U.S. Real Estate Strategic Outlook by riteshbhansali


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U.S. Real Estate Strategic Outlook

February 2013

RREEF Real Estate
Prepared By:                           Table of Contents
Ross Adams
                                       Executive Summary ................................................................................. 2
Vice President
Industrial Specialist
ross.adams@rreef.com                   The Economy ........................................................................................... 3

Bill Hersler
                                       Capital Markets ........................................................................................ 4
Vice President
Office Specialist
bill.hersler@rreef.com                 Debt Investment ....................................................................................... 7

Ana Leon                               Real Estate Return Performance.............................................................. 8
Assistant Vice President
Property Market Research
ana.leon@rreef.com                     Property Market Fundamentals ................................................................ 9

Alexander Makarovski                   Outlook for the Apartment Sector ........................................................... 10
Assistant Vice President
Performance & Risk Analysis
alexander.makarovski@rreef.com         Outlook for the Industrial Sector ............................................................. 13

Andrew J. Nelson                       Outlook for the Office Sector .................................................................. 16
Retail & Sustainability Specialist
                                       Outlook for the Retail Sector .................................................................. 19

Mark G. Roberts                        RREEF Real Estate U.S. House Portfolio .............................................. 21
Managing Director
Head of Research & Strategy
                                       Sustainability Strategy............................................................................ 23

Alex Symes                             Appendix I: RREEF Real Estate Target Markets .................................... 25
Vice President
Economic & Quantitative Analysis
                                       Appendix II: RREEF Real Estate House Portfolio ................................... 26

Brooks Wells                           Important Information ............................................................................. 27
Apartment Specialist
                                       Global Research Team .......................................................................... 28

Jay Wengang
Performance & Risk Analysis

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                           1
                               Executive Summary
                               As 2013 begins, the U.S. economy and real estate markets would seem to be in a similar po-
                               sition as they were a year ago: recovering slowing, facing stiff legacy headwinds from the re-
                               cession, and still waiting for direction from Washington. But there is much to distinguish this
                               new year from the dawn of 2012, much of it favorable: initial unemployment claims and job-
                               lessness have started a stronger decline; housing prices have finally begun to increase across
                               the nation while housing permits are also rising; and household and corporate balance sheets
                               are in much better shape, setting the stage for greater spending and investment. Additionally,
                               despite widespread fears, our political leaders managed to avert, or at least delay, the “fiscal
                               cliff,” and prospects seem high that deals will soon be struck on other pressing fiscal issues.
                               Expect the first half of 2013 to follow a similar growth trajectory as in 2012, but to accelerate
                               during the second half of the year.

                               Property markets continue to edge further into recovery. Apartments are already back to peak
                               rents in many key markets and vacancies are below their long-term averages. However, for
                               industrial, office and retail properties, growth has been more elusive, with rents still well below
                               prior peaks and vacancies significantly above historical averages. The coming year will be
                               another period of modest improvement, followed by more robust growth in 2014.

                               Real estate investment remains attractive relative to other asset classes in the United States.
                               Yield spreads to 10-year treasuries are historically high. Periods of high real estate spreads
                               typically are followed by several years of outperformance. Meanwhile, new construction re-
                               mains low in all but a few key markets, allowing property fundamentals to continue improving
                               as demand recovers. Finally, debt markets are thawing with traditional lenders starting to
                               loosen standards and more lenders providing debt. Solid returns and increased debt availabil-
                               ity should facilitate greater transaction activity and begin to spread liquidity to more markets.

                               Strategic Recommendations
                               Private Real Estate: Despite forecasts for moderating returns on core real estate during the
                               next five years compared with recent performance, private real estate still ranks as an attrac-
                               tive asset class. Our five-year forecast returns remain essentially unchanged at 7.6% from our
                               Strategic Outlook Mid-Year 2012 Review from September 2012. Relative to the NCREIF
                               Property Index (NPI), we recommend a modest underweight to apartments (22% vs. 25%
                               NPI) given the significant appreciation already achieved and risk of rising home ownership; a
                               significant overweight to industrial (25% vs. 14% NPI) given its strong prospects for income
                               and appreciation over the next five years; modest underweight to office (30% vs. 35% NPI)
                               because of its anticipated late recovery and heavy weighting in the index; and a neutral weight
                               to retail (23%) due to its income stability but forecast for only a modest recovery.

