Year in Review 2012

Local Expertise. National Reach. World Class.

“Large enough to

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Our

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Lee & Associates has unlimited growth potential through our existing offices and strategic expansion efforts.

LOOKING FORWARD

• 7 New offices in major markets opened since 4Q 2011 • 3 New offices slated to open in 2013

• 2011 - 8,921 transactions completed• 2012 - 9,708 transactions completed

• Total consideration: 2011 - $4.7 Billion 2012 - $5.8 Billion

• Total number of agents: 2011 – 639 agents 2012 – 716 agents

• Total Revenue: 2011 - $120,994,630 2012 - $162,803,093

WHO IS LEE & ASSOCIATES?

The first Lee & Associates office was opened in 1979, driven by the unique idea to turn real estate professionals into company owners. This founding philosophy was to establish a synergetic group of experienced brokers and make them vested partners in the organization. Thus, ensuring clients’ interests would be served by a collective team effort of senior professionals who had an ownership stake, earned through exceptional performance and ethical practice.

Not merely employees, profit-sharing Lee owner/agents would strive to create a sense of shared responsibility and cooperation throughout the organization, and would encourage an orientation toward long-term client relationships and business solutions. Furthermore, as owners, agents are involved in the responsibilities of running a business allowing them to identify with their clients on a level dissimilar to that of any other real estate firm. Since inception, Lee & Associates ownership concept has proven enormously successful, and has fueled rapid expansion and growth of Lee & Associates offices across the country. Today, Lee & Associates is the largest agent owned and managed full service real estate firm in the United States and ranks among the top ten largest national commercial brokerage firms in the country as well.

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Lee & Associates continued growth across the country is also being realized on a local level. As CJ Kuehl and Ellen Steinbrecher have been proud owners of the Chicago office for almost 10 years, they are at the helm of its continued success and expansion. In 2012 the Chicago office elected CJ Kuehl as its President to represent Chicago on a national level with the Lee group of companies.

It is exciting to share that Lee - Chicago has expanded its management division to over an 8 million SF porfolio representing all levels of property owners from individuals to pensions to institutional owners. We are also close to funding our second property/asset management venture. After relocating our headquarters in June of 2012, our continued trajectory has the potential to initiate an expansion of our office within the first year of occupancy. We have grown to over 30 real estate professionals covering all real estate specialties throughout the Tri-State area. We are licensed in Wisconsin and Indiana as well. The Chicago office also now includes two full time appraisers to assist with the burgeoning needs of our clients.

In just 10 years since inception, the Chicago office has grown to be the 8th largest office within the organization. Our office completed over 246 transactions last year with an aggregate transactional volume of over $500 million. These transactions covered a wide range of specialties to include investment, land, retail, office and industrial sectors.

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Competing against all commercial real estate companies, Lee & Associates was ranked in the...

Top 20 of the “Top Brokerages”by National Real Estate Investor

Top 20 of the “Most Powerful Brokerage Firms”by Commercial Property Executive

Our Team

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Left to right: Mandi Seward, Jennifer Biskup, CJ Kuehl and Ellen Steinbrecher

BACKGROUND

Ellen Steinbrecher (Principal):

Office Tenant Representation is her specialty. Ellen brings over 25+ years of leadership to our team. Notable long-term clients include Nicor, Hearthside, Great Lakes Dredge & Dock and Geosyntec to name a few.

CJ Kuehl (Principal):

Industrial and Office Tenant Representation is his specialty. CJ brings 15+ years of experience to Lee & Associates. He has been involved in transactions valued in excess of $400,000,000 over his career throughout countless cities nationwide.

Amanda Seward (Senior Associate):

Recently promoted to Senior Associate, Amanda is an industry expert in ProLease lease administration and has spent her entire career supporting our national accounts across the country with skilled transactional brokerage. Currently Amanda is the transaction manager for Addus Healthcares’s national portfolio consisting of over 125 leases across the country.

Jennifer Biskup (Marketing Coordinator):

New team member supporting Amanda Seward, CJ Kuehl and Ellen Steinbrecher as the team’s Marketing Coordinator.

