The U.S. Real Estate Market · of the U.S. population in 2012 but captured 48% of 5-year population growth (5.6 million residents) These MSAs also accounted for 53% of the U.S. GDP

CONFIDENTIAL | 0

The U.S. Real Estate Market: Where is it in the Cycle and How are Interest

Rate Movements Impacting Capital Flows

Sean RuhmannTA Realty

November 2018

Confidential. Intended for the use of recipient only. Please do not distribute or reproduce.

CONFIDENTIAL | 1

The U.S. Core Real Estate Market Continues To Be Attractive

The U.S. economy is strong with low unemployment, high GDP growth and modest inflation

Real estate operating fundamentals are solid and new construction levels are reasonable

Demographics, urbanization and technology trends continue to drive real estate demand in major metropolitan areas

Real estate transaction volumes are healthy

Investors remain under-allocated to real estate and favor core investment strategies

Return expectations for core real estate remain attractive relative to other asset classes

Equity capital flows to U.S. open-end real estate funds increased in 2018

Debt capital markets remain healthy with low borrowing costs and high debt service coverage ratios

U.S. real estate cap rates and spreads remain healthy versus the 10-year UST

U.S. prime office yields remain generally above that of other major global city prime office yields

U.S. core real estate returns continue to be solid

CONFIDENTIAL | 2

Unemployment Is At 15-Year Low

U.S. Unemployment RateUnemployment Rate (Seasonably Adjusted, 16 Years and Over)

Source: Bureau of Labor Statistics. Data from 3Q’03 to 2Q’18 and CoStar.

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

2Q18

4Q17

2Q17

4Q16

2Q16

4Q15

2Q15

4Q14

2Q14

4Q13

2Q13

4Q12

2Q12

4Q11

2Q11

4Q10

2Q10

4Q09

2Q09

4Q08

2Q08

4Q07

2Q07

4Q06

2Q06

4Q05

2Q05

4Q04

2Q04

4Q03

Unemployment Rate (SeasonallyAdjusted, 16 Years and Over) 15yr. Ave.

15-Year Average of 6.3%

3.9%

Total employment is 108% of the prerecession peak

Office-using employment is 110% of the prerecession peak

Sectors above peak (% of peak):

Education/Health (122%)

Leisure/Hospitality (121%)

Prof/Tech Services (118%)

Prof/Bus Services (116%)

Admin/Sup Services (111%)

Trade/Trans/Utilities (104%)

Financial Activities (102%)

Sectors below peak (% of peak):

Nat. Resources (94%)

Construction (94%)

Manufacturing (90%)

CONFIDENTIAL | 3

GDP Growth Continues To Be Strong

U.S. Real GDP GrowthQuarterly Annualized Real GDP Growth

Real gross domestic product (GDP) increased to an annualized rate of 4.2% in 2Q’18

15-year average annualized quarterly Real GDP growth is 2.0%

Source: Bureau of Economic Analysis. Data from 3Q’03 to 2Q’18.

(10.0%)

(8.0%)

(6.0%)

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

2Q18

4Q17

2Q17

4Q16

2Q16

4Q15

2Q15

4Q14

2Q14

4Q13

2Q13

4Q12

2Q12

4Q11

2Q11

4Q10

2Q10

4Q09

2Q09

4Q08

2Q08

4Q07

2Q07

4Q06

2Q06

4Q05

2Q05

4Q04

2Q04

4Q03

Real GDP Growth (Annualized) 15 Year Average

4.2%

CONFIDENTIAL | 4

U.S. GDP Growth Has Outpaced Other Developed Markets

Source: The World Bank: World Development Indicators. GDP at purchaser's prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current U.S. dollars. Dollar figures for GDP are converted from domestic currencies using single year official exchange rates. Data from 2007 to 2017.

