University of Denver Dividend Capital Research Glenn R. Mueller, Ph.D. Professor University of Denver Franklin L. Burns School of Real Estate & Construction Management & Real Estate Investment Strategist Dividend Capital Research glenn.mueller@du.edu

Dr. Glenn Mueller Real Estate Investment Strategist – Dividend Capital Group Professor – University of Denver – Franklin L. Burns School of Real Estate & Construction Management Visiting Professor – Harvard University, 2002-2008 & summer executive education semesters Guest Lecturer – Wharton School, Yale, Berkeley, Ohio State, UNC, USC, European Business School, University of Regensburg Previous Experience Legg Mason – Real Estate Investment Strategist PriceWaterhouseCoopers – National Director of Real Estate Research Alex. Brown Kleinwort Benson – Head of Real Estate Research Prudential Real Estate Investors – Vice President of Real Estate Research B.S.B.A. in finance from the University of Denver MBA from Babson College Ph.D. in Real Estate from Georgia State University

550 Students Earning Degrees Undergraduate - BSBA Graduate – MBA & MS DU Founded 1864 Daniels COB ranked top 50 - WSJ 550 Students Earning Degrees Undergraduate - BSBA Graduate – MBA & MS Executive – MS Real Estate, Construction Management, RECM, RE & Accounting, Finance, Marketing, Management, International Business, Law

Why Real Estate Fits A Portfolio = Size U.S. Real Estate vs. Other Asset Classes - 12/06 Source: Pension & Investments, October 30, 2006 and Prudential Real Estate Investors, December 2006.

All Real Estate = Half - 12/06 U.S. Real Estate Values = $33.3 Trillion Source: Prudential Real Estate Investors, December 2006.

Demand & Supply drive Occupancy Occupancy drives Rental Growth Market Cycle Analysis Physical Cycle Demand & Supply drive Occupancy Occupancy drives Rental Growth

Legg Mason Real Estate Research Market Cycle Quadrants Phase 2 - Expansion Phase 3 - Hypersupply Demand/Supply Equilibrium Point Increasing Vacancy Declining Vacancy Occupancy New Construction New Construction Long Term Vacancy Average Increasing Vacancy Declining Vacancy No New Construction More Completions Phase 1 - Recovery Phase 4 - Recession Legg Mason Real Estate Research Time

Physical Market Cycle Characteristics Occupancy Time High Rent Demand/Supply Equilibrium High Rent Rents Rise Growth in Rent Growth Rapidly Tight Market Positive But Toward New Declining Construction Occupancy Levels Cost Feasible New Construction Rents Long Term Average Occupancy Below - Inflation & Negative Below Rent Inflation Physical Growth Rental Market Cycle Negative Growth Rental Characteristics Growth Time

Historic National Office Rental Growth 11.0% 10.5% 11 6.1% 10 12 6.4% 9 12.5% 13 3.3% 8 10.0% Occupancy Long Term Average Occupancy 7 6 14 1.7% 6.7% 0.3% 5 15 4 4.0% -3.0% -1.0% 1.6% 3 2.7% 1 2 16 1 30 Year Cycle - Periods 1968-1997 -1.5% Time

Historic National Industrial Rental Growth % 8.3% 6.8% 11 4.6% 10 12 5.1% 9 5.9% 4.8% 8.5% 13 8 Long Term Avg Occupancy Occupancy 7 3.8% 3.0% 6 14 -2.1% 5 15 4 4.6% 0.8% -0.4% 3 0.7% 0.4% 1 2 16 1 30 Year Cycle - Periods 1968-1997 2.8% Time

National Property Type Cycle Locations Phase II - Expansion Phase III-Hypersupply Retail - 1st-Tier Regional Malls Retail - NH & Com Power Center Retail Health Facility 11 Hotel - Full-Service 10 12 Retail - Factory Outlet Industrial - Warehouse 9 8 13 7 LT Average Occupancy 6 14 Industrial - R&D Flex Apartment Senior Housing Hotel - Ltd. Service 15 5 16 1 1 4 3 2 Office - Downtown Retail - 2nd Tier Regional Malls Office - Suburban 1st Qtr 2008 Phase I - Recovery Phase IV - Recession Source: Mueller, 2008

