2.  $2 000 billion: the total value of the real estate assets that should be disposed of by 58 European banks within 2 years, according to the IMF. EMBA 1 DW 2013 Final Individual Project By Yilmaz KARAUC April, 2013

3. Real Estate Key Issues

4. Real Estate is about TAXES

5. Real Estate Value Chain Ownership & Development Finance (Equity / Debt) Finance (Equity / Debt) Property Sale, Lease & Mgmt Construction Tenant Use Developers Real Estate Inv. Funds Real Estate Inv. Funds Home Builders Investment Banks Secondary Market Indi. & Small Investors Institutional Investors Mortgage Brokers Commercial Banks Delegated Owner Delegated Owner Asset Managers Property Managers Project Manager Designers & Consultants Commercial Companies Commercial Companies Industrial Firms Residential (multi-family) Residential (single-family) Equity Debt CMBS RMBS Real Estate Brokers Debt Funds Trade Contractors

6. Revenue Flow Real Estate Investment Fund Real Estate Investment Fund Institutional Investors Indi. & Small Investors Insurers Other Investors Tenants Asset Manager Property Manager Construction Professionals < Principal + Interest Loans + Insurance > Equity > < Fees < Yield < Equity Fees + Yield + Expenses > Fee + Yield > Expenses > Interests > Fair Value > < Asset < Rent + Charges < Fees < Works Price Fees > Expenses > Banks SV Real Estate Broker Commission > Capital + Gain > + Capital + Gain Capital + Gain + Bonus > < Remaining Capital < Fees + Expenses

7. Sector Cycle Issue Speculative overbuilding Overleveraged assets Economic downturn Speculative overbuilding Overleveraged assets Economic downturn 2007 2013 ? 2020 ? Support by Regulatory Bodies Marking assets to market Support by Regulatory Bodies Marking assets to market Bankruptcies Non-performing loans Reluctance of financials Bankruptcies Non-performing loans Reluctance of financials Lack of domestic credit Lack of fresh capital Lack of domestic credit Lack of fresh capital Financial stagnation Distress Financial stagnation Distress Declining values Increasing values Recovery of financials Local bank markets Secondary market re-emerge Recovery of financials Local bank markets Secondary market re-emerge Recognition of crisis

8. EU Market Total Returns Hidden cycle?

9. Market Constraints

10. The Gap

12. “Disconnected” “Split incentives” “Vertical integration: tenant satisfaction” Corporate Administration Fund Management Estate Management Development (D & C) The Gap

13. LARGE INVESTORS LARGE INVESTORS CORPORATE TENANTS CORPORATE TENANTS Fund Structuring & Governance Development Partnership Investment Partnership Lease Partnership Service Partnership Development (D & C) Corporate Administration Fund Management Estate Management

14. Strategy Implementation Minimal performance level in the industry Performance level of market leaders Performance level of the proposed strategy

16. Comparative Business Plans Net Surface : 42,000 m² Development Budget : 295 M€ Annual Rent : 600 €/m² Adaptation & Leasing Cost : 10 M€ Target Exit Yield: 6.25 %Exit Time ( includes 4 years development ): 7 years To Be Leased After Development Leased Prior Development Loan / Equity Loan Interest Equity Rate Total Project Budget Loan Interests Committed Equity Loss of Rent (months) 40 / 60 4.25 % 12.00 % 305 M€ 20 M€ 185 M€ 12 60 / 40 3.75 % 12.00 % 295 M€ 34 M€ 114 M€ 0 + Risks - PERFORMANCESTo Be Leased After Development Leased Prior Development Net Profit IRR Unlevered (ROI BT ) IRR Levered (ROE BT ) Equity Multiple 110 M€ 10.21 % 10.27 % 1.60 136 M€ 13.24 % 20.46 % 2.16

17. 110 M€ 1 7 65 43 2 136 M€ Cash Flow To be Leased Cash Flow Pre-Leased Comparative Cash Flows (Equity) + 150 + 100 + 50 0 - 50 - 100 - 150 - 200

18. OPTION 1 To be Leased OPTION 1 To be Leased OPTION 2 Pre-Leased OPTION 2 Pre-Leased Conclusion

19. Now, it’s time to start paddling to catch and ride the next wave!