Our Team

OUR TEAM

Every year is filled with “ups and downs” in the real estate industry. However, we are delighted to share with you all that 2012 was our team’s most successful year ever. We completed transactions across the country in both office and industrial specialties. The transactions completed by our team totaled an astounding 446,824 square feet.

Not only is our firm expanding on a national and organizational basis but so is our team! 2012 brought us a new team member to take the helm of supporting our (now) three broker team. This was required because of our rising superstar Amanda Seward’s promotion to Senior Associate. Please don’t hesitate in congratulating Amanda on her promotion as well as welcoming our newest team member, Jen Biskup.

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MAT Holdings, Inc.12828 Carmenita RoadSante Fe Springs, CAConsolidation & DC Relocation268,536 SF

PCIAA2600 S. River Road Des Plaines, ILBuilding Sale60,000 SF

PCIAA8700 W. Bryn Mawr AvenueChicago, ILOffice Relocation39,256 SF

Hearthside Solutions3250 Lacey Road Downers Grove, ILOffice Relocation11,822 SF

Great Lakes Dredge & Dock2122 York Road Oak Brook, ILOffice Renewal9,961 SF

Geosyntec Consultants1420 Kensington RoadOak Brook, ILOffice Renewal and Expansion7,883 SF

Geosyntec Consultants134 N. LaSalle StreetChicago, ILOffice Renewal and Expansion6,450 SF

Don Adams Corporation 1333 Butterfield Road Downers Grove, ILOffice Renewal4,658 SF

Vectora Transportation200 W. Madison Street Chicago, ILNew Office2,691 SF

Professional Consulting Services750 Warrenville RoadLisle, ILOffice Relocation1,823 SF

Addus HealthCareChampaign, IL; Decatur, IL; Greenville, SC; Lowell, AR; Riverside, CA; Walnut Creek, CA; Albuquerque, NM; Libby, MN; Atlanta, GA; St. Louis, MOTotal SF: 29,320

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Digital Benefit Advisors3S721 West Avenue Warrenville, ILOffice Relocation4,424 SF

Background

The U. S. Financial Accounting Standards Board (the FASB, based in Norwalk CT) promulgates the accounting rules for GAAP in the U.S. The International Accounting Standards Board (the IASB, based in London, UK) has a similar role in developing accounting rules (International Financial Reporting Standards, or IFRS), in many other countries. Since 2002, the FASB and the IASB have been working together on a convergence project with the intent to create a single set of worldwide accounting standards. Whether this single set of accounting standards ultimately occurs is unclear at this time.

What is a Lessee’s current accounting treatment for

Leases?

The current accounting model, which is based on FASB Accounting Standards Codification 840 (ASC 840) (Formerly FASB Statement of Accounting Standard No. 13, originally issued in 1976) ,uses a 4 factor test to determine if a lease was a ‘Capital Lease’ or an ‘Operating Lease’. The rule states that if any of the 4 criteria are met, then the lease is recorded as a Capital Lease. If none of the criteria are met, then the lease is recorded as an Operating Lease:

1. If ownership of the leased property automati cally transfers at the end of term;2. If the lease contains a bargain purchase option for the leased property;3. If the lease term exceeds 75% of remaining useful life of the leased property;4. If the present value of the minimum lease payments is 90% or more of the fair value of the

leased property at the inception of the lease.

Most traditional real estate leases are accounted for by the Lessee as Operating Leases, because for this type of lease, none of the 4 criteria are typically met.

For Operating Leases, the current accounting rule is to expense in each month’s Income Statement the total base rent to be paid over the life of the lease divided by the number of months in the lease (e.g. straight line method). In addition, companies have to disclose only limited information about Operating Leases (essentially the current rent expense and the total amount of future payment obligations) in the footnotes of their financial statements. The only effect on the Balance Sheet is balancing accounts to record the differential between the amounts paid versus amounts booked as expense as a result of the straight lining process.

