CARW Lunch & LearnIndustrial: What’s new, what’s next and where will it happen?

Brian S. Parrish, MBA

Vice President, The Dickman Co., Inc.October 31, 2011

Presentation Overview

• The Stats

• SE WI Projects in 2011

• Market Updates

• Market Considerations

• 2012 Forecast

• SWOT

• Top 10

Tracked Set

• 10,000 SF Min. in the 8 County Area– Tracked set is: 4,361– Total buildings: 7,298

Vacancy Rates3Q 2010 vs. 3Q 2011

County/SubmarketVacancy Q3

2010 (%)Vacancy Q3

2011 (%)

Milwaukee

Downtown 13.6% 12.7%

North Central 11.6% 13.1%

North Shore 15.4% 13.0%

Northwest 10.1% 8.3%

South 13.0% 8.7%

South Central 9.6% 11.7%

West 12.8% 6.9%

Milwaukee Total 12.2% 10.1%

Waukesha

Northeast 7.0% 5.5%

Northwest 7.8% 4.6%

Southeast 6.6% 5.9%

Southwest 4.7% 4.2%

Waukesha Total 6.6% 5.1%

Ozaukee 10.9% 12.8%

Racine 7.0% 3.2%

Sheboygan 4.2% 6.5%

Kenosha 11.0% 9.8%

Walworth 7.4% 6.3%

Washington 7.3% 5.2%

Grand Total 9.1% 7.5%

Source: Xceligent Milwaukee Industrial Market Report Q4 2010

Vacancy Rates3Q 2010 vs. 3Q 2011

County/SubmarketVacancy Q3

2010 (%)Vacancy Q3

2011 (%)

Milwaukee

Downtown 13.6% 12.7%

North Central 11.6% 13.1%

North Shore 15.4% 13.0%

Northwest 10.1% 8.3%

South 13.0% 8.7%

South Central 9.6% 11.7%

West 12.8% 6.9%

Milwaukee Total 12.2% 10.1%

Waukesha

Northeast 7.0% 5.5%

Northwest 7.8% 4.6%

Southeast 6.6% 5.9%

Southwest 4.7% 4.2%

Waukesha Total 6.6% 5.1%

Ozaukee 10.9% 12.8%

Racine 7.0% 3.2%

Sheboygan 4.2% 6.5%

Kenosha 11.0% 9.8%

Walworth 7.4% 6.3%

Washington 7.3% 5.2%

Grand Total 9.1% 7.5%

Positive absorption of 400,000 SF+ every quarter for 15+ months

Historical Vacancy & Net Absorption

Historical Vacancy & Net Absorption

National Cap Rates

** Source: National Investor Survey, PriceWaterhouseCoopers

• 3rd Quarter 2011: Cap rates have decreased in 26 survey markets; although rate of decline is slowing

National Markets Average

Apartment 5.98%

CBD Office 6.91%

Suburban Office 7.47%

Strip Center 7.20%

Regional Mall 7.50%

Warehouse 7.45%

Flex/R&D 8.67%

Industrial Cap Rates

• So, what is the CAP rate now?

Korpacz** SE Wisconsin

Institutional 7.45% 8.0 – 10.0 %

Non-Institutional 9.66% 10.0 – 12.0 ++ %

• CAP Rates increased dramatically between Q4 2008 and Q1 2010 (8.28% to 10.98%)

• Industrial Cap rates have fallen in 2011

** Source: National Investor Survey, PriceWaterhouseCoopers

Expect Cap Rates to remain stable in 2012

Noteworthy Transactions11300-11500 W. Burleigh Street, Wauwatosa

• Building Size: 600,000 Sq. Ft.• Space Leased: 225,000 Sq. Ft.• Asking Rate: $2.50/Sq. Ft. FSG• Transaction: 7/11/2011• Lessor: HSA Properties• Tenant: Schoeneck Containers• Absorption effect on submarket

Noteworthy Transactions6101 N. 64th Street, Milwaukee

• Building Size: 374,736 Sq. Ft.• Sale Price: $3,300,000 ($8.80/Sq. Ft.) • Sale Date: 6/7/2011• Seller: Jack J & Janis G Andersen• Buyer: T & M Industrial Properties LLC

Noteworthy Transactions1900 W. Cornell Street, Milwaukee

• Building Size: 243,056 Sq. Ft.• Sale Price: $4,365,000 ($17.81/Sq. Ft.) • Sale Date: 10/12/2011• Seller: Rock-Tenn • Buyer: Share Corp • User Sale

Noteworthy Transactions11000 W. Heather Avenue, Milwaukee

• Building Size: 82,907 Sq. Ft.• Sale Price: $3,450,000 ($41.61/Sq. Ft.) • Sale Date: 07/20/2011• Seller: Jack LLC Ryan and Sons

Incorporated • Buyer: 11000 Heather Avenue LLC• User Sale

Noteworthy Transactions11225 W. Heather Avenue, Milwaukee

• Building Size: 95,500 Sq. Ft.• Sale Price: $3,750,000 ($39.26/Sq. Ft.) • Sale Date: 07/20/2011• Seller: Semco Inc • Buyer: 11225 Heather LLC• Investment Sale

