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retail greater michiana commercial real estate insight market study analysis industrial 2011 2012 multifamily

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www.michianamarketstudy.com contents letter from the president 2 michiana area information 4 st joseph county 6 elkhart county 16 kosciusko county 22 marshall county 28 laporte county 32 porter county 38 lake county 44 southwest michigan 50 kalamazoo county 56 our professionals 62 company overview 64 underwriters 66 research and analysis jennifer pinkepank editorial review jillian wilson and anneliese woolford layout and design garrett gingerich

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opportunities don t usually stare you in the face insight analysis 1

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in its 19th year the annual cbre bradley market study analyzes the performance of our local markets in 2011 compared with present conditions this analysis provides an indication of potential trends and what may come of the commercial real estate market in 2012 we are proud to have the support of 1st source bank barnes thornburg great lakes capital lake city bank krieg devault first state bank centier bank teacher s credit union and keybank as underwriters along with our sister company bradley residential management continued the first and second quarters of 2011 started off relatively flat with lower volume than the preceding fourth quarter of 2010 principally due to the absorption of pent-up demand for both opportunity and necessity transactions the back half of 2011 experienced a positive shift in momentum with the recuperation of market values driven by demand growth while many segments saw shrinking supply as well as the return of both capital and debt to the market bringing the year on par with and in some cases above 2010 volumes the industrial market ended 2011 as the most dynamic sector within the industry experiencing a significant increase in demand with the resultant absorption of space this segment was the best example of quality product values returning to pre-decline levels which wrapped up 2011 on a high note signifying that our regional manufacturing base is alive and well one example is the construction of south bend gear llc a 50,000 sf state-of-the-art facility for producing ground gears developed as the result of a joint venture between schafer gear works inc and italy-based somaschini s.p.a this project s significant manufacturing nature highlights growth in both the real estate and business components of the market the retail market sustained positive absorption of space where renovations generally took the place of new development lease rates remained low-tomoderate as the overall segment was driven by the repositioning of the market with advantageous growth or relocation for retailers given the availability of quality spaces at quality rates the 2 +michiana market study

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stabilization marriott located in downtown south bend traded hands in 2011 and was rebranded as doubletree by hilton it is currently undergoing a multimillion dollar renovation this is a good sign for the market as the reinvestment should create substantial value in a prime central business district as a whole the 2011 office market was defined by the consolidation and upgrading of space with very few newlyconstructed properties the medical office segment followed suit as opposed to previous years where it was the primary catalyst for new office construction in our market university commons serves as an example of this current trend of upgrading and repositioning as opposed to new development the 99,980 sf multi-tenant complex transitioned from a retail shopping center into a medical office campus through the implementation of an aggressive renovation and revitalization program the investment property market was all over the board in 2011 book ended by severely depressed opportunity buys and strong stabilized acquisitions at pre-decline values where by year s end low interest rates and improved debt availability began to fuel acquisitions of both high credit and high opportunity transactions the entire middle segment of the market saw slow stabilization yet little return in transactional value the most challenged asset within the investment and development market continues to be middle market residential subdivision land with no real demand or alternate use opportunities as a solution to the problem the multi-family segment is strengthening quickly and back in favor as single family residential ownership has devolved compared to its historic position rental properties experienced growth indicative of a potential evolution away from the american dream of ownership as a whole the commercial market in the midwest is more stable than in other regions of the country our market differs from others because unlike coastal markets we don t have the significant highs to fall so far from we typically see more conservative lending and investing practices there is good availability of both capital and debt however this conservative nature can also hinder reentering and recharging the marketplace at a time when the business environment is still somewhat turbulent and unpredictable as 2012 unfolds we anticipate the continued stabilization of all sectors with a slow and steady rise of values naturally challenges will continue to infiltrate the market as the year progresses the largest of them being debt and equity structures coupled with existing valuation issues as 2012 marks one of the largest cmbs rollover periods in history as we see the return of some velocity in the marketplace but continuity continues to be unknown it leaves speculative components of purchases in a wide range and ultimately volume in the marketplace fairly well in check on a more positive note we also foresee a large supply of various opportunities entering the market we are confident that our region will effectively sustain growth and strengthen during the continued challenges and adjustments taking full advantage of the opportunities that 2012 has to offer bradley j toothaker cpm sior insight analysis president and ceo 3

