Copyright © 2011 by K&L Gates LLP. All rights reserved. UK and Global Real Estate Trends – Opportunities for 2011/ September 2011, London

European Real Estate Outlook Peter Damesick EMEA Chief Economist, CBRE 20 September 2011

CB Richard Ellis | Page 2 Agenda Global context Economic background Occupier market trends Capital flows in European real estate Performance and pricing Prospects

CB Richard Ellis | Page 3 A world of differences GDP per person, % change Q to Q Source: Macrobond

CB Richard Ellis | Page 4 CBRE Global Office Capital Value Index Source: CBRE Research as of Q Asian values almost at previous peak, EMEA lagging

CB Richard Ellis | Page 5 Economic Divergence in Europe Source:, Eurostat GDP, Q = 100

CB Richard Ellis | Page 6 Government debt to GDP ratio Source: IMF % of GDP

CB Richard Ellis | Page 7 Trends in Unit Labour Costs Source: Macrobond, OECD Index (Q = 100) Uncompetitive economies in European periphery a key structural issue

CB Richard Ellis | Page 8 CBRE Global Office Rent Index Source: CBRE Research as of Q Index (Q = 100)

CB Richard Ellis | Page 9 European Office Take-Up 28 Western European markets, 10 CEE markets Source: CB Richard Ellis 6 Month Rolling Totals (000’s Sq M)% of Stock

CB Richard Ellis | Page 10 CBRE EU-27 Prime Office Rent Index Source: CB Richard Ellis Change per Annum (%) Index

CB Richard Ellis | Page 11 Prime Office Rents: Recovery Progress Changes in rents: peak-to-trough and trough to Q Source: CB Richard Ellis Change in Prime Rent (%)

CB Richard Ellis | Page 12 Office Development Completions as % Total Stock Western Europe vs. CEE Source CB Richard Ellis % of Total Stock

CB Richard Ellis | Page 13 Office Supply Pipeline Source: CB Richard Ellis % of Total Stock Vacant office space plus developments scheduled for completion by end of 2013

CB Richard Ellis | Page 14 Shopping centre development pipeline, Q Source: CB Richard Ellis Sq m per 1,000 population Schemes of 20,000 sq m or more * Data is for Moscow and St. Petersburg only

CB Richard Ellis | Page 15 European retailer expansion plans Source: CB Richard Ellis Proportion of sampled (203) retailers targeting country

CB Richard Ellis | Page 16 CB Richard Ellis EU-27 Prime Retail Rent Index Source: CB Richard Ellis Change per Annum (%) Index

CB Richard Ellis | Page 17 Global Real Estate Investment Sales * *Commercial real estate only Source: Real Capital Analytics Billion US$

CB Richard Ellis | Page 18 Real estate investment in Europe Source: CB Richard Ellis, Property Data, KTI Million €

CB Richard Ellis | Page 19 London€9.4 bn Paris€1.9 bn Berlin€0.8 bn Moscow€0.8 bn Frankfurt€0.7 bn North America € 13.1 bn Asia € 5.0 bn Australia € 0.9 bn Middle East €4.2 bn Source: CB Richard Ellis, PropertyData, KTI Non-European buyers invested €24 billion in Europe in 2010-H Cross-region capital flows into Europe, 2010-H1 11

CB Richard Ellis | Page 20 Investment volumes by country Growth in German and CEE in H Source: CB Richard Ellis, Property Data, KTI Billion €

CB Richard Ellis | Page 21 Retail property investment in Europe Source: CB Richard Ellis Billion € %

CB Richard Ellis | Page 22 Retail investment by country/region Source: CB Richard Ellis, Property Data, KTI Billion €

CB Richard Ellis | Page 23 CB Richard Ellis EU-15 prime yield index Source: CB Richard Ellis Weighted average prime yield

CB Richard Ellis | Page 24 European Property Value Indices Source: CB Richard Ellis, European Valuation Monitor Q = 100

CB Richard Ellis | Page 25 Source: CB Richard Ellis. European Valuation Monitor Q = 100 European Property Value Indices

CB Richard Ellis | Page 26 ‘Prime’ versus ‘Average’ Office Capital Values Source: CB Richard Ellis Index June 2009 = 100 Average values taken from European Valuation Monitor

CB Richard Ellis | Page 27 Average prime property yield minus 10-year govt bond Source: CB Richard Ellis, Macrobond Percentage points Yield gap evolution

