This document was presented during the 2010 NCREIF Summer Conference.

The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.

Real Estate Debt Market Overview

This document was presented during the 2010 NCREIF Summer Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.

Quarterly Transaction Volumes: 1Q2008 1Q2010*

2008 Annual Total: $136 bn 2009 Annual Total: $49 bn

$50
$44

$40

$8

$39
$6

$34
$4

$30

$14 $17 $14

$20

$19
$3

$8 $6 $5

$17 $13
$5 $4 $3 $5

$10
$14 $10 $11

$8 $3 $5

$9
$2

$10
$2

$2

$5 $2 $4

$4
$1 $2

$0
1Q2008 2Q2008 3Q2008 4Q2008
Industrial Apartm ent

$3 $2 $3

$5
$2

$1 $1 $1

1Q2009

2Q2009
Office

3Q2009

4Q2009
Retail

1Q2010*

$ in billions. Source: Real Capital Analytics. * Preliminary as of 1Q 2010. 2

This document was presented during the 2010 NCREIF Summer Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.

Loan maturities will continue deleveraging trend

Estimated Total U.S. CRE Maturities
350.0 Banks/Thrift Insurance Company CMBS-Floating CMBS-Fixed

$337.6 $295.9
$137.6b Shortfall

$331.0

300.0

250.0

$246.5 $204.0
$4.0b Shortfall $46.5b Shortfall

$95.9b Shortfall

$131.0b Shortfall

$ US (Bil)

200.0

150.0

Cumulative Shortfalls 2009-2013: est. $415.0 billion

100.0

50.0

0.0 2009e 2010e 2011e 2012e 2013e

Projected Originations1
1 Origination projections based on the average 3-year historical gross originations from all non-commercial CMBS lenders. Source: Deutsche Bank, Intex, Trepp, Mortgage Bankers Association, Federal Reserve. As of August 2009.

This document was presented during the 2010 NCREIF Summer Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.

Out-performance of CRE loans made immediately following a recession

Yield Spread on CRE Whole Loans Compared with Direct CRE Equity Returns
Four quarter rolling average 6%
Direct valuation recovery leads to attractive refinance opportunities for equity investors, providing debt investors an exit strategy. Limited competition currently providing high spread levels

4 2 0 -2 -4 -6 -8 1 Q1 9 8 8 4 Q1 9 8 8 3 Q1 9 8 9 2 Q1 9 9 0 1 Q1 9 9 1 4 Q1 9 9 1 3 Q1 9 9 2 2 Q1 9 9 3 1 Q1 9 9 4 4 Q1 9 9 4 3 Q1 9 9 5 2 Q1 9 9 6 1 Q1 9 9 7 4 Q1 9 9 7 3 Q1 9 9 8 2 Q1 9 9 9 1 Q2 0 0 0 4 Q2 0 0 0 3 Q2 0 0 1 2 Q2 0 0 2 1 Q2 0 0 3 4 Q2 0 0 3 3 Q2 0 0 4 2 Q2 0 0 5 1 Q2 0 0 6 4 Q2 0 0 6 3 Q2 0 0 7 2 Q2 0 0 8 1 Q2 0 0 9 4 Q2 0 0 9

Attractive risk-adjusted spreads available during previous economic downturns

Competitive lending during RE bull market (eg CMBS) placed prolonged downward pressure on CRE lending spreads

ACLI Contract Yield Spread Over 10Yr Treasuries

Source: ACLI, NCREIF, economy.com, RREEF Research data through 2Q09 4

NCREIF NPI

This document was presented during the 2010 NCREIF Summer Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.

Real Estate Debt Summary

Dislocation in the global real estate and credit markets have presented compelling investment opportunities, as property owners face liquidity issues and loan maturities Real estate debt investments will continue to be attractive because it offers investors excellent risk-adjusted returns, current income, manageable credit risk and predictable duration Life companies and other portfolio lenders are lending again, albeit mostly on high quality, stabilized assets Although many banks indicate they are back in the market, it remains to be seen whether they will make a significant impact given their existing issues. Banks are only lending selectively on high quality assets, require some level of recourse and construction loans are scarce Borrowers, taking the cue, begin to return as well as they seek reasonable financing that was unavailable over the last two years While there has been a discernible increase in the availability of real estate debt capital available to borrowers, there remains a tremendous shortfall in the amount available and the projected amount necessary to refinance maturing debt over the next 4 to 5 years

This document was presented during the 2010 NCREIF Summer Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.