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m kala b van uren azoo st j cass berr ien elkh osep h st j rte lapo h osep lake r porte star ke ha mars ll iu kosc sko 4 rich with history and a sense art

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of community home of the golden dome and rich with history and a sense of community the greater michiana region is also known for its location the proximity to world-famous destinations like the university of notre dame lake michigan and the studebaker national museum all of which are located less than 85 miles east of chicago 130 miles north of indianapolis and 170 miles southwest of detroit the 13-county region comprised of st joseph elkhart laporte kosciusko marshall starke porter and lake counties in indiana and berrien cass st joseph van buren and kalamazoo counties in michigan has experienced steady population and job growth in the last few decades population growth is attributed primarily to the migration of residents from chicago and other us urban areas this growth is credit to the diversification and strength of the region s economic base with a shift from primarily government employment to private sector employment which has included education recreational vehicles technology life sciences and healthcare industries with one of the strongest economies in indiana the michiana region offers a welcoming business climate an abundant and educated workforce from its world-class research and educational institutions attractive housing costs and excellent schools a beautiful and healthy setting to live and play the region is filled with trees lakes rivers and bike trails and offers a comfortable climate cultural attractions and outdoor activities 5

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st joseph county at-a-glance 4th largest county in indiana the largest industries within the county are health care education small business and tourism overnight parcel delivery logistics from south bend serves 40.2 million people with one-day ground service the south bend regional airport serves over one million passengers annually making it the 2nd busiest airport in indiana 17 increase in industrial transactions from 2010 to 1011 $14m multifamily investment in 2011 st joseph county is the fourth largest county in indiana with a population of 269,536 the largest cities in the county are south bend and mishawaka with populations of 102,808 and 46,851 respectively a combination of air rail and road access connects st joseph county to various regional and national markets making it the hub of north central indiana the county draws users within the fields of industrial technology retail health care and education transportation the south bend regional airport is the second busiest airport in indiana serving over one million passengers annually the airport also serves as a rail service station for the south shore railroad the south shore railroad provides daily east-west transportation to 19 destinations it connects with the metra that provides additional service to 10 norththe south bend public transportation corporation transpo provides local bus service six additional bus lines provide nationwide service south destinations within chicago amtrak provides two daily trips to new york boston and washington and service to other destinations nationwide 6 +michiana market study

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local demographics 2012 estimates population households average household income average housing value employed population 266,492 102,981 $56,338 $127,865 117,500 source cbre mapping center claritas the indiana toll road i-80/90 extends 157 miles across northern indiana running parallel to the michigan border us highway 31/33 links the area to michigan and indianapolis and also connects to i-94 a direct route to chicago and detroit other us and state highways intersecting the area include 6 20 and 2 4 23 104 331 933 respectively dominate retail markets in the state with over 6.5 million square feet of retail office and hotels the trade area is the second large retail trade area in the state recreation and entertainment education in addition to the university of notre dame st joseph county benefits greatly from several other top-notch post-secondary education institutions including saint mary s college indiana university south bend bethel college holy cross college and trine university furthermore there are several schools in the area that offer more specific career and training opportunities including ivy tech brown mackie college and michiana college other major tourist draws include the college football hall of fame the studebaker national museum potawatomi zoo morris auditorium and the east rate waterway the nation s first artificial whitewater course located in downtown south bend coveleski stadium is home to the silver hawks a class a minor league baseball affiliate of the arizona diamondbacks the 5,000 seat stadium recently underwent a $10 million renovation project to enhance the game experience and also open the stadium to outside events including concerts shopping the county provides an abundance of shopping opportunities within the university park retail trade area one of the most insight analysis 7

