RREEF Americas Research: 2011 Economic and Market Outlook · RREEF Americas Research: 2011 Economic...

RREEF Americas Research:2011 Economic and Market Outlook

J 12 2011January 12, 2011

Presented by:

Alan Billingsley, Director, Head of Americas RREEF Research, (415) 262-2017, [email protected]

Certain information in this research report constitutes forward-looking statements. Due to various risks, uncertainties and assumptions made in our analysis, actualevents or results or the actual performance of the markets covered by this research report may differ materially from those described. The information herein reflect ourcurrent views only are subject to change and are not intended to be promissory or relied upon by the reader There can be no certainty that events will turn out as we

Confidential – Not for Public Distribution

current views only, are subject to change, and are not intended to be promissory or relied upon by the reader. There can be no certainty that events will turn out as wehave opined herein. Reference to specific companies are being shown to related regional employment to real estate prospects in the area and should not be considereda recommendation for such company.

Section

Table of Contents

I. Outlook for the U.S. EconomyII. Metro OutlookIII. Mega Trends for the Coming DecadeIV. Capital MarketsV. Property Market SummaryVI. Sector Outlook

Appendix

2 San Francisco Planning and Urban Research Association – January 12, 2011

Section I

Outlook for the U.S. Economy

Differences from June 2010 Economic Outlook

Economic recovery is more firmly on trackWhat is different?

Growth forecasts for 2010 and 2011 have been modestly upgraded.

Private-sector recovery has been stronger than expected.

Public-sector employment losses greater than expected, given stimulus allowed to expire.

Increased upside potential to our forecasts.

What is the same?

Consumers still need to repair their balance sheets, which will keep spending growth moderate.

Home foreclosures are not finished and values will continue to fall nationally Home foreclosures are not finished and values will continue to fall nationally.

This continues to be a business-led recovery.

Little progress has been made in fixing long-term structural deficit.

4 San Francisco Planning and Urban Research Association – January 12, 2011Source: RREEF Research. As of December 2010.

6

The Positive Impact of Fiscal Stimulus is FadingContribution of Stimulus to Real GDP Growth, %

2

4

N i I G h

0

2 Negative Impact on Growth as Stimulus Ends

-4

-2

-8

-6

08 08Q2 08Q3 08Q4 09 09Q2 09Q3 09Q4 10 10Q2 10Q3 10Q4 11 11Q2 11Q3 11Q4

5 San Francisco Planning and Urban Research Association – January 12, 2011Source: RREEF Research and Economy.com. As of December 2010.

120

Consumer Sentiment TrendAlthough Modestly Improved, Still at Early 1990’s Levels

80

100

60

80

Inde

x

20

40

0

Jan-

78S

ep-7

8M

ay-7

9Ja

n-80

Sep

-80

May

-81

Jan-

82S

ep-8

2M

ay-8

3Ja

n-84

Sep

-84

May

-85

Jan-

86S

ep-8

6M

ay-8

7Ja

n-88

Sep

-88

May

-89

Jan-

90S

ep-9

0M

ay-9

1Ja

n-92

Sep

-92

May

-93

Jan-

94S

ep-9

4M

ay-9

5Ja

n-96

Sep

-96

May

-97

Jan-

98S

ep-9

8M

ay-9

9Ja

n-00

Sep

-00

May

-01

Jan-

02S

ep-0

2M

ay-0

3Ja

n-04

Sep

-04

May

-05

Jan-

06S

ep-0

6M

ay-0

7Ja

n-08

Sep

-08

May

-09

Jan-

10S

ep-1

0

6 San Francisco Planning and Urban Research Association – January 12, 2011Source: University of Michigan and Thomson Reuters. As of December 2010.

Consumers Really are Rebalancing and Baby Boomers will Increase Savings

Savings Rate vs. Real Disposable Income

6

7

Real Disposable Income (%change) Saving Rate (% of Disposable Income)Forecast

4

5

6

nt

2

3Per

cen

0

1

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

7 San Francisco Planning and Urban Research Association – January 12, 2011Source: BEA and Global Insight. As of December 2010.

Quarterly Jobs Indexed to Recession Start Date = 100

U.S. Monthly Cumulative Net Job Losses From Business Cycle PeakDeeper and More Protracted Recovery than from other Recessions

110

Jul 1990 Mar 2001 Dec 2007/Forecast Period

Forecast Period

100

105

ndex

95

In

900 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Quarters

8 San Francisco Planning and Urban Research Association – January 12, 2011Sources: U.S. Bureau of Labor Statistics: Current Employment Statistics (CES), Global Insight and RREEF Research. As of December 2010.

Median Single-Family Home Prices

More House Price Declines in 2011 Followed by Gradual RecoveryReturn to 2006 Peak Unlikely in Near Future

220

240 Forecast

180

200

s of

Dol

lars

160Thou

sand

s

120

140

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

9 San Francisco Planning and Urban Research Association – January 12, 2011Source: NAR and Global Insight. As of December 2010.

Section II

Metro Outlook

Median Home PricesMetro Peak to Current Total Change

Metro by Home Price Depreciation: Steepest Decline in Southeast and Southwest

Metro Peak to Current Total Change

Seattle

Portland MinneapolisHartford

Seattle

San Francisco Oakland Denver

BostonNew York

Philadelphia

Baltimore

Washington DC

Providence

St Louis

PittsburghSacramento

IndianapolisRichmond

Col. & Cincin.