Strategies Up and Down the Risk Return Spectrum

Depending on investors risk-return profile, real estate provides a range of investment strategies
Senior Mortgages Senior Senior Mortgage Mortgage Senior Mortgage 0 65% LTV Senior Mortgage loans secured by stable, cash flowing real estate assets Strong credit structures and transparency Up to ~65% LTV; interest rate of 5-7%; fixed and floating; term of 3-7 years

Subordinate Debt 10% Sub SubDebt Debt Opp. Debt Equity Subordinate Debt 60 75% LTV Opportunistic Debt 80%+ LTV Subordinate debt investments in real estate assets and real estate companies Mezzanine loans, B notes, or low-leveraged preferred equity 30% Selected commercial mortgage back securities 60-75% LTV; return of 8-15% (mostly current income; some accrual); fixed or floating; term of 3-7 years Opportunistic Debt Debt instruments secured by real estate and related assets where there is an opportunity to gain control and/or receive high debt returns Purchase loans, positions or assets from distressed debt holders including banks, funds, insurance companies, owners etc Provide debt to operating companies, capital-constrained PE funds, cash-strapped borrowers; various levels of repositioning 80%+ LTV; returns of 16%+ (some current income); 2-7 year terms

Equity

Equity 50 - 100% LTV

Commercial Real Estate Asset

Asset Capital Structure

For illustrative purposes only. Not to scale. 6

This document was presented during the 2010 NCREIF Summer Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.

Senior Lending
The collapse of financial markets, ensuing credit crunch and pronounced economic recession will continue to have a profound impact on the commercial real estate financing markets. Maturing real estate debt shortfall of approximately $415 billion from now until 2013 provide great opportunities for loan originations Newly originated loans on todays values provide lenders with the ability to choose from the highest quality collateral, sponsors and credit structures Senior mortgage strategies have potential to deliver excellent risk adjusted returns. Asset classes include office, industrial, residential, retail, and mixed use; target properties that are predominantly stable, cash-flowing. Loan size of $10-$30 million; well-structured loans at lower leverage (~65% LTV), strong DSCR (min. 1.30x) and debt yield (min. 10%); interest rates of 5-7%. Well-located properties in major metropolitan markets or stable regions near major markets.

This document was presented during the 2010 NCREIF Summer Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.

Opportunistic Debt
Opportunistic plays that provide investors with attractive risk-adjusted returns, oftentimes, with the prospect of eventually controlling the asset or situation. Purchase discounted or distressed positions in the capital structure Purchase performing and non-performing loans, assets or positions from banks, funds, insurance companies, owners etc. Distressed loans of banks and debt holders can be in form of Senior Mortgages, Mezzanine loans, sub-debt notes, or participations Rescue Capital (e.g. gap equity, white knight capital, LIFO) Provide capital (in the form of debt or preferred equity) to cash-strapped individual borrowers, capital-constrained funds, and operating companies to meet capital requirements for loan covenant breaches, construction completion, lease up, etc. Provide capital (as debt or preferred equity) to property owners who want to execute a debt purchase or Discounted Pay Off (DPO).

This document was presented during the 2010 NCREIF Summer Conference. The author(s) take full responsibility for all content. This posting is for informational purposes only; neither NCREIF nor its Board express any opinion of the content presented herein.

Current Challenges facing Debt Holders

Operational Debt service payments cease/reserves run out Extensions and Modifications Discounted Payoffs (DPO) Discounted Sales Foreclosure Loss of ability to influence or consent to major decisions, including terms of debt modifications Accounting Unrealized Losses (FV) or Valuation allowances (Historical Cost) Income recognition/Non-accrual status Write off of investment Bring on property and senior debt onto books