                               Real Estate Securities: Favorable cost of capital and improving property fundamentals
                               should enable REITs to continue to generate low double-digit returns during the coming year.
                               We expect strengthening income growth and expanding dividend payout ratios will provide
                               investors with strong dividend growth during the next three years. This positive momentum in
                               the public markets bodes well for private markets, which typically lag REITs by three to four

                               Real Estate Debt Investment: With real estate markets continuing to recover, attractive op-
                               portunities will emerge for debt investment. Underwriting standards by traditional lenders are

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                            2
                               still relatively conservative, though loosening, leaving room for debt investors to serve the
                               market, particularly for deals seeking higher loan-to-value ratios and equity investors looking
                               to refinance debt issued at the top of the market. Additionally, the expected gap between
                               mortgage maturities and new originations during the next few years will continue to provide
                               opportunities for investment across the risk spectrum. Equity investors will likely increase de-
                               mand for loans throughout the capital stack in 2013, providing opportunities for mezzanine or
                               preferred equity investments. CMBS is also staging a comeback, with originations expected to
                               rise in 2013. With higher liquidity and improving fundamentals, the risk of capital values de-
                               clining in 2013 is low.

                               The Economy
                               The key economic theme for 2013 will be rebalancing. Several positive and negative factors
                               will affect growth, but we anticipate their impacts will be limited. Overall economic and em-
                               ployment growth will match the moderate pace of 2012, with faster growth forecast for 2014
                               and 2015.

                               Consumer spending, which exert-                                    Forecast GDP & Job Growth 2009-2017
                               ed a mildly positive influence on                                                            Jobs              GDP
                               growth in 2011 and 2012, will con-                                                                            RREEF Forecast
                               tinue to be positive during the next                                                                          2.8%3.3% 2.9% 2.6%
                                                                         Annual Percent Growth   3%            2.4%           2.2%
                               couple of years. Substantially low-                                                    1.8%            1.9%
                               er consumer debt loads, stabilizing                               1%                                             2.0% 1.8%
                                                                                                                                      1.5% 1.7%
                               home prices and wealth, and in-                                                            1.2% 1.4%                       1.3%
                               creased access to credit will allow                               -1%
                               consumer spending to grow mod-                                    -2%   -3.1%
                               estly in 2013 and 2014.
                               The factors that were substantial                        2009 2010 2011 2012 2013 2014 2015 2016 2017
                               drags on growth in previous years
                                                                          Sources: IHS Global Insight, RREEF Real Estate.
                               will be either muted or small posi-        As of February 2013.

                               tives going forward. Housing hit
                               bottom in 2012, and is likely to add mildly to growth in 2013 before accelerating in 2014 and
                               2015 to more normal levels. Additionally, state and local government budgets are improving
                               and it is likely that the sector will have either zero or positive job growth for the first time since
                               2010. Stabilization of state and local government is important for economic growth as the sec-
                               tor employs 14% of the U.S. workforce.

                               Domestic risks to long-term growth come primarily from the federal government. The budget
                               deficits will likely result in a prolonged, modest drag on the economy rather than a near-term
                               shock. However, upcoming negotiations on the debt ceiling and budget cuts have the potential
                               for a greater disruption.

                               The primary foreign risks to the U.S. outlook stem from the European debt crisis, the slow-
                               down in the emerging markets, and ongoing geopolitical risks. Although the European debt
                               crisis has remained out of the headlines since the announcement of the Outright Monetary
                               Transactions (OMT) in third quarter 2012, the crisis has not disappeared. The proposed pan-
                               European banking regulations will strengthen the eurozone, but should any member decide to

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                              3
                               leave the euro, the unwinding process could drastically affect the European economy and as
                               a result, negatively impact the United States as well.

