Industrial Market Metropolitan Milwaukee Bob Quam, WCGA #1865

Overview Market Area General 2013 Trends Existing Inventory New Construction Vacancy Rates / Absorption Lease Rates Sales Activity Capitalization Rates Hot Submarkets Outlook for 2014

Market Area

General 2013 Trends Decrease in new construction Vacancy rates remaining relatively flat Lease rates remaining relatively flat Renovation and expansion projects Increase in tenant purchases

Existing Inventory

New Construction Over the past four quarters there has been new construction of approximately 354,000 SF in the Metro Milwaukee area New construction underway but not yet completed totals 296,500 SF as of the end of the 3 rd Qtr

Developers are not building spec properties. Nearly all new construction is pre-leased. New Construction cont.

Notable Projects Completed in 2013 Include: Towne Industrial-New Berlin I, a 54,000-square- foot industrial facility delivered in first quarter 2013 in New Berlin (Waukesha County)

New Construction cont. N173 W21640 Northwest Passage, a 22,000- square-foot single-tenant industrial building delivered in second quarter 2013 in Jackson.

New Construction cont. New construction in the Metro Milwaukee area is approximately 80% below the average new deliveries seen over the past 20 years

Vacancy Rates / Absorption Vacancy rates have hovered around 7% throughout 2013

Vacancy Rates / Absorption cont.

Notable Absorption in 2013 Include: Pabst Farms, Inc., moving into 90,000 SF in West Bend (3801 E Decorah Rd) Waukesha Metal Products, moving into 47,000 SF in Sussex (N53W24635 S Corporate Cir)

Vacancy Rates / Absorption cont. Technical Metal Specialties, Inc, moving into 108,000 SF in New Berlin (16555 W Ryerson Rd) Quest Specialty Holdings, LLC, moving into 67,000 SF in Menomonee Falls (W142 N9251 Fountain Blvd)

Lease Rates Lease rates remained relatively flat over the course of 2013 Average asking lease rate of $4.23 as of the end of the 3 rd quarter 2013, relative to $4.25 at Year-End 2012 Typical warehouse / manufacturing lease rates range from $ $5.00 / SF (NNN) Typical flex space lease rates range from $ $7.00 (NNN)

Lease Rates cont.

Factors That Have the Greatest Impact on Lease Rates Percentage of Finished Office Space Age / Condition Location Clear Height Outdoor Storage

Sales Activity The number of sales in 2013 has been lesser relative to the number of sales in 2012 Sales of industrial buildings larger than 15,000 SF Q1-Q3 had 81 transactions with an average sales price of $ Q1-Q3 had 94 transactions with an average sales price of $27.97 These figures exclude large portfolio transactions

Sales Activity cont.

Capitalization Rates Difficult to find actual capitalization rates in the market Pro-forma or actual? General market expectations range from 9.00% to 10.50% Downfalls of Reported Capitalization Rates

Capitalization Rates cont. Difficulties in locating actual capitalization rates Buyers / sellers typically unwilling to share lease information Minimal sales activity of investment grade industrial properties High percentage of owner-user sales Fair amount of partially owner-occupied multi- tenant buildings

Capitalization Rates cont. Primary factors contributing to capitalization rates Credit worthiness of tenant Length of remaining lease term Financing terms Quality / Age / Condition of building Location

Capitalization Rates cont S Moorland Rd, New Berlin– 205,000 SF constructed in 2008, sold in August 2013 for $9,280,000 (7.96% Cap Rate). Occupied by Quad Graphics.

Capitalization Rates cont – 3275 Intertech Dr, Brookfield– 69,000 SF Multi-Tenant (2 buildings), constructed in 1997, sold for 9.19% Cap Rate in April 2013.

Hot Submarkets Eastern Washington County Boasts one of the highest average lease rates ($5.63/SF) and lowest industrial vacancy rates (2.4%) in Metro Milwaukee 22,000 SF has been constructed in 2013 (N173 W21640 Northwest Passage) 66,000 SF proposed for delivery in 2 nd Quarter 2014 (N106 W13131 Bradley Way)

Hot Submarkets cont. Muskego Boasts one of the highest average lease rates ($5.64/SF) in the Metro Milwaukee area Vacancy rate is 4.9%, positive absorption of 113,685 SF in ,000 SF has been constructed in 2013 (16235 W Beloit Rd)

Hot Submarkets cont. Menomonee Falls Overall vacancy rate is 2.5%, among the lowest in the Metro Milwaukee area Positive absorption of 140,755 SF in ,000 SF is proposed for completion in 4 th Qtr in 2013 (W156 N9073 Pilgrim Rd)

Outlook for 2014 Continued demand for industrial space Stable lease rates and vacancy rates Increase in new construction in 2014, as a result of limited new supply in recent years and limited existing inventory in certain submarkets