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Concord Group - Retail Analysis.pdf4W IV THE CONCORD GROUP To: Vallco Property Owner, LLC Attn: Reed Moulds, Managing Director From: The Concord Group Date: June 1St, 2018 Re: Analysis of Cost Reductions Associated with Reduced Retail in Vallco Town Center Project Vallco Property Owner, LLC ("VPO") is pursuing the redevelopment of the Vallco Shopping Center in Cupertino, California (the "Site") and on March 27th of this year submitted a mixed-use project known as "Vallco Town Center". As part of that application, VPO has requested a "concession" under the State Density Bonus Law to allow the project to include 400,000 square feet of retail, rather than the normally required amount of 600,000 square feet. In order to qualify under the law, a concession must result in identifiable and actual cost reductions. The purposes of this report is to document the cost reductions that will be achieved by building 400,000 square feet of retail instead of 600,000 square feet. Our analysis was focused on: 1. Identifying the ideal, market-driven scale of retail development on the site, and; 2. Comparing key metrics regarding costs, feasibility and market risks/opportunities of the 400,000 square feet of retail included in the Vallco Town Center plan versus the 600,000 square feet of retail specified in the General Plan for the Site. The following memorandum and technical appendix exhibits attached outline The Concord Group's ("TCG") findings and conclusions: Market Feasibility Analysis, Depth of Demand and the Chanin2 Nature of Retail • Market Areas: For all retail product, the Retail Trade Area ("RTA"), represents the geographic source of competitive supply. For the subject property, the RTA is defined as zip codes effectively covering the City of Cupertino, parts of Sunnyvale and parts of Santa Clara. While market activity in the Primary Market Area ("PMA"), especially at key retail centers such as Westfield's Valley Fair and Stanford Shopping Center, will influence retail demand at the Site, future potential retail tenants at the Site can expect to compete directly with of her retail product within the RTA. (See map of the RTA and PMA below and in Exhibits 1 and 2) ,"d, Fo {fit — �qir .nr '! -Poke A3-) I as tins, .M+wMa+l Y�e,� •� l+ -+ti YY .Sn b car., i r -SAN ]o5� .. .. - Pul HL3 L LampCWl ' n - 1 peM t } Vallco Property Owner, LLC Page 1 June 2018 Retail Market Performance: The RTA is currently home to 223,280 people, 12MM square feet of retail space, and more than $4 Billion of annual retail sales. o With ongoing strong job growth in the region, the RTA is expected to add more than 2,000 people each year through 2023 o As a high -affluence area proximate to the cities of San Francisco and San Jose and their dynamic retail offerings, the RTA currently sees leakage of retail expenditures. Although $6B of retail spending is done by households within the RTA, only $413 is spent in the area. The largest leakage comes from large -format big -box or ecommerce sales categories that have been concentrated and pushed out of the RTA given the reorganization of consumer behaviors and preferences over the past several decades. o The RTA has seen net absorption of only 76,000 square feet over the past year and negative net absorption for seven out of the past ten years, again a symptom of retail reorganization, consolidation and ecommerce impacting the landscape. o At current, vacancies in the RTA sit at 12.5%, significantly higher than the 4.3% across the PMA as a whole. o Retail rents have grown slowly over the past decade, hitting increases of 2.1 % per year. o See Exhibits 2 & 3 for more detail. Changing Nature of Retail: Ecommerce has created seismic shift in the retail industry. According to the Census Bureau and the US Department of Commerce, the share of all retail spending conducted online has grown from 4.1% in 2010 to 10.0% this year with further growth to 17.1% projected through 2023. In real terms, this represents a cumulative drop of retail space demanded by the marketplace as sales (and resulting inventories, fulfillment, etc.) move increasingly online. o Despite a growing population, the impact of this further ecommerce growth will mean a negative demand of 390,000 square feet of retail through 2023. See Exhibit 4 for more detail. o Ecommerce, consolidation and eroding demand for traditional malls, shopping centers and key tenants have impacted a wide variety of retail spending categories. The result is a small list of protected retail spending classes/categories that offer experiential, immediate or entertainment opportunities suitable for inclusion in a 211 century retail project, most notably Food and Beverage, Health/Personal Care/Wellness/Fitness. Interestingly, these — and