Noteworthy Transactions690 W. Oakland Avenue, Port Washington

• Building Size: 182,000 Sq. Ft.• Sale Price: $2,150,000 ($11.81/Sq. Ft.) • Sale Date: 09/12/2011• Seller: Park Street Industrial• Buyer: Aldrich Chemical Company, Inc• User Sale

Noteworthy TransactionsN89 W14700 Patrita Drive, Menomonee Falls

• Building Size: 160,000 Sq. Ft.• Sale Price: $5,300,000 ($33.12/Sq. Ft.) • Sale Date: 09/21/2011• Seller: Maysteel, LLC • Buyer: Schinner Brothers Property, LLC• Triggered by sale of facilities in New Berlin

Noteworthy Transactions6575-6693 N. Sidney Place, Glendale

• Building Size: 104,400 Sq. Ft.• Sale Price: $3,635,000 ($34.81/Sq. Ft.) • Sale Date: 08/31/2011• CAP Rate: 9%• Occupancy: 94%• Seller: Glendale Business Center, LLC• Buyer: Hakaduli Properties LLC

– 106 Acres, 1,900,000 SF, 10-100 years old

– Vacant & available – City may take over in 2011

– Not part of industrial property base

– $15mm minimum in environmental clean-up

Market UpdatesChrysler Plant, Kenosha

• 3.5 Acres - $120,000/Acre• 50,000 Sq. Ft. Proposed• Spring 2012 Completion• Relocation From St. Francis• Potential (internal) legal issues

ProposedMenomonee Valley

Suzy’s Cream Cheesecakes

• 9.58 Acres• Leased 120,000 Sq. Ft.• 24’ Clear Height• 10 Docks, 2 Drive-Ins• Estimated Completion: Q1 2012

New Construction340 E. Mahn Court

American Tire Distributors

2011 Forecast & BeyondHow are Manufacturers doing?

• Measures economic activity in the manufacturing sector

• Indexes include: New orders, production, employment, inventories, etc

• < 50 = Contraction, > 50 = Growth

ISM National: “Production, Employment and Inventories GrowingSupplier Deliveries Slower, New Orders Contracting”

THEN…

• Paid Sick Leave

• High Speed Rail

• Freefalling Capital and Real Estate Markets

• Debt Ceiling – Phase I

• Universal Healthcare – Phase I

NOW…

• Potential for Higher Taxes

• 2012 Presidential Election

• Potential Governor Walker Recall

• Debt Ceiling – Phase II

• Universal Healthcare – Phase II

Uncertainty Then, Uncertainty Now

Market Considerations

Market FactorMarket Factor Current StatusCurrent Status

TIFS, Gov’t Incentives Slowing down

Receiverships No change – many!

Refinancing Very difficult

Short Sales No change – many!

Financing Improving for usersDifficult for investors

STRENGTHS:

• Pricing is Low

• Users Have Cash

WEAKNESSES:

• Supply of Quality Product

• Government Incentives are Drying Up

• Properties are Worth Less Today

SWOT ANALYSIS: Industrial Real Estate “Market”

OPPORTUNITIES:

• Built-to-Suit

• Pent Up Demand

• Alternative to Stocks

THREATS:

• Banks are a 3rd Party Market Player

− Affect on Pricing-Sale Comps

• Credit Remains Tight (Particularly for Investment)

• New Orders Contracting (Mfg)

2012 Forecast• Positive absorption will occur

• Vacancy rates will decline but stabilize during 2012

• Sales: Increasing volume of sales, prices will slowly rise from depressed levels of 2010 and 2011. Difficulty with supporting comps.

• Leases: Rates will slowly rise from depressed levels of 2010 and 2011; concessions to remain

1. Highest Vacancy Rate – 12.7% in Ozaukee County

2. Lowest Vacancy Rate – 3.2% in Racine County

3. Highest YTD Absorption – 1,463,360 Sq. Ft. in Milwaukee County

4. Lowest YTD Absorption - -301,500 Sq. Ft. in Sheboygan County

5. Milwaukee – the European manufacturing destination?

6. Progress on the Kenosha Chrysler Plant

7. Only 11.5 Acres left (out of 56.5 Acres) in the Menomonee Valley

8. Cap rates sank to their lowest levels in years providing some relief to industrial investors.

9. All 2011 regional Mfg Indeces registered growth, but new orders contracting

10.Positive absorption of 400,000 SF+ every quarter for 15+ months

The Industrial TOP 10 of 2011In no order of importance!

Happy Halloween!!!Before & After

Contact Information

Brian S. Parrish, MBAVice President

The Dickman Company/CORFAC International

http://www.dickmanrealestate.com http://www.linkedin.com/in/briansparrish

www.twitter.com/bsparrish 626 E. Wisconsin Avenue, Suite 1020

Milwaukee, WI 53202(414) 278-6887