2011 Marketing Class Uo W

The Marketing of Real Estate

Amaury de Parcevaux

Chief Marketing OfficerApril 8th 2011

2

A. Falcon Real Estate Investment Company, LP

• US Commercial Real Estate firm created in 1991 by Howard Hallengren and Jack Miller,

both from JPMChase. Offers comprehensive services to high-net-worth individuals and

institutional investors. 6 US Regional offices in the United States: New York, Washington

D.C., Miami, Chicago, Dallas and San Diego. $ 2 bn AUMs of US commercial real estate.

100% Out-performance vs. its benchmark (NCREIF) in 20 years.

B. Amaury de Parcevaux, Chief Marketing Officer (New York)

• Amaury de Parcevaux is Senior Vice President for Falcon and he is based in New York.

As Chief Marketing Officer, he has overall responsibility for the Global marketing strategy

of Falcon's direct and indirect investments platforms. Mr. de Parcevaux has had over 18

years experience in marketing to high-net-worth individuals, and comes to Falcon from

Morgan Stanley, where he was a First Vice President in the Wealth Management

department. Prior to that, he worked in the Private Banking department of Merrill Lynch, at

Citibank and Deutsche Bank in New York, and at Commerzbank and Deutsche Bank in

Frankfurt. Mr. de Parcevaux graduated in 1988 from the European Business School

(Oestrich-Winkel, Paris and London) with a Master’s Degree in Finance. In addition to

French and English, Mr. de Parcevaux is also fluent in German.

Short Profile on Firm and Speaker

Class Outline

Introduction

1. Publicly vs. Privately Held Commercial Real Estate

2. The International Perspective

3. Falcon’s Case Study

Conclusion

3

Class Outline

Introduction




Conclusion

4

Traditional Global Asset Classes

A. Traditional • Money Market

• Bonds (CMBS)

• Stocks (Listed Real Estate Investment Trusts: “REITs”)

B. Alternative• Private Equity (“Private Equity funds”, “Private REITs” or “Club Deals”)

• Hedge Funds (“Sector Specific”: Real Estate and Macro)

• Structured Products (“Principal Protected” around RE indices or “REITs baskets”)

• Real Estate (Direct investment by one investor in one building or owner-occupied)

• Managed Futures

• Commodities

• Infrastructure

5

Traditional Global Real Estate Asset Classes

Direct PropertyInvestments

$ 23 Trillion

Real Estate

Securities

$ 2 Trillion

Whole Mortgage Structured Debt (CMOs, CLOs etc.)

Private Public

De

bt

Eq

uit

y

GLOBAL REAL ESTATE

•$ 25 Trillion (50% US)

$ 16 Investment Grade

$ 9 Non-Investment Grade

($ 10 pure investments)

•20% vs. Global Stock +

Bond Market Cap.

• 7 times bigger than

Hedge Funds

• 12 times bigger than

Private Equity

6

Real Estate Evolves with Private Equity

2. Venture Capital Funding

IPO

High Yield Debt & Equity

Traditional Bank Loans

Follow-on Offerings

Public/Private Debt

Convertible Debt

Venture StagePrivate

Company

Mezzanine StagePrivate

Company

Growth StagePrivate/Public

Company

Late StagePrivate/Public

CompanyMature StagePrivate/Public

Company

1. Buyouts

Purchase of controlling interest

with substantial borrowed capital

Focuses on investing in companies

with high growth rates

Industry

Mezzanine

Distress

Real Estate

PIPE

7

Class Outline

Introduction




Conclusion

8

Risk / Return of Real Estate Investment Strategies

Opportunistic

Value-Added

Long/Short

Public Equity

Core Property

Public Debt

Whole Mortgage

Risk Perception

Source: Fund Evaluation Group and Falcon Asset Management

Positioning Debt/Equity vs. Public/Private

Debt

Equity

9

“US Housing Going down”April 26th 2007

“ Foreign Real-Estate Funds Boom Firms Unveil

Scores of New Plays, Spurred by Strong Returns

and Growth in Overseas REITs”. July 7, 2007

“Euro soars to new high against U.S. dollar”July 10, 2007

“Subprime poor practice risks turning to malpractice”July 4 2007

Pre-2008 Crisis Headlines?

10

R. Bernstein: Merrill Lynch Chief US Strategist

11

• 91.5% of long-term total account performance including Stocks, Bonds, Money Markets

resulted from asset allocation decisions (statistically tested over the past 20 years)

• Mitigate the necessity of secondary market - like in REITs

Security Selection

4.6%

Market Timing

1.8%

Other Factors

2.1%

Asset Allocation

91.5%

Source: Ibbotson Associates, Inc.

Asset Allocation and Expected Return: 1

12

Source: 1995—2005 Source: BHF-BANK

HIGH

LOW MEDIUM HIGH

Risk %

Re

turn

%

LOW

MEDIUM

Private

Equity

Global

Real Estate

Hedge

Funds

CommoditiesOil

GoldGlobal Bonds

Global

Stocks

Global

Money Markets

Risk Adjusted Returns (+ Standard Deviation): 2

13

NAREIT NCREIF

Source: Falcon /NCREIF & NAREIT/ Columbia Business School

US Public vs. US Private Real Estate Returns

US Public RE Benchmark (50% leveraged) vs. Private Benchmark (Unleveraged)

