REAL ESTATE

As the U.S. navigates increasingly uncharted economic waters, states and regions are feeling the impacts to varying degrees across multiple sectors. Real estate, as a fundamental asset and industry, is often a bellwether indicator of overall economic well being. While Utah real estate has not been immune to the economic impacts of 2007 and 2008, this sector has continued to show surprisingly strong overall resilience in comparison to national trends – with particular bright spots in the industrial and retail areas. Buoyed by employment growth and continued interest in Utah by major corporations for regional presence and distribution, Utah’s real estate sector is expected to continue to outperform the national trend – maintaining its multi-year role as one of the brightest economic spots in the region as well as the nation. According to a late 2008 report by economist Jeff Thredgold, “Utah’s economy was the single strongest state economy in the country in the last two years as measured by growth and employment.”

Fundamental economic indicators are still strong in the State, particularly compared to national averages. Job growth, which has been extremely strong over the past four years, slowed in 2008 but has remained well above the national average, and unemployment, at 4.6 percent in March 2009, far below the national average of 8.1%.

Prior to the nationwide real estate slowdown of 2008 and 2009, Utah was in the midst of signifi cant expansion. Economists in the Utah Governor’s Offi ce of Planning and Budget have predicted that this dynamism will resume with the anticipated market rebound in late 2009. The value of permit authorized

SALT LAKE CITY

HIGHLIGHTS

Major corporations like Sephora, The Hershey Company and Procter and Gamble have moved into Utah, helping the State’s real estate sector outperform the national trend.

Utah’s overall home price appreciation during the past fi ve years, 42.91%, ranks third among U.S. states. The Salt Lake area industrial market demonstrated vibrancy during 2008, with total market vacancy down to 5.6 percent.

There are two major universityaffi liated research parks and well over 100 quality industrial parks in Utah.

construction in the State reached $7.1 billion in 2007, only slightly behind the all-time record high $7.4 billion in 2006. The decline in single family detached home construction was mitigated by a healthy 32% jump in new nonresidential construction representing an additional $500 million in new projects. Also contributing to the offset was continued strength in the multiple family residential sector, led by condominiums, which grew by 10% in 2007 – the second-highest level in ten years.

INDUSTRIAL STRENGTH

Industrial developers concentrated on big box projects during 2008, due to continued strong land price appreciation and higher construction costs, which inhibited development of smaller industrial buildings. The Salt Lake area industrial market in particular has benefi ted from fast-moving changes in national distribution logistics driven by recent increases in fuel prices which are forcing many companies to revise their distribution strategies in order to reduce costs and improve effi ciencies. Utah’s centralized location provides cost effective reach into major markets in Colorado, Arizona, Nevada and the West Coast. The fact that nearly half of 2008’s industrial market activity focused on buildings larger than 100,000 square feet in size is refl ective of a growing demand for large-scale distribution facilities, led by companies such as cosmetics distributor Sephora and online retailer Overstock.com.

The Salt Lake area industrial market demonstrated continued vibrancy during 2008, with total market vacancy down to 5.6 percent in response to continued strong demand. Lease activity in large facilities was particularly strong, nearly doubling previous year’s levels. Industrial lease rates have also continued an upward trend associated with low vacancy rates – trends that are expected to continue into the foreseeable future. Sales prices for industrial properties have risen by an average of 28% in 2008, driven by strong demand and thin supply of available buildings.

NAI Utah reports that fi ve major projects under construction, representing 1.68 million square feet of new space, are moving ahead and will come on stream in the near future. These include Landmark #5, 1st Park, Westport II, Bangerter Crossing A and Pinnacle. This new inventory combined with an existing .88 million square feet is offset by substantial demand from companies looking to open regional distribution facilities in Utah. Assuming conservatively that only half of the over 30 companies currently in serious evaluations ended up locating in the State, the resulting inventory would represent only a 3.7 months’ supply – considered extremely tight from a historical perspective.

Utah County’s record low vacancy rates from 2006 to 2008 have increased slightly but remain extremely healthy – under four percent. Lease rates continue to increase, prompting developers to initiate new projects. The County’s ongoing presence on national lists of great places to live and start or grow a business continues to fuel confi dence and growth that is expected to outpace the national average through 2009.

The industrial segment remains Weber County’s strongest commercial segment, with vacancy in all sectors below 10 percent. Business Depot Ogden came on stream, pushing up vacancy rates slightly in the large space market, but the extra capacity is expected to be readily absorbed. Unlike other markets, the smaller industrial space segment in the County has remained very stable over the past several quarters. Additionally, asking lease rates have seen a slight up-tick over the past 12 months.

