glenn r. mueller, ph.d. professor university of denver franklin l. burns school of real estate

Glenn R. Mueller, Ph.D.Professor

University of DenverFranklin L. Burns School of Real Estate

& Construction Management&

Real Estate Investment Strategist

Dividend Capital Researchglenn.mueller@du.edu

Dr. Glenn MuellerReal Estate Investment Strategist – Dividend Capital Group

Professor – University of Denver – Franklin L. Burns School of Real Estate & Construction Management

Visiting Professor – Harvard University, 2002-2008 & summer executive education semesters

Guest Lecturer – Wharton School, Yale, Berkeley, Ohio State, UNC, USC, European Business School, University of Regensburg

Previous Experience

Legg Mason – Real Estate Investment Strategist

PriceWaterhouseCoopers – National Director of Real Estate Research

Alex. Brown Kleinwort Benson – Head of Real Estate Research

Prudential Real Estate Investors – Vice President of Real Estate Research

B.S.B.A. in finance from the University of Denver

MBA from Babson College

Ph.D. in Real Estate from Georgia State University

• 550 Students Earning Degrees

• Undergraduate - BSBA

• Graduate – MBA & MS

• Executive – MSReal Estate, Construction Management, RECM,

RE & Accounting, Finance, Marketing,

Management, International Business, Law

DU Founded 1864

Daniels COB ranked top 50 - WSJ

Why Real Estate Fits A Portfolio = SizeU.S. Real Estate vs. Other Asset Classes - 12/06

Source: Pension & Investments, October 30, 2006 and Prudential Real Estate Investors, December 2006.

All Real Estate = Half - 12/06

Source: Prudential Real Estate Investors, December 2006.