related — categories make up 72% of all retail spending in the region. These categories constitute the Site's true target retail tenant types and shall be referred to in this report as "Key Categories'; project sizing decisions should ultimately be made based on the extent of demand from the Key Categories. Developer Reactions, Mixed Use Communities and Real World Examples: As the built environment adjusts to the new retail reality, developers are reacting to stay ahead of the trends and build for the new world. There are clear examples in the SF Bay Area alone. o Not far from the Site, a large developer is pursuing the development of a large mixed use master planned community. Originally contemplating LIMM square feet of retail anchored by high-end department stores amongst significant office, hotel and residential space, the developer is currently reworking the retail plan to focus on Food and Beverage/Entertainment Uses and reducing the overall retail footprint by as much as 20%. o Macerich has recently exited the JV Agreement on Candlestick Point redevelopment. Originally planned for 635,000 square feet of large format retail, in a JV between Fivepoint and Macerich, the mall development will no longer move forward due to concerns about the macro -economic retail environment. o See Exhibit 5 for more detail. Retail Demand Forecast: TCG has conducted a demand/opportmity analysis for new retail in the RTA over the next 5 years, a reasonable time frame for the buildout of 100% of the retail component of the Vallco Town Center project. Demand is made up of two component parts: o "Clawback" of retail spending categories currently leaking to other jurisdictions given lack of contemporary product, key tenants, or 24-hour environments. ■ This analysis yields a cumulative demand for 309,000 square feet over the next five years, of which 203,000 square feet is in the Key Categories. ■ See Exhibit 8, Page 1 o Demand resulting from new household and population growth. New people bring new spending and demand for new retail space. Vallco Property Owner, LLC Page 2 June 2018 ■ This analysis yields a cumulative demand for 320,000 square feet of retail through 2022 and 208,000 square feet in the Key Categories. ■ See Exhibit 8, Page 2 o All told, TCG forecasts the total demand throughout the entire RTA for the next 5 years to be 629,000 square feet of all retail types and 411,000 square feet in Key Categories. Retail Demand Capture: Given the narrowing of likely tenant types and the surge in online spending, on the tenant side competition is and will continue to be fierce for sales in the Key Categories. Furthermore, on the landlord side, the Site will be competing with other retail developments in the RTA for this total retail and Key Category forecasted demand. Given all of this — and the real pipeline that will compete for customers across the region using similar concepts and anchors — it is unreasonable to assume the subject property could capture 95-100% of the 629,000 square feet net new demand in the RTA for each of the next 5 years. Recommended Retail Footprint. TCG believes it is appropriate to assume the Site will capture between 60% and 65% of the total retail demand in the RTA over the next 5 years. Given the above factors, TCG believes the Site can absorb (400,000 square feet of retail (approximately 63% total forecasted retail demand) during its developmentperiod and recommends no more than 400,000 square feet as the project's retail footprint. Cost Reduction, 400,000 sa. ft. vs. 600,000 sq. ft. In simple terms, building less retail space in the project would significantly reduce the project's overall costs. Construction costs for retail components within dense mixed-use residential/office over retail projects with parking currently reach upwards of $800 per square foot excluding land (as recently attested to by the City of Cupertino's economic consultant, Economic & Planning Systems, Inc.). o Using a conservative $770 per gross square foot cost, a reduction of 200,000 square feet of retail would generate a primary cost reduction of $154,000,000. However, because a 600,000 square foot retail project would exceed the projected retail demand for the Site, adjustments must be made to economic assumptions for the difficult -to -lease 200,000 retail square feet surplus. VPO would in this case have two options: (1) Allow the surplus 200,000 square feet of retail to remain vacant beyond the initial 5 -year development period, either until a tenant is procured or, potentially, permanently. Both scenarios would result in extraordinarily high carry costs and/or operating losses for the Project; (2) Incentivize lease -up of the surplus 200,000 retail square feet (in order to avoid the significant down-time described above) by agreeing to: