Creating leverage through superior market insight

May 2010

Jones Lang LaSalle Propaganda

• Founded in 1783 in London• 1999 LaSalle Partners and Jones Lang Wooten merged• Local Level - purchased the Staubach Company in 2008• 2009 - Global Revenues $2.5 Billion• 60 Countries with 750 locations including 180 corporate offices• Provide Facilities Management and Property Management on a global basis totaling over 1.6

Billion square feet• $40 Billion of Pension Fund and Asset Management through LaSalle Investment Management • Employees: 36,600• Only Investment Grade Professional Real Estate Services Firm• Ranked Number 1 by the Watkins Survey as Best Real Estate Services Firm• Rated the Most Ethical Real Estate Firm in the World by Ethisphere

Global outlook

Europe – The “L”

Additional 4% or 8.5M job losses

predicted in the EU within 2010-11;

Unemployment to reach 10.25%

Poland & Czech Republic strong;

Germany & France slow growth; Spain,

Greece weak

United States – The “U”

GDP growth rate predicted at ~ 2.4% & unemployment rate predicted to drop to ~ 9.5% by 3Q2010

Job growth sectors: Financial 2012+,

Education & Healthcare 2010+,

IT 2010+

Asia – The “V”

India & China projected to grow at

7%+ and 9%+, respectively over

next 2 years

Investment activity expected to grow by

30 – 50%

8

Rental GrowthSlowing

RentsFalling

Rental GrowthAccelerating

RentsBottoming Out

Global Property Clock

Source: Jones Lang LaSalle IP

Asia-PacificEuropeAmericas

Mexico City SeoulFrankfurt, Toronto

Amsterdam, Berlin, Chicago, Madrid,Milan, Los Angeles, Seattle

Boston, New York

Brussels, Singapore

Paris, Beijing

Moscow, Shanghai, San FranciscoDelhi Tokyo, Washington DCMumbaiLondon, Hong Kong

Note

• This diagram illustrates where Jones Lang LaSalle estimates each prime office market is within its individual rental cycle.

• Markets can move around the clock at different speeds and in different directions

• The diagram is a convenient method of comparing the relative position of markets in their rental cycle

• Their position is not necessarily representative of investment or development market prospects.

• Their position refers to Prime Face Rental Values Sydney

São Paolo

Rollercoaster freefall ending as several U.S. markets have approached bottom

Rental Growth Slowing

Rents Falling

Rental Growth Accelerating

Rents Bottoming Out

West Palm Beach

Detroit, Miami

Charlotte, Cleveland, Hartford / New Haven, Orange County, Orlando, Sacramento, Westchester County

Atlanta, Fairfield County, Indianapolis, New Jersey, Oakland / East Bay, Philadelphia, Richmond,, St. Louis, Tampa

Chicago, Cincinnati, Fort Lauderdale, Los Angeles, Memphis, Phoenix, San Diego, San Francisco Peninsula, Seattle, Silicon Valley

Boston, Dallas, Jacksonville, New York, Raleigh / DurhamAustin, Baltimore, Denver, Minneapolis, Oakland / East Bay

Pittsburgh

Washington, DC

San Francisco

Houston, San Antonio

Source: Jones Lang LaSalle

Source: Global Insight

Global GDP is expected to be positive through 2012, fueling future development

-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%

8.0%10.0%12.0%

Indi

a

Chi

na

Jap

an

Ger

man

y

Fra

nce

UK

US

Ital

y

Rus

sia

Can

ada

Wor

ld

2009 2010 2011 2012

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

India China Japan Germany France UK US Italy Russia Canada

Fixed Investment YOY % 2009 Fixed Investment YOY % 2010

Source: Global Insight

China and India will continue to drive demand for global materials

Construction outlook

0

50

100

150

200

250

300

2005 2006 2007 2008 2009 2010

Producer price index

Lumber Iron and steel Crude petroleum

Source: Bureau of Labor Statistics

US key material prices increased, yet still below 2008 levels

• US construction cost index climbed in 2010

• US building cost index has increased for the past four months

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

$70,000

$75,000

January-07 January-08 January-09 January-10

Mil.$, SAAR

Total - Office

Source: Moody’s economy.com and the Census Bureau

US office construction spending continued to fall

-100

-80

-60

-40

-20

0

20

40

60

80

100

Q2 2000 Q2 2001 Q2 2002 Q2 2003 Q2 2004 Q2 2005 Q2 2006 Q2 2007 Q2 2008 Q2 2009

Tightening Standards for Commercial Real Estate LoansReporting Stronger Demand for Commercial Real Estate Loans

