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Capital Markets Report SECOND QUARTER 2011 MANHATTAN OFFICE

Over 512 offices in 61 countries on 6 continents

INVESTMENT SALES ACTIVITY REVIVESActivity levels rebounded nicely in the second quarter after a truly weak first quarter. The total dollar value of transactions in the second quarter, at $5.2 billion, was almost ten times the first quarter’s level. The number of transactions that exceed $15 million in value jumped from four in the first quarter of 2011 to 15 in the second quarter. The average transaction price also spiked upward by 35 percent, reaching $544/sf from $404/sf in the first quarter. While the recovery was spectacular, it was not unexpected.

Interest rates remain low by historical comparisons and also by what many investors believe will be the future level. Also, the sources of debt capital are more plentiful than they were in 2008, 2009, and early-2010. Even with the strong rebound in the property market values, though, many buildings financed in the few years before the market’s collapse in 2008 still need more equity capital. These are the ingredients for outright sales and property recapitalizations.

Property operating fundamentals also continued to improve. Rents increased in the second quarter, with the overall Manhattan average asking rent up at an annual rate of 11.2 percent. Also, the overall availability rate for Manhattan fell to 11.1 percent by the end of the second quarter from 11.7 percent at the end of the first quarter. This sizable net absorption of space – 3.4 million square feet – was distributed across the major Manhattan markets.

New York City’s economy has held up well while the U.S. national growth rate slowed. However, further weakness at the national level will eventually impact real estate fundamentals in Manhattan.

PRICING TRENDS UPWARDDuring the second quarter of 2011, our survey criteria show that three Class A buildings were sold and five Class A buildings were recapitalized. Including the two Class A sales in the first quarter brings the average Class A sales price for the first half of 2011 to $615/sf for the ten Class A transactions that occurred during that period. Nine of these buildings that were sold in 2011 were located in Midtown and one building was a Downtown property. When the Downtown building is excluded, the average Class A execution price for the first half of 2011 rises to $643/sf.

Six Class B buildings traded in the second quarter, with one of these transactions involving a recapitalization. The average Class B transaction price reached $363/sf for the nine Class B transactions that occurred during the first half of 2011. Seven of the Class B buildings that sold in 2011 were located in Midtown and two buildings were located Downtown. Removing Downtown buildings from the average raises the Class B price for 2011 to $453/sf.

The average overall sale price for Manhattan in the second quarter was $544/sf, which was up from $404/sf in the first quarter. The average, though, masks a range of prices. In the Midtown South market, 450 West 33rd Street sold for a calculated price of $392/sf, and this sale involves a transaction where the purchaser, Brookfield Office Properties, is assuming $517 million in debt that is coming due next year. Also, in the Midtown South market, the nearly fully leased 245 Fifth Avenue property sold for $535/sf.

In the Downtown market, 375 Pearl Street sold for $120/sf. This property, however, is not a traditional office building. It was originally constructed by Verizon primarily to house its network equipment. The purchaser is noted for developing data centers. This transaction at 375 Pearl Street may be less relevant for the general pricing of traditional office buildings. A more typical Downtown office building, 100 Wall Street, was acquired by the holder of the mezzanine note through the assumption of the outstanding mortgage for the implied price of $247/sf.

Finally, in the Midtown North market, prices were scattered across the board, depending on building particulars. The top 11 floors of 229 West 43rd Street were sold for $356/sf. It is a building that was vacant for several years and will finally be occupied on a mixed use basis. At the other extreme, Paramount bought full ownership of 1633 Broadway at a price of $833/sf.

In general, more core office properties have traded, with less volume in the Class B, value-add sector. This emphasizes the point that values of the highest quality assets may have rebounded faster than the properties with less secure revenue streams. Owners of value-add properties may simply be reluctant to trade, waiting for further price appreciation.