Office Market Cycle Analysis 1st Quarter, 2008 Dallas FW Ft. Lauderdale-1 Hartford Indianapolis Kansas City Long Island Las Vegas-1 Memphis Minneapolis St. Louis Stamford W. Palm Beach-1 Honolulu Miami Wash DC Austin Charlotte+1 Denver Houston New York Los Angeles New Orleans-1 Oklahoma City Orange County Phoenix-1 Raleigh-Durham Salt Lake San Jose Tampa 11 Albuquerque Baltimore Cincinnati Cleveland Columbus Detroit Milwaukee Norfolk Pittsburgh 10 12 9 8 13 7 6 San Antonio+1 14 LT Average Occupancy 15 5 4 16 1 1 3 2 Boston East Bay Orlando Portland Sacramento San Diego San Francisco Seattle NATION Atlanta Chicago Jacksonville Nashville Philadelphia Riverside-1 N. New Jersey Richmond Wilmington Source: Mueller, 2008

LT Average Occupancy Industrial Market Cycle Analysis 11 10 12 9 8 13 1st Quarter, 2008 Los Angeles Orange County Riverside-1 Chicago Cincinnati Dallas FW-1 Indianapolis Milwaukee Minneapolis New York Orlando-1 Philadelphia St. Louis+1 Stamford Ft. Lauderdale Houston Kansas City+1 Norfolk+1 Richmond Salt Lake Seattle 11 Las Vegas Portland San Francisco San Jose 10 Atlanta Baltimore Boston Columbus Hartford Tampa 12 9 8 13 7 6 East Bay New Orleans+1 W. Palm Beach 14 LT Average Occupancy 15 5 Jacksonville Phoenix Sacramento San Antonio San Diego 4 16 1 1 3 2 Austin-1 Charlotte Denver Honolulu Long Island Memphis Miami Nashville N. New Jersey Oklahoma City Raleigh-Durham Wash DC NATION Cleveland Detroit Pittsburgh Source: Mueller, 2008

LT Average Occupancy Apartment Market Cycle Analysis 11 10 12 9 8 13 7 Austin+2 Jacksonville Las Vegas Ft. Lauderdale Miami Norfolk Sacramento Wash DC 1st Quarter, 2008 East Bay N. New Jersey Portland San Jose NATION New Orleans+2 Salt Lake Orange County+1 Phoenix+1 Riverside+1 San Diego+1 11 Baltimore Denver Philadelphia Seattle 10 12 9 Orlando+1 Tampa+1 W Palm Beach+1 Cincinnati+1 Houston Long Island Nashville Richmond-1 St. Louis 8 Chicago Los Angeles 13 7 6 New York San Francisco 14 Indianapolis Raleigh-Durham LT Average Occupancy Atlanta Boston Columbus Dallas FW Honolulu Kansas City Minneapolis Oklahoma City 15 5 1 4 16 1 3 2 Charlotte-1 Cleveland Detroit Memphis Pittsburgh San Antonio Stamford Hartford Milwaukee Source: Mueller, 2008

LT Average Occupancy Retail Market Cycle Analysis 11 10 12 9 8 13 7 6 1st Quarter, 2008 East Bay Long Island New York Orange County San Diego San Francisco Wash DC Baltimore Ft. Lauderdale Honolulu+1 Portland Richmond+1 Seattle St. Louis NATION Cincinnati-1 Cleveland Columbus Hartford-1 Milwaukee-1 Nashville W. Palm Beach-1 Oklahoma City 11 Boston Los Angeles San Jose 10 12 Kansas City Pittsburgh Raleigh-Durham 9 Chicago+1 Orlando+1 Phoenix+1 8 13 Memphis-1 New Orleans Riverside-1 San Antonio 7 LT Average Occupancy 6 14 N. New Jersey Philadelphia Miami+1 Norfolk+1 Sacramento Salt Lake Tampa+1 5 15 1 4 1 3 16 2 Dallas FW Denver Houston-1 Minneapolis Stamford Atlanta Austin Jacksonville-3 Las Vegas Charlotte-1 Detroit-1 Indianapolis Source: Mueller, 2008

LT Average Occupancy Hotel Market Cycle Analysis 11 10 12 9 8 13 7 6 Atlanta Chicago Denver Ft. Lauderdale+1 Norfolk Philadelphia-1 Phoenix-1 Portland Raleigh-Durham Richmond Riverside-1 San Antonio Stamford Seattle W. Palm Beach NATION 1st Quarter, 2008 Austin East Bay Honolulu+1 Long Island Los Angeles 11 10 12 Cincinnati Hartford+1 Indianapolis Pittsburgh Tampa-1 9 Houston New York San Diego San Francisco+1 8 13 7 Charlotte Jacksonville Miami Nashville Oklahoma City Orange County Orlando San Jose Wash DC 6 14 Columbus St. Louis LT Average Occupancy 5 15 Boston+1 Dallas Las Vegas Memphis Milwaukee Minneapolis Sacramento Salt Lake-1 4 16 1 1 3 2 Baltimore-1 Detroit Kansas City New Orleans N. New Jersey Cleveland Source: Mueller, 2008

