Malibu Beach Inn Fetches $29 Million

The Geffen Cos. Makes Landmark Purchase

The Geffen Cos. purchased the Malibu Beach Inn on Malibu Beach at 22878 Pacific Coast Highway. The total consideration was $29 million. This was one of the highest purchase prices at $617,000 per room. The Malibu Inn is directly on the sandy beach of Malibu. This inn has 47-room accommodations.

Trump Adds To Legend With $1.76 Billion Sale

Buyers Carlyle/Extell Corner Prime Manhattan Development Site, Plan to Flip Towers To Equity Residential REIT

Celebrity real estate developer and part-time reality show host Donald Trump stands to further enhance his mogul status after he and a group of Hong Kong-based investors announced an agreement to sell a riverfront development site and three residential buildings on Manhattan's Upper West Side for $1.76 billion.

The pending sale, to developer Gary Barnett and his Extell Development Co. bankrolled by private equity firm The Carlyle Group, is reported to be the most expensive residential sale in New York City's history.

As part of the deal, Carlyle and Extell plan to sell the three high-rise apartment towers to Equity Residential (NYSE: EQR) for $816 million. Known as Trump Place, the three towers are located at 140, 160 and 180 Riverside Boulevard and contain 1,325 apartment units totaling approximately 1.06 million square feet. The price amounts to approximately $585,000 per apartment unit and $730 per square foot of rentable apartment space and an initial cap rate of 4.5%, according to EQR.

Carlyle and Extell will keep the 77-acre development site, part of a former railroad yard bounded by 59th and 65th Streets and West End Avenue and Riverside Boulevard. The tract of land can accommodate more than 10 buildings, according to the buyers.

In typical Trump fashion, the deal appears especially well timed, given the red-hot housing market. The combination of soaring property values and relatively low interest rates has attracted legions of speculators and made economists worried over the potential aftershock of a burst housing "bubble." Already high, the average condominium price in Manhattan has climbed above $1.2 million, spurring investors to acquire a series of hotels with plans to convert them into residential condos.

Meanwhile, the upper west side area of Manhattan is attracting a wave of redevelopment, triggered in part by the recent success of Time Warner Center at Columbus Circle and plans to extend a subway line in the area. New York officials recently proposed land in the area for the city's bid to host the Olympics and a replacement stadium for the New York Jets football team. Those plans collapsed, but the area continues to attract developers.

Extell Development has been among the most active in the area. The firm, formerly known as Intell Development, is building the 58-story Orion condominium tower on 42nd Street and owns the W Hotel in Times Square. It recently agreed to buy a small walk-up on Tenth Avenue.

What? Us Bank Regulators Worry?

Yes, Says Federal Reserve Governor About Commercial Real Estate Markets

Federal Reserve Chairman Alan Greenspan has grabbed all of the headlines this week with his remarks about froth in the housing markets. (And, come to think about it, what major newspaper in the country hasn't had a story about overheated housing prices in the past couple of weeks?)

But now Federal Reserve Governor Susan Schmidt Bies is sounding the warning bell about the commercial real estate market.

Speaking yesterday at the 109th North Carolina Bankers Association Annual Convention on Kiawah Island, SC, Bies said banking supervisors are worried.

"In particular, in the commercial and residential real estate sectors, we worry that borrowers could become increasingly speculative, buying beyond their means and hoping for asset price appreciation--whether they are buying for their own use or strictly for the sake of investment," Bies said.

"We worry that competitive pressures could drive banks to lower their underwriting standards, implicitly encouraging such speculation," Bies continued. "And we worry that, in the inevitable downturn, credit quality could deteriorate to the extent that some banks could experience significant losses."

I'll save you Bies rehash of what's happening on the housing side of real estate and instead jump right to what she says about commercial real estate - and it's not much different than what Greenspan has said about some housing markets.

