U.S. Investment Outlook

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U.S. Investment Outlook Quarterly Investor Research update Q2 2015

U.S. Investment overview 37% 21% 15% 15%

U.S. cities dominating global investment activity Top 20 Cities for Transactional Volumes H1 2015 New York London Tokyo Los Angeles Chicago Washington, DC Paris Boston Seattle San Francisco Silicon Valley Honolulu Singapore Seoul Atlanta Miami Phoenix San Diego Sydney Munich Americas EMEA Asia Pacific Source: JLL Research $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 Billions of $US 2

Continued strength in investment activity spurs growth of 46.4 percent at mid-year, supporting full-year forecasts of 20.0 percent $600.0 Total investment sale volumes (billions of $US) $500.0 $400.0 $300.0 $200.0 $100.0 25% 22% 16% Forecasted FY 2015: ~20% $0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD Multifamily Industrial Office Retail Hotels Forecast Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions) 3

This is translating into steadily rising capital values As capital values have steadily rose, core cap rates now above prior peak levels in four of the five major sectors 200 180 Recession Core cap rate fluctuation (Index = 100) 160 140 120 100 80 60 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD Hotels Industrial Multifamily Office Retail Source: JLL Research, NCREIF 4

Multifamily is the pricing outlier With the exception of multifamily, U.S. cap rates now compressed below prior peak levels across sectors 40 Cap rate differential from prior peak (bps) 20 0-20 -40-60 -80 Retail Industrial Hotels Office Multifamily Overall Primary Secondary Source: JLL Research, NCREIF 5

Low interest rate environment accretive to healthy spreads At 295 basis points on average across asset sectors, healthy cap rate spreads to risk-free continue and at a 200-basis-point spread above prior peak levels 700 Prior peak Prior trough Current 600 Cap rate spread to 10-year Treasury (bps) 500 400 300 200 100 0-100 Industrial Multifamily Office Retail Hotels Source: JLL Research, NCREIF, Board of Governors of Federal Reserve 6

While diversified, primary markets leading U.S. investment Seattle, Chicago and Silicon Valley leading growth in 2015 year-to-date Rankings 2013 2014 H1 2015 1 1 1 2 2 2 3 3 3 5 4 4 9 11 5 4 5 6 13 7 7 7 8 8 11 10 9 8 6 10 6 9 11 12 13 12 15 16 13 14 14 14 17 17 15 10 12 16 16 15 17 19 18 18 18 19 19 20 20 20 Most active markets, H1 2015 (millions of $) New York Los Angeles Chicago Washington, DC Seattle Atlanta Boston Silicon Valley Dallas NYC Boroughs San Francisco Houston Northern New Jersey United States other Denver Phoenix Hawaii San Diego Orange County Inland Empire $9,916 $8,581 $7,734 $6,240 $5,972 $5,670 $5,621 $5,597 $5,313 $5,176 $4,935 $4,863 $3,907 $3,698 $3,638 $3,615 $3,299 $3,278 $3,042 $21,494-55.4% Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions, Excludes hotels) -5.7% Year-over-year growth (%) 2.7% 38.9% 17.2% 12.2% 1.3% 71.1% 50.8% 90.0% 72.4% 44.1% 18.2% 19.8% 16.7% 15.6% 75.8% 54.3% 63.2% 348.6% 7

Foreign investment

Foreign investment rising, reaching 15.0 percent at mid-year While other capital sources remain stable, foreign investor groups surpassing domestic institutions Source of investment capital (as a % of volume) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2% 8% 12% 8% 4% 5% 4% 4% 4% 32% 20% 13% 22% 25% 21% 22% 27% 21% 8% 9% 20% 17% 8% 18% 17% 13% 49% 53% 60% 49% 43% 42% 45% 44% 48% 8% 10% 8% 9% 11% 10% 11% 10% 15% 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD Foreign Private capital REIT Institutional User / Other 12% Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions, Excludes hotels) 9

Foreign investment surpasses 2014 levels at mid-year Strong inbound capital positions U.S. to exceed peak 2007 levels by year-end $30.0 $27.9 Total foreign capital invested (billions of $US) $25.0 $20.0 $15.0 $10.0 $5.0 $8.9 $12.5 $17.4 $23.9 $7.0 $3.2 $8.4 $16.4 $18.5 $25.0 $23.6 $24.1 $0.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m, Excludes hotels) 10

