Market/Feasibility Analysis & Appraisals · 2011. 3. 6. · October 21, 2010 UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN College of Business DEPARTMENT OF FINANCE FIN490 Market/Feasibility

October 21, 2010UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGNCollege of BusinessDEPARTMENT OF FINANCEFIN490

Market/Feasibility Analysis & Appraisals

6008001,000

24.0%

32.0%

s and

e in

Presented by:

Thomas Amato CRE ‐600‐400‐2000200400600

‐16.0%

‐8.0%

0.0%

8.0%

16.0%

Squ

are Feet (D

eliveries

Absorption)

acancy Rate and Ch

ange

ffectiv

e Net Ren

t)

Thomas Amato, CRE, Partner, Real Estate Counselors InternationalChicago, IL

‐1,000‐800600

‐32.0%

‐24.0%

1995 1999 2003 2007 2011 Thou

sand

s of

Percen

t (Va Ef

Net Absorption Vacancy Rate % Change in Effective Rent

THE CONTEXT

2

The Eight-Stage Model of Real Estate Developmentp

One: Inception of an Idea Not feasible

Five: Formal CommitmentNot feasibleFeasible

Two: Refinement of the IdeaN f bl

Six: Construction

Seven: Completion and Formal Not feasibleFeasible

Three: Feasibility

pOpening

Eight: Property, Asset and Portfolio ManagementThree: Feasibility

Not feasibleFeasible

Portfolio Management

Four: Contract NegotiationCannot reach binding contractsCan reach binding contracts

3 Source: Real Estate Development: Principles and Process

FEASIBILITY ANALYSISFEASIBILITY ANALYSIS

A real estate project is 'feasible' when the real estate analyst determines that there is a reasonable likelihood of satisfying explicit objectives when a selected course of satisfying explicit objectives when a selected course of action is tested for fit to a context of specific constraints and limited resources.

James A. Graaskamp , "A Rational Approach to Feasibility Analysis,“ October 1972, p. 515

4

APPLICATION OF MARKET ANALYSIS

Determine a Project’s Feasibility for Development (Developer, Lender).

Determine Size or Unit/Space Mix For a Specified Site (Developer) Determine Size or Unit/Space Mix For a Specified Site (Developer) .

Understand a Property’s Position in the Market and Long-Term Performance during Acquisition Due Diligence (Investor).during Acquisition Due Diligence (Investor).

Understand Opportunities and Constraints upon the Potential Re-positioning of an Existing Asset (Owner).g ( )

Develop Reasonable Financial/Market Assumptions for Financial Feasibility Analysis (Developer).

Develop Reasonable Financial/Market Assumptions for Appraisal (Lender).

5

KEY ASSUMPTIONS DRIVEN BY MARKET ANALYSIS CONCLUSIONS

Establish Size, Unit/Space Mix.

ANALYSIS CONCLUSIONS

Forecast Subject Property Lease-up.

Establish Rent Structure.

Establish Reasonable Rent Growth Assumptions.p

Determine Lease Structure/Terms – lease length, renew/release assumptions tenant improvement allowance leasing commissionsassumptions, tenant improvement allowance, leasing commissions.

Establish Capitalization Rate assumptions (for valuation analysis).

6

REAL ESTATE APRAISAL: THE BASICS USPAP (Uniform Standards Of Professional Appraisal Practice) – Establishes requirements

for appraisers with regard to Definitions, Ethics, Competency, Scope of Work and Jurisdictional Exceptions. p

Scope of Work – intended users rely on this disclosure to understand the research and analyses performed in the assignment.

Value as Highest & Best Use: that use of the land that may reasonably be expected to produce the greatest net return to the land over a given period of time - legally permissible, physically possible, financially feasible, and maximally productive.

Interest to be Valued:

Fee Simple - "...an absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers .”

Leased Fee – “an ownership interest held by a landlord with the right of use and occupancy conveyed by lease to others.”

Leasehold - “the use and occupancy of the real estate, the value of which arises from the margin of th i d ti it f th t bj t t ti th t d i i f th l ”

7

the economic productivity of the property, subject to meeting the terms and provision of the lease.”

RECONCILIATION OF VALUE CONCLUSION: COMMON PROBLEMS FOUND BY REVIEW APPRAISERSPROBLEMS FOUND BY REVIEW APPRAISERS

Failure to cross-check a value indication obtained through computer Failure to cross check a value indication obtained through computer modeled income approach (e.g. , Argus) with an indication obtained directly from the cost or sales comparison approach.

Inconsistencies in the reported data and between the analyses and conclusions.

Failure to report or cite current market conditions, transaction data, and market behavior.

8 Source: Richard C. Sorrenson, Appraising the Appraisal, 2010, p. 81.

DEFINITIONS

9

BASIC RE DEMAND/SUPPLY DEFINITIONS:

Inventory = Total Amount of Space, Measured in Square Feet or Units

Deliveries = Increase in Inventory from Period to Period (SUPPLY)

Absorption = Net Change In Occupied Space from Period to Period p g p p(DEMAND)

Vacancy Rate = Vacant Space as a % of Inventory

Equilibrium Vacancy Rate = the Vacancy Rate at which Rents neither Rise nor Fall.

Effective Rent - Face rent (aka, asking or street rent), net of concessions (i.e., net of rent abatements and above-standard tenant improvement allowance).

