REGIONAL ANALYSIS OF MEMPHIS TENNESSEE

The subject is influenced in a general manner by the economic, political, physical and social characteristics of the Memphis
Metropolitan Statistical Area (MSA). A MSA is a geographic area with a significant population nucleus, along with any
adjacent communities that have a high degree of economic and social integration with that nucleus. Memphis is part of a
metropolitan statistical area that includes The Memphis Metropolitan Statistical Area covers eight counties in three states -
Tennessee, Mississippi, and Arkansas.  The counties which comprise the Memphis MSA include Shelby County, Tipton
County, Fayette County in Tennessee, DeSoto County, Marshall County, Tate County, and Tunica County in Mississippi,
and Crittenden County in Arkansas.

Memphis is located in the southeast corner of the State of Tennessee.  Memphis is located 215 miles southeast of
Nashville, Tennessee 140 miles east of Little Rock, Arkansas, 285 miles south of St. Louis, Missouri, and 210 miles north of
Jackson, Mississippi.

The value of real property is influenced by the interaction of four basic forces. These forces include social trends, economic
circumstances, environmental conditions, and governmental controls and regulations. The interaction of these four forces
influences the value of every parcel of real estate in the market.

STATE OF TENNESSEE


MEMPHIS MSA

Economic Forces

Economic forces are the fundamental relationships between current and anticipated supply and demand and the economic
activities in which the population participates in order to satisfy its wants, needs, and demands through its purchase power.  

The chart below indicates the employment by sector for both the state and the MSA per the US bureau of labor.  As shown
the overall employment composition for both the MSA and state are similar and diverse indicating a stable economic base.




All the sectors are within several percentages of each other except manufacturing, services, and government.  The MSA
has a lower percentage of manufacturing employment than the state.  The MSA has a higher percentage of employment in
the services sector than the state.  The MSA has a lower percentage of employment in the government sector.  Overall,
both employment mixes are diversified and appear overall in balance and stable.

Social Trends

Social forces are trends that are exerted primarily through population characteristics. Real property values are affected not
only by population changes and characteristics, but also by various forms of human activity.

Population and Area:

Population growth trends influence employment growth, income levels, and many other key demand parameters analyzed in
determining commercial real estate productivity. As shown, the MSA population figures represent 29% of the total
population of Tennessee.  The MSA, state, and US have shown consistent growth trends over the past 20 years and are
anticipated to continue to grow.  The MSA’s growth will be less than that of the State and US.

Higher Education:

Institutions of higher learning typically are not as vulnerable to economic downswings, and they help to provide an area with
a more solid employment base.  Colleges and universities located in the city include the University of Memphis (formerly
Memphis State University), Rhodes College (formerly Southwestern at Memphis), Memphis College of Art, Le Moyne-Owen
College, Crichton College, Christian Brothers University, Baptist College of Health Sciences (formerly Baptist Memorial
Hospital School of Nursing), and the University of Tennessee Health Science Center (Colleges of Dentistry, Medicine,
Nursing, Pharmacy, Graduate Health Sciences and Allied Health Sciences).

Memphis’s largest institution for higher education is University of Memphis with total enrollment over 20,000 students.  The
chart below details other institutions.

Recreational and Regional Attractions:         

Recreational and regional attractions enhance an area’s quality of life. These activities may also have a significant
economic impact on an area by increasing the demand for services and retail trade created by visitors.

One of the largest celebrations the city has is Memphis in May. The month-long series of events promotes Memphis'
heritage and outreach of its people far beyond the city's borders. There are four main events, the Beale Street Music
Festival, International Week, the World Championship Barbecue Cooking Contest, and the Sunset Symphony. The World
Championship Barbecue Cooking Contest is the largest pork barbecue cooking contest in the world.

Carnival Memphis, formerly known as the Memphis Cotton Carnival, is an annual series of parties and festivities in the
month of June that salutes various aspects of Memphis and its industries. An annual King and Queen of Carnival are
secretly selected to reign over Carnival activities. The African-American community staged a parallel event known as the
Cotton Makers Jubilee from 1935 to 1982, when it merged with Carnival Memphis.

An arts festival, the Cooper-Young Festival, is held annually in September in the Cooper-Young district of Midtown
Memphis. The event draws artists from all over North America, and includes art sales, contests, and displays.