Long IslandMilwaukee

Newark & Edison

DetroitHartford

Chicago

OaklandSan Jose

Riverside

Orange CountyLos Angeles

Phoenix

San Diego Atlanta

CharlotteLas Vegas

Raleigh

Salt Lake

Oklahoma City

Memphis

Nashville

St. LouisKansas City

Richmond

Greensboro

Less than -10%

-10% to -30%Mi i

Dallas

Houston Fort Lauderdale

San Diego

West Palm BeachAustinSan Antonio

Tampa

Jacksonville

New Orleans


More than -30% Miami

Note: Includes Cities with over 500k jobs. States colored by NCREIF Region.Source: Economy.com, FHFA & RREEF Research, as of December 2010.

Forecast Return to Peak Employment

Early and Late Recovery Job Markets

Seattle

Portland Minneapolis

BostonHartfordDetroit

San Francisco OaklandSan Jose

Denver

Chicago

New York

Philadelphia

Baltimore

Washington DC

Providence

Salt Lake St. Louis


Kansas City


Col. & Cincin.


Newark & Edison

Detroit

NorfolkSan Jose

Riverside


PhoenixSan Diego Atlanta

Charlotte

Las Vegas Raleigh

Oklahoma City

Memphis

Nashville

Kansas CityGreensboro

Norfolk

Metro Markets:

By year end 2012

By year end 2014Miami

Dallas

Houston Fort LauderdaleWest Palm Beach

AustinSan Antonio

Tampa

JacksonvilleNew OrleansOrlando


After 2014

Note: Includes Cities with over 500k jobs in 2010.Source: Economy.com & RREEF Research, as of December 2010.

Forecast Annual Average Employment Growth2010 - 2015

Forecast Future Employment Growth by Metro

2010 2015

Seattle


San Francisco Oakland Denver

Chicago

BostonNew York

Philadelphia

Baltimore

Washington DC

Providence

St L i



Col. & Cincin.


Newark & Edison

HartfordDetroit

OaklandSan Jose

Riverside


Phoenix

San Diego Atlanta

Charlotte

Las Vegas Raleigh

Salt Lake

Oklahoma City

Memphis

Nashville

St. LouisKansas City

Richmond

Greensboro

Metro Markets:

Growth Over 3%

Growth 2% - 3%Mi i

Dallas

Houston Fort Lauderdale

San Diego

West Palm BeachAustinSan Antonio

Tampa

JacksonvilleNew Orleans


Growth 1% - 2% Miami

Note: Includes Cities with over 500k jobs.Source: Economy.com & RREEF Research, as of December 2010

Section III

Mega-Trends for the Coming Decade

Echo Boomers (1981 – 1995) enter college and the workforce (65 million people) Aged 15 – 29, this group will move through their 20’s and 30’s over coming decade

Demographic WavesDramatic Changes in Coming Decade

Aged 15 29, this group will move through their 20 s and 30 s over coming decade Boost to colleges and workforce “Youth culture” will benefit cities, rental housing, entertainment and new industries

Baby Bust matures (1966 – 1980) into prime working years (61 million people)

Gen X generation 30 – 44 move through their 40’s and early 50’s over coming decades

A shortage of mature talent over the next decade

Bad for retail and suburban housing markets

Baby Boomers (1946 – 1964) begin exit workforce (79 million people) Aged 46 – 64: the oldest will retire, the largest retiree cohort ever Generation will embark on a wide variety of lifestyles (including continued work) Bad for retail P iti f di l ffi Positive for medical office


Note: Baby Boomers’ generation is strictly defined by the U.S. Census, while Baby Bust (Gen X) and Echo Boomers are industry terms without strict definitions. Some overlap may exist between generations.Source: RREEF Research . As of December 2010.

Percentage Increase in Population by Age Cohort

Echo Boomers will Exit School and Begin Work CareersGeneration will have a Profound Impact on Urban Areas

1.5%

2.0%

Age 20 - 24 Age 25 - 29 Age 30 - 34 Average U.S. Population Growth

1.0%

ual I

ncre

ase

0.0%

0.5%

Ave

rage

Ann

u

-1.0%

-0.5%

2001 - 2005 2006 - 2010 2011 - 2015 2016 - 2020

16 San Francisco Planning and Urban Research Association – January 12, 2011Source: U.S. Census Bureau: 2008 National Population Projections, Up to data as of December 2010.


GenX will Move into Prime Working YearsThis Demographic “Bust” Will be Bad for Employers, Retailers and Suburban Home Builders

2.0%

2.5%

Age 35 - 44 Age 45 - 54

1.0%

1.5%

ual I

ncre

ase

-0.5%

0.0%

0.5%

Ave

rage

Ann

u

-1.5%

-1.0%

2001 - 2005 2006 - 2010 2011 - 2015 2016 - 2020



Baby Boomers will Enter Retirement Likely to Work Longer than Previous Generations

4%

5%

Age 50 - 59 Age 60 - 69

3%

ual I

ncre

ase

1%

2%

Ave

rage

Ann

u

-1%

0%

2001 - 2005 2006 - 2010 2011 - 2015 2016 - 2020


Increased Diversity

Forecast Population Growth 2010-2020

White 8.0%

Hispanic 33.3%

Asian 30 1%Asian 30.1%

Black 11.2%

Multi-Race 35.9%

Total Population 10.0%

Hispanics to grow from 16% to 19% of total from 2010-2020

19 San Francisco Planning and Urban Research Association – January 12, 2011Source: U.S. Census. As of 2008.

Homeownership rate will be closer to historical averages. Is currently at 66.9%, down from peak at 69.2%. Forecast to fall further to between 65% and 66% over decade with growth in “Echo Boomer” generation

Shifts in Residential Life

Forecast to fall further to between 65% and 66% over decade with growth in Echo Boomer generation. Rental market will benefit.

