ULI the Urban Land Institute Las Vegas, NV

1. ULI—the Urban Land InstituteLas Vegas, NV Real Estate Finance 101: October 25, 2007

2. 2 Real Estate Investment Characteristics Industry is highly fragmented with few barriers to entry Each property is a unique, individual business enterprise Investment is long-term, illiquid in nature and not easily traded due to market inefficiencies Investment, operation, and management requires technical and financial training Long-term, illiquid nature of real estate ownership does not allow for instantaneous, trading-like solutions

3. 3 Competition is constant and continuous; neither real estate nor capital markets are ever in equilibrium for sustained periods Illiquid nature of real estate does not allow owner to change financial structure (leverage) quickly/without cost Industry lacks transparency as compared to financial markets and other business models Transactions are complex and costly to execute and require third-party expertise May provide tax benefits not available in alternative investments

4. 4 Public Real Estate Equity Capital Markets as of September 28, 2007

5. 5 REIT Performance Year-to-Date

6. 6 Commercial Mortgage-Backed Securities(Increase/Decreased in Trading Spreads over10-Year Treasuries in Basis Points)

7. 7 Worldwide CMBS Issuance(in $ Billions)

8. 8 Conventional and Securitized Mortgage Delinquencies As of June 30, 2007, conventional commercial mortgage delinquencies were 0.03% of outstanding balances, a record low for the insurance industry. As of June 30, 2007, securitized mortgage delinquencies equaled 0.28% of seasoned mortgages (mortgages more than one year old), a record also Source: American Council of Life Insurers; Standard & Poor’s Corp.

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10. 10 Performance of National Council of Real Estate Investment Fiduciaries Indices

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14. 14 Real Estate Capital Flows (in $ Billions)

15. 15 Debt Capital Markets: Then…and Now Mid-May 2007 Aggressive pricing Spreads below 100 basis points Aggressive underwriting Debt service coverage ratio below 1.0 to 1 Credit for future income Aggressive structuring 10 year interest-only No reserves for tenant improvements/leasing commissions October 2007 Pricing Spreads equal to 175 to 225 basis points Underwriting Debt service coverage ratio of 1.15 to 1 Credit for in-place income Structuring 2 year interest-only, then amortization Reserves collected and escrowed

16. 16 Private Real Estate Debt Capital Markets

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19. 19 Deal Structures AccommodateInvestor Differences Since investor desired returns, risks, and expectations vary (with the same deal), and since investors obtain different information about the same property The ability to “componentize” real estate means: Projects can be divided into components to meet different investor requirements, such as stripping land from buildings or creating different levels of debt & equity. Priority levels of risk include:  Land owner (subordinated)Higher Risks Equity (subordinated) Equity (priority) Second mortgageLower Risks First mortgage Land owner (unsubordinated)

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29. 29 Joint Ventures Sale and financing transactions are “commodity-like” whereas joint ventures are individually negotiated and tailored transactions A joint venture may be formed to: Acquire a specific property, a portfolio of properties, or an operating company Recapitalize an existing partnership Develop a property

30. 30 Structuring Joint Ventures Each joint venture is idiosyncratic; there are no pre-set terms and conditions Terms to be negotiated include: Contributions Preferred returns and “Claw-backs” “Promotes” Governance, guarantees (if any), fees and transaction costs and expenses Winding-up

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41. 41 Ordinary Chapter C Corporation A separate legal entity in the eyes of the IRS, taxed at the corporate instead of individual tax rates. The C Corporation status will have a double taxation effect, one tax at the corporation level and one at the individual level upon distribution of dividends. The participating owner/shareholder will be subject to payroll requirements. Any distribution from the corporation to the individual, after the payroll deduction, is treated as dividends. Income, expenses, gains, and losses that affect taxable income are reported to the IRS. Employer salaries are deductible corporate expenses subject to withholding requirements.

42. 42 Ordinary Chapter C Corporation (Cont.)

43. 43 S Corporation

44. 44 S Corporation (cont.)

45. 45 Limited Liability Corporation (LLC)

46. 46 Real Estate Investment Trusts (REITs)

47. 47 REITS (Cont.)

48. 48 REIT Classifications

49. 49 Advantages of Becoming a REIT

50. 50 Disadvantages of Becoming a REIT

51. BREAK OUT SESSION 51

52. 52 ULI—the Urban Land Institute Other Concurrent Sessions Real Estate Finance 201: Friday (10/26) @ 9:45 a.m. Real Estate Finance 301 Friday (10/26) @ 11:15 a.m.