10

GEOGRAPHIC CONSIDERATIONS:

Metro Area Market - usually the Metropolitan Statistical Area; sometimes the Metropolitan Division (i.e., the geographic components of larger MSAs). the Metropolitan Division (i.e., the geographic components of larger MSAs).

Submarket – sometimes a constituent county, but usually a sub county area that is established by patterns of development, accessibility, other physical y p p y p yand perceptional barriers.

Primary, Secondary and Tertiary Markets (retail) – similar to general nature of “submarket” but greater emphasis on capture of demand and linkage to consumers.

C titi S t/P G S t f i di id l ti th t t Competitive Set/Peer Group – Set of individual properties that represent highest level of comparability to subject property.

11

REAL ESTATE CYCLES

12

REAL ESTATE CYCLE POSITIONS:REAL ESTATE CYCLE POSITIONS:I. Recovery Phase - weak to moderate demand, but increasing (Market

moving toward Equilibrium)moving toward Equilibrium)

II. Expansion Phase - strong and increasing demand (Market moving toward Equilibrium)q )

III. Equilibrium - demand strong enough to sustain healthy rates of new construction and rent growth

IV. Correction/Contraction Phase - disequilibrium - weak/weakening demand or new supply exceeding demand (Market moving toward or in Di ilib i )Disequilibrium)

13

REAL ESTATE CYCLE POSITIONS: NORTHWEST SUBURBAN CHICAGO RETAIL SUBMARKET

14 Sources: Reis, Inc., Moody's Economy.com and Real Estate Counselors International, Inc.

DEMAND FUNDAMENTALS/DRIVERS

15

VALIDATING DEMAND/SUPPLY STATISTICS

%

SUBURBAN – WEST OFFICE MARKET (METRO CHICAGO,IL)

Year Deliveries Net AbsorptionVacancy

Rate

% Change

in Effective

Rent1995 121,000 951,000 11.8% 1.5%1996 324,000 713,000 10.4% 4.5%1997 459,000 846,000 9.0% 4.2%1998 1,519,000 1,610,000 8.3% 6.5%1999 1,365,000 845,000 9.5% 2.7%2000 1,760,000 665,000 12.1% -0.5%2001 1,256,000 -1,076,000 19.5% -2.6%2002 695,000 -706,000 22.3% 0.8%2003 322,000 250,000 22.3% -4.2%2004 249,000 306,000 21.1% -2.7%2005 188,000 437,000 20.3% 0.6%2006 439,000 39,000 21.1% 2.1%2007 425000 845,000 19.5% 2.7%2008 395000 56,000 19.9% 3.4%2009 29000 -360,000 20.6% -2.0%

2010 Forecast 183000 143,000 20.3% -1.6%

16 Sources: Reis, Inc., and Real Estate Counselors International, Inc.

VALIDATING DEMAND/SUPPLY STATISTICS

Requires Detailed Analysis of Demand Fundamentals

Quantify Absorption During Periods of Strong Demand and Weak Demand.

Quantify Changes in Rent During Periods of Strong Demand and Weak DemandWeak Demand.

Exercise Caution when Extrapolating Absorption; underlying Demand Fundamentals May be Changing.

Correlate Absorption with Most Relevant Demand Driver.

17

p

DEMAND DRIVERS:Employment (by place of work - estimated

monthly/updated annually)y p y)

Population (estimated annually/updated in decennial )census)

Income (estimated annually/updated in decennial Income (estimated annually/updated in decennial census)

Geodemographics/Psychographics (specialized databases such as PRIZM) - incorporate lifestyle and

18

spending patterns with demographics

CHANGE IN CHICAGO MSA OFFICE USING SECTOR JOBS: LAST TWO RECESSIONS

107.0

109.0

101.0

103.0

105.0

99 =

100

.0) 2001 Recession 2008 -2009 Recession

95.0

97.0

99.0

th In

dex

(19

89.0

91.0

93.0

Job

Gro

wt

85.0

87.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fi i l A i i i P f i l d B i S iFinancial Activities Professional and Business Services

19 Sources: U.S. Bureau of Labor Statistics; Moody's Economy.com and Real Estate Counselors International, Inc.

EMPLOYMENT AND POPULATION GROWTH FOR LAKE COUNTY, IL GROWTH FOR LAKE COUNTY, IL

295

00)

245

270

ices

(19

70 =

10

170

195

220

ob G

row

th In

di

120

145

170

pula

tion

and

Jo

95

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Pop

P l i N A E l

20

Population Non-Ag Employment

Sources: U.S. Department of Labor; Moody's Economy.com and Real Estate Counselors International, Inc.

POPULATION AND INCOME STATISTICS/ TRENDS

Demographic Variable 1990 2000 2009 2014

% CAAC 1990 to 2000

% CAAC 2000 to 2009

% CAAC 2009 to 2014

POPULATION

Village of 68 706 7 386 74 680 74 09 0 93% 0 10% 0 0 %

Village of Schaumburg

68,706 75,386 74,680 74,509 0.93% -0.10% -0.05%

Primary Market 439,880 494,796 516,338 530,077 1.18% 0.47% 0.53%

Cook County, IL 5,105,067 5,376,741 5,268,639 5,226,654 0.52% -0.23% -0.16%

Chicago-Naperville-J li IL IN WI Joliet, IL-IN-WI

Metropolitan Statistical Area

8,182,076 9,098,316 9,602,177 9,895,500 1.07% 0.60% 0.60%

State of Illinois 11,430,602 12,419,293 12,937,547 13,251,348 0.83% 0.46% 0.48%

United States 248,709,873 281,421,906 306,624,699 322,320,436 1.24% 0.96% 1.00%

PER CAPITA INCOMEPER CAPITA INCOMEVillage of

Schaumburg------- $30,232 $35,714 $38,572 ------- 1.87% 1.55%

Primary Market ------- $29,337 $33,834 $36,319 ------- 1.60% 1.43%Cook County, IL ------- $23,227 $27,135 $29,371 ------- 1.74% 1.60%

