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MacArthur Court

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Building Spotlight Executive Summary Market Asesment Broker Information 1 1 3 5

PROJECT SPOTLIGHT: MacArthur Court Newport Beach, CA 92660

Twin 15-story travertine marble towers and three low-rise buildings provide a premier environment with ample surface and structure parking, twostory travertine lobbies, palm-lined pedestrian walkways and beautiful landscaping.

A GUIDE FOR DECISION MAKING BY: SCOTT JOHNSTONE

ORANGE COUNTY OFFICE MARKET

EXECUTIVE SUMMARY: Who is Driving the Bus?

The national economy grew at a 1.8 percent annualized rate in the first quarter according to the advance estimate of gross domestic product from the Bureau of Economic Analysis. Consumer spending made the biggest contribution, adding 1.9 percentage points, although this was below the 2.8-point contribution made by consumers in the fourth quarter. Inventory additions and business spending on equipment and software also contributed to growth. Late last year, many economists raised their GDP forecasts in response to the $858 billion package of tax cut extensions and new tax cuts passed by Congress in December. But recently many have lowered their forecasts due to rising energy prices and the uncertain outlook for the Middle East, Japan and the Europe. The Employment Situation report, which the Bureau of Labor Statistics will release Friday, May 6, will be even more important than usual because it will reveal whether the drags on economic the growth are affecting the labor market, which is a major driver of demand for commercial real estate.

Jobs: The unemployment rate in Orange

County was 8.9% in February 2011 and below the year-ago estimate of 9.7%. This compares with an unadjusted unemployment rate of 12.3% for California and 9.5% for the nation during the same time period. According to the State of California Employment Development Department, Orange County increased overall by 16,300 payroll jobs from February 2010 to February 2011; the largest gains were 6,500 in leisure and hospitality and 5,400 in professional & business services. However, during that same period, Orange County lost 2,000 jobs in trade, transportation, and utilities. Chapman University is forecasting that 23,000 jobs will be added in Orange County in 2011.

Five buildings 690,000 sq/ft

totaling

Easy access to the 405 and 55 Freeways and 73 Toll Road Ample surface and structure parking Seconds to John Wayne Airport On-site caf and banks with ATM On-site convenience store and auto detailing Rental Rates: $1.95 - $2.45 FSG

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The Next Shoe to Drop: The dollar volume of direct investment in commercial properties soared by 77 percent in the first quarter of 2011 compared with the first quarter of 2010. Last year, the market was depicted by a barbell with investors focusing on core properties in primary, supply constrained markets at one end, and distressed assets priced for a quick sale at the other end. Attracted by higher yields, investors now are taking a fresh look at properties in secondary markets and properties below the trophy threshold. Source: Real Capital Analytics Outstanding levels of distressed assets were essentially flat in the first quarter compared with the fourth quarter of 2010 on the heels of a 4 percent decline between the third and fourth quarters of last year. This suggests that the level of distress may be topping out. Source: Real Capital Analytics First quarter returns for direct property ownership totaled 3.36 percent, the fourth consecutive quarterly increase of the current recovery cycle. The return included two components: 1.52 percent from income and 1.84 percent from appreciation. Source: NCREIF Publicly traded REITs returned 6.8 percent in the first quarter, beating the 5.4 percent return posted by the S&P 500. Sources: NAREIT, Bloomberg This is a pretty good performance for an asset class that, 24 months ago, was called the next shoe to drop.

