Investors overall have great confidence in the commercial real estate market for 2008. In spite of the capital markets, investors are still planning to increase real estate holdings this year. Pricing is attractive today, so investors may see high returns on their money. Bringing good properties to market this spring will make 2008 a great year for investment.

Our Valued clients. In recent years, retail shopping center sales have been driven forward by high tenant demand, and this demand has kept the retail market relatively stable. The last few years have shown investors in the retail sector
benefitting from low interest rates and the long run in the residential housing market. In 2008, the slow housing market and the reduction in cash-out financing may affect the ability of some investors to come to the table with enough cash to
secure a commercial loan. Fortunately for San Diego, the continued surge in employment will help to keep the retail sector alive.

Retail Market Fundamentals. In 2008, the retail market is expected to remain relatively stable in spite of forecasts of slowing economic growth. Lowe's, Home Depot, Wal-Mart and other big-box chain stores are expected to slow their expansion
plans due to decreased home equity lines of credit. Traditional mall owners, however, are focusing renovation and expansion plans toward the power center concept or the lifestyle center concept.These mall owners will be adding exercise, massage
therapy, entertainment, and dining components to existing properties. Owners of aging mall properties are looking to add healthy department store or restaurant anchors to their tenant rolls. Private equity firms have been targetting large retailers. A significant share of 2008 deals are expected to come from smaller private investors trading out of management-intensive apartment complexes and into the retail mall sector. There is a continuing appetite for value-added investments, rehabs of quality assets in quality locations. Among these are the neighborhood shopping center, which may need renovation or expansion. For those with cash in hand and a mild tolerance for risk, value-added properties present a great opportunity.

Retail Prices and Cap Rates. 2008 will bring retail prices and cap rates into a hard line which will reflect property quality, property location, and tenant-creditworthiness, a trend we see becoming stronger as the year progresses. Sellers of lower-tier
properties may have to adjust their expectations to get their properties sold, while at the high-end of the market, there are not enough properties for investors to choose from. The availability of top-tier assets can be expected to increase by April or
May. Large buyers, who still have access to purchase capital, are finding it challenging to find suitable properties to purchase. As a result, several major retail owners are looking for development projects, either to hold for cash-flow, or to sell at
premium prices once the market has again stabilized.

Dollar stores target lower income households. Consumer spending growth is likely to lose steam as home equity withdrawal declines and household budgets continue to be squeezed by high housing and high gasoline costs. These higher energy
costs have had an adverse effect on the dollar stores, which seem to be declining in popularity with investors.

Apartment complexes featuring 80 units and more are forecast to be hot again in 2008, appealing to REIT's, private investors, and high net-worth individuals.

The Industrial Sector. Demand for industrial properties remain intact for 2008. International trade continues to grow rapidly, fueling a need for warehouse space located near the major ports and airports. Markets that serve as major transportation hubs will continue to fuel the industrial sector sales. Imported goods will keep demand high for large warehouse and distribution facilities. Strong NOI growth for warehouse assets is also expected to continue. In addition, the high-tech sector rebound will continue to boost demand for flex space. In California markets, Los Angeles, Oakland, and Orange County, new development is limited and demand is up. Institutional investors and REIT's are likely to continue to increase their stakes in the industrial merket, drawn by the consistency of operating performance and attractive cap rates. Investors may want to investigate opportunities in the sea and ocean port cities, and also in inland growth areas where the revenue potential is strong. In San Diego, iindustrial growth is expected to increase at twice the national rate in 2008. Builders will continue to add millions of new industrial space to the local inventory, and projected rents are up. Newer assets in the north and south are in demand, and there should be movement in the downtown area as well. Further strengthening in the technology and biotech sectors may lead to increased demand for flex properties in San Diego, San Francisco, and San Mateo County.

The Office Market has a lot of room to run. Leases signed in 2003 will renew in 2008 at significantly higher rates.

Lower Interest Rates Benefit Borrowers. Spreads for retail properties are expected to remain attractive in 2008. A willing pool of commercial lenders are making capital available to owners and investors. Loans on anchored retail properties of $4 million
and up are being written at 70 percent to 80 percent LTV. Unanchored properties are still able to find financing, although at lower LTV's and at higher basis points. The need for strong capital flows into the commercial real estate market are expected to
keep financing and refinancing costs at relatively low levels this year.

Lenders Compete for Quality Assets. Willing lenders will compete for high-quality retail properties this year, which may result in good spreads for top-tier assets. Global investors are looking for quality real estate to enter into their portfolios. Retail
prices and cap rates will become more reflective of property quality, location, and tenant-credit as 2008 progresses. The gap between buy

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