CB Richard Ellis | Page 28 Renewed Anxieties Downgrade of growth expectations Eurozone debt threatening banking stability Loss of faith in policy-makers Capacity for action – what tools left? Political divisions and obstacles Fall in business and consumer confidence Rise in investment risk aversion

CB Richard Ellis | Page 29 Eurozone GDP Growth Alternative forecasts Source: Oxford Economics Real GDP Growth (%) Forecasts

CB Richard Ellis | Page 30 “Muddling through” Euro debt crisis contained, but with recurrent stress points Fiscal austerity curbs growth Monetary policy stimulus maintained Deleveraging continues Consumers under pressure Gradual pick-up in business investment Overall slow growth with wide divergences in country performance

CB Richard Ellis | Page 31 European Real Estate: Outlook Summary Slow growth environment Subdued occupier demand – cost-sensitive Rental growth limited - mainly prime space where in short supply Development restrained Debt market constraints Major refinancing needs Banks more active in managing loans Limited new lending – low risk Investor bias to larger, liquid markets Continued polarisation between prime and secondary Prime properties stable/improving with competition for core stock Good secondary in stronger markets - opportunity Concern for poorer secondary/tertiary stock – yields to soften further

CB Richard Ellis | Page 32

Copyright © 2011 by K&L Gates LLP. All rights reserved. China Matters: What are the real estate opportunities? Real Estate Breakfast Seminar London, September 2011 Amy L. Sommers, Partner K&L Gates - Shanghai

34 Topics: 2025: Planning for China’s built environment Urban planning 2001 to 2011: Xintiandi as a case study Gov’t policy aims and concerns: where the next opportunities may lie

35 First, some context…

36 China by 2025… 350 millionNumber of people added to China’s urban population – 5+x Great Britain’s current popul. 5 billion SQMArea of roads that will be paved 170Number of mass-transit systems that could be build 40 billion SQMAmount of floor space that will be built 50,000 Number of these buildings that could be skyscrapers – akin to building 10 cities the size of New York City

37 Real Estate Development in China Past Decade:  Urban re-development has been a key driver  Improving housing stock  Upgrading lifestyle from socialist, planned housing to market-driven, invested- oriented housing Next Decade:  Widening to Tier 2 and 3 cities  Linking cities/regions through infrastructure (transport/energy)  Demographically-driven opportunities

38 Red China …or Grey? “China’s demographic challenges are captured neatly in the popular saying that the country “will grow old before it grows rich.” China will start going grey some time this decade, and the process will accelerate after “ By 2030, China is projected to have more than 300 million citizens beyond retirement age. This will present what the Chinese call a “4-2-1” problem: a single child with two parents and four grandparents to care for. “Given the significant burdens this will impose, the government is already looking at ways to better fund healthcare. Beijing allocated $124 billion last year for healthcare reform, aiming for basic universal health coverage in the coming years.” Source:

39 Past Decade - Urban Redevelopment: Re-imagining Old Shanghai - Xintiandi

40 Xintiandi - completed 2001  Lifestyle project in central Shanghai  Based on re-imagined use of vernacular structures

41 Xintiandi site in 1998  At the time many considered China too poor/unsophisticated - project was doomed to fail or to attract only expatriates

42 Xintiandi - 10th Anniversary Huge success - in 5 yrs will double to 1.2M SQM Lesson: Predicting what will be popular in China is a mystery…

43 Demographics & policy: key drivers in China’s real estate sector

44 China’s Healthcare Aims - an example of how policy can drive development…  Improvement of services at grass-roots level: including support for the development of 2000 county-level hospitals; construction or expansion of 3700 urban community health care centers and 11,000 community heath care stations within three years.

45 Opportunities & Pressures  Obviously, these forecasts for urbanization spell potential opportunities for all sorts of stakeholders, such as:  makers of transit system equipment  architects/designers/engineering services, building/construction material providers  suppliers of energy and energy infrastructure  health care/aged care

46 China’s 12th Five-Year Plan Proposed by the Chinese Communist Party’s Central Committee in 10/10, adopted by National People’s Congress in 3/11 7 “Strategic Emerging Industries” have been identified and are focused on health care, energy, technology sectors Focus is on ‘inclusive growth’ of the economy, which will take the form of social benefits (health care), improved living standards (environmental concerns such as clean energy), and value-added industries (growth in R&D facilities)