o Fund above -market cash contributions toward a tenant's improvement of the space o Deliver retail spaces in "turn -key" condition, relieving the tenant from having to pay for such improvements, which are typically tenant costs o Pay extraordinarily large leasing commissions to brokers who procure retail tenants o Discount the project's rental rates beneath typical market rates in order to attract tenants Both options (1) and (2) to contend with the surplus 200,000 square feet of retail would result in (i) extraordinarily high "carry" costs and operating losses and (ii) extraordinarily high lease transaction and construction costs. Assuming the typical soft cost per square foot of the retail component in a typical mixed-use project is approximately $150, TCG estimates the soft costs for the incremental 200,000 square feet of surplus retail would be at least double the typical cost, or $300 per square foot, and that such incremental costs would be 100% unrecoverable, which is to say they will not be recovered nor will they generate any return on investment, a pure loss. As such, the 400,000 square feet retail project will result in an incremental cost reduction of approximately $60,000,000 in soft costs. Without the incremental $60,000,000 reduction in soft costs directly resulting from the reduction in retail area from 600,000 to 400,000 square feet, the Vallco Town Center project would be infeasible. Vallco Property Owner, LLC Page 3 June 2018 This assignment was completed by Chase Eskel and Taylor Henry under the direction of Tim Cornwell. We have enjoyed working with you on this assignment and look forward to our continued involvement with your team. If you have any questions, please do not hesitate to call. Vallco Property Owner, LLC Page 4 June 2018 .► 1�1 THIIE CONCORD GROUP LIST OF EXHIBITS RETAIL OPPORTUNITY ANALYSIS 1. Retail Regional Location 2. Retail Submarket Performance 3. Retail Macroeconomic Trends 4. Changing Nature of Retail Space 5. Changing and Retooling of Space 6. Consumer Spending Capacity 7. Retail Opportunity Gaps 8. Retail Demand 9. Selected Competitive Retail Inventory Space SAND HILL PROPERTY 17666.02 June 2018 1 EXHIBIT I-1 REGIONAL LOCATION AND SUBMARKET DELINEATION RETAIL TRADE AREA JUNE 2018 .=San. Carlos z•• Rrgionul P L f 'ood City n no.Hlaucrz 6 torical Park The red area represents the Retail Trade Area, ("RTA"), the geographic source of competitive retail supply. •i North Fair The blue area represents the Primary Market Area market, a e t , secondary area with comparable market attributes that will be a o considered throughout the study. Given the size and scale of • + the Vallco redevelopment, the 'PMA" also features numerous '' ------ p s directly competitive projects. These projects are competitive because their size has the ability to draw in consumers from all ` areas of the 'PMA". These projects include: Santana Row, a CityPlace(in development), Westfield Valley Fair, and u irk �► RTA , Stanford Mall. T .. *SAN JOSE 17666.02 Reg Loc - Retail: Retail Page 1 of 2 THE CONCORD GROUP 2 EXHIBIT I-1 REGIONAL LOCATION AND SUBMARKET DELINEATION RETAIL TRADE AREA JUNE 2018 -Los Altos Mountain View The red area represents the Retail Trade Area, ("RTA"), the _ geographic source of competitive retail supply. The blue area represents the Primary Market Area market, a secondary area with comparable market attributes that will be considered throughout the study. Given the size and scale of the Vallco redevelopment, the "PMA" also features numerous directly competitive projects. These projects are competitive because their size has the ability to draw in consumers from all areas of the "PMA". These projects include: Santana Row, CityPlace(in development), Westfield Valley Fair, and Stanford PMA 9. 3 �D2013 CALIPER; ®2012 NAVTE❑ •tupertino I Mile Radius -Saratoga i �J 17666.02 Reg Lee - Retail: Retail zoom Page 2 of 2 THE CONCORD GROUP 3 Geography General Information Population ('18) Households ('18) % PMA Ann. Growth (#,'18-'23) % PMA Over $100K HH Growth Under $100K HH Growth Ann. Growth (%,'18-'23) Household Size ('18) Consumer Spending Patterns ('18) Consumer Expenditures ($000) Per Capita Retail Sales ($000) Per Occupied Square Foot Spending Inflow/ (Leakage) Retail Market Performance (1Q18) Rentable Building Area (SF) Annual Deliveries (SF) Last Four Quarters Five -Year Average Ten -Year Average Annual Net Absorption (SF) Last Four Quarters Five -Year Average Ten -Year Average Vacancy Rate (Available Vacant SF) Vacant Stock (SF) Asking Rent (NNN) Rent Growth Last Four Quarters Five -Year Average Ten -Year Average Source: Claritas; US Census; Costar EXHIBIT I-2 RETAIL SUBMARKET PERFORMANCE PRIMARY MARKET AREA JUNE 2018 24,058 223,280 1,855,647 8,468 80,765 634,221 1.3% 12.7% 100.0% 99 745 6,556 1.5% 