Facts, Trends and PredictionsHouston Capital Markets UpdateJones Lang LaSalle 2014 Year In ReviewHouston Investment Sales GroupJanuary 2015

HOUSTON INVESTMENT SALES GROUP2014 DEALS CLOSED

Delivering Maximized Results

ASHFORD PLACE II & III143,505 square feet

COLUMBIA CENTRE166,720 square feet

13401 NORTH FREEWAY143,410 square feet

1800 BERING171,510 square feet

MENTIS NEURO REHABILITATION20,000 square feet

WESTCHASE CORPORATE CENTER184,259 square feet

1500 CITYWEST192,313 square feet

Rudy HubbardManaging Director - Investment Sales+1 713 425 5853 rudy.hubbard@am.jll.com

Kevin McConnVice President - Investment Sales +1 713 425 5839kevin.mcconn@am.jll.com

Rick GoingsAssociate - Investment Sales +1 713 425 5855rick.goings@am.jll.com

For more informat ion about JLL’sHouston Investment Sa les Group, contact :

GREENSPOINT EIGHT198,257 square feet

TOWN & COUNTRY CENTER278,784 square feet

Houston C apital Markets Overview –2014 Year-End Review

OIL PRICES – A Historical View. Napoleon once said that “history is the version of the past events that people have decided to agree upon.” Today, everyone seems to agree that Houston’s economy is perfectly positively correlated to oil prices – when oil prices decrease 30%, so too does the Houston economy, and with it, the demand for office space. This notion is perpetuated at the dinner table, cocktail parties, and in the locker room based on people’s false perception of historical events. So why are so many people fulfilling Napoleon’s fickle idea of history? I prefer Abe Lincoln’s thought that past events don’t explain present circumstances. Each occasion has its own set of challenges “and we must rise with the occasion. As our case is new, so we must think anew and act anew.”

This is Not the 1980’s. The Arab Oil Embargo in 1973 quadrupled oil prices in just three months, sparking real estate and drilling speculation that would last a decade. Oil prices collapsed in 1982 and oil and mining jobs fell by 57%, leading to total job losses of nearly 222,000 by 1987. Despite negative demand indicators, Houston’s office inventory had doubled in a matter of a few years due to a “if you build it, they will come” mentality. Today, that’d be the equivalent of Houston adding 200,000,000 square feet of office space, while losing 450,000 jobs. Houston’s energy and real estate industries of today are not what they were in the 1980’s; there are higher barriers to entry and the industries are more savvy, more well-capitalized, and more resilient.

A December 2014 Goldman Sachs report noted that the Houston economy is highly diversified, and jobs directly tied to oil extraction represent just 4.2% of the total. It’s estimated that 38% of Houston’s GDP is tied to the energy sector – that number

was 75% in the 1980’s. The Goldman Sachs report goes on to say that “Houston is more than just a play on oil pricing, and results from the last major price decline prove this.” The benchmark average WTI price in 2008 of $100/bbl declined 38% to $62/bbl in 2009. During this timeframe, Houston lost 2.9% fewer jobs than the US average and GDP outperformed the total US by 3.1%.

What about the effect on the office market? Again, a lot can be garnered by looking back at the last major price decline when oil dropped from a yearly average of $100/bbl in 2008 to $62/bbl in 2009. During this timeframe, the Nation was in the worst economic recession since the Great Depression and Houston was the last in and first out. The Houston MSA lost 4.1% of the total non-farm employment, or just over 106,000 jobs. Houston recovered all jobs lost in less than two years, and at year-end 2014 we had added over 430,000 jobs since 2010 – a compound annual growth rate of 3.25% - best in the Nation.