Location will matter again! Home values and apartment rents will continue to diverge between commodity suburbs and infill locations.

Shifts in Work Life Technology will allow space per worker to shrink.

W k b i bil d i l ti i th ffi Workers are becoming more mobile and require less time in the office. Paperless offices will lessen demand for filing or storage space.

Location will matter! Employers are now placing more emphasis on a central location that provides amenities and access. Demand will also increase for availability of public transit.y p Commodity suburban office parks will compete primarily on price.

20 San Francisco Planning and Urban Research Association – January 12, 2011Source: RREEF Research, As of December 2010.

Online Sources Online sales continue to capture market share, reducing demand for “brick and mortar” stores.

Changes in Retailing

Demographic shifts As Baby Boomers retire, they will focus more on non-discretionary spending.

Demand for entertainment/Services Restaurants, bars and clubs will likely increase in popularity as the echo boom matures. Services still bricks and mortar (e g Salons Dry Cleaners etc ) Services still bricks and mortar (e.g. Salons, Dry Cleaners etc…).

Changes in Warehousing Logistics are changing Logistics are changing

Efficient inventory stocking and faster delivery will change demand for warehouses. Some warehouses are endanger of becoming obsolete. Panama Canal is expansion on schedule. Rail improvements (e.g. Heartland Corridor Project).


Retail:

Less will be MoreTenants will need fewer square feet on a per capita basis.

Online retailing, especially with “Echo Boomers”.

Prime retail spending age cohort (Generation X) is a “baby bust”.

“Baby boom” generation unlikely to be big spenders in retirement.

Office:

Mobile work forces reduce need for office space.

“Paperless” offices will reduce need for on-site storage.

Industrial:

Smaller retail-related warehouse space due to efficient supply chains.

Technology will help increase efficiency in stock.

Apartments:

The possible exception – mobile offices increase need for home workspaces.


Apartments – target echo boomers with infill product near employment and amenities

Implications of Mega-Trends for Investment: Residential

Apartments – target baby boomers with upscale well located product (can be in same property as echo boomers product)

Student housing – declining population entering college/university in coming decade, so target first tier schools in supply constrained environments or target graduate students (more favorable demographics)

Housing for “young” seniors – upscale apartments and condos with service


Invest only in strongest centers with “survivor” anchors

Implications of Mega-Trends for Investment: Retail

Mixed-use retail environments will be popular

Continued growth for services and entertainment/dining

Convenient infill high density locations critical

Future opportunities to redevelop surplus retail centers

Implications of Mega-Trends for Investment: IndustrialImplications of Mega-Trends for Investment: Industrial

Infill logistics centers near ports, airports, and population center

Multi-tenant small bay warehouse or flex space in infill locations near entrepreneurial housing

Avoid big box distribution centers in exurban locations

Tech will continue to be significant driver of demand


Focus on CBD and inner suburban commercial employment centers

Implications of Mega-Trends for Investment: Office

Seek properties close to transit and amenities

Avoid commodity suburban office parks

Sustainability especially important for office sector

Office investments will require greatest selectivity of the four sectors

Strong demand for medical office


Section III

Capital Markets

Capital Markets: Update from Mid-2010

What is different?

Cap rates continued to compress more quickly than expected.

Debt capital is returning earlier than thought, especially from life companies for high quality assets.

Growth in foreign capital for US real estate.Growth in foreign capital for US real estate.

Risk to overall market from distressed real estate is receding.

What is the same?

Cap rate spreads to 10-year Treasury yields remain high.

Debt maturities continue to be extended for better properties and sponsors.

Wave of maturities of CRE loans are coming due in next few years.

GSEs will continue to support multifamily for next several years.

27 San Francisco Planning and Urban Research Association – January 12, 2011Source: RREEF Research. As of June 2010.

U.S. Transaction Capitalization Rates 2001 to 2010*

Dramatic Cap Rate Declines for Apartments and Office; Retail and Industrial Remain Elevated – for Now…

10%

11%

Office-CBD Office-Suburb Retail Apartment Industrial

8%

9%

0%

7%

8%

5%

6%

1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10


*4Q 2010 only includes October transactions. Sources: Real Capital Analytics and RREEF Research. As of November 2010.

Retail Office Industrial Apartment

Quarterly Transaction Volumes: 3Q2008 – 3Q2010

$40

$50

2008 Annual Total: $135 bn

2009 Annual Total: $52 bn

2010 Annual Total: $87 bn*

$6

$30$29

$24

$5 $8 $5 $5

$8

$9

$9 $3

$2

$6 $3

$3

$5

$10

$20$15

$10$13

$19 $19

$10

$19

$5 $2 $3 $4 $3 $5 $5

$9 $7 $3

$2 $2 $2 $3 $2 $3

$3 $4 $3

$5 $5 $5 $2 $2

$0

$10

4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010*


*4Q 2010 is preliminary and subject to change. Source: Real Capital Analytics and RREEF Research. As of November 2010.

Total Outstanding Distress

Refinancing/Restructuring is Occurring, but Distress Remains in the Market

$300

Troubled REO Restructured Resolved

Outstanding Distress, O

$150

$200

$250

17%

October 2010

$50

$100

$15055%

12%

16%

$0J

'07M M J S N J

'08M M J S N J

'09M M J S N J

'10M M J S


Note: Troubled assts have some amount of property level distress (ie, bankruptcy, default, significant tenant distress), REO are properties returned to 1st lender. Restructured assets have had long term debt levels change (includes extension and mezz. lender take over as owner), and Resolved assets are properties moved out of distress through refinancing or sale to 3rd party. Source: Real Capital Analytics and RREEF Research. As of November 2010.

