Quality NNN investment property is harder still. Perhaps the hardest of all, are the $1 million to $5 million size transactions where the average investor and 1031 Exchange buyers focus their attention. Urban investments fit this niche and NNN investors have demonstrated a willingness to acquire these assets, often at premium prices

1. NET LEASE ADVISOR
YOUR SOURCE FOR INVESTMENT REAL ESTATE™
Second Quarter 2010
The Rise of
NNN URBAN PROPERTIES
Bound Emerging Trends
TE N A NT SPOTLIGHT:
in Real Estate
COMPANIES, INC.

2. The Rise of
NNN URBAN PROPERTIES
By: Rick Fernandez
“In the middle of every dif- asset type even in the current market there were over $20 billion in retail con-
ficulty lies opportunity” cycle. Driven by a desire to spend less dominium sales over the past five years.
- Albert Einstein time in traffic, live in a smaller footprint That figure only represents transactions
V
and work and play within an urban at- of $5 million or greater in size. As the
isitors to the Calkain website mosphere, aging boomers and Gen XYZ- chart below indicates, our own experi-
(www.Calkain.com) may have no- ers alike are leaving the edge and making ence proves that there were a significant
ticed considerable documenting their way back to the city. Developers number of transactions well below REA’s
over the past 12 months of the sale of have capitalized on this trend by coupling $5 million baseline. Included in the mix
Triple Net (NNN) urban properties. De- high-rise condominium living with easily of under $5 million condominiums is
mand for credit rated property in the ur- accessible ground floor retail space. The a broad array of tenants ranging from
ban core of primary markets has always convenience of these on-hand amenities companies with Standard and Poors
been strong. We now see inclusion of lo- makes for an attractive lifestyle for lo- AA+ credit ratings to start up restau-
cal, non-credit tenants involving smaller cal residents and nearby office work- rant concepts with personal guarantees.
transaction sizes drawn into the mix of ers. While not a new phenomena, the That broad range of tenants is good
investment properties sought by inves- rise in urban mixed-use development news for developers and investors alike.
tors. Investors have shown a willingness meets the market at a very good time.
to pay aggressive caps for urban proper- To focus on a single market, the Wash-
ties. An increase in mixed use residential Unable to find quality assets in a tight ington, D.C., area seems to be thriv-
condominiums brought about by popu- market and unable to secure favorable ing well amidst the downturn. The
lation movement toward the urban core debt for less well known tenants in Wall Street Journal recently reported:
and a pause in expansion by national re- secondary and tertiary markets, inves-
tailers has contributed to the wide-rang- tors are finding that lenders are putting “The nation’s capital has
ing demand for NNN urban properties. more emphasis on the intrinsic value of drawn interest from inves-
Coming on the heels of the recession the real estate. Urban properties are tors seeking to place a defen-
and the ensuing across-the-board hike typically more easily adaptable to alter- sive bet in the still-turbulent
in cap rates, this move to dense, high native uses and are viewed favorably by property market. The idea is
traffic urban locations signals where in- lenders. Investors seeking passive real that companies working with
vestors want to be over the next decade. estate investments are turning to ur- the federal government have
ban, income-producing condominiums a more stable business ….”
Recently identified as a top niche invest- (the new “infill”) of varying types as a WSJ 3-17-10
ment trend by the Urban Land Institute suitable component of their investment
(ULI), mixed-use urban projects have portfolios. In a recent Real Capital An- For investors, an income producing
drawn retailers and investors to this alytics (REA) report it was quoted that NNN property, whether a condominium,
CALKAIN COMPANIES, INC. NET LEASE ADVISOR Second Quarter 2010