"Bank supervisors today have similar concerns about commercial real estate lending, defined as those real estate loans in which the primary source of repayment is derived from the rental income or sale proceeds of commercial property. This has historically been a highly volatile asset class, and it played a central role in the banking problems of the late 1980s and early 1990s," Bies said.

Bank supervisors are so worried, in fact Bies added, that they are carefully monitoring rising commercial real estate concentrations at some banking organizations.

"During previous downturns in the credit cycle, banks with high commercial real estate concentrations suffered significant losses," Bies said. "Smaller banks as a group have shown the strongest appetite for commercial real estate loans, and some claim that commercial real estate lending remains one of the few areas in which small banks can effectively compete with their larger competitors. So far, underwriting standards are high by historic standards, and much higher than in the period preceding the earlier crises. Still, we have recently seen signs that standards may be under some downward pressure as a result of strong competition and tight spreads."

Bies said that Federal Reserve staff is currently considering supervisory guidance on sound risk-management practices for commercial real estate exposures, with the goal of issuing the guidance on an interagency basis.

Do the Wealthy Know More than the Rest of Us?

If They Do, Then Real Estate Has Lost Some of its Luster

High net worth individuals' real estate allocations have declined over the last year, from 17% in 2003 to 13% by the end of 2004, according to Merrill Lynch and Capgemini in their Ninth Annual World Wealth Report.

Merrill Lynch and Capgemini's research may be signaling that high net worth individuals' are harvesting their real estate returns from now premium-priced holdings to direct profits into other asset classes, the report says.

This is in sharp contrast with broader market trends of price inflation and stepped-up speculation brought on by record low mortgage-interest rates.

High net worth individuals grew steadily more risk averse in 2004 and they now perceive real estate as a riskier investment, according to the report. And, in fact, total assets for real estate mutual funds in the United States decreased by 0.5%, from $43.9 billion at year-end 2004, to $43.7 billion by April 2005.

Further indication of a pending slowdown: Real estate investment trusts' (REITs) returns were lower in 2004 than in 2003. Indeed, overall, apartment REITs were hurt in previous years as the affordable housing market turned renters into homeowners.

This behavior appears to be in anticipation of the sector overheating, Merrill Lynch and Capgemini conclude, and is consistent with their contention that high net worth individuals are, in general, more informed than the average investor and, also, that they possess the means to reallocate resources ahead of main market trends.

In 2004, the portfolios of high net worth individuals in the Asia-Pacific region held the most equally distributed asset classes of wealthy individuals in any region. Real estate allocations were high in this region, accounting for 19% of high net worth individuals' portfolios. Only European high net worth individuals allocated more-21%-of their investment holdings to this asset class, the majority of which are in direct real estate. Portfolios of European high net worth individuals also are well diversified, with 25% in equities and 24% in fixed income assets.

The Ninth Annual World Wealth Report is the latest product of a 20-year collaboration between Merrill Lynch and Capgemini. It attempts to measure and monitor changes in the size of the global high-net-worth market, identify the macroeconomic factors that create and destroy wealth and analyze the behavior of high-net-worth investors.

Other highlights from the report include:

* 8.3 million people globally each hold at least $1 million in financial assets-an increase of 7.3% over 2003.

* High net worth individual wealth totaled $30.8 trillion, an 8.2% gain over 2003.

* Wealth generation was driven by fast-paced GDP performance and moderate market capitalization growth. And

* High net worth individual wealth and population growth in North America outpaced those in Europe for the first time since 2001.

The Promenade at Howard Hughes Sold for $95M

Passco Buys Retail & Entertainment Complex at 6081 Center

Passco Real Estate Enterprises Inc. acquired the 247,833-square-foot entertainment and retail center. The Promenade at Howard Hughes in Los Angeles sold for $95 million, or about $383 per square foot.

The center's anchor tenant at 6081 Center Drive is The Bridge Theaters, a 17-screen theater featuring a state-of-the-art IMAX theater, stadium seating, reserved seating options, and an upscale lounge and bar.
 