14

REIT NAV Premium vs. Underlying Assets

Source: Green Street Advisors, Current as of May 2007

40%

30% Long-term Average = 6.6%

20%

10%

0%

-10%

-20%

-30%

15

When Real Estate > Stock Market Volatility

S&P 500 120 Day Volatility

REITs 120 Day Volatility

1994 1996 1998 2000 2002 2004 2006 2008

Source: Bloomberg / RMS & SPX 120 Day Return Volatility

16

S&P 500 FTSE 100 NCREIF Index FALCON

Total Quarters 62 62 62 62

Positive Quarters 67.74% 69.35% 87.10% 98.39%

Negative Quarters 32.26% 30.65% 12.90% 1.61%

Median Quarterly Return 2.41% 2.08% 2.36% 3.44%

Average Quarterly Return 2.47% 2.27% 2.08% 3.74%

Standard Deviation 7.43% 7.09% 1.84% 1.79%

Best Quarter 20.87% 25.13% 5.43% 10.42%

Worst Quarter -17.63% -17.80% -5.33% -0.14%

Maximum Drawdown -45.60% -45.55% -9.66% -0.14%

Sharpe Ratio* -0.04% -0.07% -0.37% 0.55%

Correlation Matrix S&P 500 FTSE 100 NCREIF Index FALCON

S&P 500 1.00 0.73 -0.04 -0.04

FTSE 100 1.00 0.01 0.02

NCREIF Index 1.00 0.77

FALCON 1.00

Falcon Performance Statistics vs. Benchmarks: January 1991 - June 2006

* Risk free rate is 2.75% (the average 5-yr T-Note from Jan '91 Š June '06

Source: Falcon

Correlation Coefficients (+ covariance): 3

17

Source: 1980—2000 Source: Merrill Lynch Quantitative & Equity Derivatives Research

15.50

15.00

14.50

14.00

13.50

13.00

12.50

12.00

11.50

10.00 10.50 11.00 11.50 12.00 12.50 13.00 13.50 14.00 14.50

Risk %

Retu

rn %

Efficient Frontier without

Alternative Investments

Efficient Frontier with 5%


Efficient Frontier with 10%


Steps 1+2+3 = Efficient Frontier

18

Cash

Bond

Equity

Alternative

Invest.

50-60%*

*Real assets, which includes real estate and commodities, is the largest

investment category with 31 cents of each Harvard endowment dollar.

How Much Alternative Investments?

Source: Falcon

19

Synopsis of Private vs. Public Real Estate

Public Equity Advantages

Publicly traded (liquid)

Lower fees

No minimum size (individual investors)

Public Equity Disadvantages

Theoretically, lower returns

due to liquidity premium

Performance often driven by capital flows and

other non- real estate related factors

Higher correlation to public stock markets

Private Equity Advantages

Access to broader array ofinvestment opportunities

Lower correlation to stock markets

Private Equity Disadvantages

Illiquid

Higher fees

Appraisal-based valuations

Difficult to benchmark

High dispersion of returns in value-added and opportunistic sectors

20

Class Outline

Introduction




Conclusion

21

• Financial Markets offer broader access to capital from borrowers

• Financial Markets offer more efficient pricing

• Financial Markets increase opportunities for sharing risk BUT…

• Lately securitization has led to substantial increases in leverage and greater systemic risk for the entire financial system

TOTAL

Bank Deposits

Government Debt

Corporate Debt

Equities

Global Financial Markets (Excluding Derivatives)

Source: McKinsey Global Institute

2011: Global GDP $ 60 vs. $ 180 Trillion Listed

22

• 1990: 33 countries have domestic market capitalization (excluding derivatives) > GDP

• 2007: 72 countries – virtually all industrial economies and the largest emerging markets have financial markets that are two to three times the size of their GDP

Real Economy/Financial Markets Decoupling

Source: McKinsey Global Institute

23

Listed Real Estate – Still in Infancy

FTSE EPRA/NAREIT Countries Listed RE

%

Vs. Stock Market Cap.

%

Australia 30 10

Hong Kong/China 25 5

Singapore 25 10

Luxembourg 12 6

Sweden 10 4

Canada 8 3

United States 7 2

Netherlands 6 3

New Zealand 5 5

Austria 5 4

United Kingdom 4 1

Japan 4 2

France 3 1

Switzerland 3 0.6

Spain 3 2

Belgium 3 1.5

Finland 1.5 0.5

Norway 1.5 1

Poland 1.5 1.3

Denmark 1 0.6

Greece 1 0.5

Italy 1 0.8

Germany 0.5 0.5

South Korea 0.5 0.2

Hungary 0.2 0.2

Ireland 0.1 0.1

Portugal 0.1 0.1

Czech Republic 0.1 0.1

World 5.6 2.8

24

AustraliaHong KongJapanOther Asian

France GermanyItalySpain NetherlandsOther EurozoneUKSwitzerland SwedenC & E Europe Other European USCanadaMexicoBrazilOther

Japan 11%

Euro zone

10%

Americas 57% Europe 18%

US 53%

Australia

9%Asia-Pacific

25%

Hong Kong

5%

UK 6%

Sources: EPRA/NAREIT, LaSalle Investment Management

2007: $ 2 Trillion Listed Real Estate

25

Pre Crisis Global Real Estate Markets Flow

•Invested stock

$3.2 trillion

•Mature/ Highly Mature: 83%•Maturing: 15%•Emerging: 2%

•Investable stock$6.1 trillion

Europe / Russia

•Invested stock

$4.7 trillion

•Total stock $9.2 trillion

Americas Total stock•$9.5 trillion

•Investable stock$6.6 trillion •Invested

stock$1.9 trillion

Middle East / Asia

•Investable stock$3.5 trillion

Sources: RREEF; DTZ; ULI; PwC

Pre-2008 Crisis Inter-regional capital flows of $115bn



•Total stock $5.9 trillion

26

International RE Risk Adjusted Returns?

