McHenry County and the Next Wave

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

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

There is a difference.

Economic Overview Asia Leading the Global Economic Recovery Real GDP Growth by Region 2000-2014 7 % change in inflation-adjusted GDP forecast 6 Asia Pacific 5 4 3 2 1 U.S. European Union 0-1 -2-3 -4-5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Economist Intelligence Unit; Heitman Research

Economic Overview U.S. Adding Jobs But Far Less Than Needed Historical and Forecast Employment Growth U.S. 2005-2011 400,000 300,000 200,000 jobs gained/ lost month-over-month Optimistic Case jobs gained/ lost % change forecast 3.0% 100,000 1.0% 0-100,000-200,000-300,000-400,000-500,000-600,000-700,000-800,000 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% 2005 2006 2007 2008 2009 2010 2011 Source: Bureau of Labor Statistics; Economy.com; Heitman Research

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/ 2007-11/ 2007 1,000 900 000's of first-time claims Not Seasonally Adjusted 800 700 600 500 Seasonally Adjusted 400 300 200 100 0 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 Many households still constrained Banking sector impaired, restraining lending State and municipal financial challenges Tax changes loom Financial reform ripple effect

Economic Overview This Won t be a Rising-Tide Recovery Job Growth by Metropolitan Area Q2 2010-Q2 2015 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

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) $953 92.5% $940 92.0% $930 $920 91.6% 91.5% $910 $903 91.0% $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 2008 2009 2010 90.5% Source: Axiometrics Research; Heitman Research

Apartment Update Renter Households U.S. 1990-2015 46 millions of households # of Renter Households will Continue Rising forecast 44 42 40 38 36 34 32 '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

Industrial Update Industrial Vacancy May Have Peaked Q-O-Q Availability Increase U.S. Q4 2007-Q4 2011 100 90 Forecast 80 70 70 60 60 50 40 30 30 40 20 10 10 10 0-20 -10-20 -10-20 -40-30 -30 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2007 2008 2009 2010 2011 Source: CBRE Econometric Advisors; Heitman Research

Industrial Update Imports Back Up; Exports Volatile Y-O-Y Monthly Loaded Container Volume Growth Los Angeles/ Long Beach 2006-2010 (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 2006 2007 2008 2009 2010 Source: Port of Los Angeles; Port of Long Beach; Heitman Research

Retail Update Retail Vacancy Ticking Down and Construction has Fallen to Historic Lows Open-Air Retail Real Estate Market Trends United State 2006-2010 (Q3) 60,000,000 Square Feet Vacancy % 12.0% 50,000,000 40,000,000 30,000,000 6.5% 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% 20,000,000 6.0% 10,000,000 4.0% 0 (10,000,000) Net Absorption 2.0% (20,000,000) 0.0% 2006 1Q 2006 2Q 2006 3Q 2006 4Q 2007 1Q 2007 2Q 2007 3Q 2007 4Q 2008 1Q 2008 2Q 2008 3Q 2008 4Q 2009 1Q 2009 2Q 2009 3Q 2009 4Q 2010 1Q 2010 2Q 2010 3Q Source: CoStar; Heitman Research

Retail Update Outlook Brightening Given Sales Rebound Retail Sales Excluding Automobiles U.S. 2000-2012 10.0% year-over-year forecast 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012-4.0% -6.0% -8.0% -10.0% Source: Economy.com; Heitman Research

Retail Update And Retailer Expansion Plans Net Store Openings U.S. 55-Retailer Sample 2007-2011 6.0% 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%) 2007 2008 2009 2010E 2011E Source: TAG Research; Heitman Research

Office Update Office Vacancy Is Peaking Office Market Vacancy Trends: Downtown vs. Suburbs U.S. 2005-2010 20.0 18.0 Suburban 18.7 16.0 14.0 12.0 Downtown 13.0 10.0 8.0 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 2005 2006 2007 2008 2009 2010 Source: CBRE Econometric Advisors; Heitman Research

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 2008 2009 2010

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

McHenry County 19

1Q 2005 2Q 2005 3Q 2005 4Q 2005 1Q 2006 2Q 2006 3Q 2006 4Q 2006 1Q 2007 2Q 2007 3Q 2007 4Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 Single Family Home Sales New Single Family Home Sales - USA 140,000 1,600 Existing Single Family Home Sales McHenry County 120,000 100,000 1,400 1,200 1,000 80,000 60,000 800 600 40,000 400 20,000 200 0 J-00 J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10 0 20

