[PPT] - 2011 National Overview Presentation to Lambda Alpha Mary Ludgin, PowerPoint Presentation

SLIDE 1

Looking Back, Looking Ahead 2011 National Overview Presentation to Lambda Alpha Mary Ludgin, PhD Heitman January 19, 2011

SLIDE 2

2

Job Creation Poised to Accelerate

7.0%
5.0%
3.0%
1.0%

1.0% 3.0%

800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000

100,000 200,000 300,000 400,000

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D 2005 2006 2007 2008 2009 2010 2011

Source: Bureau of Labor Statistics; Economy.com; Heitman Research

Historical and Forecast Employment Growth U.S. 2005-2011

forecast jobs gained/lost month-over-month jobs gained/lost % change Mild Second Recession Scenario Optimistic Case

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3

Texas Markets Leading; Chicago Not Far Behind

Job Growth by Metropolitan Area Q3 2010-Q3 2011

Seattle 0.9% Virginia Beach 0.9%

St. Louis

0.9% Raleigh 1.9% Birmingham 0.8% Jacksonville 1.8% Los Angeles 0.8% Chicago 1.7% Charlotte 0.8% Minneapolis-St. Paul 1.6% Hartford 0.7% Houston 3.0% Providence 1.5% San Jose 0.7% Kansas City 0.4% Orlando 2.8% Portland 1.5% Buffalo 0.6% Philadelphia 0.4% San Antonio 2.8% Memphis 1.4% Riverside 0.6% Milwaukee 0.4% Las Vegas 2.6% Louisville 1.4% Boston 0.6% San Diego 0.3% Tampa-St. Pete 2.4% New Orleans 1.3% Pittsburgh 0.6% Baltimore 0.2% Austin 2.4% Washington, DC 1.1% Cincinnati 0.6% San Francisco 0.2% Oklahoma City 2.2% Miami-Ft. Lauderdale 1.1% Indianapolis 0.5% Cleveland 0.1% Dallas-Ft. Worth 2.1% Salt Lake City 1.0% Columbus 0.5% Detroit 0.1% Nashville 2.0% Atlanta 1.0% New York 0.5% Sacramento 0.0% U.S. 2.0% Denver 1.0% Richmond 0.5% Phoenix

0.2%

Source: Moody's Economy.com; Heitman Research

2% + 1.0% - 1.9% 0.5% - 0.9%

< 0.5%

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4

Job Growth by Metropolitan Area Q3 2010-Q3 2015

Raleigh 2.9% Chicago 2.6% Denver 2.0% Jacksonville 2.6% San Diego 2.0% Tampa-St. Pete 2.5% San Jose 1.9% Birmingham 2.5% Los Angeles 1.9% Minneapolis-St. Paul 2.5% Washington, DC 1.9% Louisville 2.4% Sacramento 1.9% Providence 2.4% New York 1.9% Portland 2.4% San Francisco 1.9% Phoenix 2.3% Philadelphia 1.8% New Orleans 2.3% Kansas City 1.8% Miami-Ft. Lauderdale 2.2% Columbus 1.8% Austin 3.7% Salt Lake City 2.2%

St. Louis

1.8% Milwaukee 1.6% Las Vegas 3.5% Riverside 2.2% Charlotte 1.8% Cincinnati 1.6% Atlanta 3.4% Nashville 2.2% Pittsburgh 1.8% Cleveland 1.6% San Antonio 3.4% Oklahoma City 2.2% Virginia Beach 1.8% Boston 1.6% Houston 3.3% U.S. 2.1% Indianapolis 1.8% Baltimore 1.5% Dallas-Ft. Worth 3.1% Seattle 2.1% Richmond 1.8% Hartford 1.4% Orlando 3.0% Memphis 2.1% Buffalo 1.8% Detroit 1.2%