Returns and Risk of Public Property Securities Markets

(1993-2006, in U.S. dollars)

Source: Morgan Stanley, Global Property Research

Returns and risk for public real estate securities in various regions around the world can produce half of the returns for twice the risk and can produce twice the returns for half the risk depending what you targeted country allocation is.

Returns for Asia were for instance lower than other regions due to problems the region has faced, including a weak Japanese real estate market for more than a decade and the SARS outbreak in 2003

Return Standard

Deviation

U.S. 13.60% 14.90%

Europe 13.90% 14.40%

Asia 7.40% 33.20%

Australia 16.60% 18.20%

27

Correlation in International RE Markets?

International diversification within public real estate equities is beneficial due to the low correlations of public real estate equities between various global regions

Correlation of Public Property Securities Markets

(1993-2006, in U.S. dollars)

U.S. Europe Asia Australia

U.S. 1 0.5 0.32 0.4

Europe 0.5 1 0.34 0.52

Asia 0.32 0.34 1 0.44

Australia 0.4 0.52 0.44 1

Source: Morgan Stanley, Global Property Research

28

Liquid Assets: USD 5,000 billion

Revenues: USD 65 billion

Ratio = 1.3%



Ratio = 0.7%



Ratio = 0.9%



Ratio = 0.9%

• 7 Million People Own > USD 1 Million Liquid Assets (@ 0.1% World Population)

• USD 30 (23 on shore / 7 off shore) Trillion Private Banking Market: + 2% p.a.

Today’s Global Private Banking Market

29

Public and Private Real Estate Room to Grow

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Global North

America

Latin

America

Europe Asia-

Pacific

Middle

East

HNI's Real Estate Investments (2006)

REIT Commercial Residential* * Secondary Residence

Source: Merrill Lynch/Cap Gemini

30

The Luxembourg Fund Center

8 426

4 542

1 839

2 176

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

USA Europe Asia & Pacific

Luxembourg is the second

largest fund center in the

world after the USA

Pre-2008 Crisis Worldwide Mutual Funds

€ billions

Sources: EFAMA & ICI

31

Luxembourg Real Estate Funds: Before the SIF

AUM and Number of RE

Funds

48

80

129

3636

0

5

10

15

20

25

30

35

40

02 03 04 05 06

AU

M

US

D b

ln

0

20

40

60

80

100

120

140

Nu

mb

er

of

su

bfu

nd

s

AUM # (sub)funds

• Huge growth since 2004

• Closed-end and Open-end funds and funds of funds

Reasons for success:

• Strong yet flexible Regulation

• Cheaper for Fund Managers than the US

• Reputation of location

• Centre of sophisticated real estate investment funds

Global promoter base

Global investor base

• Tax efficiency and stability

32

SIF: Market OverviewSpecialized investment funds launched since February 13, 2007

8 1225

38

72

93

115 119

220

0

50

100

150

200

250

2007-

02

2007-

03

2007-

04

2007-

05

2007-

06

2007-

07

2007-

08

2007-

09

2007-

12

33

SIF Launched in Feb. 07 is a Favored Structure

Profile of Luxembourg Investment Funds

Key criteria UCITS Non-UCITS SIF SICAR

Investment

restrictions (eligible

assets)

Restricted Flexible Flexible Moderate

Risk diversification High Medium Low None

Ease of public

distribution

High Medium Low Low

Supervisory

framework

Targeted to

retail investor

protection

Targeted to retail

investor

protection

More flexible More flexible

Time to establish Low - Medium Medium - High Very low Low

Target investors All All Institutional /

HNWI

Institutional /

HNWI

34

The SIF Features are Tailored for Real Estate

Key Features UCITs Non-UCITs SIF SICAR

Umbrella structures Yes Yes Yes Yes(1)

Share-classes Yes Yes Yes Yes

Debt financing No No Yes Yes

Leverage No Yes Yes Yes

Valuation basisProbable realization

value

Probable

realization

value

Fair valueProbable

realization value

Subscription/

redemption priceNAV NAV

As per

offering

document

NAV

NAV frequency

(minimum)Monthly Monthly Annual Annual (1)

Open or closed ended Open ended Both Both Both

Annual Report Yes Yes Yes Yes

Semi-annual report Yes Yes No No

Regulatory Reporting Yes Yes No No

35

The SIF: In a Nutshell

• Eligible investor base: Investment in a

SIF is reserved for “well-informed”

investors requiring a limited level of

protection and looking for investment

flexibility suitable to their particular

expertise and needs.

• Investment flexibility: the range of

assets (nature of assets and/or

associated risks) eligible for a SIF is

broad and consequently includes, but is

not limited to, equities, bonds,

derivatives, structured products, real

estate, hedge funds and private equity

type investments. The SIF should comply

with the general principle of risk

diversification.