Section V

Property Market Summary

U.S. Average Rent Growth by Sector

Apartments - NNN Industrial Office - NNN Retail

Apartments Strongest Near-Term; Office Strongest in Outer Years

120

130

140Forecast Period

90

100

110

2010 2011 2012 2013 2014 2015

Apartments 3.0% 4.0% 5.0% 5.0% 3.0% 2.0%

I d t i l 5 3% 0 0% 2 9% 5 9% 7 3% 6 3%

902007 2008 2009 2010 2011 2012 2013 2014 2015

Industrial -5.3% 0.0% 2.9% 5.9% 7.3% 6.3%

Office -4.9% -0.2% 1.9% 5.1% 7.7% 8.0%

Retail -1.8% 1.0% 2.5% 3.0% 3.5% 4.0%

Apartments - NNN 4.4% 5.8% 7.1% 7.0% 4.1% 2.7%


Note: Office and Apartment rents are Gross unless noted.Source: RREEF Research. As of December 2010.

Office - NNN -7.6% -0.3% 3.1% 8.0% 11.8% 11.8%

2010 expected to be the trough for all property sectors

Apartments are leading into the next cycleVacancy rates are near or at a Historic High!* Except Apartments!

2010 expected to be the trough for all property sectors

Apartments will recover first

National Vacancy Rate Trends

2007 2008 2009Forecast

2010Forecast

2011Forecast

2012Forecast

2013Forecast

2014Forecast

2015

Apartment 5.7% 6.8% 8.1% 7.2% 6.4% 5.3% 4.6% 5.0% 6.0%

Industrial 9.6% 11.4% 13.9% 14.0% 13.4% 12.2% 10.9% 10.3% 10.2%

Office 12.6% 14.0% 16.3% 16.7% 16.1% 14.8% 13.4% 12.3% 12.2%Office 12.6% 14.0% 16.3% 16.7% 16.1% 14.8% 13.4% 12.3% 12.2%

Retail 7.2% 8.7% 10.3% 10.8% 10.8% 10.4% 10.0% 9.5% 8.9%


*Office properties experienced higher vacancy rates during the 1990’s downturn; other types are at records. Forecasts are of the market and not of a RREEF product. Sources: REIS Reports, CBRE-EA, RREEF Research. As of December 2010.

Property Sector Expectations (in order of recovery): 2011-2015

2. Industrial well poised for recovery1. Apartments in recovery

Industrial markets should stabilize more quickly than office.

Occupancy improvements in 2011 and 2012, particularly in infill coastalmarkets.

Warehousing for imports and retailers will be weakest, especially ini h l l ti

First sector in full recovery (in advance of strong employment growth).

“Echo Boom” (20-35 years old) strongest demographic driver.

Rent growth turned positive in 2010; NOI growth will turn positive in2011, with several strong growth years forecast.

I d l i 2014 2015 ill d t l t t th

4 Offi t ill t k ti f3 R t il h i i f lif b t t ill f il

peripheral locations.

Healthy NOI growth starting in 2013/2014.

Increased supply in 2014 – 2015 will moderate longer term rent growth.

Divergence in performance between amenitized urban/inner suburbanversus commodity suburban locations.

4. Office sector will take time for recovery Vacancy expected to peak in 2010 at 410 basis points above 2007.

“Shadow” vacancy will slow recovery.

Occupancy not healthy until 2014.

3. Retail showing signs of life, but many centers will fail U.S. consumption is growing at a moderate rate from a very deep bottom.

Consumption growth will be below long term averages for several years as consumers rebuild balance sheets.

Many weak retail centers will be redevelopment candidates. NOI growth delayed until 2014-2015, given that rents will generally roll to

lower levels upon renewal in the near term.

Near term rent rollover poses substantial risk.

y p

Most weak retailers have liquidated, leaving “survivors” relatively healthy.

New store openings are beginning to resume.


This information is a forecast and due to a variety of uncertainties, and assumptions made in our analysis, actual events or results or the actual performance of the markets covered may differ from those presented. Source: RREEF Research. As of December 2010

Investing in 2011-2012

Primary Investment focus should be core, although increased market risk is warranted with apartments.

The number of target submarkets and metro markets has increased in the past year as the economic recovery becomes more broadly based.

Strong, early recovery for core apartments is translating into strong investment demand and pricing.g, y y p g g p g

Industrial in infill coastal markets is a strong investment candidate.

S f ff Strength of near term rent roll is key in industrial, office and retail sectors due to near term leasing risk.

Dominant retail centers provide a strong core investment opportunity with solid income returns.

Secondary submarkets and secondary target markets should be considered “Value-Added”.


Section VI

Sector Outlook

Office

Office Update from June 2010

What is different?

Net absorption is more positive in 2010 than expected: +8 MSF 4Q10 forecast vs. -11 MSF 2Q10 forecast.

Total absorption forecast 2010-2015 similar to before, but more front loaded as space fills sooner than previously forecast.

Unexpected strong positive rent growth from 2Q-4Q 2010 in two core tech submarkets: SOMA in SF and North Valley in SJ.

Target markets added: Chicago, with limited selective submarkets added from Dallas, Denver, Fort Lauderdale, Houston, Miami, Orange County, San Diego, and San Jose.

What is the same?

Recovery will be delayed compared with other sectors.

New York, San Francisco, Boston, Austin and Washington DC remain early recovery markets.

The most troubled markets remain tied to housing and oversupply.

Shadow vacancy drag on absorption remains a concern, but is not yet being observed in net space uptake.