Source: Federal Reserve Board - Senior Loan Officer Opinion Survey on Bank Lending Practices

US bank standards of commercial loans increased as demand fell

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

2007 2008 2009 2010

Commercial annual growth Residential annual growth

Commercial construction contracted by 13.4 percent

Residential construction contracted by 16.9 percent

Percent change from a year earlier

Source: Bureau of Labor Statistics *Construction includes natural resources and mining

US job losses extended in commercial construction, while easing in residential

• Positive fixed investment forecasted in India, China, US, Russia and Canada will drive global demand for key materials such as oil, copper and iron and steel in 2010

• The residential crisis has bottomed out in many markets and new construction starts are showing signs of stabilizing, although well below the markets peak

• Commercial construction will likely see further deterioration due to a slow recovery in the labor market, particularly in office-using industries

• Energy and petroleum prices will continue to fluctuate

• Money is scarce, banks unwilling to loan, no new construction projects in the foreseeable future

• The stimulus infrastructure program has caused a 2.1 percent increase in public construction spending in 2009. A further increase will likely be realized in 2010 and 2011

Outlook

Financing outlook

REIT shares up big in 2009 but still off from peakCommercial prices increasing for 3 straight months and have likely bottomed out

50

75

100

125

150

175

200

225

250

Dec-00

May-01

Oct-01

Mar-02

Aug-02Ja

n-03Ju

n-03Nov-0

3Apr-0

4Sep

-04Feb-05Ju

l-05

Dec-05

May-06

Oct-06

Mar-07

Aug-07Ja

n-08Ju

n-08Nov-0

8Apr-0

9Sep

-09Feb-10

Moody's Property Index Bloomberg REIT Index

REIT shares still down 50% from peak and property prices down 40%

Source: Bloomberg, Jones Lang LaSalle

CMBS market slowly reemerging

CMBS Volume(in Billions)

0255075

100125150175200225250

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Commercial Mortgage Alert, Jones Lang LaSalle

Old versus new CMBSSimplicity and transparency will prevail

IndependentB-Piece HolderSpecial Servicer

33Rating Agencies (#)

28353# of Properties

1202# of Loans

325# of Tranches

2.5x1.3xIssuer DSCR (last $)

42%52%AAA LTV

52%74%Issuer LTV

$400 million$7.56 billionSize

November 2009July 2007Issuance Date

DDR 2009 - DDR1GSMS 2007 - GG10

Source: CMSA, Jones Lang LaSalle

Residential Mortgages

CorporateLoans Commercial Mortgages

ConsumerLoans

0

200

400

600

800

1,000

1,200

1,400

Proj

ecte

d Lo

sses

, $ B

illion

sStaggering scale of “bad asset” problemNot just commercial real estate

Source: Moody’s Economy.com, Jones Lang LaSalle

Current commercial real estate debt outstanding$3.4 trillion as of year-end 2009

Commercial Banks, 50%

CMBS & CDO, 20%

Life Companies, 9%

GSE, 6%

Agency & GSE-Backed, 5%

Finance Companies, 2%REITs, 1%

All Other,

7%

Source: Federal Reserve, Jones Lang LaSalle

Commercial real estate debt maturities by lenderBank maturities dominate landscape and will be most challenged

-

100

200

300

400

500

600

2010 2011 2012 2013 2014

($ B

illio

ns)

Life Insurance Companies

GSEs

CMBS

Others (including pension funds)

Banks (construction loans)

Banks (income-producingproperties)

Source: Morgan Stanley, MBA, FDIC, FFIEC, Intex, PPR, and Jones Lang LaSalle

Transaction volumes down 63% in 2009 versus 2008Volumes down 89% from 2007 peak

$0

$100

$200

$300

$400

$500

$600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Tran

sact

ion

Volu

mes

in B

illio

ns

Source: Real Capital Analytics, Jones Lang LaSalle

Cap rates have returned to early 2004 rangeOutlook is for bifurcated market with primary markets leading the charge