Memphis has numerous attractions including Audobon Park, Beale Street in downtown, the Belz Museum of Asian & Judaic
Art, Biblical Resource Center & Museum, Center for Southern Folklore, Children's Museum of Memphis, Chucalissa
Museum, Coooper-Young District, The Cotton Museum and the Memphis Cotton Exchange, Davie Manor Plantation House,
The Dixon Gallery and Gardens, FedExForum, Fire Museum of Memphis, Graceland, Historic Elmwood Cemetery,
Lichterman Nature Center, Meeman-Shelby Forest State Parl, Memphis Botanic Garden, Memphis Brooks Museum of Art,
Memphis Jewish Community Center, Memphis Pink Palace Museum & Sharpe Planetarium, Memphis Riverboats, Memphis
Rock ’N’ Soul Museum, Memphis Zoo, Mud Island River Park, National Civil Rights Museum, National Ornamental Metal
Museum, Overton Park, Overton Square, The Peabody, Putt-Putt Family Park, Shelby Farms Park, Slave Haven/Burkle
Estate, Soulsville: STAX Museum of American Soul Music,South Main Historic Art District, Southland Park Gaming & Racing,
Sun Studio, Tom Lee Park, Tunica Casinos, and Woodruff-Fontaine House.

The crown jewel in the Memphis outdoors would have to be Shelby Farms Park — and in the next decade, the Park looks to
go from being the best of the city to the class of the world. With a new Master Plan currently being implemented by the
Shelby Farms Park Conservancy, the Park will undergo transformation in several phases.

The vision for Shelby Farms Park is “One Park, One Million Trees, Twelve Landscapes.” The entire community has
benefited from the Park for generations — and future citizens and businesses will be able to get even more out when you
factor in the civic-engagement and economic-development aspects of the bold plan.

Rivers and lakes run rampant throughout the Memphis landscape, bringing the opportunity for water sports to the city folk.
For a mysterious and scenic interaction with water, visit the Ghost River — a part of the larger Wolf River system that’s
popular with kayak and canoe enthusiasts. Of course, there’s always the Mighty Mississippi as well, for water sports or just
a great view.

Bicyclers also have plenty to love around Memphis. Miles of scenic trails give riders a variety of options, whether they’re
beginners or more advanced cyclists. A highlight: the cycling route that runs alongside the Mississippi River and through
downtown Memphis — connecting the city to 10 states of bike trails.

For hikers and joggers, there are numerous parks in the area that create a scenic environment for outdoor exercise. In
Shelby Farms, a web of scenic trails stretches across the 4,500-acre park. Outside Shelby County, there are plenty more
parks that pepper the Mid-South.

Hunting and fishing opportunities also abound in the Memphis area. For deer and small game, the Meeman-Shelby Forest
State Park has an 11,000-acre natural area, managed by the Tennessee Wildlife Resource Agency.  For those who love
fishing, the nearby Ozark Mountains contain three of the best trout streams in the country: the White River, North Fork
River, and Little Red River.

Memphis has a professional basketball team.  Memphis is home to the NBA’s Memphis Grizzlies joining the Tigers under the
same arena roof, at FedExForum.  Memphis Tigers are the University of Memphis team which have a strong fan base in the
area and consistently have a strong basketball program.  Memphis is home to Memphis Redbirds baseball team, a Triple A
affiliate of the St. Louis Cardinals.  For football, the Memphis Tiger Football takes the field at Liberty Bowl Memorial
Stadium. For more than half a century, Memphis has hosted an annual stop on the PGA Tour, with TPC Southwind hosting
the event each summer since 1989. Memphis Motorsports Park revs up all year long with every form of rubber-meets-road
racing; from dragsters to trucks, from pros to leadfooted weekend warriors.  And every October, NASCAR fills the seats with
a stop on the Nationwide Series tour.

Industries:                

The chart below shows the major employers in the Memphis MSA.  The largest employer is FedEx with about 23,000
employees.  The next major employer is Memphis City Schools.  The major employers are consistent with the sector
employment shown previously.

Unemployment:        

The following chart shows the historical unemployment rates for the MSA, state, and US from 2000 to June 2009.  As
shown, the MSA, state, and US unemployment rates have been historically in line with each other.  In 2008 and 2009,
unemployment rates have increased significantly for the MSA, state, and US.  



Real Estate Market Overview

The following pages show historical figures and trends for the retail, office, industrial and flex real estate markets in the
Memphis MSA.  Costar reports data for three of the counties comprising the MSA: Shelby County, Desoto County, and
Crittenden County.  Also shown is a chart showing the residential new permits for the Memphis MSA.  Discussion follows the
charts.  

The Memphis retail market has historically had low vacancy.  The most current reported vacancy rate is less than 5%.  This
is excellent considering that the retail space in terms of rentable SF has increased by 12.6% from 2000 through 2nd
quarter 2008.  Since 2005, there has been overall positive absorption.  Average rental rates peaked 4th quarter 2006.  
Since this time, the rental rates have decreased slightly.  Overall, the retail market appears healthy.  The figures reported
are up to 2nd quarter 2008.