U.S. Real Estate Values = $33.3 Trillion

Market Cycle AnalysisMarket Cycle Analysis

Physical CyclePhysical Cycle

Demand & Supply drive Occupancy Demand & Supply drive Occupancy

Occupancy drives Rental GrowthOccupancy drives Rental Growth

Legg Mason Real Estate Research

Market Cycle Quadrants

Declining V

acancy N

ew C

onstruction

No New Constructio

n

Increasing

Vacancy

Declining Vacancy

Increasing

Vacancy

More C

ompletions

New Constr

uction

Phase 1 - Recovery

Phase 2 - Expansion

Phase 4 - Recession

Demand/Supply Equilibrium Point

Long Term Vacancy Average

Occ

up

ancy

Time

Phase 3 - Hypersupply

PhysicalMarket Cycle

Characteristics

Negative Rental Growth

Below Inflation Rental Growth

Rents Rise Rapidly Toward New Construction Levels

High Rent Growth in Tight Market

Demand/Supply Equilibrium

Rent Growth Positive But Declining

-Below Inflation & Negative Rent Growth

Cost Feasible New

Construction RentsLong Term Average Occupancy

Occ

up

ancy

Time

2

54

3

89

7

10

16

15

13

1

6

11

14

1

12

0.3%

2.7%

-3.0%

-1.5%

1.7%

4.0%

6.4%

11.0%

12.5%

10.5%

6.7%

-1.0%1.6%

3.3%

6.1%

10.0%

Historic National Office Rental Growth

30 Year Cycle - Periods 1968-1997

Long Term Average Occupancy

Occ

up

ancy

Time

2

54

3

89

7

10

16

15

13

1

6

11

14

1

12

-2.1%

Historic National Industrial Rental Growth %

0.4%

0.8%

2.8%

3.0%

4.6%

5.1%

8.3%

8.5%

6.8%

3.8%

-0.4%0.7%

4.8%

4.6%

5.9%

30 Year Cycle - Periods 1968-1997

Long Term Avg Occupancy

Occ

up

ancy

Time

Retail - 2nd Tier Regional Malls

National Property Type Cycle Locations

1st Qtr 2008

LT Average Occupancy

Source: Mueller, 2008

Phase II - Expansion

Phase I - Recovery

Phase III-Hypersupply

Phase IV - Recession

11

1467

89

10 12

13

11654321

Office - Downtown

15ApartmentSenior HousingHotel - Ltd. Service

Retail - Factory OutletIndustrial - Warehouse

Industrial - R&D Flex

Health Facility

Retail - 1st-Tier Regional Malls

Office - Suburban

Hotel - Full-Service

Retail - NH & ComPower Center Retail

LT Average Occupancy

Source: Mueller, 2008

11

1467

89

1012

13

115

1654321

Office Market Cycle Analysis1st Quarter, 2008

AtlantaChicago

JacksonvilleNashville

Philadelphia

Riverside-1N. New Jersey

RichmondWilmington

AlbuquerqueBaltimoreCincinnatiClevelandColumbus

Detroit Milwaukee

NorfolkPittsburgh

AustinCharlotte+1DenverHoustonNew York

BostonEast Bay OrlandoPortlandSacramentoSan DiegoSan FranciscoSeattleNATION

Dallas FWFt. Lauderdale-1

HartfordIndianapolis Kansas CityLong IslandLas Vegas-1

MemphisMinneapolis

St. LouisStamford

W. Palm Beach-1

HonoluluMiamiWash DC

Los AngelesNew Orleans-1 Oklahoma CityOrange CountyPhoenix-1Raleigh-DurhamSalt LakeSan JoseTampa

San Antonio+1

Austin-1Charlotte

DenverHonolulu

Long IslandMemphis

MiamiNashville

N. New JerseyOklahoma City

Raleigh-DurhamWash DCNATION

ChicagoCincinnati Dallas FW-1 IndianapolisMilwaukee MinneapolisNew YorkOrlando-1PhiladelphiaSt. Louis+1Stamford

Source: Mueller, 2008

11

1467

89

10 12

13

115

1654321

1st Quarter, 2008

LT Average Occupancy

Industrial Market Cycle Analysis

AtlantaBaltimore

BostonColumbus

HartfordTampa

ClevelandDetroitPittsburgh

JacksonvillePhoenixSacramentoSan AntonioSan Diego

PortlandSan FranciscoSan Jose

Ft. LauderdaleHoustonKansas City+1Norfolk+1RichmondSalt LakeSeattle

Orange County Riverside-1

East BayNew Orleans+1 W. Palm Beach

Los Angeles

Las Vegas

IndianapolisRaleigh-Durham

New Orleans+2Salt Lake

Source: Mueller, 2008

11

1467

89

10 12

115

1654321Charlotte-1Cleveland DetroitMemphisPittsburghSan AntonioStamford

LT Average Occupancy

Apartment Market Cycle Analysis1st Quarter, 2008

HartfordMilwaukee

13

East BayN. New JerseyPortlandSan JoseNATION

ChicagoLos Angeles

New YorkSan Francisco

AtlantaBostonColumbusDallas FWHonoluluKansas CityMinneapolisOklahoma City

Cincinnati+1Houston

Long IslandNashville

Richmond-1St. Louis

BaltimoreDenver

PhiladelphiaSeattle

Austin+2JacksonvilleLas VegasFt. LauderdaleMiamiNorfolkSacramentoWash DC

Orange County+1Phoenix+1Riverside+1San Diego+1

Orlando+1Tampa+1W Palm Beach+1

East BayLong Island

New York Orange County

San DiegoSan Francisco

Wash DC

Source: Mueller, 2008

11

1467

89 12

13

115

1654321

Retail Market Cycle Analysis

10

LT Average Occupancy

1st Quarter, 2008

N. New Jersey

Philadelphia

Dallas FWDenverHouston-1MinneapolisStamford

Charlotte-1Detroit-1

Indianapolis

BostonLos Angeles

San Jose

Memphis-1New Orleans

Riverside-1 San Antonio

BaltimoreFt. LauderdaleHonolulu+1PortlandRichmond+1SeattleSt. LouisNATION

AtlantaAustinJacksonville-3Las Vegas

Cincinnati-1ClevelandColumbusHartford-1

Milwaukee-1Nashville

W. Palm Beach-1

Kansas CityPittsburgh

Raleigh-Durham

Miami+1Norfolk+1

SacramentoSalt LakeTampa+1

Oklahoma City

Chicago+1Orlando+1Phoenix+1

CharlotteJacksonvilleMiamiNashvilleOklahoma CityOrange CountyOrlandoSan JoseWash DC

Boston+1DallasLas VegasMemphisMilwaukeeMinneapolisSacramentoSalt Lake-1

Baltimore-1DetroitKansas CityNew Orleans N. New Jersey

Cleveland

Source: Mueller, 2008

1467

89 12

13

115

165

4321

1110

LT Average Occupancy

Hotel Market Cycle Analysis1st Quarter, 2008

ColumbusSt. Louis

AtlantaChicagoDenverFt. Lauderdale+1NorfolkPhiladelphia-1Phoenix-1 PortlandRaleigh-DurhamRichmondRiverside-1San AntonioStamfordSeattleW. Palm Beach