11.4% 100.0% 150 1,264 10,189 (51) (518) (3,633) 1.1% 0.9% 1.0% 2.84 2.76 2.93 $662,491 $27,537 $494,451 $508 ($168,041) 999,716 0 32,689 19,300 29,573 32,558 15,430 2.59% 25,881 $49.10 (25.5%) 6.2% 1.9% $6,025,190 $26,985 $4,019,980 $379 ($2,005,210) 10,893,935 38,500 60,344 39,001 71,123 55,876 (10,954) 2.60% 283,154 $36.18 2.0% 2.8% 2.1% $42,440,532 $22,871 $54,221,288 $783 $11,780,756 72,082,254 752,461 587,743 496,645 924,290 398,829 81,054 3.88% 2,798,262 $35.28 7.2% 4.3% 1.2% 17666.02 Demos: Submarket THE CONCORD GROUP 4 Source: CoStar 17666.02 Retail Macro Market Trends: RTA RBA The Concord Group 5 500,000 Retail Trade Area EXHIBIT 3 RETAIL INVENTORY PERFORMANCE 6.0% 300,000 RETAIL TRADE AREA 2009 THROUGH Q8 2018 5.0% R d 200,000 Market Factor 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Retail Trade Area 4.0% Rental Building Area 10,723,524 10,738,209 10,753,115 10,750,817 10,746,647 10,767,143 10,794,613 10,839,771 10,865,685 10,893,935 Net Absorption (257,050) (24,076) 96,161 (121,549) (40,808) 268,632 (76,150) 77,427 100,092 (58,662) Deliveries 24,693 28,203 2,855 0 14,200 31,532 37,090 156,398 42,000 20,500 Total Vacancy Rate 5.0% 5.8% 5.5% 6.4% 5.6% 3.7% 3.2% 3.2% 3.4% 2.60% Vacant SF 534,131 618,431 589,963 689,545 603,137 401,821 342,023 343,045 369,901 283,154 Source: CoStar 17666.02 Retail Macro Market Trends: RTA RBA The Concord Group 5 500,000 Retail Trade Area 7.0% 400,000 6.0% 300,000 5.0% R d 200,000 a 4.0% w 100,000 a W) 3.0% 0 2.0% -100,000 1.0% -200,000 -300,000 0.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 ®Net Absorption ®Deliveries -43-- Vacancy Rate Source: CoStar 17666.02 Retail Macro Market Trends: RTA RBA The Concord Group 5 EXHIBIT 4 CHANGING NATURE OF RETAIL AND IMPACT ON LOCAL RETAIL NEED RETAIL TRADE AREA 2010 THROUGH 2021 I. Online Share of Total Retail Spendin Year Share Growth 2,066 2,066 2,066 2,066 2,066 10,330 Online Share of Total US Retail Sales 2010 4.1% $17,056 $17,056 $17,056 2011 4.8% 17.1% 16.0% = Total Retail Spending Added $35,237,696 2012 5.1% 6.2% 14.0% $35,237,696 $35,237,696 2013 5.8% 13.7% 12.0% $3,843 $3,879 2014 6.5% 12.1% 10.0% $3,984 $19,570 2015 7.3% 12.3% 11.1% 12.4% 13.7% 15.3% 8.0% 13.9% Online Spending ($MM) 2016 8.0% 9.6% $481 $536 $604 2017 9.0% 12.5% 6.0% Incremental Online Spending $45,801,689 2018 10.0% 11.1% 4.0% $67,696,345 $76,188,877 2019 11.1% 11.0% 2.0% ($10,563,993) ($19,096,592) 2020 12.4% 11.7% 0.0% ($40,951,181) ($123,083,186) 2021 13.7% 10.5% (33,768) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Average YoY Growth 11.6% (130,901) (393,436) Source: US Census & US Dept of Commerce H. Square Footage Impact of Annual Change Assumptions and Inputs Sources New Population per Year 2,066 Nielsen/Claraas/US Census Trade Area Retail Spending per Person per Year $17,056 Nielsen/Claraas/US Census Total Retail Spending by Trade Area Consumers $3,808,209,492 Nielsen/Claraas/US Census Total Retail Space in Trade Area 12,172,957 Costar Retail Spending per Square Foot $312.84 Calculated 2019 2020 2021 2022 2023 5 Yr Population Added 2,066 2,066 2,066 2,066 2,066 10,330 x Retail Spending per Capita $17,056 $17,056 $17,056 $17,056 $17,056 $17,056 = Total Retail Spending Added $35,237,696 $35,237,696 $35,237,696 $35,237,696 $35,237,696 $176,188,480 Total Retail Spending ($MM) $3,843 $3,879 $3,914 $3,949 $3,984 $19,570 Online Share of Retail Spending 11.1% 12.4% 13.7% 15.3% 17.1% 13.9% Online Spending ($MM) $427 $481 $536 $604 $680 $2,728 Incremental Online Spending $45,801,689 $54,334,288 $55,250,468 $67,696,345 $76,188,877 $299,271,666 Resulting Brick & Mortar Spending ($10,563,993) ($19,096,592) ($20,012,772) ($32,458,649) ($40,951,181) ($123,083,186) Resulting SgFt Impact (33,768) (61,042) (63,971) (103,754) (130,901) (393,436) 17666.05 Changing Retail:CNR the concord group 6 EXHIBIT 5 CLOSINGS AND RETOOLING OF RETAIL PLANS SAN FRANCISCO BAY AREA, CALIFORNIA JUNE 2018 I. Major Retail Anchor Closings III. Changing Large Scale Development Plans II. Map of Retailers at Risk mea mol v o ..nw t " vvainul ue Mejgi u Aav�z OLar�� o`°ey R° Maary Geek Ram `hi. O Ra �1 T.,, as °mesleaa va v © gcrkcicy San Fr 1Cncisco � k glartnda♦/� � a elacknawR�Ma,m Ra � � �A � land as Ramon �� O u-- san Laanaro B' r (1�,,,0{^`2 casae vaiiey O S-1, San Francisco Li one a°a � Hillabar �iyn o q ') 1--liftN�ek �" • r moon as s n Red.