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st joseph county industrial st joseph county continues to be an ideal location for local national and international industrial users with its diversity of product proximity to regional highways and interstates as well as its accessibility to major rail lines and airports the blackthorn economic development area on south bend s northwest side remains the main industrial submarket within the county the beda encompasses over 10 million square feet of industrial space and includes several industrial parks such as the airport industrial park ameriplex industrial park toll road industrial park blackthorn corporate park and blackthorn west smaller submarkets are positioned immediately south of downtown south bend including ignition park oliver plow works monroe business park and burnett industrial park other industrial areas include southwest mishawaka on 12th street clover and home streets east of the city and new carlisle approximately 1.2 million square feet from the end of 2010 manufacturing flex and warehouse space all experienced an increase in available square footage throughout the year while the amount of available r&d and truck terminals space decreased slightly despite an upswing in the vacancy rate through 2011 it is anticipated that vacancy rates will begin to fall and stabilize going into 2012 asking rates began to increase in 2011 however current actual transacted rates continue to be slightly lower than rates achieved before the economic downturn as there continues to be a disconnect on market expectations between landlords and tenants average asking rates for general industrial and manufacturing space range from $2.80 to $3.65 per square foot triple-net industrial flex space ranges from $4.00 5.00 per square foot triple-net warehouse and big-box distribution space mostly build-to-suit and new construction product ranges from $4.00 5.00 per square foot triple-net it is expected that the need for industrial space will increase in 2012 and with that will come increased asking rates vacancy and asking rates the industrial vacancy rate within the county increased slightly over the first three quarters of the year however ended the fourth quarter trending down slightly from the previous quarter at 9.88 the amount of marketed space has increased available industrial square footage transactions the number of industrial transactions increased throughout 2011 getting back to 2.0 r&d flex space truck terminal square foot mil 1.5 1.0 warehouse manufacturing 0.5 0 1q 2q 3q 4q +michiana market study 8

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levels achieved before 2008 despite a slight increase in the number of sale transactions from 2010 leasing activity continues to be the more dominant choice among users within the market transactions are expected to continue to increase in 2012 at a measureable pace industrial transactions the design phase for infrastructure at ignition park has begun as the redevelopment commission has approved spending of $335,000 for design development the concept includes four roads that will enter the park from various streets and will meet at a roundabout in the middle of the park the building infrastructure is expected to cost $9.23 million and construction is set to begin in july of 2012 schafer gear works and somaschini through a new joint venture are producing gears for engines for the heavy-truck market as part of the venture a 50,000 square foot facility was constructed on the schafer gear works campus on nimtz parkway in south bend the total investment including the building was $18 million and production began at 50 in late 2011 and is expected to be at 100 by the end of 2012 the new plan will employ 12 people in phase one and an additional 13 people for a total of 25 people when fully operational a new-york based energy company plans to build a $700 million natural gas plant near new carlisle the plant would be located at the northwest corner of walnut and edison roads approximately 1.5 miles east of new carlisle the company will utilize the infrastructure left behind by allegheny energy supply and hopes to begin construction during the summer of 2012 the project would create about 750 local direct and indirect jobs during the construction phase and about 50 jobs during the operation phase global parts network llc opened its first indiana operation in south bend the heavy truck parts maker invested more than $3.2 million to lease and equip the 73,000 square foot space at 5102 dylan drive where production and distribution takes place operations started in june of 2011 tire rack tire and vehicle retailer broke ground on its 130,000 square foot expansion to its warehouse and headquarters at 7101 vorden parkway the retailer will spend approximately $3.8 million on the expansion and new equipment 60 50 40 30 20 10 0 2008 2009 lease 2010 sale 2011 new construction new construction projects in the st joseph county industrial market totaled over 300,000 square feet with a value of over $12 million projects included the new 40,800 square foot abc supply building on oliver plow court sbg phase one and mccormick company growth and development the south bend common council s decision to exempt data management equipment from personal property taxes is paving the way for a new data center within the area data realty llc is currently constructing a 50,000 square foot data center in ignition park the 5 acre parcel and the building s modular design allows for future expansion as customer needs demand additional space the $20 million investment will be the first private-sector firm within the park the data center is expected to create 14 full-time jobs when it first opens and expand to 30 jobs insight analysis 9