NATIONCincinnati Hartford+1

IndianapolisPittsburghTampa-1

AustinEast BayHonolulu+1Long IslandLos Angeles

HoustonNew YorkSan DiegoSan Francisco+1

1970s Cycle

•Factors Driving The First Half Cycle (5 Year)

•Strong Demand from the 1960s that stopped

•Recession 1974

•Capital Flow - Mortgage REITs produced oversupply

•Factors Driving The Second Half Cycle (5 Year)

•Baby Boom Generation Goes to Work = Demand

•Capital Flow Shut Down = no supply = Lenders Recover

•Markets tighten and reach peak occupancy 1979 (5% vacancy)

1970s Office Demand & Supply

0%

2%

4%

6%

8%

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

Demand Supply

Source: FW Dodge, CB Commercial, BLS, Mueller

Oversupply Years Baby Boomers Go To Work

1980s Cycle•Factors Driving The First Half Cycle (5 Year)

•Tight market in 1979 pushes rents and prices up

•Tax Act of 1981 attracts taxable investors supply up

•Inflation pushes real estate prices higher

•Thrift Deregulation allows capital to flow•Factors Driving The Second Half Cycle (5 Year)

•Tax Act of 1986 slows taxable investors, but not tax free

•Poor stock market attracts Pension & Foreign capital

•Rising R.E. prices masks poor income returns

1980s Office Demand & Supply

0%

2%

4%

6%

8%

10%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

Demand Supply

Source: FW Dodge, CB Commercial, BLS, Mueller

Oversupply Years

1990s Cycle

•Factors Driving The First Half Cycle (5 Year)

•Moderate but stable demand growth (1991 recession minor)

•Oversupply and Foreclosures shut down construction

•Excess space absorbed - bringing markets back

•Factors Driving The Second Half Cycle (5 Year)

•Moderate Demand growth Continues

•Oversupply absorbed and return performance improves

•Construction “constrained” causing rents & prices to rise

•More efficient markets match supply to demand

1990s Office Demand & Supply

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%19

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

Demand Supply

Source: FW Dodge, CB Commercial, BLS, Mueller

Oversupply Absorbed

Demand Supply

Matched

2000s CycleDemand

•Globalization - creates stable U.S. economy

•Job Growth out of Technology Change

•2.7 million population growth per year for 10 years

•Baby boomers at “highest income earning” years

•second home market wave

•Echo boom children – college, first job, & renting

•Aging population not a major factor till 2014

•Employment growth drives commercial demand

Source: U.S. Census Bureau, November 2006.

DemandAge 0-60: Percent of Total Population

2000s Cycle

2000s Cycle

Baby Boom

Echo Boom

Gen X

Change in 20-29 Year Old Age Cohort

(1,000,000)

(500,000)

-

500,000

1,000,000

1,500,000

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

E

2010

E

2012

E

2014

E

Source: National Center for Health Statistics and Mueller estimates

Government Stimulus Working?Top Federal Budget Deficits Since 1932

0

5

10

15

20

25

30

351

94

3

19

45

19

46

19

34

19

85

19

84

19

91

19

39

10

76

19

35

19

93

20

03

% o

f G

DP

Source: U.S. Census Bureau, Office of Management & Budget

Source: World Bank estimates

Export growth supports demand for industrial space.

Any U.S. Recession Should be MILDThe Rest of the World is Growing Well

Source: World Bank estimates

2008 GDP % Growth

Supply Constraint

•Public Markets make R.E. Capital markets efficient

•Economically driven capital - low spec construction

•500 + Research watchdogs – Data Available

•Constrained Supply (economically driven capital)

•construction labor harder to find

•materials costs increasing

•infrastructure problems constrain growth

•Feedback loop keeps demand and supply in better balance

•greater transparency

•Faster reaction to demand slowdown

2000s Cycle

Office Demand & Supply

-3%

-2%

-1%

0%

1%

2%

3%

2000 2002 2004 2006 2008 2010 2012

Demand Supply

2000s US Office Demand & Supply

Supply Reacted to Demand Slow Down

FORECAST

Demand 1.41%

Supply 1.44%

Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2007.

