McHenry County and the Next Wave

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1 McHenry County and the Next Wave McHenry County Council of Governments Increasing Jobs and Fostering Economic Development November 17, 2010 Stephen B. Friedman AICP, CRE, S. B. Friedman & Company with Assistance and Material from Mary Ludgin of Heitman

2 Overview Global and National Economic Trends (Courtesy of Heitman) Real Estate Market Snapshot Demographics Impacting the Recovery Regional Growth Trends McHenry County Projected Job and Population Growth Key Issues for McHenry County 2

3 There is a difference.

4 Economic Overview Asia Leading the Global Economic Recovery Real GDP Growth by Region % change in inflation-adjusted GDP forecast 6 Asia Pacific U.S. European Union Source: Economist Intelligence Unit; Heitman Research

5 Economic Overview U.S. Adding Jobs But Far Less Than Needed Historical and Forecast Employment Growth U.S , , ,000 jobs gained/ lost month-over-month Optimistic Case jobs gained/ lost % change forecast 3.0% 100, % 0-100, , , , , , , ,000 J FM A MJ J AS O ND J FM A MJ J AS O ND J FM A MJ J AS O ND J FM A MJ J AS O ND J FM A MJ J AS O ND J FM A MJ J AS O ND J FM Mild Second Recession Scenario A MJ J AS O ND -1.0% -3.0% -5.0% -7.0% Source: Bureau of Labor Statistics; Economy.com; Heitman Research

6 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Economic Overview Unemployment Claims Remain Stubbornly High But Finally Back Below Lehman Failure Initial Unemployment Claims U.S. 1/ / , 's of first-time claims Not Seasonally Adjusted Seasonally Adjusted Source: U.S. Department of Labor; Datastream; Heitman Research

Economic Overview Other Challenges Acting as Economic Drags Slower global growth Politics blocking policy Housing market still stalled Unemployment hasn t yet peaked

7 Economic Overview Other Challenges Acting as Economic Drags Slower global growth Politics blocking policy Housing market still stalled Unemployment hasn t yet peaked Many households still constrained Banking sector impaired, restraining lending State and municipal financial challenges Tax changes loom Financial reform ripple effect

8 Economic Overview This Won t be a Rising-Tide Recovery Job Growth by Metropolitan Area Q Q Jacksonville 2.8% Tampa 2.8% Birmingham 2.6% Charlotte 2.6% Miami 2.6% Louisville 2.4% Chicago 1.9% Portland 2.3% Cincinnati 1.9% Salt Lake 2.3% Kansas City 1.9% Seattle 2.3% Los Angeles 1.9% Minneapolis 2.2% Oklahoma City 1.9% Cleveland 1.7% Nashville 2.2% Philadelphia 1.9% New York 1.7% Austin 3.5% Phoenix 2.2% San Diego 1.9% Richmond 1.7% San Antonio 3.4% New Orleans 2.1% San Francisco 1.9% Washington, D.C. 1.7% Atlanta 3.2% United States 2.1% San Jose 1.9% Boston 1.6% Dallas 3.2% Columbus 2.0% Denver 1.8% Buffalo 1.6% Las Vegas 3.2% Memphis 2.0% Indianapolis 1.8% Milwaukee 1.5% Orlando 3.2% Providence 2.0% Pittsburgh 1.8% Baltimore 1.4% Houston 3.1% Riverside 2.0% Sacramento 1.8% Detroit 1.2% Raleigh 3.0% St. Louis 2.0% Virginia Beach 1.8% Hartford 1.2% 3.0%+ 2.0%-2.9% 1.75%-1.9% 1.0%-1.74% Source: Moody's Economy.com; Heitman Research

9 Apartment Update Effective Rents, Occupancy Up Sharply in 2010 for Apartments Effective Rent vs. Occupancy U.S. April 2008-September 2010 $980 $970 $970 Effective Rent Up 5.8% from bottom 7.8% annualized 94.0% 93.5% $960 Occupancy (right axis) 93.4% 93.0% $950 Effective Rent (left axis) $ % $ % $930 $ % 91.5% $910 $ % $900 A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O % Source: Axiometrics Research; Heitman Research

10 Apartment Update Renter Households U.S millions of households # of Renter Households will Continue Rising forecast '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: Moodys Economy.com; Census Bureau; Heitman Research