Chicago-Naperville-Chicago NapervilleJoliet, IL-IN-WI

Metropolitan Statistical Area

------- $24,614 $28,691 $30,981 ------- 1.72% 1.55%

State of Illinois ------- $23,104 $27,234 $29,534 ------- 1.84% 1.63%

United States ------- $21,587 $26,410 $29,106 ------- 2.27% 1.96%

21 Sources: U.S. Census, Claritas, Inc. and Real Estate Counselors International, Inc.

PRIZM (TOP 10 OF 66 SEGMENTS)Socioeconomic

RankPRIZM NE Segment

NicknamePredominant

Income Age RangePredominant HH

CompositionPredominant Education

ClassPredominant Employment

1 Upper Crust Wealthy 45+ Married Couples College Graduate +Executive, Professional, White Collar1 Upper Crust Wealthy 45 Married Couples College Graduate White Collar

2 Blue Blood Estates Wealthy 35-64 Families with Kids College Graduate +Executive, Professional, White Collar

3 Movers & Shakers Wealthy 35-64 Married Couples College Graduate +Executive, Professional, White Collar3 o e s & S a e s ea y 35 6 a ed Coup es Co ege G adua e White Collar

5 Country Squires Wealthy 35-64 Families with Kids College Graduate +Executive, Professional, White Collar

6 Winners Circle Wealthy 25-54 Families with Kids College Graduate +Executive, Professional, White Collary g C

4 Young Digerati Upscale 25-44 Singles/Couples College Graduate +Executive, Professional, White Collar

7 Money & Brains Upscale 45+ Married Couples College Graduate +Executive, Professional, White Collary p p g

8 Executive Suites Upscale 25-44 Singles/Couples College Graduate +Executive, Professional, White Collar

9 Big Fish, Small Pond Upscale 45+ Married Couples College Graduate +

Executive, Professional, White Collar

22

g , p p g

10 Second City Elite Upscale 45+ Married Couples College Graduate +Professional, White Collar

Sources: Claritas, Inc. and Real Estate Counselors International, Inc.

SAMPLE PRIZM SEGMENT

#09 Big Fish, Small Pond

Up l Old (A 45 64) i h KidUpscale Older (Age 45-64) without Kids

Older, upper-class, college-educated professionals, the members of big fish, small pond are , pp , g p f , f g f , poften among the leading citizens of their small-town communities. These upscale, empty nesting couples enjoy the trappings of success, belonging to country clubs, maintaining large investment portfolios and spending freely on computer technology.

23 Sources: Claritas, Inc. and Real Estate Counselors International, Inc.

SIX PRIZM SEGMENTS ACCOUNT FOR 74% -85% OF RESIDENTS OF THESE COMMUNITIES 85% OF RESIDENTS OF THESE COMMUNITIES

#1 - 09 Big Fish, Small Pond

#2 - 11 God's Country

#3 - 23 Greenbelt Sports

#4 - 28 Traditional Times

#5 - 33 Big Sky Families

# 6 - 38 Simple Pleasures85% 85%

82%82%

84%

86%

x

77%

74%72%

74%

76%

78%

80%

rcen

tage

(Si

xm

ents

)

66%

68%

70%

Sun City Georgetown, TX

Sun City - Huntley, IL Hilton Head - Blufton, SC Sun City - Palm Desert, CA

Falls Run, Fredericksburg, VASu

btot

al P

erSe

gm


GEOGRAPHIC DISTRIBUTION OF DOMINANT PRIZM SEGMENTDOMINANT PRIZM SEGMENT


REAL ESTATE DEMAND DRIVERS

26

Primary Drivers of Real Estate Demand:Growth in Total Employment

G th i T t d E l t S t d fi d b i d t Growth in Targeted Employment Sectors – defined by industry (NAICS code) or occupation

Growth in Total Population

Growth in Population of Targeted Age-Cohorts

Growth in Income of Total Population

Growth in Income of Targeted Age-Cohorts

Geodemographics/Psychographics

27

Geodemographics/Psychographics

Demand Drivers by Asset Class:

Retail - Population and Population Growth, Income and Income Growth, Expenditure %

Offi Offi U i E l t G th ( B i & P f i l S i d Office - Office-Using Employment Growth (e.g., Business & Professional Services and Financial Activities)

Medical Office Buildings (MOBs) - Growth in Hospital Employment, Growth in Ambulatory Healthcare Services Employment

Apartments – Total Employment Growth, Population Growth (Age 18-34), Income Growth

Industrial - Total Employment Growth, GDP (National) and GRP (Regional)

Senior Housing - Growth in Resident Age Population (Age 75+), Growth in Adult Senior Housing Growth in Resident Age Population (Age 75 ), Growth in Adult Children Population (Age 50+), Single Family Home Price Changes