3. zero lot line structure or a combina- lenders pull back in most cit- Investors are returning to the market and
tion of the two, can cover all three of ies, major insurers and big the time is right for urban investments.
the “L’s” of real estate and quite of- banks have taken a long term In today’s market, suitable NNN invest-
ten at a price point unavailable to the view and are actually provid- ment property is hard to find. Quality
average investor hoping to acquire ing financing for new deals. NNN investment property is harder still.
“downtown” investment property. The ULI - Emerging Trends in Perhaps the hardest of all, are the $1 mil-
pause in expansion by national retail- Real Estate 2010 lion to $5 million size transactions where
ers and the lack of quality NNN invest- the average investor and 1031 Exchange
ment real estate has prompted investors For developers, the rise of urban retail buyers focus their attention. Urban in-
to give urban real estate a hard look. condominiums and mixed-use office vestments fit this niche and NNN inves-
As reported by Calkain in a previous projects and the willingness of tradi- tors have demonstrated a willingness
article, “While retail condos may not tional NNN investors to pursue these as- to step up and pay in excess of $1,000
look like a typical net leased asset, sets offers an opportunity to monetize a square foot to acquire these assets.
their design and operation are almost portions of the assets as well as unhook
identical to the normal, free standing, from the completed portion of the proj- Calkain Urban Investment Advisors
single tenant buildings so popular in ect. Developers using this streamlined (CUIA), a division of Calkain Companies,
today’s investment market.” However, method of disposition have used their specializes in premier investment prop-
an income-producing condominium newly found proceeds to either pay erties in high density, urban districts
may not be right for everyone. Con- down existing debt or fund new projects. throughout the United States. CUIA
dominium ownership comes with its builds on Calkain’s record of success
own unique challenges including parti- Additionally, a properly structured ur- in brokering some of the most notable
tioning of common element expenses, ban property provides flexibility in how transactions within the urban net lease
condominium board representation, a developer can subdivide the spaces market and focuses strictly on assets
condominium fees and condominium often providing an infusion of cash located within metropolitan regions.
association policies and restrictions. In from the sale of the retail units long Calkain’s newest and proven division un-
spite of this, like other NNN investment before the residential properties have derstands the ever-growing net leased,
properties, the tenant is responsible for sold out. The typical condominium urban investment market and the re-
all of those expenses. Investors must resident boasting high discretionary quirements of investors and develop-
weigh whether the potential challeng- income and a steady appetite for con- ers working within the space. Our ad-
es of urban condominiums are signifi- sumer goods is a highly sought after visors guide clients through the many
cantly different from the CAM charges, demographic for retailers. From a NNN aspects which affect their prospective
easements, and restrictions associated investment perspective, the NNN retail properties, ensuring only the best in-
with typical NNN investment proper- condominium units, like a typical strip vestment decisions are pursued.n
ties. Risk is inherent in any investment center, benefit from a strong anchor
but the solid urban location fueled by or even shadow anchored presence. A
strong, daily, pedestrian traffic may be unique aspect of urban properties is F O R M O R E I N F O R M AT I O N :
equal to a pad site situated as an out- that the anchor can be a dense concen- Rick Fernandez | Managing Director
parcel in a performing suburban center. tration of office space or even a Metro Calkain Companies, Inc .
station because the flow of subways, rfernandez@calkain.com
Washington, D.C., scores the buses, cars, taxis and pedestrians is Phone: 703.787.4714
highest marks during a re- the engine that drives the street scene.
cession. While hard-pressed
R E C E N T N N N p R O p E R T Y S A L E S I N WA S h I N g TO N , D . C .
Location Sale Date SF Rent/SF $/SF NOI Sales Price Cap Rate
PNC Bank 1401 P St., NW September 2006 4,110 $65 $1,119 $267,000 $4,600,000 5.80%
Wachovia Bank 1150 K St., NW July 2007 3,424 $62 $1,119 $210,650 $3,830,000 5.50%
Fedex/Kinkos 1327 14th St., NW November 2007 2,285 $60 $810 $137,100 $1,850,000 7.41%
Garden District 1520 14th St., NW April 2008 2,775 $50 $673 $138,750 $1,866,424 7.43%
Lululemon 1515 15th St., NW December 2008 2,306 $60 $791 $138,360 $1,825,000 7.58%
Pitango Gelato 1515 15th St., NW September 2009 550 $80 $1,124 $44,000 $618,000 7.12%
Mitchell- Gold 1526 14th St., NW October 2009 7,338 $35 $368 $256,830 $2,700,000 9.50%
TD Bank 1515 15th St., NW March 2010 4,403 $69 $979 $301,606 $4,300,000 7.00%
The Matrix 1529 14th St., NW Pending 8,862 $38 $518 $332,950 $4,592,413 7.25%
Sweetgreen 1515 P St., NW Pending 1,133 $77 $1,089 $87,375 $1,234,110 7.08%
CALKAIN COMPANIES, INC. NET LEASE ADVISOR Second Quarter 2010

4. Washington, D.C. | arlington, va
URBAN RETAIL INVESTMENT
t h e p l a C e t o t u r n f o r u r b a n r e t a i l
1749 - 1753 Columbia roaD, nW | Washington, D.C.
NOI $868,848
h I g h L I g h T S
»
»
»
»
»
»
»
CVS/pharmacy
georgia ave nW & neW hampshire ave, nW | Washington, D.C.
p R I C E $ 4 , 2 3 0 , 7 6 9 | C Ap R a t e 6 . 5 0 %
h I g h L I g h T S
»
»
»
»
»
»
CVS/pharmacy
3130 lee highWay | arlington, va
p R I C E $ 7 , 6 9 2 , 3 0 8 | C Ap R a t e 6 . 5 0 %
h I g h L I g h T S
»
»
»
»
»
WA L g R E E N S
m O R E I N f O R m A T I O N
ADVISORS
INVESTMENT
URBAN
COMPANIES, INC.
CALKAIN COMPANIES, INC. NET LEASE ADVISOR Second Quarter 2010