Annual GDP2007 to 2017 GDP (Current US$, Trillions)

Compounded GDP Growth2007 to 2017 Compounded GDP Growth (Current US$)

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

US Japan U.K., France, and Germany

134%

106%

97%

80%

90%

100%

110%

120%

130%

140%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

US Japan U.K., France, and Germany

CONFIDENTIAL | 5

Inflation Is “At Or Near” The U.S. Federal Reserve Target Rate

U.S. InflationCPI-All Urban Consumers (Current Series)

U.S. inflation has increased and is “at or near” the target Fed rate (September 2018 Fed Minutes)

Fed Directors have a favorable view on economic conditions and expressed optimism about the economic outlook

The recent rise in inflation driven by strong consumer spending, manufacturing sector growth, continued tightening in labor markets and increased labor costs

Concerns exist about the impact of trade policy on economic growth

Source: Bureau of Labor Statistics. CPI-All Urban Consumers (Current Series). All items less food and energy in U.S. city average, all urban consumers, not seasonally adjusted. Data from 3Q’03 to 2Q’18.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2Q18

4Q17

2Q17

4Q16

2Q16

4Q15

2Q15

4Q14

2Q14

4Q13

2Q13

4Q12

2Q12

4Q11

2Q11

4Q10

2Q10

4Q09

2Q09

4Q08

2Q08

4Q07

2Q07

4Q06

2Q06

4Q05

2Q05

4Q04

2Q04

4Q03

CPI

CONFIDENTIAL | 6

U.S. Population Growth Has Outpaced Other Developed Markets

Source: The World Bank: World Development Indicators. Total population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship. The values shown are midyear estimates. Data from 2007 to 2017.

Annual Population Change2007 to 2017 (Millions of Residents)

Compounded Population Growth2007 to 2017 Compounded Growth

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

U.S. Japan U.K., France, and Germany

108%

99%

104%

96%

98%

100%

102%

104%

106%

108%

110%

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

U.S. Japan U.K., France, and Germany

U.S. population of 325.7 million residents

2017 population growth of 0.72% (2.3 million residents)

CONFIDENTIAL | 7

High Birth-Rate Decades Are Shaping U.S. Real Estate Demand

Source: The World Bank: World Development Indicators. Data from 1960 to 2009.

U.S. Birth Rates By Decade1960 to 2009 (Millions of Births)

39 Million Total Births (Average Age Today of 54)





2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

1960 to 1969 1970 to 1979 1980 to 1989 1990 to 1999 2000 to 2009

CONFIDENTIAL | 8

Births Per Decade Have Decreased In Other Developed Markets

Source: The World Bank: World Development Indicators. Data from 1960 to 2009.

U.K., France and Germany Annual Births1960 to 2009 (Millions of Births)

Japan Annual Births1960 to 2009 (Millions of Births)

17 Million Total Births (Average Age Today of

54)


44)


34)12 Million Total Births (Average Age Today of

24)


14)

0.0

0.5

1.0

1.5

2.0

2.5

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

1960 to 1969 1970 to 1979 1980 to 1989 1990 to 1999 2000 to 2009 2010 to 2016


54)


44)24 Million Total Births (Average Age Today of

34) 23 Million Total Births (Average Age Today of

24)22 Million

Total Births (Average Age Today of 14)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

1960 to 1969 1970 to 1979 1980 to 1989 1990 to 1999 2000 to 2009 2010 to 2016

CONFIDENTIAL | 9

Major U.S. City Population and GDP Growth2012 to 2017 Annualized Growth for the 20 Largest GDP Producing MSAs

The 20 largest GDP producing metropolitan areas accounted for 37% of the U.S. population in 2012 but captured 48% of 5-year population growth (5.6 million residents)

These MSAs also accounted for 53% of the U.S. GDP in 2012 but captured 62% of the 5-year GDP growth

Source: U.S. Census and the U.S. Bureau of Economic Analysis. Data from 2012 to 2017. A metropolitan statistical areas usually consist of a core city with a large population and its surrounding region, which may include several adjacent counties. The area comprised by the MSA is typically marked by significant social and economic interaction.

Major Cities Are Experiencing Outsized Population And GDP Growth

Atlanta

Baltimore

Boston

Detroit

Charlotte

Chicago

Dallas

Denver

Houston

Los AngelesMiami

Minneapolis

New York

PhoenixPortland

San Diego

San Francisco

San Jose

Seattle

D.C.

United States

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

Ann

ualiz

ed G

DP

Gro

wth

Annualized Population Growth

CONFIDENTIAL | 10

Vacancy Rates Are Well Below Long-Term Averages

U.S. Real Estate Vacancy RatesQuarterly Vacancy Rate by Property Type

Industrial vacancy rate of 4.7% as of 2Q’18

Multifamily vacancy rate of 5.7% as of 2Q’18

Office vacancy rate of 9.6% as of 2Q’18

Retail vacancy rate of 4.6% as of 2Q’18

Source: CoStar Realty Information, Inc. (“CoStar”). Data from 3Q’03 to 2Q’18.

