Market Research. Restructuring of Retailers, Paves Road to 2009 Stabilization. colliers international Reno, NV. retail Second quarter Report 2008

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1 reno retail SECOND Quarter 2008 colliers international Reno, NV Market Research retail Second Report 2008 Market Indicators Direct Vacancy Sublease Vacancy Total Vacancy Net Absorption Construction 2Q Q 2008 * Restructuring of Retailers, Paves Road to 2009 Stabilization Overview The first and second s of 2008 have been witness to a turbulent retail market. A decline in home values, coupled with tightening lending practices has resulted in a bottleneck of capital. Small retailers, primarily single store or multiple store franchises, tap into their home s equity to expand or relocate and fund working capital. Similarly, large retailers, with strong credit and that are publicly traded are having a hard time raising capital. In addition, the cost of goods sold for the majority of retailers, such as energy, shipping, and oil based products have risen rapidly due to overseas consumption of natural resources. A shift in domestic agriculture has placed pressure on ethanol production by increasing corn production and replacing and lowering the supply of vegetables causing a rise in the price of produce and livestock feed; which increases the cost of poultry, dairy, eggs, beef, pork, etc... These higher expenses translate into a lower profit margin for retailers because they cannot raise prices fast enough in a slow economy. However, the closing and re-structuring of national and local retailers and restaurants is not entirely a doomsday scenario. Most of these companies have battened down the hatches by reducing inventories, merging with similar companies, writing off or down bad debt, and/or re-structuring. When the clouds clear and the economy rebounds, they will be better positioned to expand and take advantage of retailers who wrecked and sank during the storm. As these retailers and restaurants become bigger and more financially solvent, so will their credit and buying power thus, lowering the cost of goods sold, which lowers expenses and increases profit margins. Lack of competition will also allow for more flexibility in pricing, expansion and re-positioning. Rental Rate *Projected We believe Wall Street will be very receptive to these restructurings, mergers and acquisitions, and hope that medium to strong 2008 Christmas sales, will further solidify that retail is poised to increase revenues and begin expansion stgies. VACANCY VS RENTAL RATE 10.0% $ % $ % $1.76 $1.77 $1.84 $1.86 $1.81 $ % $ % $ % 7.80% 8.05% 8.17% 8.21% 9.18% 2Q 07 3Q 07 4Q 07 1Q08 2Q08 $0.00 Overall Vacancy Average Asking Rent 1

2 Reno retail SECOND Quarter Submarket Map Key ID SUBMARKET 1 South Meadows 2 Meadowood 3 Southwest Reno 4 Downtown 5 Airport 6 West Reno 7 Sparks 8 Northwest Reno Vacancy 2007 had positive absorption of approximately 600,000. Conversely, the first two s of 2008 have not faired as well. The first saw positive absorption of 157,900, not bad. However, as the retail market put more vacant space back on the market, we saw a negative net absorption in the amount 91,936 in the second. The vacancy at the end of year 2006 was 7.9%, increased slightly to 8.17% at year end 2007 and has jumped over 100 basis points to 9.18%. In the second, space placed back on the market that contributed to the rise in vacancy includes the old Comp USA, 31,400, Imagine That Furniture Store, 11,962, and On the Border, 8,000 in addition to a large amount of small shop space tenants. Rents Overall average monthly rents dipped slightly from $1.84 at the end of 2007 to $1.81. Shop space rents in prime storefront and end cap locations have declined from $3.50 in 2007 to $2.75 per foot at the end of the second Annual ground rents have fallen from $175,000 in new lifestyle centers to $155,000. Development costs, such as sewer and water hookup fees and permit/traffic fees have almost doubled. Thankfully, water right fees have consistently