PUGET SOUND MARKET OVERVIEW

OCTOBER 2016
WITH SIGNIFICANT GLOBAL COMPETITION FOR CAPITAL, THE PAC NW STANDS OUT
Home to industry shaping titans Microsoft, Amazon, Boeing, Starbucks,
Nordstrom, Weyerhauser, and Costco, among others

#1 fastest growing big city, ranked by US Census Bureau

#2 market for tech jobs (6.4% CAGR of tech employment since 2003)

No State Income Tax (plusmedian home prices less than half of San
Francisco)

Home to 2 of the top 3 wealthiest people in the world

4.4% unemployment (King County)

Top 5 life sciences clusterhome to over 125 life sciences companies and
UW (recipient of $1.3B of grants in FY2015)

The Pacific Northwest is widely recognized as a top five global innovation center

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DIVERSIFIED LOCAL ECONOMY

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 M ETRO GDP G
Metro Growth (SINCE2001)
ROWTH(Since 2001) MMetro
ETRO OOffice
FFICE VValuation
ALUATION GGrowth
ROWTH (Since
(SINCE 2001)
90% 160%
4.6% 4.7% 6.5%
CAGR CAGR CAGR
4.4% 6.3%
80% 140%
CAGR CAGR

70%
3.7% 120%
CAGR 5.3%
3.5% 3.5% 5.0% CAGR
60% CAGR CAGR CAGR
100%
4.3%
50% 2.7% 4.0% CAGR
CAGR 80% CAGR
40% 3.4%
CAGR
60%
30%

40%
20%

10% 20%

0% 0%

Value appreciation lagging relative to metro GDP growth

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 SEATTLE OFFICE BUYERS

$10.2B Total $8.7B Total

Volume Volume
4% Foreign
3% Private
5%
100%
90% Foreign 25%
80%
70% 17%
70% Fund
60%
50% 19%

40% REIT

30% 5% Pension, 34%

20% Advisors,
18%
10% Lifecos

0%
2005 - 2007 2013 - 2016

Significant growth in foreign and domestic core capital this cycle over last

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drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)

SIGNIFICANT BAY AREA FIRMS IN SEATTLE

CURRENT
COMPANY DATE MOVED COMMENTS
FOOTPRINT (SF)
Plans for additional 607k SF build-to-suit in
Google 2004 550,000
South Lake Union
Rumored to be in advanced conversations for
Facebook 2010 346,000
additional 600k SF
Oracle 2013 218,000 Has grown from 22k SF in 2013
eBay 2008 90,000 Expanded their footprint in 2013
Expanded from 20k to 85k SF as part of a
Salesforce 2011 85,000
relocation to Bellevue in 2016
Uber 2014 50,000 Expanded from 10k to 50k SF in 2015
Twitter 2013 37,000 Doubled in size in 2014
30k SF currently; in the market for 250k
Apple 2015 30,600
1mm additional SF
Dropbox 2014 26,800 Expanded by 13k SF in 2015
HP 2008 20,000
Splunk 2014 20,000 Expanded by 5k SF in 2015
Snapchat 2015 8,000
Pinterest 2016 0 In the market for 15k SF

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 SEATTLE OFFICE RECENT NEWS AND MARKET RUMORS
Google recently announced 607,000 SF build-to-suit in South Lake Union
Facebook, who currently leases 346,000 SF in South Lake Union, is rumored to be in
advanced conversation for up to 600,000 SF of additional space in new construction
Apple has an active requirement in the Seattle market of 250,000 SF, growing to 1
million SF over time
Weyerhaueser 200,000 SF build-to-suit in Pioneer Square, relocating from Federal
Way in Q3 2016
Expedia buys 671,000 SF former Amgen campus along Seattle waterfront, plans to
relocate from 500,000 SF in downtown Bellevue in 2019.
REI purchases 8 acres of land within the 36 acre Spring District in Bellevue, and will
relocate from Kent in 2020 after building a new HQ
Amazon in advanced lease negotiations for 900,000 SF across four buildings in
South Lake Union and is rumored to be leasing all of Centre 425 (350,000 SF) in
downtown Bellevue
Big Fish Games rumored to be under LOI to lease 100% of the 200,000 SF
redeveloped Maritime Building on the Seattle Waterfront