While new capacity has pushed up vacancy rates in Davis County, the industrial market overall remains strong, particularly in the northern part of the county. Lease rates have held steady throughout he area. Washington County in Utah’s Dixie has historically tracked more in line with the Las Vegas market, and remains at above-national averages and trends, and maintaining lease rates at about half of those in Las Vegas.

OFFICE OPTIMISM

Despite challenging national – and to a lesser extent, state – economic environments, the overall market for offi ce space in Utah continues to exhibit strong activity levels, with many new tenants taking space – although the transaction time has lengthened vis-à-vis previous years’ averages. The convergence of national and state economic slowdowns, slackening job growth rates and historic levels of new construction coming online has resulted in modestly rising vacancy rates for offi ce space – increasing from 10.76% at year-end 2007 to 11.29% early in 2009 in the Salt Lake area. Several anticipated large lease closings will help increase absorption, but the full-year rate is expected to be slightly off of the historical average for the past decade.

Businesses seeking space in Utah will have an abundance of new offi ce product available as previously initiated projects come on line. The Salt Lake area is expecting approximately 1,048,000 square feet of new space to be delivered by year end 2008. Counties to the north and south of Salt Lake are experiencing similar trends,

After a number of years of steady increases, direct weighted average

COMMERCIAL BUILDING CONSTRUCTION COST INDEXES

RECENTLY COMPLETED & CURRENT $50 MILLION-PLUS PROJECTS

PROJECT NAME COST (MILLIONS) Amangiri Resort and Spa $200m ATI (plant & equipment) titanium spong mfg $35m & $290m Ben Lomond Hotel restoration $50m Black Rock Ridge condominiums $106m Bridges at City Front condominiums $50m Central Utah Project Uinta Basin Replacement Project $70m Central Utah Project Utah Lake Water System $460m City Creek Center downtown renovation $1.5b Daybreak by Kennecott Land residential development $1.3b East Town Village mixed use development $110m Frank E. Moss United States Courthouse $115m FrontRunner commuter rail $581m Hamilton Partners 21 story offi ce tower $100m Hidden Valley Ivory Homes $300m I-15 Weber County widening $231m IHC Intermountain Medical Center $387m IHC Southwest Hospital $50m IHC Utah Valley Regional Medical Center expansion $50m IPA coal power plant expansion $2.1b Ivory Ridge residential development $210m Jordan Bluffs mixed use development $500m LDS Church History/Archives Building $65m Lake Side Power Project power plant $300m Legacy Parkway construction $685m Metro Condominiums $50m Midtown Village mixed use development $75m MountainStar Healthcare hospital $100m The Pointe offi ce center $100m REAL Salt Lake soccer stadium (Project Beehive) $110m RiverPark Corporate Center $300m Rosecrest residential mixed use development $400m Saratoga Springs/American Fork connector road $92.5m Silver Star Development mixed use $90m Southern Corridor Highway $84m Spring Canyon Energy natural gas power plant $200m St. George Regional Airport $110m St. Regis Hotel (5 star) $250m SunCrest mixed use development $250m Sundance Commons retail/business development $200m Terrace at Traverse Mountain retail & entertainment $300m The District retail development $120m Traverse Mountain mixed use residential $650m Trolley Square remodel & expansion $80m Utah State Capitol renovation $200m Valley Fair Mall renovation & expansion $50m Vintaro residential/mixed use development $120m West Liberty Foods LLC meat processing $60m

A SAMPLING OF MAJOR INDUSTRIAL PARKS BY COUNTY

COUNTY PARK SIZE IN ACRES

Beaver Beaver City Industrial Park 240 Milford City Industrial Park 10 Box Elder Box Elder County Industrial Park 50 Tremonton City Industrial Park 200 Cache Lewiston Industrial Development Park 350 Logan Quadrangle Industrial Park 2500 Logan River Industrial Park 100 Sorenson Business Park 40 South Main (RDA) 100 Utah State Research & Technical Park 60 Carbon Carbon County Industrial Park 110 The City of Wellington 480 Davis Centerville Industrial Park 109 Freeport Center 735 Freeport Center West 45 Highway 193 Business & Technology Park 300 Kaysville Industrial Park 175 Layton Industrial Park 10 North Salt Lake Industrial Park 900 West Centerville Industrial Park 150 West Side Development: 600 Emery Green River Industrial Park 400 Garfi eld Panguitch Industrial Park 100 Grand S/N Limited 33 Iron AMPAC Industrial Park 2000 Cedar City Industrial Park 120 Coal Creek Industrial Park 64 Gilbert Development Industrial Park 240 Highway 56 Industrial Park 100 Juab Juab Industrial Park 40 Millard Fillmore Industrial Park 300 Hinckley Industrial Park 20 Lynndyl Industrial Park 10 Morgan Airport Industrial Park 10 Morgan City Industrial Park 12 Salt Lake Bangerter Corridor Business Park 300+ Bingham Industrial Park 250 Bonneville Center 150

