Looking for Opportunities With Phil Marra. Zoe Hughes, PrivcapRE: I am joined today by Phil Marra of KPMG. Welcome and thank you for joining me.

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1 Looking for Opportunities With Phil Marra Zoe Hughes, PrivcapRE: I am joined today by Phil Marra of KPMG. Welcome and thank you for joining me. KPMG recently released a survey looking at how investment managers will be growing their business. Acquisitions are a key part of this. What are you seeing in terms of acquisitions, the deal flows and the transition from beyond the core markets, particularly in the U.S.? How far and how quickly are people moving up the risk curve? Phil Marra, KPMG: In general, people still are very risk- adverse. Investors are still looking for core- oriented product, but the problem is that any time you have a core asset go on one of the top markets, there is an enormous auction process. As a result, pricing has gotten very expensive. Few deals coming to the market are pricing at rates that people are not comfortable with. As a result, we are seeing a bit more activity in the next round of markets, the top 20 markets still focused on the top assets. People are looking to increase risk, but not as far as what we saw in Generally, financing is very available today, but the leverage ratios being done on deals are much more conservative than they were back in 2006, As you see people moving to more of the secondary markets, where are the hottest markets in the U.S.? Are there any sectors that are gaining appetite? Our survey indicated that people are focused on the northeast and southwest. It's about where they see job growth and continued capital investment. Clearly, the southwest has had significant improvements in energy and healthcare and we see capital being attractive in those places.

2 In the northeast, much of it has to do with the continued improvement in New York City and foreign investment coming into New York City. As far as the typical food groups, multifamily still is very strong. Four years ago, I would have said you cannot lower cap rates further in multifamily; every year, I have been proven wrong, so that will not go away. There is still a great appetite for multifamily. Development is clearly in place in the multifamily markets and there has not been a problem absorbing that. There has always been a concern around what will happen when interest rates move us. Just like the rest of the market, there will be some impact because of interest rates, but not the dire situation people talk about. In terms of financing for development, are managers and developers able to get the financing to do development? In the core markets, yes. When you go into suburban markets, tertiary markets, it is difficult to find construction financing. Using New York as an example, you can find urban infield residential or infield hotels, this redevelopment of retail. Also, we have some mega- projects on the board: Hudson Yards and continued development at the World Trade Center. They have been able to find financing. There isn t froth in the construction market, there is appropriate diligence being done by the lenders on construction financing. If you can bring in an anchor tenant, they will talk to you. When you look back at managers going into the secondary markets, what opportunities are they seeing? Is it like the debt workouts, or is it more a value- add repositioning proposition? Definitely more the latter value- add and repositioning. There is not a lot of distress on the market. The things that do come to market in distress are things people are not willing to buy. In the secondary markets, as people move up to try to find some yield, they are looking at quality assets in A markets, maybe B, B- plus assets that have some leasing risk or some vacancy they may need to address. It is easier for them to deal with that and to get investor appetites. The primary reason people are moving into those secondary markets is to attract some yield because, in the core markets, rates have been beaten down so far, cap rates are so low, they are not as attractive to the private- equity world.

3 Yet, when we look at the core markets, we still see a flood of equity come in and a flood of capital, particularly from foreign investors. Given that we know that interest rates will rise, why is there still that attraction for the core markets? When foreign investors think of the U.S., they think of the coastal markets, New York, L.A., San Francisco, even going inward to D.C. That's what they think about when they think about the U.S. We have many foreign investors coming from Asia who say, I want five- star properties in a locale that I can talk about when I go home and people know like New York City, L.A., San Francisco. While there may be great opportunities in Seattle, Denver or North Carolina, those cities do not excite them. As a result, there is a flood of capital wanting to buy those top assets and, any time one comes on the market, an auction process usually results in a relatively low yield. One interesting thing you have seen in the last six to 12 months is newer entrance coming into the market, perhaps more the mid- tier, mid- market private- equity real- estate firms? They are coming back in the market that is the key. For a long time, it was difficult to raise capital in that mid- sector. If you looked at some frequent statistics, the average amount of time to get a new fund raise was 17 to 18 months. Now, we are seeing those funds that have good operators, good professionals who maybe raise the fund in '06 or '07, what they are seeing is those '06, '07 funds are getting to where they can sell their assets and have some small positive IRR, but not lose capital. We are seeing a lot of transactions in that space and those good fiduciaries are going back to the market and raising their new fund, then looking for opportunities where they can still deliver above- average, low- teen returns. To achieve those low- teen returns, you need to move into those secondary markets. That will be the driver for the next 12 months: people refocusing on some better secondary markets. Meaning, moving to the top 25 markets not suburban tertiary markets but very solid markets such as Denver. What about into the tertiary markets? Are the good properties within the tertiary markets beginning to see more traction? There are people looking at them. We may talk about that in 15, not 14 months.

4 Looking at the market, one of the trends you picked up on within the KPMG report is M&A. As a source of business growth and considering the scale of the distress we saw during the crisis, are you surprised we have not seen more of it in the market? Absolutely. We all expected more M&A than what has manifested. Those transactions that did manifest were strategic transactions where organizations and platforms wanted to expand into a business type where they did not currently have a toehold. With a number of real- estate private- equity managers, we would have expected more consolidation in that space, but we have seen exactly the opposite. We have seen numerous people leave some larger platforms and set up shops themselves. Though it has taken them more time to raise capital, if you had a solid track record and you were a good business fiduciary for your LP's, they have been able to raise capital. Some recent statistics from Preqin indicated that more than 60% of the new fund capital was raised at greater than their targets. That is a great sign for our business. There are a huge number of funds in the market, 500+ according to some statistics. Do you expect to see consolidation coming forth in the next few years? I do not expect to see many roll- up transactions of multiple advisors into a platform. You will not see that. The big boys will get bigger and sharpshooters and small organizations will continue to generate interest because real estate is a local business. If you have key knowledge about a marketplace or particular product type and you have good relationships with the LP's, you will be successful. We have seen some large strategic mergers take place, TIAA- CREF with Henderson, BlackRock with MGPA. Not to talk about specific things, but why are we seeing these types of mergers? What's in it for the smaller manager and for the larger manager? It s access to capital. It takes a lot more time to raise capital. If you have legacy funds, those funds will probably not generate great promotes for the ultimate principals. So, as a result, some have said, It is probably better to get to a bigger distribution network. One of the long- term trends that will impact our business is the fact that so much money is flowing into defined contribution plans, where they used to flow into defined benefit plans, which is the primary driver of our business.

5 With regard to the challenges facing the smaller fund managers, what are your top two challenges for the forthcoming next two years for them? Two very simple things: raising capital and finding deals. Both are very challenging in this market. We have a lot of great players out there. Everyone likes to find off- market deals, but when they sell, they like to go through the auction process. That's the challenge. How do you find great deals when the buyers want to be off- market and the sellers want to auction?