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 AMAZONS INCREDIBLE GROWTH STORY Amazon moves into Troy
Block and Urban Union;
proposes to finish Phase
Amazon will move into II, III, and IV of their
Mercer & 9th, 915 Terry, newly developed
Phase I of newly dev. buildings in 2016+.
buildings, and Phase VII &
12,000,000 SF VIII of campus buildings 30
2006: 4 Buildings with 982,000 SF
delivered by Vulcan.
2014: 15 Buildings with 3,486,468 SF, 10,172,500 SF
along with 287,000 SF of new leases
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on existing assets and 4.3mm SF to be Amazon moves into
10,000,000 SF Blanchard Plaza and 25
developed & delivered to Amazon over Vulcan's Supply
next 3+ yrs Laundry Building. 23
Amazon moves into
09 15: 36% CAGR of committed West 8th, 1260 Mercer,
Square Feet Occupied

space and Phase V of HQ

8,000,000 SF Amazon moves 20

No. of Bldgs Occupied

Campus. Amazon also
acquired their HQ into Met Park
2019: Amazon projects that it will North, 202
Campus for $1.1bln.
occupy 12mm SF in downtown Seattle Westlake, &
by 2022, enough space for 1800 Ninth. 6,103,500 SF
6,000,000 SF Amazon vacates 605 15 15
approximately 80,000 employees & 705 Union
Station, PacMed,
and Columbia Cener 13
Amazon moves and moves into
into 2201 Phases III, & IV of
4,000,000 SF Amazon occupied space Westlake, and HQ and 1918 Eighth. 10 3,486,500 SF 10
in 605 Union Station, 705 Phases Ia, Ib, 3,248,200 SF
Union Station, PacMed and II of their 8 2,800,700 SF
Building, and Columbia new HQ 5.8 mm
Center. 7 owned
Campus.
2,034,000 SF
2,000,000 SF 1,750,000 SF 5
4 2.8 mm
982,000 SF 4 982,000 SF 1.7mm 1.7mm 1.7mm owned
owned owned owned

0 SF 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016+

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 AMAZONS RAPID GROWTH

Total Revenue Adj. Ebitda

$17B of EBITDA expected in 2016FY. Size, cash flow, and credit all moving in parallel.

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 AMAZON 2.0

Over 100 companies have been spun out, started by former employees, or directly funded by Microsoft.

Amazon has added talented employees at a rapid rate - multiplier effect has yet to be seen!

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AMAZONS BREAKNECK GROWTH CONTINUES, DEFINING SOUTH LAKE UNION SUBMARKET
Upon moving into of all its
committed space (including
Phases I & II of its new HQ
development), Amazon will
own 47% of their space in
SLU, leasing the remaining
53%.
Amazon is in advanced
negotiations to lease an
additional 900k SF across
four South Lake Union
buildings, which is not
reflected on the footprint
map to the left.
Market rumor is that Amazon
is under LOI to lease the
entirety of a brand new, 350k
office building in the Bellevue
CBD, which would be the
companys first office outside
of Seattle.
John Schoettler, Amazons
Director of Global Real
Estate, recently stated that
Amazons Seattle footprint
could reach 12 million square
feet by 2022.

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 HISTORICAL SEATTLE OFFICE MARKET SNAPSHOT
24.0% $50.00

19.2% $41.76
20.0% 18.0%
17.0% $39.73
$40.00
$36.70 $36.21 $36.17
16.0%
$33.57
$32.44
$31.38 $30.71 $30.73
11.2% $28.95
12.0% $30.00
9.5% 12.6%
8.7% 11.7% 8.8%

8.0% $25.25 $25.06 6.8% 6.4% 10.0% 9.7%

$20.00
4.0%

0.0% $10.00
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2Q16
Source: CBRE Class A Rental Rate Class A Vacancy Rate

Statistical Observations
The Downtown Seattle Class A market has demonstrated consistent growth since 2010 with six consecutive years of positive net absorption, averaging
approximately 1.2 million square feet annually.
Vacancy within Seattles broader market has declined by approximately 54% from 19.2% during the peak of the recession to 8.8% currently, and has
reached the mid to low single digits in certain tech-driven submarkets where supply cannot keep up with tenant demand. Market rents have recovered 36%
since the market trough, surpassing prior peak levels.
Rents are continuing to respond to the significant tightening throughout the market, increasing 10.4% since 2Q15. As vacancy pushes further into
single digits, Eastdil Secured projects continued strong market rent growth across Seattles broader Class A market.