Source: Moody's Economy.com; Heitman Research

3% + 2.1%-2.9% 1.8%-2.0%

< 1.8%

That Relationship Holds Over Five-Year Forecast

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5

We’ve Made Some Progress on Deleveraging

8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 0.0 5.0 10.0 15.0 20.0 25.0 1980Q1 1980Q4 1981Q3 1982Q2 1983Q1 1983Q4 1984Q3 1985Q2 1986Q1 1986Q4 1987Q3 1988Q2 1989Q1 1989Q4 1990Q3 1991Q2 1992Q1 1992Q4 1993Q3 1994Q2 1995Q1 1995Q4 1996Q3 1997Q2 1998Q1 1998Q4 1999Q3 2000Q2 2001Q1 2001Q4 2002Q3 2003Q2 2004Q1 2004Q4 2005Q3 2006Q2 2007Q1 2007Q4 2008Q3 2009Q2 2010Q1

Consumer Debt-to-Asset Ratio and Debt-Service Burden U.S. 1980 Q1-2010 Q3

Source: Economy.com; Heitman Research %

%

Debt-Service Burden Right Axis Debt-To-Asset Ratio Left Axis

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6

But Interest Rates Will Rise with Faster Growth

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

Ten-Year Treasury Yield U.S. 1990-2012

Source: Economy.com; Heitman Research forecast

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7

Cap Rates Back Down For Now

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: NCREIF; Heitman Research Current value cap rates are derived from those NCREIF properties valued during a quarter

Current Value Cap Rates U.S. 1993-2010 (Q3)

Apartments Office Retail Industrial

SLIDE 8

8 (175.0) (125.0) (75.0) (25.0) 25.0 75.0 125.0 175.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q3

Commercial Mortgage Flows By Issuer 2000-2010 Q3

Banks & Savings Institutions ABS Issuers Life Companies Government-Sponsored Entities Other

Source: Federal Reserve Board; Heitman Research. Fraction-year numbers are seasonally adjusted annual rates.

$s billions

The Mixed Picture on Debt

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9

Transactions Happening Again; More to Come

79.5 101.8 123.9 208.8 305.9 351.6 502.6 144.5 54.6 116.0 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 $550 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Commercial Property Transaction Volume U.S. 2001-2010

Source: Real Capital Analytics; Heitman Research Billions of Dollars in Gross Transaction Volume

Commercial Property Transaction Volume

Billions of Dollars in Gross Transaction Volume 116.0

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10

Vacancy Has Peaked Across All Sectors

6.6% 14.0% 16.6% 10.2%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 1 2341 234 1234 12 3 41 23 412 3412 34 123 41 23 4 12 34123 41 2341 234 12 34 1234123 412 34 12 3412341234123 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Vacancy Rates by Property Type U.S. 1990-2010 (Q3)

Source: CBRE Econometric Advisors; NCREIF; Axiometrics; CoStar; Heitman Research. The apartment series reflects NCREIF data through 1996Q1 and Axiometrics data thereafter. The retail series reflects NCREIF data through 2006Q1 and CoStar data thereafter. The industrial series reflects the availability rate rather than the vacancy rate.

Office Industrial Apartment Retail

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But NOI A Different Story

90.0 100.0 110.0 120.0 130.0 140.0 150.0 160.0 170.0 180.0 19933 19941 19943 19951 19953 19961 19963 19971 19973 19981 19983 19991 19993 20001 20003 20011 20013 20021 20023 20031 20033 20041 20043 20051 20053 20061 20063 20071 20073 20081 20083 20091 20093 20101 20103

NOI Index By Property Type 1993-2010

Apartment Industrial Office Retail

Source: National Council of Real Estate Investment Fiduciaries; Heitman Research

1993 Q3 = 100

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12

Apartments Leading the Recovery

$970 $903 $957 91.6% 93.6% 93.3% 90.5% 91.0% 91.5% 92.0% 92.5% 93.0% 93.5% 94.0% $900 $910 $920 $930 $940 $950 $960 $970 $980 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10

Apartment Effective Rent vs. Occupancy U.S. April 2008-November 2010

Source: Axiometrics Research; Heitman Research

Effective Rent (left axis) Occupancy (right axis)

Effective Rent Up 6.0% from bottom 6.6% annualized

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13

Solid Improvement Relative to 2009

7.0%
5.0%
3.0%
1.0%

1.0% 3.0% 5.0% 7.0% 9.0% 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Apartment Effective Rent vs. Vacancy U.S. 1996-2010 (Q3)