Big Picture: The Orange County office maket continued to convey signs of recovery in the first quarter of 2011. Both vacancy and availability decreased from the previous quarter, and net absorption displayed positive numbers for three consecurive quarters, producing a total of over 1.23 million square feet of positive absorption since the third quarter of 2010. Demand, though, still weak by historical standards, picked of a renewed interest in states transactions. While these are positive indications, stability will need to be sustained in coming quarters to be considered recovery. Summary: We are beginning to see a decrease in the amount of available space being added per quarter, as well as an overall increase in investment sales activity. As we enter into 2011, positive absorption continues, and with few new deliveries in the pipeline to apply upward pressure on vacancy, the market has begun to stabilize. We forsee a continued increase in investment activity in the coming quarters as lenders dispose of distressed assets. Lease rates are expected to remain soft for the near future, and concessions in the forms of free rent, reduced parking fees, relocation funds and tenant improvement allowances should continue in order to incentivize tenants to act immediately. We should also see an increase in leasing activity as many short-term deals come up for renewal. As job creation continues and consumer confidence stabilizes, the office market will continue to recover.

Notable Market Transactions:

20532 El Toro Road - Sale Mission Viejo Buyer: JP Morgan Chase Size: 52,091 Square Feet 35 Tesla - Sale Laguna Hills Buyer: Owen Commercial Size: 36,000 Square Feet 3200 Park Center Dr. - Lease Costa Mesa Tenant: Hyundai Size: 147,712 Square Feet

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Vacant Space by Submarket

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Vacancy Rates by Submarket

Net Absorbtion Square Footage by Submarket

Yearly Job Change, Orange County

Orange County Office Space

Yearly Job Change, Orange County

Total

Sea sona l l y Adj usted

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

65,308 46,042 43,608 24,925 (10,042) 25,342 25 342 27,758 34,250 27,983 (5,658) (33,825) (109,842) (9,396) (9 396) 11,904 37,177

80,000 60,000 40,000 20,000 20 000 0 -20,000 -40,000 -60,000 60 000 -80,000 -100,000 -120,000

T Thousands

199 98

199 99

200 00

200 01

200 02

200 03

200 04

200 05

200 06

200 07

200 08

200 09

2010

2011

2012

2010 2011 2012

Source: U.S. Bureau of Labor Statistics

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More Notable Market Transactions:

275 Valencia Ave Brea - Lease Tenant: Bank of America Size: 637,000 Square Feet

TEAM EXPERIENCE

With over 25 years in the business, we pride ourselves as market makers, providing our clients the most udpated and in-depth perspective on todays marketplace. Our experience and historical knowledge allows our clients to make smarter decisions, resulting in more profit and cost saving opportunities. The combination of a sole proprietors mentality and attention to detail mixed with institutional experience truly makes us a single source solution for all of your Corporate Real Estate needs.
TEAM CAPABILITIES

18101 Von Karman Ave. Irvine - Lease Tenant: Epicor Software Size: 68,235 Square Feet

Lease Renegotiation Multimarket Corporate Representation Property Analysis + Space Optimization Architectural Review Relocation Analysis Site Aquisition

Employee Location Optimization Construction Management Lease Administration Market Data & Analysis Property Analysis Lease Negotiations

Deal Announcement: The Johnstone-Puccinelli-Lantgen Team, this week again successfully represented Sunstone Hotel Investors, a public hotel REIT, in the expansion of their corporate headquarters in Aliso Viejo, California. The eight year lease transaction takes Suntones offices to 24,546 square feet and allows for their continued success and growth in the hotel ownership market place. Thank you Sunstone for your continued support. May 2, 2011

1310 Old Ranch Parkway Seal Beach - Sale Buyer: AIG Global Size: 280,6113 Square Feet

SCOTT JOHNSTONE President Bridge Commercial Properties

CA License # 00950979

HANA PARADEISER Marketing Coordinator Bridge Commercial Properties P 818.620.4376 F 949.798.5501

hana@bridgecre.com

P 949.978.5659 C 949.300.1057
scott@bridgecre.com

The information contained herein was obtained from third parties, and has not been independently verified by the real estate brokers. Buyers/tenants should have the experts of their choice inspect the property and verify all information. Real estate brokers are not qualified to act as or select experts with respect to legal, tax, environmental, building construction, soils-drainage or other such matters.