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

2Q18

4Q17

2Q17

4Q16

2Q16

4Q15

2Q15

4Q14

2Q14

4Q13

2Q13

4Q12

2Q12

4Q11

2Q11

4Q10

2Q10

4Q09

2Q09

4Q08

2Q08

4Q07

2Q07

4Q06

2Q06

4Q05

2Q05

4Q04

2Q04

4Q03

Multifamily Industrial Office Retail

Office

Multifamily

Retail Industrial

CONFIDENTIAL | 11

Rental Growth Rates Remain Strong

U.S. Asking Rent GrowthYear-Over-Year (“YOY”) Asking Rent Growth by Property Type

Industrial YOY rent growth of 5.7% as of 2Q’18

Multifamily YOY rent growth of 2.9% as of 2Q’18

Office YOY rent growth of 2.1% as of 2Q’18

Retail YOY rent growth of 1.6% as of 2Q’18


(10.0%)

(8.0%)

(6.0%)

(4.0%)

(2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2Q18

4Q17

2Q17

4Q16

2Q16

4Q15

2Q15

4Q14

2Q14

4Q13

2Q13

4Q12

2Q12

4Q11

2Q11

4Q10

2Q10

4Q09

2Q09

4Q08

2Q08

4Q07

2Q07

4Q06

2Q06

4Q05

2Q05

4Q04

2Q04

4Q03


Multifamily Office Retail

Industrial

CONFIDENTIAL | 12

Rental Growth Rates Vary Across Major Cities

Source: CoStar Realty Information, Inc. (“CoStar”). Five year period ending 3Q’18.

Multifamily5 YR Annualized Rent Growth

Industrial 5 YR Annualized Rent Growth

3.6%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

20 City Average

BaltimoreD.C.

HoustonNew York

ChicagoMiami

BostonMinneapolis

DetroitCharlotte

San FranciscoDallas

Los AngelesSan Jose

DenverPortland

San DiegoSeattleAtlanta

Phoenix

5.5%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

20 City Average

MinneapolisBaltimoreHouston

D.C.ChicagoPhoenixBoston

DallasPortland

CharlotteAtlantaMiami

DetroitSan Francisco

SeattleSan DiegoNew York

Los AngelesDenver

San Jose

CONFIDENTIAL | 13

Rental Growth Rates Vary Across Major Cities (Cont.)

Source: CoStar Realty Information, Inc. (“CoStar”). Five year period ending 3Q’18.

Retail5 YR Annualized Rent Growth

Office5 YR Annualized Rent Growth

4.5%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

20 City Average

HoustonD.C.

BaltimoreDetroit

New YorkDallas

DenverChicago

BostonMinneapolis

San DiegoMiami

PhoenixPortland

AtlantaLos Angeles

SeattleCharlotte

San FranciscoSan Jose

2.9%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

20 City Average

ChicagoMinneapolis

New YorkBaltimore

AtlantaD.C.

PhoenixSan Diego

CharlotteBoston

HoustonDetroitDallas

San FranciscoLos Angeles

PortlandSeattle

San JoseMiami

Denver

CONFIDENTIAL | 14

Multifamily And Industrial Construction Above 15-Year Averages

Net Completions as Percent of Existing StockTTM Net Completions as Percent of Existing Stock by Property Type

Multifamily TTM net completions as % of stock of 1.9% as of 2Q’18

Industrial TTM net completions of 1.3%

Retail TTM net completions of 0.5%

Office TTM net completions of 0.8%


Multifamily

Industrial

Office

Retail

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2Q18

4Q17

2Q17

4Q16

2Q16

4Q15

2Q15

4Q14

2Q14

4Q13

2Q13

4Q12

2Q12

4Q11

2Q11

4Q10

2Q10

4Q09

2Q09

4Q08

2Q08

4Q07

2Q07

4Q06

2Q06

4Q05

2Q05

4Q04

2Q04

4Q03


CONFIDENTIAL | 15

Total Housing Construction Remains Below The 30-Year Average

TTM U.S. Housing Stock CompletionsTTM New Privately Owned Housing Completed in Permit Areas (Units)

For the last 30-years, U.S. housing stock completions (multifamily and single-family) averaged 1.28 million/year

For the year ending 2Q’18, housing stock completions totaled 1.19 million

Source: United States Census Bureau. Data Not Seasonally Adjusted. Universe included approximately 19,000 permit-issuing places from 2002 to December 2003, 19,300 permit-issuing places from 2004 to 2013, and 20,100 permit-issuing places from 2014 forward. Data from 2Q’89 to 2Q’18.