5. Calkain is
Bound
I n addition to attending and host- with developers, REITs, investors and as-
ing several industry events in recent set owners seeking to learn more about
months, Calkain has begun prepar- trends and overall market dynamics,
ing for the International Council of especially given the uptick in net lease
Shopping Centers’ (ICSC) annual RECON investment transactions over the last six
conference in May. Real estate veter- months.
ans and professionals attending the Las
Vegas ICSC have scheduled meetings When discussing income-producing real
estate and developments in the market,
Calkain is considered to be a premier
industry leader and resource with an
abundance of information on such top-
ics. Thus far in 2010, Calkain was pres-
ent and featured at ICSC events in Wash-
ington, D.C., Virginia and Florida and has
been tapped for 2011’s planning boards
for subsequent ICSC conferences.
Calkain’s principals extend and invi-
tation and encourage all interested
ICSC-Las Vegas attendees to schedule
appointments to meet with them in ad-
vance. Meetings can be scheduled from
Sunday, May 23rd through Tuesday, May
25th by contacting Cheri Martian at
cmartian@calkain.com. n
2010 ICSC
Mid-Atlantic
Idea Exchange
2010 ICSC
Florida To meet with a Calkain team
Idea Exchange member while in Las Vegas
Call 703.787.4714 or
e-mail cmartin@calkain.com
CALKAIN COMPANIES, INC. NET LEASE ADVISOR Second Quarter 2010

6. Emerging Trends in Real Estate
I nfill vs. Suburbs. Road congestion,
higher energy costs, and climate
change concerns combine to alter
people’s thinking about where they
decide to live and work. “It’s a funda-
driving costs and lower heating/cooling
bills provide offsets. Time saved avoid-
ing traffic hassles moderates stress and
enhances productivity. “Two-hour com-
mutes reach tipping point with higher
proximity to cultural and entertainment
attractions. The young singles crowd
stays closer to the action, yet they don’t
need to worry about finding the right
suburban school district for children.
mental shift.” The lifestyle cost-of-living energy costs” and “near-in suburbs will As 30-something couples have kids and
equation starts to swing away more dra- do well especially if they link to business consider schools, “more will orient to
matically from bigger houses on bigger cores by mass transportation.” Empty infill locations and less edge-increasing
lots at the suburban edge to greater nesters and later-marrying echo boom- numbers of suburban school systems will
convenience and efficiencies gained ers continue to flock to cities and urban- lose advantages as tax bases falter.” n
from infill housing closer to work. izing suburban areas. For aging baby Source:
These homes may be more expensive boomers, infill apartment or townhouse
on a price-per-pound basis, but reduced living means less upkeep and closer
of Urban Net Lease environment. Calkain is a proven leader
Calkain Investments.
With the new di-
in the market and Rick’s confirmed expe-
rience only solidifies our role within the
net lease community.”
Companies vision comes the
promotion of Rick
Fernandez, the
Calkain also recent-
ly welcomed Jerry
keeps
Managing Director Burg to the team.
of CUIA. Rick was Jerry will be the
Rick Fernandez previously Assistant Managing Director
growing Managing Director, Vice President of of Calkain Realty
Calkain Urban Invest- Calkain Realty Ad- Advisors in the Res-
ment Advisors visors, the private ton, Virginia office.
market division of
Calkain Companies. Rick has a solid Before joining
C
Gerald E. Burg
alkain Companies recently pro- background in the urban investment Managing Director, Calkain in January
moted Rick Fernandez to Man- community where he has transformed Calkain Realty Advi-2010, Jerry was
aging Director of the new Urban developments into investment opportu- sors Managing Director
Investment Advisors (CUIA) divison. nities for both developers/owners and & SVP at Northmarq
Gerlad E. Burg was also welcomed to the investors. Investment Services where he focused
team as Managing Director of Calkain on investment sales in the Washington,
Reality Advisors. Jonathan Hipp, Chief Executive Officer D.C. marketplace. Prior to Northmarq he
and President stated, “Rick has always was a SVP at Marcus & Millichap and a
The new division, Calkain Urban In- been a big part of our expansion plans member of the KBC Group which closed
vestment Advisors (CUIA), was formed and we are very fortunate to have him over $235 million in investment sales.
to capitalize on and grow the business grow this part of our company. His suc- He is a founding member of the Nation-
already procured in urban retail by cess is a testament to his professional- al Practice for Medical Office Building
Calkain’s professionals. The new division ism within the net lease industry as a Sales and became a licensed real estate
will focus solely on the growing dynamic whole and specifically within the urban agent at Carey Winston/Transwestern. n
CALKAIN COMPANIES, INC. NET LEASE ADVISOR Second Quarter 2010

