Status of the US Economy

Chairman's Report:
sstroud@naicarolantic.com

Dr. Peter Linneman, Professor of Real Estate, Finance and Public Policy at the Wharton School of Business and the NAI Global national economist was the keynote speaker this past January at NAI Carolantic's 22nd Annual Triangle Commercial Real Estate Conference. Recently, as a special benefit to NAI Global affiliated firms, Dr. Linneman shared his perspective on the status of the US Economy. I wanted to share some of his key points as summarized by NAI Global:

• The US economy is doing fine. GDP in the third quarter came out at 3.8% annualized growth. That's a very strong economy. Unemployment is holding steady at 4.7% and we have had strong job growth, which on an annualized basis amounts to 1.7 million jobs.
• Airports, restaurants and hotels are crowded. These are good leading and contemporaneous indictors of the strength of the economy.
• The lone exceptions are Cleveland, Toledo, Detroit and Flint. These markets are in real recession.
• The current capital market issues and housing market issues are healthy adjustments that will make the economy stronger, but in the near term are difficult for the financial services industry and the housing industry.

Future Outlook for the US Economy:

• The US economy should do well through 2008 and 2009. We will see a tremendous amount of political spending to buy votes, which is not good for the country in the long term, but will buoy the economy in the short term.
• The real risk for recession is not now, but in 2009-2010 as political uncertainty sets in post-election. Even then, we look for more of a pause than a collapse.

The Capital Markets/Subprime Crisis

• The Fed is largely to blame for the capital markets situation. Interest rates were too high for too long. The high rates gave investors too high a return for a riskless short-term investment. Rates are still too high by about 25-50 basis points.
• Investor losses on subprime mortgages won't have a significant impact on the economy. When you read about the losses at Merrill Lynch and Citi on their subprime portfolios, think of it as a poker game - lenders may have lost $90 billion to $100 billion, but the borrowers got to spend $90 billion to $100 billion they would not otherwise have had. The money is still there in the system.

The Outlook for Commercial Real Estate

• The markets should be fine, except in New York City and London where there is a lot of uncertainty. We'll see solid but not spectacular absorption over the next 12 months.
• Companies in New York and London are going to reduce staff in the near term and they have no urgency to make a decision to take on more space. Rents can continue to go up due to short supply.
• Not much is trading. Property that is selling is struck at prices 10-15% lower in terms of cap rates than if they were done in Q1 of 2007.
• The rest of the country should do fine until 2009-2010. The credit markets should come back into line, but we are still 10-12 months away from normality.
• The past year was the time for debt. The next 6-8 months will be time for equity, a time to work assets. Be cautious of spec development or buying space that has a lot of rollover in 2009-2010.
• The credit crisis could actually help the industry save itself in 2009-2010 by keeping people from stretching themselves too far.

NAI Carolantic's Winning Team:

David Stroud Chosen for Leadership Durham Program

dstroud@naicarolantic.com

The Greater Durham Chamber of Commerce has accepted NAI Carolantic broker, David Stroud into its 2007-2008 Leadership Durham Program. Participants are chosen based on proven leadership qualities and a strong interest in the community and its advancement. Leadership Durham involves its chosen candidates in a nine-month study and development program. Acknowledged as an outstanding leadership incubator in the Triangle area, it is an honor for applicants to be identified by the Durham program as potential community leaders.

23rd Annual Triangle Commercial Real Estate Conference
January 17, 2008, RBC Center, Raleigh, NC

Recent Transactions:

• Ed Brown, SIOR, CCIM and John Webster represented the Hertz Corporation in the sale of a 20,602 square-foot building on approximately 8 acres of land on Glenwood Avenue in Raleigh. The sale was made to Oberlin Investors.
• Kyle Greer and Ed Brown, SIOR, CCIM recently represented the seller of a 130,000 square-foot warehouse on 4.65 acres of prime land located on Atlantic Avenue in Raleigh.
• Jimmy Barnes, SIOR, has negotiated a lease expansion for Jacobs Engineering Group at Crossroads Corporate Park in Cary. The property is now 98% leased.
• Jake Plotkin represented MyComputerCareer.com in negotiating a lease for eight-plus years in the Capital Center in West Raleigh.

Broker Profile:

Joaquin Canals, Broker
jcanals@naicarolantic.com

Mr. Canals joined NAI Carolantic Realty, Inc. in 1991 as a leasing specialist. He has over 30 years of experience in the commercial real estate field and is knowledgeable concerning all aspects of leasing and brokerage. His current specialties include retail leasing and sales, but he is also experienced in flex and industrial sales and leasing. The United States Postal Service, E.L. Barton and Tiger Direct are among his select clients. He is a graduate of Edinboro University in Pennsylvania with a degree in political science.

New Associates Join NAI Carolantic:

NAI Carolantic welcomes Robin Roseberry Anders, SIOR and Dan Marquardt as the newest members of our brokerage team.

randers@naicarolantic.com

Robin Roseberry Anders recently joined NAI Carolantic Realty after ten years of commercial real estate experience as a Senior Leasing Representative with the real estate investment trust, Highwoods Properties, Inc. With in-depth experience throughout the Research Triangle area of North Carolina, an office leasing portfolio exceeding 1.7 million square feet, and a development land inventory of more than 170 acres, Ms. Anders was directly responsible for transactions totaling more than $125 million and exceeding 1.4 million square feet. A specialist in Class 'A' office leasing, Ms. Anders provides exclusive tenant and landlord representative services to local, corporate and investment companies.

dmarquardt@naicarolantic.com

Mr. Marquardt worked with NAI Carolantic during his 2005 summer break from UNC's MBA program at Kenan-Flagler Business School in Chapel Hill. A Purdue University graduate with a degree in Mechanical Engineering, Mr. Marquardt became interested in the Triangle commercial real estate market while working with IBM as a site mechanical engineer at their RTP campus. After receiving his MBA, he founded The Marquardt Group, a real estate acquisition, development and management company of which he is still president. As a proven real estate broker, Mr. Marquardt brings a unique combination of training and experience to his position with NAI Carolantic. He currently specializes in land and general commercial brokerage.

Company Profile:

NAI Carolantic is the Raleigh/Research Triangle area's leading commercial real estate firm.

• Eighteen Brokers with an average of ten year's experience
• Full-service Property Management Division
• Experienced Marketing & Research Division

Established in 1972, NAI Carolantic is a member firm of NAI Global, the leading international provider of commercial real estate services and solutions.

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With over 8,000 real estate professionals in over 375 offices in 55 countries worldwide, NAI Global serves corporate, institutional and government clients through its strategically located offices in major, secondary and tertiary markets.

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