Multifamily

Single Family Housing

0

500

1,000

1,500

2,000

2,500

2Q18

2Q17

2Q16

2Q15

2Q14

2Q13

2Q12

2Q11

2Q10

2Q09

2Q08

2Q07

2Q06

2Q05

2Q04

2Q03

2Q02

2Q01

2Q00

2Q99

2Q98

2Q97

2Q96

2Q95

2Q94

2Q93

2Q92

2Q91

2Q90

2Q89

1 Unit 2 Units or More 30 Year Ave.

Multifamily

Single Family Housing

CONFIDENTIAL | 16

Industrial

Industrial + Retail

Retail

Industrial + Retail (15 year average)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2Q18

4Q17

2Q17

4Q16

2Q16

4Q15

2Q15

4Q14

2Q14

4Q13

2Q13

4Q12

2Q12

4Q11

2Q11

4Q10

2Q10

4Q09

2Q09

4Q08

2Q08

4Q07

2Q07

4Q06

2Q06

4Q05

2Q05

4Q04

2Q04

4Q03

Industrial & Retail Indusrial Retail

E-Commerce Continues To Drive Industrial Demand And Cannibalize Retail Demand

Net Completions as Percent of Existing StockTTM Net Completions as Percent of Existing Stock by Property Type

Driven by e-commerce, industrial demand and new supply is cannibalizing retail demand and new supply


CONFIDENTIAL | 17

Real Estate Transaction Volumes Remain Strong

U.S. real estate transaction volume has averaged $68.1 billion per quarter since 2001

For the last five years transaction volume averaged $105.1 billion per quarter

Source: Real Capital Analytics. Data from 1Q’01 to 2Q’18. Includes multifamily, industrial, office and retail properties.

U.S. Real Estate Quarterly Transaction VolumeIncludes Multifamily, Industrial, Office and Retail Properties ($ in Billions)

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

2Q18

4Q17

2Q17

4Q16

2Q16

4Q15

2Q15

4Q14

2Q14

4Q13

2Q13

4Q12

2Q12

4Q11

2Q11

4Q10

2Q10

4Q09

2Q09

4Q08

2Q08

4Q07

2Q07

4Q06

2Q06

4Q05

2Q05

4Q04

2Q04

4Q03

2Q03

4Q02

2Q02

4Q01

2Q01

Ave. since 2001

CONFIDENTIAL | 18

Investors Remain Under-allocated To Real Estate and Favor Core Investment Strategies

Sources: The preqin August 2018 Real Estate Spotlight. The Hodes Weill & Associates / Cornell Baker Program in Real Estate 2018 Institutional Real Estate Allocations Monitor.

11.1%

8.0%

12.1%

9.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Investors withAUM Above $1B

Investors withAUM Below $1B

Current Allocation Target Allocation

Investor Current and Target Real Estate AllocationsPercent of Total Assets

Investors have steadily increased their target allocations to real estate over the past five years from an average of 8.9% in 2013 to 10.4% in 2018 (Hodes Weill)

However, investors remain under allocated to real estate as a percent of total assets

65% of investors with above $1B in AUM intend to target core real estate investment strategies in the next twelve months (source: preqin)

57% of investors with below $1B in AUM intend to target core real estate investment strategies in the next twelve months (source: preqin)

CONFIDENTIAL | 19

Private Equity

Core Real Estate

Core Bonds

International Equities

High-Yield Bonds

Large Cap Equities

Small/Mid Cap Equities

TIPs

Hedge Funds

Cash2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

1.50

%

2.50

%

3.50

%

4.50

%

5.50

%

6.50

%

7.50

%

8.50

%

30-Y

ear R

etur

n Fo

reca

sts

5-to-7 Year Return Forecasts

U.S. Core Real Estate Offers Attractive Relative Returns

Source: NEPC, LLC 2017 5-to-7 Year and 30-Year Return Forecasts (Geometric Expected Return).

