University of WashingtonNovember 4, 2010

Retail Development

F. KEMPER FREEMAN, JR.CHAIRMAN & CEOKEMPER DEVELOPMENT COMPANY

Kemper Development Company and Retail Development

Future Importance of China

4

Eastside Economy

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The Bellevue CollectionDowntown Bellevue - 1946

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The Bellevue CollectionDowntown Bellevue - 2010

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The Bellevue Collection1980 – 41% leakage in Retail Sales

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The Bellevue Collection2005 – 257% Positive Capture of Retail Sales

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The Bellevue CollectionAdjacency

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The Bellevue CollectionPortfolio Overview

• Locally focused

• Market Leader is several forms of commercial real estate

• Diversified by asset class in search of synergy

• Privately held

• Ranked 23rd of top 100 real estate companies in US by McGraw Hill

Retail Office Hotel Residential

Total

Bellevue Square

1,331,300

-0- -0- -0- 1,331,300

Bellevue Place

62,700 433,800 672,400

733 rooms

-0- 1,168,900

Lincoln Square

309,600 540,400 312,600

337 rooms

230,900

148 units

1,393,500

Total 1,703,600

974,200 985,000

1,070 rooms

230,900

148 units

3,893,700

Assorted land and underdeveloped parcels are not included in totals above.

JIM MELBYPRESIDENTKEMPER DEVELOPMENT COMPANY

Financial Consequences of Retail

Retail Economics

200.00$ 250.00$ 300.00$ 350.00$ 400.00$ 450.00$ 15.00$ 6.8% 5.4% 4.5% 3.9% 3.4% 3.0%

Rent 20.00$ 9.0% 7.2% 6.0% 5.1% 4.5% 4.0%Per 25.00$ 11.3% 9.0% 7.5% 6.4% 5.6% 5.0%

Foot 30.00$ 13.5% 10.8% 9.0% 7.7% 6.8% 6.0%35.00$ 15.8% 12.6% 10.5% 9.0% 7.9% 7.0%40.00$ 18.0% 14.4% 12.0% 10.3% 9.0% 8.0%45.00$ 20.3% 16.2% 13.5% 11.6% 10.1% 9.0%50.00$ 22.5% 18.0% 15.0% 12.9% 11.3% 10.0%55.00$ 24.8% 19.8% 16.5% 14.1% 12.4% 11.0%60.00$ 27.0% 21.6% 18.0% 15.4% 13.5% 12.0%

Development Cost Per Foot

Sales Per Foot 250.00$ Operating Expenses 10.00$ Occupancy Cost Ratio 14%

200.00$ 250.00$ 300.00$ 350.00$ 400.00$ 450.00$ 15.00$ 6.8% 5.4% 4.5% 3.9% 3.4% 3.0%

Rent 20.00$ 9.0% 7.2% 6.0% 5.1% 4.5% 4.0%Per 25.00$ 11.3% 9.0% 7.5% 6.4% 5.6% 5.0%

Foot 30.00$ 13.5% 10.8% 9.0% 7.7% 6.8% 6.0%35.00$ 15.8% 12.6% 10.5% 9.0% 7.9% 7.0%40.00$ 18.0% 14.4% 12.0% 10.3% 9.0% 8.0%45.00$ 20.3% 16.2% 13.5% 11.6% 10.1% 9.0%50.00$ 22.5% 18.0% 15.0% 12.9% 11.3% 10.0%55.00$ 24.8% 19.8% 16.5% 14.1% 12.4% 11.0%60.00$ 27.0% 21.6% 18.0% 15.4% 13.5% 12.0%

Development Cost Per Foot

Retail Economics

Sales Per Foot 400.00$ Operating Expenses 10.00$ Occupancy Cost Ratio 14%

200.00$ 250.00$ 300.00$ 350.00$ 400.00$ 450.00$ 15.00$ 6.8% 5.4% 4.5% 3.9% 3.4% 3.0%

Rent 20.00$ 9.0% 7.2% 6.0% 5.1% 4.5% 4.0%Per 25.00$ 11.3% 9.0% 7.5% 6.4% 5.6% 5.0%

Foot 30.00$ 13.5% 10.8% 9.0% 7.7% 6.8% 6.0%35.00$ 15.8% 12.6% 10.5% 9.0% 7.9% 7.0%40.00$ 18.0% 14.4% 12.0% 10.3% 9.0% 8.0%45.00$ 20.3% 16.2% 13.5% 11.6% 10.1% 9.0%50.00$ 22.5% 18.0% 15.0% 12.9% 11.3% 10.0%55.00$ 24.8% 19.8% 16.5% 14.1% 12.4% 11.0%60.00$ 27.0% 21.6% 18.0% 15.4% 13.5% 12.0%

Development Cost Per Foot

Retail Economics

Sales Per Foot 600.00$ Operating Expenses 10.00$ Occupancy Cost Ratio 14%

200.00$ 250.00$ 300.00$ 350.00$ 400.00$ 450.00$ 15.00$ 6.8% 5.4% 4.5% 3.9% 3.4% 3.0%

Rent 20.00$ 9.0% 7.2% 6.0% 5.1% 4.5% 4.0%Per 25.00$ 11.3% 9.0% 7.5% 6.4% 5.6% 5.0%

Foot 30.00$ 13.5% 10.8% 9.0% 7.7% 6.8% 6.0%35.00$ 15.8% 12.6% 10.5% 9.0% 7.9% 7.0%40.00$ 18.0% 14.4% 12.0% 10.3% 9.0% 8.0%45.00$ 20.3% 16.2% 13.5% 11.6% 10.1% 9.0%50.00$ 22.5% 18.0% 15.0% 12.9% 11.3% 10.0%55.00$ 24.8% 19.8% 16.5% 14.1% 12.4% 11.0%60.00$ 27.0% 21.6% 18.0% 15.4% 13.5% 12.0%

Development Cost Per Foot

Retail Economics

Retail Economicswith Percentage Rent

Sales Per Foot 600.00$ 7.0%Operating Expenses 10.00$ Occupancy Cost Ratio 14%

200.00$ 250.00$ 300.00$ 350.00$ 400.00$ 450.00$ 15.00$ 18.9% 15.1% 12.6% 10.8% 9.5% 8.4%

Rent 20.00$ 18.9% 15.1% 12.6% 10.8% 9.5% 8.4%Per 25.00$ 18.9% 15.1% 12.6% 10.8% 9.5% 8.4%

Foot 30.00$ 18.9% 15.1% 12.6% 10.8% 9.5% 8.4%35.00$ 18.9% 15.1% 12.6% 10.8% 9.5% 8.4%40.00$ 18.9% 15.1% 12.6% 10.8% 9.5% 8.4%45.00$ 20.3% 16.2% 13.5% 11.6% 10.1% 9.0%50.00$ 22.5% 18.0% 15.0% 12.9% 11.3% 10.0%55.00$ 24.8% 19.8% 16.5% 14.1% 12.4% 11.0%60.00$ 27.0% 21.6% 18.0% 15.4% 13.5% 12.0%

Development Cost Per Foot

Kemper Development 2010

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Lincoln Square

• Started in 1998 by Canadian developer

• Purchased by KDC in 2003

• Includes:Retail – 300,000 sfHotel – 337 room WestinResidential – 148 condosGarage – 1,700 stallsOffice – 540,000 sf

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Lincoln SquareOffice Building economic value created by retail

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Bellevue CBD

Eastside

Seattle CBD

Source: CB Richard Ellis

AcquireLincoln Square

Approached by Eddie Bauer

Commence Office

ConstructionOpen Office

Building

Lincoln Square Office Building History

Approached by Eddie Bauer