• Light supervision

• Organisational adaptability

• Efficient tax regime

Criteria SIF

REGULATORY

Regulated vehicle? Yes

Pre-approval by regulator? No

Other than local GAAP? Yes

Investment restrictions? No

Investment in RE, PE, HF? All

Simplified prospectus

regime?Yes

TAX

Subscription tax? Yes

Income tax? No

Access to DTT? Yes / No

Withholding tax on dividends

paid? (residents / non

residents)

No

Standard VAT rate? 15 %

DISTRIBUTION

Listing possible? Yes / No

Maximum number of

investors?No

Minimum investment

amount?Min. € 125k

Minimum experience

required?Yes

LICENSING

Service providers / persons

subject to regulator's

approval?

• Directors

• Custodian

• Auditor

36

Pension Funds Pooling: Use Luxembourg

• Quantitative benefits:Economies of scales at asset management & custodian bank level up to 0.70% savings

• Qualitative benefits:

Improve measurement/selection of service provider

Enable consistent/centralized corporate governance.

• Multinationals running pension funds in several countries have implemented pension

pooling vehicle

British

Pension

Fund

Irish

Pension

Fund

Chilean

Pension

Fund

Brazil

Pension

Fund

British

Pension

Fund

Irish

Pension

Fund

Chilean

Pension

Fund

Brazil

Pension

Fund

Investments Investments Investments Investments

Depositary bank

Paying agent

Administrative agent

Transfer agent

Auditors

Law consultant

Tax consultant

Asset administrator

Virtual or entity pension pooling

Investments

Shares DepositReal

EstateBonds

Converted in

37

Class Outline

Introduction




Conclusion

38

• Highlights

• Organizational Chart

• The Founders

• An Advisory Firm

a. Falcon Real Estate

• Falcon Offices

• Institutional Relationships

• Falcon vs. NCREIF Property Index

• Current Diversified Portfolio

39

Highlights

• Formed in 1991 by Howard Hallengren and Jack Miller to advise Non-U.S. investors

• Directors with over 100 years combined experience in global real estate investing

• 6 office locations: NYC, Chicago, Miami, Dallas, Washington D.C., San Diego

• Company employs 17 professionals

• Falcon has completed transactions totaling about US$ 7 billion and provides

Asset Management services for commercial real estate in major markets throughout

the United States.

• Performance as of June 30th 2010, since inception in 1991*

13.9% average annual return vs. 6.8% NCREIF benchmark

Annual income return of 8.4%

* based on NCREIF investment performance standards

40

Organizational ChartHoward Hallengren

Chairman

Chief Executive Officer

Jack MillerPresident

MarketingAcquisitions &

UnderwritingAsset Management

Accounting

Reporting & Tax

Amaury de ParcevauxSenior Vice President

Chief Marketing Officer

Europe, Asia, North America

Dan StockalperVice President

Middle-East

Laurence DooleyVice President

Central U.S.

Kenneth LormanSenior Vice President

Senior Acquisition Officer

Eastern U.S.

Adam DoudVice President

Western U.S.

Daniel EpsteinVice President

Eastern U.S.

Norman HillFirst Vice President

Chief Financial Officer

Angela BlecknerSenior Accountant

Tamela NewtonAccountant

Scott SweeneyExecutive Vice President

Head of Asset Management

David Hill

Certified Public Accountant

Southwest & DC


Head of Asset Management

U.S.

Laurence WelshVice President

Southeast & D.C.

Carl OmarkVice President

East Coast & Midwest

Scott BennettFirst Vice President

U.S.

Amaury de ParcevauxSenior Vice President

Chief Marketing Officer

Ken LormanSenior Vice President

Senior Acquisition Officer

Scott BennettFirst Vice President

Chief Operating Officer

Norman HillFirst Vice President

Chief Financial Officer

Daniel EpsteinVice President

Latin America, Spain, Portugal

Timothy PuhekVice President

Western U.S.

Management — Directors


Middle-East

41

Mr. Hallengren is Chairman of Falcon Real Estate

Investment Company, LP. Mr. Hallengren has been

Chairman of Falcon since its inception and has overseen

the growth of the company and the investment strategy

which has delivered the exceptional IRR’s. Prior to forming

Falcon, Mr. Hallengren was Chief Investment Officer and

Product Manager for the International Private Banking

Department of the Chase Manhattan Bank. In that

capacity, he had overall responsibility for the bank’s real

estate investments on behalf of non-U.S. investors. Before

joining Chase, Mr. Hallengren was Chief Investment Officer

at The First National Bank of Chicago. During his tenure

there, he also served as Chairman of the Real Estate

Investment Committee, which supervised the Trust

Department’s real estate investments. Mr. Hallengren is a

graduate of Princeton University and received his master’s

degree in business administration from the University of

Chicago.

Howard E. HallengrenChairman

New York Office

The Founders

Jack D. MillerPresident

Chicago Office

Mr. Miller joined Falcon after serving as Manager of the

Real Estate Investment Division within Private Banking

International at the Chase Manhattan Bank. In that role, he

had direct responsibility for property acquisition, property

management and mortgage financing. Like Mr. Hallengren,

Mr. Miller also came to Chase from The First National Bank

of Chicago, where he served for ten years in the bank’s real

estate investment division. He is a founding member of the

Accounting Standards Committee of the National Council of

Real Estate Investment Fiduciaries, which is the

coordinating group that sets accounting standards for U.S.

institutional investors. Mr. Miller received a Bachelor of

Science degree in accounting and a master of finance in

real estate from De Paul University, as well as a master’s

degree in business administration from the University of

Chicago.

