The Real Estate Report For Metropolitan Kansas City 2007 Block & Company Inc., Realtors Block & Company Highlights of 2006 Real Growth services, asset/property management, and in- vestment/syndication services. In order to han- dle this growth, we have substantially improved TRANSACTIONS: our support services and technology including BLOCK COMPLETED IT’S BEST the following: YEAR EVER WITH TOTAL SALES Increased support and technical staff, AND LEASING TRANSACTIONS expanded network and datacenter infrastruc- IN EXCESS OF $795 MILLION. ture; completed several systems upgrades to our communications facilities and assets to provide for virtually unlimited growth potential MANAGEMENT: while decreasing operational expenditures; com- menced implementation of Yardi in our property BLOCK’S MANAGEMENT PORT- FOLIO REACHED 18 million Block & Company, Inc., Realtors is accounting department; installed wireless capa- SQUARE FEET, AN INCREASE OF now in its 67th year of business but in bilities in all our company offices including “real 1,300,000 SQUARE FEET OVER time” property management. These changes 2005. the last few years, we have seen many along with many more that are slated for 2007 significant changes to our company. will allow us to more quickly and efficiently han- DEVELOPMENT/ dle the many requests for real estate services hile many people may know that we from both our local and national clients. CONSTRUCTION: are one of the leading real estate bro- Also, Block & Company is not just a kerage companies in the Midwest and Kansas City Metropolitan area real estate ser- BLOCK COMPLETED RENOVA- W the largest in Kansas City, they may not know TION AND DEVELOPMENt vices company anymore. As a matter of fact, PROJECTS IN 2006 EXCEEDING that we also provide development services, asset we have completed transactions in 35 different $165 million. ADDITIONALLY, management services, property management states and in 187 cities. The Company has also BLOCK CONSTRUCTION SER- services, construction management services, increased its focus on the investment sector VICES, LLC, IN IT’S fifth YEAR investments and portfolio strategies, corporate providing investment and acquisition services OF OPERATIONS, COMPLETED PROJECTS TOTALING OVER $32 real estate services, and a host of others. Block to not only our third party clients but also to 1million. has become a vertically integrated real estate a host of 1031 investors, high net worth indi- services company which enables us to strategi- viduals and our Block Income Funds. With this INVESTMENT cally and seamlessly serve our clients. increase in activity has also come an expansion With our growth, we have also fo- of our company’s focus. Block opened a St. SYNDICATION: cused on a new branding for the company, and Louis office in 2006 and intends to expand that have changed the name of our annual market BLOCK COMPLETED $309 MIL- office to a full service brokerage, development LION IN INVESTMENT SALES report to “The Real Estate Report for Metro- and investment office. We are also looking at AND RAISED OVER $38 mil- politan Kansas City”. We also have a new tag other cities where we have accumulated a large lion IN EQUITY FUNDS FOR line “Real Estate. Real Strategies. Real Suc- portfolio of properties and where we may find it SYNDICATION OF NEW ACQUI- cess”. This new tag line is exactly what we are advantageous to open future offices. However, SITIONS AND DEVELOPMENT PROJECTS. all about; we are knowledgeable about all kinds our guiding principles for 2007 and beyond, of commercial real estate, and we develop and as we expand our operations, are to make sure implement real strategies for success no matter that we can continue to provide our clients with MULTI-FAMILY: what our client’s requirement is. the best in class real estate services, to develop Our company has also grown tremen- and implement the appropriate strategies for BLOCK COMPLETED OVER $20 dously over the last several years. While just MILLION IN INVESTMENT our clients, and to be successful in achieving SALES in ITS MULTI-FAMILY a few years ago Block and Company’s annual our client’s goals. Real Estate. Real Strategies. DIVISION IN 2006, ITS third sales were around $175 million, in 2005 we Real Success. FULL YEAR OF OPERATION. exceeded $750 million in sales volume and in 2006, we reached nearly $800 million. This Lead Contributors include: Kenneth G. Block, SIOR, shows tremendous growth which has come pri- CCIM, Principal and Harry P. Drake, CCIM, CPM, marily from our development and construction Senior Vice President Kansas City OVERVIEW While the national economy was not quite as strong in 2006 as in 2005, it continued to move forward at a comfortable overall 3.4% GDP (Gross Domestic Product) rate. his slightly lower growth rate was not only expected but such issues as the war