1996 2Q 1996 4Q 1997 2Q 1997 4Q 1998 2Q 1998 4Q 1999 2Q 1999 4Q 2000 2Q 2000 4Q 2001 2Q 2001 4Q 2002 2Q 2002 4Q 2003 2Q 2003 4Q 2004 2Q 2004 4Q 2005 2Q 2005 4Q 2006 2Q 2006 4Q 2007 2Q 2007 4Q 2008 2Q 2008 4Q 2009 2Q 2009 4Q 2010 2Q 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

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 2009 4Q Vacancies 20.00% 10.00% 0.00% 21.20% 16.60% CBD Chicago Suburban Chicago 2009 4Q 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

1996 2Q 1996 4Q 1997 2Q 1997 4Q 1998 2Q 1998 4Q 1999 2Q 1999 4Q 2000 2Q 2000 4Q 2001 2Q 2001 4Q 2002 2Q 2002 4Q 2003 2Q 2003 4Q 2004 2Q 2004 4Q 2005 2Q 2005 4Q 2006 2Q 2006 4Q 2007 2Q 2007 4Q 2008 2Q 2008 4Q 2009 2Q 2009 4Q 2010 2Q 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

2006 1Q 2006 2Q 2006 3Q 2006 4Q 2007 1Q 2007 2Q 2007 3Q 2007 4Q 2008 1Q 2008 2Q 2008 3Q 2008 4Q 2009 1Q 2009 2Q 2009 3Q 2009 4Q 2010 1Q 2010 2Q 2010 3Q 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

Demographics Impacting Recovery Current Age 65-83 46-64 27-45 8-26 25

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% - 1997-2002 2002-2007 Growth Due to Immigration Growth Due to Other Factors 26

The Region Continues to Grow 70,000 60,000 Annual Population Change in 6-County Region, 2001-2009 Estimated 6-County Population Forecast 12,000,000 10,000,000 1.48 M 50,000 8,000,000 40,000 30,000 20,000 10,000 6,000,000 4,000,000 2,000,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009-2010 2030 Source: US Census Population Estimates and Woods and Poole Inc. Source: Woods and Poole Inc, and CMAP 27

Age Waves: Demography Drives Demand Households by Age of Householders in 6-County Chicago Region 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - <35 Yrs. 35-54 Yrs. >55 Yrs. 2010 2015 2020 Source: Woods and Poole Inc., US Census and S.B. Friedman & Company 28

Net Change in Adult Population by Age in Chicago Region : 2010-2025 Renters & 1 st -Time Homebuyers Family Years Trade-Up Homebuyers Empty Nester & Young Senior Homeowners Older Seniors w/ Special Needs 225,349-146,146 462,020 168,880 187,821 152,649 105,875 121,550 111,097 49,227 70,247 25,699 40,389 32,019 25,764 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+ -26,387-34,371-85,338 Source: Woods and Poole and S. B. Friedman & Company 29

McHenry County: Adult Population Change by Age 2000 2010 2030 2010-2030 Total Change Annual Change Households 90,107 118,733 174,009 55,276 2,764 Population 261,870 332,139 470,923 138,784 6,939 140,000 120,000 100,000 80,000 60,000 40,000 20,000 35-54Yrs. 20-34 Yrs. 55-74Yrs. 75+ Yrs. - Source: Woods and Poole Economics, Inc. and S. B. Friedman & Company 30

Net Change in Adult Population by Age in McHenry County: 2010-2025 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 1,427 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85+ -1,788-2,236 Source: Woods and Poole and S. B. Friedman & Company 31

Preferences in Chicago Region Estimated Housing Preference for New Housing by Age of Householder in 6-County Chicago Area: 1995-2007 100% 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% <35 35-54 55-74 >75 Age of Householder Source: US Census Public Use Microdata Sample and S. B. Friedman & Company 32

Retail Spending Impacts $25,000 Spending by Select Retail Categories by Householder Age $20,000 $15,000 $10,000 $5,000 $0 <35 Yrs. 35-54 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

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 2,500,000 2010 2020 2030 Chicago Region 2,000,000 1,500,000 1,000,000 500,000 - Manufacturing Transportation, Warehousing and Wholesale Office Related Healthcare and Social Assistance Source: Woods and Poole Inc. and S.B. Friedman & Company 34 2010 2020 2030

1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 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

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

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 60601 (312) 424-4250 www.friedmanco.com 37