Regency, Macquarie Buys 100 Properties Nationwide

Joint Venture Closes on CalPERS/First Washington Shopping Center Portfolio

Macquarie CountryWide Trust of Australia, along with its joint venture partner, Regency Centers Corp. (NYSE: REG), a national owner, operator and developer focused on grocery-anchored retail centers, closed on the acquisition of 100 retail centers totaling approximately 12.8 million square feet from CalPERS/First Washington.

Macquarie has a 65% interest in the joint venture and Regency a 35% interest.

The First Washington portfolio is located in 17 states and the District of Columbia with 45% of the centers located in Metropolitan Washington DC/Baltimore as well as Northern and Southern California. The portfolio sold for $2.68 billion or about $209/square foot.

The portfolio is 96% leased. About 83% of the portfolio is grocery anchored, with nearly 80% of those tenants ranked in the top three in terms of market share in their respective markets.

Average household income in the portfolio is approximately $82,000 and population density within three miles of the centers averages greater than 110,000 people.

"This acquisition allows us to expand into new markets, such as suburban New York and Minneapolis as well as enhance our presence in the key target markets of Chicago, Philadelphia and Washington DC," said Martin E. Stein, Jr., chairman and CEO of Regency Centers.

List of Properties Acquired

 

Four Seasons, JMB To Sell Ritz-Carlton Chicago

Eastdil Lands Listing

Four Seasons Hotels Inc. (TSX Symbol "FSH.SV"; NYSE Symbol "FS") and Urban Investment, a subsidiary of JMB Realty Corp., indirect owner of the Ritz-Carlton Chicago, agreed to begin a process to sell all or part of the ownership interest in the hotel.

Four Seasons and Urban have also agreed that, upon completion of the sale, Four Seasons will cease managing the hotel and will be entitled to receive payment, an amount which Four Seasons believes will compensate it for the value of its long-term management contract.

Four Seasons has managed the Ritz-Carlton Chicago since 1977.

"We are honored to be associated with this outstanding property and take pride in the leadership it has enjoyed over the years," said Neil Bluhm, president, Urban. "We have made significant investments at the Ritz-Carlton in recent years, and we believe the time is ideal to maximize the value of our investment there. We are also in the process of making a major investment in the Four Seasons Hotel Chicago, which is widely recognized as one of the world's finest luxury properties."

Four Seasons will continue to manage the Ritz-Carlton Chicago throughout the sale process. Eastdil Realty of Santa Monica will handle the sale.

Aussie RAT To Acquire $479 Million Portfolio

NGP Capital Partnering in Joint Venture

Australia-based Rubicon America Trust (ASX: RAT), which invests in stable income-producing real estate in the United States, entered into a contract to acquire an 80.1% interest in a portfolio of 13 office buildings and one industrial distribution center in 10 states and Washington, DC.

Comprising more than 3 million square feet of commercial real estate, the portfolio is 98.6% occupied, with 93.8% leased to a variety of US federal government departments and agencies through the General Services Administration.

The weighted average lease expiration of the GSA portfolio is six years based on income. The remaining 19.9% interest in the GSA portfolio will be acquired by an affiliate of NGP Capital (NGP), a specialized real estate company based in Washington, DC, focused on the acquisition, development, ownership and management of properties leased to the US federal, state and local governments.

The GSA Portfolio will be acquired by the Rubicon-NGP joint venture for $479 million, which represents an initial yield of 7.6%.

A 10-year debt facility of $389 million at a fixed interest rate of 5.46% per annum has been arranged by the joint venture.

"The GSA portfolio provides a rare opportunity to acquire 14 properties leased almost exclusively to the US federal government, in one transaction," said Gordon Fell, managing director of the Rubicon Group. "The acquisition of the GSA portfolio will transform the trust in terms of diversification, scale and security of income stream."

After the acquisition, the trust will include 18 properties throughout the US and derive over 76% of its income from US federal government tenants.