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 PUGET SOUND OFFICE SALES TRANSACTIONS HISTORICAL PERSPECTIVE
$8.0 Bil 80
Approximately $4.6B of 2016 has seen 27 office sale transactions
2007 volume was related to totaling $3.6 billion YTD (includes pending 70
the EOP sale to Blackstone transactions)
$6.0 Bil 60
Sales Volume ($ Bil)

# of Transactioons
50

$4.0 Bil 40

30

$2.0 Bil 20

10

$0.0 Bil 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
'16
Closed Transaction Volume Pending Transaction Volume Number of Transactions

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD'16
Numberof
Transactions 7 10 10 19 24 41 74 11 5 10 16 24 26 21 32 27
TotalTransaction
Volume($Bil) $462 $412 $410 $1,395 $1,468 $2,288 $7,205 $319 $359 $1,166 $1,402 $4,607 $2,891 $1,732 $4,344 $3,589
AverageTransaction
Size($MM) $66 $41 $41 $73 $61 $56 $97 $29 $72 $117 $88 $192 $111 $82 $136 $133
AverageTransaction
SizePSF $183 $165 $201 $258 $241 $248 $346 $259 $214 $414 $313 $433 $383 $361 $389 $467
Source: Real Capital Analytics; includes all sales over $25mm.

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 EEstimated
STIMATED CCurrent
URRENT CClass
LASS A
A CBD
CBD Office
OFFICEPricing
PRICING&&Record
RECORDPrice
PRICEPSF
PSF
$1,600
$2,200

$1,400

$1,200
120% Premium

$1,000

Class A CBD
Price PSF

$800 Office Pricing

40% Premium PSF
30% Premium 35% Premium 35% Premium
Record Sale PSF
$600 $500
PSF

$400 25% Discount

$200

$0
Chicago Seattle Boston DC LA SF New York

Pricing remains attractive relative to other gateway markets

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drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)

REPRESENTATIVE OFFICE PRICING

TROPHY
CAP RATE PRICE PSF UNLEVERED IRR
4% - HIGH 4% $700 - $800 HIGH 5% - MID 6%

West 8th Hill7 400 Fairview

WELL-LOCATED, 80S/90S VINTAGE, CLASS A

CAP RATE PRICE PSF UNLEVERED IRR
5% - 5.5% $500 7%

Columbia Center Safeco Plaza 901 Fifth

SUBURBAN
CAP RATE PRICE PSF UNLEVERED IRR
7% $300 MID 8%

Redmond Tech Center Eastgate Office Park Gateway One

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 drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)

TROPHY SALE COMPS SEATTLE

Downtown Seattle Trophy Sale Comps
Columbia Amazon Amazon
Deal 202 Westlake Stone34 2201 Westlake 400 Fairview West 8th Safeco Plaza Hill7
Center Phase VI Phase VIII

Closed Closed Closed Closed Closed Closed Closed Closed Closed Buyer Selected
Status:
Sep-13 Dec-14 Aug-15 Aug-15 Dec-15 Dec-15 Feb-16 Jun-16 Jul-16 TBD
Principal /
Seller: Spearstreet Skanska Vulcan Beacon Skanska Vulcan AEW Vulcan CommonWealth
Touchstone

Buyer: GLL Unico ARA Gaw Capital TIAA CREF Union / Metzler RREEF Mirae / Metzler GLL Confidential

Comp Information
Sale Price ($000): $97,500 $70,250 $251,000 $711,500 $261,000 (2) $301,000 $370,000 $250,000 $383,500 $200,000
Price PSF: $746 $524 (1) $792 $458 $748 $763 $716 $787 $500 $700
In-Place Cap Rate: 5.2% 5.3% 4.2% 4.8% 3.7% (3) 4.2% 4.2% 4.1% 5.0% 4.5%
MTM Cap Rate: 5.6% 6.7% 5.2% 6.5% 5.3% 4.3% 4.7% 4.8% 6.4% 6.0%
10 Yr Unlevered IRR 6.4% 6.6% 5.8% 7.4% ~6% ~6% (4) 6.3% 5.9% 7.8% 7.5%
Deal Profile
Year Constructed: 2013 2014 2009 1985 2015 2014 2009 2015 1969 2015
% Leased: 93.0% 100.0% 100.0% 87.0% 75.0% 98.0% 98.0% 100.0% 98.0% 79.0%
Rollover First 5-Yrs: 0.0% 0.0% 0.0% 25.9% 33.0% 83.6% 40.2% 56.1% 14.1% 27.5%
Largest Tenant Brooks Sports Amazon Amazon GSA Tommy Bahama Amazon Amazon Amazon Safeco Redfin