Foreign portfolio deal increasing, reaching prior peak levels After seventh consecutive year of growth on a relative basis, nearly 50.0 percent of 2015 activity credited to portfolio transactions at mid-year 100% 90% 80% 70% 60% 50% 73% 57% 59% 39% 93% 86% 74% 80% 73% 64% 66% 50% 40% 30% 20% 10% 0% 61% 27% 50% 43% 41% 36% 34% 26% 27% 20% 14% 7% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD Portfolio sales Single asset sales Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m, Excludes hotels) 11

Office deal sizes growing to a 15-year high Average office investment sale size up 43.2 percent at mid-year $140.0 $128.0 Average transaction size (millions of $US) $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $71.3 $69.6 $76.2 $98.1 $56.2 $92.7 $58.3 $63.8 $108.3 $67.6 $97.2 $89.4 $0.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m) 12

Foreign capital diversifying into industrial IndCor and KTR acquisitions driving noteworthy shift in foreign industrial investment activity, accounting for nearly as much inbound capital as office at 36.7 percent. 16.9% 14.7% 12.1% 11.4% 9.6% 16.8% 20.9% 39.8% 36.7% 58.7% 9.1% 53.1% Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m) Multifamily Industrial Office Retail 13

Asian buyer pool for U.S. product deepening Led recently by Singapore-, China- and South Korea-based investors, nearly three-fourths of total Asian investment into U.S. real estate over the last 10 years has occurred since 2014 Foreign investment activity (2004 2008) Foreign investment activity (2014 2015 YTD) Hong Kong 3.1% United Arab Emirates 4.3% All others 15.4% Australia 34.3% South Korea 3.4% All others 19.2% Canada 28.7% Switzerland 5.5% Israel 5.6% United Kingdom 6.9% Canada 12.0% Germany 13.0% Switzerland 4.9% Australia 5.2% China 6.1% Germany 7.9% Norway 8.2% Singapore 16.3% Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m, Excludes hotels); Includes countries with > $1.0 billion invested 14

Foreign investment remains concentrated in primary markets Focus on primary markets persists at more concentrated levels than prior cycle led by investment in New York, Washington, DC and Boston Foreign investment activity (2004 2008) Foreign investment activity (2014 2015 YTD) New York 18% New York 23% All others 47% Chicago 8% All others 39% Washington, DC 6% Washington, DC 10% Houston 3% San Francisco 4% Boston 5% Atlanta 4% Los Angeles 5% Hawaii 3% Dallas 4% Chicago 4% Los Angeles 5% Boston 7% San Francisco 5% Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m, Excludes hotels) 15

Foreign institutions expanding U.S. exposure Relative to long-run average (49.3 percent), foreign institutions increasing allocation to U.S. real estate from leading countries, accounting for 64.5 percent of investment since 2013 100% Total foreign investment by buyer type (billions of $US) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Canada Singapore Norway Germany China Australia Switzerland South Korea United Kingdom Israel Equity Fund Institutional Private Public User/Other Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m since 2013, Excludes hotels) 16

Office capturing increasing investment from top buyers And as retail s relative percentage declines, industrial expands 100% Total foreign investment by buyer type (billions of $US) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Canada Singapore Norway Germany China Australia Switzerland South Korea United Kingdom Multifamily Industrial Office Retail Israel Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m since 2013) 17

Office

Now at nearly 60.0 percent of full-year 2014 activity at mid-year, $39.2 billion of office investments this quarter $250.00 Office investment sale volumes (billions of $US) $200.00 $150.00 $100.00 $50.00 $0.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD Q1 Q2 Q3 Q4 Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m) 19

Primary and top secondary market cap rates stabilizing at 4.6 and 5.3 percent, respectively, at mid-year 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 5.3% 4.6% 2.4% 1.0% 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD 10-year Treasury (%) Primary cap rates (%) Secondary cap rates (%) Source: JLL Research, NCREIF, Board of Governors of Federal Reserve 20

Since Q1 2010, CBD Class A rents have grown by more than 20 percent; Suburban Class B barely increased in nominal terms Growth in asking rents since Q1 2010 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Class A (CBD) Class B (CBD) Class C (CBD) Class A (suburban) Class B (suburban) Class C (suburban) +22.7% CBD Class A +14.5% CBD Class C +12.8% Suburban Class C +8.1% Suburban Class A +7.7% CBD Class B +1.7% Suburban Class B -5.0% -10.0% 2010 2011 2012 2013 2014 2015 Source: JLL Research 21