Hotel - Ltd. Service

Retail 2nd -Tier Regional Malls

National Property Type Cycle Forecast

1st Qtr 2009ESTIMATE

LT Average Occupancy

Apartment

Source: Mueller, 2008

Phase II - Expansion

Phase I - Recovery

Phase III-Hypersupply

Phase IV - Recession

11

1467

89

10 12

13

116432 1

Industrial - R&D Flex

155

Office - SuburbanSenior Housing

Health FacilityHotel - Full-Service

Office – DowntownRetail - Factory Outlet

Retail - 1st Tier Regional Malls

Industrial –Warehouse

Neighborhood/Community Retail+1Power Center Retail

80

84

88

92

-9%

-6%

-3%

0%

3%

6%

9%

12%Office Occupancy Rent Growth

Office Occupancy & Rent Cycle

Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2008.

1.7%

Forecast

AtlantaFt. Lauderdale-1HartfordIndianapolisLong IslandLos AngelesNashvillePhoenix-1Raleigh-DurhamTampaW. Palm Beach-1

BostonCharlotteEast BayPortlandSan DiegoSan JoseSeattleWash DC

NATION

Dallas FWNew OrleansMiami-1Oklahoma CityOrange CountyOrlando-1SacramentoSalt Lake

Austin-1Honolulu

Houston-1San AntonioSan Francisco

Source: Mueller, 2008

11

1467

89

10 12

13

115

164321

1st Quarter, 2009 Estimate

LT Average Occupancy

Office Market Cycle FORECAST

5

BaltimoreCincinnatiClevelandColumbus DetroitMilwaukeePhiladelphiaPittsburgh

ChicagoJacksonvilleKansas CityLas Vegas-1

MemphisMinneapolis

NorfolkN. New Jersey

RichmondRiversideStamfordSt. Louis

DenverNew York

BaltimoreCincinnatiClevelandColumbus DetroitMilwaukeePhiladelphiaPittsburgh

-4.0%

-2.0%

0.0%

2.0%

4.0%

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

89.0%

90.0%

91.0%

92.0%

93.0%

Industrial Rent Growth industrial Occupancy Rate

Industrial Occ. Cycle & Rent Growth

1.2%

Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2007.

Source: Mueller, 2008

11

1467

89

10 12

13

115

16531

DenverHouston

JacksonvilleLong Island

MemphisMilwaukee

NorfolkPhoenix

Raleigh-Durham+1Richmond

SacramentoSalt LakeWash DC LT Average Occupancy

Industrial Market Cycle FORECAST

San JoseSan FranciscoW. Palm Beach

4

AtlantaBaltimoreClevelandColumbus

HartfordPittsburghSt. Louis

2

BostonChicago

CincinnatiDallas FW Indianapolis

MiamiNashville-1

N. New JerseyOklahoma City

San AntonioStamford

Tampa

AustinCharlotteFt. LauderdaleHonoluluKansas CityMinneapolisNew YorkOrlandoPhiladelphiaSeattle-1NATION

PortlandSan Diego

East Bay

Orange County

Los AngelesNew Orleans

Detroit

Las VegasRiverside

1st Quarter, 2009 Estimate

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

92.0%

92.5%

93.0%

93.5%

94.0%

94.5%

95.0%

95.5%

Apartment Rent Growth Apartment Occupancy Rate

Apartment Occ. Cycle & Rent Growth

3.8%

Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2008.

San Jose+1 San Francisco

East BayN. New Jersey

CincinnatiDallas FW-1HoustonLong IslandPittsburghStamford

Source: Mueller, 2008

11

1467

89

10 12

13

115

164321

AtlantaColumbusDenverHonoluluNashvilleMinneapolisPhiladelphiaSeattleNATION

LT Average Occupancy

Apartment Market Cycle FORECAST

BaltimoreBostonKansas CityOklahoma CityRichmondSt. LouisCharlotte

ClevelandDetroitIndianapolis

HartfordMilwaukee-1

RaleighDurham

5

Chicago

1st Quarter, 2009 Estimates

New Orleans+1San DiegoWash DCSalt Lake

Los AngelesNew York Portland

AustinFt. Lauderdale+1 Las Vegas+1Miami+1Norfolk+1Orange CountyRiverside

MemphisSan Antonio

Jacksonville+1Phoenix+2Sacramento+2

Orlando+2Tampa+2

W. Palm Beach+2

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

80.0%

82.0%

84.0%

86.0%

88.0%

90.0%

92.0%

Retail Rent Growth Retail Occupancy Rate

Retail Occ. Cycle & Rent Growth

1.4%

Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2007.

