CHICAGO INDUSTRIAL MARKET

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THIRD QUARTER 2015

Industrial property landlords are benefiting this year in Chicago from strong rent growth in many submarkets, tightening occupancies, and the largest gains in investments sales since the recession.

Industrial real estate sales prices are on average $74.15 PSF, a marked improvement from $45.16 PSF year over year. Overall vacancy has continued to decrease, currently at 7.2%l. Rental rates are holding at $5.38 PSF. Activity doubled this quarter with 3.3 million SF absorbed across all submarkets. E-commerce is changing the landscape across all CRE types but especially with industrial properties. The majority of companies moving to the Chicago area have an e-commerce component. Tenant demand continues to lean toward warehouse spaces that are used for distribution centers or third party logistics companies that support online retail vendors and any related tech support. With large manufacturing companies downsizing, like Caterpillar, the business type absorbing space will be less manufacturing sites and more flex or top of the line warehouses. The remaining question will be if savvy owners will be able to repositions older suburban industrial products in order to make it attractive to alternative users.

As in 2Q15, large signings continue this quarter in and around Interstate I-55. South I-55 and North DuPage submarkets in particular had the most notable signings. Swap.com occupying 361,176 SF at 850 Veteran’s Pky in Bolingbrook received the most attention as it furthers the e-commerce discussion.

However, solid companies such as Central American (490,420 Sf at 815 Bluff Rd, Romeoville), and Kane Warehousing (220,592 Sf at 700 S Weber Rd, Bolingbrook) further strengthens investor confidence that the Chicago industrial market is diversified in the company types attracted to the area.

Eleven additional industrial/flex properties are under construction this quarter. This adds to a total of 36 projects which broke ground in 2015 year to date. When completed, 10 million square feet will be added to Chicago area’s industrial inventory; 42% of it is already preleased. In 3Q15, an additional 160 buildings were added to the grand total of 374 proposed industrial/ flex buildings. The construction numbers suggest that industrial investors are cautious of funding 100% spec development but developers are optimistic that Chicago will support major gains in new construction.

Industrial Sector Growing

A good year for industrial owners as activity continues to tick up

INDUSTRIAL TRENDS

5-YEAR TREND CURRENT QUARTER

VAC A N C Y

7.2%

Continues to decrease A B SO R P TI O N

3,364,477

SF

Activity is high R E NTA L R ATE

$5.38

PSF

Continues increasing U N DE R CO N S TRUC TI O N

10.1

million SF

Developers seeing less risk AVE R AGE SA LE PR I CE

$74.15

PSF

Investors seeing value in industrial CRE

J O B G ROW TH

-0.6%

Job gains less quarter to quarter but gains are made year over year

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ECO N O M Y

Unemployment Continues to Fall

The Chicago unemployment rate continues to fall for 3 consecutive quarters. Currently at 5.7% for Chicago Metro (Chicago-Naperville-Arlington Heights, IL, Metro Division) in August 2015. This is the lowest rate in 9 quarters; however, some of the decrease in unemployment is due to the decrease in the overall civilian labor force in the metro area as well. Construction employment continues to be the drive in the market increasing 5.8% year over year regionally, and 4.7% nationally. Manufacturing and Information sectors lost jobs at an average 1.4% rate year over year or 7500 jobs year over year.

The economic recovery is boosting intermodal freight trade in Chicago as it is a key transportation hub in the US. Consumer demand increases for retail goods to industrial parts, all of which are moved by freight trains. This increase in consumption has surged jobs in logistics, trucking, and packaging in Chicago. According to the Chicago Metro Agency for Planning, container movement in Chicago railyards has increased from 5.9 million to 7.5 million or 27% percent over 5 years.

DE M A N D

Leasing Activity Doubled

Net absorption overall doubled quarter over quarter with 3.3 million in positive absorption in 3Q15, up from 1.6 million SF in 2Q15. Industrial leasing market has consistently been positive absorption for 17 quarters since 2Q 2011. The majority of the absorption in 3Q15 occurred in I-55/I-80 SW Corridors, South Suburban, and North DuPage submarkets. Many signings that occurred last quarter have already occupied space; accounting for high absorption in these submarkets as well high signing activity. Expect North DuPage as well as South I-55 to continue with high absorption until end of year as the majority of major lease signings in 3Q15 occurred in these areas.