Source: Real Capital Analytics, Jones Lang LaSalle

5.00%

5.75%

6.50%

7.25%

8.00%

8.75%

9.50%

10.25%

Feb-

01Ju

n-01

Oct

-01

Feb-

02Ju

n-02

Oct

-02

Feb-

03Ju

n-03

Oct

-03

Feb-

04

Jun-

04O

ct-0

4Fe

b-05

Jun-

05O

ct-0

5Fe

b-06

Jun-

06

Oct

-06

Feb-

07Ju

n-07

Oct

-07

Feb-

08Ju

n-08

Oct

-08

Feb-

09Ju

n-09

Oct

-09

Feb-

10

Apartment Industrial Office Retail

Deleveraging has forced sales and recapitalizations

EQUITY: $25.0 MM

NEW EQUITY: $10.0 MM

DEBT: $65.0 MM DEBT: $75.0 MM

EQUITY: $25.0 MM

A-NOTE: $79.2 MM

B-NOTE: $42.6 MM

MEZZ: $22.8 MM

LOST VALUE: $52.2 MM

EQUITY: $7.6 MM2004 – 2007

• Value changes reflect NCREIF data (adjusted 4 quarters to account for the lag in the index)

2010

• 100% of the Equity & Mezz and $21.6 MM of the B-Note of the 2007 deal is wiped out, as prices return to 2004 levels

• Borrower needs to invest 1.4x their original equity in order to refinance asset

ADDITIONAL EQUITY TO REFI DEAL: $10.0 MM

$160 MM

$100 MM

2004 DEAL: $100.0 MM 2007 DEAL: $152.2 MM 2010 DEAL: $100.0 MM

Source: Jones Lang LaSalle

Market comparison

Tenants demand financials on landlordsLandlord demands financials on tenants

Over reliance on CMBS for financing needs during peak years

Blind eye to how debt is structured as long as you get the proceeds

Underwriting based on future cash flows

90% financing

Yesterday

Strong relationships with balance sheet lenders

Detailed knowledge of complex capital stacks

Rational pricing and underwriting of risk

Moderate leverage and "skin in the game"

Today

The commercial real estate shoe may not drop

• Commercial real estate prices have bottomed out

• Cap rates have begun to decline, with properties in primary markets outpacing those in secondary and tertiary markets

• Fundamentals remain weak; it’s a tenants market

• Owners equity is gone - trying to cover debt service - eventually will need new capital source

• As a result of the flight to quality, too much money is chasing too few assets

• REITs have been able to raise cheap capital in the public markets and are driving aggressive pricing

Capital Markets outlook

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

0 5 10 15 20 25 30 35 40 45Number of Months After Peak Employment

Perc

ent C

umul

ative

Job

Los

s Re

lativ

e to

Pea

k Em

ploy

men

t 1974 1981 1990 2001 2007

Source: Jones Lang LaSalle, Moody’s Economy.com, Bureau of Labor Statistics

• Just-ended recession was most destructive to labor market since Great Depression; Total employment in the U.S. is now less than the level of 10 years ago

U.S. job market stabilizing but the damage has been doneCurrent recession’s path of job destruction vs. notable recessions of past 40 years

Just-ended recession

Commercial mortgage maturity schedule

0

100

200

300

400

500

60020

09

2010

2011

2012

2013

($ B

il.)

CMBS Insurance Companies Banks

Source: Credit Suisse, SNL Financial, Trepp, ACLI, Jones Lang LaSalle

Many lenders to be focused on existing loans and not new origination

• A combination of time, property market fundamentals and post-bubble lending conditions will work against landlords throughout much of this forecast horizon

$396$433

$514

$391 $391

$0

$5

$10

$15

$20

$25

$30

$35

Retail Apartment Office Hotel Industrial0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

$ Distress % of avg. ann. 2005-2008 sales volume*

The distress is building; Banks thus far prefer workouts/extensions in the hopes of strong recoveryIndustrial less distressed than all other property types

Distress ($ in billions)

*Scaled to size of total 2005-2008 transaction volume for each property typeSource: Jones Lang LaSalle, Real Capital Analytics

Recovery in commercial real estate debt marketsAgency (Fannie / Freddie) issuance of multifamily debt is on pace to shatter all-time records. 1Q 2010 issuance alone was $7.7 billion.