Rent growth recovery is expected to be led by coastal San Francisco and Northeast markets.


Net Absorption and Office Employment Growth – 52 Major U.S. Metros

Office: Office-Using Employees Drive Demand – Large Gaps in 2008-2009 Create Shadow Vacancy

600

900

1,200

100

150

200Forecast

0

300

0

50

Thousands of Offs

of S

quar

e Fe

et

-900

-600

-300

-150

-100

-50

fice JobsMilli

ons

-1,200

900

-200

150

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Net Absorption (Left) New Office Jobs (Right)


Net Absorption (Left) New Office Jobs (Right)

Note: One employee on the right axis aligns with 165+/- SF office space on the left axis, similar to the long-term average.

Source: CBRE-EA, Moody’s Analytics, and RREEF Research. As of December 2010.

Office: Absorption Surprising on the Upside in 2010, but Muted Demand Recovery Remains a Concern

U.S. Office Sector Supply and Demand, 1990-2015

18%

20%140

eet

Completions Net Absorption Vacancy Previous Vacancy Forecast

Forecast

14%

16%

18%

40

90 Percent Vacantions

of S

quar

e Fe

10%

12%

(60)

(10)Mill

8%(110)1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014


Source: RREEF Research and CBRE-EA. As of December 2010.

Average Office Rental Growth Comparison 2008 to 2010 Historical, 2011 to 2015 Forecast

Office: RREEF More Bullish on Back End of Recovery

5%

10%RREEF CBRE-EA Rosen Reis

0%

5%

-10%

-5%

-15%

10%

2008 2009 2010 2011F 2012F 2013F 2014F 2015F Average of 2011-2014

Average of 2011-2015

41 San Francisco Planning and Urban Research Association – January 12, 2011F = Forecast. Source: RREEF Research, CBRE-EA, Rosen, and REIS. As of December 2010.

Forecast Office Rent Growth – RREEF Metros

New York City

10.5%Short-Term Strong/Long-Term Strong

Short-term Weak/Long-term Strong

Office: Metro Performance By Strength and Timing of Growth

BostonLos Angeles

Orange County

San Francisco

9.5%

%

vg)

Long-Term StrongLong-term Strong

Fort LauderdaleHouston

San DiegoSan Jose

Seattle

US - Unwtd Avg

7.5%

8.5%

-15

(3-Y

r. A

nn'l

Av

Atlanta

AustinCharlotte

Chicago

Denver

Miami

MinneapolisOakland / East Bay

Phoenix Portland Washington DC

5.5%

6.5%

2013

-

Dallas

New JerseyPhiladelphia

Sacramento

3.5%

4.5%

-1 5% -0 5% 0 5% 1 5% 2 5% 3 5%

Short-term Weak/Long-term Weak

Short-Term Strong/Long-Term Weak


-1.5% -0.5% 0.5% 1.5% 2.5% 3.5%

2011-12 (2-Yr. Ann'l Avg)

Source: RREEF Research, As of December 2010.

Office Target Markets

Seattle

Boston

San Francisco

San Jose

DenverChicago

New York

Washington DC


San Diego

Dallas

Austin

MiamiFort LauderdaleMetros with Selected

Opportunities

Target Metros

Houston


Note: States are colored by NCREIF region.


Retail

Update from June 2010

What is different?

New top-down forecasting methodology with greater focus on market drivers of rent growth.

Retail real estate markets and major retailers largely stabilized; bankruptcies largely over and (moderate) expansions are beginning.

Slightly more bearish on forecasted supply/demand fundamentals (2015 vacancy +70 bps) but comfortable that this moderated Slightly more bearish on forecasted supply/demand fundamentals (2015 vacancy +70 bps), but comfortable that this moderated performance can drive comparable rent growth as previously forecast (2011-15 average annual rent growth +20 bps).

Adding New York City and Long Island as target markets; dropping Boston

Consumers still spooked and/or out of funds; recovery at least another year away.

Though target and non-target metros experience comparable occupancy declines since the peak, target markets maintain 400-b d t th t

What is the same?

bp advantage over other metros, on average.

Supply threat slightly greater than prior view – particularly expansions of existing centers and as well as infill development – but overall quite moderate.

Data quality still especially problematic for retail – “typical” rents and lack of differentiation among retail center quality


The Rising Spread between Target and Non-Target MarketsThe growing quality divide plays out on a metro level, as well as the asset level.

10.0%

12.0%

14.0%

VACANCY RATE

RREEFForecast

50%

60%

$20 00

$25.00

$30.00

EFFECTIVE RENT

RREEFForecast

4.0%

6.0%

8.0%

20%

30%

40%

$10.00

$15.00

$20.00

Avg:26 2%

0.0%

2.0%

Non-Target Metros (30 metros) Target Metros (17 metros) Difference

Avg: 2.5%

Avg:4.0%

10%

20%

$0.00

$5.00

Non-Target Metros (30 metros) Target Metros (17 metros) % Difference [R]

Avg:26.2%Avg:21.6%


Retail Demand DriversEnervated consumers and anemic retail sales curb restrain real estate recovery . . . though conditions trend in right direction

1 1

1.2 12%Consumer Confidence

Monthly Comparable Store Sales less Wal-Mart(YoY % nominal change)

0.5

0.6

0.7

0.8

0.9

1.0

1.1

4%

6%

8%

10%

Unemployment

Savings Rate (3-Mo Avg)0%

2%

4%

6%

8%

10%

8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0

0.2

0.3

0.4

0%

2%

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

Unemployment Rate [L] Savings Rate [L] Consumer Confidence Index [R]

Savings Rate (3 Mo Avg)

Sources: Bureau of Labor Statistics, The Conference Board, and the Bureau of Economic Analysis.