VAC A N C Y

Vacancy Decreasing

Overall industrial vacancy decreased 40 basis points to 7.2% quarter over quarter. O’Hare, I-55/I-80, South Chicago, South Suburbs and McHenry County had large drops in vacancy in 3Q15. Despite slight vacancy increases in this submarket, the lowest vacancy remains in Kenosha County (3.2%). Within Illinois, the next tightest submarkets are Central DuPage/Kane (5.4% vacancy), I-88 Corridor (5.2%), and Southwest (4.7%). The highest vacancy remains in the Upper Northwest, McHenry County, and Northwest submarkets, where competition with Wisconsin real estate in a more favorable corporate tax environment is winning out.

YEAR-OVER-YEAR EMPLOYMENT CHANGE BY INDUSTRY SECTOR

-2% -1% 0% 1% 2% 6% 5%

METRO CHICAGO UNITED STATES

3% 4% Total Nonfarm Trade, Transportation & Utilities Professional & Business Services Education & Health Services

Leisure & Hospitality

GovernmentConstruction Information

Mining & LoggingFinancial ActivitiesManufacturingOther Services UNEMPLOYMENT RATE 2% 4% 6% 8% 10% 12%

METRO CHICAGO UNITED STATES

07 08 09 10 11 12 13 14 15

CAP RATE

METRO CHICAGO UNITED STATES

9% 6% 10% 7% 8% 07 08 09 10 11 12 13 14 15

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RENTAL RATES BY SUBMARKET Ctrl DuPage/Kane I-88 I-55 Corridor Indiana Kenosha County Lake County North Lake County SouthMcHenry County North Cook North Chicago North DuPageNorthwest O'Hare South Chicago South SuburbanSouthwest Upper NorthwestWest Cook West Suburbaan $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 2Q15 3Q15 1Q15 2% 4% 6% 8% 10% 12% 14% Ctrl DuPage/Kane I-88 I-55 Corridor Indiana Kenosha County

Lake County NorthLake County SouthMcHenry County North Cook North Chicago North DuPage

NorthwestO'Hare South ChicagoSouth Suburban

Southwest Upper Northwest West Cook West Suburbaan 2Q15 3Q15 1Q15 VACANCY BY SUBMARKET

NET ABSORPTION BY SUBMARKET THOUSANDS SF

-800 -400 0 1600 2Q15 3Q15 1Q15 400 800 1200 Ctrl DuPage/Kane I-88 I-55 Corridor Indiana Kenosha County

Lake County NorthLake County SouthMcHenry County North Cook North Chicago North DuPage

NorthwestO'Hare South ChicagoSouth Suburban

Southwest Upper Northwest

West Cook West Suburbaan R E NTA L R ATE S

Asking Rents Increasing Slightly

Overall industrial rental rates increased quarter over quarter to only $5.38 from $5.33. The largest increases were in the West Suburban, I-88 Corridor, Indiana, North Cook, and North DuPage submarkets, averaging 20 cents PSF quarter over quarter. West Cook submarket decreased by 28 cents PSF quarter over quarter. Submarkets with older inventory are undercutting their rates while newer spec buildings that are expected to ask for premiums in rents have yet to hit the market.

OUTLO O K

Lenders are cautious of providing capital that may lead to overbuilding and saturation of the market. Not forgotten was the exuberance of the 2007/2008 which led to empty completed structures once the economic market failed. Developments that are user driven, especially those in tech, e-commerce and 3PLs, are expected to increase over the next two years, over empty speculative space. However, speculative buildings are being built in well-chosen, high demand locations. Expect speculative development to be larger with over 1 million SF warehouses and 36 inch clear height minimums.