Houston’s six primary submarkets remained very resilient during this time. Combined with approximately 4.5 million square feet of new office construction in 2008 and 2009, the 4.1% decrease in total employment in 2009 contributed to the primary submarkets’ first year of negative net absorption since 2003, taking Class A and B occupancy from a high of 92% (2008) down to a still-healthy 88% in 2010. In the five years since, nearly 11.0 million square feet of office space has been absorbed despite 7.7 million square feet of new deliveries. This equates to approximately 2.2 million square feet of positive net absorption per year, and overall Class A & B occupancy ended 2014 at just over 92% in the primary submarkets.

Houston remained the darling of commercial real estate throughout much of 2014 – adding jobs and population at an impressive clip and ending the year with more than 2.9 million payroll jobs. The primary reasons that investors flooded the Houston market with higher capital allocations in 2014 remain unchanged from our 2013 “Facts, Trends, and Predictions” white paper: [1] long-term and sustainable economic growth, [2] growing supply of offshore investors, [3] portfolio diversification, and [4] attractive risk-adjusted returns. How-ever, the 50% decline in WTI prices experienced in 4Q’14 left many questioning if Houston’s landlord-favorable market could continue, putting downward pressure on capital allocations.

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

Class A & B Absorption Class A & B Deliveries Total Non-Farm Employment at YE Avg. WTI Price

Houston C apital Markets Overview –2014 Year-End Review

The impact on market rents was just as minimal – 2010 saw a 4.9% decline in rents from the prior year (this after 22.4% rent growth in 2007, 15.5% in 2008, and no growth in 2009). In the years since, Class A and Class B market rents have increased at a CAGR of 6.9%. If you purchased an office building from 2010 to 2014, chances are you have outperformed your pro forma and the future is bright.

When will the drilling (fracking) stop? A lot of people say that the breakeven oil price for fracking in the Eagle Ford Shale is approximately $70/bbl. That’s true if you’re talking about “full-cycle” costs.

Full-Cycle Breakeven Costs – accounts for all costs that go into drilling a well or fracking; all capital expenditures, land costs, right of ways, equipment, pipelines, etc. Half-Cycle Breakeven Costs – the on-going cost of drilling or fracking after the initial capital investment is made; includes payroll, proppant, overhead etc., but does not include capital expenses, land costs, equipment, etc.

Half-cycle breakeven is at approximately $45/bbl. In 2013 alone, over $30 billion was invested into the Eagle Ford shale by way of capital expenses according to the Center for Community and Business Research at the University of Texas San Antonio. Therefore, much of the costs associated with the $70/bbl breakeven (full-cycle) costs are sunk – they have been spent and cannot be recouped. This means that above $45/bbl, drilling remains accretive to the project’s overall return for those companies who have already sunk costs into the Eagle Ford Shale play. Currently, there are more than $57.5 billion of capital investments resulting just from the Eagle Ford play either under construction or planned across Texas:

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

Class A Rents Class B Rents Avg. WTI Price

Company Project Location CAPEX ($Mil)Manufacturing ProjectsVoestalpine Group Hot briquetted iron manufacturing facility Nueces County $750Tianjin Pipe Corp. Seamless steel pipe manufacturing facility Nueces County $1,000M&G Group Plastic packaging manufacturing facility Nueces County $900Tenaris Seamless steel pipe manufacturing facility Brazoria County $1,500Sasol Energy complex Louisiana $21,000Chevron Phillips Ethane cracker facility expansion Brazoria County $6,000ExxonMobil Chemical Ethane cracker facility expansion Harris County $4,000Enterprise Products Partners Petrochemical facility expansion Chambers County $4,000OCI Methanol and gasoline facility expansion Jefferson County $1,000Air Liquide Air separation unit addition Jefferson County $120Celanese and Mitsui Methanol production plant Harris County $800Valero Energy Corp Crude distillation tower Nueces County $730Reliance Industries Liquid ethane export U.S. $2,000Port ProjectsCheniere Energy LNG plant and export facility San Patricio County $12,000Oxy Chem Propane export facility San Patricio County $75Magellan Midstream Partners LP Construction of condensate splitter Nueces County $250Castleton Commodities International Construction of condensate splitter Nueces County $325Corpus Christi Port Authority Widen and deepen channel Nueces CountyPort of Houston Authority Dredge and widen channel $100Freeport Port Authority and Army Corps of Engineers Feasibility study to support oil and gas boom Brazoria County $11BOSTCO Storage, pipeline, deepwater access Harris County $54Intercontinental Terminals Tank terminal and ship dock facilities Harris County $150Oiltanking Partners LPG capacity expansion; storage, pipeline and dock infrastructure Harris County $490NuStar Energy Petroleum dock Nueces County $185Kinder Morgan Energy and Double Eagle Pipeline Barrel storage facility and 10 mile pipeline La Salle County $100Estimated Total $57,540Source: Center for Community and Business Research at the University of Texas at San Antonio's Institute for Economic Development; September 2014

