Challenges and Strategies in Real Estate for 2010 Remarks by: David M. Mincberg Chairman and Chief Executive Officer Flagship Properties Corporation Chairman, Houston Housing Authority Houston, Texas

Real-World Background Background The Real Estate World Has Changed The Real Estate World Has Changed Why and How Why and How

Houston by the Numbers City of 2 million people City of 2 million people Metro area of almost 6 million people Metro area of almost 6 million people Area of almost 1,500 square miles Area of almost 1,500 square miles Remarkably diverse Remarkably diverse 90 different languages 90 different languages Lagging woefully in mass transit Lagging woefully in mass transit

Opportunity! Create a vision Create a vision Craft a plan Craft a plan Not encumbered by past Not encumbered by past Design for reality Design for reality

Survey Time Real estate pricing/values? Real estate pricing/values? Inflation or Deflation? Inflation or Deflation? Déjà vu? Déjà vu? Analogies anyone? Analogies anyone? Bubbles up…bubbles down Bubbles up…bubbles down How long do bubbles last? How long do bubbles last?

Is it True? Did real estate developers really over-leverage? Did real estate developers really over-leverage?

What’s Really Out There? Or said differently… What’s lurking in the woods?

Vacancy Levels Continuing to Rise Sharply

Monthly CMBS Delinquency

$1.5 Trillion of Commercial Mortgages are Maturing Between 2009 and 2013

One banker said to the other…

CRE Value Trends Opportunistic funds are down 52% according to the NCREIF/Townsend fund indices. Opportunistic funds are down 52% according to the NCREIF/Townsend fund indices. Core funds are down 36.3% from their peak by the end of Q Core funds are down 36.3% from their peak by the end of Q

Commercial Real Estate Value Trends Blackstone marked down its real estate portfolio by 30% in Q and another 19% in Q —Wall Street Journal 05/07/2009 Blackstone marked down its real estate portfolio by 30% in Q and another 19% in Q —Wall Street Journal 05/07/2009 Goldman Sachs’ biggest private real estate equity fund, called Whitehall Street Global Real Estate, L.P., invested $3.7B between May 2007 and August 2008 in a portfolio of casinos, hotels and office buildings. They have since written down those assets by $2.1B…--Wall Street Journal 05/15/2009 Goldman Sachs’ biggest private real estate equity fund, called Whitehall Street Global Real Estate, L.P., invested $3.7B between May 2007 and August 2008 in a portfolio of casinos, hotels and office buildings. They have since written down those assets by $2.1B…--Wall Street Journal 05/15/2009

CRE Value Trends MIT Transaction-Based Index shows property values have fallen 39.2% from their peak by the end of June, MIT Transaction-Based Index shows property values have fallen 39.2% from their peak by the end of June, Moody’s/REAL CPPI shows property values down 40.6% as of the end of August. Moody’s/REAL CPPI shows property values down 40.6% as of the end of August. NACREIF Property Index indicates that it has recognized less than two-thirds of the coming right-downs in property values. NACREIF Property Index indicates that it has recognized less than two-thirds of the coming right-downs in property values.