Forums on Issues and Innovations in Real Estate Global Products and Sources for Real Estate Capital October 2006

Agenda Global real estate capital flows Real estate products Tommy Brown

Agenda Global real estate capital flows Real estate products Tommy Brown

Global cross-border capital flows are increasing Note: The table summarises the major sources of cross-border real estate investment in 2005, and the arrows indicate the source and destination of these flows Source: RREEF Research, RCA, JLL, DTZ >4.0 billion >1.5 billion >0.5 billion 2005 outward overseas investment (US$bn) USA 19 Germany 15 Australia 9 UK 5 Tommy Brown

The scale of investable real estate is also increasing in different markets Asia America Europe Invested stock US$2.4 trillion Invested stock of US$7.1 trillion Total stock of Investible stock US$4.7 trillion US$4.0 trillion US$7.5 trillion US$5.2 trillion US$1.4 trillion US$4.6 trillion US$2.5 trillion Global total = $20tn Global Investible = $12.4tn Global Invested = $7.8tn Note: Estimates as at end 2005 Scale of Total, Investible and Invested Real Estate, by Region Source: RREEF/DB Real Estate, DTZ, ULI/PWC Tommy Brown

Additionally, overall capital to real estate is increasing Pubic equity Public debt Note: Size of global listed real estate market Source: UBS Note: Issuance of CMBS Source: Deutsche Bank Securitisation Research Private debt Private equity Note: Bank lending to commercial real estate Source: RREEF Research, DTZ Note: Direct real estate investment activity Source: RREEF, DTZ, JLL, RCA Tommy Brown

US institutional investors’ target and actual portfolio allocations (2006) Sector 2006 Target 2006 Actual Mean (%) Mean (%) Difference (%) All Real Estate 7.9 6.7 -1.2 US Stocks 36.1 38.4 2.3 Foreign Equities 15.4 16.7 1.3 Fixed Income 26.8 25.0 -1.8 Venture Capital/ Private Equity 5.8 4.2 -1.6 Money Market Funds/ Cash Equivalents 0.5 1.4 0.9 Hedge Funds 4.5 4.2 -0.3 Other 2.9 3.4 0.5 Source: Kingsley Associates, 2006 Plan Survey Tommy Brown

US institutional investors’ over/Under allocation Investors remain challenged to meet real estate targets. Source: Kingsley Associates, 2006 Plan Survey Tommy Brown

Agenda Global real estate capital flows Real estate products Tommy Brown

Real estate products are broadly divided between private and public Private vs public real estate investing Private real estate Control of property assets More stable income stream High transactions costs Appraisal based valuations Lower volatility of returns Public real estate Greater liquidity More informational efficiency in asset pricing Greater geographical/property diversification for a given amount invested More subject to the disciplines of the public markets Higher volatility of returns Note: The capitalisation rate is the yield someone will pay for the cash generated by the property; it is similar in concept to a bond yield Tommy Brown

Several questions need to addressed when investing in real estate Investment process Strategic asset allocation Real Estate Equity Debt Cash Other How much to invest in Real Estate? Where to invest? What’s The Risk/Reward balance? What type of property? What format? How much liquidity is required? Who is performing mgmt/ oversight of investment? Geographic allocation Domestic Europe US Asia Investment strategy Core Core plus / Value add Opportunistic Sector allocation Office Retail Industrial Residential Special property(1) Investment vehicle Private equity direct(2) Private equity indirect(3) Private debt Public equity(4) Public debt(5) Real estate investment Includes self storage, care homes and medical labs Real Private equity direct (buildings) Private equity indirect (funds) Public equity (REITS / Mutual funds) Public debt (CMBS / Mezzanine) Private real estate investing Public real estate investing Tommy Brown

Breakdown of universe of real estate investment products The real estate universe has matured to provide an array of investment alternatives Low Risk (and leverage) High Breakdown of universe of real estate investment products Private Core Value-added returns Opportunistic (up to 8%) (up to 14%) (+18%) Direct Indirect Note: The above illustration can be further segmented by geography and property type. The returns shown are for illustrative purposes only and are indicative IRRs (internal rate of return) without regard to the duration of the investment. Source: Deutsche Bank Public Equity Debt Direct investments in existing assets Funds Real estate operating companies Opportunity funds Direct property development Mortgage lending Mezzanine debt CMBS Unsecured debt of real estate companies Real estate companies Mutual funds Structured products Debt / Mezz funds Tommy Brown

Non-listed institutional real estate funds European market for private real estate funds is achieving scale and positioned to increase substantially Non-listed institutional real estate funds Source: INREV, Quarterly Report, Issue No,12 Tommy Brown

There has been significant new public real estate equity issuance Historical public real estate equity issuance Source: Equityware Tommy Brown

The CMBS market also continues to grow Source: Commercial Mortgage Alert Tommy Brown

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Forums on Issues and Innovations in Real Estate Global Products and Sources for Real Estate Capital October 2006