Anyone that tells you they know what oil prices are going to be tomorrow is lying; however, general sentiment from a who’s who of energy investment bankers, executives, and analysts believe that we will see WTI above $70/bbl in mid-2015. There’s no debating that capital investments in the oil patch will shrink if oil stays below $50/bbl for an extended period of time. On the other hand, there’s no debating that those companies with an existing drilling presence will continue to drill as long as oil stays above the half-cycle breakeven of $45/bbl. Moreover, most of the job cuts will be blue-collar, non-office related jobs. Due to fierce competition for talented technical jobs in the energy space, most E&P companies are expected to weather the storm.

2015 Job Forecast & Year-End Office Statistics

In December 2014, the Greater Houston Partnership forecasted an increase of 62,900 jobs for CY 2015 – a 2.15% increase. Houston has created an average of 48,600 jobs per year over the last 20 years; disregarding the outliers, the best three and worst three years for job creation, the average increases to 58,400 jobs per year. Despite the recent decline in oil prices, Houston is still expected to have a very healthy, better-than-average year of job growth.

Over the previous 10 years, Houston has added an average of approximately 63,000 jobs per year – this includes the anemic “Great Recession” years! At year-end, the Houston MSA had more than 2.9 million payroll jobs.

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Non-Farm Employment at YE % Change from PY

Total Total % 2014 2014 Avg. RentalBldgs. Sq. Ft. Leased Deliveries Absorption Rate (NNN) [2]

PRIMARY SUBMARKETS [3]Class A 160 66,183,520 93.2% 3,090,794 3,356,051 $26.86Class B 157 27,641,167 89.6% 276,700 -312,006 $13.30Primary Submarkets Total 317 93,824,687 92.1% 3,367,494 3,044,045 $22.73HOUSTON MSAClass A 310 100,395,604 91.4% 3,170,794 3,120,720 $22.06Class B 439 64,979,210 85.7% 276,700 409,759 $9.65Houston MSA Total 749 165,374,814 89.1% 3,447,494 3,530,479 $16.52

Total Owner/User Properties 124 31,738,362 99.0% 1,869,260 2,028,562 --[1] Includes existing office buildings over 75,000 SF

[2] CoStar's gross figures are quoted to NNN by estimating operating expenses of $12.00 PSF

[3] Primary submarkets are: CBD, Greenway Plaza, Galleria/Uptown, Westchase, Energy Corridor, and The Woodlands

2014 Year End Office Statistics [1]

Source: JLL Research; CoStar, Inc.

As predicted, 2014’s transaction volume didn’t reach the gaudy numbers seen in 2013. While the number of transactions were similar, 34, the volume decreased by 44% year-over-year, from about $3.7 billion to $2.1 billion.

Liquidity, Liquidity, Liquidity – West Houston’s favorite submarkets and the Galleria/Uptown submarket continue to be the most ac-tively traded.