COUNTY PARK SIZE IN ACRES

Centennial Park 1596 Commerce Park 102 Cottonwood Corporate Center 43 Decker Lake Business Center 1024 Draper Business Park 63 Jordan Commons 22 Jordan Landing 95 Lake Park Corporate Center 640 Metro Business Park 280 Pheasant Hollow 55 Pioneer Park 100 The Pointe Corporate Center 43 Research Park - University of Utah 320 Riverpark 110 Salt Lake International Center 720 Sorenson Research Park 104 Sorenson Technology Park I 500 Sorenson Technology Park II 52 Southgate 95 South Town Business Center 97 21st Century Industrial Park 125 Union Park Center 40 Wagner Park 500 West Jordan Industrial Park 300 West Valley Technology Park 730 Westridge Commerce Park 250 San Juan Blanding Commercial 371 Monticello Industrial Park 23 Sanpete Mt. Pleasant Industrial Park 220 Sevier Richfi eld City Industrial Park 50 Salina Commercial Center 395 Summit Silver Creek Center 400 Tooele Tooele City Commerce Park 415 Utah Industrial Depot 850 Utah Aerospace Park 80 Alvey 18 American Fork Commercial Center 200 Birch Tree 33

COUNTY PARK SIZE IN ACRES

Bunker Industrial Park 73 Canyon Park 118 Cedar Hills 40 East Bay Business Park 450 Eagle Mountain Industry Park 400 Fox Ridge Business Park 580 Gateway Technology Park 100 The Grove Business Park 200 Ironton Industrial Park 300+ Jim Alvey Business Park 40 MS Business Park 40 North Pointe Business Park 45 Orem Center Business Park 100 Payson Business Park 250 Pleasant Grove Gateway 50 Riverwoods Research & Business Park 135 Spring Haven 65 Springpointe Commercial Center 130 Springville Industrial Park 360 Summit Ridge 230 Swenson Industrial Park 500 Thanksgiving Point Business Park 80 Timpanogos Technology Park 109 Traverse Mountain Tech 25 Utah Valley Business Park 95 Westview Industrial Park 60 810 N. Business Park 250 Wasatch Heber City Industrial Park 33 Washington Fort Pierce Industrial Park 600 Gateway Industrial Park 300 Millcreek Industrial Park 150 Weber Little Mountain Industrial Area 8000 Business Depot Ogden: 1,118 Ogden Commercial & Industrial Park 365 Ogden Regional Business Center 1100 Pleasant View 300 Pinebrook Business Park 200 Weber County Industrial Park 551

full service rental rates fl attened in 2008. While lease rates appear to be level, landlords are offering concessions in order to close long-term leases. Average lease rates for Class A space in the Salt Lake market were $22.48 at year-end 2008.

RETAIL RESILIENCE

Following several years of breakneck expansion, the pace of growth in Utah’s retail real estate market has slowed substantially, particularly in the Salt Lake area. In general, retailers have adopted a much more cautious approach as they watch developments in the overall economy and consumer confi dence.

However, in counties to the north and south of Salt Lake, the retail market remains resilient. Particularly encouraging is the continued interest by national retailers in expanding into these Utah communities. In Davis County, Lowes (two stores), Ross Dress for Less, DSW Shoes and Petco have all opened major new stores. Weber County has seen the completion of the Riverdale Shopping Center Phase IV with major tenants J.C. Penny, TJ Maxx and Famous Footwear taking signifi cant space. To the south, a new Kohl’s has recently been added in Orem. To the far south in Washington County, retail expansion also remains fairly steady, with national retailers continuing measured expansion, including Wal-Mart and CarQuest Auto Parts, as well as numerous bank and credit union branches.

HOUSING

Utah’s housing industry, consistent with national real estate trends, experienced a signifi cant slowdown in 2008 and into early 2009. For example, the median listing price was $303,600 in January 2009, down from $349,600 in January 2008. The State’s long-term home values, however, has been extremely sound. According to the U.S. Offi ce of Federal Housing Oversight, between the beginning of Q1 1991 and the end of Q4 2008, Utah ranks fourth among U.S. states with overall home price appreciation of 197.0%; over the past fi ve years, the State ranks third with an overall appreciation of 42.91 percent.