Orange County San FranciscoWash DC

HoustonN. New JerseyRaleigh-Durham

Los Angeles

Source: Mueller, 2008

11

147

89

10 12

13

115

1654321

LT Average

Retail Market Cycle FORECAST

Dallas FW DenverMilwaukeeMinneapolisW. Palm Beach Cleveland-1

IndianapolisLas VegasNashvilleRiverside

6

East BayNew York

Oklahoma City

1st Quarter, 2009 Estimates

Boston

Baltimore

Ft. LauderdaleHonolulu+1Long Island

Norfolk

Portland San Diego

SeattleSt. Louis

NATION

CharlotteCincinnatiColumbusDetroitHartford-1Kansas CityMemphis

Occupancy

JacksonvilleNew Orleans

AtlantaAustinOrlando+1San AntonioSacramento+1

ChicagoMiamiRichmondTampa

PittsburghStamford

PhiladelphiaSan Jose

PhoenixSalt Lake

-10.0%

-6.0%

-2.0%

2.0%

6.0%

10.0%

14.0%

60.0%

62.0%

64.0%

66.0%

68.0%

70.0%

Hotel RevPar Growth Hotel Occupancy Rate (%)

Hotel Occ. Cycle & Rent Growth

6.5%

Source: Property & Portfolio Research, Grubb & Ellis, Mueller 2007.

Baltimore-2DetroitKansas CitySt. LouisTampa-1

AtlantaBostonFt. Lauderdale-1Las Vegas MilwaukeeNorfolkPhoenixSacramentoSalt LakeSeattle

Source: Mueller, 2008

11

1467

89

10 12

13

115

1654321

LT Average Occupancy

Hotel Market Cycle FORECAST

ClevelandCincinnatiColumbusIndianapolisN. New JerseyPittsburghSan Antonio-1W. Palm Beach-1

Dallas FWHartfordMemphisMinneapolis Raleigh-Durham-2Stamford

CharlotteDenverJacksonville-1NashvilleOklahoma CityOrange CountyPortlandRichmondRiversideWash DCNATION

AustinChicagoHonoluluMiamiOrlandoPhiladelphiaSan Diego-1

East BayHoustonLong IslandSan JoseSan Francisco

1st Quarter, 2009 Estimates

Los AngelesNew York

New Orleans-1

Market InformationMarket Information

used to:used to:

• determine competitive positiondetermine competitive position

• set lease strategyset lease strategy

• determine improvements programdetermine improvements program

Real Estate Financial Cycles

Capital Flows

Affect Prices

Hyper Supply

LT Occupancy Avg.

Market Cycle Capital Flow Impact

Capital Flows to Existing Properties

Capital Flows to New Construction

Total Capita

l Flow CycleProperty M

arket Cycle

Cost Feasible Rents Reached

National Office Physical Market Cycle vs. Financial Cycle = New Permit Values

80

84

88

92

96

1972 1976 1980 1984 1988 1992 1996 2000 2004

Oc

cu

pa

nc

y

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

Va

lue

($M

il)

Market Cycle PermitSource: CB Commercial, Census Bureau

PhysicalFinancial

Source: BEA, CB Commercial, Mueller

6 year lag

No Lag

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

1970

Q1

1972

Q1

1974

Q1

1976

Q1

1978

Q1

1980

Q1

1982

Q1

1984

Q1

1986

Q1

1988

Q1

1990

Q1

1992

Q1

1994

Q1

1996

Q1

1998

Q1

2000

Q1

Flow of Funds Commercial MortgagesAll Sectors (1976 - 2001)

False Price AppreciationSupport

?($ M

ils)

Source: Federal Reserve

Public MarketVolatility

Property Price MovementHistoric Cap Rates

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.01

98

9

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Office - CBD Office - suburban Industrial - WarehouseIndustrial - R&D Apartments

Source: Real Estate Research Corporation - Chicago

Property Prices Strong

Source: Real Estate Research Corporation - Chicago

Historic Cap Rates

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.01

98

9

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Hotels Regional MallPower Center Neighborhood Comm.