- � O Oty- Ito r..ns San JoE �5 v� - C e k Santa:Gara Color -coded by National Retailer Closings (1) • Westfield Valley Fair Mall is currently undergoing a $1.1 billion expansion project adding 685k sf to the existing 1.5M sf. The expansion is said to focus specifically on adding more F&B and on upscale distinct retailers that pull customers from a wider radius. Already underway, this project will draw in customers who otherwise wouldn't have traveled to the mall. This strategy targets consumers in our "Key Categories" which will compete directly with the Vallco redevelopment. • Lennar's Candlestick Point development has suspended development amid rising concerns in the retail market. Macerich and Lennar partnered on the development of a 635k sf mall in the master -planned community in San Francisco. Macerich is now leaving the mall joint venture over concerns of the retail market. Macerich has also been selling off some of their retail assets as the market has struggled, indicating macroeconomic weakness on large-scale retail formats. 17666.05 Changing Retail:closing and retooling Rale.,°nga,�, O• Livermore sand � nuk e the concord group 7 National Closings Retailers 2017 2018 Total • Radioshack 1470 1,470 Toys R'Us 735 735 Payless 700 700 Sears/Kmart 358 166 524 Gymboree 330 102 432 Macy's 100 11 111 • Walgreen's Rite Aid 600 600 • Ann Taylor/Dress Barn 70 500 570 • Rue21 400 400 • Gap Inc. 70 200 270 • The Limited 250 250 • Best Buy 250 250 • Mattress Firm 200 200 • J.C. Penney 138 138 4,136 29514 6,650 III. Changing Large Scale Development Plans II. Map of Retailers at Risk mea mol v o ..nw t " vvainul ue Mejgi u Aav�z OLar�� o`°ey R° Maary Geek Ram `hi. O Ra �1 T.,, as °mesleaa va v © gcrkcicy San Fr 1Cncisco � k glartnda♦/� � a elacknawR�Ma,m Ra � � �A � land as Ramon �� O u-- san Laanaro B' r (1�,,,0{^`2 casae vaiiey O S-1, San Francisco Li one a°a � Hillabar �iyn o q ') 1--liftN�ek �" • r moon as s n Red.- � O Oty- Ito r..ns San JoE �5 v� - C e k Santa:Gara Color -coded by National Retailer Closings (1) • Westfield Valley Fair Mall is currently undergoing a $1.1 billion expansion project adding 685k sf to the existing 1.5M sf. The expansion is said to focus specifically on adding more F&B and on upscale distinct retailers that pull customers from a wider radius. Already underway, this project will draw in customers who otherwise wouldn't have traveled to the mall. This strategy targets consumers in our "Key Categories" which will compete directly with the Vallco redevelopment. • Lennar's Candlestick Point development has suspended development amid rising concerns in the retail market. Macerich and Lennar partnered on the development of a 635k sf mall in the master -planned community in San Francisco. Macerich is now leaving the mall joint venture over concerns of the retail market. Macerich has also been selling off some of their retail assets as the market has struggled, indicating macroeconomic weakness on large-scale retail formats. 17666.05 Changing Retail:closing and retooling Rale.,°nga,�, O• Livermore sand � nuk e the concord group 7 EXHIBIT 6 CONSUMER SPENDING CAPACITY RETAIL TRADE AREA JUNE 2018 2018 Population PMA 1,855,647 Retail Trade Area 223,280 1 -Mile Radius 24,058 Non-GAFO Eating & Drinking Places Retail Trade Area 223,280 Consumer Spending Capacity $3,732 Target Market 21.9% Per Retail Trade Area Spending Category Radius Pop. Total Cap. Share GAFO (1) 223,280 $302,092,003 $1,353 7.9% 7.9% Department Stores Retail Trade Area 223,280 $188,426,415 $844 4.9% Furniture Retail Trade Area 223,280 $134,636,183 $603 3.5% Sporting Goods/Hobby Retail Trade Area 223,280 $91,035,366 $408 2.4% Books & Music Retail Trade Area 223,280 $21,204,309 $95 0.6% Office Supplies, Gift Stores Retail Trade Area 223,280 $35,560,260 $159 0.9% Electronics/Appliances Retail Trade Area 223,280 $120,290,505 $539 3.2% Clothing & Accessories Retail Trade Area 223,280 $358,688,040 $1,606 9.4% 9.4% Other General Merchandise Retail Trade Area 223,280 $527,471,281 $2,362 13.9% 13.9% GAFO Total Retail Trade Area 223,280 $1,477,312,359 $6,616 38.8% Non-GAFO Eating & Drinking Places Retail Trade Area 223,280 $833,202,953 $3,732 21.9% 21.9% Misc. Stores Retail Trade Area 223,280 $92,887,134 $416 2.4% Health & Personal Care Retail Trade Area 223,280 $302,092,003 $1,353 7.9% 7.9% Building/Garden Materials Retail Trade Area 223,280 $385,030,957 $1,724 10.1% Food & Beverage Retail Trade Area 223,280 $717,684,086 $3,214 18.8% 18.8% Non-GAFO Total Retail Trade Area 223,280 $2,330,897,133 $10,439 61.2% Retail Trade Area 223,280 $3,808,209,492 $17,056 100.0% Total Excluding Vehicle/Gas/Non-Store Key Categories (New Format Retail) Motor Vehicle/Gas/Non-Store Motor Vehicle Retail Trade Area 223,280 $1,117,864,280 $5,007 Gas Stations Retail Trade Area 223,280 $387,891,494 $1,737 Other Non -Store Retailers Retail Trade Area 223,280 $711,224,924 $3,185 Motor Vehicle/Gas/Non-Store Total Retail Trade Area 223,280 $2,216,980,698 $9,929 Total Retail Trade Area 223,280 $6,0259190,190 $269985 Source: Claritas; TCG (1) GAFO = General Merchandise, Apparel, Furniture, and Other 17666.05 Retail Spend.Gap.Demand: Spend RTA THE CONCORD GROg IP EXHIBIT 7 RETAIL OPPORTUNITY GAPS RETAIL TRADE AREA JUNE 