1970s Cycle Factors Driving The First Half Cycle (5 Year) Strong Demand from the 1960s that stopped Recession 1974 Capital Flow - Mortgage REITs produced oversupply Factors Driving The Second Half Cycle (5 Year) Baby Boom Generation Goes to Work = Demand Capital Flow Shut Down = no supply = Lenders Recover Markets tighten and reach peak occupancy 1979 (5% vacancy)

Oversupply Years Baby Boomers Go To Work Source: FW Dodge, CB Commercial, BLS, Mueller

1980s Cycle Factors Driving The First Half Cycle (5 Year) Tight market in 1979 pushes rents and prices up Tax Act of 1981 attracts taxable investors supply up Inflation pushes real estate prices higher Thrift Deregulation allows capital to flow Factors Driving The Second Half Cycle (5 Year) Tax Act of 1986 slows taxable investors, but not tax free Poor stock market attracts Pension & Foreign capital Rising R.E. prices masks poor income returns

Oversupply Years Source: FW Dodge, CB Commercial, BLS, Mueller

1990s Cycle Factors Driving The First Half Cycle (5 Year) Moderate but stable demand growth (1991 recession minor) Oversupply and Foreclosures shut down construction Excess space absorbed - bringing markets back Factors Driving The Second Half Cycle (5 Year) Moderate Demand growth Continues Oversupply absorbed and return performance improves Construction “constrained” causing rents & prices to rise More efficient markets match supply to demand

Oversupply Absorbed Demand Supply Matched Source: FW Dodge, CB Commercial, BLS, Mueller

2000s Cycle Demand Globalization - creates stable U.S. economy Job Growth out of Technology Change 2.7 million population growth per year for 10 years Baby boomers at “highest income earning” years second home market wave Echo boom children – college, first job, & renting Aging population not a major factor till 2014 Employment growth drives commercial demand

Age 0-60: Percent of Total Population 2000s Cycle Demand Age 0-60: Percent of Total Population Source: U.S. Census Bureau, November 2006.

2000s Cycle Baby Boom Echo Boom Gen X Change in 20-29 Year Old Age Cohort 1,500,000 Baby Boom 1,000,000 Echo Boom 500,000 - (500,000) Gen X (1,000,000) 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008E 2010E 2012E 2014E Source: National Center for Health Statistics and Mueller estimates

Government Stimulus Working? % of GDP Source: U.S. Census Bureau, Office of Management & Budget

Any U.S. Recession Should be MILD The Rest of the World is Growing Well Export growth supports demand for industrial space. 2008 GDP % Growth Source: World Bank estimates Source: World Bank estimates

2000s Cycle Supply Constraint Public Markets make R.E. Capital markets efficient Economically driven capital - low spec construction 500 + Research watchdogs – Data Available Constrained Supply (economically driven capital) construction labor harder to find materials costs increasing infrastructure problems constrain growth Feedback loop keeps demand and supply in better balance greater transparency Faster reaction to demand slowdown

2000s US Office Demand & Supply FORECAST Demand 1.41% Supply 1.44% Supply Reacted to Demand Slow Down Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2007.

National Property Type Cycle Forecast Phase II - Expansion Phase III-Hypersupply Health Facility Hotel - Full-Service Retail - 1st Tier Regional Malls 11 Neighborhood/Community Retail+1 Power Center Retail 10 Apartment 12 9 Office - Suburban Senior Housing 8 13 7 6 14 LT Average Occupancy Hotel - Ltd. Service 15 5 4 16 1 1 3 Office – Downtown Retail - Factory Outlet 2 Industrial –Warehouse Retail 2nd -Tier Regional Malls 1st Qtr 2009 ESTIMATE Industrial - R&D Flex Phase I - Recovery Phase IV - Recession Source: Mueller, 2008

Office Occupancy & Rent Cycle Forecast 1.7% Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2008.