The proposed acquisition was originated in conjunction with The Greenwich Group International, exclusive asset manager of the trust. Bruce Batkin, the New York based president of the investment management affiliate of The Greenwich Group International, said: "GSA assets are highly sought after in the US commercial real estate market because of the tenant credit quality and, historically, the GSA's high propensity to renew leases. In addition, portfolios of this size, quality and geographic diversification come to market infrequently. Because of their specialized nature, these properties require managers, such as NGP, that have experience working with the GSA. By joint venturing with NGP, the trust will have as a partner one of the leading GSA owners and managers in the US."

The location, property type and size of the property to be acquired are as follows.

Aurora, CO: Office, 116,500 SF
Burlington, NJ: Industrial, 1,048,631 SF
Concord, MA: Office, 104,527 SF
Houston, TX: Office, 138,000 SF
Huntsville, AL: Office, 135,746 SF
Kansas City, KS: Office, 203,475 SF
Lakewood, CO: Office, 82,845 SF
Norfolk, VA: Office, 53,830 SF
Philadelphia, PA: Office, 88,717 SF
Providence, RI: Office, 130,600 SF
Sacramento, CA: Office, 327,595 SF
San Diego, CA: Office, 144,327 SF
Suffolk, VA: Office, 351,075 SF
Washington, DC: Office, 162,038 SF

Job Growth Takes Big Dip in May

Latest Monthly Report Just a Temporary Setback?

Just when we thought the 'jobless recovery' was behind us, the Labor Dept. reported today that U.S. employers added 78,000 to their payrolls in May, far fewer than expected and a big drop from the strong showing in April when 274,000 new jobs were added.

The uneven economic performance caught many economists by surprise. Most had forecast moderate job growth of between 175,000 to 185,000 jobs -- more than double the actual number reported by the Labor Dept. It was the weakest month for non-farm job growth since August 2003.

Left unanswered by the report is whether the anemic job growth in May is simply a little bump on the road to recovery, or something more.

In hindsight, economists blamed high energy prices and rising costs for health care and certain raw materials for spooking jittery employers. Oil prices had surged to a new all-time closing high of $57.27 a barrel at the beginning of April before dropping slightly in May.

According to the report from the Bureau of Labor Statistics, health care and construction were the only two sectors to see meaningful job growth during the month. The health care industry has seen consistently strong job growth, adding 233,000 jobs over the year. Employment in the leisure and hospitality sector was flat following big gains in April.

Employment among financial activities and in professional and business services was also little changed from the previous month, the report noted, but well off the pace of growth seen before February. For the 12 month-period through February, job growth in professional and business services averaged a healthy 52,000 per month. It has averaged just 18,000 per month for the three-month period of March, April and May. Employment in the information industry also edged downward in May.

In a bit of a silver lining, the same report that found sluggish employment growth nonetheless also reported a slight drop in the unemployment rate, from 5.2% to 5.1%, the lowest since September 2001.

Economists said the monthly employment study can sometimes report apparently contradictory findings on the job market because the two figures are based on two separate statistical surveys. The unemployment rate is based on a survey of 60,000 households. That survey found that 376,000 people reported they had found work in May, slightly more than the number who said they couldn't find work.

However, economists tend to give more credence to the survey of business payrolls, a much broader study that tracks 400,000 employers each month.

Analysts said the latest job report may give the Federal Reserve pause in its determined effort to raise short-term interest rates.

"Clearly there's some disappointment here, but this may be a gift to financial markets and Main Street," Anthony Chan, senior economist at JP Morgan Asset Management, told the Associated Press. "The Federal Reserve might not have to be so aggressive in raising rates. In that regard, it is almost a good report."
 

Home Depot To Close 20 EXPO Stores

Closings Announced as Retailer Reports Positive First Quarter Performance

Amidst a generally upbeat first quarter report, home improvement retailer The Home Depot announced plans to shutter 20 unprofitable EXPO Design Centers.

The company said it will dispose of 15 EXPO stores altogether and convert five to Home Depot store formats.