11 Industrial Update Industrial Vacancy May Have Peaked Q-O-Q Availability Increase U.S. Q Q Forecast Source: CBRE Econometric Advisors; Heitman Research

12 Industrial Update Imports Back Up; Exports Volatile Y-O-Y Monthly Loaded Container Volume Growth Los Angeles/ Long Beach (September) 40% 30% 20% 10% 0% -10% -20% Imports Exports -30% -40% J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S Source: Port of Los Angeles; Port of Long Beach; Heitman Research

13 Retail Update Retail Vacancy Ticking Down and Construction has Fallen to Historic Lows Open-Air Retail Real Estate Market Trends United State (Q3) 60,000,000 Square Feet Vacancy % 12.0% 50,000,000 40,000,000 30,000, % Retail Update SF Deliveried 6.9% 7.0% 7.2% 7.5% 7.5% 7.6% 7.9% 8.1% 8.2% 8.7% 9.4% 9.7% 9.9% 10.0% 10.1%10.0% 9.9% Vacancy Rate 10.0% 8.0% 20,000, % 10,000, % 0 (10,000,000) Net Absorption 2.0% (20,000,000) 0.0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: CoStar; Heitman Research

14 Retail Update Outlook Brightening Given Sales Rebound Retail Sales Excluding Automobiles U.S % year-over-year forecast 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% % -6.0% -8.0% -10.0% Source: Economy.com; Heitman Research

15 Retail Update And Retailer Expansion Plans Net Store Openings U.S. 55-Retailer Sample % 6.0% 5.0% 4.0% Mall Small Shop Open Air 3.6% 3.7% 3.0% 2.5% 2.7% 2.0% 2.0% 1.0% 0.6% 1.1% 1.0% 0.0% (0.6%) (1.0%) E 2011E Source: TAG Research; Heitman Research

16 Office Update Office Vacancy Is Peaking Office Market Vacancy Trends: Downtown vs. Suburbs U.S Suburban Downtown Source: CBRE Econometric Advisors; Heitman Research

17 M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 Office Update Office Employment Appears to be Expanding Office Employment: Annualized 3-Month Change in Rolling 3-Month Average 1.5% Total Office 0.0% -1.5% Total less Temp Help -3.0% -4.5% -6.0% -7.5% -9.0% Source: U.S. BLS; Heitman Research

18 Office Update NOI Growth Outlook Highly Variable Forecasted NOI Growth Select U.S. Office Markets 2010Q3 2.0% Next 12 Months Nashville Metro 5 Year Chicago CBD CAGR Washington D.C. 0.0% Philadelphia Center City -2.0% 0.0% 2.0% 4.0% Northern Virginia Houston CBD Dallas Suburbs Denver Metro Boston CBD Austiin Metro Atlanta Suburbs -2.0% Los Angeles Westside Long Island Metro Orlando Metro Minneapolis Metro San Francisco CBD -4.0% Seattle CBD New York Midtown Miami Metro San Diego Metro Orange Co. Airport -6.0% Source: CBRE Econometric Advisors; Heitman Research

19 McHenry County 19

20 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 2010 Single Family Home Sales New Single Family Home Sales - USA 140,000 1,600 Existing Single Family Home Sales McHenry County 120, ,000 1,400 1,200 1,000 80,000 60, , , J-00 J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J

21 1996 2Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Office Market: Chicago Region vs. McHenry County 40.0% Office Vacancy 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Chicago Region McHenry 21

22 Office/Employment-Based Development Challenge to Market Suburbs Lagging Loop Loss of Tenants: Willis, United, Crate and Barrel Unit Factors Lack of Diverse Labor Force Congestion / Lack of Transit Lack of Rental Opportunities for Young Labor Q Vacancies 20.00% 10.00% 0.00% 21.20% 16.60% CBD Chicago Suburban Chicago Q Asking Gross Rent Range $60.00 $52.00 $40.00 $32.00 $33.50 $23.00 $20.00 $- CBD Chicago Suburban Chicago Low High 22

23 1996 2Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Industrial-Flex Market: Chicago Region vs. McHenry County 14.0% Industrial-Flex Vacancy 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Chicago Region McHenry 23

24 2006 1Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Retail Market: Chicago Region vs. McHenry County 12.0% Retail Vacancy 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Chicago Region McHenry 24