I N VE S TM E NT V IE W

Some Developers, Some User/Owners

In 3Q15, industrial sales were distributed amongst REITS, developers, small private investors and owner/users. No one buyer dominated the marketplace but rather the theme was more owner /users in 3Q15 than in the past few quarters. Hoist Liftruck Manufacturing purchasing a facility at 4407 Railroad Ave, East Chicago, Gourmet Food International purchased 9629 58th Place, Kenosha, and Steiner Electric at 2225 W Hubbard St, Chicago. Bridge Development and AIC Ventures were the well-known players in the sales purchasers this quarter; purchasing facilities in Melrose Park, Hillside, and Wheeling.

The largest property sold was in Monee, IL. 5800 W Industrial Drive, the 700,200 SF facility, sold for $22 Million ($31 PSF). A majority of sales this quarter were just north of the city of Chicago in North Cook and North Chicago submarkets. One third of all the industrial sales in 3Q15 were smaller facilities of less than 50,000 SF.

Industrial sales volume for 3Q15 was significantly less than the previous 2 quarters, however overall, 2015 is on track to be the highest industrial sales volume since 2007.

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METRO CHICAGO INDUSTRIAL RENTAL RATES $3.50 $4.00 $4.50 $5.00 $5.50 $6.00 10 11 12 13 14 15

METRO CHICAGO DEVELOPMENT PIPELINE MILLION SF

CONSTRUCTIONS COMPLETED 0m 2m 4m 6m 8m 12m 10m 11 12 13 14 15

Industrial average sales price per square foot decreased to $74.15 from $78.91 quarter over quarter. This is not an indicator of prices decreasing as year over year price per square foot increased from $45.16 PSF. The second quarter had a huge increase in sales prices due to a larger volume of buildings being purchased in the Prologis/ Norges Bank portfolio purchases from KTR Capital. However, a positive indicator is despite a smaller volume of buildings changing hands in the 3rd quarter by different investors, price per square foot remained at above $70.

Cross border investments continue to increase in industrial properties. Foreign investors currently make up 51% of Chicago industrial

investments year to date in terms of volume and number of properties. With the investments primary coming from Norway, Singapore and U.A.E, Canadian investors have also joined in investing in Chicago this year. However, a large majority of cross border investment count was with Norges Bank which had a joint venture partnership with Prologis, a local investor.

Investors are seeing higher rates of return on their industrial investments with cap rate at 6.8% compared to 6.62% in office. The steady increase in tenant activity has leaned the industrial market in favor of the landlord. Supply is decreasing for larger tenants over 300,000 SF. Occupancy costs are increasing as development land is getting scarce and purchase costs are increasing. Speculative buildings are on the horizon but lenders are cautious, with more generous funding for user-backed new developments.

TE N A NT V IE W

Internet’s Impact on Industrial

Swap.com signed for 361,176 SF at 850 Veteran’s Pky in 3Q15. They joined the wave of other Dot coms such as Amazon who recently signed more distribution space in the Chicago area at 2801 S Western Ave for 150,261 SF and 4500 Western Ave in Lisle for 67,996 SF. Other industrial users such as Insight, a computer hardware, software & IT solutions company, renewed 238,423 SF in 1600 Hunter Ct, Hanover Park. Not only is e-commerce making a significant impact on industrial absorption, but also logistics firms and tech firms that support it are also looking to expand into industrial space in Chicagoland.

Developers are excited about the technology impact on industrial space use in Chicago. These particular companies are in need of fulfillment or warehouse locations near city centers where they have access to thousands of workers. Tech users are not only willing to pay a premium for location but also tend to build the interior themselves to meet their specific technology needs. Expectations for the next 2 years