2018 2018 Population PMA 1,855,647 Retail Trade Area 223,280 1 -Mile Radius 24,058 Source: Claritas; TCG (1) GAFO = General Merchandise, Apparel, Furniture, and Other 17666.05 Retail Spend.Gap.Demand: Gap_RTA The Concord Group 9 Consumer Spending Target Market Consumer Actual Retail Opportunity Gap Spending Category Radius Pop. Demand Sales $ % GAFO (1) Department Stores Retail Trade Area 223,280 $188,426,415 $83,539,406 $104,887,009 55.7% Furniture Retail Trade Area 223,280 $134,636,183 $30,807,637 $103,828,546 77.1% Sporting Goods/Hobby Retail Trade Area 223,280 $91,035,366 $31,565,669 $59,469,697 65.3% Books & Music Retail Trade Area 223,280 $21,204,309 $12,603,262 $8,601,047 40.6% Office Supplies, Gift Stores Retail Trade Area 223,280 $35,560,260 $7,093,763 $28,466,497 80.1% Electronics/Appliances Retail Trade Area 223,280 $120,290,505 $228,267,785 ($107,977,280) (89.8%) Clothing & Accessories Retail Trade Area 223,280 $358,688,040 $81,567,142 $277,120,898 77.3% Other General Merchandise Retail Trade Area 223,280 $527,471,281 $67,063,241 $460,408,040 87.3% GAFO Total Retail Trade Area 223,280 $1,477,312,359 $542,507,905 $934,804,454 63.3% Non-GAFO Eating & Drinking Places Retail Trade Area 223,280 $833,202,953 $602,732,216 $230,470,737 27.7% Misc. Stores Retail Trade Area 223,280 $92,887,134 $19,559,348 $73,327,786 78.9% Health & Personal Care Retail Trade Area 223,280 $302,092,003 $152,229,820 $149,862,183 49.6% Building/Garden Materials Retail Trade Area 223,280 $385,030,957 $135,582,463 $249,448,494 64.8% Food & Beverage Retail Trade Area 223,280 $717,684,086 $488,153,882 $229,530,204 32.0% Non-GAFO Total Retail Trade Area 223,280 $2,330,897,133 $1,398,257,729 $932,639,404 40.0% Retail Trade Area 223,280 $3,808,209,492 $1,940,765,634 $1,867,443,858 49.0% Total Excluding Vehicle/Gas/Non-Store Outflow Categories $3,687,918,987 $1,712,497,849 $1,975,421,138 53.6% Motor Vehicle/Gas/Non-Store Motor Vehicle Retail Trade Area 223,280 $1,117,864,280 $1,574,453,637 ($456,589,357) (40.8%) Gas Stations Retail Trade Area 223,280 $387,891,494 $173,202,195 $214,689,299 55.3% Other Non -Store Retailers Retail Trade Area 223,280 $711,224,924 $331,558,607 $379,666,317 53.4% Motor Vehicle/Gas/Non-Store Total Retail Trade Area 223,280 $2,216,980,698 $2,079,214,439 $137,766,259 6.2% Retail Trade Area 223,280 $6,025,190,190 $4,019,980,073 $2,005,210,117 33.3% Total Source: Claritas; TCG (1) GAFO = General Merchandise, Apparel, Furniture, and Other 17666.05 Retail Spend.Gap.Demand: Gap_RTA The Concord Group 9 I. Consumer Spending Opportunity Gap Demand Potential Spending Category GAFO (1) Department Stores Furniture Sporting Goods/Hobby Books & Music Office Supplies, Gift Stores Electronics/Appliances Clothing & Accessories Other General Merchandise GAFO Total Non-GAFO Eating & Drinking Places Misc. Stores Health & Personal Care Building/Garden Materials Food & Beverage Non-GAFO Total Motor Vehicle/Gas/Non-Store Motor Vehicle Gas Stations Other Non -Store Retailers Motor Vehicle/Gas/Non-Store Total Total (All Spending Categories) Excluding Vehicle/Gas/Non-Store Key Categories (New Format Retail) EXHIBIT 8 ESTIMATED RETAIL DEMAND RETAIL TRADE AREA 2018 THROUGH 2023 $6,025,190,190 $4,019,980,073 66.7% $550 $3,808,209,492 $1,940,765,634 51.0% Source: Claritas; TCG (1) GAFO = General Merchandise, Apparel, Furniture, and Other (2) High-end retail realizes a higher Sales per Foot. Thus $550 being a more appropriate figure than the traditional $300-$350 per foot. 50,386 41,855 41,904 27,248 41,733 $2,005,210,117 4,672,321 6.6% 308,637 $1,867,443,858 3,591,675 8.6% 308,637 203,125 66% Note: In addition to the demand derived from spending gaps within the Retail Trade Area, an additional portion of demand will come from new population growth, as shown on the next page. New Format Retail As traditional retail faces accelerating headwinds and the rise of online shopping continues, brick and mortar retail spaces increasingly turns towards experiential excursions focused on food and entertainment. These spending categories represent approximately 2/3 of the potential spending clawback in the Trade Area. 17666.05 Retail Spend.Gap.Demand: Demand RTA Page 1 of 2 The Concord Group 10 Consumer Spending Expected Current Unfulfilled Consumer Actual Sales/ Sales Retail Retail Space Future Potential Demand Sales Demand Per SF (2) Gap @ $550/SF Capture New SF $188,426,415 $83,539,406 44.3% $104,887,009 190,704 10.0% 19,070 $134,636,183 $30,807,637 22.9% $103,828,546 188,779 10.0% 18,878 $91,035,366 $31,565,669 34.7% $59,469,697 108,127 10.0% 10,813 $21,204,309 $12,603,262 59.4% $8,601,047 15,638 10.0% 1,564 $35,560,260 $7,093,763 19.9% $28,466,497 51,757 ---Not Compatible --- $120,290,505 $228,267,785 189.8% ($107,977,280) 0 --- Not Compatible --- $358,688,040 $81,567,142 