42

An Advisory Firm

We offer a complete real estate investment

management platform, including advice on purchases,

financing, and sales, as well as a comprehensive asset

management service

We customize our approach to meet our

clients’ goals

As the Client’s Advisor on Direct Real Estate

acquisitions, we receive property submissions from

every Brokerage Firm in the country and maintain

close relationships with many of the country’s most

important real estate owners and operators

Our decades-long close relationships with

Brokerage Firms and Ownership provides Clients

with the insight required to successfully bid on

properties

Falcon Real Estate is an investment management

advisory firm – not a Brokerage Firm

We represent our clients as buyers or sellers in a

transaction independent of the Brokerage Firm

We act as our Client’s Agent and Representative in the

United States

We have a fiduciary responsibility to the Client,

which means that we act according to the Client’s

best interest and instructions

Falcon’s Asset Management team selects and

supervises local leasing and property management

agents, monitors and controls all receipts and

disbursements, and provides comprehensive quarterly

reports on each property.

We customize every Asset Management

strategy and budget

Falcon is not related to any other entity of any kind in

the real estate industry in the United States

Therefore, we are totally independent and focused

on meeting the objectives of our clients.

43

Falcon Offices

Broad Coverage of U.S. Market

Chicago

Washington D.C.

New York City

Miami

Dallas

San Diego

6 Falcon Offices

Current Asset Management Assignments

44

BNP Paribas, Global (U.S. Alliance Partner)

Generali Immobiliare, Paris (U.S. Investment Advisor)

Credit Suisse Private Bank, Zürich (Invested on Behalf of Clients)

HSBC Amanah, New York (Managed Real Estate Fund)

Citi Private Bank, London, Abu Dhabi and Geneva (Invested on Behalf of Clients)

Kuwait Finance House, Kuwait (Managed Real Estate Fund)

Capital Trust, London (Advised on Purchase of Properties)

Deutsche Bank Realty Advisors, New York (Advised on Purchase of Properties)

FT Sirius Fund, Hong Kong (Created FT Falcon Asia Ltd. Joint Venture)

Institutional Relationships

45

Track Record: Falcon vs. NCREIF Property IndexAnnual Returns of Falcon vs.

NCREIF Property Index

* Inception Date — January 1, 1991

Source: Falcon Asset Management

The NCREIF Property Index is a commercial real estate index consisting of 6,066 privately

held investment properties with a market cap of $234.5 Billion.

As of June 30, 2010

46

Current Diversified Portfolio

Falcon Portfolio (Market Value)

Industrial

17.24%

Residential/

Development

28.07%

Retail

5.99%

Office:

Single-tenant

24.19%

Office:

Multi-tenant

24.51%

Market Value

Office: Multi-Tenant $401,009,827 24.51%

Office: Single-Tenant 395,835,487 24.19%

Retail 98,007,836 5.99%

Residential / Development 459,500,000 28.07%

Industrial 282,060,184 17.24%

Totals as June 30, 2010 $1,636,413,335 100.00%

Falcon Portfolio (Square Feet)

Source: Falcon Asset Management

Sq. Ft.

Office: Multi-Tenant 1,805,822 14.01%

Office: Single-Tenant 2,090,588 16.21%

Retail 396,922 3.08%

Residential / Development 1,061,327 8.23%

Industrial 7,538,969 58.47%

Totals as of June 30, 2010 12,893,628 100.00%

Industrial

58.47%

Office:

Multi-tenant

14.01%

Office:

Single-tenant

16.21%

Retail

3.08%

Residential/

Development

8.23%

47

b. Investment Process

• Highlights

• Acquisition Process

- Acquisition Process Time Line

• Asset Management

- Asset Management Duties

• Accounting and Reporting

• Case Studies

48

Highlights

Falcon Sourcing Ongoing Oversight

Risk Management

Financial Statements

ACCOUNTING &

REPORTING

ASSET

MANAGEMENTACQUISITION

Due Diligence Tax Optimization

Exit Strategy

49

Review third party reports from lenders, appraisers,engineers, and zoning & environmental agencies

Inspect property

Select on-site team

Lock-in financing and leasing strategies

Insurance review

Finalize pro formaNO

ASSET MANAGEMENT Closing

Property summary and location overview

Rationale for purchase and exit strategy

Due Diligence

Letter of Intent /

Negotiations

Acquisition Process

Full valuation and earnings projections

Analysis of market, location, tenant creditworthiness and debt coverage

Engage attorneys

YES

NO YES

NO YES

Acquisition Committee

50

Acquisition Process Time Line

*Third Party Reports Include: Appraisal, Environmental Inspection, Engineering Report,

Zoning Report, Survey, and Other/Misc. Reports

SNDA - Subordination and Non-disturbance Agreement

51

• Falcon Asset Management team has managed properties throughout the United States

• Falcon’s Asset Management team establishes an overall strategy and budget for each

property, selects and supervises local leasing and property management agents, monitors

and controls all receipts and disbursements, and provides quarterly reports

• Capabilities in all 6 offices allowing us to benefit from local market knowledge

and relationships

• Group consists of 5 senior Asset Managers with strong expertise in all areas

of Asset Management

• Review committee insures best practices to each property

• Argus software expertise allows for detailed and flexible financial projections