Asset Class Future Return Expectations5-to-7 Year and 30-Year Return Forecasts (Geometric Expected Return)

CONFIDENTIAL | 20

Core/Core-Plus Investment Strategies Have Typically Outperformed Real Estate Debt Investment Strategies

Net Fund IRRs by Strategy and Vintage YearMedian Closed-End Fund Net IRRs by Strategy and Vintage Year

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Vin

tage

Yea

r Med

ian

Net

IRR

Sin

ce In

cept

ion

Fund Vintage Year

Debt Core/Core-Plus

Given the income and appreciation components of core/core-plus investment strategies, they have typically outperformed real estate debt strategies

Sources: The preqin quarterly update: real estate. Q3 2018.

CONFIDENTIAL | 21

Equity Capital Flows To U.S. Open-End Funds Increased in 2018

Source: The NCREIF Fund Index-Open-End Equity (“NFI-OE“) is U.S. only and is an aggregate of open-end, commingled equity real estate funds with diverse investment strategies. Funds comprising NFI-OE have varied concentrations of sector and region, core and non-core, leverage and life cycle. Data from 2003 to 2Q’18.

U.S. Open-End Fund Capital Flows2003 to 1H’2018 NFI-OE Capital Flows ($ in Billions)

Capital contributions to U.S. open-end real estate funds are on track for $22.9 billion in 2018 (based on first-half 2018 annualized data)

Distributions and redemptions continue to decrease from a high of $20.4 billion in 2016

-$6.0

-$4.0

-$2.0

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

-$15.0

-$10.0

-$5.0

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

1H18

(Ann

.)

Contributions (Left) Distributions and Redemptions (Left) Net (Right)

CONFIDENTIAL | 22

The Current Dollar To Yen And Dollar to Euro Exchange Rates Are Above The 15-Year Averages

Sources:. The preqin August 2018 Real Estate Spotlight. Investing.com. Data from 10/29/2003 to 10/29/2018.

Dollar Yen Historical Exchange Rate Currency hedging considerations for APAC and EMEA institutions have increased as the US Dollar has strengthened

However, 36% of global investors with above $1B in AUM intend to target North America real estate in the next twelve months (source: preqin)

31% of global investors with below $1B in AUM intend to target North America real estate in the next twelve months (source: preqin)

Dollar Euro Historical Exchange Rate

70.00080.00090.000

100.000110.000120.000130.000

10/2

9/03

04/2

9/04

10/2

9/04

04/2

9/05

10/2

9/05

04/2

9/06

10/2

9/06

04/2

9/07

10/2

9/07

04/2

9/08

10/2

9/08

04/2

9/09

10/2

9/09

04/2

9/10

10/2

9/10

04/2

9/11

10/2

9/11

04/2

9/12

10/2

9/12

04/2

9/13

10/2

9/13

04/2

9/14

10/2

9/14

04/2

9/15

10/2

9/15

04/2

9/16

10/2

9/16

04/2

9/17

10/2

9/17

04/2

9/18

10/2

9/18

Dollar Yen Exchange Rate Average

0.6000.6500.7000.7500.8000.8500.9000.9501.000

10/2

9/03

04/2

9/04

10/2

9/04

04/2

9/05

10/2

9/05

04/2

9/06

10/2

9/06

04/2

9/07

10/2

9/07

04/2

9/08

10/2

9/08

04/2

9/09

10/2

9/09

04/2

9/10

10/2

9/10

04/2

9/11

10/2

9/11

04/2

9/12

10/2

9/12

04/2

9/13

10/2

9/13

04/2

9/14

10/2

9/14

04/2

9/15

10/2

9/15

04/2

9/16

10/2

9/16

04/2

9/17

10/2

9/17

04/2

9/18

10/2

9/18

Dollar Euro Exchange Rate Average

CONFIDENTIAL | 23

Real Estate Lending Environment Is Robust

Source: Federal Reserve. Data from 2003 to 2Q’18.

($200)

($100)

$0

$100

$200

$300

$400

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

1H18

(Ann

.)

Banks CMBS Agency Insurance Companies Other

Net Real Estate Debt IssuanceIncludes Multifamily/Residential and Commercial Mortgages ($ in Billions)

Debt capital for real estate remains readily available in the U.S.

Over $200B of positive net debt issuances annually since 2015

CMBS issuance remains low

Given available debt capital, competition for lenders is expected to increase in 2019 which should apply negative pressure to yield spreads (per PWC’s, 2019 Emerging Trends in Real Estate Report)

CONFIDENTIAL | 24

Borrowing Rates Remain Low And Coverage Ratios Are Healthy

Source: Real Capital Analytics. Chart data from 1Q’04 to 2Q’18. Commercial Includes industrial, office and retail properties. All debt measures are based on first mortgages with a 7-10 year loan term and a fixed interest rate, and require a minimum of 3 observations. Mortgage Rates are based on first mortgages with interest rates between 3 - 10%. DSCR provided through CMBS Tapes and only includes ratios between 1.0 and 2.5.

