Inside. Capital Markets. Newsletter. Events Calendar. Sunday Monday Tuesday Wednesday Thursday Friday Saturday. Table of Contents NEWS

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1 Inside Capital Markets Newsletter June 2008 Table of Contents Page 2008 Updates 1 GRE Currency Exposures 2 Events Calendar Sunday Monday Tuesday Wednesday Thursday Friday Saturday June Funds Status 3 Fund Fee Scorecard 8 GRE Facts and Figures Roles and Responsibilities 9 Global Real Estate Positioning NEWS General Europe II Asia II Atlanta Bangkok Barcelona Berlin Birmingham Bucharest Budapest Buenos Aires Cairo Dallas Dubai Dublin Glasgow Hartford Hong Kong Houston Istanbul Jakarta Johannesburg Kuala Lumpur London Los Angeles Madrid Manila Melbourne Mexico City Milan Moscow Mumbai Nairobi New York Prague Rome San Francisco San Juan Santiago São Paulo Seoul Shanghai Singapore Taipei Tokyo Toronto Vienna Warsaw Zurich 1

2 GRE CURRENCY EXPOSURES By Zev Klasewitz, Vice President Debt Capital Markets As the first quarter of 2008 draws to a close, there is heightened concern that the US economy is heading into a recession caused by the liquidity crisis. Evidence includes anemic 0.6% GDP growth in 4Q 2007, the first decline in non-farm payrolls in more than four years, a decline in the ISM index indicating that the economy is contracting, and the lowest consumer confidence level in five years. Capital markets continue to be unnerved by further Fed easing, despite mounting commodity prices and the weakening dollar, which is reaching record lows against multiple currencies, including the Euro and the Yen. Commodities are increasingly pursued by investors as a hedge against a falling dollar: crude oil has hit USD108/ barrel and gold has settled in above USD970/oz. And, against a backdrop of a slowing economy, the Producer Price Index advanced 1% in January, posting the biggest 12-month gain in more than 26 years. The subprime crisis continues to roil the financial markets, with writedowns totaling USD170 billion to date and margin calls for leveraged players. Large buyers, including banks and fund managers, continue to pare risk from their balances sheets, remaining on the sidelines out of concern that new positions would be immediately marked down. Credit spreads are at historic highs for municipal, agency and commercial real estate debt. This lack of liquidity has led to tighter credit for commercial real estate loans. Lenders, specifically Wall Street firms, have significantly curtailed the lending pace given the significant CRE loan overhang on their balance sheets the top 15 direct US CRE lenders have a combined USD278 billion of exposure. Stricter underwriting standards and higher all-in borrowing rates are translating into lower proceeds and more equity required by borrowers. Debt investors are demanding more return for higher perceived risks, causing spreads to widen to historical levels. LIBOR USD EUR JPY Rate Year Ago Rate Year Ago Rate Year Ago 1 - month month month month US TREASURIES Rate Year Ago 2 year year year year SWAPS USD EUR JPY Rate Year Ago Rate Year Ago Rate Year Ago CURRENCIES EUR 1.57 HKD year year year year RUB JPY THB SGD 1.38 MYR 3.17 LVL 0.44 INR All data as of Month,

3 FUND STATUS AIG ASIAN REAL ESTATE PARTNERS II, L.P. Opportunistic fund seeking JPY 50 billion in equity commitments Targeted country mix with emphasis on strategic acquisitions appreciating over a relatively short period of time development projects that gain from the spread between project costs and acquisition costs of comparable,fully completed properties Initial closing in September 2007; approximately JPY 72.4 billion has been raised to date GRE Equity Commitment Fund Investments and Pipeline Local Currency USD (million) JPY (billion) Initial Investments 1 Luxury Residential Development, Wanchai, Hong Kong HKD million USD Luxury Residential, Bangkok, Thailand THB million Subtotal Initial Investments USD 46.7 JPY 5.1 Warehoused Investments 2 Office Acquisition, Yokohama, Japan JPY 7.8 billion Office / Retail Development, Tokyo, Japan JPY million Luxury Residential Development, Taichung City Taiwan NTD 1,320 billion Luxury Residential Development, Kaohsiung City, Taiwan NTD million Subtotal Warehoused Investments USD JPY 13.6 Pipeline 3 REIC Scheduled / Advanced Due Diligence Due Diligence / Initial Review Subtotal Pipeline Total Fund Investments and Pipeline USD JPY Assets were transferred to the Fund in February As of 14 April, These investments have been approved for investment by the REIC and are expected to be warehoused by an AIG affiliate. There can be no assurance that they will be transferred to the Fund. The current pipeline includes the deals listed above which are currently being reviewed, may or may not merit further review or investment and are 3. subject to change. FEATURED INVESTMENT R GINZA, TOKYO, JAPAN The Fund has a 15.87% equity ownership in a joint venture with a local partner to construct a speculative 12,823-square-foot retail/office development in the Ginza, a premier retail submarket in central Tokyo The property, in proximity to a number of luxury retailers, will consist of 32% retail space and 68% office space on eight stories above grade and one below grade. FUNDS STATUS 3