dropped each and one acre foot of water rights are now estimated at $23,500. Active/Expanding/Closing Tenants During a slower economy, discount, rental and wholesale retailers reign supreme. Dollar Tree is still very active in the market. In addition, Aaron Rents is looking to expand in Reno/Sparks and tertiary markets. Drug stores are still very active; with CVS and Walgreens leading the way with new stores under construction at the intersections of Los Altos Pkwy and Sparks Blvd, as well as El Rancho and Oddie Blvd. CVS also leased a pad at North McCarran Crossing in northeast Reno, and has purchased Longs Drugs which will give them a bigger portion of market share and brand awareness. Other retailers expanding include Staples, who has purchased a pad site at the Canyon Center Phase II in northwest Reno as well as leased a new space in the second phase of Shoppers Square on Plumb Ln. & S. Virginia St. Fresh & Easy, a 15,000 foot specialty grocery store, is currently negotiating multiple leases in the Reno/Sparks trade areas. Discount Tire has two new locations at Spanish Springs Shopping Center and S. Virginia Street. Bully s Sports Bar & Smokin Bully s has signed a lease for a freestanding restaurant at Eagle Landing Shopping Center on the northwest corner of La Posada & Pyramid Highway. Home and Gardens Direct took the old Petsmart space at Airport Square shopping center as well as Little Gym took space in the same center. Store closings have increased from In the first two s of 2008 closings include: On The Border, Krispy Kreme, Dream Dinners, Beyond Juice, Spoiled Rotten Pet Boutique, Blockbuster in Galena, Keva Juice and Nestle at the Summit Sierra Mall, all three locations of Jalapeno s, Fiesta to Go and Figaro s Pizza. Mervyn s announced they will be closing all of the stores in Reno/Sparks. Additionally, Linens-n-Things, Shoe Pavillion, Super KMart in the Northwest, Starbucks downtown and Denny s at Damonte Ranch and Spanish Springs will be closing in the third and fourth s of A partial list of national retail closings may be found on page six. MARKET ACTIVITY SIGNIFICANT SECOND QUARTER END Transactions Significant LEASES Property Address DAte square Feet tenant type 2424 Oddie Blvd 05/08 15,000 Goodwill - Expansion Power Center Eagle Landing 04/08 8,836 bully s Sports Bar Neighborhood Center Significant SALES Property Address DAte square Feet buyer/seller type 180 W Peckham Ln 04/08 24,040 northern NV Acquisitions / ROTMA strip Retail 7450 S Virginia St 04/08 6,240 Halle properties / Nev-Ida Property Investments Specialty Retail 2

3 6.29% 9.43% 22.17% 15.72% reno retail SECOND Quarter 2008 RETAIL AT A GLANCE GLA (SF): 14,275,710 OVERALL VACANCY RATE: 9.18% ABSORPTION: -91,936 COMPLETED 2008: 70,700 UNDER CONSTRUCTION: 1,002,033 PROPOSED/PLANNED: 2,669,577 MEDIAN MONTHLY RENTS: $1.81 Completed and Under Construction 740,000 of retail space was completed in 2007 and only 207,096 has been completed for the first half of The opening of Whole Foods was significant for our market and strong sales from this specialty/organic retailer will further validate the Reno/Sparks market as being able to support upper end retailers. The Legends at Sparks Marina has over 600,000 under construction which includes, Best Buy, Target, Scheels, and Buildings B, C and E. This is only part of the 1,002,033 of retail under construction in Reno and Sparks. Other significant retail developments under construction are comprised of Eagle Landing, Los Altos Crossing and Pioneer Meadows. Currently 2,669,577 of retail space is planned, which is slightly down from 2.84 million planned in This shows that developers are still optimistic in Northern Nevada. Park Lane Promenade is a significant project on the books that should break ground by the end of the year. The site will consist of a little over 500,000 and will keep the current anchors of Gottschalks and Century Theatres with a strong third anchor under lease negotiation. The site will be home to national restaurant/drug/grocery pads along the perimeter of S. Virginia