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United Properties Feature: Upsides of Upgrading vacancy is 11.7%; Class A is 8.8%). The first spec building completed during this development cycle was the 56,000-sq.-ft. Lake Smetana Business Center in Eden Prairie, which opened 100% occupied; Compellent Technologies Inc. leased the entire building. Another 855,000 sq. ft. is under construction, including Duke Realty Corp.'s 330,000-sq.-ft. Norman Pointe II in Bloomington and United Properties' 90,000-sq.-ft. Superior Office Center in Eden Prairie. "Superior Office Center's leasing interest is brisk," says John McCarthy, United Properties vice president -office brokerage. "It is the largest block of space to be delivered in the Southwest market this summer, and it's being considered by a wide variety of users." Opus Northwest is developing Excelsior Crossings on the former Supervalu headquarters site in Hopkins. This project is a 435,000-sq.-ft., two-building build-to-suit for Cargill, who will take occupancy in phases, beginning in late 2008. Another 1.24 million square feet is planned, including Solomon Group's 130,000-sq.-ft. building in Eden Prairie named Windsor Plaza and Liberty Property Trust's 120,000-sq.-ft. Liberty Southwest Plaza on the former Best Buy headquarters site in Eden Prairie. Supervalu is leasing 350,000 sq. ft. of the former Best Buy facility. Supervalu recently signed afive-year lease, needing space quickly following its Albertson's acquisition. ~' ~~~- ~~ ,~~, i ; ; ~ . Renderiny of Windsor Plaza United Properties plans to break ground in the third quarter on the 280,000-sq.-ft. 8200 Tower at Normandale Lake Office Park in Bloomington. Welsh Cos. is planning 100,000 sq. ft. at the former Fingerhut site in Minnetonka and could occupy half the building. Another 950,000 sq. ft. of space is in "preliminary" stages. While the Southwest is ripe for development, not everything announced will proceed. "Class A vacancy is well below 10%, market fundamentals are strong, and large corporate users are driving the demand for space," McCarthy says. "However, there's also some 'jaw boning' going on. Not all projects will move forward." Net rates of $18.50-$21 are needed to justify new construction. Developers believe that as space tightens, tenants will have few options but to pay higher rates for new development, especially for highly sought-after Class A space. "We've seen strong demand for Class A space," says McCarthy. "Many tenants recognize the benefits of Class Aspace -- even with the higher price tag. These buildings can assist in attracting and retaining employees because of the added amenities. The incremental increase in Class A costs is small when you factor in the intangibles and break it down per employee." Some users are still reluctant to pay new construction rates, and uncertainty about the economy exists. Tenants who need to expand, however, will have few alternatives to meet their growing space needs. Users continue to scout the submarket. 'The prospect list is more serious and longer than a year ago," says Tom Tracy, United Properties vice president -office brokerage. "While there's less risk for developers in this submarket, due to pent-up demand, developers will need a good site and a solid project to drive the rental rates required. The next 6-12 months will be very telling. We believe we're at the front end of a fairly healthy development cycle. However, if there's little absorption in the next 6-12 months, it will be a shorter cycle." New tower for downtown Minneapolis? With the relatively stable economy, expanding companies and a Class A vacancy of 13.6%, at least one new downtown Minneapolis office tower should be announced this year. On or near Nicollet Mall is a logical location, as space along the Mall is just 6% vacant. At least two developers are vying to be first. Opus has committed to develop on the southeast corner of Tenth Street and Nicollet Mall. Ryan Cos. US Inc. also has a viable site at 801 Marquette Ave. S. Page 2 of 5 http://outlook.uproperties.com/features/2007/2007Apri1_RaceForSpace.htm 5/11/2007