                               Additional international risk to the U.S. economy comes from possible further slowing of
                               emerging markets. While these economies have mostly reversed course from slowdowns ear-
                               lier in 2012, an unexpected shock or policy decision could result in an outright recession, re-
                               ducing demand for U.S. imports and buffer rising international labor costs, preventing a rever-
                               sal of the in-sourcing trend. Finally, political risks remain elevated in several Middle Eastern
                               countries, among others—with potential adverse consequences for the world economic out-
                               look should conflict arise further or spread to additional nations.

                               Capital Markets
                               Commercial real estate transaction volume remained robust in 2012, with $252 billion in
                               transactions reported. This volume is up 25% higher over 2011 levels though still barely half
                               of peak volumes achieved in 2007 Much of the increase can be attributed to a one-time surge
                               of transactions in the fourth quarter as investors sought to close deals ahead of expected tax
                               increases. Nonetheless, this volume appears sustainable and should even rise with greater
                               financing availability and capital expanding to a greater number of metros. Transaction vol-
                               umes exceeded their long-term average in only 43% of metros in 2011, but this grew to more
                               than 75% of metros in 2012.

                                                                               Real Estate Transaction Volumes
                                                             Capital Flows 2001-2012 ($Billions)                         2012 Buyer Profile Flow
                                500                                             459
                                350                                 310
                                                                                                                       Inst'l/Eq Fund         Private
                                300                                                                                          29%
                                                                                                                 252                           41%
                                250                           210                                          202
                                150                    130                                           125               Listed/REIT
                                              105                                                                          14%
                                100                                                             61                              Cross-
                                 50                                                                                             Border
                                                                                                                                 8%                   Unknown
                                                                                                                                         User/other     2%
                                        01     02      03     04    05    06     07     08      09   10    11    12

                                Sources: Real Estate Capital Analytics and RREEF Real Estate.
                                As of February 2013.

                               Capitalization (cap) rates stabilized in 2012, moving only slightly lower than a year earlier.
                               Cap rates for warehouse and retail properties, which had not compressed as much as cap
                               rates for other property types, declined the most in 2012, by 40 basis points (bps) and 20 bps,
                               respectively. Still, cap rates remain at historically high spreads to 10-year treasuries. Periods
                               of high spreads to treasuries typically are followed by above-average performance during the
                               following 3 to 5 years.

                               While the top few markets have become expensive, other metros will still be able to provide
                               investment opportunities and capital may be drawn to these markets in 2013 due to higher
                               yields and a greater discount to replacement cost. Capitalization rates will likely decline mod-
                               estly during the coming year, but compression will be the greatest in the markets and sectors
                               that have lagged the recovery.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                            4
                               Apartment and CBD office have the lowest capitalization rates, but for different reasons.
                               Apartment investors are accepting low capitalization rates due to anticipated rising rents
                               translating into NOI grains. CBD office, on the other hand, has high, but improving vacancy
                               rates and investors are willing to accept lower in-place yields to achieve income gains later in
                               the cycle.

                                                                     Current Value Capitalization Rate Trends
                                    Sector                                                                                                         Spot Rate
                                                                                                                                                   As of 4Q2012

                                 Apartments       7%
                                 Industrial       7%
                                                  6%                                                                                                    6.0%
                                 Office           7%
                                 CBD              6%
                                                  5%                                                                                                    4.8%
                                 Office           8%
                                 Suburban         7%
                                                  6%                                                                                                    5.8%
                                 Retail           6%
                                                       2001   2002       2003   2004     2005    2006   2007   2008   2009    2010   2011   2012

                                Sources: NCREIF and RREEF Real Estate.
                                As of February 2013.

                               Investor appetite for real es-                                      Capitalization Rate Spreads to
                               tate will continue to expand in                                        10-Year U.S. Treasuries
                               2013. Elevated spreads to 10-                      Percentage                                                       Percentage
                                                                                    Points                                                           Points
                               year Treasuries will continue
                                                                                       4.5                                                               4.5
                               to attract investors. It is likely                       4                                                                4
                               that Treasury yields will in-                           3.5                                                               3.5
                                                                                        3                                                                3
                               crease from their current
                                                                                       2.5                                                               2.5
                               lows, but rising rates may                               2                                                                2
                               come just as the real estate                            1.5                                                               1.5
                                                                                        1                                                                1
                               markets move further into
                                                                                       0.5                                                               0.5
                               recovery.                                                0                                                                0
                                                                                             1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

