0% 4.0% term demand, but strong underlying growth metrics Supply Trends: 2.0% 2.0% • 205,000 institutional grade apartment units 0.0% 0.0% • Average net absorption of 1,745 rental units per

Apartment Vacancy Apts. - REIS forecast

year since 1990 Growth Employment -2.0% Emp. - Consensus -2.0% • Significant inventory has been added in last 3 Forecast years causing vacancies to rise to 6.6% as of 2Q10 -4.0% -4.0% • Median rent of $1,434 - down 5.3% from 2008 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 • REIS projects flat rents (0.3%) in 2010, with modest appreciation (1.9%) in 2011 Orange County Emp. Growth Fountain Valley/Westminster Vacancy Orange County Vacancy 5-Mile Radius and F.V./West. Submarket Demand Trends: 18.0% Annual Quarterly REIS 18.0% • 45% rentership - 86,500 renter HHs 16.0% forecast 16.0% • Approximately 610 units demand per year 14.0% 14.0% through 2015 in the 5-Mile Radius