47 Implications for the built environment Implementation of the aims articulated in the 12th FYP will involve development of China’s built environment, e.g.:  construction of hospital facilities  Water treatment facilities, power transmission systems, development of energy-efficient buildings  R&D activities in IT and other areas will require suitable facilities and these users will require housing/amenities for associated workers Source: Year_Plan.pdf

48 Opportunities & Pressures  What about pressures?  Power generation: gigawatts of new coal-fired power capacity will be constructed from  Arable land supply is diminishing – worst case, 20% decline  Inadequate supplies of potable water – today, 59% of China’s river water is below international standards for potability Concerns re overheating of real property sector mean that whether foreign-invested real estate projects will obtain needed approvals will be driven in part by whether their organization’s projects/services will (a) help address or redress these pressures or (b) to achieve FYP goals

49 Opportunities & Pressures (cont) Contradictions betw/ national & local govts abound:  Nat’l govt banned construction of new golf courses in ‘04  June 20: People’s Daily reported over 400 golf courses have been constructed since 2004  How? Often by registration as sports parks, recreational parks and forestation areas "Some local governments have undertaken such programs in an effort to to boost their economies. So they register the clubs under different classifications, and the local government turns a blind eye on farmland and forest acquisition.”* *Yan Jinming, vice-president of the School for Public Administration at Renmin University

50 Overview of Legal Restrictions for Investing in China Real Property

51 Foreign Investment in Real Property China restricts foreign investment in RE; essentially at least one of these conditions must exist:  if one is a PRC-registered business, one can develop or purchase property for one's own use  one can purchase equity (stock) in a company that hold/develops/rents RE  one can form a company to acquire land rights from the government & develop a project for rent/sale to third parties

52 Challenges/restrictions:  Can't buy property w/out forming a company in the PRC – and PRC companies can’t be easily dissolved/wound up - so this significant  Special capitalization and approval requirements before making an investment  Requires converting foreign currency and the gov’t is increasingly concerned about pressure on the RMB to rise – possible to get other approvals, but not be allowed to convert capital to fund the project

53

54 Sectors/areas where foreign projects more likely to be welcome?  Niche projects - eg, health care/bio tech  Projects filling policy aims - eg, develop the West – getting approvals in Chongqing and Chengdu is probably like Shanghai 15 years ago  Senior living, affordable housing, energy- efficient/’green’ projects (again, ties back to policy aims)

Copyright © 2011 by K&L Gates LLP. All rights reserved. Real Estate in Russia: Recent Developments and New Opportunities William Reichert K&L Gates LLP 4 th Lesnoy Pereulok 4, 5 th Fl. Moscow, Russia +7 (495)

56 I.Current Russian Real Estate Market II.Legislative Developments Affecting Real Estate III.Major Projects and Opportunities for Investment

57 I.Current Russian Real Estate Market

58 Commercial Real Estate Industry Overview  Return of confidence to the Russian real estate investment market in Q  Moscow is currently one of the hottest investment markets in Europe  Q saw the largest ever quarterly investment volume in Russia  Overall investment volume provides for the potential for 2011 to match the record levels of 2007 and 2008

59 Commercial Real Estate Industry Overview Investment Volumes by quarter, Information from CBRE

60 Real Estate Investment: H Deals  Total volume of deals – Euro 1.77 billion (13 deals) including Euro 1.6 billion in Q (11 deals)  Largest Deal: purchase of Ritz-Carlton Hotel in central Moscow by Verny Capital from Capital Partners for Euro 424 million  47% of White Square business center (110,750 m²), purchased by consortium of VTB and TPG from Coalco  50% of White Gardens business center (95,000 m², under construction, due in 2012), purchased by consortium of VTB and TPG from Coalco  Alfa Arbat business center (47,200 m²), purchased by Promsvyaznedvizhimost from TNK-BP  90% of Berlin House/Geneva House (7,400 m² / 9,875 m²) purchased by Lenhart Global from Eastern Property Holdings

61 Real Estate Investment: H Deals  Kaluzhsky shopping center (57,000 m²), purchased by Binbank from Z- Build  Filion shopping center (128,000 m²), purchased by Kompleksnie Investicii from Rubin Development  Gorbushkin Dvor shopping center (60,000 m²), purchased by Kompleksnie Investicii from Rubin Development  FM Logistics Industrial Park in Khimki (north of Moscow) (75,000 m²), purchased by Hines Global REIT (USA) from AIG Global Real Estate  Metropolis II business center (22,300 m²), purchased by Heitman from Capital Partners  Proposed sale of CJSC “Inteco”, one of the largest developers in Moscow, to a Binbank shareholder and OJSC “Sberbank Investment” for an estimated US$ 1.2 billion I