22.7% $277,120,898 503,856 10.0% 50,386 $527,471,281 $67,063,241 12.7% $460,408,040 837,106 10.0% 83,711 $1,477,312,359 $542,507,905 36.7% $934,804,454 1,895,967 9.7% 184,421 $833,202,953 $602,732,216 72.3% $230,470,737 419,038 10.0% 41,904 $92,887,134 $19,559,348 21.1% $73,327,786 133,323 10.0% 13,332 $302,092,003 $152,229,820 50.4% $149,862,183 272,477 10.0% 27,248 $385,030,957 $135,582,463 35.2% $249,448,494 453,543 --- Not Compatible --- $717,684,086 $488,153,882 68.0% $229,530,204 417,328 10.0% 41,733 $2,3309897,133 $1,398,257,729 60.0% $932,639,404 1,695,708 7.3% 124,217 $1,117,864,280 $1,574,453,637 140.8% ($456,589,357) 0 --- Not Compatible --- $387,891,494 T111 - -A $173,202,195 o", - - 44.7% AL LO/ $214,689,299 oa n LLL -O 390,344 Lnn 1n0 --- Not Compatible --- AT..« n..«..... «:1.1,. $6,025,190,190 $4,019,980,073 66.7% $550 $3,808,209,492 $1,940,765,634 51.0% Source: Claritas; TCG (1) GAFO = General Merchandise, Apparel, Furniture, and Other (2) High-end retail realizes a higher Sales per Foot. Thus $550 being a more appropriate figure than the traditional $300-$350 per foot. 50,386 41,855 41,904 27,248 41,733 $2,005,210,117 4,672,321 6.6% 308,637 $1,867,443,858 3,591,675 8.6% 308,637 203,125 66% Note: In addition to the demand derived from spending gaps within the Retail Trade Area, an additional portion of demand will come from new population growth, as shown on the next page. New Format Retail As traditional retail faces accelerating headwinds and the rise of online shopping continues, brick and mortar retail spaces increasingly turns towards experiential excursions focused on food and entertainment. These spending categories represent approximately 2/3 of the potential spending clawback in the Trade Area. 17666.05 Retail Spend.Gap.Demand: Demand RTA Page 1 of 2 The Concord Group 10 II. Consumer Spending Opportunity Gap Demand Potential Per Capita Spending Market Factor $ % New Population Growth Spending Categories Department Stores Furniture Sporting Goods/Hobby Books & Music Office Supplies, Gift Stores Electronics/Appliances Clothing & Accessories Other General Merchandise Eating & Drinking Places Misc. Stores Health & Personal Care Building/Garden Materials Food & Beverage Motor Vehicle Gas Stations Other Non -Store Retailers Total (All Spending Categories) Excluding Vehicle/Gas/Non-Store Key Categories (New Format Retail) Retail Sales per Square Foot Total Demand for Retail Space (SF) Key Categories (New Format Retail) III. Total Demand Total 5 -Year Demand from Opportunity Gaps: Total 5 -Year Demand from New Population Growth: Total 5 -Year Demand: IV. Total Demand (Key Categories) Total 5 -Year Demand from Opportunity Gaps: Total 5 -Year Demand from New Population Growth: Total 5 -Year Demand: EXHIBIT 8 ESTIMATED RETAIL DEMAND RETAIL TRADE AREA 2018 THROUGH 2023 New Resident Generated Spending 2018/2019 2019/2020 2020/2021 2021/2022 2022/2023 5 -Yr Total 2,066 2,066 2,066 2,066 2,066 10,329 $844 3.1% $1,743,333 $1,743,333 $1,743,333 $1,743,333 $1,743,333 $8,716,663 $603 2.2% $1,245,662 $1,245,662 $1,245,662 $1,245,662 $1,245,662 $6,228,310 $408 1.5% $842,265 $842,265 $842,265 $842,265 $842,265 $4,211,323 $95 0.4% $196,184 $196,184 $196,184 $196,184 $196,184 $980,918 $159 0.6% $329,006 $329,006 $329,006 $329,006 $329,006 $1,645,028 $539 2.0% $1,112,935 $1,112,935 $1,112,935 $1,112,935 $1,112,935 $5,564,675 $1,606 6.0% $3,318,603 $3,318,603 $3,318,603 $3,318,603 $3,318,603 $16,593,017 $2,362 8.8% $4,880,196 $4,880,196 $4,880,196 $4,880,196 $4,880,196 $24,400,980 $3,732 13.8% $7,708,844 $7,708,844 $7,708,844 $7,708,844 $7,708,844 $38,544,219 $416 1.5% $859,397 $859,397 $859,397 $859,397 $859,397 $4,296,987 $1,353 5.0% $2,794,973 $2,794,973 $2,794,973 $2,794,973 $2,794,973 $13,974,867 $1,724 6.4% $3,562,330 $3,562,330 $3,562,330 $3,562,330 $3,562,330 $17,811,648 $3,214 11.9% $6,640,056 $6,640,056 $6,640,056 $6,640,056 $6,640,056 $33,200,282 $5,007 18.6% $10,342,548 $10,342,548 $10,342,548 $10,342,548 $10,342,548 $51,712,738 $1,737 6.4% $3,588,795 $3,588,795 $3,588,795 $3,588,795 $3,588,795 $17,943,977 $3,185 11.8% $6,580,296 $6,580,296 $6,580,296 $6,580,296 $6,580,296 $32,901,479 $26,985 100.0% $55,745,422 $55,745,422 $55,745,422 $55,745,422 $55,745,422 $278,727,112 $17,056 63.2% $35,233,783 $35,233,783 $35,233,783 $35,233,783 $35,233,783 $176,168,917 $22,902,575 $22,902,575 $22,902,575 $22,902,575 $22,902,575 $114,512,875 $550 $550 $550 $550 $550 $550 64,061 64,061 64,061 64,061 64,061 320,307 41,641 41,641 41,641 41,641 41,641 208,205 308,637 Annualized assuming 5 -year 320,307 absorption flow of current leakage 628,945 125,789 203,125 Annualized assuming 5 -year 208,205 1 absorption flow of current leakage 411,330 0. 