Student Housing - Growth in Resident Age Population (Age 18-25), University Enrollment Growth Total Employment Growth

28

Enrollment Growth, Total Employment Growth

Demand Drivers by Asset Class:

Active Adult (55+) Housing - Growth in Resident Age Population (Age 50-70), Total Employment Growth, In-Migration Rates, Single Family Home Price Changes

Manufactured Housing - Employment, Population Growth, Income and Income Growth, Home Prices and Home Price Increases

Self-Storage Units - Employment, Population Growth, Income and Income Growth, Home Prices and Home Price Increases

29

EQUIBRIUM VACANCY RATE

30

EQUILIBRIUM VACANCY RATE EQUILIBRIUM VACANCY RATE

The equilibrium vacancy rate is defined as:

the vacancy level where rents are in equilibrium(rate at which rents neither rise nor fall, in inflation-adjusted terms).adjusted terms).

If vacancy rates are above this equilibriumlevel, then we would expect rents to startpto fall.

If rents are below this level, we would expectrents to rise.

31

VACANCY RATE AND RENT GROWTH FOR SILICON VALLEY OFFICE MARKET: 1980 TO 1998

24.0%26.0%28.0%

35.0%

40.0%Vacancy Rate at Equilibrium Rate and Real Rent Growth Near 0%

15.0% 14.0%16.0%18.0%20.0%22.0%

20.0%

25.0%

30.0%

Ren

t

ate

7.4% 7.7%

4.0%6.0%8.0%10.0%12.0%

5.0%

10.0%

15.0%

Cha

nge

in

Vac

ancy

Ra

-3.0%

1.2%

-4.9%

-3.1%-3.2%

2.4%

-6.0%-4.0%-2.0%0.0%2.0%.0%

10 0%

-5.0%

0.0%

5.0%

% CV

-8.4%-10.0%-8.0%6.0%

-15.0%

-10.0%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

32

Vacancy Rate Vacancy Rate, Less Equil. Vacancy Rate % Change in Real Effective Rent

Sources: Reis, Inc., United States Bureau of Labor Statistics, Moody’s Economy.com, and Real Estate Counselors International, Inc.

OFFICE SPACE EQUILIBRIUM VACANCY RATES FOR U.S. OFFICE MARKETS: 1999

11 7%11.6%11.5%

W hi t D C San Francisco

Chicago

12 8%12.4%

12.0%11.8%11.7%

MemphisJacksonville

BostonNew York

Washington, D.C.

14.2%14.0%

13.8%13.0%

12.8%

Los AngelesRichmond

NorfolkPhiladelphia

Memphis

16 0%15.5%15.4%

14.8%14.8%

Fort WorthAtlanta

Fort LauderdaleNashvilleOrlando

18.4%17.2%

17.0%16.4%

16.0%

RiversidePalm Beach

DallasHouston

Fort Worth

33

18.4%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%Source: Reis, Inc.

NET ABSORPTION

34

Space Absorption:p p

Net Absorption (i e net leasing activity)Net Absorption (i.e., net leasing activity)

Absorption is cyclical and correlated with demand p ydrivers (primarily employment)

Often Absorption is induced by deliveries (New Supply)

35

OFFICE DEMAND DRIVER – FINANCIAL ACTIVITIES AND PROFESSIONAL & BUSINESS SERVICES EMPLOYMENT

107 0

109.0

101.0

103.0

105.0

107.0

99 =

100

.0)

95.0

97.0

99.0

th In

dex

(199

89.0

91.0

93.0

Job

Gro

wt

85.0

87.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

T l P ll E l Fi i l A i i i P f i l d B i S iTotal Payroll Employment Financial Activities Professional and Business Services


OFFICE SQUARE FEET ABSORBED FOR EVERY JOB CREATED: 1981 TO 1998 EVERY JOB CREATED: 1981 TO 1998

172214

280

W hi t D CLos Angeles

San Francisco

96113

121152

172

ChicagoHouston

PhiladelphiaNew York

Washington, D.C.

5568

7884

92

JacksonvilleAtlanta

RichmondDallas

Boston

404243495155

NorfolkNashvilleMemphis

Fort LauderdalePalm BeachJacksonville

19323440

RiversideOrlando

Fort WorthNorfolk

37

0 50 100 150 200 250 300

Sources: Reis, Inc. Moody's Economy.com and Real Estate Counselors International, Inc.

CHANGE IN EMPLOYMENT AND NET OFFICE ABSORPTION: CHICAGO’S EAST/WEST CORRIDOR OFFICE MARKET

715 935835,468

20,000

800 000

1,000,000

OFFICE MARKET

715,935

320,000

632,000

459,000

156 000

10,000

15,000

400,000

600,000

800,000

163,664 141,000156,000

0

5,000

200 000

0

200,000

nge

in Jo

bs

bsor

ptio

n

-440,000-371,000

-415,000 -10,000

-5,000

-600,000

-400,000

-200,000

ChaA

b

-812,000-20,000

-15,000

-1,000,000

-800,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009YYear

Absorption Change in Jobs

38 Sources: CoStar, Illinois Department of Employment Security and Real Estate Counselors International, Inc.

NEW YORK CITY MULTIFAMILY (CONDO) DEMAND/SUPPLY DEMAND/SUPPLY

35,0004550

Periods of Excess Supply

25,000

30,000

2530354045

Perm

its

uppl

y

15,000

20,000

5101520

ly H

ousi

ng P

of E

xces

s Su

5,000

10,000

20-15-10-50

Mul

ti F

ami

Mon

ths

0-25-20

1983Q1 1986Q1 1989Q1 1992Q1 1995Q1 1998Q1 2001Q1 2004Q1Year/Quarter

39

Multifamily Residential Oversupply Measure (Left Scale) Multifamily Unit Permits (Right Scale)

Sources: U.S. Bureau of Census, Moody's Economy.com and Real Estate Counselors International, Inc.