Monthly Real Non-Auto Retail Sales: Total vs Per Capita* Monthly Non-Auto Retail Sales - By Type*

-8%

-6%

-4%

-2% Apr

-08

May

-08

Jun-

08Ju

l-08

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09Fe

b-09

Mar

-09

Apr

-09

May

-09

Jun-

09Ju

l-09

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Jan-

10Fe

b-10

Mar

-10

Apr

-10

May

-10

Jun-

10Ju

l-10

Aug

-10

Sep

-10

Sources: ICSC, company reports

1.05

1.10

1.15

Monthly Real Non-Auto Retail Sales: Total vs. Per CapitaJan 2003 - Aug 2010 (Jan 2003 = 100)

Aggregrate sales at 4Q05 level

1 00

1.05

1.10

1.15

1.20

1.25

Monthly Non-Auto Retail Sales - By TypeJan 2003 - Aug 2010 (Jan 2003 = 100)

0.95

1.00

Aggregate Non-Auto Per Capita Non-Auto

* Seasonally- and inflation-adjusted

Per-capita sales at 3Q03 level

Source: US Census Bureau

0.80

0.85

0.90

0.95

1.00

All Non-Auto Home-Related Food & Personal Apparel

* Seasonally- and inflation-adjustedSource: US Census Bureau


The consumer scorecard essentially unchanged since firming in early 2009. Persistent weakness in the job and housing markets, limited credit availability, and lack of direction in the stock market, all limit consumer confidence. Meanwhile, real non-auto retail sales remain flat, and well below peak levels, particularly on per-capita basis.

U.S. Sector Supply and Demand, 1990-2015

The Retail Recovery Begins – But Slower than Previous Forecast

12%30


Forecast

4%

6%

8%

10%

0

10

20

Percent VacantMilli

ons

of S

F

0%

2%

4%

(20)

(10)

0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Forecast Highlights:

• Slighter slower recovery is forecast.• Marginally greater supply anticipated in 2012 and 2013; slower demand response in early years.


Source: RREEF Research, REIS. As of December 2010.

Cumulative Rental Growth Rate (%), 2011-2015

Retail Rent Declines are History! All Markets Rising Going Forward (2011+)

107%108%114%#N/A

San JoseSeattleAustin

New York City

% of Previous Peak2011 2012 2013 2014 2015

99%104%104%108%108%108%105%107%

W t P l B hMiami

Oakland-East BayPortland

San DiegoSan Francisco

Orange CountySan Jose

102%104%104%107%107%102%99%

Los AngelesDenver

Washington, DCLong Island

CharlotteFort Lauderdale

West Palm Beach

99%102%101%102%102%104%103%

AtlantaDallas

PhiladelphiaNo. New Jersey

National BaselineBoston

Chicagog


99%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Atlanta


5.0%

Forecast Retail Rent Growth – RREEF Metros

Short-Term Strong/Long-Term Strong

Retail Metro Performance by Strength

AUS, NYC

FTL, WPB, CHL

SEA, ORC, SJ

4.5%

nn'l

Avg

)


US Baseline, BOS, CHI, LAX

RREEF MetrosLI

SFO, SD, PORT, MIA, OAK

WDC, DVR3.5%

4.0%

2013

-15

(3-Y

r. A

n

ATL

NNJ

PHI, DFW

WDC, DVR

3.0%

3.5%

2 0%

2.5% Short-term Weak/Long-term Weak



2.0%1.0% 1.3% 1.5% 1.8% 2.0% 2.3% 2.5% 2.8% 3.0%

2011-12 (2-Yr. Ann'l Avg)Source: RREEF Research, As of December 2010.

Seattle

Retail Target Markets

N Y k Cit

Portland

Long Island

Boston

San Francisco

San Jose

Denver

New York City

Washington DC

No. New JerseyOakland Chicago


San Diego

Austin

Ft. LauderdaleMiami

West Palm Beach

51 San Francisco Planning and Urban Research Association – January 12, 2011Note: States are colored by NCREIF region.

Industrial

Industrial Update from June 2010

What is different?

Stronger near and long-term demand.

More vigorous supply response in outer years.

US rents turn from modestly negative to stable in 2011.

Riverside/Inland Empire recovering more rapidly Riverside/Inland Empire recovering more rapidly.

Los Angeles has been upgraded.

Boston is no longer a target market.

What is the same?

Similar vacancy rate forecast.

Big box warehouses outside major metros continue to be out-of-favor.

Prefer urban infill and port locations as well as tech markets.

San Jose continues to be preferred market.

Demand to be positive in all core markets in 2011.

New supply is still low.


Net Absorption vs. Job Growth Macro Drivers of Demand

Industrial Demand Drivers: More Balanced this Cycle Than Last

2%

3%

4%

200

300

4002002 – 2007 2008 – 2010 2011 - 2015

GDP 2.6% 0.0% 3.0%

Consumption 2.9% 0.1% 2.3%

0%

1%

0

100 Non- Res Investment 3.2% -4.3% 7.1%

Imports 5.6% -1.8% 4.9%

3%

-2%

-1%

300

-200

-100Industrial Production 2.0% -2.6% 3.7%

Inventory Change 37.5% -47.5% 47.5%

-4%

-3%

-400

-300

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Net Absorption in MSF (left) Job Growth (right)

Total Employment 0.7% -1.8% 1.8%

Manufacturing -2.8% -5.7% 2.0%

54 San Francisco Planning and Urban Research Association – January 12, 2011Source: BLS, BEA, Global Insight, and RREEF Research. As of December 2010


Industrial: Significant Gains Forecast for 2011

14%

16%

250300 350


Forecast

8%

10%

12%

(50)0

50 100 150 200 250

Percent V

acf Squ

are

Feet

0%

2%

4%

6%

(300)(250)(200)(150)(100)(50)

cantM

illio

ns o

f

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

55 San Francisco Planning and Urban Research Association – January 12, 2011Source: RREEF Research, CBRE-EA.As of December 2010.