                               We expect greater liquidity        Sources: NCREIF, Federal Reserve and RREEF Real Estate.
                                                                  As of February 2013.
                               and higher transaction volume
                               in 2013 facilitated by the increase in debt financing issued at low yields. According to the
                               American Council of Life Insurers (ACLI), fixed-rate mortgages with conservative underwriting
                               were able to secure sub-4.5% interest rates during second quarter 2012. CMBS spreads
                               tightened in 2012 from 150 bps over swaps during the first half to 80 bps by the end of the

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                           5
                               year. The bond market has an increased appetite for CMBS product and new issuance is like-
                               ly to exceed $19 billion for first quarter 2013, which would be the highest level since fourth
                               quarter 2007.

                               The volume of distressed assets will continue to contract in the coming year. Although 2013
                               will be the peak of CMBS maturities, properties not able to be refinanced will be met either
                               with new capital in the form of preferred equity or mezzanine lending, or will cause the legacy
                               CMBS bond holder to take a haircut. Rising property values have given equity owners some
                               breathing room on their loans, but with average values still between 10% and 25% below the
                               peak of the market, there will likely still be some distress.

                               Publicly Traded REITs
                               The REIT sector outperformed in 2012, returning 19.7% according to the NAREIT all equity
                               index, compared with 10.9% for the private real estate market as measured by the NFI-
                               ODCE, with at least some of the outperformance attributable to higher leverage for the public
                               sector. The past year also marked the fourth consecutive year in which REITs outperformed
                               the S&P 500. REITs traded at a premium to their net asset values (NAV) early in 2012 but the
                               spread narrowed and turned to a slight discount in the fourth quarter.

                               Sector performance within the NAREIT index varied substantially during the past year and
                               may portend similar results in the private sector in 2013. After leading the overall index during
                               the previous four years, the apartment sector lagged in 2012. Fundamentals are shifting and
                               investors are aware of supply concerns. However, industrial product has turned around after
                               lagging the overall index for several years, becoming an outperformer in 2012. Investors are
                               moving into the sector as occupancy is recovering and rents beginning to grow. Retail and
                               office returns also accelerated in 2012 due to cap rate declines, as well as NOI growth for
                               retail properties.

                                                       Share Price Premium to NAV vs. Annualized NPI Total Returns
                                                                             NAV Premium (All REITs)                           NPI total return (Lagged 4 quarters)

                                  40%                                                                                                                                                                       40%

                                  30%                                                                                                                                                                       30%

                                  20%                                                                                                                                                                       20%

                                  10%                                                                                                                                                                       10%

                                   0%                                                                                                                                                                       0%

                                 -10%                                                                                                                                                                       -10%

                                 -20%                                                                                                                                                                       -20%
                                                                                           Avg. Premium to NAV since 1990: 2.9%
                                 -30%                                                                                                                                                                       -30%

                                 -40%                                                                                                                                                                       -40%























                                Sources: Green Street Advisors (pre-2001 NAV), NCREIF and RREEF Real Estate (Post-2000 NAV).
                                As of February 2013.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                               6
                               Stock values are currently in line with REITs’ NAV premiums, but property fundamentals are
                               improving and real estate securities continue to have a favorable cost of capital compared to
                               private real estate investors, with unsecured debt and perpetual preferred equity yields at all-
                               time lows. REITs are using this competitive advantage to acquire and, recently, to develop
                               assets at accretive spreads. Additionally, REITs are holding onto cash for investment and
                               keeping dividend payout ratios near the minimum required by law, providing fuel for future
                               transactions. Increasing property-level NOI growth and expansion of the dividend payout ratio
                               is expected to result in investor income growth of 10% annually over the near term. With con-
                               tinued positive fundamentals and low interest rates, REITs should generate low double- digit
                               returns this year.

