Future Trends for 2007 and Beyond

Future Trends and Plans, Acquisition/Disposition Strategies and Properties Under Contract
In this week's CoStar Lead Street, we identify the new hot investment market and why one investor thinks it should be Florida residential land. We also report that: Home Depot is studying options for its HD Supply chain and Applebees for its casual dining eateries; plus we identify the latest site selection decisions and properties to come under contract. Infrastructures the New "Hot" Investment Market The infrastructure investing market will quickly rival other real estate-related investment markets - such as CMBS, REITs, and private equity - in terms of market size, according to Ernst & Young. It's the "hot" alternative investing market right now and shows little sign of cooling. Plus, the capital requirements in this sector potentially dwarf those of other markets. the accounting firm says in their 2007 outlook. With hundreds of billions of dollars needing to be spent to bring existing infrastructure up to standard in the United States alone - and trillions needed globally - the immediate impact for the construction sector is evident. However, investors and commercial developers could see tremendous opportunities in the next 10 years. The need for improved roads, bridges, ports, airports, mass transit systems, water, and energy supply - will only fuel additional development opportunities for homebuilders and commercial developers. What's less clear is whether the construction sector has the capacity to handle the weight of work required. The huge spend likely to occur may push prices of labor and raw materials far higher. However, an emerging private-funding sector fueled by pension funds, major banks may provide some of the capital needed to enable public agencies and states to push ahead with ambitious infrastructure development plans. Be Among the First To Read Lead Street Nearly 2,500 people read CoStar Lead Street each week. If you want to be among the first to know when a new CoStar Lead Street is posted, e-mail me your name, title, company and e-mail address. You can reach me by clicking on the byline above or at mheschmeyer@costar.com Buying Land for Future Residential Recovery Cypress Creek Capital Inc., a real estate investment and advisory company, has formed a new subsidiary, Cypress Creek Capital Florida Land Investors LLC, to acquire land throughout the state that is at least 50 acres, raw or developed, entitled and non-entitled, said Jan David Reese and Steven Beauchamp, company principals. "The residential land bubble currently bursting in Florida is setting the stage for a significant drop in prices," said Reese. "The slow down and adjustment period expected over the next few years should produce opportunities for Cypress Creek Capital Florida Land Investors to control major land tracts to resell when the residential market recovers." Cypress Creek Capital also owns in excess of $100 million of office and retail properties in Florida in partnership with institutional and private investors. Home Depot Studies Options for HD Supply Operations The Home Depot has decided to evaluate strategic alternatives for its HD Supply business, including a possible sale, spin or initial public offering of the business. The company said there can be no assurance that any transaction will occur or, if one is undertaken, its terms or timing. The company has retained Lehman Brothers as its financial advisor to assist in this process. "Today's announcement is a continuation of the strategic review we did in November," said Frank Blake, chairman and CEO of The Home Depot. "We are undertaking this action today because of our desire to increase our focus on our retail business. With annual revenues of approximately $12 billion, HD Supply is a healthy, growing and vibrant business, and we are undertaking this evaluation to determine whether there are strategic alternatives with respect to HD Supply that would optimize shareholder value." HD Supply is the wholesale distribution business of The Home Depot, and has nearly 1,000 locations nationwide and in Canada, and employs more than 26,000 associates. Applebees Up for Sale? Applebee's International Inc. has formed a committee of independent directors to explore strategic alternatives for enhancing shareholder value. All strategic alternatives are being reviewed. "While acknowledging a difficult macro environment for casual dining, all of our company restaurant and support center associates, as well as our valuable franchise partners, are focused on improving the things that are within our control," said Dave Goebel, president and CEO of Applebee's. "Our long-term strategies are designed to make Applebee's more relevant to all of our guests with the goal of driving guest traffic and higher average unit volumes through existing restaurants, with less emphasis on new restaurant development. Our key strategic initiatives in 2007 include continued improvement of our food, evolution of our advertising, and a greater emphasis on communicating our value proposition to our guests." Applebee's, based in Overland Park, KS, develops, franchises and/or operates more than 1,940 Applebee's restaurants operating system-wide. New Site Selections GHX LLC will relocate to a larger office building, creating a campus-like environment for its world headquarters, in Louisville, CO. The move is expected to occur in August 2007. The company will move from approximately 47,000 square feet of space in the Westmoor Technology Park in Westminster to 80,000 square feet. In addition to building and hosting an Internet-based trading exchange, GHX has developed services that support and automate numerous supply chain processes for both provider and supplier organizations. In 2006, several acquisitions resulted in new products being added to the GHX suite of services, including sales force automation tools, business intelligence services, and contract and rebate management services for the pharmaceutical industry. From 2005 to 2006, GHX doubled in terms of full time employees and today employs approximately 530 people, with more than 200 based in Colorado. GHX will add another 45 new positions at its Colorado headquarters in 2007. Advance Auto Parts Inc. , an automotive aftermarket retailer plans to open a new distribution facility in Remington, IN. It will serve Advance's growing store base in the Midwest. The company expects that the facility to open in summer 2008, making it the ninth distribution center in the company's logistics network. The completed facility will be approximately 550,000 square feet. Once the building is complete, it will be outfitted with state-of-the-art material handling systems and equipment. The new distribution