Continued growth in New York, Boston and Chicago driving primary market activity, up 55.3 percent year-to-date Primary market investment volumes (millions of $US) $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $0 New York Boston Chicago San Francisco Seattle- Bellevue Washington, DC Los Angeles Silicon Valley Houston Source: JLL Research (Assets larger than 50,000 s.f.) H1 2014 H1 2015 22

Secondary market activity continues to rise on a square footage basis, accounting for 56.0 percent of 2015 activity year-to-date Primary markets Secondary markets Primary markets Secondary markets Primary markets Secondary markets 43.3% 43.9% 56.7% 56.0% 52.9% 47.1% Source: JLL Research (Assets larger than 50,000 s.f.) 23

Secondary market activity up 19.6 percent this quarter Strong activity in Atlanta, New Jersey, Northern Virginia and Philadelphia boost secondary markets to near new peak levels for the cycle $8.0 Secondary investment sale volumes (billions of $US) $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 Source: JLL Research (Assets larger than 50,000 s.f.) 24

Resurgence in Trophy deals led by Chicago, NY this quarter with nearly full-year 2014 volumes now completed at mid-year Trophy Class A Class B Trophy Class A Class B 23.7% 14.1% 24.9% 19.3% 62.2% 55.8% Source: JLL Research (Assets larger than 50,000 s.f.) 25

Foreign investment up 57.1 percent year-to-date Led by $3.6 billion of Chinese investment, foreign office investment on track to surpass 2007 peak investment levels Foreign investment activity (2014) Foreign investment activity (2015 H2) South Korea 14% All others United 5% Kingdom 5% Norway 33% Germany 12% Norway 7% All others South 4% Korea 6% China 40% Canada 21% Germany 22% Canada 31% Source: JLL Research (Assets larger than 50,000 s.f.) 26

Foreign capital focus on gateway cities continues Notably driven by China-based investors, New York capturing a growing share of foreign investment year-to-date Foreign investment activity (2014) Foreign investment activity (2015 H2) San Francisco 4% Northern Virginia 6% Houston 5% Seattle 6% Silicon Valley 2% All others 5% New York 49% Seattle 8% Washington, DC 14% All others 3% San Francisco 3% Washington, DC 23% New York 72% Source: JLL Research (Assets larger than 50,000 s.f.), Includes all markets which have received more then 2.0 percent of inbound capital 27

U.S. core product office CBD cap rates Sub 5-6% level in most primary and rising secondary markets Seattle WA 4.50 5.50% MT ND ME Sacramento 5.00-6.00% San Francisco 5.00 6.00% CA East Bay 6.50-7.50% Portland 5.00 6.50% OR Los Angeles 4.00-4.70% San Diego 6.00-7.00% NV 4.00 5.00% 5.00 6.00% 6.00 7.00% 7.00 8.00% 8.00-9.00% 9.00% + Source: JLL Research, July 2015 ID UT AZ Phoenix 7.00-7.50% WY Denver CO 5.00-6.75% NM SD NE KS TX Austin 4.00-6.00% OK Dallas 5.00-7.00% MN IA Kansas City 7.00-8.00% MO Houston 6.00-6.50% LA NH Minneapolis WI NY 6.00-7.00% Detroit MA 9.50 10.50% CT MI Pittsburgh RI New York Chicago Cleveland 8.00 9.00% 3.25-3.75% 4.75-6.00% 7.50 8.50% Philadelphia PA NJ 6.50 7.50% Indianapolis Columbus OH DE IL 7.00 8.00% IN 8.00 9.00% Washington, DC Cincinnati WV 4.00 MD 6.00% 8.50 9.50% AR MS TN AL KY Atlanta 5.00-6.00% GA Tampa 5.75-7.00% VA VT Raleigh Charlotte 6.50 7.50% NC 6.25 7.50% SC FL Orlando 5.50 7.00% Miami 4.50 6.00% Boston 5.00 6.00% 28

