Challenges and Challenges and Strategies in Real Strategies in Real

Estate for 2010Estate for 2010Remarks by:Remarks by:

David M. MincbergDavid M. MincbergChairman and Chief Executive OfficerChairman and Chief Executive Officer

Flagship Properties CorporationFlagship Properties CorporationChairman, Houston Housing AuthorityChairman, Houston Housing Authority

Houston, TexasHouston, Texas

Real-WorldReal-World

BackgroundBackgroundThe Real Estate World The Real Estate World Has ChangedHas Changed

Why and HowWhy and How

Houston by the NumbersHouston by the Numbers

City of 2 million peopleCity of 2 million people Metro area of almost 6 million Metro area of almost 6 million

peoplepeople Area of almost 1,500 square milesArea of almost 1,500 square miles Remarkably diverseRemarkably diverse

90 different languages90 different languages Lagging woefully in mass transitLagging woefully in mass transit

Opportunity!Opportunity!

Create a visionCreate a visionCraft a planCraft a planNot encumbered by pastNot encumbered by pastDesign for realityDesign for reality

Survey TimeSurvey Time

Real estate pricing/values?Real estate pricing/values? Inflation or Deflation?Inflation or Deflation?Déjà vu?Déjà vu?Analogies anyone?Analogies anyone?Bubbles up…bubbles downBubbles up…bubbles downHow long do bubbles last?How long do bubbles last?

Is it True?Is it True?

Did real estate developers really Did real estate developers really over-leverage?over-leverage?

What’s Really Out There?What’s Really Out There?

Or said differently…Or said differently…What’s lurking in the What’s lurking in the woods?woods?

Vacancy Levels Continuing Vacancy Levels Continuing to Rise Sharplyto Rise Sharply

9.5 86

13

7.55

19

1311

0

5

10

15

20

25

30

% Vacant

2000 2006 2010

Office Retail Multifamily

Monthly CMBS Monthly CMBS DelinquencyDelinquency

$7.0$8.7

$10.8$12.0$13.9

$17.2$18.8

$28.7$25.7

$28.2$31.7$32.6

$37.9

$0

$5

$10

$15

$20

$25

$30

$35

$40

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

$1.5 Trillion of Commercial $1.5 Trillion of Commercial Mortgages are Maturing Between Mortgages are Maturing Between

2009 and 20132009 and 2013

$26$55

$74 $89

$44 $55

$99$136

$168

$188

$210

$236

$265

$0

$0

$0

$17

$20

$23

$26$25

$21

$26

$27

0

50

100

150

200

250

300

350

400

2009 2010 2011 2012 2013 2014 2015 2016

$ in

Billions

CMBS Banks Insurance Co.

One banker said to the One banker said to the other…other…

CRE Value TrendsCRE Value Trends

Opportunistic funds are down 52% Opportunistic funds are down 52% according to the NCREIF/Townsend according to the NCREIF/Townsend fund indices.fund indices.

Core funds are down 36.3% from Core funds are down 36.3% from their peak by the end of Q3 2009.their peak by the end of Q3 2009.

Commercial Real Estate Commercial Real Estate Value TrendsValue Trends

Blackstone marked down its real estate Blackstone marked down its real estate portfolio by 30% in Q4 2008 and another portfolio by 30% in Q4 2008 and another 19% in Q1 2009.—19% in Q1 2009.—Wall Street Journal Wall Street Journal 05/07/200905/07/2009

Goldman Sachs’ biggest private real estate Goldman Sachs’ biggest private real estate equity fund, called Whitehall Street Global equity fund, called Whitehall Street Global Real Estate, L.P., invested $3.7B between Real Estate, L.P., invested $3.7B between May 2007 and August 2008 in a portfolio of May 2007 and August 2008 in a portfolio of casinos, hotels and office buildings. They casinos, hotels and office buildings. They have since written down those assets by have since written down those assets by $2.1B…--$2.1B…--Wall Street Journal 05/15/2009Wall Street Journal 05/15/2009

CRE Value TrendsCRE Value Trends

MIT Transaction-Based Index shows MIT Transaction-Based Index shows property values have fallen 39.2% from property values have fallen 39.2% from their peak by the end of June, 2009.their peak by the end of June, 2009.

Moody’s/REAL CPPI shows property Moody’s/REAL CPPI shows property values down 40.6% as of the end of values down 40.6% as of the end of August.August.

NACREIF Property Index indicates that it NACREIF Property Index indicates that it has recognized less than two-thirds of has recognized less than two-thirds of the coming right-downs in property the coming right-downs in property values.values.