• The Energy Corridor and Westchase combined for 15 trades with an average price per square foot of $229 and $177, respectively• Cap rates in West Houston saw tremendous compression year-over-year driven by the quality of product offered for sale and

the increased competition (more than 15 offers on a given property in some instances)• Average Class A cap rates in the Energy Corridor and Westchase were 6.8% and 6.5%, respectively, compared to 7.0% and 7.6%

in 2013• The Galleria/Uptown submarket had 4 Class A trades (7 overall), three of which were via the Lakes on Post Oak offering that

ended up being carved into three separate transactions due to a tenant’s (Sinopec) willingness to pay up for one of the buildings with significant vacancy (3050 Post Oak)

Deal Size – The average deal size in 2014 came back to a normal level of $62 million• 2012’s average deal size was $69 million and 2013’s was $115 million• Just because we had a more “par for the course” deal size in 2014 doesn’t mean that we had a great year – volume was still low

with only 34 transactions• 2012 had a very similar average deal size, but the volume of trades eclipsed 2014’s by about $700 million because there were 9

more trades in ’12• As predicted in our 2013 white paper, the suburban price per square foot barrier continues to become less and less of an issue,

and in 2014 the record was broken once again with the sale of 3000 Post Oak at $396 per square foot

What Cap Rates Don’t Tell You – throw cap rates out the window unless you look at them in context; buildings that command long-term deals (7 to 10 years) may have higher cap rates in today’s world than buildings that do shorter term deals

• Why? Because short-term leases means rolling existing tenants to market at a faster rate, thereby allowing for faster appreciation and a quicker realization of an investment strategy

• Investors in these types of deals still have the same return thresholds of about 14% to 17%, but they are able to pay up for assets and still hit their required returns due to what many perceive as an iron clad exit strategy over a 2- to 5-year holding period

• This is the main reason that the primary submarkets are seeing all of the activity and price appreciation – liquidity is paramount in an environment where most of your return is attributable to the exit

• Every deal that hits the market in Houston today WILL have a value-add component by way of mark-to-market leasing and investors are assuming aggressive rent growth

• While a lot of tenants may be expiring 30%+ below market, there is no apprehension about the buyer’s ability to retain that tenant at market rates because [1] moving is expensive and [2] there are not a lot of options on where to go, and therefore, moving is cost-prohibitive in most cases

• This recent trend will be a harder sell in 2015 or until oil prices get to a level where investors are confident in the staying power and growth potential of energy-related tenants

Houston C apital Markets Overview –2014 Year-End Review

Submarket No. of Trades SqFt $Volume $/SF Avg. Occupancy Avg. Cap RateWestchase 8 1,431,975 $254,000,000 $177 91% 7.0%Greenway Plaza 2 253,700 $45,800,000 $181 81% 5.8%Woodlands -- -- -- -- -- --CBD 2 1,599,087 $544,000,000 $340 95% 6.6%Galleria/Uptown 7 1,870,461 $523,150,000 $280 92% 6.2%Energy Corridor 7 1,895,845 $433,250,000 $229 98% 7.7%Primary Submarket Total 26 7,051,068 $1,800,200,000 $255 91% 6.7%

Secondary Submarkets 8 2,105,494 $316,650,000 $150 98% 9.7%

Total 2014 YTD Transactions 34 9,156,562 $2,116,850,000 $231 94% 7.5%*Excludes the cap rate for Oak Park III in Westchase due to the eminent lease termination

2014 Houston Office Transactions - Greater than $10M

What The 2014 Stats Don’t Tell You – There were a lot of deals that fell out of contract, or were pulled from the market in 4Q’14…all because of oil prices

• 1000 Main, 5 Post Oak Park, 1900 West Loop South, Broadfield at Park 10, and One Westchase Center• For the first time in a long time, not everyone is bullish on Houston• This will bode well for those groups who take a long-term view of this great City and realize that, as we talked about at the

beginning of this white paper, Houston is not a one-trick pony and our growth will continue