4 FUND STATUS AIG REAL ESTATE OPPORTUNITY XII - INDIA, L.P. Opportunitic fund seeking USD 500 million in capital commitments Formation of strategic partnerships with select Indian developers with a proven ability to execute large scale projects and provide direct access to deal flow 25% pre-specification with a strong pipeline of attractive investments throughout India Initial closing in January 2008; approximately USD 282 milion has been raised to date Investments and Pipeline Fund Investments Equity Committed (millions) Equity Funded (millions) Ecospace, Kolkata USD RMZ Galleria, Bangalore Esplanade, Hyderabad Warehoused Investment Subtotal Fund Investments USD USD 93.1 Mixed-use development, Cochi 1, 2 USD Subtotal Warehoused Investments 31.1 Pipeline Total Investments and Pipeline USD USD 93.1 Data as of 16, June This ivnestment has been waarehoused by an AIG affiliate. There can be no assurance that this investment will be transferred to the Fund. 2. Land acquisition for this project has been approved by the REIC. REIC approval for development funding will be obtained at an appropriate stage. 3. There can be no assurance that these investments will be transferred to the Fund FEATURED INVESTMENT MIXED-USE DEVELOPMENT, KOCHI, KERALA The mixed-use investment in Kochi is a joint venture with Indian developer RMZ Properties Private, Ltd. ( RMZ ), and comprises the speculative development of 2.1 million-sq.-ft of commercial space, 1.5 million-sq.-ft. of residential space, 0.18 million-sq.-ft of retail space and a 300-room hotel. Situated in an emerging IT-ITES destination and within the welll established tourism center of Kerala, the 75-acre site will benefit from a skilled laboar pool and relatively lower operating costs. The investment strategy is to develop the project, lease the office space to IT/ITES companies and sell the project after a targeted holding period of approximately five years. FUNDS STATUS 4

5 FUND STATUS AIG EUROPEAN REAL ESTATE PARTNERS II, L.P. Fund seeking EUR 500 million in equity commitments with emphasis on opportunistic investments in Central and Eastern Europe with selective exposure to Western European development and value-added deals Ground up development opportunities in emerging markets lacking quality stock, and niche western markets Acquisition of income-producing assets that can be improved through refurbishment, repositioning or leasing for a portfolio with less J curve Initial closing in February 2008; approximately EUR 211 million has been raised to date Fund Investments 1 Investments and Pipeline Equity Committed (EUR million) Equity Funded (EUR million) Hotel Portfolio, CEE Russian Logistics Portfolio, Moscow German Office Portfolio, Germany Finnish Logistics Portfolio, Helsinki Latvia Residential Development, Riga German Residential Development, Hamburg Warehoused Investment Belgium Office / Industrial Portfolio Subtotal EUR EUR Pipeline Total Warehouse and Pipeline EUR EUR Assets were transferred to the Fund in March This represents 50% of AIG Global Real Estate s interest in this investment. 3. As of May 1, This investment has been warehoused by an AIG affiliate. There can be no assurance that it will be transferred to the Fund. 4. There can be no assurance that these investments will be transferred to the Fund. FEATURED INVESTMENT JULIENNE, GREATER BRUSSELS, BELGIUM The Julienne portfolio is the compilation of two Belgium REIT portfolios consisting of (i) 12 office properties with total net rentable area of 67,704 square meters in Brussels, and (ii) 5 warehouses assets with total net rentable area of 50,083 square meters located in Brussels and Antwerp. Properties are generally of high quality and recent construction and are mainly located in the areas northeast of Brussels CBD, along the outer ring road and close to international airport The acquisition of both portfolios puts AIG Global Real Estate in a dominant position in a major European office market with strong signs of recovery. FUNDS STATUS 5