Transaction Pricing

Source: Real Capital Analytics, New York www.rcanalytics.com

Q1 2004 Cap Rates9.3 9.3

8.4

7.1

7.8

8.4

7.7

6.9

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

Office Industrial Retail Apartment

Denver

US

36/1636 deals 25/1319 deals 33/1624 deals 37/1798 deals

Transaction Pricing

Source: Real Capital Analytics, New York www.rcanalytics.com

94/3512 deals 26/2871 deals 39/2703 deals 63/3922 deals

Q3 2006 Cap Rates

6.9

7.5

6.3

5.8

6.4

7.1

6.6

5.5

5.8

6.0

6.5

7.0

7.5

8.0

8.5

9.0

Office Industrial Retail Apartment

Denver

US

Source: Property & Portfolio Research & Dividend Capital Research.

Supply

Commercial Real Estate Supply Growth

– The new supply of space was down in 2006 and 2007 and the forecast is for moderate supply growth – well below the long-term average

garden apt

industrial

off CBD

off suburbanstrip ctr

NNN retail

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

8.50%

9.00%

1'04

2 3 4 1'05

2 3 4 1'06

2 3 4 1'07

2 3 4

Average Cap Rates

net acquisitions by capital sector (all core)

-20

-15

-10

-5

0

5

10

15

20

inst'l foreign reit/public user/other fund syndicator private condoconverter

Quarterly Transactions 2001 -2007

Source: Real Capital Analytics 2008, www.rcanalytics.com

Globalization of Real Estate MarketsU.S. Still Looks Cheap

Office Prices ($/Sq. Ft.)

$621

$324

$1,081

$641 $627

Office Cap Rates

4.8%

6.6%

4.8%

5.3%

4.3%

Source: Real Capital Analytics, January 2008– rcanalytics.com

US Property Acquisitionsoffice, industrial, multifamily & retail properties $5 mil.+

$-

$50

$100

$150

$200

$250

$300

$350

2001 2002 2003 2004 2005 2006 2007

billions

Privatization

Portfolio

One-Off

Transactions Growing

Source: Real Capital Analytics, 2008

5.25%

5.50%

5.75%

6.00%

6.25%

6.50%

Ja

n 0

4

Ap

r 0

4

Ju

l 0

4

Oct 0

4

Ja

n 0

5

Ap

r 0

5

Ju

l 0

5

Oct 0

5

Ja

n 0

6

Ap

r 0

6

Ju

l 0

6

Oct 0

6

Ja

n 0

7

Ap

r 0

7

Ju

l 0

7 100

120

140

160

180

200

Mtg Rates (7-10 yr fixed conduit) Moody's/REAL CPPI (monthly, all property types)

Mortgage Rates & Price Appreciation

Debt Rates having Little Effect on Prices

Source: Real Capital Analytics, 2008

Composition of Equity Buyersoffice, industrial, retail and multifamily properties $5 mil.+

32% 30%34%

22%

7% 12% 3%

6% 5%

3%

7%9%

14%40%

17% 13% 11%

10%

8% 8%7%

11%

17% 19% 22%13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007

inst'l

foreign

reit/public

user/other

fund

syndicator

condoconverter

private

Diversified Buyer Group

Source: Real Capital Analytics, 2008

Source: Real Estate Alert

Number of Funds

0

50

100

150

200

250

300

350

400

450

2002 2003 2004 2005 2006 2007

Targeted Equity Raisein billions

$0

$50

$100

$150

$200

$250

2002 2003 2004 2005 2006 2007

The Universe of Private Equity Funds

Private Funds a Major Source of Capital

Source: Real Estate Alert

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007

Bill

ions

Other

Latin America

Euro

Pac Rim

Canada

UK

Australia

Mid East

German

Foreign Acquisitions of US Property(trailing 12 months, office, industrial, apartment, retail properties)

Source: Real Capital Analytics, January 2008 rcanalytics.com

2008 Physical CycleDemand & Supply Affect Vacancies Rental Growth

Demand Growth – SLOWER / LOWER 2008

Economic growth – Positive?

Supply Slowing - balanced absorption?

Return to Growth Phase in 2009/2010?

2008 Financial CycleCapital Flows Affect Prices – Stock Market Fear

Real Estate the SAFEST Investment Alternative?

R E Equity – dominated by Private Markets (diversified buyer groups)

Yield Spread drives SOME Buyers (low interest rates?)

Public Debt Market in Turmoil – Big Capital Source

Confidence in R E prices in 200?

For an electronic copy

of the

Real Estate Market Cycle MonitorGo to

dividendcapital.com