Vibrant Economy, Limited Capital for New Real Estate Development Likely to Keep Fundamentals Sound

SAN FRANCISCO, CA - July 20, 200 - Capital sources for commercial real estate have thinned out considerably in the last few months, giving further indications that current strong market conditions are likely to continue throughout real estate, especially in downtown office markets around the country including the Bay Area, says Doug Shorenstein, chairman and CEO of Shorenstein Company LLC

Speaking to an audience of almost 500 people at a forum organized by the San Francisco Business Times, Shorenstein said that a continued strong national economy and solid market fundamentals in real estate indicate that vacancy rates will remain low in many markets and rental rates will likely continue to climb, especially for Class A office properties - good news for office landlords in major cities around the country.

"Real estate investors are riding the crest of a big wave right now, made all the more attractive by a very strong economy and a limited amount of capital for real estate development in many markets," said Shorenstein. He went on to say that the current market conditions provide tremendous opportunities for investors with capital and a value added investment outlook.

Shorenstein said that of the five main capital sources for real estate - REITs, foreign investors, opportunity funds, pension funds, and private, value-added investors - only pension funds and private investors are consistently active. "By their very nature, REITs are not going to be quick to take advantage of moving capital flows, instead they will be the catalysts for capital flows," he said. "Foreign investors, particularly German investors, are hamstrung by currency weakness and opportunity funds are unable to create, here in the U.S. at least, high enough returns. While pension funds are active, they are really only interested in minimal real estate risk. So that leaves the value added players to make their moves," he said.

Mr. Shorenstein said that the New Economy - in addition to boosting real estate values - has created two distinct real estate markets - the technology-driven top tier cities/regions such as San Francisco/Oakland/San Jose, Boston, Manhattan and Washington DC/Northern Virginia, all with diverse economies but high concentrations of technology-related businesses and skyrocketing rental rates - and the rest of the country. But he pointed out that investors who pay attention only to the top tier markets are likely to miss out. "We're the largest owner of office buildings in downtown San Francisco, but our organization has found some tremendous assets in markets like Omaha and New Orleans and Chicago. While rental rates clearly aren't as stellar as San Francisco, investors with value-added expertise can deliver very strong returns on acquisitions in these and other markets and also diversify their risk to any one market."

Mr. Shorenstein went on to say that - along with the growth of the New Economy - there has been a clear shift in the economy of the Bay Area. "No longer do we talk about San Francisco and only San Francisco - there are important and vibrant business communities growing all over the region. We are really operating within an exceedingly strong regional economy with markets like Oakland driving as much of the growth as San Francisco."

Shorenstein pointed out that much of his company's growth over the last 10 years has come from its acquisitions outside the city. Since 1992, when Shorenstein Company opened the first in a series of five investment funds, the company's investment and management portfolio has grown from 10 million square feet of office space to more than 25 million square feet, including ten million square feet in San Francisco Bay Area, five million square feet in New York and three million square feet in Chicago. So far this year, Shorenstein has concluded purchases of major office buildings in Chicago and New Orleans, totaling three million square feet. The company also recently broke ground on a 470,000 square foot office development in Oakland, CA. The building - the first privately developed office property to be built in Oakland in more than 10 years - is already 30 per cent leased.

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