in Iraq, taxes, the minimum wage, health implemented by design after the federal government used insurance, and others. Certainly there will be a thrust by this Tits economic muscle to pull the reins back in on the econo- majority to “force” policy changes and to potentially reduce the my. In many respects, this impressive GDP performance in light U.S.’s role in the Iraqi war. At this point however, how the new of monetary tightening by the Fed shows just how robust the majority and these projected changes will effect the economy at 2006 economy was in terms of fundamentals. large in 2007 is still unknown. The current federal funds rate of 5.25% is a “gold- ilocks” rate which means that it is high enough to slow the economy and reduce inflationary pressures but not so high as “...city officials to choke off business investment and throw the economy into a throughout the Metropolitan recession. For that very reason, the federal open market com- area have a new common goal of mittee decided to end the streak of 17 consecutive increases in making Kansas City a destination for the the federal funds rate at the 2006 August meeting, keeping it steady at 5.25% through year-end 2006. The committee did surrounding 7 state region of Kansas, not rule out the possibility that rates may even be reduced later Missouri, Illinois, Iowa, Nebraska, in 2007. Arkansas and Oklahoma. ” Business investment continued to exceed expectations during 2006 and improvement in the trade deficit stemming from expanded business abroad and the recent drop in the cost When forecasting the economy’s performance as it re- of oil were certainly major factors in the economy’s strength. lates to the real estate industry, it is clear that there are certain Some economists felt the U.S. economy was on the edge of re- critical issues that can negatively affect the health of real estate. cession midyear 2006, particularly with the housing market reg- First, job growth is extremely important because it drives the istering some of the largest monthly drops in housing prices in demand for new office and industrial space and also affects con- recent history. Perhaps one of the strongest factors influencing sumer spending for the retail sector. While job growth had an the impressive GDP growth rate was that inflation continued to annualized growth rate of 1.2% in 2006 and added 1.8 million be lower than expected, hovering at a rate just under 2.2% for jobs, it is expected to slow to just 1% for 2007. Another major the year. With inflation remaining at low rates, the Fed has less concern is long term interest rates. The ten year treasury aver- reason to take contractionary action again after their string of aged 4.8% in 2006 and though it is projected to rise slightly in 17 straight interest rate increases between 2005 and mid year 2007 to 4.9%, this is substantially lower than earlier estimates 2006. These increases did just what they were designed for; of 5.5%. Clearly this bodes well for real estate investment as they cooled off the economy and lowered the threat of inflation. low long term interest rates attract more capital to the real es- The Fed saw text book results from their actions, and with the tate market. But, there will be other concerns such as the rate of slowing economy, the housing bubble shrank quickly and hous- consumer spending, potential renewed increases in energy prices, ing prices came down quickly as the economy cooled. the housing market and whether it can stabilize, rising inflation Forecasters now expect GDP growth to be about 2.8% and the falling dollar, trade and budget deficits, as well as numer- in 2007, down further from the 3.4% in 2006. However, the ous ongoing geopolitical concerns that can, and do, affect the outlook for the labor market continues to hold steady with pro- stability of U.S. economic markets. Specifically, the Urban Land jections for unemployment to rise just slightly to 4.8% in 2007, and Institute (ULI) and Price Waterhouse Coopers, LLC 2007 from the yearend 2006 rate of 4.7%. This historically low un- edition of “Emerging Trends in Real Estate” expects that returns employment rate suggests that the economy is still providing on most property types will remain satisfactory, although they new job opportunities, even as worker productivity continued do expect a more modest performance in 2007, with investment at record rates. Even so, after the 2006 midyear elections, returns reverting to levels closer to historical averages. They some economic changes may be in sight as the new democratic also expect coastal markets to continue as investment meccas majority in both the House and the Senate flex their muscle on and anticipate solid real estate absorption in most real markets. Their forecast again suggests that real estate will have a value market of the city.