Submarket No. of Trades SqFt $Volume $/SF Avg. Occupancy Avg. Cap RateCLASS AWestchase 4 746,252 $166,600,000 $223 94% 6.5%Greenway Plaza 1 117,000 $27,800,000 $238 86% 5.8%Woodlands -- -- -- -- -- --CBD 1 1,150,000 $475,000,000 $413 98% 5.3%Galleria/Uptown 4 1,406,040 $449,775,000 $320 89% 5.6%Energy Corridor 3 1,308,728 $345,000,000 $264 95% 6.8%Class A Total 13 4,728,020 $1,464,175,000 $310 92% 6.0%

CLASS BWestchase 4 685,723 $87,400,000 $127 89% 7.4%Greenway Plaza 1 136,700 $18,000,000 $132 75% --Woodlands -- -- -- -- -- --CBD 1 449,087 $69,000,000 $154 91% 7.9%Galleria/Uptown 3 464,421 $73,375,000 $158 96% 6.7%Energy Corridor 4 587,117 $88,250,000 $150 100% 8.6%Class B Total 13 2,323,048 $336,025,000 $145 90% 7.6%

Total Primary Submarket Transactions26 7,051,068 $1,800,200,000 $255 91% 6.7%*Excludes the cap rate for Oak Park III in Westchase due to the eminent lease termination

2014 Houston Office Transactions by Class - Primary Submarkets Greater than $10M

Submarket No. of Trades SqFt $Volume $/SF Avg. Occupancy Avg. Cap Rate70% - 79% 2 473,261 $118,000,000 $249 75% --80% - 89% 4 856,472 $202,275,000 $236 83% 6.5%90% + 28 7,826,829 $1,796,575,000 $230 97% 7.7%Total 2014 Transactions 34 9,156,562 $2,116,850,000 $231 94% 7.5%

2014 Houston Office Transactions by Occupancy - Greater than $10M

Capital Source No. of Trades SqFt $Volume $/SF Avg. Occupancy Avg. Cap RateREIT 1 120,651 $14,000,000 $116 100% 8.6%Institutional 12 4,526,003 $1,202,675,000 $266 94% 7.2%Equity Fund 5 893,941 $134,000,000 $150 92% 7.3%Offshore 4 986,551 $299,000,000 $303 100% 8.6%Private 10 2,091,135 $320,275,000 $153 93% 7.4%Corporate 2 538,281 $146,900,000 $273 88% --Total 2014 Transactions 34 9,156,562 $2,116,850,000 $231 94% 7.5%

2014 Houston Office Transactions by Capital Source - Greater than $10M

Capital Source WestchaseGreenway

PlazaWoodlands CBD

Galleria/Uptown

Energy Corridor Totals

REIT 0 0 0 0 0 1 1Institutional 2 1 0 2 2 3 10Equity Fund 3 0 0 0 0 2 5Offshore 0 0 0 0 1 0 1Private 3 1 0 0 2 1 7Corporate 0 0 0 0 2 0 2Total Primary Submarket Transactions

8 2 0 2 7 7 26

2014 Houston Office Transactions by Capital Source and Primary Submarket Concentration

Michael MelodyExecutive Managing Director/Co-Head +1 713 888 4089mike.melody@am.jll.com

Thomas FishExecutive Managing Director/Co-Head +1 713 888 4047 tom.fish@am.jll.com

Thomas MelodyExecutive Managing Director/Co-Head +1 713 888 4053tom.melody@am.jll.com

About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $53.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com. For further information, visit www.jll.com.

Houston (headquarters)

1400 Post Oak Blvd., Suite 1200Houston, TX 77056

+1 713 888 4000

Rudy HubbardManaging DirectorInvestment Sales+1 713 425 5853 rudy.hubbard@am.jll.com

Paul HouseRegional Director+1 713 888 4090paul.house@am.jll.com

Kevin McConnVice PresidentInvestment Sales +1 713 425 5839kevin.mcconn@am.jll.com

Rick GoingsAssociateInvestment Sales +1 713 425 5855rick.goings@am.jll.com