Asset Management

52

• Establish overall strategy for each property

• Select and supervise local leasing and

property management agents as required

• Create annual operating and capital

budgets

• Review actual financial results against

budgets on a monthly basis

• Monitor and control all receipts and

disbursements

• Make debt service payments as required

• Make real estate tax payments or confirm

payment as required

Asset Management Duties

• Secure appropriate casualty and liability

insurance coverage

• Negotiate lease terms and work with

outside legal counsel to document such

leases

• Implement a property renovation or capital

improvement program

• Carry-out property site inspections at least

on a quarterly basis

• Coordinate with outside accounting and

legal firms all tax filings and audits

• Provide client with a detailed quarterly

report with financials

53

• Asset Management Review Committee reviews each property on a regular basis and

approves all major property decisions to insure best practices

• Approval of annual operating budgets

• Review and approval of all major property decisions (e.g. sale, financing/re-financing, a major

tenant lease or capital expenditure)

• Review actual results compared to annual budget

• Update on leasing activity and property strategy

• Discussion of major issues regarding each property

• Other Asset Management Controls

• All proposed lease transactions and contracts require approval from Head of Asset

Management

• The only authorized signers to a lease document or contract are the Chairman, President,

Executive Vice President or Senior Vice President

• The handling of all cash receipts and disbursements are subject to formal cash management

policies and procedures

Asset Management Controls

54

• Accounting function is centralized in our Dallas office

• Accounting group consists of 4 experienced accounting professionals including

Certified Public Accountants (CPAs)

• Experienced in fund management accounting and the audit process

• MRI accounting software, the industry standard, is used

• Financial statements and cash account reconciliations are completed on a

monthly basis

• Financial statements are presented to clients on a quarterly basis

• Provides support to third party accountants for tax return preparation and audits

Accounting / Reporting

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Accounting / Reporting

Bank Account Reconciliations

Loan Balances & Escrow Account Reconciliation

Monthly

Quarterly

Annually

Balance Sheet & Income Statementswith Budget Comparisons

Reporting & Analysis

Audited Financial Statements

Operating Budgets and Annual Financial

Reports

Tax Returns

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ACQUISITION STRATEGY

• Premier global retail destination

• Undercapitalized by previous owners

• Retail spaces were outdated and inadequate for

premier tenants

FALCON ASSET MANAGEMENT VALUE-ADD

• Engaged prime leasing agents and consultants to re-position

the property as a pre-eminent retail center with smaller

boutique-like spaces

• Detailed marketing and merchandising strategy and renovation

to implement quality standards for appropriate tenant mix and

shopper profile

• Retained Tiffany & Co. as anchor tenant with 20 year lease

renewal

• Attracted additional exclusive new tenants such as Versace and

Gucci

RESULT

• Purchased for $143 MM in 2000, and sold in 2007 for $275 MM

• Investor IRR 15.8% p.a. over 7 years

Case Studies

2 Rodeo, Beverly Hills, CA

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ACQUISITION STRATEGY

• Attractive, adjoining new buildings four blocks from the White

House

• Strong, growing Washington D.C. office market

• Separate owners; management, tenant and space allocation

inefficiencies

FALCON ASSET MANAGEMENT VALUE-ADD

• Purchased 1201 in 1999 and 1225 in 2000 joining and greatly

expanding tenant space

• Extensive property refurbishment and modernizing

• Major re-tenanting with entire building leased to tenants such

as U.S. Department of Homeland Security, Federal Elections

Commission, and Office of Government Ethics

RESULT

• Total purchase concluded at $112 MM in 2000, sold in 2005

for $215 MM

• Investor IRR 12.0% p.a. over 6 years

Case Studies

1201 and 1225 New York Avenue, Washington, D.C.

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Class Outline

Introduction




Conclusion

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Conclusion

A. Privately Held vs. Publicly Held Real Estate

• Each have their own merit, even if the Privately-held RE is likely to continue to dominate

• Clearly Commercial Real Estate in all its forms will continue to grow for all the reasons we discussed

B. International Perspective• Trend # 1: Hard Assets logic inescapable

• Trend # 2: The Global Real Estate market will continue to integrate

• Trend # 3: The Luxembourg Real Estate Funds will continue to grow

C. Falcon’s Case Study• Add Value with RE Professionals and preserve value for your clients and yourself

• Stream-line and diversify your business model

• Embrace the win-win religion

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Career’s Feedback

• First and foremost: Carpe Diem

• Additional Feedback• Resume – spotless like a new building

• Interview – search the “win-win”… so sell yourself

• Companies to target

RE Companies

Banks (BNP Paribas Real Estate, Morgan Stanley)

• RE Teams

• Private Bank / Wealth Management

Insurance Companies (Allianz, AXA)

Sovereign Wealth Funds (ADIA)

• GREM – perfect G L O B A L platform: US-LatAm-Europe-Asia

• Does Falcon Hire?

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Questions & Answers

Amaury de ParcevauxChief Marketing Officer

Falcon Real Estate Investment Management, Ltd.570 Lexington Avenue, New York, NY 10022

Tel: (212) 271-5445

E-mail: [email protected]

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http://www.falconreal.com/

Appendix 1

a. Falcon Current View on Real Estate Market

b. Our Quarterly Office Market Research / www.falconreal.com

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• U.S. Commercial Real Estate Market

• Why Invest Now?