LT Average Occupancy Office Market Cycle FORECAST 11 10 12 9 8 13 7 6 1st Quarter, 2009 Estimate Chicago Jacksonville Kansas City Las Vegas-1 Memphis Minneapolis Norfolk N. New Jersey Richmond Riverside Stamford St. Louis Dallas FW New Orleans Miami-1 Oklahoma City Orange County Orlando-1 Sacramento Salt Lake 11 Denver New York 10 12 9 8 13 7 LT Average Occupancy 6 14 Austin-1 Honolulu Houston-1 San Antonio San Francisco 15 5 4 16 1 1 3 2 Boston Charlotte East Bay Portland San Diego San Jose Seattle Wash DC NATION Atlanta Ft. Lauderdale-1 Hartford Indianapolis Long Island Los Angeles Nashville Phoenix-1 Raleigh-Durham Tampa W. Palm Beach-1 Baltimore Cincinnati Cleveland Columbus Detroit Milwaukee Philadelphia Pittsburgh Baltimore Cincinnati Cleveland Columbus Detroit Milwaukee Philadelphia Pittsburgh Source: Mueller, 2008

Industrial Occ. Cycle & Rent Growth 1.2% Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2007.

LT Average Occupancy Industrial Market Cycle FORECAST 11 10 12 9 8 13 1st Quarter, 2009 Estimate Denver Houston Jacksonville Long Island Memphis Milwaukee Norfolk Phoenix Raleigh-Durham+1 Richmond Sacramento Salt Lake Wash DC Los Angeles New Orleans 11 Las Vegas Riverside San Jose San Francisco W. Palm Beach 10 12 9 Atlanta Baltimore Cleveland Columbus Hartford Pittsburgh St. Louis 8 Orange County 13 7 6 14 LT Average Occupancy East Bay 15 5 Portland San Diego 16 1 1 4 3 2 Austin Charlotte Ft. Lauderdale Honolulu Kansas City Minneapolis New York Orlando Philadelphia Seattle-1 NATION Detroit Boston Chicago Cincinnati Dallas FW Indianapolis Miami Nashville-1 N. New Jersey Oklahoma City San Antonio Stamford Tampa Source: Mueller, 2008

Apartment Occ. Cycle & Rent Growth 3.8% Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2008.

LT Average Occupancy Apartment Market Cycle FORECAST 11 10 12 9 8 13 7 1st Quarter, 2009 Estimates New Orleans+1 San Diego Wash DC Salt Lake Austin Ft. Lauderdale+1 Las Vegas+1 Miami+1 Norfolk+1 Orange County Riverside Chicago Baltimore Boston Kansas City Oklahoma City Richmond St. Louis East Bay N. New Jersey 11 10 12 9 San Jose+1 San Francisco Jacksonville+1 Phoenix+2 Sacramento+2 Charlotte Cleveland Detroit Indianapolis 8 13 Los Angeles New York Portland 7 6 14 Atlanta Columbus Denver Honolulu Nashville Minneapolis Philadelphia Seattle NATION LT Average Occupancy 15 5 4 16 1 1 3 Orlando+2 Tampa+2 W. Palm Beach+2 2 Cincinnati Dallas FW-1 Houston Long Island Pittsburgh Stamford Memphis San Antonio Hartford Milwaukee-1 RaleighDurham Source: Mueller, 2008

Retail Occ. Cycle & Rent Growth 1.4% Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2007.

LT Average Occupancy Retail Market Cycle FORECAST 11 10 12 9 8 13 7 6 1st Quarter, 2009 Estimates East Bay New York Oklahoma City Orange County San Francisco Wash DC 11 Los Angeles Dallas FW Denver Milwaukee Minneapolis W. Palm Beach 10 Chicago Miami Richmond Tampa 12 Pittsburgh Stamford 9 8 Boston 13 Atlanta Austin Orlando+1 San Antonio Sacramento+1 Cleveland-1 Indianapolis Las Vegas Nashville Riverside 7 LT Average Occupancy 6 14 Baltimore Ft. Lauderdale Honolulu+1 Long Island Norfolk Portland San Diego Seattle St. Louis NATION Philadelphia San Jose 15 5 1 4 16 1 3 2 Phoenix Salt Lake Houston N. New Jersey Raleigh-Durham Charlotte Cincinnati Columbus Detroit Hartford-1 Kansas City Memphis Jacksonville New Orleans Source: Mueller, 2008

Hotel Occ. Cycle & Rent Growth 6.5% Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2007.