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st joseph county office the south bend central business district and mishawaka s edison lakes corporate park remain the two main office submarkets within st joseph county blackthorn corporate park located on the northwest side of south bend and foundation center located near the university park retail trade area also encompass a substantial amount of professional office space the healthcare industry is a major employer in the area and continues to play a dominating role in the office market the university commons medical plaza a 100,000 square foot retail complex redeveloped into medical space was completed in october and is now home to several allied physicians of michiana and other practices the us house approved nearly $7 million for the new veteran s health facility in south bend the outpatient clinic will be 10 times the size of the current clinic at 65,000 square feet it will offer primary care expanded mental health care outreach programs and laboratory radiology audiology and pharmacy services the clinic is expected to open in 2015 market decreased through the year while south bend s central business district experienced an increase between the second and third quarter before leveling off at the end of the fourth quarter it is anticipated that vacancy rates will slowly decline through 2012 as construction of new space remains minimal and the office market begins to stabilize over the past year average asking rates increased for class a office space within both the central business district and suburban markets while class b space for both areas remain relatively flat current actual rates continue to be slightly lower than average asking rates as tenant and landlords continue to struggle to find a middle ground 1q 2q south bend suburban south bend cbd 3q 4q mishawaka suburban mishawaka cbd office vacancy rates vacancy and asking rates the st joseph county office market experienced minimal change in the amount of actively marketed space throughout 2011 beginning the year with approximately 1.1 million square feet of actively marketed space and concluding the year with approximately 1.2 million square feet vacancy rates for mishawaka s central business district and suburban areas as well as south bend s suburban 10 +michiana market study

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office asking rates gross central business district class a class b $17.00 $22.00 $9.75 $15.50 suburban $18.00 $25.00 $10.50 $15.00 windsor properties a 14,000 square foot class a three-story office building was constructed at edison road and indiana 23 the multitenant building features views of the university of notre dame two rooftop patios and adaptable floor plans triskell a pharmaceutical systems company has announced plans to move its headquarters from florida to south bend the company plans to lease space in innovation park early in 2012 sanctuary at holy cross a nursing care and rehabilitation community has announced plans to construct a rehabilitation and wellness center that will be attached to its current building the $12.5 million addition will include 48 private suites a state-of-the-art therapy gym therapy pool a spa salon and chapel wells fargo advisors leased the nearly 14,000 square foot third floor at 4101 edison lakes parkway in mishawaka to consolidate its south bend and mishawaka financial services group the city continues to work with potential investors regarding the sale of the chase tower in downtown south bend the south bend council tabled the proposal in the middle of january to allow for other developers to submit plans and provide city officials with other options the former marriott hotel in downtown south bend became a doubletree by hilton in late summer the purchase of the hotel by the hotel group based in edmonds washington solidified 1st source bank and other tenant s decision to remain within the building transactions the leasing market continues to be more dominant than the sales market within the office sector it is expected that as the demand for medical office space continues to increase leasing activity will also continue to be strong within the sector however office sales are beginning to transact and are expected to increase in 2012 new construction new office construction projects within the county for 2011 included roughly 200,000 square feet with a value of over $19 million several projects were centered around the healthcare industry including the sanctuary at holy cross rehabilitation center healthwin hospital expansion and mishawaka skilled care and assisted living growth and development lake city bank opened a regional headquarters in downtown south bend at the american trust place located at 101 n michigan street the bank occupies 4,500 square feet on two floors with both retail and commercial banking services approximately 20 employees were hired or relocated from other offices in the area wells fargo moved the majority of its operations from its downtown south bend location to eddy street commons the eddy street location features 7,000 square feet and offices include wealth management business banking trust institutional and retail administration insight analysis 11