• How to Succeed In Today’s Competitive Market

• Investment Strategy

• Conclusion

a. Real Estate Market Overview

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Improving real estate fundamentals in most markets

• Increased demand and a reduction in sublease availability have led to the

stabilization of net effective rents (asking rents plus concessions) and vacancies

• Lack of overbuilding in major markets has supported market fundamentals and

should provide opportunities for long-term investors

The U.S. economy continues to show clear signs of improvement with declining

unemployment, 2010 GDP growth of 2.8% and 2011 GDP growth forecasted at 3.2%-

3.6%

Investment activity is increasing, particularly in the 6 major CBD markets (New York,

Washington D.C., Boston, Chicago, San Francisco, and Los Angeles)

Excellent opportunities exist in larger second-tier cities and satellite markets due to

investor focus on the 6 major CBD markets

Competitive debt financing is once again available for quality properties

U.S. Commercial Real Estate Market: OverviewMarket Overview

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Annual CMBS Issuance and U.S. Cap Rates

Source: Commercial Mortgage Alert, PPR, NCREIF, Moody’s Economy.com, PricewaterhouseCoopers, Falcon estimates

Capitalization rates (net operating income divided by purchase price) are declining in many

markets due to greater demand, especially from international investors, limited supply of

properties available for purchase, increased availability of financing, the low interest rate

environment, and expectations of rising rental rates

Cap rates in the six major CBDs have declined from their high point in 2009 to near 2007

levels while cap rates in satellite markets have declined to a lesser degree

While CMBS issuance has not recovered from the levels at the market peak, insurance

companies and some banks have partially filled the void

U.S. Commercial Real Estate Market: Declining Cap Rates

US

D B

illio

ns

5%

6%

7%

8%

9%

0

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250

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CMBS Issuance (billions) Cap Rates

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Moody’s/REAL Commercial Property Price Index

U.S. Commercial Real Estate Market: Historical Prices

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1. Market Fundamentals

2. Unique Timing

3. Growing Economy

Why Invest Now?: Summary

Falcon believes this is an historic opportunity to purchase high-quality

properties at attractive prices and yields

Current Favorable Market Characteristics for Buyers:

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Why Invest Now?: Market Fundamentals

Market Fundamentals Are Improving in Most Markets

Vacancy rates and net effective rents have bottomed out in many markets

• Three consecutive quarters of positive net absorption have been recorded

on a national basis

• Rental rates in some core CBD markets such as Washington D.C., New

York, San Francisco, and Boston are starting to increase

• Landlord concessions have stabilized and are declining in some markets

• As corporate demand begins to return, rental rates should increase more

broadly

Most markets are not suffering from the overbuilding that plagued past downturns

• Limited new construction is expected over the next 3-4 years

• Major markets are generally facing vacancy rates of 10-20%

The economy, which is a leading indicator for the real estate market, is recovering slowly but steadily

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Office Vacancy Rates

Source: Torto Wheaton, Falcon estimates*

Why Invest Now?: Market Fundamentals

Construction as a Percentage

of Existing Inventory

0%

1%

2%

3%

4%

5%

6%

7%

8%

1980-89 1990-99 2000-07 2008-2010*

Office

Retail

Logistics0%

5%

10%

15%

20%

25%

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90

19

91

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92

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*

Suburban Downtown

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Unique Opportunity To Invest As The U.S. Market Recovers

There is currently an opportunity to acquire quality properties at an attractive basis relative

to historical pricing benchmarks

Potential for capital appreciation due to expectations of future rental rate growth

Real estate investments have traditionally been an effective hedge against inflation

International investors are targeting the U.S. real estate market

• According to an AFIRE survey, foreign investors believe the U.S. offers the best market for capital appreciation

• AFIRE’s 2010 survey ranks New York and Washington, D.C. ahead of London and Paris

• International investors view the U.S. as a stable market in times of economic or political uncertainty

Foreign buyers have dominated recent acquisition activity in the major cities

• Falcon began in 1991 during a real estate crisis and advised foreign investors to take advantage of discounted prices resulting from that crisis

Source: University of Wisconsin School of Business James A. Graaskamp Center for Real Estate, Association of Foreign Investors in Real Estate (AFIRE)

Why Invest Now?: Unique Timing

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Recent Economic Indicators Suggest That The U.S. Economy Has Been

Showing Steady Improvement

GDP has grown for 6 consecutive quarters led by increased U.S. consumer spending

The S&P 500 has nearly doubled from the lows reached in March 2009

The unemployment rate has fallen to 9.0% from a high of 10.1% in November 2009

The banking sector has regained strength after surviving the recent crisis

Housing prices appear to have bottomed out in many areas of the country

The federal government’s economic stimulus has contributed to improved consumer sentiment

Why Invest Now?: The Economy is Growing

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How to Succeed in Today’s Competitive Market

Acquiring Properties In the Major Cities Is Very Competitive

Established credibility and a track record with sellers and brokers is crucial to winning a

bidding process

• Buyers are selected based on price, reputation, and ability to close in a timely

manner

Falcon has forged a 20+ year relationship with the brokerage community

Falcon’s successful track record advising investors is widely known

Investors need to make rapid decisions during a bidding process

• Timely internal approval process and open communication with Falcon

• Important to rely on Falcon’s expertise during the acquisition process

Rapid analysis of a large amount of information

Determination of appropriate pricing and bidding strategy

Financial, tax, and legal structuring

Coordination of due diligence

Buyers of trophy properties in major cities may need to conduct upfront due diligence to

increase their odds of winning a bidding contest

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Focus on Class A Single and Multi-Tenant Office

• Offers attractive risk-adjusted returns and long-term stability

• Highest potential for appreciation with additional value enhancement through Falcon’s Asset

Management expertise

• JV partnerships with major operators are a method to access quality properties

• Tenancy

Investment grade single-tenants with long-term leases in critical use properties and

contractual rent escalations

Multi-tenant with dispersed lease expirations and diversified tenant base

• Location

Central Business District locations in cities with growing population, a relatively

strong economy and transportation links

Satellite locations with growing nearby population centers and expanding local

economy with high concentration of office buildings and barriers to new construction