Industrial: Turning Modestly Positive in 2011

93%97%105%88%100%


San JoseRiverside

Avg of Markets

% of previous peak2011 2012 2013 2014 2015

91%101%88%88%95%104%96%93%

OrlandoAustin

West Palm BeachPhoenix

MiamiSeattle

OaklandOrange County

102%99%101%96%104%102%94%91%

Dallas/Ft. WorthSan Diego

Washington DCFort Lauderdale

PortlandNew York

New Jersey, Cent.Orlando

98%100%97%94%100%99%100%

%

PhiladelphiaBaltimore

AtlantaChicagoDenver

HoustonMinneapolis


101%

-5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

Bostonp

Source: RREEF Research, As of December 2010

San Jose

Forecast Industrial Rent Growth – RREEF Metros

Short-Term Strong/Long-Term Strong


Industrial Metro Performance

MiamiN J C tLos Angeles

Oakland/East Bay Orange County

Phoenix

Riverside8.5%

) MiamiNew Jersey, Cent.

Orlando

West Palm Beach

Austin

7.5%

5 (3

-Yr.

Ann

'l A

vg)

Charlotte

Chicago

Fort Lauderdale

New York

Washington DCMinneapolis

Portland

San Diego

Seattle

US6.5%

2013

-15

BaltimorePhiladelphia

g

Denverp g

4 5%

5.5%

Short-term Weak/Long-term Weak



4.5%0.0% 1.0% 2.0% 3.0% 4.0% 5.0%


S ttl

Industrial Target Markets

Seattle

N Y k

MinneapolisPortland

San Francisco

San Jose

DenverChicago

New York

BaltimoreWashington DC

Oakland

Central New Jersey


San Diego

Riverside

Dallas

Austin

MiamiFort LauderdaleHoustonMetros with Select

Opportunities

Target Metros



Apartment

Apartments: Update from June 2010

What is different? Rent forecast is pulled forward – generally by 12 months.

More construction in the outer years of the forecast.

Washington now expected to tackle the Fannie and Freddie issue in 2011.

Future appreciation will have to be driven by NOI growth.

The ‘shadow space’ issue remains a concern, but its impact appears to be somewhat of a non-event for institutionally managed Class A apartments.

Dropped Houston (too much compression in cap rates – no more premium in pricing)

What is the same?

Apartments bouncing back faster than the other sectors.

Strong demand for apartments (particularly studios/1BRs) during the first half of this year continued into the fall.

A construction pipeline is beginning to build – Garden-style vs Mid-rise A construction pipeline is beginning to build – Garden-style vs Mid-rise.

Cap rates quickly re-compassed across core markets.

The GSEs still dominate, although private-lenders are beginning to re-enter the market.

Rush of capital to the sector has re-energized developers, although financing is not available – yet.

Home ownership rate continues to adjust downward


Home ownership rate continues to adjust downward.


Apartments: Impressive Recovery Taking Shape

10%250

Completions Net Absorption Vacancy Mid-Year 2010 Vacancy Forecast

Forecast

6%

8%

100

150

200

Percent V

acausan

ds o

f Uni

ts

2%

4%

(50)

0

50

antTh

ou

0%(100)1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

61 San Francisco Planning and Urban Research Association – January 12, 2011Source: RREEF Research, REIS. As of December 2010.

Apartment Vacancy Rates Apartment Effective Rents(per unit month)

Apartments: Target Markets Outperform Fistorically

7%

8%

9%

10%

$1 400

$1,600

$1,800

$2,000

4%

5%

6%

7%

$800

$1,000

$1,200

$1,400

1%

2%

3%

4%

$200

$400

$600

$800

0%

Non-Target Metros (30 metros) Target Metros (20 metros) Difference

$0

Non-Target Metros (30 metros) Target Metros (20 metros)

Difference

62 San Francisco Planning and Urban Research Association – January 12, 2011Source: REIS, RREEF Research. As of December 2010.


Apartments: Broad-based Rent ReboundSurprising growth in 2010, but tapering off 2014 - 2015

118%120%115%120%122%115%

Oakland/East BaySan Jose

Orange CountyNew York CitySan Francisco

Seattle

% of previous peak2011 2012 2013 2014 2015

121%123%114%130%123%114%121%118%

DenverBoston

Ventura CountyWashington DC

Northern New JerseyLos Angeles

San DiegoOakland/East Bay

101%119%118%113%116%120%126%121%

PhoenixFort Lauderdale

PortlandStamford

AustinMiami

BaltimoreDenver

109%107%118%112%113%108%117%117%

Ho stonAtlanta

ChicagoWest Palm Beach

DallasSan Bernardino/Riverside

US AveMinneapolis


109%

0% 5% 10% 15% 20% 25% 30%

Houston


Forecast Apartment Rent Growth – RREEF Metros

Short-Term Strong/Long Term Strong

Short-term Weak/Long term Strong

Apartments: Metro Performance

Los Angeles

Northern New Jersey

Orange County

San Bernardino/Riverside

San Diego4.5%

Avg

)