U.S. core product office suburban cap rates Sub 6-8% level in most primary and rising secondary markets Seattle WA 5.50-6.25% MT ND ME Sacramento 6.75-7.75% East Bay 6.00-7.00% CA Silicon Valley 5.00 6.00% Portland 6.50%-7.50% OR Los Angeles 4.00-6.00% San Diego 5.50-6.50% NV 4.00 5.00% 5.00 6.00% 6.00 7.00% 7.00 8.00% 8.00-9.00% 9.00% + Source: JLL Research, July 2015 ID UT AZ Phoenix 6.60-7.50% WY Denver CO 6.00-6.75% NM SD NE KS TX Austin 5.00 7.00% OK Dallas 5.50-8.00% MN Houston 6.50-7.00% IA MO LA NH Minneapolis Boston WI NY 7.00-8.00% Detroit MA 6.00-8.00% 8.00 9.00% CT MI Pittsburgh New Jersey RI 7.00-7.50% Chicago Cleveland 7.50 8.50% 7.00-8.00% 8.00 9.00% Philadelphia PA NJ 6.00 7.00% Indianapolis Columbus OH DE IL 7.50 8.50% IN 8.00 9.00% Washington, DC Cincinnati WV 6.00 MD 8.00% 8.50 9.00% VA AR MS TN AL KY Atlanta 6.00-7.00% GA Tampa 6.25-7.50% VT Raleigh Charlotte 7.00 8.00% NC 6.75 8.00% SC FL Orlando 6.25-7.50% Miami 5.75 7.00% 29

Thank You!

OCTOBER 29, 2015 U.S. Real Estate Investment Forum: A Roadmap to Accessing U.S. Markets Legal Issues Facing International Investors in the U.S. Private and Confidential Orrick, Herrington & Sutcliffe LLP

Legal Issues Facing International Investors in the U.S. [Transaction Structures] o Transaction Structures Fund or LP Level Investments Passive Investment Significant Reliance on Fund Manager Some Funds are Geographic or Sector Focused Direct Investments More Active Role for Investor Higher Transactional Costs Approval over Individual Investments 32

Legal Issues Facing International Investors in the U.S. [Transaction Structures] 100% Ownership versus Joint Ventures Control vs. Local Expertise Differing Investment Horizons/Strategies Joint Venture Conflict Increases during Difficult Times in the Market Cycle 33

Legal Issues Facing International Investors in the U.S. [Choice of Entity] o Choice of Entity Delaware LLCs Lots of Flexibility in Structuring Pass-Through Tax Treatment with Limited Liability Some Investors Cannot Use LLCs for Tax Purposes Cayman Offshore Vehicles 34

Legal Issues Facing International Investors in the U.S. [Tax Considerations] o Tax Considerations Multiple Income Tax Levels in US Federal Capital Gains (15%) vs. Ordinary Income (33% generally) State (up to 13%) Local (County/City -- up to 10%) Transfer Taxes (Local) Mortgage Taxes (Local) 35

Legal Issues Facing International Investors in the U.S. [Title Insurance] o Title Insurance Insurance Companies who Specialize in Insuring Against Title Defects Cheaper than Lawyers Usually Well-Capitalized if a Title Defect is Missed in Due Diligence Owners Policies and Lenders Policies 36

Legal Issues Facing International Investors in the U.S. [Acquisition Process, Due Diligence] o Acquisition Process, Due Diligence Most Major Deals Are Broadly Marketed 2-3 Page Teaser Offering Memorandum Confidentiality Agreement Letter of Intent Purchase and Sale Agreement Due Diligence Period Closing Period 37

Legal Issues Facing International Investors in the U.S. Joint Ventures Joint Ventures Common form of investment structure, especially for international investors Operating Partner versus Capital Partner Operating Partner (US Based) Operational or development expertise On the ground relationships May have sourced the deal Less equity 10%? 38

Legal Issues Facing International Investors in the U.S. Joint Ventures Capital Partner (Japan Based) Less operational expertise or interest in dayto-day operations Contributes bulk of equity 90% May be more than one Capital Partner in a deal, especially for larger projects Typically project by project, but theoretically joint venture could span multiple asset acquisitions. 39

Legal Issues Facing International Investors in the U.S. Joint Ventures Management Control o Management and Operational Control Operating Partner day-to-day management control Capital Partner no control over day-to-day operations but has the right to approve Major Decisions Major Decisions Stabilized building Sale Financing Approval of business plans and annual budgets 40

Legal Issues Facing International Investors in the U.S. Joint Ventures Management Control Stabilized building (cont d) Non-budgeted expenditures Entering into, modifying, amending leases Material contracts Capital calls (especially if non-budgeted) Distribution of cash Litigation Insolvency/bankruptcy 41

Legal Issues Facing International Investors in the U.S. Joint Ventures Management Control Development Project Approval of construction contracts Approval of plans, specifications, etc. Approval of change orders which increase construction budget beyond threshold amount 42

Legal Issues Facing International Investors in the U.S. Joint Ventures Capital Contributions o Capital Contributions Capital needs may arise from time to time Unexpected operating expenses or capex Insufficient cashflow Financing issues Budgeted capital contributions as part of planned capex or development costs 43