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st joseph county retail the university park retail trade area located along grape road and main street in mishawaka continues to be a regional retail destination attracting shoppers from throughout the 11-county michiana region the area is anchored by the 923,000 square foot regional simon-owned university park mall which also features the village an outdoor lifestyle center component a long list of big-box retailers in the area include walmart lowe s bed bath beyond gordman s kohl s target meijer best buy and dick s sporting goods the recently developed 90,000 square foot eddy street commons adjacent to the university of notre dame features tenants including fairfield inn suites old national bank chipotle hot box pizza anytime fitness camellia cosmetics five guys burgers fries jamba juice nicolas j salon and outpost sports new tenants to the development in 2011 included urban outfitters mcalister s deli brothers bar and grill and biggby coffee city plaza a three-phase upscale shopping center in granger remains another location of choice for retailers and restaurants within the area tenants within the shopping center include tilted kilt ruth s chris steakhouse anytime fitness papa john s ja ross salon spa and temper grill square feet at the end of 2010 to 925,000 square feet at the end of the fourth quarter of 2011 asking rates for newer construction space increased slightly throughout 2011 to end the year at $16.50 to $22.00 per square foot triple-net there continues to be an abundance of second generation and big-box space available resulting in asking rates lower than rates of 2010 tenants are still expecting to receive concessions including free rent shorter lease terms and tenant improvements retail asking rates nnn type new construction 2nd generation 2nd generation 1,000-5,000 sf 1,000-5,000 sf mid/big box range $16.50 $22.00 $7.00 $10.75 $4.00 $6.50 transactions the retail market continues to see leasing transactions generate the most activity as few users have quite yet gained the confidence to make the commitment to purchase existing space tenants still have the advantage as landlords continue to be flexible in negotiating lease rates terms and concessions new construction other concentrated retail areas within the county include toscana park and heritage square both located on gumwood road in granger and erskine village and erskine commons located on the south side of south bend approximately 40,000 square feet of new retail product was planned for st joseph county in 2011 resulting in an investment of over $450,000 the amount of square footage planned and total investment was down significantly from 2010 projects included a 7,988 square foot buffalo wild wings and two 9,100 square feet dollar generals it is expected that as the demand for new construction retail space increases the amount of new construction planned will also increase +michiana market study vacancy and asking rates the st joseph county retail market has started to show signs of improvement as the amount of marketed retail space decreased from 1.5 million 12

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this is evident as the area is beginning to see more built to suit projects being marketed something that was non-existent during 2009 and 2010 similar to 2010 other area retailers continued to focus on their existing space and completed expansion and remodeling projects papa vino s italian kitchen completed a $1.5 million renovation and expansion at its mishawaka location the renovation included a total of 1,000 more square feet 100 new seats expanded main dining room new private dining room wine room with seating expanded kitchen and bar area indooroutdoor patio and separate to-go entrance four horsemen brewing co opened in june at 710 s fellows street in south bend the space features a fully operational brewery and bottling operation along with a public sampling room that seats approximately 50 people the owners plan to distribute the craft beers to stores across the state buffalo wild wings bw3 opened a new restaurant in the erskine commons shopping center on the south side of town the new location features additional indoor seating capacity from that of the former downtown south bend location and an outdoor patio the downtown location was closed as a result of the new location dollar general constructed two spaces within the market the store located at 605 n hickory road in south bend is 9,000 square feet and opened in october the second location at 4123 western avenue in south bend is on the former site of chauncey s restaurant which was demolished to make room for the new building reactions hair salon relocated its salon from 7106 n grape road in granger to a larger 1,980 square foot space at university crossings in mishawaka urban swirl a frozen yogurt shop opened in early june at heritage square shopping center in mishawaka the self-serve frozen yogurt bar occupies approximately 2,000 square feet and features 14 yogurt flavors at a time and over 40 toppings the wakarusa dime store opened a second area location in granger the candy shop is located within the centennial place shopping plaza on cleveland road growth and development einstein bros bagels opened its first restaurant in the south bend area at the former kfc building on south bend avenue near notre dame the 2,800 square foot restaurant seats approximately 70 customers both inside and outside the restaurant bruno s opened its 12th area location in downtown south bend in the michigan street shops charming charlie a women s fashion jewelry and accessories retailer opened in heritage square the 11,000 square foot space is equivalent in size to walgreens and features approximately 20,000 items including necklaces earrings scarves belts and purses hibachi grill opened its second area location at 5944 grape road in the indian ridge plaza in mishawaka the restaurant occupies the remaining circuit city space let s spoon a self-serve frozen yogurt shop opened two new locations in the area the first location opened at edison plaza at 1635 edison road and features seating for 30 the second location opened at erskine village on the south side of south bend the new frozen yogurt shop is located across from the kohl s and target plaza and features both indoor and outdoor seating insight analysis 13

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