International Real Estate: An Examination of Risks Gary A. Zdolshek, Principal November

2 We Recognize International Real Estate Benefits Diversification: Currency, GDP, Return Performance Exposure to Growth Economies with Different Industry Composition Potential to Protect Capital in Domestic Market Cycle Downturn Expands Investment Grade Universe Pension Acceptance/Should be Supported by Capital Flows Strong Return History: Distressed Debt Recovery, Cap Rate Compression, Strong Fundamentals

3 We Recognize International Real Estate Benefits

4 Transparency Remains an Issue Source: LaSalle Transparency of Markets Changes Investment Risk Example: South Korea- Arrests, Imposition of Taxes

5 GDP Growth Leads to Infrastructure Needs Sources: World Bank, American Society of Civil Engineers, ProjectFinance, A&L Goodbody Consulting, RailPage Australia, Business New Zealand, Government of India Map from Deloitte Research: Closing the Infrastructure Gap

6 Asia is Huge, Europe is Similar Size to U.S. … Europe’s Largest Cities U.S. Largest Cities Source:Wikipedia, Various Sources

7 …but Real Estate Markets Not Tied to Population Note:Estimates as at end 2006 Scale of Total, Investible and Invested Real Estate, by Region Source:RREEF/DB Real Estate, DTZ, ULI/PWC Asia Europe Invested stock US$3.2 trillion Total stock of US$9.2 trillion Investible stock US$6.1 trillion Invested stock US$4.7 trillion Total stock of US$9.5 trillion Investible stock US$6.6 trillion Invested stock US$1.9 trillion Total stock of US$5.9 trillion Investible stock US$3.5 trillion Global Total=$24.6tn Global Investible=$16.2tn Global Invested =$9.8tn America

8 Investment Returns are Highly Volatile… International real estate provides access to higher returning opportunities Location becomes an important variable in determining risk adjusted returns Source: ING Clarion, S&P Citigroup, IDR Green indicates the best annual performance, yellow indicates the worst annual performance

9 …as is Foreign Currency and Inflation Source: US Dollar Index, InvestmentTools.com Inflation Rates in the former Soviet Union (FSU), Latin America, the Middle East, and Africa are Much Higher than Those of Developed Nations and the United States. Investment in Foreign Currencies Increases the Volatility of Investment, Sometimes Favorably and Sometimes Unfavorably. The U.S. Dollar is Trading Near All Time Lows.

10 Capital Flows have been Strong… Source: Real Capital Analytics, Jones Lang LaSalle, Morgan Stanley (1) As of September 2007

11 …but Investment Markets Aren’t As Large

12 …And Cap Rates Don’t Illustrate Arbitrage CountryCap RateTreasury NoteSpread United States5.5%4.2%1.3% South Korea7.0%5.4%1.6% China8.0%4.5%3.5% Taiwan4.5%2.6%1.9% Hong Kong5.0%3.5%1.5% Singapore4.5%2.9%1.6% Thailand7.5%5.0%1.5% India11.0%8.0%3.0% Russia9.0%7.8%1.2% Poland5.8%5.6%0.2% Hungary6.0%6.6%-0.6% Czech Republic5.8%4.7%1.1% Mexico8.5%7.7%0.8% Brazil12.0%12.6%-0.6% Argentina10.0%8.0%2.0% Sources: Prudential, IDR, Government Websites Data as of Nov. 2007

13 Conclusion International Real Estate Needs to be Carefully Analyzed and the Decision to Invest Should be a Strategic Objective Growth Catalysts and Risk Exposures Need to be Considered and Understood Correlation of Population Size to GDP Growth and Real Estate Markets is Limited TO THINK ABOUT: Are Recent International Returns Fueled by Capital Flows, Improving Fundamentals, or Macroeconomic Issues? International Real Estate Expands the Investment Grade Universe, but is the Risk/Return in Balance? Performance Has Been Strong, But Will Future Performance Follow?