62 Real Estate Investment: H – Refinancing  Hermitage Plaza business center (Raiffeisen)  Romanov Dvor business center (Nordea)  Gogolevsky 11 business center (Raiffeisen)  Metropolis business center (Nordea)  Ducat III business center (UniCredit)  Four Winds business center (Nordea)  Immofinanz retail portfolio (Rosbank)  White Square business center (VTB, closing in process)

63  Demand up by 30-40% compared to 2010  Aggregate supply - 11m m²; new supply k m²  New supply will be very low in 2011 (890k m², the lowest during )  New supply will shift away from the city center due to a ban on construction in central Moscow (announced by Mayor Sobyanin):  Suspension of some issued permits and audit of previously issued documents  Limitation and prohibition of virtually all new construction  Likely not to include reconstruction and capital improvements  Possible outcome: fewer offices to rent, return to “seller’s market”, more new offices outside the city center Moscow Office Market: H1 2011

64 Moscow Office Market: H  Signs of return of confidence to the market:  Stable take-up: volume of deals (leases) in Q2 – 296,000 m² (41% quarterly increase)  Overall vacancy decreased to 12.5% (18% in Class A, 12% in Class B)  Prime rents continue to rise  Tenants attracted primarily by quality  Average rental rate for fitted-out prime offices – US$1,050 per m² per year  97,500 m² of office space delivered to the Moscow market in Q2 2011, a 64% decrease compared to Q1 2011

65 Russian Warehousing Market: H  Current State:  Demand up by 20% compared to 2010  Share of foreign companies as tenants – 10%  Increasing size of transactions  Rent up by 5-7%; purchase prices stable  Trends:  Increase in demand  Increase in rent and purchase price expected to be at least 10%

66 II.Legislative Developments Affecting Real Estate

67 Applicable law  Civil Code of the Russian Federation  Land Code of the Russian Federation  Town-Planning Code of the Russian Federation  Federal law on state registration of rights to immovable property and related transactions (Registration Law)  Regional laws and regulations

68 Proposed Amendments: Civil Code Project  To avoid potential disputes with regard to title registration, the following new registration principles have been proposed:  Verification of basis for original registration of title  Establishment of a true and accurate public register  Introduction of notarization requirement for all transactions creating, changing or terminating rights that are subject to state registration  Property = land plot + building  A land plot and an object on the land plot (building, construction) owned by the same person are considered a sole real estate object  Currently, there is no such concept in Russian law (however, there is a concept of “common fate” of land plots and objects, i.e. all objects closely bound with land plots follow the fate of land plots)

69 Proposed Supreme Commercial Court Plenum Resolution*  Seller’s lack of title to real estate upon signing a contract will not in itself lead to the contract’s invalidity, but title will be required for state registration  Better identification of future real estate objects in contracts (important for preliminary agreements and agreements concerning future real estate):  location, size, other characteristics, defined in accordance with the construction plan  identification is adequate if the total floor area to be conveyed and the price per square meter can be established  such data can be contained in transfer-delivery certificates *Plenum Resolutions are obligatory for commercial courts in Russia

70 III.Major Projects and Opportunities for Investment

71 Skolkovo Research Center  “Russian Silicon Valley”  Center for research, development and commercialization of:  energy efficiency and savings  nuclear technologies  space technologies  medical technologies  strategic computer technologies and software  Construction expected to take from three to seven years  Largest experimental center for new economic policy  Located 2km to the west of Moscow

72 Skolkovo Research Center  Unprecedented legal regime for Skolkovo participants:  Will be exempt from VAT and profits tax for 10 years  Will deal with customs authorities only through the Skolkovo management company, which will be responsible for dealing with customs officials  Land plots and buildings in Skolkovo will be owned by the Skolkovo management company  No quotas will be needed from migration authorities to employ a foreigner; Skolkovo management company will be responsible for paperwork required  Participants must be Russian legal entities, created specifically for research activities, and physically located in Skolkovo (starting from January 1, 2014, prior to then they can be elsewhere in Russia)