7. TENANT SPOTLIGHT:
Walgreens Pharmacy
leased locations for
Credit Tenant Lease
(CTL) financing, which
can run as high as 97%
By: Winston Orzechowski loan-to-value creating
a larger qualified buy-
ers pool.
W algreen Company (NYSE: WAG) The poster-child of net lease properties, On the real estate side
is the nation’s largest drug- Walgreens has been a highly traded in- of things, Walgreens de-
store retailer in terms of sales, vestment property given the low risks mands premier hard corner locations
even though it has fewer store locations typically associated with these drug- greater than 1.00 acre. Generally, sites
than its closest competitor CVS. Wal- store properties. Walgreens properties are 1.15 - 1.75 acres to fit their store
greens and its competitor drugstores boast a strong tenant rating as indicated prototypes of 14,820 SF, although units
are engaged in the retail sale of pre- by its investment grade A2 and A+ credit can range from 10,800 SF - 15,000 SF. To
scription and non-prescription drugs ratings from Moody’s and S&P, respec- compete with rival CVS, Walgreens has
and front-store products such as beauty tively. Additionally, the drugstore sector generally been willing to pay premier
care, personal care, household items, remains stable given is nondiscretion- rental rates to secure prime sites with
candy, photofinishing, greeting cards, ary merchandise offerings. Walgreens a primary lease term of 25 years. The
convenience foods and seasonal items, showed a 6.8% sales increase during Au- most significant lease variation from
as well as liquor and tobacco where per- gust pushing their total sales for fiscal Walgreens of late has been the differ-
missible by law. As of March 31, 2010, year 2009 up 7.3% to $63.35 billion. ence in their renewal options, previ-
Walgreens operated 7,720 locations ously requiring eight to ten renewal
in 50 states, the District of Columbia, Walgreens is the stereotypical net lease options of five years in length; they re-
Guam and Puerto Rico. It plans to grow investment as they exemplify quality in cently signed a number of leases that
its store base by approximately 4.5-5% all three key characteristics: Credit, Real were 75 years in length, however after
in fiscal 2010. Estate, and Lease Terms. As the leader the 25th year Walgreens has an annual
in the retail drug store, they boast the cancellation option, essentially creating
Prescription sales constitute a large highest corporate credit rating by both 50 1-year renewal options. This small
portion of Walgreens business, which Standard and Poor’s and Moody’s. One variation created significant concern for
accounted for 65% of sales during fis- key benefit to their strong rating is that investors because at the end of the ini-
cal 2009. Third-party sales, where re- even in this debt starved market, Wal- tial 25-year lease term, these assets will
imbursement is received from managed green’s credit rating qualifies their net not be financeable.n
care organizations, government and pri-
vate insurance, were 95.3% of prescrip-
tion sales in fiscal 2009. Overall, Wal-
greens filled approximately 651 million
prescriptions in fiscal 2009.
CALKAIN COMPANIES, INC. NET LEASE ADVISOR Second Quarter 2010

8. CalKain’s &
reCent Closings
CURRENT hEADLINES
Pitango Gelato Lululemon PNC Bank
Washington, D.C. Washington, D.C. Washington, D.C.
$1,123.64 psf $791.41 psf $1,119.22 psf
TD Bank Fedex Kinkos Sweetgreen
Washington, D.C. Washington, D.C. Washington, D.C.
$977.27 psf $809.63 psf $1,089 psf
“ Calkain has sold a slew of ground
floor retail condos at Logan Circle’s “ From retail condominiums to big
boxes, Jonathan Hipp views Washing- “ Calkain Companies, Inc. has launched
a new division that is focusing strictly
nearby Metropole. Late last year, an in- ton, D.C.’s urban retail market as a place on urban net lease investments. Called
dependent private investor snapped up a for growth. And with the formation of Calkain Urban Investment Advisors, it is
550 square-foot ground-floor retail condo Calkain Urban Investment Advisors un- launching out of the gate with $20 mil-
occupied by Pitango Gelato for a whop- der the leadership of Rick Fernandez, lion in completed deals and another $30
ping $1,123 per square foot. “ previously assistant vice president of million the company is currently market-
Calkain Realty Advisors, he is prepared ing.”
to be at the forefront of that growth.”
CONTACT NET LEASE ADVISOR
COMPANIES, INC.
hE A D Q U A R T E R S SOUT hEAST mID-ATLANTIC
11150 sunset hills roaD, suite 300 4600 W Cypress street, suite 110 7 foX Den plaZa
reston, va 20190 tampa, fl 33607 mChenry, mD 21550
t 703.787.4714 • f 703.787.4783 t 813.282.6000 • f 813.282.6098 t 301.389.9471 • f 301.387.9461 WWW.CalKain.Com
CALKAIN COMPANIES, INC. NET LEASE ADVISOR Second Quarter 2010