METRO CHICAGO NET ABSORPTION AND VACANCY

2% 4% 6% 8% 10% 12% 14% -2 0 2 4 6 8 10 10 11 12 13 14 15

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Lease Activity

TENANT PROPERTY CITY SIZE (SF) TYPE SUBMARKET CLUSTER

Wm. Wrigley Jr. Company 825 Bluff Rd Romeoville 500,160 Renewal South I-55 Central American 815 Bluff Rd Romeoville 490,420 New South I-55 Swap.com 850 Veterans Pky Bolingbrook 361,176 New South I-55 Insight 1600 Hunter Ct Hanover Park 238,423 Renewal North DuPage Kane Warehousing, Inc. 700 S Weber Rd Bolingbrook 220,592 New South I-55 Ferguson Enterprises, Inc. 969 Veterans Pky Bolingbrook 209,763 New South I-55 IMI Cornelius, Inc. 500 Regency Dr Glendale Heights 160,660 Renewal North DuPage GELS Logistics 370-430 Kimberly Dr Carol Stream 154,275 New North DuPage Insight Public Sector Inc 1560 Hunter Rd Hanover Park 151,999 Renewal North DuPage Amazon.com 2801 S Western Ave Chicago 150,261 New South Chicago Cellusuede 1515 Elmwood Rd Rockford 125,253 New Upper Northwest Parksite 1400 Remington Blvd Bolingbrook 125,030 Renewal South I-55 Bolke Miller Company 3540-3630 Amhurst Pky Waukegan 119,000 New Lake County North Quantum Colors 6400-6430 W Howard St Niles 81,804 New North Cook Falken Tire 1510-1515 Olympic Blvd Joliet 75,400 New South I-55 US Auto 7711 Gross Point Rd Skokie 69,203 New North Cook Amazon.com 4500 Western Ave Lisle 67,996 New I-88 West Novamatic Americas 1050 E Business Center Dr Mount Prospect 51,211 New Northwest Commonwealth Edison Co 3536 S Iron St Chicago 51,000 New South Chicago Fort Pitt Furniture 5150 W Roosevelt Rd Chicago 50,000 New North Chicago Rena Foods 1544-1546 Hecht Dr Bartlett 45,307 New Northwest

NTS 1660 Wall St Mount Prospect 45,083 New Northwest

SimplexGrinnell LP 91 Mitchell Ct Addison 45000 Renewal West Suburban

GHP 7860 Lehigh Ave Morton Grove 42,480 New North Cook

Fibre-Craft 7711 Gross Point Rd Skokie 41,432 New North Cook Midwest Pioneers, Inc. 1270-1280 Frontenac Rd Naperville 40,674 Renewal I-88 West Camrbia 1780 Birchwood Ave Des Plaines 40,640 New O'Hare Wisdom Adhesives Worldwide 350-370 River Ridge Rd Elgin 39,131 New Northwest

Logoplaste 540 Joyce Rd Joliet 37,900 New South I-55

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Sale Activity

PROPERTY SIZE (SF) SALE PRICE PSF BUYER SELLER SUBMARKET CLUSTER

5800 W Industrial Dr 700,200 $22,000,000.00 $31 Will Partners Reit GC Essential Asset REIT South Suburban 4407 Railroad Ave 550,000 UNK Hoist Liftruck Manufacturing Read Property Group Indiana 2501 Galvin Dr 342,620 $29,000,000 $85 Zurich Alternative AM Conor Commercial / Globe Corp. Northwest

2210 S Grove St 265,000 UNK R2 Companies South Chicago

11600 W Grand Ave 191,302 $8,587,500 $45 Bridge Development Partners Northern Builders West Cook 410 W 169th St 151,436 UNK Venture One Bixby Bridge Capital South Suburban 5000 S Homan Ave 128,000 $5,000,000 $39 Robust Management Sitex Realty Group Indiana 4220 W Bryn Mawr Ave 123,900 $3,350,000 $27 Venture One CalEast Industrial / LaSalle Investment North Chicago 7940 New Jersey Ave 79,559 UNK Mike K Braun Van Senus Business Properties Central DuPage/Kane 300 N Mannheim Rd 74,156 $3,100,000 $42 AIC Ventures Munchs Supply West Cook

951 Douglas Rd 73,074 $4,600,000 $63 High Street Realty Trust 7-2209 West Suburban 1941 Johns Dr 68,075 $3,870,000 $57 Private Stanley Weissbrot North Cook 301 Alice St 65,450 $2,900,000 $44 AIC Ventures Rivergold II North Cook 1930 W Walnut 58,800 $11,250,000 $191 Mark IV Realty Group Martin Capital Group North Chicago 999 Regency Dr 48,663 UNK Robert Weisheit LaVezzi Precision Inc North DuPage 2717-2735 N Ashland 43,273 $8,100,000 $187 Interforum Holdings Chicago Development

