Washington County Market Summary January 2010

Morley & McConkie Introduction: - Southern Utah commercial market is tied to new housing construction activity - Demand for housing is a function of net population growth - Commercial activity tends to lag behind the residential market by about one year - Commercial recovery will not occur until after residential markets improve

Residential Housing Price Per Square Foot

Single Family Residential Housing Average sales price per square foot for single family house has decline from Mid 2006 to the end of 2009 by an average of 35%

Homes Sold/Average Sales Price Total # 3,543 3,695 2,789 2,289 1,832 2,390 % Change NA4.29(24.52)(17.93)(19.97)30.46 Average Price $194,905 $260,980 $315,000 $310,169 $280,889 $ 235,803 % Change NA (1.53)(9.44)(16.05) Source: Washington County MLS

Residential Trends Sales activity has increased as the average sales price has declined Current prices are back to the price level of mid 2004

Lots Sold/Average Sales Price Total # 1,122 1, % ChangeNA5.62(54.18)(8.10)(46.69)(11.65) Average Price $ 76,505 $116,875 $193,168 $183,347 $138,026 $ 83,215 % ChangeNA (5.08)(25.72)(39.71) Source: Washington County MLS

Residential Lot Trends Average residential lot prices are back to the price level of mid 2004 with a 57% average price decline from the peak of the market. Sales activity for residential building lots has not increased despite the significant price declines as existing homes are currently being sold below replacement cost.

Foreclosure Analysis

Net migration in 2009 is in decline with overall growth at ½% per year based on natural increase. Washington County Population Change As of July 1st Total Population88,10591,10496,902103,750109,767117, ,127134,899140,908144,710145,466 Annual % Change4.2%3.4%6.4%7.1%5.8%6.9%8.4%6.1%4.5%2.7%0.5% Net Migration2,4501,8244,7235,6134,6966,1198,3016,0144,1601, Natural Increase1,0761,1751,0751,2351,3211,4301,5101,7581,8491,8981,707 Annual Change3,5262,9995,7986,8486,0177,5499,8117,7726,0093, Source:

Forecast Housing Demand Estimated New Demand for Washington County Total Population109,767117, ,127134,899140,908144,710145,466147,284150,966156,250164,063 Annual % Change5.8%6.9%8.4%6.1%4.5%2.7%0.5%1.2%2.0%3.5%5.0% Est. Demand2,1492,6963,5042,7762,1461, ,3151,8872,790 Actual Demand/ Permits2,6273,4013,5062,0091, NA Source: (Population Estimates) & Construction Monitor.com (Actual Demand Estimates)

Residential Lot Demand Demand for new residential development of building sites will not likely occur before 2012 assuming no new lots are introduced into the market. Note: A one and a half year standing inventory is required to prevent a shortages and maintain price stability.

National CAP Rate Overview Year End 2009

Economic Rent Analysis on General Office Space Office Space (10,000 SF Building) Avg Quality Good Quality Hard Cost $ $ 803,400 $ $ 1,138,200 Indirect Cost $ $ 321,360 $ $ 455,280 Land/SF $ 8.00 $ 264,000 $ $ 396,000 Total Cost $ $ 1,388,760 $ $ 1,989,480 Econ/Rent/SF CAP 7%17% $ % $ 1.16 CAP 8%3% $ % $ 1.33 CAP 9%-9% $ % $ 1.49 Market Rent (Average) $ 0.95 $ 1.10

CONCLUSION Average quality office space is viable for with market rent of $.95/SF/Mo at a total cost of $140 per square foot with a CAP rate of 8% Good quality office space where total cost is $190 per square foot is NOT feasible with CAP rates between 7% and 9%

Economic Rent Analysis for Industrial Space Industrial Space (20,000 SF Building) Avg Quality Good Quality Hard Cost $ $ 396,400 $ $ 550,100 Indirect Cost $ $ 158,560 $ $ 220,040 Land/SF $ 2.75 $ 184,250 $ 4.00 $ 268,000 Total Cost $ $ 739,210 $ $ 1,038,140 Econ/Rent/SF CAP 7%-14% $ % $ 0.58 CAP 8%-24% $ % $ 0.66 CAP 9%-33% $ % $ 0.75 Market Rent (Average) $ 0.35 $ 0.45

CONCLUSION New industrial space is NOT economically feasible under given current rent rates. Rent rates will have to increase a minimum of 25% to 35% to support rental income that will provide an adequate return on capital to support new construction.

Market Conclusions Residential Construction is expected to see modest increases in new construction activity in 2010 with slow but steady increases into No new residential subdivision development is warranted until after Residential construction activity is likely to be most active for homes under $350,000.

Office Market: No significant improvement is expected in 2010 with gradual improvements projected in Retail Market: No significant improvement is expected in 2010 with gradual improvements projected for 2011.

Industrial Market: Industrial market is the weakest of the three commercial segments in the Greater St. George area and will take the longest to see recovery. Improvements are not expected until 2012 provided the there increased construction activity providing increased construction related employment.

COMMERCE CRG Retail Property Travis Parry

Commerce CRG Industrial Property Jeremy Dickamore

Tonaquint Center Office Property Stan Perkins, MBA