Multifamily Issuance by Agencies

0

5,000

10,000

15,000

20,000

25,000

30,000

35,00020

02

2003

2004

2005

2006

2007

2008

2009

1Q 2

010

(Act

ual)

1Q 2

010

(Ann

ualiz

ed)

($ M

illio

ns)

Source: JPMorgan

2010 prospects for real estate investing…

• Pressure will continue to build on lenders to dispose of real estate assets despite ongoing preference for extending loans: regulatory environment will have impact

• Volumes will remain much lower than historical averages until either: 1) sellers capitulate closing the bid/ask 2) enough time passes so that values regain enough lost ground, or 3) lenders change strategy and begin wave of foreclosures

• A public markets solution to the supply of debt capital is critical: Continue to watch CMBS and REIT markets as leading recovery indicators

• REITs will continue to raise more capital to strengthen their balance sheets and make strategic acquisitions

• The strongest will survive: Healthy balance sheets a critical factor

• Real estate will revert to being a long-term investment vehicle that provides income, diversification in portfolios and potentially as an inflation hedge strategy

• Scarcity of core product in major markets is pushing pricing upwards

Mixed investor and lender mindset

- Tapped unsecured debt markets- Stocks recovered from lows- Comparatively low leverage- Poised for selective acquisitions

REIT Operators Banks/Servicers

- Redemptions are down- Largely marked-to-market- New offerings reflect current pricing - Return to “normal” portfolio

balancing by YE 2010

Domestic Institutions

- Keeping core; selling non-core assets & markets

- Net buyers but focused on yield

Offshore

- Equity largely wiped out- Selling where equity can be found- Need for cash will lead to

structured transactions

- Generally not selling unless forced- Using creative financing to buy

time- Multiple strategies to limit losses

- Strategies depend on cost of capital

- If enacted, changes to FAS 13 will change real estate strategies –may lead to more ownership

Private Equity/Opportunity Funds

Corporate Owners

- Increased REO sales activity- Still not marked-to-market- Auctions will be used for non-

institutional grade assets

- Among most active and motivated sellers in 2010

- Largely distressed and discounted loan portfolios with FDIC participation and incentive for long term hold

FDIC

There is a light at the end of the tunnel, but real estate markets are the caboose of the train

Tenants expand

Stimulus

Economic growth returns

Employment growth returns

Source: Jones Lang LaSalle

Seattle Office Market Q1 2010

Direct Sublease

Set of Seattle office buildings lit up with opportunity

Class B

Class A

Total

$30.6421.8%29.9 Million

$21.2713.2%21.6 Million

$25.5618.2%51.5 Million

Average Asking RatesVacancySquare Feet

Source: CoStar

Dank’s Summary - Strengths

Strengths

• Economy starting to recover with job growth starting in Q3 and Q4 of this year

• National banks are out of financial trouble but the state and regional banks are still hurting i.e. Frontier Bank closing last Friday

• Banks are starting to lend again but small businesses are still impacted because the local and state banks are still on the sidelines

• China and India are leading the way - we are truly a global economy

• In the Americas: Canada and Brazil barely felt the impact of the economy

• Corporate earnings have been robust with continued expectations

• Seattle has the 5 B’s according to Matthew Gardner - Boeing, Bytes, Books, Billionaires and Biotech that will help to drive the economy

• TEU Counts at the Port of Seattle up over 34% from last year

Dank’s Summary - Issues

Issues

• Greece debt problems are starting to affect other major countries including Germany and France

• US debt is not sustainable and action must be taken in near future, according the Federal Reserve Chairman

• Taxes are likely to go up which could dampen the recovery and job growth

• Real estate bubble in China and India could impact their economy, thus globally

• New governmental report on Obama Care states the costs will likely increase by $300B and the cost curve will continue up instead of down - further eroding consumer purchase power

• Cost of gas is expected to increase and could reach $5.00 per gallon by summer especially with Gulf of Mexico oil spill

Thank you!