Corp North Chicago 2137 W Walnut St 40,000 $1,900,000 $48 Dayton Street Partners Kehoe Designs North Chicago 9629 58th Pl 35,200 $2,625,000 $75 Gourmet Foods Int'l 58th Place Kenosha County 2101-2107 W Carroll Ave 33,800 $4,063,000 $120 Trust 8002368518 Dayton Street Partners North Chicago 1743 W Rosehill Dr 30,000 $2,500,000 $83 Armand & Erlend R Candea Jerome & Elizabeth Chesnul North Chicago 2225 W Hubbard St 26,590 $2,655,000 $100 Steiner Electric Pontarelli Limousine / Arthur J Rento North Chicago

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Market Indicators

SUBMARKET

INVENTORY

UNDER

CONSTRUCTION QUARTERLY NET ABSORPTION ABSORPTIONYTD NET

VACANCY

NNN AVERAGE ASKING RATES COUNT SQUARE FEET SF OVERALL OVERALLRATES

Central DuPage/Kane 736 51,058,388 299,520 168,127 878,639 2,736,473 5.4% $4.00

I-55/I-80 SW Corridors 1956 193,701,352 5,324,499 1,592,002 2,322,082 14,994,149 7.7% $5.65

I-88 Corridor 860 63,516,682 368,604 86,323 190,303 3,317,054 5.2% $5.90

Indiana 593 43,225,410 300,000 144,124 461,386 2,444,713 5.7% $3.77

Kenosha County 227 28,307,932 584,580 -169,681 17,435 1,026,771 3.6% $3.99

Lake County North 485 37,536,669 626,848 -261,525 -514,681 3,362,135 9.0% $5.08

Lake County South 806 41,399,557 0 -475,025 -347,321 3,355,071 8.1% $6.47

McHenry County 605 30,433,343 0 179,651 25,164 3,082,537 10.1% $4.34 North Chicago 1537 72,919,556 0 170,309 974,197 5,786,073 7.9% $9.36 North Cook 896 50,592,855 217,280 126,450 -189,554 3,074,527 6.1% $6.56 North DuPage 500 39,544,926 477,605 522,837 193,640 2,702,733 6.8% $5.40 Northwest 1244 67,766,927 1,055,040 33,508 -543,721 6,744,315 10.0% $6.34 O'Hare 1,830 101,906,873 297,032 318,528 1,105,727 5,800,226 5.7% $6.23 South Chicago 1372 113,059,211 587,538 600,428 989,090 9,250,088 8.2% $5.23 South Suburban 1,088 72,909,464 0 417,940 349,480 5,887,674 8.1% $4.99 Southwest 156 22,439,936 0 -10,000 0 1,045,382 4.7% $1.81 Upper Northwest 390 27,212,265 0 -103,764 -127,163 3,239,118 11.9% $3.51 West Cook 1100 76,038,540 0 64,879 369,435 4,764,379 6.3% $5.60 West Suburban 870 37,596,144 0 -40,634 -92,318 2,081,162 5.5% $7.89 INDUSTRIAL TOTAL 17,251 1,171,166,030 10,138,546 3,364,477 6,061,820 84,694,580 7.2% $5.38 METHODOLOGY

Inventory defined as existing Class A, B and C industrial/flex properties, 10,000 square foot minimum rentable base area. Overall vacancy inclusive of direct and sublease space. Net absorption defined as the change in physical occupancy from one period to the next. Average asking rents are NNN per square foot, per year. Inventory includes all single-tenant, multi-tenant and owner-user industrial/flex properties, excluding properties owned and occupied by a government agency.

CONTACT

Sandy McDonald

Director of Market Research 312.881.7047

sandy.mcdonald@transwestern.com

T 847.588.5700 F 847.588.0034 5600 N. River Road, Suite 150

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