MARKET ANALYSIS: URBAN GROCERY STORE

40

DEFINITIONS:Primary Trade Area – accounts for 60-70% of resident-based retail sales demand.

GAFO – General Merchandise, Apparel & Accessories, Furniture & Appliances, and Other retail t i ( l k Sh pp ’ G d C p i G d DSTM) categories (also known as Shoppers’ Goods, Comparison Goods or DSTM)

Per Capita Expenditure Share – Per Capita Expenditure as a % of Per Capita Income (derived the Census of Retail Trade statistics)

Per Capita Expenditure –Per capita estimate of retail sales for specific retail category for defined trade area (Other retail categories might include grocery stores, drug stores, eating and drinking establishments.)

Sales Potential – Retail Demand, calculated as product of Population and Per Capita Expenditure

Retained Sales Potential – Retail Demand retained within the trade area (i.e., not exported outside of the trade area).

Capture Rate – Share of Retained Sales Potential that can be captured by the Subject Property

Daytime Population – workers, students and area visitors

41

LOCATION OF NEARBY UPSCALE RESIDENT POPULATION

42 Source: and Real Estate Counselors International, Inc.

DEMAND/SUPPLY METHODOLOGY

Identify sources of demand – resident population, core downtown/midtown workers, tourists and other downtown/midtown workers.

Delineate trade area – assess accessibility, distance and drive times, competition, etc.

Quantify resident and worker/tourist population and per capita income levels.

Estimate per capita expenditures for grocery store merchandise among the two above-referenced segments.

Forecast “Sales Potential” or retail demand (product of per capita expenditure and population) originating from these two segments.

F l f h l d f l Forecast sales opportunity for the planned grocery store after applying capture rates – first, with respect to the level of sales potential retained within the trade area; and then with respect to sales potential forecast to be captured by the planned grocery store.

43

g oce y sto e.

LOCATION OF MAJOR EMPLOYERS

44 Source: Real Estate Counselors International, Inc.

LOCATION OF OFFICE EMPLOYMENT

45 Source: Real Estate Counselors International, Inc.

LOCATION OF COMPETITION

46 Sources: Real Estate Counselors International, Inc. Field Survey

TRADE AREA DELINEATIONTRADE AREA DELINEATION

47 Sources: Real Estate Counselors International, Inc.

RESIDENT POPULATION SALES OPPORTUNITY

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

T d A Trade

A P % Per Capita E dit

Per Capita E dit G

CAAC % G th i R t i d

Trade Area R t i d

Subject Grocery

St Grocery

St T t l Trade Area Resident

Population

Area Per Capita Income

Expenditure for Grocery Store Items

Expenditure for Grocery Store Items

Grocery Store Sales Potential

Growth in Sales

Potential

Retained Sales

Potential %

Retained Sales

Potential

Store Capture

Rate

Store Total Sales

Opportunity2007

Primary 7,400 $17,605 6.30% $1,109 $8,207,451 --------- --------- --------- --------- ---------

S d 14 300 $14 607 6 30% $920 $13 159 446Secondary 14,300 $14,607 6.30% $920 $13,159,446 --------- --------- --------- --------- ---------Total 21,700 $15,629 6.30% $985 $21,366,897 --------- --------- --------- --------- ---------

2013Primary 8,000 $17,605 6.30% $1,109 $8,872,920 0.6% 30% $2,661,876 90.0% $2,395,688

Secondary 14,800 $14,607 6.30% $920 $13,619,567 1.0% 15% $2,042,935 85.0% $1,736,495

Total 22,800 $15,659 6.30% $987 $22,492,487 0.9% 20.9% $4,704,811 88% $4,132,183

DEMAND SEGMENT# 1: Resident Population DEMAND SEGMENT# 1: Resident Population

48 Sources: U.S. Census of Retail Trade, Claritas, Inc. and Real Estate Counselors International, Inc.

TOTAL SALES OPPORTUNITY

(11) (12) (13) (14) (15) (16) (17) (18) (19) (20)

% P C i

Per Capita

Expend. f

Retained (in the

P i Primary

T d A S bj G Midtown

Office Workers

MSA Per Capita Income

% Per Capita Expenditure for Grocery Store Items

for Grocery

Store Items

Grocery Store Sales Potential

Primary Trade

Area) Sales Potential %

Trade Area Retained

Sales Potential

Subject Grocery

Store Capture Rate

Grocery Store Total

Sales Opportunity

Estimated Sales Per

Square Foot

2013Core Midtown

Offi W k i Office Workers in the Primary Trade

Area 14,200 $26,544 4.90% $1,301 $18,469,315 22.5% $4,155,596 90.0% $3,740,036Trade Area Resident Population and Core

Midtown Office Workers in Primary

Trade Area --------- --------- --------- --------- --------- --------- --------- --------- $7 872 219 (Subtotal)Trade Area --------- --------- --------- --------- --------- --------- --------- --------- $7,872,219 (Subtotal)Tourists, Downtown and Other Midtown

