NCREIF Subcommittee Melissa Reagen (MetLife) James Bohnaker (CBRE-EA) Pago Lumban-Tobing (RCA) Jim Costello (RCA) Van Karen Hamme (Principal) Walter

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1 NCREIF Subcommittee Melissa Reagen (MetLife) James Bohnaker (CBRE-EA) Pago Lumban-Tobing (RCA) Jim Costello (RCA) Van Karen Hamme (Principal) Walter Page (CoStar) Kevin Scherer (NCREIF) Jay Denton (Axiometrics) Julia Georgules (JLL) Richard Kleinman (LaSalle) 1

2 CBD, URBAN, SUBURBAN Goals Get a better definition for Office CBD/Suburban CBD defined in 80s by Torto Wheaton Research Approach Utilize modern GIS mapping technology to define boundaries Data driven selection of locations Met weekly from August to March Current CBD Definition Issues How many categories of office? CBD, Urban, Suburban & Suburban Business District What is the proper building block? Used Zip Code as easiest for NCREIF What is a CBD? Where to draw the distinction? Should all MSAs have a CBD? 4/8/

3 PROCESS Data contributions NCREIF CoStar - RCA CoStar Office SqFt Density Pago Lumban-Tobing (RCA) developed a Google maps based application Several models were developed CBRE-EA Urban City score methodology CoStar Business District methodology RCA Suburban Node Cluster methodology NCREIF collection of best of breeds NCREIF model, RCA application & CoStar Data were used Outliers were manually tagged Top 50 CBSAs were individually examined and experts from CoStar and/or JLL were brought in to assist. Results processed by NCREIF Analytics and CoStar Property Boston Draft Definition 4/8/

4 CBD DEFINITION CBD What defines a CBD? Census Bureau I know it when I see it Tall Buildings Office Using Central Core Transportation Node Density Looked at Original TWR Definition (felt too big) Average Building Heights (too many exceptions) Office Sq Ft % of Total Sq Ft Office Density Each city has a unique setting which felt best Current CBD Definition Selected Simple is better approach Office density greater than 2 to 8 MSF / Mile Office share of total SF > 20-35% Draft CBD Definition 4/8/2017 4

5 DEFINITIONS Central Business District or Urban Business District The commercial and business center, typified by a concentration of retail and office. Often synonymous with the financial district. Geographically, it often coincides with the "city center or downtown, but the two concepts are separate and our committee proposes while keeping the CBD tag, feels that Central is not critical. Office density from 2 to 8 MSF / Mile Office share of total SF > 20-35% Suburban Business District A business center in a suburban location. Office density greater than 0.5 MSF / Mile Office share of total SF > 20-35% Suburban & Other A lower density residential and/or mixed use area. Everything Else Urban An area with high population and/or commercial density, but not reaching the office concentration of a CBD. Total commercial and residential density from 6 to 11 MSF / Mile Boston Draft Definition 4/8/2017 5

6 BOSTON Downtown Default Should all of Cambridge be included in CBD? Should Northend be left out? Art & Real Estate, Not science Manual edits were made on inspecting using old definition, arial maps and data. Downtown After Edits 4/8/

7 NEW YORK The results from the model for NY felt right (Or Do they?) 4/8/

8 NCREIF OFFICE EXPOSURES Market Value Property Counts 1,800 1,600 1,400 1,200 1, Pct Exposure by Market Value Suburban SBD Urban CBD 100% 90% 80% 70% 60% 50% 40% 30% 20% 0% Pct Exposure by Property Count Suburban SBD Urban CBD 100% 90% 80% 70% 60% 50% 40% 30% 20% 0% % 8% 19% 62% 32% 14% 24% 30% 4/8/2017 8

9 RESULTS: OFFICE PERFORMANCE 4/8/2017 9

10 METRO OFFICE EXPOSURES 4/8/

11 METRO OFFICE EXPOSURES CoStar Market Exposures (Mil Sq Ft) NPI Market Exposures (Mil Sq Ft) Suburban Suburban Business Business Rank Metro CBD Urban District Suburban Total CBD Urban District Suburban Total 1 New York 45% 16% 2% 36% 1,218 81% 9% 2% 9% 54 2 Washington 21% 31% 16% 32% % 32% 12% 12% 50 3 Los Angeles 14% 46% 8% 32% % 44% 13% 16% 40 4 San Francisco 56% 20% 14% % 8% 18% 34 5 Boston 27% 24% 9% 39% % 13% 8% 9% 32 6 Chicago 37% 11% 17% 35% % 4% 8% 9% 27 7 Houston 16% 37% 8% 39% % 43% 8% 21 8 Seattle 31% 12% 15% 42% % 4% 17% 13% 17 9 Dallas 12% 21% 11% 56% % 48% 3% 17% Atlanta 20% 19% 16% 44% % 25% 23% 25% San Jose 6% 64% 8% 23% % 0% 22% Denver 23% 22% 19% 36% % 25% 27% 3% Miami 33% 6% 51% % 38% 0% 23% San Diego 13% 16% 40% 31% % 52% 7% Phoenix 8% 15% 14% 63% % 17% 39% 31% 8 16 Minneapolis 27% 13% 6% 54% % 3% 27% 12% 7 17 Austin 16% 15% 59% % 2% 17% 66% 6 18 Charlotte 22% 6% 0% 72% % 6% 0% 66% 4 19 Philadelphia 19% 14% 17% 49% % 0% 24% 44% 4 20 Nashville 9% 20% 0% 71% 86 26% 11% 0% 63% 3 Sum Mkts 24% 22% 44% 6,998 50% 22% 12% 16% 398 4/8/

12 MARKET INDICATORS NCREIF Vacancy Rates 18% 16% 14% 12% 8% 6% CoStar Vacancy Rates 18% 16% 14% 12% 8% 6% 4% % /8/

13 MARKET INDICATORS NCREIF Cap Rates CoStar Cap Rates 11% 9% 8% 9% 7% 8% 6% 7% 5% 6% 4% 5% 3% % /8/

14 MARKET INDICATORS NCREIF Rental Income ($/SF) $35 CoStar Rent / SF $35 $30 $30 $25 $25 $20 $20 $15 $15 $ $ /8/

15 MARKET INDICATORS NCREIF Rental Income Growth 8% 6% 4% 2% 0% -2% -4% -6% CoStar Rent Growth 8% 6% 4% 2% 0% -2% -4% -6% -8% % /8/

16 MARKET INDICATORS NOI Growth 8% 6% 4% 2% 0% -2% -4% -6% -8% Expense Ratio To Be Continued 4/8/

17 COMMENTS / QUESTIONS 4/8/