Investment Strategy: Offices

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Retail, Apartments, Logistics, MOB

Retail

Focus on high-traffic in-fill locations with high income, high land costs, and restrictive

planning controls

Neighborhood and community centers with recession-resistant anchor tenants and

minimal in-line shop space

Select high-end retail within top markets

Rental Apartments

Well-located rental apartments are particularly attractive

Collapse of housing and condo markets has led to rising rents and occupancy rates for

apartments

Few rental apartments built in recent years due to emphasis on condominiums

Higher availability of financing

Logistics

Located in distribution hubs (e.g. rail, airports, seaports)

Modern and flexible design

Single or multi-tenant

Medical Office Buildings

Long-term leases to investment grade hospitals in a sector with strong demand

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Boston, Massachusetts

Overview

Seventh largest metropolitan area in the U.S. with 24-hour city environment

Strong tenant base and high barriers to entry

Key industries include finance, technology, biology, education, and healthcare

Economy entered recession later than the rest of the U.S. and has been impacted by decrease in equipment and software investment

Small tenants leasing an average of 10,000 square feet dominate the market

Investment Rationale/Opportunities

Downturns tend to be short and market fundamentals usually reverse quickly and dramatically once business conditions improve

Cambridge sub-market with recession resistant biotechnology companies is particularly attractive

Investment Strategy: U.S. Office Markets

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Chicago, Illinois

Overview

Second largest office market in the U.S.

Location at the center of the U.S. makes it a key transportation and distribution hub

Home to the largest concentration of corporate headquarters in the U.S., including sixty-seven Fortune 500 companies


Low amount of new development with some speculative properties nearing delivery

Higher capitalization rates present opportunities

Solid corporate tenant roster and location is favorable for future demand growth


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Los Angeles County, California (excluding downtown)

Overview

Fifth largest office market in the U.S. and most populous county in the U.S.

Headquarters for seventeen Fortune 500 companies

Just about every industry sector is a major contributor to the economy

Recession resulted in increased unemployment


Limited speculative development

With the employment picture beginning to improve, tenant activity should increase, providing stability to investors

Historically stable office market should become more attractive as the economy continues to improve, providing upside to new investors


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San Francisco, California

Overview

Fifth largest metropolitan area in the U.S.

Diverse range of industries including technology, biotechnology, and finance

Headquarters for many of the world’s leading technology companies (i.e. Google, Yahoo!, Cisco) and one of the largest oil companies, Chevron

Unemployment rate below the national and state of California average


Low amount of speculative development

High-growth technology companies provide future upside


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Washington, D.C.

Overview

Area is home to the U.S. Federal government

Fourth largest metropolitan in the U.S. and highest median household income

Diverse range of industries including government, defense, travel, and education

Unemployment rate below the national average due in large part to the stability provided by the U.S. government


Relatively more stable market fundamentals

Attractive destination for domestic and foreign capital


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Atlanta, Georgia

Overview

9th largest population center in the U.S., referred to as “Capital of the South”

Home to 22 Fortune 1000 companies including Coca-Cola, Home Depot, AT&T, and CNN

Significant population and employment growth over the past decade

Speculative properties scheduled for delivery in the next two years


Institutional buyers may pass over the market in favor of larger markets, creating pricing opportunities

Focus on properties with longer-term leases


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Miami, Florida

Overview

International city serving as the headquarters of Latin American operations for numerous multinational corporations, especially banking institutions and television headquarters

The Port of Miami is one of the largest U.S. cargo ports and also services a huge cruise ship industry

Economy has been adversely impacted by the housing downturn

Unemployment above the national average


Relatively low contraction in rental rates and increase in vacancies

Demand from European and South American investors should support future prices

Suburban markets, such as Coral Gables, with development constraints, are particularly attractive

New properties with solid tenant rosters


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Northern New Jersey (suburban New York)

Overview

Sixth largest office market in the U.S. and 18th largest economy in the world

State with the third highest number of corporate headquarters in the U.S. (54 Fortune 500 companies)

Key industries include pharmaceuticals, telecommunications, insurance, and finance

Recession impacted tenants in the finance, insurance, and real estate sectors


Serves as a back office area for Wall Street, benefiting from corporations’ paring back more expensive space in New York

Larger corporate submarkets have fared particularly well and present opportunities

Reduction in property prices and lack of new development is positive

Sale and leaseback opportunities may arise as corporations seek to monetize their portfolio of real estate holdings


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Seattle, Washington

Overview

Major port city with relative proximity to Japan and China

Headquarters for companies including Microsoft, Starbucks, Amazon, and Costco

Rapidly growing population during the last two decades

Significant amount of speculative properties under construction


One of the highest historical rates of job growth

Diverse economic base

Highly educated workforce

Migration of employers to more dense districts favors investment downtown


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Conclusion

Now is an Ideal Time to Invest in U.S. Commercial Real Estate:

The economy has been growing for the last 6 quarters

U.S. real estate market fundamentals have stabilized

• Vacancy rates have bottomed out in most markets

• Net effective rental rates are stabilizing in most markets and are poised for

future growth

• New construction is limited

Pricing today is below replacement cost

• Potential for value appreciation when the market returns to equilibrium

Recovery in credit markets has begun

Excellent buying opportunities are surfacing today for long-term investors

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2011 Marketing Class Uo W

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