Long-Term StrongLong-term Strong

Baltimore Boston

New York City

y

Oakland/East BayPhoenix

San FranciscoSan Jose

SeattleStamford

-15

(3-Y

r. A

nn'l

A

AustinDallas

Denver

Fort LauderdaleHouston

Miami

Philadelphia

PortlandUS Ave

3.5%2013

-

Short-term Weak/

Atlanta Chicago

Fort Lauderdale

MinneapolisSt Louis

2.5%

Long-term Weak



2.5% 3.5% 4.5% 5.5% 6.5% 7.5%


Apartment Sector Target Markets

Seattle

BostonNew York


San Francisco

San Jose

DenverChicago Baltimore

Washington DC

No. New Jersey

Oakland/East Bay

Philadelphia


San DiegoDallas

Riverside/San Bernardino

Austin

MiamiFort Lauderdale

West Palm Beach

Metros with SelectOpportunities

Target Metros

Houston



Appendix

Biographies

Alan C. Billingsley, Director, Head of Americas Research

Presenter

Mr. Billingsley is currently a Director with RREEF and Head of the Americas Research team, based in San Francisco. This team supports strategic decision-making in allmajor areas of operations including acquisitions dispositions development asset management portfolio management publicly traded securities and structured debtmajor areas of operations including acquisitions, dispositions, development, asset management, portfolio management, publicly traded securities, and structured debt.Research focuses on the major metropolitan markets in the US and Canada for apartment, industrial, retail, office, and other investments. Mr. Billingsley focuses on marketanalysis and investment and portfolio strategy for RREEF's clients and funds. He joined RREEF in July 1999 after 20 years of experience in all forms of real estatedevelopment and investment analysis. Before joining RREEF, Mr. Billingsley was a Managing Partner with Sedway Group, a real estate and urban economics consultingfirm with a staff of approximately 30 people, and with offices in San Francisco and Los Angeles. Prior to this, Mr. Billingsley served as a Principal with Economics ResearchAssociates where he served for nearly 10 years in its Los Angeles, Chicago and San Francisco offices. He is an active member of the Urban Land Institute serving on itslocal Executive Board and the National Commercial & Retail Development Council; is past President and member of the Board of Directors of the local chapter of LambdaAlpha; is past President of the local chapter of the Counselors of Real Estate; is a member of the Research Task Force and Steering Committee at the International Councilof Shopping Centers; and is active in several civic and educational organizations. Mr. Billingsley holds an M.A. in Architecture/Urban Planning from the University ofCalifornia, Los Angeles.


© 2011. All rights reserved. RREEF is the brand name of the real estate division for the asset management activities of Deutsche Bank AG. In the US this relates tothe asset management activities of RREEF America L.L.C.; in Germany: RREEF Investment GmbH, RREEF Management GmbH, and RREEF Spezial Invest GmbH;in Australia: Deutsche Asset Management (Australia) Limited (ABN 63 116 232 154) Australian financial services license holder; in Japan: Deutsche Securities Inc.*;

Important Notes

in Australia: Deutsche Asset Management (Australia) Limited (ABN 63 116 232 154) Australian financial services license holder; in Japan: Deutsche Securities Inc. ;in Hong Kong: Deutsche Bank Aktiengesellschaft, Hong Kong Branch (for Direct Real Estate business), and Deutsche Asset Management Hong Kong (for RealEstate Securities Business); in Singapore: Deutsche Asset Management (Asia) Limited (Company Reg. No. 198701485N); and in the United Kingdom: DeutscheAlternative Asset Management (UK) Limited, Deutsche Alternative Asset Management (Global) Limited, and Deutsche Asset Management (UK) Limited; and inDenmark, Finland, Norway and Sweden: Deutsche Alternative Asset Management (UK) Ltd and Deutsche Alternative Asset Management (Global) Ltd; in addition toother regional entities in the Deutsche Bank Group. (*) For DSI, financial advisory (not investment advisory) and distribution services only.

Key RREEF research personnel are voting members of various RREEF investment committees. Members of the investment committees vote with respect toy p g punderlying investments and/or transactions and certain other matters subjected to a vote of such investment committee. Additionally, research personnel receive, andmay in the future receive incentive compensation based on the performance of a certain investment accounts and investment vehicles managed by RREEF and itsaffiliates.

This material is intended for informational purposes only and it is not intended that it be relied on to make any investment decision. It does not constitute investmentadvice or a recommendation or an offer or solicitation and is not the basis for any contract to purchase or sell any security or other instrument, or for Deutsche BankAG and its affiliates to enter into or arrange any type of transaction as a consequence of any information contained herein. Neither Deutsche Bank AG nor any of itsaffiliates, gives any warranty as to the accuracy, reliability or completeness of information which is contained in this document. Except insofar as liability under anystatute cannot be excluded, no member of the Deutsche Bank Group, the Issuer or any officer, employee or associate of them accepts any liability (whether arising incontract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage whether direct, indirect, consequential orotherwise suffered by the recipient of this document or any other person.

The views expressed in this document constitute Deutsche Bank AG or its affiliates’ judgment at the time of issue and are subject to change. This document is onlyfor professional investors. This document was prepared without regard to the specific objectives, financial situation or needs of any particular person who may

i i N f h di ib i i ll d i h i i f h Ireceive it. No further distribution is allowed without prior written consent of the Issuer.

An investment in real estate involves a high degree of risk and is suitable only for sophisticated investors who can bear substantial investment losses. The value ofshares/units and their derived income may fall as well as rise. Past performance or any prediction or forecast is not indicative of future results.

The forecasts provided are based upon our opinion of the market as at this date and are subject to change, dependent on future changes in the market. Anyprediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is not necessarily indicative of the future or likely

f


performance.

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