St. and Plumb Ln. and attract new and existing smaller shop and junior anchor tenants to the center. Forecast for the Second Half of 2008 Look for more store closings and news of lower earning from retailers and restaurants. The good news is that Northern Nevada continues to grow at an annual of 2.6%, per the UNR Center for Regional Studies, driving more demand for goods and services. It appears that the rebate checks from the Economic Stimulus package did not have the strong monetary impact as projected, but recent polls show that parents have been holding on to their rebate checks for back to school shopping. Discount retailers will manage to control more market share in their niche and continue to expand until the economy rebounds. Rising costs of food and fuel will drive consumers to look for cheaper alternatives. Discount supermarkets, such as Super Walmart, WinCo, and Save Mart, and surplus or second hand clothing, electronics, books, shoes, DVD s, CD s and furniture stores will continue to grow in popularity as will their online counterparts. Following the value theme, store brand or inhouse products will lead the way as consumer favorites. In fact, these in-house brands have already captured 60% of consumer purchases for this year and that percentage is steadily increasing. Power Centers, Lifestyle Centers and stand alone Super Centers are sure to see an increase in shoppers if gasoline prices remain high. These centers allow the consumer to save gas by completing all of their shopping in one area. Total Vacancy Rates By Submarket 1Q2008 vs TOTAL VACANCY RATE 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 24.06% 24.06% 23.03% 54.46% 46.98% 59.70% % 6.25% 6.93% 12.66% 12.76% 6.04% 7.37% 6.07% 7.19% 6.31% 6.93% 7.31% 8.86% 14.75% 6.04% 6.03% 0.00% 2.15% 7.92% 7.92% 5.47% 5.55% 0.00% 8.40% 7.65% Airport Kietzke Airport Kietzke Meadowood Meadowood North Valleys North Valleys NE Reno NE Reno NE Sparks NE Sparks NW Reno NW Reno Park Lane Park Lane 1Q08 2Q08 Reno Redev. Reno Redev. South Reno South Reno South Virginia South Virginia SW Reno SW Reno Sparks Industrial Sparks Industrial Spanish Springs Spanish Springs Sparks Redev. Sparks Redev. West Sparks West Sparks 3

4 Reno retail SECOND Quarter 2008 Retail MARKET STATISTICS second QUARTER 2008 EXISTING PROPERTIES direct vacancy Sublease vacancy total vacancy Net Absorption Construction rent class bldgs total inventory Rate prior current occupied year to date completed this under const. average asking COMMUNITY CENTER Kietzke 1 275,400 71, % , % 26.13% 203, $1.25 Meadowood 5 768,585 98, % , % 12.33% 669,866 (3,931) (50,050) 52,000 - $1.80 NE Reno 1 35,000 8, % - - 8, % 24.81% 26,318-26, $2.65 NE Sparks 2 439,526 32, % , % 7.07% 406,950 (1,494) 8, $1.85 NW Reno 1 273,960 5, % 1, % 7, % 1.96% 266,948 (1,650) (1,650) - - $2.25 Park Lane 2 412, ,447 26,53% , % 42.01% 303,035 (11,525) 5,475-62,300 $1.10 S. Virginia 1 92,098 2, % - - 2, % - 89,598 (2,500) (2,500) - - $1.25 West Sparks 4 918, , % , % 12.89% 799, ,900 $2.00 Total 16 2,939, , % 1, % 377, % 12.90% 2,765,812 (21,100) (14,310) 52,000 84,200 $1.93 FREESTANDING Kietzke 3 52, , Meadowood 3 253, , % 17, % - 235,954 (17,409) (7,409) - - $1.75 NE Sparks 1 17, , NW Reno 1 125, , SPark Lane 4 81,157 58, % , % 15.56% 22,973 (45,559) (46,569) - - $0.65 Reno Redev , % , % 61.68% 52,067 21,000 28, $1.00 West Sparks 1 106, % , Total ,264 87, % 17, % 104, % 8.73% 612,671 (41,968) (25,978) - - $1.35 REGIONAL CENTER NE Sparks ,000 - South Reno 1 647,801 34, % % 34, % 5,69% 613,748 2,795 11, $3.33 Total 1 647,801 34, % % 34, % 5.69% 613,748 2,795 11, ,000 $3.33 POWER CENTER Kietzke 2 433,277 24,140 5,57% 3, % 27, % 6.53% 405, , $1.65 Meadowood 6 1,534,707 25, % 28, % 53, % 3.43% 1,480,836 (1,200) 7, $2.50 NW Reno 2 463, , South Reno 2 747,629 5, % - - 5, % 0.89% 742,169 1,200 (1,803) - 25,530 - Spanish Springs 3 1,106,970 66, % , % 6.05% 1,039,999-34,061-2,260 $2.83 West Sparks 2 172, ,991-15, Total 17 4,458, , % 32, % 154, % 3.47% 4,304, ,879-27,790 $2.40 SPECIALTY RETAIL Kietzke 1 24,753 7, % - - 7, % 31.95% 16,845 - (7,908) - - $1.13 NE Sparks 1 12, , Park Lane 1 11,500 11, % , % , Reno Redev. 