facility site is adjacent to Interstate 65, providing convenient access to Indianapolis and Chicago and points beyond. Norwood Co. in Allentown, PA, will be the developer. Norwood also developed Advance's last major Distribution Center project in the Lehigh Valley area of Pennsylvania. Cytec Industries Inc. completed the site selection for a carbon fiber expansion project with Greenville, SC, chosen as the location of the company's proposed new facility. Employing capital best practices, the project is in the assessment and engineering definition phase. Pending final approval, construction is expected to begin in 2008 with plant start-up scheduled for early 2010. The expansion would double Cytec's carbon fiber manufacturing capacity and provide additional capability to meet the demand for next-generation carbon fibers. Cytec's capital investment in the expansion, projected at approximately $150 million, is in addition to a modernization and recommissioning effort completed last year at the company's existing carbon fiber manufacturing site in Greenville, which increased Cytec's annual carbon fiber production capacity by 33% and added 60 new jobs. Cytec expects to add approximately 225 additional skilled and professional jobs when the expansion project is fully operational. Be Among the First To Read Lead Street Nearly 2,500 people read CoStar Lead Street each week. If you want to be among the first to know when a new CoStar Lead Street is posted, e-mail me your name, title, company and e-mail address. You can reach me by clicking on the byline above or at mheschmeyer@costar.com NPC Contracts for Pizza Huts in the Northwest NPC International Inc. signed an asset purchase agreement with Pizza Hut of Idaho Inc.; Rocky Mountain Pizza Huts Inc.; Northwest Restaurant Group Inc.; and Northern Idaho Pizza Huts Inc. to acquire 59 Pizza Hut units located primarily in Idaho and the Spokane Valley for $27.1 million. The 51 restaurants, six delivery/carryout units and two express units generated $46.7 million in sales during the 52 weeks ended December 2006. Forty of these stores are located throughout Idaho, four in eastern Oregon and 15 in Washington, primarily in the Spokane Valley. Forty-four of these locations will be leased from the sellers on certain agreed-upon terms and 15 locations will be leased from unrelated third parties. NPC expects the acquisition to close in mid-March 2007. Consummation of the transaction is subject to approval by Pizza Hut Inc. and other customary consents and approvals. "We are truly excited about this acquisition due in large part to the high-quality restaurant teams that operate in these markets and the opportunity for future organic growth in the high-growth markets of Idaho and the Spokane Valley," said Jim Schwartz, chairman and CEO of NPC International in Overland Park, KS. "In addition, this acquisition, when combined with the 26 stores we currently operate in Portland, OR, will provide us the critical mass to leverage our above store support infrastructure and a beachhead for additional growth through acquisition in the rapidly growing mountain states." NPC International Inc. is the world's largest Pizza Hut franchisee and operates 815 Pizza Hut restaurants and delivery/carryout units in 23 states. Also Under Contract Broadway Real Estate Partners is buying the controlling interest in the 1.7 million-square-foot office tower at 450 W. 33rd St. for about $664 million, or $380.14 per square foot. The property is being sold by a venture that includes The Chetrit Group LLC and Arbor Realty Trust Inc. The investor group plans to keep a 2% interest in the property, as well as 50% of the property's 800,000 square feet of air rights. Douglas Harmon of Eastdil Secured brokered the deal. The 16-story property between Ninth and Tenth avenues was built in 1969. It is fully leased. Tenants include a host of media companies, such as New York Daily News, The Associated Press, U.S. News & World Report LP and Thirteen/WNET New York. Other tenants include J.P. Morgan Chase & Co., Financial Information Services Agency and New York & Co. Inc., according to CoStar Group information. A Grubb & Ellis subsidiary company, GERA Property Acquisition LLC, entered into a contract to purchase a Class A office building at 6400 Shafer Court in Rosemont for $21.45 million. The seller is F/B 6400 Shafer Ct. (Rosemont) LLC, a shell company of Foresite Realty Partners. Foresite Realty Partners' current headquarters is at 6400 Shafer Court. The approximately 176,000-square-foot building is currently 55% vacant, with its largest tenant being Kanbay International, which currently occupies approximately 21% of the building. The deal is expected to close Feb. 28. Dividend Capital Total Realty Trust Inc. deposited a non-refundable amount of $500,000 into an escrow account in connection with an intended acquisition of the Shackleford Office Center in Little Rock, AR. Shackleford Office Center built in 2001 is under contract for $21.32 million. It contains 101,977 square feet and is 100% occupied by the Federal Bureau of Investigation. The deal is expected to close this week. Columbia Equity Trust agreed to purchase 10201 Lee Highway in Fairfax, VA. A consortium of investors, involving Gatewood Plaza LP, Suburban Hill Joint Venture, Lisa Wassermann Gill and Carolyn Stopack Kaplan, currently own the 87,816- square-foot office property. Columbia Equity agreed to pay $17.05 million, or about $194 per square foot, and committed to a non-refundable deposit of $500,000. Closing is expected within 30 to 90 days. The 21-year-old Gateway Plaza building is currently 95% occupied. It sits on just less than 3 acres near the I-66/Route 123 interchange. Equity Inns Inc. agreed to purchase a 140-room Marriott Courtyard in the western Chicago suburb of Elmhurst from a partnership controlled by First Hospitality Group for $13.9 million, or $98,000 per key. Exclusive of the estimated market value of an adjoining outparcel which is included in the purchase price, the total purchase price equates to an average cap rate of approximately 9.5%, based upon expected net operating income for the year-end 2006. The hotel recently completed a $2 million dollar renovation and is not expected to require any significant additional capital investment. Supertel LP agreed to purchase six hotels from Budget Motels Inc. and Waterloo Hospitality Inc. for $38.6 million. The hotels are located in: Alexandria, VA (a Comfort Inn and a Days Inn); Fredericksburg, VA (two Days Inn); Bossier City, LA (Days Inn); and Shreveport, La (Days Inn). The closing date for four of the hotels is March 30, with the remaining two scheduled for July 31. Costar research department February 2007. Call or eamil ed www.houstonrealtyadvisors.net