LT Average Occupancy Hotel Market Cycle FORECAST 11 10 12 9 8 13 7 6 1st Quarter, 2009 Estimates East Bay Houston Long Island San Jose San Francisco Charlotte Denver Jacksonville-1 Nashville Oklahoma City Orange County Portland Richmond Riverside Wash DC NATION Dallas FW Hartford Memphis Minneapolis Raleigh-Durham-2 Stamford Los Angeles New York 11 10 12 9 Baltimore-2 Detroit Kansas City St. Louis Tampa-1 8 Austin Chicago Honolulu Miami Orlando Philadelphia San Diego-1 13 7 LT Average Occupancy 6 14 Atlanta Boston Ft. Lauderdale-1 Las Vegas Milwaukee Norfolk Phoenix Sacramento Salt Lake Seattle New Orleans-1 15 5 4 16 1 1 3 2 Cincinnati Columbus Indianapolis N. New Jersey Pittsburgh San Antonio-1 W. Palm Beach-1 Cleveland Source: Mueller, 2008

Market Information used to: determine competitive position set lease strategy determine improvements program

Real Estate Financial Cycles Capital Flows Affect Prices

Market Cycle Capital Flow Impact Capital Flows to Existing Properties Cost Feasible Rents Reached Hyper Supply LT Occupancy Avg. Property Market Cycle Total Capital Flow Cycle Capital Flows to New Construction

National Office Physical Market Cycle vs National Office Physical Market Cycle vs. Financial Cycle = New Permit Values 6 year lag Physical Financial No Lag Source: CB Commercial, Census Bureau Source: BEA, CB Commercial, Mueller

Flow of Funds Commercial Mortgages All Sectors (1976 - 2001) False Price Appreciation Support ($ Mils) ? Public Market Volatility Source: Federal Reserve

Property Price Movement Source: Real Estate Research Corporation - Chicago

Property Prices Strong Source: Real Estate Research Corporation - Chicago

Transaction Pricing 36/1636 deals 25/1319 deals 33/1624 deals 37/1798 deals Source: Real Capital Analytics, New York www.rcanalytics.com

Transaction Pricing Q3 2006 Cap Rates 9.0 Denver 8.5 US 8.0 7.5 7.5 7.1 6.9 7.0 6.6 6.4 6.3 6.5 5.8 6.0 5.5 5.8 Office Industrial Retail Apartment 94/3512 deals 26/2871 deals 39/2703 deals 63/3922 deals Source: Real Capital Analytics, New York www.rcanalytics.com

Commercial Real Estate Supply Growth The new supply of space was down in 2006 and 2007 and the forecast is for moderate supply growth – well below the long-term average Commercial Real Estate Supply Growth Source: Property & Portfolio Research & Dividend Capital Research.

Average Cap Rates

Quarterly Transactions 2001 -2007 Source: Real Capital Analytics 2008, www.rcanalytics.com

Globalization of Real Estate Markets U.S. Still Looks Cheap Source: Real Capital Analytics, January 2008– rcanalytics.com

US Property Acquisitions Transactions Growing US Property Acquisitions office, industrial, multifamily & retail properties $5 mil.+ billions $350 Privatization $300 Portfolio One-Off $250 $200 $150 $100 $50 $- 2001 2002 2003 2004 2005 2006 2007 Source: Real Capital Analytics, 2008

Mortgage Rates & Price Appreciation Debt Rates having Little Effect on Prices Mortgage Rates & Price Appreciation Source: Real Capital Analytics, 2008

Diversified Buyer Group Composition of Equity Buyers office, industrial, retail and multifamily properties $5 mil.+ 100% inst'l 13% 17% 90% 19% 22% foreign 11% 80% 8% 8% 7% 70% 10% reit/public 17% 13% 11% 60% user/other 50% 9% 7% 14% 5% 40% fund 6% 40% 3% 7% 12% 3% syndicator 30% 20% condo 32% 34% 30% converter 10% 22% private 0% 2004 2005 2006 2007 Source: Real Capital Analytics, 2008

Private Funds a Major Source of Capital The Universe of Private Equity Funds Source: Real Estate Alert Source: Real Estate Alert

Foreign Acquisitions of US Property (trailing 12 months, office, industrial, apartment, retail properties) Source: Real Capital Analytics, January 2008 rcanalytics.com

2008 Physical Cycle 2008 Financial Cycle Demand & Supply Affect Vacancies Rental Growth Demand Growth – SLOWER / LOWER 2008 Economic growth – Positive? Supply Slowing - balanced absorption? Return to Growth Phase in 2009/2010? 2008 Financial Cycle Capital Flows Affect Prices – Stock Market Fear Real Estate the SAFEST Investment Alternative? R E Equity – dominated by Private Markets (diversified buyer groups) Yield Spread drives SOME Buyers (low interest rates?) Public Debt Market in Turmoil – Big Capital Source Confidence in R E prices in 200?

Real Estate Market Cycle Monitor For an electronic copy of the Real Estate Market Cycle Monitor Go to dividendcapital.com