6 FEATURE STORY India Market Overview India s economy continues its impressive climb, currently experiencing GDP growth of 9%, with predictions of 7-9% annual growth over the next five years. While the Asia-Pacific region has been largely unaffected by the US subprime crisis -- insulated by current-account surpluses, fiscal health and high savings rates -- inflation in India remains a concern. The Indian government is committed to controlling inflation, which is forecasted at 6.1% in 2008, and is planning to implement several measures. Strength of local consumption should contribute to meaningful economic growth, but risks include rising crude oil and raw materials prices. On the productivity side, unit labor costs are expected to increase 11.5% this year after a 14.3% bump in 2007, somewhat offset by increasing labor productivity. The key impetus for economic expansion is the growth of India s urban population; those living in cities amounted to 28% of the population in 2000, and that figure is expected to reach 34% by 2020, though still the lowest rate among large global economies. In sheer numbers, this amounts to growth of 131 million people over this time period. India s current urbanization rate is similar to that of China s in 1990; with expected nominal GDP growth of 7-9%, India s urban areas look to continue growing. Adding to this growth is the fact that the middle class is projected to grow from 49.4% of households to 67% in The Real Estate Story In light of population and economic trends, there are an estimated 1 billion square feet of demand for mid- and high-end residential real estate through 2010 and an estimated 670 million square feet of demand for commercial and retail space combined through Nevertheless, in spite of real estate s solid fundamentals, uncertainty remains. The repeal of the Urban Land Ceiling Act (ULCA), which limits developers from aggregating large amounts of land above a specified maximum, has lagged behind demand for real estate considerably and the government s inability or unwillingness to reclaim land from developers above the legal limit does not inspire confidence in its ability to manage the marketplace. Complicating matters further, prices for available land have escalated by % over the past five years, depending on the location. Yet, land prices began to stabilize across all major India markets in As a result, many real estate developers have begun to trim construction forecasts and to curtail their land banking models. This comes after they have burned through vast sums of money in the last few years bidding for parcels that fetched record prices in land auctions, essentially locking in necessary capital in a market of diminishing returns. For those developers not willing to acquire the land at current premiums, joint ventures have become the preferred mode of transaction. But some real estate players may have difficulty securing needed capital in the short term due to market issues or sustaining themselves through market troughs and/or inconsistent demand. These dynamics favor those with strong balance sheets and access to capital to move quickly on opportunities. India property developers Construction schedule pa (mn sq ft) Unitech Ansal Parsvnath FY2008E FY2009E FY2010E FY2011E Note: We have not included Mahindra Lifespace s projects as it has a relatively small non-sez pipeline and we have limited visibility at present. Source: Goldman Sachs Research estimates. 6

7 CLOSED FUNDS AIG REAL ESTATE OPPORTUNITY X - SOUTH KOREA In 2006, AIG Global Real Estate sponsored the Korea Fund as a fully-specified opportunistic fund enabling investors to participate in the development of the International Finance Centre (IFC) Seoul, a 5.4-million-square-foot, mixed-use landmark project, contemplating three premium commercial office towers, a five-star hotel, three-level luxury retail mall, multiplex cinema complex, fine dining and significant new public outdoor spaces. The Fund is a unique opportunity to develop a world-class asset in a dynamic market with growing demand and limited Class A supply. The South Korea Fund had a final close in 2008 with total equity commitments of. AIG ASIAN REAL ESTATE PARTNERS, L.P. In 2001 AIG Global Real Estate sponsored the Asia Fund in response to a strengthening Asian economy and a growing inventory of real estate opportunities in Asia. The Asia Fund is focused on major Asian markets with high barriers to entry, strong employment growth, and high cost of ownership. The Asia Fund had a final close in March 2003 with total equity commitments of US $100 million. The Asia Fund was fully committed in 2005, ahead of the end of the commitment period. AIG JAPAN REAL ESTATE Y.K.. In 2002 AIG Global Real Estate sponsored the Japan Fund to capitalize on its view of the improving market opportunity, characterized by a rebounding real estate sector and a favorable interest rate environment. The Japan Fund is focused on the repositioning of Japanese office buildings and primarily invests in income-producing office properties in Japan. The Japan Fund had a final close in March 2004 with total equity commitments of approximately JPY 15 billion. AIG JAPAN REAL ESTATE VALUE ADDED ll Y.K. In 2005 AIG Global Real Estate sponsored Japan Fund II to capitalize on current opportunities in the improving Japanese real estate market. Japan Fund II was formed to make value-added real estate investments focusing on income-producing and other properties in the office, residential, and retail sectors in Japan. Japan Fund II was oversubscribed and had a final close in July 2005 with total equity commitments of JPY 30 billion. Japan Fund II exceeded its target capital by JPY 10 billion and was fully invested well in advance of its commitment period. AIG JAPAN REAL ESTATE VA lll Y.K. Japan Fund III completed its first and final closing in November 2006, with aggregate capital commitments of approximately JPY52.6 billion. Japan Fund III intends to focus primarily on value added acquisitions in Japan and may also invest in opportunistic investments in Japan. 7