For Capital Leases, the Lessee calculates the present value of the future minimum lease payments and records on the lower of this amount or the fair value of the related asset on the Balance Sheet as an asset and a liability. The recorded asset is amortized over time in accordance with the Company’s depreciation policy. The recorded liability is reduced over time by allocating each rental payment between the reduction of principal and interest expense so as to produce a constant periodic rate of interest on the remaining balance of the obligation (e.g. effective interest method).

Lee ViewpointHow the proposed changes to lease accounting rules will change GAAP financial reporting standards and the evaluation of lease terms.

LEE VIEWPOINT: FASB Lease Accounting Changes

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leA Capital Lease is considered to be ‘purchase financing’ due to the economic terms of the lease. Capital Leases tranfer the essential economic risks and benefits of ownership to the Lessee, and accordingly, such leases are capitalized as if the Lessee owned the property. While the contractual document between the Lessor and Lessee may be titlted “Lease Agreement,” if any of the conditions of ASC 840 are met, then the agreement is recorded as a Capital Lease and recorded on the balance sheet.

Hide in Plain Sight

The lease accounting changes that are being proposed (explanation to follow shortly) are not being done in a vacuum. The effort to put all lease obligations on the Balance Sheet was ignited by large corporate failures due to accounting scandals and in the name of transparency. The critics of ASC 840 believe that it’s ‘bright line rules’ influence lease decisions to engineer transactions to avoid a Capital Lease treatment and as a result a significant future liability commitment is not recorded as a liability. The purpose of capitalizing all lease obligations is designed to put all lease obligations in plain sight on the Balance Sheet. The objective of these changes is worthy; add transparency to enhance understanding of the financial condition of a company. However, transparency’does not necessarily mean ‘easy to understand’.

New Proposed Lease Accounting Model

In August 2010, the two Boards (FASB & IASB) released an exposure draft that would dramatically change how leases, from real estate to equipment, are accounted for in a company’s financial statements. The new accounting theory is referred to as the right-of-use model and would eliminate the distinction between Capital and Operating Leases. Under the right-of-use model, a Lessee in an arrangement that is, or contains, a lease would recognize an asset representing its right to use an underlying asset during the lease term and a liability representing its obligation to make lease payments during the lease term.

The effect of this fundamental change will be more pronounced for Operating Leases than for Capital leases. For Operating Leases, for entities with a large number of significant Operating Leases (e.g. office space in multi-tenant buildings, with terms ranging from 5 to 20 years), this proposed method would significantly ‘gross up’ the Balance Sheet, both in terms of assets and liabilities.After the initial exposure draft of this proposal in 2010, there were many comments received from interested parties

and in July 2011 the two boards decided to re-expose the draft, incorporating some changes based on comments received. The boards most recently met on July 17, 2012. The following is a summary of certain key “tentative decisions” reached through the discussions on that date:

Lessee Accounting

Under the current proposals (not yet finalized), the decision to apply a right-of-use model should be used for all arrangements (certain exceptions may apply, for example, for short term leases < 1 year). From a Lessee’s perspective, at inception of a lease the Lessee records an asset representing its right to use an underlying asset during the lease term and a corresponding liability representing its obligation to make lease payments during the lease term. Both will be measured at the present value of the lease payments.

There will also be a requirement to subsequently remeasure the liability to make lease payments. There are currently two methods that have been concluded upon to subsequently re-measure the asset and liability. One method is called the Interest and Amortization approach (the “I&A method and the other is called the Straight Line Expense (SLE) method.

Certain leases would be required to use the I&A approach. This accounting approach would require a Lessee to:

• Amortize the right-of-use asset on a systematic basis that reflects the pattern of consumption of the expected future economic benefits, and

• Recognize interest expense and amortization expense separately in the income statement.

Other leases would require an approach that results in a SLE in its income statement. This accounting approach would require a Lessee to:

• Measure the right-of-use asset each period as a balancing figure such that the total lease expense would be recognized on a straight-line basis, regardless of the timing of lease payments, and

• Recognize lease expense as one amount in the income statement.

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When do you use the I&A method and when do you use the SLE method?

