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The past quarter has shown the first signs of our commercial market beginning to re-trench after a bullish past few years. Hines, Legacy Partners, Brandywine, Beacon and Swig all made signicant, institutional investments in our Class A office and R&D markets over the past twenty-four months. Signature Properties, Olson, Meritage Homes and Essex have made similar, ground up, new construction, plays on the residential side of the equation. The financial markets and consumer mortgage crises have started to have some influence on how each of these major real estate investment plays will look in the future.

 

The largest indicator of a repositioning in the East Bay Commercial market is evidenced in the Brandywine Realty Trust sale of five Oakland Class A high-rise buildings to the CIM Group. These two parties have agreed to a $412.5 million dollar deal to acquire 1.7 million square feet of offce space. CIM Group, who acquired the Oakland Marriott in June of 2007 had been actively looking for an Oakland investment opportunity. This acquisition represents the largest outside investment in Downtown Oakland since Shorenstein invested in City Center over a decade ago.

In the Alameda market, Wind River is actively marketing their 259, 261 square foot, four building corporate campus. This will create an opportunity for an investor/developer to compete with Legacy Partners in space that was previously unavailable in the market. Legacy, as well, is marketing a portion of the Marina Village campus which was originally purchased in 2006. Each of these opportunities should present tenants with opportunities to make deals with creative, motivated new investors or take advantage of previously unavailable space in the market.

The residential market woes have been quite evident for over a year now. Ground up development that was bought and constructed over the past twenty-four months is now being delivered to the consumer. With buyers behaving extremely conservatively and housing prices falling, it has forced several large developers to make a change in their game plan. The Olsen Company has completely halted construction on its downtown Oakland condominium project. This development will have to work its way through the courts before the job is ever completed. Several condominium developers have resorted to auction environments in an effort to create a sense of urgency in a languid consumer market. Additionally, Signature properties announced this quarter that it would lease rather than sell its current condominium inventory. Each of these strategic or market influenced changes are evident of a signicant repositioning in the urban residential market.

We believe that the East Bay market will continue to be influenced by repositioning of assets and retrenching of developers marketing approach. While we do not project major market shifts, we feel that there will be signicant opportunities for tenants and investors with these signicant movements in the market. Additional inventory, flexible deal terms and healthy overall market competition will result in opportunities for healthy tenants and buyers to flourish in the upcoming months.