Rising Market Values and Credit Availability Bring Deals to Market

MANHATTAN SALES PRICE AND ASKING RENTS

DOWNTOWN: CLASS A & CLASS B PRICE/SF

$152

$302

$173

$177

$321

$273

$286

$580

$97

$119

$215

$137

$109

$192

$258

$367

$303

$240

$107

$0

$100

$200

$300

$400

$500

$600

$700Price/SF

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Class A Class B

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H2011

$69.12$68.62

$53.68

$43.90$39.31$37.80

$41.89$45.77

$51.69$49.11 $48.62

$51.59

$223 $273 $323 $462 $333 $458 $605 $777 $842 $333 $496 $527

Price/SF Average Asking Rent

$0

$200

$400

$600

$800

$1,000

Price/SF

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Rent/SF

MANHATTAN OFFICE CAPITAL MARKETS REPORT | 2Q 2011 | NEW YORK

SALES VOLUME REBOUNDSThe dollar value of completed transactions rebounded strongly in the second quarter; and for the first half of 2011, total sales volume at $5.7 billion was nearly five times the $1.2 billion traded in the first half of 2010. Of course, the figure for the first half of 2011 is well off the pace at the peak of market activity in the first half of 2007, when $21 billion in closed deals were done. Nevertheless, relative to the average level of sales during the last decade, the first half of 2011 was roughly equivalent to the average level of activity.

As noted earlier, the basic conditions needed to encourage owners to offer properties for sale have emerged. In particular, the average market price is getting close to the levels that existed in 2006 and 2007, when some properties took on excess amounts of debt. For example, in the second half of 2011, an estimate of the average cap rate on closed deals was 5.4 percent. At the height of the market frenzy in 2007, the cap rate on Manhattan transactions fell into the area of mid-four percent pricing. Selling these properties now may allow the debt holders to recover most of what they lent. Some risk averse debt holders may want to act now before the favorable pricing slips away.

BUYER AND SELLER PROFILEREITs were the most active buyers during the first half of 2011. Institutions and private equity funds were the next most active groups, with a flurry of activity in the second quarter after standing on the sidelines during the first quarter of 2011. Foreign and private market buyers were the next most active groups.

Private equity funds were the most active sellers in the first half of 2011; followed by institutions, private market and foreign sellers. REITs were the least active sellers in the first half of 2011; suggesting that these institutions may have done their most aggressive buying at the very bottom of the cycle in 2010.

In general, the market has staged a strong recovery in asset prices. Nevertheless, buying interest remains strong, and the higher prices are enticing owners to consider the possibility of selling.

LOOKING AHEADThe strong results in the second quarter bolstered confidence in the strength of property values in Manhattan. National economic issues related to the federal debt and deficit may cause some short term hesitancy, but the in place fundamentals for business expansion are powerful. As a result, the demand for office space and rent levels should both continue to move higher, driving the values of office properties upward.