The company said the remaining 34 EXPO stores are profitable and will continue operating. A list of the specific stores slated for closure appears below.

Home Depot will book an $86 million charge related to the disposition of its interest in the underlying real estate. In addition, the company expects to incur $13 million of additional expense as it completes the final disposition of its interest in the real estate during the remainder of fiscal 2005.

In its first quarter filing, the world's largest home improvement retailer reported first quarter net earnings of $1.2 billion, up 16.3 percent, for the first quarter of fiscal 2005, compared with $1.1 billion for first quarter of fiscal 2004. Sales for the period increased $1.4 billion, or 8.1 percent to $19 billion. Growth in comparable store sales was 2.1 percent.

The company reconfirmed its fiscal 2005 sales growth guidance of 9-12 percent and its earnings per share growth guidance of 10-14 percent.

Other real estate-related moves made by the company in the first quarter included establishing a data center in Austin, Texas, and opening 21 new stores across Canada, Mexico and the United States, bringing its total store count to 1,911.

TABLE 1
List of EXPO Stores To Be Closed or Converted
The Home Depot

Roger Staubach and Emmitt Smith Join Forces

New Real Estate Joint Venture Will Focus on Retail Development

The Staubach Co. has formed a joint venture partnership with recently retired Dallas Cowboy Emmitt Smith to launch Smith/Cypress Partners in response to the increasing demand for development expertise specifically targeted to the needs of retailers. The new company will focus on the development of retail real estate projects.

Smith/Cypress Partners will be headquartered with Cypress Equities at The Staubach Co. offices. Smith will serve as president of the new entity and is in the process of moving back to Dallas from his current home in Arizona.

Best known as the NFL's all-time leading rusher, Smith will team with Cypress Equities led by 22-year retail industry veteran Chris Maguire. As president and CEO of Staubach Retail and Cypress Equities, Maguire has been responsible for growing Staubach Retail into a leading retail real estate services provider with more than 200 employees, offices in 17 major metropolitan areas throughout the United States, and gross revenue of more than $41 million in 2004.

"We saw an incredible opportunity in partnering with Emmitt," said Maguire. "He is as well known for his character and integrity as he is for his athletic ability and we are proud to have him on board.

"We've been talking to Emmitt over the past couple years about his commitment and interest in the real estate business so we're happy to make this announcement," said Roger Staubach, chairman and CEO of The Staubach Co.

De La Hoya Looking To KO Blight in Latino Communities

New Real Estate Company Plans Initial $100 Million Investment in California

Golden Boy Enterprises, led by self-managed former middleweight boxing champion, Oscar De La Hoya, and Highridge Partners, an international real estate developer and investor headed by John Long, formed a new company, Golden Boy Partners, to revitalize and redevelop urban Latino communities.

The company plans to invest $100 million over the next three years, primarily in California cities with large Latino populations located in underserved, blighted areas.

Golden Boy Partners is looking to address the escalating demand in urban Latino neighborhoods for safe quality housing, retail and entertainment options, and business and job creation.

"We aspire to a new vision of urban redevelopment, a vision that will support the dreams and aspirations of the people who live in these underserved Latino communities," said De La Hoya. "John and I both grew up in inner-city Los Angeles and we have a deep commitment to provide these communities with decent homes, good jobs and family-friendly environments - developments they need and deserve."

Golden Boy Partners is also considering financing new and existing businesses in these communities in order to develop the mix of services that residents need and to create jobs, particularly for young people, De La Hoya said.

"By replacing aging, blighted properties with revenue-generating developments, Golden Boy Partners will improve a city's fiscal condition as well as physical condition," said Long.

The company is in close negotiations in several communities and expects to announce its first project within six weeks, Long said.

Hugh Jackson, now an executive with a Highridge Partners affiliate, has been named president of Golden Boy Partners.

Golden Boy Enterprises has interests in Latino newspapers in New York, Chicago and Los Angeles. The company also has a number of other businesses and owns an office building on Madison Avenue in New York.