2 31,212 30, % , % 97.38% $2.50 South Reno 1 94, , Sparks Redev. 1 12, % 12,764 7,000 9, Total 7 187,529 49, % % 49, % 25.74% 137,727 7,000 1,692 11,500 - $1.71 STRIP RETAIL Airport 3 99,848 11, % , % 12.65% 88,544 (500) 5, $2.30 Kietzke 2 66,539 14, % , % 19.89% 52,007 (1,300) (2,899) - - $1.15 Meadowood ,110 52, % 4, % 56, % 7,65% 438,502 (18,745) (30,914) - - $1.75 North Valleys 4 76,671 16, % , % 23.44% 60,341 1,643 15, $1.75 NE Reno 2 52,672 12, % , % 23.57% 40, $1.75 NE Sparks 6 179,536 19, % 1, % 21, % 9.15% 158,167 (14,788) (16,038) - - $1.85 NW Reno 9 286, , % 2, % 109, % 33.42% 176,981 (13,645) 9, $1.88 Park Lane ,093 40, % , % 5.42% 305,479 (12,114) (16,092) - - $1.50 Reno Redev. 3 50,112 16, % , % 16.06% 33,212 (8,850) 9, $2.25 South Reno 7 155,398 50, % , % 32.55% 104,820 - (11,962) - - $1.95 S. Virginia 2 24, ,182-10, SW Reno 3 45, , Spanish Springs 2 86,162 6,693 7,77% - - 6, % 10.22% 79,469 2, ,200 27,028 $0.00 sparks indust. 2 23,822 17,377 72,95% ,377 72,95% 59,67% 6,445-1,346-38,638 $2.58 West Sparks 4 233,707 2, % - - 2, % 1.42% 231, ,445-16,500 $1.00 Total 72 2,222, , % 8, % 376, % 13.25% 1,845,838 (65,335) (6,876) 7,200 82,166 $1.81 4

5 reno retail SECOND Quarter 2008 Retail MARKET STATISTICS second QUARTER 2008 EXISTING PROPERTIES direct vacancy Sublease vacancy total vacancy Net Absorption Construction rent class bldgs total inventory Rate prior current occupied year to date completed this under const. average asking NEIGHBORHOOD CENTER Airport 1 102,907 2, % - - 2, % 0.92% 100,162 (1,795) (1,795) - - $2.15 Kietzke 1 106, , Meadowood 1 67, , % 3, % 4.76% 64, $2.80 North Valleys 4 338,847 13, % , % 2.14% 325,299 (6,300) (3,100) - - $1.85 NE Sparks 3 457,617 22, % , % 4.82% 434,851 (694) (44) - - $1.65 NW Reno 4 474,874 27, % , % 3.72% 447,331 (9,873) (12,973) - - $2.15 Park Lane 1 102, % ,938-2, South Reno 4 458,110 31, % 5, % 36, % 7.18% 421,392 (3,840) (8,208) - - $2.25 SW Reno 2 182,480 18, % , % 9.91% 164,398 - (4,000) - - $1.58 Spanish Springs 2 226,066 5, % - - 5, % 0.69% 220,966 3,600 3, ,877 $2.03 West Sparks 3 309,360 8, % 4, % 12, % 7.50% 296,660 10,491 (4,360) - - $1.87 Total 26 2,827, , % 12, % 142, % 4.50% 2,684,709 (8,411) (28,380) - 207,877 $1.98 PROPERTY TYPE TOTALS Airport 4 202,755 14, % , % 6.24% 188,706 12,169 18, $2.30 Kietzke , , % 3, % 122, % 12,66% 836,691 (985) 28, $1.25 Meadowood 27 3,119, , % 53, % 229, % 6.04% 2,889,248 (41,285) (80,897) 52,00 - $1.75 North Valleys 8 415,518 29, % , % 6.07% 385,640 (4,657) 11, $1.85 NE Reno 3 87,672 21, % , % 24.06% 66,575-26, $2.65 NE Sparks 13 1,106,759 75, % 1, % 76, % 6.31% 1,030,048 (16,976) (7,985) - 600,000 $1.35 NW Reno 17 1,623, , % 3, % 143, % 7.31% 1,479,538 (25,168) (5,200) - - $2.00 Park Lane , , % , % 14.75% 734,425 (69,198) (54,686) 11,500 62,300 $1.28 Reno Redev ,391 76, % , % 54.46% 86,097 12,150 37, $2.75 South Reno 8 2,103, , % 5, % 126, % 6.04% 1,976, (10,732) - 25,530 $2.22 S. Virginia 3 116,280 2, % - - 2, % - 113,780 (2,500) 8, $1.00 SW Reno 5 228,398 18, % , % 7.92% 210,316 - (4,000) - - $1.45 Spanish Springs 7 1,419,198 78, % , % 5.47% 1,340,434 5,717 38,378 7, ,165 $2.83 sparks indust. 2 23,822 17, % , % 59.70% 6,445-1,346-38,638 - sparks redev. 1 12, % 12,764 7,000 9, $1.65 West Sparks 14 1,740, , % 4, % 133, % 8.40% 1,607,729 31,642 49,389-38,400 $1.87 MARKET TOTAL ,275,710 1,238, % 72, % 1,310, % 8.21% 12,965,065 (91,936) 66,036 70,700 1,002,033 $1.81 Quarterly Comparison and Totals Q ,275,710 1,238, , % 1,310, % 8.21% 12,965,065 (91,936) 66,036 70,700 1,002,033 $1.81 Q ,225,227 1,104, % 63, % 1,168, % 8.17% 13,057, , , , ,223 $1.86 Q ,046,877 1,096, % 51, % 1,147, % 8.05% 12,899, , , ,291 $1.84 Q ,863,911 1,071, % 44, % 1,116, % 7.80% 12,747,715 37,795-50, ,390 $1.77 Q ,785,274 1,037, % 37, % 1,075, % 7.20% 12,709, , ,701 1,144,894 $1.76 Q ,484, , % 19, % 988, % 0.00% 12,496, $ Outlook (con t) Restructuring of retailers in 2008 will lead to stabilization in 2009 and hopefully a full