Average Vacancy (%) Effective Rent (% change from four quarters prior) Source: Axiometrics; Heitman Research

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14

U.S. Demographic Landscape Favors Apts

1,000,000
800,000
600,000
400,000
200,000

200,000 400,000 600,000 800,000

Annual Change in the Age Group Most LIkely to Rent Apartments 1995-2030

Source: U.S. Bureau of the Census; Heitman Research

Year-Over-Year Growth/Decline in Population Aged 25-34

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15

Demographics/Economics Favor Student Housing Too

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

3.0%
2.0%
1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Source: National Center for Education Statistics, U.S. Census Bureau, Economy.com; Heitman Research Employment Growth Enrollment Rate Recessions in Red

College Enrollment Rates and Employment Growth U.S. Universities’ Full-Time Students 18 to 24 Years Old

(In blue/red) (In gold)

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16

Industrial Vacancy Has Peaked

9.5 10.6 10.7 10.1 8.9 8.0 7.9 7.5 7.7 7.5 6.6 9.1 11.0 11.6 11.2 10.2 9.6 9.4 10.7 13.5 14.0 13.4 14.1 12.4 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

300,000
200,000
100,000

100,000 200,000 300,000

Completions Net Absorption Availability Rate CBRE-EA Base CaseAvailability Forecast CBRE-EA Downside Availability Forecast CBRE-EA Upside Availability Forecast

Industrial Completions, Net Absorption, and Availability U.S. 1990-2013 Years Ending Q3

forecast Source: CBRE Econometric Advisors; Heitman Research sf x1,000 Availability Rate (%)

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Industrial Demand Drivers Weak in 2009…

Intermodal rail Bigger boxes

14.3%
13.4%
12.9%
11.2%
5.1%
2.4%
2.0%
15%
10%
5%

0%

U.S. intermodal rail traffic U.S. domestic & international air freight Inbound container traffic LA/Long Beach World trade U.S. retail sales U.S. real GDP growth World real GDP growth

Industrial Market Drivers 2009

Source: Economist Intelligence Unit; Moody's Economy.com; American Association of Railroads; Port of Los Angeles; Port of Long Beach; Bureau of Transportation Statistics; Heitman Research

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…But 2010 Dramatically Improved

2.7% 3.5% 5.1% 5.9% 7.3% 11.9% 12.2% 15.3% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

U.S. real GDP growth World real GDP growth U.S. industrial production U.S. retail sales World trade U.S. intermodal rail traffic* U.S. domestic & international air freight* Inbound container traffic LA/Long Beach*

Industrial Market Drivers 2010 (f)

*YTD data, annualized Source: Economist Intelligence Unit; Moody's Economy.com; American Association of Railroads; Port of Los Angeles; Port of Long Beach; Bureau of Transportation Statistics; Heitman Research

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19

Retail Starting to Rebound; Strong Will Get Stronger

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% (20,000,000) (10,000,000) 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 2006 2007 2008 2009 2010

Post-holiday closings Vacancy Rate (R) Net Absorption (L) SF Delivered (L)

Open-Air Retail Real Estate Market Trends U.S. 2006-2010 (Q3)

square feet vacancy Source: CoStar; Heitman Research

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Retailers Profitable Again and Expanding

$5.54 $5.31 $4.82 $5.66 $6.28 $6.74 $6.96 $8.97 $9.56 $8.58 $5.42 $6.29 $7.30 $8.43 $- $1 $2 $3 $4 $5 $6 $7 $8 $9 $10

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Retailer Profits Per Square Foot U.S. 1998

- 2011(f)

Source:Bureau of Economic Analysis, Telsey Advisory, CBRE Econometric Advisors; Heitman Research

Retailer Profits Per Square Foot U.S. 1998-2011 (f)

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Solid Growth in Holiday Sales

3.7% 3.3% 1.9% 2.5% 4.0% 4.1% 5.1% 1.9% 0.3%

0.3%

4.1% 2.5% 4.0% 4.4% 1.1%

5.6%

2.3% 3.8%

8.0%
6.0%
4.0%
2.0%

0.0% 2.0% 4.0% 6.0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Nov-Dec Periods

Holiday Same-Store Sales Growth U.S. 1993-2010

Source: ICSC; Heitman Research Original forecast was 3.5%. Expectations grew to 4%+ as the season unfolded but winter storms and a short Thanksgiving- Chrismas period constrained growth.