Office Workers --------- --------- --------- --------- --------- --------- --------- --------- $1,124,603Total Sales

Opportunity --------- --------- --------- --------- --------- --------- --------- --------- $8,996,822 $635.01

DEMAND SEGMENT# 2 : Core Midtown Office Workers DEMAND SEGMENT# 2 : Core Midtown Office Workers

DEMAND SEGMENT# 3: Visitors (average per person spending per day)

TOTAL SALES OPPORTUNITY


SALES PRODUCTIVITY

MARKET ANALYSIS: UPSCALE APARTMENTS

50

APARTMENT RESIDENTS: DISTANCE TO PLACE OF WORKPLACE OF WORK

8New York City, NY - 295 …CBD or Near CBD

15

15

15

12

Miami, FL - 252 units

Los Angeles, CA -160 units

Seattle, WA - 135 units

Boston, MA - 335 units CBD or Near CBD Locations

20

20

18

16

Los Angeles, CA - 300 units



San Diego, CA - 192 units

25

22

22

20

Chicago, IL - 400 units

Chicago, IL--600 units

Ann Arbor, MI - 582 units

Los Angeles, CA - 310 unitsExurban Locations

35

30

0 5 10 15 20 25 30 35 40


San Francisco, CA -260 units

Distance To Place of Work, In Miles

51

Distance To Place of Work, In Miles

Sources: Real Estate Counselors International, Inc.

APARTMENT RESIDENTS: DRIVE TIME TO PLACE OF WORK

25Boston, MA - 335 unitsCBD or Near CBD

PLACE OF WORK

35

35

30

25



Los Angeles, CA -160 units

Seattle, WA - 135 unitsCBD or Near CBD Locations

40

35

35

35

Miami FL 296 units




g

50

40

40

40

Chicago, IL - 400 units

Chicago, IL--600 units

Ann Arbor, MI - 582 units


Exurban Locations

60

55

0 10 20 30 40 50 60 70

San Francisco, CA -260 units


D i Ti T Pl f W k I Mi

52

Drive Time To Place of Work, In Minutes

Sources: Real Estate Counselors International, Inc.

LOCATION OF COMPETITIVE PROPERTIES LOCATION OF COMPETITIVE PROPERTIES

53 Sources: Appraisal Research Corporation and Real Estate Counselors International, Inc.

LOCATION OF OFFICE EMPLOYMENT AND TOTAL JOBS

Lake County Portion of Market Area – 223,000 Jobs

TOTAL JOBS

Market Area 223,000 Jobs

Cook County Portion of yMarket Area – 359,000 Jobs

54 Sources: CoStar, Illinois Department of Employment Security and Real Estate Counselors International, Inc.

COMPARISON OF GROWTH RATES

132 0134.0136.0138.0

00.0

)

Lake County

120 0122.0124.0126.0128.0130.0132.0

ex (

1997

= 1

0

108 0110.0112.0114.0116.0118.0120.0

Gro

wth

Inde Cook County

96 098.0

100.0102.0104.0106.0108.0

mpl

oym

ent

G

96.01997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p

Em

Lake County Component Cook County ComponentTotal Market Metro Area

55

Total Market Metro Area

Sources: Illinois Department of Employment Security and Real Estate Counselors International, Inc.

LOCATION OF COMPETITIVE SET

56 Sources: Real Estate Counselors International, Inc.

CALCULATING THE CAPTURE RATE FOR AN EXISTING DEVELOPMENT: LAKE COUNTY, IL

Market Area Renter Household Formations by Age Cohort: 2008 to 2013

HI of $60,000 + and Age 15-24 1,284

EXISTING DEVELOPMENT: LAKE COUNTY, IL

g

HI of $60,000 + and Age 25-34 601

HI of $60,000 + and Age 35-44 -934

HI f $60 000 + d A 45 54 2 159HI of $60,000 + and Age 45-54 2,159

HI of $60,000 + and Age 55-64 1,925

HI of $60,000 + and Age 65-74 577

Total Household Growth in Market Area 5,612

Annual Average Increase in Households 702

Average annual # of Apartment Units Absorbed 204g p

Average # of Units Absorbed Per Month 17

Estimated Capture Rate 29.1%

57 Sources: U.S. Census, Claritas, Inc., historical data for competitive property and Real Estate Counselors International, Inc.

FORECASTING ABSORPTION FOR PLANNED DEVELOPMENTDEVELOPMENT

Market Area Renter Household Formations by Age Cohort: 2008 to 2013

HI of $60,000 + and Age 15-24 870

HI of $60,000 + and Age 25-34 1,176

HI of $60,000 + and Age 35-44 -1,055

HI of $60 000 + and Age 45 54 378HI of $60,000 + and Age 45-54 378

HI of $60,000 + and Age 55-64 1,397

HI of $60,000 + and Age 65-74 769

Total Household Growth in Market Area 3,535

Total Household Growth, including 5% from Outside Market Area

3,721

Annual Average Increase in Households 744Annual Average Increase in Households 744

Capture Rate Range 20% to 30%

Average annual # of Apartment Units Absorbed 149 to 223

58

Forecast of Units Absorbed Per Month 12 to 19

Sources: U.S. Census, Claritas, Inc., historical data for competitive property and Real Estate Counselors International, Inc.

