Volume 6, No. 1, Spring 2001

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Market Trends & Indicators

Featured Real Estate Trend

After nearly seven years of escalating prices, the Midwest Region Class A office market peaked in mid-2000, with closings occurring as late as the end of 2000 representing the market high. From the last half of 2000 through the first quarter of 2001, values of office buildings are now estimated to be off 10%-20% from peak levels seen in 2000. We believe that contributing to this decline are the following:

1. Change in capital makeup among the large investment groups following the stock market correction, resulting in portfolio ratios of asset types being out of sync with traditional levels;
2. Increasing amounts of shadow space, putting downward pressure on values;
3. Failure of technology companies and related industries, causing loan deficits and higher vacancy; and
4. Reduction in growth for many companies as a result of the general economic slowdown.

Economic Indicator

	1994	1995	1996	1997	1998	1999	2000
New Housing Starts	268,000	233,000	254,000	238,000	332,000	349,600	303,200

P/E Ratios in Select Industries

Industry (yr end)	1985	1990	1995	1997	1998	1999	2000
Automotive	6	N/M	12	9	15	9	9
Banking	9	14	12	19	26	13	19
Discount & Fashion Retailing	16	23	22	29	30	34	33
Food	14	22	18	41	42	19	24
Fuel	11	15	40	18	33	26	16
Health Care	18	22	22	38	56	40	45
Manufacturing	20	16	16	20	23	30	20
Service Industries	22	21	18	32	24	25	32
Telecommunications	11	15	21	26	38	34	26
Transportation	18.3	28	21	16	14	20	18
Utilities & Power	11	15	17	18	20	14	17
Composite	15	17	19	25	30	29	26

Economic Indicators

Indicator (5 yr avg)	1985	1990	1995	1998	1999	2000	1st Qtr 2001
Inflation	5.0%	4.0%	3.1%	1.6%	2.2%	3.4%	3.0%
Productivity	1.7%	0.6%	1.5%	2.6%	2.4%	3.4%	2.0%
GDP	4.0	1.8%	2.7%	4.3%	4.2%	5.0%	2.0%
Consumer Confidence	84.9	104.2	99.2	127.6	144.4	128.6	109.2
Initial Public Offerings	169	144	512	395	548	339	17
IPO in Volume $Billion	5.7	9.9	26.6	43.7	91.0	55.46	8.1

Rates of Return & Risk Hierarchy

Investment	Current
30 Yr Treasury	5.6%
Aaa Bond	7.2
Bbb Bond	8.2
Commercial Mortgage	8-9
Institutional Real Estate	8-11.5
Non-Institutional Real Estate	9-12.5
Speculative Real Estate	13-17
S&P Equity (Ibbotson)	13.2
Land Development	12-18
Equipment Finance Rates	15-18
NYSE/OTC Equity (Ibbotson)	18.0
NYSE Smallest Cap. Equity (Ibbotson)	21.0

Sources: National Real Estate Index (2001), Appraisal Institute; National Association of Home Builders, F.W. Dodge Division, Business Week, Value Line, U.S. Chamber of Commerce, Standard & Poors, Hale & Door IPO Report, Investment Dealers Digest.

Shenehon Company makes every effort to ensure the accuracy of the information published in Valuation Viewpoint. Shenehon Company uses only those sources it determines are accurate and reliable, but no guarantee or warranty with regard to the information is made or implied.