25 Demographics Impacting Recovery Current Age

26 Immigration and Population Growth Immigration Growth as Percent of U.S. Population Growth (Thousands of People) 20,000 15,000 10,000 5,000 35% 34% Growth Due to Immigration Growth Due to Other Factors 26

27 The Region Continues to Grow 70,000 60,000 Annual Population Change in 6-County Region, Estimated 6-County Population Forecast 12,000,000 10,000, M 50,000 8,000,000 40,000 30,000 20,000 10,000 6,000,000 4,000,000 2,000, Source: US Census Population Estimates and Woods and Poole Inc. Source: Woods and Poole Inc, and CMAP 27

28 Age Waves: Demography Drives Demand Households by Age of Householders in 6-County Chicago Region 1,600,000 1,400,000 1,200,000 1,000, , , , ,000 - <35 Yrs Yrs. >55 Yrs Source: Woods and Poole Inc., US Census and S.B. Friedman & Company 28

29 Net Change in Adult Population by Age in Chicago Region : Renters & 1 st -Time Homebuyers Family Years Trade-Up Homebuyers Empty Nester & Young Senior Homeowners Older Seniors w/ Special Needs 225, , , , , , , , ,097 49,227 70,247 25,699 40,389 32,019 25, ,387-34,371-85,338 Source: Woods and Poole and S. B. Friedman & Company 29

30 McHenry County: Adult Population Change by Age Total Change Annual Change Households 90, , ,009 55,276 2,764 Population 261, , , ,784 6, , , ,000 80,000 60,000 40,000 20, Yrs Yrs Yrs. 75+ Yrs. - Source: Woods and Poole Economics, Inc. and S. B. Friedman & Company 30

31 Net Change in Adult Population by Age in McHenry County: Renters & 1 st -Time Homebuyers Family Years Trade-Up Homebuyers Empty Nester & Young Senior Homeowners Older Seniors w/ Special Needs 20,907 14,331 36,531 12,962 10,844 12,041 10,657 11,609 9,587 7,475 6,644 6,314 3,419 4,678 4,060 1, ,788-2,236 Source: Woods and Poole and S. B. Friedman & Company 31

32 Preferences in Chicago Region Estimated Housing Preference for New Housing by Age of Householder in 6-County Chicago Area: % 90% 80% 70% 60% 27% 12% 12% 15% 19% 8% 13% 13% 12% 27% 18% Rental Condo 50% 40% 30% 20% 21% 40% 67% 45% 51% Attached one-family house Detached one-family house 10% 0% < >75 Age of Householder Source: US Census Public Use Microdata Sample and S. B. Friedman & Company 32

33 Retail Spending Impacts $25,000 Spending by Select Retail Categories by Householder Age $20,000 $15,000 $10,000 $5,000 $0 <35 Yrs Yrs. >55 Yrs. Source: US Bureau of Labor Statistics Consumer Expenditure Survey 2008 and S.B. Friedman & Company (Net worth of those under Age 45 negative; over positive) 55 +: More spending on services 33

34 Employment in Key Sectors 50,000 McHenry County 40,000 30,000 20,000 10,000 - Manufacturing Transportation, Warehousing and Wholesale Office Related Healthcare and Social Assistance 2,500, Chicago Region 2,000,000 1,500,000 1,000, ,000 - Manufacturing Transportation, Warehousing and Wholesale Office Related Healthcare and Social Assistance Source: Woods and Poole Inc. and S.B. Friedman & Company

35 Job/Household Ratio: McHenry Compared to Region Job (Pvt. Non-Farm)/Household Ratio 160% 140% 120% 100% 80% 60% 40% 20% 0% McHenry County Chicago Region 35

36 Key Issues for McHenry County Limited Transportation Infrastructure Arterials Highest Level Infrastructure Funding Competing in Global Capital Mkts Bedroom County Leads to Weak Tax Base Retail Goes Where Market Is: Zero-Sum Game in Sales Tax Sharing Commercial and Industrial Growth to Diversify Tax Base What Game Changing Infrastructure Would Change Competitive Position? How Can Life-Style and Community Environment Be Used as Economic Generators? What Sectors Can Be Attracted? 36

37 Development Advisors to the Public and Private Sectors Real Estate Economics Public-Private Partnerships Developer Solicitation Development Management Public Financing Area Plans & Implementation Fiscal & Economic Impact 221 North LaSalle Street Suite 820 Chicago, IL (312)

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