The Boards also tentatively decided that a Lessee should distinguish between those different leases based on whether the Lessee acquires and consumes more than an insignificant portion of the underlying asset over the lease term. That principle should be applied by using a practical expedient based on the nature of the underlying asset as follows:

1. Leases of property (land or a building – or part of a building – or both) should be accounted for using the straight-line approach unless:

• The lease term is for the major part of the economic life of the underlying asset; or

• The present value of fixed lease payments accounts for substantially all of the fair value of the underlying asset.

2. Leases of assets other than property should be accounted for using the I&A approach unless: • The lease term is an insignificant portion of the

economic life of the underlying asset; or• The present value of the fixed lease payments is

insignificant relative to the fair value of the underlying asset

As mentioned above, for SLE accounted leases, the Lessee will continue to report a rent expense as a component of operating expenses. The good news for most commercial tenants is that most traditional real estate leases under normal terms will be accounted for as SLE leases. The Lessee’s Balance Sheet will be ‘grossed up’ with the lease asset and liability, but the Income Statement treatment will be the same as it is currently.

Some real estate leases, however, will be forced to use the I&A approach. These are typically triple-net leases where the lease is a significant portion of the economic life of the asset. Under this approach, Lessee’s that previously reported rent expense, will now show two separate components on the Income Statement – interest expense and depreciation.

What is the practical effect of this change? Most companies with real estate leases will now have both a right-of-use asset and lease obligation liability on their balance sheets. This could negatively affect some ratios currently used to judge the financial health of companies. In addition,

this could affect certain debt covenant provisions that are balance sheet based. In addition, many companies and investment analysts calculate a metric called EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). For the minority of real estate leases required to account under the I&A approach, this would affect the income statement location of the related expense (as it would now be treated as interest and depreciation expense versus an operating expense) effecting the companies calculation of EBITDA. Currently, Operating Lease rent expense is a deduction in order to calculate EBITDA. Under the new standard, this expense will be in two components after EBITDA. As you see, this change in Income Statement “geography” will clearly effect the EBITDA calculation. Depending on the Lessee’s viewpoint, this change could be viewed in a positive or negative light.

Where does it go from here?

This paper is not intended to address all the technical steps of the new lease accounting standards addressed in the joint task force initial exposure draft and subsequent amendments. There are other complexities such as contingent rentals, variable lease payments and cash flow presentation that will be incorporated into the final accounting standard. However, the simple before and after lease accounting models discussed herein show the complexity of the new standard and highlights the need for further understanding and planning for the conversion to the new standard. Significant effort will be required by companies and their accountants to initially record existing lease aggreements under these new accounting rules upon their effectiveness. Going forward, instead of the accounting for the traditional rent model, lease accounting turns into financial ‘micro modeling’ of each lease transaction. Companies will want to structure transactions to result in the best possible financial outcome for their organizations. A revised exposure draft is expected to be issued by the FASB in the fourth quarter of 2012.

Please note that the information provided above was as of Q4 2012. This information was reviewed and provided to us by a few of the industry’s leaders on this subject matter. Should you require any additional information and / or have any questions, we would be happy to make the appropriate connections.

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Ellen Steinbrecher

Principal9450 W. Bryn Mawr Avenue, Suite 550Rosemont, IL 60018312-203-8446esteinbrecher@lee-associates.com

Amanda Seward

Senior Associate9450 W. Bryn Mawr Avenue, Suite 550Rosemont, IL 60018312-578-1727aseward@lee-associates.com

Jennifer Biskup

Marketing Coordinator9450 W. Bryn Mawr Avenue, Suite 550Rosemont, IL 60018773-355-3036jbiskup@lee-associates.com

Contact Information

Don’t forget to ask us about the

FREE real estate diagnostic we

are offering to all of our friends

and clients!

CJ Kuehl

Principal9450 W. Bryn Mawr Avenue, Suite 550Rosemont, IL 60018312-213-4343cjkuehl@lee-associates.com

The highest compliment our clients can give is the referral of their friends and family.

“As real estate is but one of the many tasks I perform daily, it is imperative I have a partnership with a firm such as Lee & Associates that can assist with whatever real estate need I may encounter be it Industrial, Office or Investment.”

former, President and CEOABC Laboratories