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E-Commerce Has Gained Market Share But …

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

Q2 2001 Q3 2001 Q4 2001 Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010

E-Commerce Share of Non-Auto Retail Sales 2001-2010 Q3

Source: Census Bureau; Heitman Research % of Total Sales

E-Commerce sales accounted for 4.2% of non-auto retail sales as of September 31, 2010. When e-commerce took off a decade ago, analysts predicted it would have a 10% share of total retail sales by now

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E-commerce’s Greatest Impact in Categories That Can Be Digitized

4.0%
2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Q1 2002 Q2 2002 Q3 2002 Q4 2002 Q1 2003 Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010

E-Commerce Sales Growth vs. Total Retail Sales Growth 2002-2010 (Q3)

Source: U.S Census Bureau; Heitman Research

E-Commerce Total Sales 1.5% 3.3% 7.6% 0.7%

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Office Market Beginning the Long Climb Back

18.7 19.0 18.6 16.9 15.3 13.9 12.2 9.9 8.9 9.5 8.6 14.2 16.5 16.8 15.4 13.6 12.6 12.5 14.0 16.3 16.4 16.4 17.6 15.4 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0

150,000
100,000
50,000

50,000 100,000 150,000

Completions Net Absorption Vacancy Rate CBRE-EA Base CaseVacancy Forecast CBRE-EA Downside Vacancy Forecast CBRE-EA Upside Vacancy Forecast

Office Completions, Net Absorption, and Vacancy U.S. 1990-2013 Years Ending Q4

forecast Source: CBRE Econometric Advisors; Heitman Research sf x1,000 Vacancy Rate (%)

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Recovery Starting in Suburban Office Markets

18.5 13.1

8.0 10.0 12.0 14.0 16.0 18.0 20.0 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 2005 2006 2007 2008 2009 2010

Office Market Vacancy Trends: Downtown vs. Suburbs U.S. 2005-2010

Source: CBRE Econometric Advisors; Heitman Research

Suburban Downtown

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Office Employment Expanding But …

9.0%
7.5%
6.0%
4.5%
3.0%
1.5%

0.0% 1.5% M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 M11 M12 M01 M02 M03 M04 M05 M06 M07 M08 M09 M10 2008 2009 2010

Office Employment: Annualized 3-Month Change in Rolling 3-Month Average

Total Office Total less Temp Help

Source:U.S. BLS; Heitman Research

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27

Medical Office Hurt Less in Recession; Will Recover Ahead of Commercial Office

$15.00 $17.50 $20.00 $22.50 $25.00 $27.50 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Commercial Medical

Economic Rent: Medical Office vs. Commercial Office U.S. 2001-2010

Source: CoStar; Heitman Research Asking rent X occupancy

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28

Medical Office A Clear Winner

2.6 2.6 3.5 4.4 6.0 6.9 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 Under 18 years 18-44 years 45-54 years 55-64 years 65-74 years 75 years & older

Frequency of Visits to Physician Office or Outpatient Hospital Departments

Source: Green Street Advisors; Center for Disease Control and Prevention; Heitman Research

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29

Senior Housing: Yes the Baby Boom is Aging But …

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

Annual Growth in U.S. Population Age 75+ 2008-2050

Source: U.S. Census

2010-2015: Five-year average annual growth of 1.1% Demand peak still a decade away 2015-2030: 15-year average annual growth of 3.4%

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30

Improving economy but choppy (not consistent upward movement)
Inflation will be a hot topic but risk of it is more mid term than near term
Regional economics matter again
2011 will see continued, accelerated recovery in U.S. property
Construction will commence in safe markets but stay dormant in most