DOWNTOWN: CLASS A & CLASS B PRICE/SF

$1

52

$3

02

$1

73

$1

77

$3

21

$2

73

$2

86

$5

80

$9

7

$1

19

$2

15

$1

37

$1

09

$1

92

$2

58

$3

67

$3

03

$2

40

$1

07

$2

47

$1

38

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H2011

Class A Class B

$0

$100

$200

$300

$400

$500

$600

$700Price/SF

MANHATTAN SALES ACTIVITYMANHATTAN SALES ACTIVITY

3.03$1.01$7.6$3.6$9.8$2.3$ $11.6 $16.1$1.9

$12.811

31

6872

5254

36383232

$0

$5

$10

$15

$20

$25

$30

$35Billions

0

10

20

30

40

50

60

70

80#

MIDTOWN: CLASS A & CLASS B PRICE/SF

$331

$267

$391

$601

$464

$559

$696

$906 $9

47

$404

$578

$173

$233

$219

$279

$309

$358

$420

$608

$558

$422

$383

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000Price/SF

Volume # Transactions

Class A Class B

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H2011

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$578

$531

1Q2011

33

19

$5.7 $3.2 $8.9 $6.3 $6.7 $10.1 $30.3 $12.8 $1.9$16.1 $6.9 $5.7$11.6

38 36

54 52

72 68

31

11

33

19

$152

$302

$173

$177

$321

$273

$286

$580

$97

$119

$215

$137

$109

$192

$258

$367

$303

$240

$107

$247

$138

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H2011

Class A Class B

$0

$100

$200

$300

$400

$500

$600

$700Price/SF

$6.9

MIDTOWN: CLASS A & CLASS B PRICE/SF

MANHATTAN SALES ACTIVITY

3.03$1.01$7.6$3.6$9.8$2.3$ $11.6 $6.9$16.1$1.9

$12.811

31

6872

5254

36383232

$0

$5

$10

$15

$20

$25

$30

$35Billions

0

10

20

30

40

50

60

70

80

#

MANHATTAN: CLASS A & CLASS B PRICE/SF

$322

$280 $3

47

$489

$426

$530

$676

$818

$947

$404

$530

$147

$228

$213

$255

$264

$313

$408

$608

$538

$188

$383

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000Price/SF

MIDTOWN: CLASS A & CLASS B PRICE/SF

$0

$200

$400

$600

$800

$1,000Price/SF

Volume # Transactions Class A Class B

Class A Class B

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q2011

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H2011

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

33

4$0.5

$331

$267

$391

$601

$464

$559

$696

$906 $9

47

$404

$578

$173

$233

$219

$279

$309

$358

$420

$608

$558

$422

$383

$643

$453

1H 2011 Buyer Pro�le 1H 2011 Seller Pro�le

Foreign Institutional Private equity/funds Private Market REIT

46%3%

15%

12%24%13% 18%

17%

15%37%

BUYER & SELLER PROFILES

WWW.COLLIERS.COM/NEWYORK

Information contained herein has been obtained from sources that we deem reliable. We have no reason to doubt its accuracy, but we do not guarantee it. Some statements in this report are forward-looking statements or statements regarding future events, which involve risk and uncertainty, and there can be no assurance that the results described in such statements will be realized.

Over 512 offices in 61 countries on 6 continents

> Over 12,500 professionals

> 1 billion square feet under property management

> US $59.6 billion in transaction value

> US $1.5 billion in global revenue

MARK A. JACCOMChief Executive Officer

TEL +1 212 716 3737mark.jaccom@colliers.com

ROBERT L. FREEDMANChairman

TEL +1 212 716 3507robert.freedman@colliers.com

PETER P. KOZEL, Ph.D.Chief Economist

TEL +1 212 716 3853peter.kozel@colliers.com

MIDTOWN MANHATTAN380 Madison AvenueNew York, NY 10017212.716.3500

LONG ISLANDNASSAU COUNTY 1981 Marcus Avenue, E104 Lake Success, NY 11042 516.328.6500

NORTHERN NEW JERSEY 119 Cherry Hill RoadParsippany, NJ 07054973.299.3000

MIDTOWN MANHATTAN136 Madison AvenueNew York, NY 10016212.716.3500

LONG ISLANDSUFFOLK COUNTY200 Thirteenth AvenueRonkonkoma, NY 11779631.389.2900

CENTRAL NEW JERSEY100 Overlook CenterPrinceton, NJ 08540609.269.1111

DOWNTOWN MANHATTAN1 Liberty PlazaNew York, NY 10006212.716.3500

CONNECTICUT1055 Washington BoulevardStamford, CT 06901203.324.0800

Colliers International NY LLC is the New York - New Jersey - Connecticut hub of the world’s third largest commercial real estate services organization. Our company is a leading provider of specialized realty services, including tenant advisory services, owner representation, corporate services, capital markets, retail, industrial, consulting, financial services, asset management and project management. With nearly 300 employees and offices in Manhattan, New Jersey and Connecticut, advised on more than $4.5 billion in sale, lease and capital markets transactions over the last 12 months. The firm manages more than 16 million square feet of prime commercial property in the tri-state region.

For more information, please visit the Colliers International web site at www.colliers.com.