(1) Represents leasehold interest with 85 years of remaining term; fee simple equivalent pricing is ~$595 PSF.
(2) 90% joint venture recap transaction.
(3) Stabilized Price PSF and Cap Rate are ~780 PSF and ~5%, respectively.
(4) Represents 16-year unlevered IRR.

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 DETAILED SEATTLE OFFICE DEVELOPMENT PIPELINE
Recently Completed Projects Office SF Submarket Delivery Developer % Leased Comments
400 Fairview 337,000 SLU 3Q2015 Skanska 92.6% Multi-tenant building. Tommy Bahama is anchor.
1101 Westlake 150,000 SLU 4Q2015 Holland Partners 0.0% Rumored to be in leases with Facebook.
Dexter Station 347,000 SLU 4Q2015 Capstone 100.0% 100% leased to Facebook.
Hill7 285,000 SLU 3Q2015 Touchstone 79.8% 112k SF lease with HBO & 113k SF lease with Redfin.
Amazon - Phase VII & VIII 614,000 SLU 4Q2015 Vulcan 100.0% Fully leased to Amazon for 16 years.
Fairview Research Center II 105,000 SLU 1Q2016 BioMed Realty Trust 79.0% Leased to Novo Nordisk and Nanostring Technologies.
Urban Union 291,000 SLU 2Q2016 Schnitzer West 100.0% Fully leased to Amazon for 16 yrs.
Recently Delivered Total: 2,129,000 88.0%

Under Construction Office SF Submarket Expected Delivery Developer % Pre-Leased Comments

Amazon New HQ - Ph II 1,100,000 SLU 2016 Amazon 100.0% 38-story tower. Phase II of IV. 4Q16 delivery.
NorthEdge 210,000 Fremont 2016 Touchstone 100.0% Fully leased to Tableau, occupying 4Q16.
200 Occidental 200,000 Pioneer Square 2016 Urban Visions 100.0% New HQ for Weyerhaeuser, who is relocating from Federal Way.
Third & Harrison 194,000 Belltown 2016 Martin Selig 95.4% Holland America Group's new HQ. Estimated completion 4Q16.
Troy Block 817,000 SLU 2016/17 Touchstone 100.0% Adjacent to Amazon campus. 100% pre-leased to Amazon.
Midtown21 332,000 SLU 2017 Trammel Crow 100.0% * Rumored to be under LOI with Amazon for the whole bldg.
Tilt49 300,000 SLU 2017 Touchstone 100.0% * Rumored to be under LOI with Amazon for the whole bldg.
The Mark 528,000 CBD 2017 Daniels Development 0.0% Includes a SLS hotel.
Madison Centre 750,000 CBD 2017 Schnitzer 22.4% Lease signed with DWT for 168k SF.
450 Alaskan 167,000 Pioneer Square 2017 Hudson Pacific 54.7% Saltchuk signed 15-year lease for 55% of the bldg.
Hawk Tower 215,000 Pioneer Square 2018 American Life 62.0% Avalara leasing top seven floors.
Amazon New HQ - Ph III 1,100,000 SLU 2018 Amazon 100.0% Phase III of IV. Expected to break ground second half of 2016.
Block 32 & 33 600,000 SLU 2019 Vulcan 100.0% Fully leased to Google. Will include 151 resi units on top.
Under Construction: 6,513,000 80.4%
* Strong market rumor that building is under LOI and in leases for 100% of the building with a single tenant.

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 drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)

BELLEVUE LEASING VELOCITY

As the first new deliveries since 2009 have begun to hit the market, pent up demand for high quality space has caused a dramatic uptick in leasing
activity. With multiple leases signed, plus a substantial amount of rumored leasing in process, the three new office developments in the Bellevue CBD
will soon be nearly 64% leased.