73 Moscow: extension of territory  Aimed at creation of a metropolitan federal district  Ease the concentration of traffic and business, and possibly form an administrative and financial center outside the city center  Planned to be finalized by the second half of 2012  The new territory is close to Rublevskoye highway, the most expensive and prestigious location in the Moscow Region (with official residences of the President, Prime Minister, oligarchs)  Moscow is to be extended by an additional 160k ha (currently the territory is 109k ha)  The extension is likely to result in a rise in price of land plots and buildings on the territory Image from

74 Kaluga Region: Industrial Park Development  Total area for industrial construction – 2.3 ha  Over US$ 3 billion of foreign capital invested since 2007, to exceed US$ 5 billion by 2012  Large multinational residents include Samsung, GE, Volvo, Renault, VW, Nestle, L’Oreal, Peugeot/Citroën, Mitsubishi Motors, John Deere  Direct access to federal highways, railway lines and local population centers  Overall infrastructure is already in place and well- funded  Regional government engaged and committed to project’s success Information from CBRE

75 Olympic Games Sochi 2014  Government allocated US$ 12 bln to 2014 Olympics and Paralympics  Approximately US$ 17.8 bln of private investment expected (more than 200 investment projects)  Construction:  Coastal cluster  Approximately 50% sports related, 50% infrastructure related  Central focus - Olympic Park, connecting all competition venues, parking zone and infrastructure to accommodate 75,000 visitors  Other infrastructure: including airport, three railway lines, recycling facilities, hotels  Mountain cluster  Biathlon and ski complexes, a bobsled track, a snowboard park, etc.  Satellite construction: service, tourism, infrastructure

76 Football World Cup 2018  Cities: Kazan, Kaliningrad, Krasnodar, Moscow, Nizhniy Novgorod, Rostov-on-Don, Samara, St. Petersburg, Saransk, Sochi, Volgograd, Yaroslavl, Yekaterinburg  Total amount of expenditure - approximately US$ 22 bln, including:  approximately US$ 8.6 bln for construction and renovation of roads  approximately US$ 4.4 bln for construction and renovation of arenas  Approximately US$ 33.3 bln for construction of high speed railroad network Image from russiatrek.org

77 Titanium Valley  Special economic zone located in the Urals*  Aimed at developing titanium production for aviation, medicine and aero-construction components  More than US$ 1.8 bln to be invested  Will initially cover 300 ha, to be expanded to 1,800 ha  Boeing, Rolls Royce, Spirit, Goodrich, MHI, Alenia are expected to become initial members of the project  Airbus, Snecma, Embraer, Turbomeca may also join  Incentives include no property tax, land tax, transport tax, reduced income tax *A major factor in establishing the special economic zone is the proximity of OJSC VSMPO-AVISMA Corporation, the world’s largest manufacturer of titanium.

78 Caucasus Silicon Enterprise  Private-public partnership with equal investment volume  Amount of investment - approximately US$ 1.14 bln  Amount of annual production - approximately US$ 1.4 bln Image from  Cluster for silicon production for helioenergetics (solar energy)

79 Green Building  Supporting legislation:  Federal law on saving energy and increasing energy efficiency  Federal law – technical regulations on the safety of building and facilities  Federal law on heating supply  Few buildings certified under green standards in Russia, around 20 projects registered for LEED or BREEAM certification  No unified Russian standard currently exists; buildings are being certified under LEED, BREEAM or corporate standards (i.e. Olympstroy standard)  Olympstroy, the state corporation tasked with building sites for the Olympics, is working on its own corporate Green Standard for Olympic construction:  10 venues to be certified under BREEAM and LEED  150 venues to be certified under Olympstroy’s Green Standard  Buildings in Skolkovo are master planned to be LEED certified

80 Green Building  The Center for Ecological Certification “Green Standards” (CECGS) has prepared a draft of a national standard to be discussed and reviewed  A consortium consisting of CECGS, the Russian Green Building Council (RuGBC)* and Olympstroy agreed that the amended Russian Green Standard would include the Olympstroy Green Standard  On June 21, 2011 President Medvedev issued orders to the Government and the State Duma to prepare and adopt draft laws for economic stimulation of activities aimed at reducing negative effects on the environment  In late September 2011 a RuGBC working group will announce recommendations in line with the President’s orders  Growing market for consultancy and architectural services *RuGBC is a newly formed non-profit organization dedicated to the development and adoption of green building practices (170 members in 2 years)

Copyright © 2011 by K&L Gates LLP. All rights reserved. UK and Global Real Estate Trends – Opportunities for 2011/ September 2011, London