In October 2004, it also purchased 626 Wilshire Blvd. 12-story office building in downtown Los Angeles, now called the Golden Boy Building, which houses the headquarters of Golden Boy Enterprises and its growing business empire that includes Golden Boy Promotions. Golden Boy paid $15 million for the property or about $101/square foot.

A leading boxing promotional company designed to bring boxing back to general popularity, Golden Boy Promotions has 18 promising young fighters under contract and will produce 30 boxing cards in six states this year, 24 of which will be televised.

Highridge Partners is a privately held, international real estate investment company founded in 1978 by Long, a Harvard MBA who has applied economics principles to spot undiscovered opportunities and turn them into high value investments. Often called a "contrarian" investor, Highridge Partners has acquired, developed or financed more than $6 billion of assets. The company's investments span the entire range of real estate including single-family housing, apartments, retail, office, industrial, hotels and entertainment venues. It is active in the United States, Europe and China.

Canyon-Johnson Sells SBC Tower in Downtown LA

LBA Realty Purchases Two Bldgs, Parking Structures

Canyon-Johnson Urban Funds and New Pacific Realty sold SBC Tower (formerly known as Transamerica Center) in downtown Los Angeles to an affiliate of LBA Realty, a real estate investment and management company based in Irvine, CA.

The property sold for a reported $129 million.

Completed in 1965 and extensively renovated in 1995, the approximately 935,000-square-foot SBC Tower complex includes a 32-story office tower, an 11-story office building and two adjacent parking structures.

The Class A office buildings were designed by renowned architect William Pereira and offer unparalleled views of downtown Los Angeles and the L.A. basin.

SBC Services will occupy 10 floors of the tower, which is also home to Transamerica Occidental Life Insurance Co. The property is currently 90% occupied and offers tenants a "city within a city" featuring a wide array of amenities, including a rooftop restaurant, a full-service food court, a bank, florist, fitness center and a state-of-the-art auditorium.

New Pacific Realty and Canyon-Johnson Urban Funds had owned the property since May 2003 for $100 million or about $73.65/square foot.

ING Clarion Sells Mathilda Business Center

Three Sunnyvale Buildings Sell for $174 Million

ING Clarion Partners, acting as investment advisor to the California State Teachers' Retirement System (CalSTRS), sold the Juniper Networks buildings at 1184-1220 N. Mathilda Ave. in Sunnyvale, CA, to Tishman Speyer Properties. The campus sold for $174 million or about $410/square foot at an approximately 6 percent cap rate.

ING had acquired the property less than a year ago for the pension fund for a total of about $144.5 million.

The three 4-story buildings total 424,825 square feet and are in the Moffett Park submarket. The tenant, Juniper Networks, has three different leases in all three buildings that expire in 8 to 10 years.

Slow, Steady Improvement in Nation's Industrial Markets

Net Absorption Totaled 38.25 Million SF in the First Quarter of 2005

The nation's industrial market ended the first quarter of 2005 with a vacancy rate of 10%. That was down one-tenth of a percentage point from the previous quarter and down seven-tenths of a percentage point from a year ago.

The vacancy rate has been at 10% or more for 10 consecutive quarters even with more than 200 million square feet of positive net absorption in that time frame. Almost 294 million square feet of new space has been delivered across the country in that period.

Warehouse/distribution space continues to be the stronger component of the industrial market. Warehouse vacancy stood at 9.2% at the end of the quarter - its lowest level in 2.5 years. The warehouse segment accounts for 95% of all of the absorbed industrial space and 88% of the newly delivered industrial space in the last 10 quarters. Warehouse rental rates stood at $4.86 per square foot at the end of the first quarter compared to $4.93 per square foot 2.5 years ago.

The flex space vacancy rate ended the first quarter at 15.8 percent, which is still ahead of where it was 2.5 years ago. Net absorption has been positive now for four consecutive quarters - totaling 19.7 million square feet in that time frame. Asking rental rates, however, have continued to come down, ending the quarter at $9.71/square foot. That is more than $1 per square foot less than they were 2.5 years ago.