MARKET ANALYSIS: MEDICAL OFFICE

59

THE NATURE OF HEALTHCARE EMPLOYMENT: CHICAGO MSA EMPLOYMENT: CHICAGO MSA

145.0

150.02001 Recession 2008 -2009 Recession

125.0

130.0

135.0

140.0

100

.0)

105 0

110.0

115.0

120.0

ex (

1999

Q4

=

90.0

95.0

100.0

105.0

b G

row

th In

de

85.01999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Job

Total Payroll Employment MOB Employment Hospital Employment

60 Sources: U.S. Bureau of Labor Statistics, Moody’s Economy.com and Real Estate Counselors International, Inc.

MOB EMPLOYMENT:CHICAGO MSA AND KANE COUNTY, IL

690.0

KANE COUNTY, IL

490.0540.0590.0640.0

70 =

100

.0)

290.0340.0390.0440.0

ent

Inde

x (1

97

90.0140.0190.0240.0

Empl

oym

e

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010Year/Quarter

Kane County Chicago MSA

61 Sources: U.S. Bureau of Labor Statistics, Moody’s Economy.com, and Real Estate Counselors International, Inc.

MOB SPACE DELIVERED BY DECADE: E.KANE COUNTY, IL/W. DUPAGE COUNTY, IL

519,750

500,000

550,000

COUNTY, IL/W. DUPAGE COUNTY, IL

400,000

450,000

500,000

22 894250 000

300,000

350,000

quar

e Fe

et

151,621

221,894

150,000

200,000

250,000

Tota

l Sq

34,434

0

50,000

100,000

62

0

1970s 1980s 1990s 2000s

Sources: CoStar and Real Estate Counselors International, Inc.

MEDICAL OFFICE SPACE DEMAND MODELMETHOD 1: Employment Model

A B C D E F G H I JA B C D E F G H I JEmployment for Kane County, Illinois

MOB Average Square Feet

Per Employee (4)

MOB Space Demand, in

Square Feet of NRA (5)


Square Feet of NRA,

ROUNDED Offices of

Physicians (1)

Outpatient Care Centers

(1)

Offices of Other Health Practitioners

(1)

Medical and Diagnostic

Laboratories (1)

Other Ambulatory Health Care Services(1)

5% of Hospital Employment

(2)

Total MOB -Related

Employment (3)

2007 4,828 566 905 112 432 391 7,234 299 2,163,063 2,200,0002011 5,732 692 1,080 134 510 447 8,595 299 2,569,920 2,600,000

METHOD 2: Employment/Population Ratio Employment ModelA B C D E F G H I

Offices & Clinics

E l

Medical & Dental Labs E l

5% of Hospital E l

Total MOB -Related

E l T l MOB MOB A MOB S MOB Space D d i

Market Area (1) (2)

Population

Employment for every

100,000 people (3)


100,000 people (3)


100,000 people (4)

Employment for every 100,000 of

Population (5)

Total MOB -Related

Employment (6)


Per Employee (7)



Demand, in Square Feet of

NRA, ROUNDED

2007 566,961 1,002 56 100 1,158 6,568 299 1,963,819 2,000,0002011 624,234 1,002 56 100 1,158 7,231 299 2,162,200 2,100,000

METHOD 3 Ph i i /P l i R i E l M d lMETHOD 3: Physician/Population Ratio Employment ModelA B C D E F

Market Area (1) (2)

Population

Patient Care Physicians for every 100,000 of Population

(3)

Estimated Number of

Physicians (4)


Per Physician (5)




Square Feet of NRA,

ROUNDED Population (3) Physicians (4) (5) NRA (6) ROUNDED

2007 566,961 252 1,429 1,350 1,928,801 1,900,000

2011 624,234 252 1,573 1,350 2,123,644 2,100,000

CONCLUDED DEMAND2007 2,000,000

63

, ,

2011 2,400,000

Sources: U.S. Bureau of Labor Statistics, Moody’s Economy.com, Claritas, Inc., American Medical Association and Real Estate Counselors International, Inc.

MARKET ANALYSIS: SENIOR HOUSING

64

INDEPENDENT/ASSISTING LIVING MOVE-IN RATES AND HOME SALES: CHICAGO MSARATES AND HOME SALES: CHICAGO MSA

17,441 11.0

12.0

18 000

20,000

,

14,27113,378 13,722 13,346

8.0

9.0

10.0

14,000

16,000

18,000

Mon

th

mes

Sol

d

10,647

5.0

6.0

7.0

8,000

10,000

12,000

Mov

e-in

s p

er M

gle

Fam

ily H

om

1 0

2.0

3.0

4.0

2,000

4,000

6,000

Net

M

Sing

0.0

1.0

0

Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008

Quarter/Year

65

Single Family Home Sales AL Net Monthly Move-in Rate IL Net Monthly Move-in Rate

Sources: National Investment Center, Illinois Association of Realtors and Real Estate Counselors International, Inc.