3.00%

3.50%

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

1Q04

4Q04

3Q05

2Q06

1Q07

4Q07

3Q08

2Q09

1Q10

4Q10

3Q11

2Q12

1Q13

4Q13

3Q14

2Q15

1Q16

4Q16

3Q17

2Q18

Commercial Apartment

1.10

1.20

1.30

1.40

1.50

1.60

1.70

1.80

1.90

1Q04

4Q04

3Q05

2Q06

1Q07

4Q07

3Q08

2Q09

1Q10

4Q10

3Q11

2Q12

1Q13

4Q13

3Q14

2Q15

1Q16

4Q16

3Q17

2Q18

Commercial Apartment

Real Estate Mortgage Rates Real Estate Debt Service Coverage Ratios

CONFIDENTIAL | 25

Cap Rates Spreads Are Healthy Versus the 10-Year UST

Real estate cap rates and spreads remain healthy versus the 10-year UST (331bps spread)

Source: Real Capital Analytics. Data from 3Q’03 to 2Q’18. Includes multifamily, industrial, office and retail properties. Weighted average cap rate by market value.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2Q18

3Q17

4Q16

1Q16

2Q15

3Q14

4Q13

1Q13

2Q12

3Q11

4Q10

1Q10

2Q09

3Q08

4Q07

1Q07

2Q06

3Q05

4Q04

Cap Rate 10-Year U.S. Treasury Yields

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2Q18

3Q17

4Q16

1Q16

2Q15

3Q14

4Q13

1Q13

2Q12

3Q11

4Q10

1Q10

2Q09

3Q08

4Q07

1Q07

2Q06

3Q05

4Q04

1Q04

Spread to 10YR UST Average Spread to 10YR UST

Cap Rates and 10yr UST Cap Rate Spread to 10yr UST

CONFIDENTIAL | 26

U.S. Prime Office Yields Above Other Global City Yields

Source: JLL Global Market Perspective, Q2’18.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Chi

cago

Was

hing

ton

DC

Los

Ang

eles

Bos

ton

San

Fra

ncis

co

New

Yor

k

Lond

on

Fran

kfur

t

Par

is

Toky

o

Hon

g K

ong

Global Prime Office Yield ComparisonPrime Yield is the Indicative Yield on Prime/Grade-A Offices

CONFIDENTIAL | 27

The U.S. Core Real Estate Returns Continue To Be Strong

8.4% Trailing Twelve Month (“TTM”) gross total return

9.1% 15-year average

12.7% standard deviation

4.3% TTM gross income return



4.0% TTM gross appreciation return



Source: National Council of Real Estate Investment Fiduciaries (“NCREIF”). TTM NCREIF Fund Index Open-End Diversified Core (“ODCE”) Returns. Data from 2Q’03 to 2Q’18.

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2Q03

2Q04

2Q05

2Q06

2Q07

2Q08

2Q09

2Q10

2Q11

2Q12

2Q13

2Q14

2Q15

2Q16

2Q17

2Q18

Gross Income Return Gross Appreciation Return Gross Total Return

Levered U.S. Core Real Estate Gross ReturnsTTM NCREIF Fund Index Open-End Diversified Core Returns

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Summary

The U.S. core real estate investment market continues to be attractive

Asset cash flow growth and cap rate movement are the two factors that determine unlevered core real estate returns: the underlying factors that drive each continue to be strong

Impact on Future Core Real Estate Returns

Negative Positive

U.S. Economy

U.S Demographics

Real Estate Operating Fundamentals

Current New Supply

Cash Flow Growth Expectations

Functioning Transaction Markets

Equity Capital Flows/Availability

Asset Class Relative Return Expectations

Debt Capital Flows/Availability

Borrowing Costs

Cap Rate Movement Expectations

Future Core Real Estate Returns

CONFIDENTIAL | 29

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Documents

The U.S. Real Estate Market · of the U.S. population in 2012 but captured 48% of 5-year population growth (5.6 million residents) These MSAs also accounted for 53% of the U.S. GDP