Absorption

Net absorption for the overall national industrial market was 38.25 million square feet in the first quarter 2005. That compares to 58.19 million square feet in the fourth quarter 2004, 43.35 million square feet in the third quarter 2004, and 30.97 million square feet in the second quarter 2004. A total of 1.22 billion square feet was vacant at the end of first quarter.

In terms of amount, Inland Empire led the country in net absorption in the first quarter with 2.94 million square feet. Detroit, Dallas/Fort Worth, Memphis, Sacramento and Philadelphia also posted more than 2 million square feet of net absorption in the quarter.

The percentage of net absorption was more than 1% of rentable building area in Palm Beach County, Nashville, Austin and Memphis.

Four markets posted negative net absorption in the period: Westchester/Southern Connecticut with a negative 1.02 million square feet, Denver with a negative 806,000, Chicago with a negative 110,000 square feet and East Bay/Oakland with a negative 14,000 square feet.

Vacancy

The industrial vacancy rate in the nation decreased to 10% at the end of the first quarter 2005. The vacancy rate was 10.1% at the end of the fourth quarter 2004, 10.4% at the end of the third quarter 2004, and 10.6% at the end of the second quarter 2004.

The nation's largest industrial market, Los Angeles with more than 1 billion square feet of space, ended the quarter with a vacancy rate of just 3.9% -- the lowest in the country by far. And the amount of new space under construction continues to fall. It is down to just 2.2 millions square feet.

Several markets saw their vacancy rates drop more than 5% in the quarter: Nashville, Austin, Long Island, Jacksonville, Miami-Dade County and Cleveland. The Palm Beach County vacancy rate fell almost 10% in the quarter to 5.4%.

Sublease Vacancy

The amount of vacant sublease space in the nation decreased to 77.23 million square feet by the end of the first quarter 2005, from 80.23 million square feet at the end of the fourth quarter 2004. There were 81.6 million square feet vacant at the end of the third quarter 2004 and 88.25 million square feet at the end of the second quarter 2004.

A disproportionate amount of that vacant sublease space was flex space. The flex space vacancy rate was 1.6% vs. 0.5% in warehouse space. While the flex component makes up just 12% of the industrial property base in the country, its vacant sublease space accounts for almost 30% of that total.

Rental Rates

The average quoted asking rental rate for available industrial space was $5.76 per square foot per year at the end of the first quarter 2005. This represented a 1% increase in quoted rental rates from the end of the fourth quarter 2004, when rents were reported at $5.70 per square foot.

Asking rental rates declined in 16 industrial markets across the country in the first quarter. Chicago rates led the decline dropping 36 cents per square to $5.16/square foot. Rental rates went up in 29 markets. In Houston, Pittsburgh, Phoenix, Seattle and Austin, asking rents went up more than 50 cents per square foot.

Deliveries and Construction

Net absorption outpaced new deliveries for the fourth consecutive quarter.

During the first quarter 2005, 523 buildings totaling 31.4 million square feet were completed in the nation. This compares to 581 buildings totaling 35.39 million square feet that were completed in the fourth quarter 2004, 465 buildings totaling 24.05 million square feet completed in the third quarter 2004, and 30.6 million square feet in 35 buildings completed in the second quarter 2004.

There were 1,202 buildings totaling 78.57 million square feet still under construction at the end of the quarter. This was down about 10 million square feet from the end of 2004.

The amount of new space under construction in the Inland Empire market (almost 15 million square feet) equated to almost 4.5% of existing rentable building area in that market. Other markets with a significant amount of space under construction in relation to existing building inventory included: Memphis, Atlanta and Baltimore.

At the other end of spectrum, the markets with the smallest ratio of new space under construction included: East Bay/Oakland, Long Island (New York), Cleveland, Westchester/So Connecticut, South Bay/Silicon Valley, San Francisco and Dayton.