recovery in 2010 and 2011, as anchor retailers such as Target, Lowes and Kohl s look to fill planned shopping center locations during this timeline. Bankruptcies, buyouts, and mergers will inevitably control the headlines and sound bytes feeding the self fulfilled recession fire. Our local economy will feel the spending pinch and more store and restaurant closings are yet to come. Reno s retail heartbeat seems to be on the same rhythm as the national retail economy. We expect landlords to become aggressive with rent concessions, such as: rent abatement, reduced rent, higher tenant improvement allowances, and broker incentives. Rents, particularly in new A&B class properties will decrease slightly as older B&C class properties become more desirable because of cheaper rents. The housing market will be a huge determining factor in the recovery of retail and has the potential to open up more credit for tenant expansions and create new shopping centers to meet the increased population. Various analysts have predicted the housing market will stabilize in The former federal reserve chairman, Alan Greenspan, was quoted on August 14th, 2008 stating Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009, which coincides with Colliers forecast of a retail stabilization and recovery. 5

6 Reno retail SECOND Quarter 2008 Retail closures planned in 2008 Source: Colliers national retail services group Company Store Closings Notes Ann Taylor 117 Nationally Eddie Bauer 27 Store closings are nationwide, two more planned by EOY Cache 20 to 23 Nationally by end of 2008 Lane Bryant, Fashion Bug, Catherines 150 Nationally Talbots and J. Jill 78 Gap Inc. 85 Nationally Foot Locker 140 Nationally Wickes Furniture All Going out of business Closing all 78 kids and men's stores. Plans to close another 22 under performing stores. Levits All Going out of business, closing all stores in December Zales, Piercing Pagoda 82 The Walt Disney Company Subsidiary Children's Place Home Depot 15 Nationally CompUSA 126 Nationally Macy's 9 Nationally 98 Movie Gallery 160 Pacific Sunwear 153 Demo stores Pep Boys 33 Nationally Sprint Nextel 125 Nationally J.C. Penneys TBD Scaling back Lowes TBD Scaling back Office Depot TBD Scaling back Plans to close 82 stores by July 31st, and 23 more underperforming stores filed bankruptcy protection, obtained right to close about 98 Disney Stores nationwide Plan to close 400 of the 3,500 Movie Gallery and Hollywood Video Stores Ethan Allen Interiors 12 Planning to close 12 stores nationally Wilsons Leather 158 Nationally Sharper Image 90 Filed bankruptcy protection Bombay Company 384 Closing all 384 U.S. based stores KB Toys 356 Closing 356 stores as part of its bankruptcy reorganization Dillards 13 Nationally Steve and Barry's Clothing stores filed for bankruptcy Linens-n-Things 120 Closing 120 stores as part of its bankruptcy reorganization 293 offices in 61 countries on 6 continents USA 99 Canada & Latim America 37 Greater Asia 62 EMEA 95 $73 billion in annual transaction volume 868 million under management 11,000 Professionals Contact information Double R Boulevard Suite 100 Reno, NV United States Tel: Fax: Tim Ruffin, SIOR, CCIM Managing Partner Senior Vice President Office Properties truffin@colliersreno.com Tel: Krystal Christiaens Research Analyst kchristiaens@colliersreno.com Tel: Text Author: Shawn Smith, CCIM Vice President Retail Properties ssmith@colliersreno.com Tel: This report and other research materials may be found on our website at This ly report is a research document of Reno, NV. Questions related to information herein should be directed to the Research Department at Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers Nevada, LLC dba is an independently owned and oped business and a member firm of Property Consultants, an affiliation of independent companies with 293 offices throughout 61 countries worldwide. Shoe Pavillion 71 Closing 71 stores as part of its bankruptcy reorganization Mervyn s 26 Closing 26 stores as part of its bankruptcy reorganization Starbucks 600 Nationally 6