INDEPENDENT LIVING DEMAND/SUPPLY MODEL: ASSUMPTIONSMODEL: ASSUMPTIONS

ASSUMPTIONS USED IN DEMAND/SUPPLY ANALYSIS: INDEPENDENT LIVINGINDEPENDENT LIVING

2010 2012 Notes

Age 75+ Age 75+Income $35,000+ Income $35,000+

Market Area20 Mile

Market Area 20 Mile RadiusMarket AreaRadius

Market Area 20 Mile Radius

Competitive Units Competitive Units

A Total Competitive Units in Market Area

11,196Total Competitive Units in Market Area

11,196 (1)

Unoccupied Units in Market B Unoccupied Units in Market Area

1,232 Unoccupied Units in Market Area 1,232 (2)

C Occupied Units in Market Area 9,964 Occupied Units in Market Area 9,964 (3)

D Competitive Units Planned in Market Area

1,103Competitive Units Planned in Market Area

1,103 (4)

E Project Units 175 Project Units 175 (5)

66 Sources: National Investment Center, Claritas, Inc. and Real Estate Counselors International, Inc.

INDEPENDENT LIVING DEMAND/SUPPLY MODEL: CALCULATIONS

DEMAND/SUPPLY ANALYSIS CALCULATIONS: INDEPENDENT LIVING2010 2012 Notes

Total Age - and Income - Qualified Total Age - and Income -

MODEL: CALCULATIONS

G Total Age - and Income - Qualified Households

58,063Total Age - and Income -Qualified Households

60,232 (7)

Turnover of Existing Units Turnover of Existing UnitsH Units Turned Over per Year 1,893 Units Turned Over per Year 1,893 (8)I From Market Area 1,515 From Market Area 1,515 (9), , ( )J Turnover Penetration Rate 2.6% Turnover Penetration Rate 2.5% (10)

Fill-Up of New Units (Includes Vacant Existing Units)

Fill-Up of New Units (Includes Vacant Existing Units)

K Available New Units 1,278 Available New Units 1,278 (11)L Available (Vacant) Existing Units 1 232 Available (Vacant) Existing Units 1 232 (12)L Available (Vacant) Existing Units 1,232 Available (Vacant) Existing Units 1,232 (12)M Stabilized Occupancy of 95% 2,384 Stabilized Occupancy of 95% 2,384 (13)

N Net Residents to Be Captured from Market Area

1,907Net Residents to Be Captured from Market Area

1,907 (14)

O New Unit Penetration Rate 3.3% New Unit Penetration Rate 3.2%Saturation Rate Saturation Rate

P Total Units in Market Area 12,474 Total Units in Market Area 12,474 (15)Q Stabilized Occupancy of 95% 11,850 Stabilized Occupancy of 95% 11,850 (16)R From Market Area 9,480 From Market Area 9,480 (17)S S i R 16 3% S i R 15 7% (18)

67

S Saturation Rate 16.3% Saturation Rate 15.7% (18)

Sources: National Investment Center, Claritas, Inc. and Real Estate Counselors International, Inc.

For More Information, contact:

Th J A t CRE Li d H M hThomas J. Amato, CREDirector of Due DiligenceReal Estate Counselors International, Inc.Suite 132653 W t J k B l d

Linda H. MehrSenior AssociateReal Estate Counselors International, Inc.Suite 132653 W t J k B l d53 West Jackson Boulevard

Chicago, IL 60604Office Phone: 312.332.4000 X101Cell Phone: 847.217.0198E il t t @ i bi

53 West Jackson BoulevardChicago, IL 60604Office Phone: 312.332.4000 X111Email: [email protected]

Email: [email protected] Web Site: www.reci.biz

68

ADDENDA

69

TRAFFIC COUNT MAPTRAFFIC COUNT MAP

70

TRAFFIC VOLUME COUNTSTRAFFIC VOLUME COUNTS

45 00042,500

39,300

33,60032,700 32,500

30 800

35,000

40,000

45,000

30,800

24,700

21,80020,100 19,800

20,000

25,000

30,000

e daily Traffic Volum

e

10,000

15,000Average

0

5,000

Lake Zurich Schaumburg Mundelein Gurnee Libertyville Palatine McHenry Island Lake Buffalo Grove

Grayslake

71

MARKET SEPARATIONMARKET SEPARATION

72

LOCATION QUOTIENTLOCATION QUOTIENT

0.50

0.31

UTILITIES (22)

TRANSPORTATION & WAREHOUSING (48‐49)

0.80

0.76

0.69

0.68

0.61

HEALTH CARE & SOCIAL ASSISTANCE (62)

OTHER SERVICES (except PUBLIC ADMIN.) (81)

EDUCATIONAL SERVICES (61)

REAL ESTATE & RENTAL & LEASING (53)

INFORMATION (51)

0.90

0.89

0.87

0.80

0.80

FINANCE & INSURANCE (52)

ACCOMMODATIONS & FOOD SERVICES (72)

ADMIN. & SUP. & WASTE MGMT. & REMED. …

PROFESSIONAL, SCIENTIFIC & TECH. SVCS. (54)

UNCLASSIFIED (99)

1.30

1.29

1.28

1.15

1.11

RETAIL TRADE (44‐45)

WHOLESALE TRADE (42)

ARTS, ENTERTAINMENT & RECREATION (71)

CONSTRUCTION (23)

MINING, QUARRYING, & OIL AND GAS …

2.07

1.51

1.40

0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50

AGRICULTURE, FORESTRY, FISHING, & …

MANUFACTURING (31‐33)

MNGMT. OF COMPANIES & ENTERPRISES (55)

Location Quotient

73

Documents

Market/Feasibility Analysis & Appraisals · 2011. 3. 6. · October 21, 2010 UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN College of Business DEPARTMENT OF FINANCE FIN490 Market/Feasibility