Current Bellevue CBD Class A Vacancy Rate (1): 6.8%

Rumored Leasing In-Process

New Development Lease-Up and Resulting Mkt Vacancy
Net
Remaining Adj. Market Tenant Bldg RSF Absorption
New Supply Buildings RSF % Leased Vacancy (SF) Vacancy
Undisclosed Centre 425 354,000 354,000
929 Office Tower 462,000 29.6% 329,000 10.6% Samsung Lincoln Square 25,300 25,300
Lincoln Square* 710,000 67.3% 231,930 13.7% Pokemon Lincoln Square 75,900 75,900
Centre 425* 354,000 100.0% 0 13.1% K2 Software 929 Office Tower 26,000 25,000
Total / Average 1,526,000 63.5% 560,930 13.1% Total 481,200 481,200*
*Projected delivery in 4Q16
* Rumored leasing accounts for 31.5% of the new development NRA

Additional Executed LOIs/Leases at Existing Class A Assets If you take the current vacancy rate today inclusive of 929 Office
Commencing 2H16-1H17 Representing Positive Net Absorption Tower (10.6%), and assume no additional leasing beyond that which
Tenant RSF Net Absorption Lease Start Bldg is completed or in-process as shown here, the Bellevue CBD Class A
Voicebox Technologies* 67,400 67,400 4Q16 112th @ 12th
vacancy rate actual decreases by 60bps upon delivery of Lincoln
Square and Centre 425.
BitTitan 61,800 61,800 1Q17 112th @ 12th
Expedia* 48,000 48,000 3Q16 Civica Of the 965,000 SF of leasing completed or in-process at the three
Nokia 30,900 30,900 2Q17 112th @ 12th new developments, 88% (or 856k SF) represents positive net
HealthMedica 26,100 26,100 4Q16 112th @ 12th absorption in the Bellevue CBD.
AOL* 14,000 14,000 3Q16 Symetra Ctr
Evergreen Home Loans* 16,600 7,700 4Q16 Civica If you exclude the three new developments from the Class A stats,
Akamai Technologies* 9,600 9,600 3Q16 112th @ 12th and factor in the executed leases/LOIs (net absorption) in the table
Undisclosed 7,000 7,000 4Q16 112th @ 12th to the left, the Bellevue CBD Class A vacancy rate would drop to an
Total 281,400 272,500 astounding 3.0%.
* Signed lease

Adjusted Class A Vacancy Rate: 10.0%

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(1) Current vacancy excludes 929 Office Tower.
drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)

RECENT DOWNTOWN BELLEVUE SALE COMPS

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drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)

DETAILED BELLEVUE OFFICE DEVELOPMENT PIPELINE

New office developments on the entire Eastside equate to 7% of the Eastside inventory, and are 56% pre-leased. No additional
developments on the near term horizon.
Three office projects, totaling 1.5 million SF that have either recently delivered or will be delivering by year end in Downtown
Bellevue. With current leasing rumors and completed leases, the new developments are 64% pre-leased.
Asking rents at Downtown Bellevue developments range from mid $30s psf NNN at 929 Building to low $40s psf NNNs at Lincoln
Square.

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 DOWNTOWN BELLEVUES DYNAMIC MIXED-USE ENVIRONMENT
drgrdg RECENT & NOTABLE PUGET SOUND OFFICE SALES TRANSACTIONS (CONTINUED)

Office Residential
7.8 MM SF Today 6,963 Units Today
1.1 MM SF Under Development 878 Units Under Construction
4.1 MM SF Constructed Since 2000 4,000 Units Completed Since 2006
91.8% Average Class-A Occupancy Over Last 10 Years 5-Year Average Vacancy Rate of 3.6%
16.8% Annual Rent Growth Since 2013

Hotel Retail
3,059 Rooms and Over 140,000 SF of Meeting Space Over 4.5 Million SF Today with Another 200,000+ SF
Today Coming Online in 2017
733 Rooms Under Construction and an Additional 324 Home to Two Trophy Malls: The 1.5MM SF Bellevue
Rooms Proposed Square and Shops at the Bravern
Premium Flags Including Westin, Hyatt Regency and a 112th @ 12th is Walkable to Numerous Shopping and
W Hotel Under Construction Entertainment Destinations and 100+ Eateries
Desirable Retail Market with a Low 2.4% Vacancy Rate

Companies Headquartered on the Eastside

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