8 CLOSED FUNDS AIG U.S. RESIDENTIAL REAL ESTATE PARTNERS, L.P. The U.S. Residential Fund is focused on the multifamily residential segment, including, but not limited to, acquisition, renovation/ repositioning, and potential conversion of existing multifamily properties, as well as the development of multifamily apartments and for-sale condominium properties. The U.S. Residential Fund had a final close, above target, in August of 2005 with total equity commitments of US $300 million. To date, 51.5% of the Fund is invested in for-rent multi-family properties with the balance of the portfolio invested in for-sale condominium properties. AIG REAL ESTATE OPPORTUNITY VIII - MEXICO L.P. The Mexico Fund invests primarily in opportunities in the industrial and for-sale residential real estate sectors across Mexico, including such locations as Los Cabos, the Riviera Maya, Mexico City, Monterrey, Tijuana, San Luis Potosi and the colonial town of San Miguel de Allende. The Fund s industrial strategy targets acquisition, development and build-to-suit investments. The residential strategy targets residential projects and high-end resort vacation homes. The Mexico Fund, and a related co-investment vehicle, had a final close in June of 2007 with total equity commitments of US $220.9 million. AIG EUROPEAN REAL ESTATE PARTNERS, L.P. In response to economic indicators suggesting the growth in demand for institutional-quality real estate in the dynamic European market, the Europe Fund is focused on retail, office, and industrial acquisitions and developments primarily in Western, Eastern, and Central Europe. The Europe Fund had a final close in May 2004 with total equity commitments of EUR 180 million. PRIME PROPERTY PROGRAM ( PPP ) In 2005 AIG Global Real Estate created a separate account investment program to target core plus real estate in Japan. The fund closed in 2005 with total equity commitments of JPY 50 billion and was fully invested in less than 12 months. PRIME PROPERTY PROGRAM II ( PPP II ) In 2006 AIG Global Real Estate created PPP II as a follow on fund to PPP I. Similar to its predecessor fund, PPP II targets core real estate in Japan and closed with total equity commitments of JPY 50 billion 8

9 GRE Facts and Figures Wealth of experience A 20-Year History of On-site Insight Established in 1987, AIG Global Real Estate is the real estate investment arm of AIG Investments Now manages in excess of USD 24.7 billion in equity globally, USD 4.1 billion of which is for unaffiliated clients Approximately 500 investment professionals in more than 30 countries provide a global perspective with local insight Broad spectrum of strategies 16 real estate funds and investment programs managed since 1995 Tangible examples of investment strategies ranging from core to opportunistic Unparalleled expertise in risk assessment, enhancing investment process Global portfolio diversified by product type and locale Owns, manages and has under development more than 53 million square feet in 50+ countries Sourcing advantage results from the breadth and depth of relationships cultivated around the world [Add text] Longstanding leader in green building around the world Recognized by U.S. Green Building Council, The Sierra Club, U.S. Environmental Protection Agency, Audubon International [Add text] [Add text] Capital Markets: Roles and Responsibilities Please contact the following GRE individuals at the appropriate point in the process: Client Meetings/Correspondence Fund PPMs/Documentation Fund Marketing Fund Due Diligence/Intralinks Client Relations Corporate Marketing/Public Relations Chris Casey/Jim Ellsworth Caryn Lombardi/Krista Miniutti Tonia Williams Deonna McWilliams/Tonia Williams Marisa Bradinini/Rosemary Kang Jeffrey Kagan/Lauren Day 9

10 AIG Global Real Estate Investment Corp. 277 Park Avenue, 44th Floor New York, NY Tel: AIG Global Real Estate Investment Corp. is a wholly-owned subsidiary of American International Group, Inc. and performs a range of real estate investment and management services for institutional and corporate clients, as well as for AIG Companies. Strategic research and local knowledge inform the activities of our team of over 500 professionals around the world AIG Global Real Estate Investment Corp. All rights reserved. The information contained herein is for your sole use and may not be reproduced in any form without the prior written consent of AIG Global Real Estate. The information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources that we believe are reliable. However, AIG Global Real Estate has not verified such information and does not make any representation or warranty hereby as to the accuracy or completeness of the information contained herein. As a result, AIG Global Real Estate is not soliciting any action on your part and accepts no responsibility by reason of any action taken by you while relying on the information contained herein. AIG Global Real Estate and/or its affiliates may from time to time have financial interests and/or otherwise conduct operations in the markets discussed herein. 10