Legal Issues Facing International Investors in the U.S. Joint Ventures Capital Contributions Capital Call Made by Operating Partner Each partner then funds capital pro rata in proportion to investment percentages Example -- 90% Capital Partner and 10% Operating Partner Capital Call for $50 million 90% Capital Partner funds $45 million 10% Operating Partner funds $5 million 44

Legal Issues Facing International Investors in the U.S. Joint Ventures Capital Contributions Mandatory versus discretionary capital calls Mandatory capital calls no right to veto? Pre-approved budget Taxes and insurance Emergency repairs for health and safety Financing issues 45

Legal Issues Facing International Investors in the U.S. Joint Ventures Capital Contributions Failure to fund Usually not a default Instead, punitive measures in JV agreement Preferred Return/Member Loan Penalty Dilution 46

Legal Issues Facing International Investors in the U.S. Joint Ventures Capital Contributions Preferred Return/Member Loan Gives funding partner a priority return Often structured as a loan Penalty Dilution Funding partner gets double credit for deficiency contribution Dilutes the non-funding partner for distribution and voting purposes Other penalties Loss of voting rights? 47

Legal Issues Facing International Investors in the U.S. Joint Ventures Distributions o Distributions Pro rata in proportion to investment percentages until Capital Partner has received return on investment Hurdle can be fixed percentage or IRR After initial hurdle, Operating Partner earns higher percentage of further cash distributions = promote Promotes may increase as further hurdles are met 48

Legal Issues Facing International Investors in the U.S. Joint Ventures Distributions Cashflow Promote versus Capital Event Promote Total promote should be no higher than what would be earned upon a capital event Clawback 49

Legal Issues Facing International Investors in the U.S. Joint Ventures Transfer Rights o Transfer of JV Interests and Transfer of Property Often no transfer of interests or the real property permitted without consent of other partners Exceptions which allow for liquidity ROFO Sale of JV Interests Forced sale of Real Property Buy-Sell of JV Interests 50

Legal Issues Facing International Investors in the U.S. Joint Ventures Transfer Rights ROFO Sale of JV Interests Each partner can sell its JV interest subject to offering the interest to the other partner at a fixed price If non-selling partner does not purchase, selling partner can sell to third parties 6 month sale period Minimum sale price 90-95% No sale within 6 months process resets 51

Legal Issues Facing International Investors in the U.S. Joint Ventures Transfer Rights ROFO Sale of JV Interests (cont d) Third Party Selling Partner STEP 1: Selling Partner offers to sell JV Interest to Non-Selling Partner STEP 2: Non-Selling Partner purchases JV Interest or rejects offer Non-Selling Partner 52

Legal Issues Facing International Investors in the U.S. Joint Ventures Transfer Rights Forced Sale of Real Property Similar to ROFO Sale of JV interests, but selling partner sells the entire property Selling partner makes proposal to non-selling partner to market the property with a minimum sale price/valuation Non-selling partner either agrees to sell or rejects If non-selling partner rejects, it must buy out the selling partner at the same valuation 53

Legal Issues Facing International Investors in the U.S. Joint Ventures Transfer Rights Forced Sale of Real Property (cont d) If non-selling partner approves the sale, selling partner can sell to third parties 6 month sale period Minimum sale price 90-95% of initial valuation No sale within 6 months process resets 54

Legal Issues Facing International Investors in the U.S. Joint Ventures Transfer Rights Forced Sale of Real Property (cont d) Third Party Selling Partner STEP 1: Selling Partner proposes sale of Property STEP 2: Non-selling Partner consents to sale or buys out Selling Partner Non-selling Non-Selling Partner Partner 55

Legal Issues Facing International Investors in the U.S. Joint Ventures Transfer Rights Buy-Sell Offering partner offers to sell its JV interest to receiving partner based on an assumed valuation Example: 10% Operating Partner offers to sell its 10% JV interest to 90% Capital Partner $100 million valuation, offer price is $10 million Capital Partner can either buy the 10% interest or has to sell its 90% interest for $90 million 56

Legal Issues Facing International Investors in the U.S. Joint Ventures Transfer Rights Buy-Sell (cont d) STEP 1: Offering Partner offers to sell its JV interest to Receiving Partner Offering Partner STEP 2: Receiving Partner must buy Offering Partner s JV Interest or sell its own JV Interest to Offering Partner Receiving Partner 57

Legal Issues Facing International Investors in the U.S. Joint Ventures Transfer Rights Other considerations Lockout periods Loss of rights upon material default or failure to fund committed capital 58