The office market has consistently had vacancy rates around 11% to 14%.  The most current reported vacancy rate is
12.4%.  There has been minimal to moderate growth for new office space with only a 5% increase in rentable SF since
2000.  There has been overall positive absorption for the period reported with over 2,265,000 SF net absorbed.  Rental
rates have seen a steady increase.  The figures reported are up to 4th quarter 2008.

The Memphis industrial market has seen a 15% increase in rentable square footage from 2000 to 4th quarter 2008 totaling
over 23 million SF of new space.  The vacancy rate for industrial properties has consistently ranged from 13% to 17%.  As
of 4th quarter 2008, the industrial market’s vacancy was 13.6%.  Overall there has been over 24 million SF of rentable
space absorbed into the market; however, in 4th quarter 2008, there was negative 959,000 SF.  Rental rates have
consistently been between $2.60/SF to almost $3.00/SF.  The figures reported are up to 4th quarter 2008.

The flex market represents the smallest of the markets reported.  The flex market has had high vacancy levels, over 20%.  
Overall there has been about 635,000 SF absorbed into the market over the period reported.  Rental rates peaked 4th
quarter 2006 and have seen a downward trended since.  

The residential market in Memphis, like most of the residential markets throughout the greater region, has seen a decline
due to the national recession affecting the regional and local economy.  Building permits saw a steady increase through
2006.  In 2007, the new permits decreased.  And in 2008, new permits decreased drastically.   

Environmental Forces

Environmental forces are both natural and manmade forces that influence real property values. Some environmental forces
include climactic conditions, natural barriers to future development, primary transportation systems, and the nature and
desirability of the immediate areas surrounding a property.

Transportation:         

Memphis has the world’s leading cargo airport, five class-one railroads, the U.S.’s 4th-largest inland port, seven interstates
and U.S. highways and an abundance of logistics support-service providers.

The Memphis International Airport is the world’s busiest air cargo airport. As a passenger hub for Delta Airlines and a
SuperHub for FedEx, Memphis International is the only dual passenger and cargo hub in the world..

■Shipped 3.8 million metric tons in 2008
■9 all-cargo airlines
■World’s largest mail processing center
■One of the 10 fastest-growing airports in the U.S.
■36th busiest passenger airport
■3rd largest UPS sorting facility in the US
■Home to the largest National Guard Facility ever built in the United States
Roads

A critical part of Memphis’ intermodal infrastructure is the ability to take cargo from planes and barges and quickly distribute
these via truck.

■The nation’s  3rd-busiest trucking corridor (I-40 between Little Rock and Memphis) connects the Atlantic and Pacific
Coasts and runs directly through Memphis.
■Likewise, I-55 is one of America’s primary north/south corridor for the Midwest.
■Memphis is the Half way point of the new 2,600-mile, I-69 superhighway connecting Canada to Mexico currently under
construction.
■Memphis is the starting point of the new Interstate 22 Corridor, a straight shot to Birmingham and Atlanta

Rail still remains the primary artery for the flow of goods from all major North American deep-water seaports on both the
Pacific and Atlantic coasts to the continent’s interior. Memphis, a city built around the railroad, provides access to North
America via train within less than 48 hours.

■3rd-largest rail center in the United States behind Chicago and St. Louis
■One of only five U.S. cities served by 5 or more of the U.S.’s 6 long-haul Class I rail systems (Norfolk Southern, Burlington
Northern/Santa Fe, Union Pacific/Southern Pacific, CSX and Canadian National)
■Home to six fully operational rail yards with a total current container capacity of nearly one million annual lifts
■By train, Memphis can reach 45 states (including Canada & Mexico) within 2 days
■Single system shipment to all 48 contiguous states, Alaska, Mexico, and Canada
■Memphis is home to five of the largest wide-span cranes in the country because of BNSF’s $200 million newly expanded
intermodal facility

The Mississippi River has remained a critical intermodal advantage of the Memphis area

■Memphis is the 2nd-largest port on the Mississippi and the 4th-largest inland port in the U.S.
■The largest still water harbor on Mississippi
■Port of Memphis handles more than 18 million tons annually
■The International Port of Memphis is also home to the Valero petroleum refinery, the only refinery in the State of
Tennessee.

Governmental Forces

Governmental, political and legal actions at all levels have an impact on property values. The legal climate of a particular
time or in a particular place may overshadow the natural market forces of supply and demand.  One aspect to
governmental force is police power and crime.  Memphis has high crime rates relative to other cities of its size.

Outlook

Our review of the above data indicates that the Memphis metropolitan area has historically had a stable and growing
economy and has been a growing area with a good educational base.  Lately, the nationwide economic recession has
impacted the area.  This said, on a long term horizon, the economic outlook for the Memphis MSA is favorable for the
overall success of the subject.
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