82,266 17666.05 Retail Spend.Gap.Demand: Demand RTA Page 2 of 2 The Concord Group 11 EXHIBIT 9 SELECTED COMPETITIVE RETAIL INVENTORY SPACE RETAIL TRADE AREA JUNE 2018 Available Building Name Address City Year Built Reno. Elev. Type Subtype Typical Floor Total RBA Avail. Occ. Ann. Lease Rate Avg. Type Retail Trade Area 696 W El Camino Real 696 W El Camino Real Sunnyvale 2018 -- is General Retail Freestanding 9,836 9,836 9,836 0.0% $72.00 NNN Bldg B (108-116 E El Camino Real) 108-116 E El Camino Real Sunnyvale 2010 -- is General Retail (Community Center) Freestanding 8,339 8,339 1,000 88.0% 69.00 NNN Homestead Center (20916 Homestead Rd) 20916 Homestead Rd Cupertino 1984 -- is General Retail (Neighborhood Center) Freestanding 7,200 7,200 1,200 83.3% 66.00 NNN 10129-10191 S De Anza Blvd 10129-10191 S De A- Blvd Cupertino 1952 -- is General Retail Freestanding 20,527 20,527 975 95.3% 54.00 NNN Saratoga Plaza (375 Saratoga Ave) 375 Saratoga Ave San Jose 1970 -- Is General Retail (Neighborhood Center) Restaurant 38,000 38,000 1,080 97.2% 54.00 NNN Loree Center (19050-19088 Stevens Creek Blvd) 19050-19088 Stevens Creek Blvd Cupertino 1951 -- is General Retail (Strip Center) 20,000 20,000 6,400 68.0% 54.00 NNN Biltmore (20030-20080 Stevens Creek Blvd) 20030-20080 Stevens Creek Blvd Cupertino 2015 -- is General Retail 7,045 7,045 1,271 82.0% 54.00 NNN 751-799 E El Camino Real 751-799 E El Camino Real Sunnyvale 1993 -- 2s General Retail (Community Center) Freestanding 172,613 172,613 7,066 95.9% 51.00 NNN 798-820 E El Camino Real 798-820 E El Camino Real Sunnyvale 2008 -- is General Retail (Strip Center) 5,720 5,720 1,800 68.5% 51.00 NNN V Center (1191-1195 S De Anza Blvd) 1191-1195 S De Anna Blvd San Jose 2017 -- 2s General Retail Freestanding 13,000 13,000 3,824 70.6% 48.00 NNN 1375 S De Anza Blvd 1375 S De Anza Blvd Cupertino 1985 2006 Is General Retail Freestanding 6,222 6,222 6,222 0.0% 48.00 NNN 1253 W EI Camino Real 1253 W El Camino Real Sunnyvale 1980 -- 1 s General Retail (Strip Center) Restaurant 8,979 8,979 2,262 74.8% 48.00 NNN 717 E El Camino Real 717 E El Camino Real Sunnyvale 1985 -- is General Retail (Strip Center) 20,000 20,000 1,910 90.5% 46.20 NNN 510 E El Camino Real 510 E El Camino Real Sunnyvale 1979 -- 1 s General Retail (Strip Center) 12,606 12,606 2,591 79.4% 45.00 NNN 1018 W EI Camino Real 1018 W El Camino Real Sunnyvale 1958 1995 1 s General Retail Freestanding 7,250 7,250 7,250 0.0% 45.00 NNN Westmont Village (1211-1291 S Mary Ave) 1211-1291 S Mary Ave Sunnyvale 1961 -- is General Retail (Neighborhood Center) Storefront 60,909 60,909 2,520 95.9% 42.00 NNN 455-489 Saratoga Ave 455-489 Saratoga Ave San Jose 1973 -- is General Retail (Neighborhood Center) Storefront 42,677 42,677 1,500 96.5% 42.00 NNN 580 South Murphy (101-103 E El Camino Real) 101-103 E El Camino Real Sunnyvale 1965 -- is General Retail (Neighborhood Center) Freestanding 24,032 24,032 1,500 93.8% 39.00 NNN Henderson Center (1053 E El Camino Real) 1053 E El Camino Real Sunnyvale 1968 -- 1 s General Retail (Strip Center) 11,249 11,249 1,350 88.0% 37.20 NNN 740 E El Camino Real 740 E El Camino Real Sunnyvale 1975 -- 1 s General Retail Restaurant 10,947 10,947 10,947 0.0% 36.00 NNN Pepper Tree Plaza (1084 S De A— Blvd) 1084 S De Anna Blvd San Jose 1900 -- i s General Retail (Strip Center) 11,500 11,500 3,698 67.8% 35.60 NNN Park Lane Plaza (5152-5278 Moorpark Ave) 5152-5278 Moorpark Ave San Jose 1968 -- is General Retail (Neighborhood Center) Freestanding 70,000 70,000 4,022 94.3% 34.56 NNN Bldg 4 & 5 (4360 Stevens Creek Blvd) 4360 Stevens Creek Blvd San Jose 1972 -- is General Retail (Neighborhood Center) Freestanding 31,981 31,981 1,360 95.7% 31.30 NNN- 130 E El Camino Real 130 E El Camino Real Sunnyvale 1964 -- 1 s General Retail (Community Center) Freestanding 39,500 39,500 39,500 0.0% 30.00 NNN Civic Square (802-844 W EI Camino Real) 802-844 W El Camino Real Sunnyvale 1964 2009 1 s General Retail (Neighborhood Center) Freestanding 42,178 42,178 23,900 43.3% 30.00 NNN Kiely Plaza (1052-1092 Kiely Blvd) 1052-1092 Kiely Blvd Santa Clara 1974 1999 is General Retail (Strip Center) Freestanding 23,766 23,766 1,655 93.0% 29.40 NNN Moonlite Shopping Center (2610-2790 EI Camino Real) 2610-2790 El Camino Real Santa Clara 1960 1994 is General Retail (Community Center) Freestanding 169,375 169,375 15,780 90.7% 28.77 NNN 1587-1595 Pomeroy Ave 1587-1595 Pomeroy Ave Santa Clara 1964 -- is General Retail (Strip Center) Freestanding 6,000 6,000 2,416 59.7% 27.00 NNN 942-948 W El Camino Real 942-948 W El Camino Real Sunnyvale 1960 2016 is General Retail (Strip Center) Freestanding 7,200 7,200 7,200 0.0% 24.92 NNN- 1080 Saratoga Ave 1080 Saratoga Ave San Jose 1966 -- is General Retail (Strip Center) Freestanding 17,380 17,380 1,178 93.2% 24.48 NNN Totals: 30,868 926,031 173,213 82.2% $38.21 NNN S-.: Costar 17666.02 RTA Comps: Comps The Concord Group u