                               Positive momentum in the public markets bodes well for the private side. Real estate securi-
                               ties tend to lead private real estate by three to four quarters, so returns in the private markets
                               are likely to see a rise during the next year based on recent REIT trends. The accompanying
                               exhibit shows the lag for private real estate returns versus the public market share premium.
                               Additionally, new REITs entering the market in the past year and more expected in 2013
                               equates to more capital coming to the sector. Increased capital typically translates into further
                               prices increases and this should support higher capital appreciation in 2013 on the private

                               Debt Investment
                               Lenders returned to the market in 2012 and competed aggressively for core deals in the top
                               markets. However, even with rates below 4.0% offered for the best assets and below 3.0% for
                               apartments, traditional sources of debt
                                                                           U.S. Fixed Rate CMBS Super Senior AAA
                               remained selective. Although equity inves-           Spread to 10 Year Treasuries
                               tors continued to deliver throughout the    Basis Points
                               year, financing needs for assets with low-     250
                               er credit quality brought CMBS and alter-
                               native financing into the mix.
                               Entering 2013, many institutions are seek-
                               ing to deploy capital that had previously
                               been reserved for an improved market-                 50
                               place, and although they will likely broad-
                               en their underwriting standards, lenders                     1Q      2Q     3Q       4Q      1Q      2Q    3Q 4Q

                               will continue to be selective. Total origina-                          2011                            2012

                               tions increased 15% through the first           Sources: Bloomberg, Morgan Stanley, Federal Reserve.
                                                                               As of February 2013.
                               three quarters of 2012 over the same pe-
                               riod in 2011, according to the Mortgage Bankers Association, and it is likely that originations
                               will continue to increase in 2013. With help from the GSEs, apartment loan standards relaxed
                               in 2012 and lenders are now more willing to invest on new multifamily construction. Additional-
                               ly, compressing spreads in the CMBS market during 2012 proves that there is demand for
                               product adding liquidity to real estate. We estimate that over $19 billion in new securitization
                               will be issued in first quarter 2013 alone, which would be the highest quarterly level achieved
                               since the beginning of the downturn. Independent forecasts for the entire year range from $55
                               billion to $75 billion.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                         7
                                                                                          U.S. CMBS Issuance
                                                              CMBS (L)                             % CMBS of Commercial Mortgage Debt Outstanding (R)
                                  $250                                                                                                                                  25%
                                  $200                                                                                                                                  20%
                                  $150                                                                                                                                  15%
                                  $100                                                                                                                                  10%
                                   $50                                                                                                                                  5%
                                     $0                                                                                                                                 0%
                                            80s 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F
                                Sources: Commercial Mortgage Alert, Federal Reserve.
                                As of February 2013.

                               Growth in real estate transaction volume, combined with the forecasted refinancing of upcom-
                               ing loan maturities and risk-aversion from traditional lenders, will increase demand for subor-
                               dinated debt. The wall of maturing debt will continue to be a risk to the overall commercial real
                               estate market recovery. Although refinancing activity in the CMBS market is expected to peak
                               in 2013, other lenders will have approximately $100 billion maturing between 2015 and 2017.
                               Many of these maturing loans were made during the peak of the last cycle with lower equity
                               requirements, high valuations and/or loose underwriting standards. Additionally, domestic
                               banks are still struggling with portfolios of troubled mortgages and as a result, need to clear
                               their balance sheets of legacy loans before significantly increasing origination. Lenders will
                               need to take losses on some of this debt, unless property owners can secure non-traditional
                               sources of financing. Equity investors will likely increase demand for loans across the stack,
                               providing opportunities for mezzanine or preferred equity investments in 2013.

                               Real Estate Return Performance
                               Capitalization rate compression will likely give way to income growth as a source of excess
                               returns during the next five years. Compression drove performance during the past three
                               years as investors anticipated the recovering economy. Income growth, which should drive
                               returns going forward, will likely accelerate in 2013 for apartment properties, and 2014 for in-
                               dustrial office and retail properties. With that in mind, returns to unlevered real estate will likely
                               moderate going forward, producing an average of 7.6% during the next five years. When
                               compared with 10-year treasury yields which hover in the range of 2%, private real estate is
                               poised to provide an attractive total return risk premium in the range of 5.6% in contrast to its
                               historical level in the range of 3%.

                                                Annual NOI Growth                                                   5 Year Total Returns Forecast

                                            Apartment         Industrial     Office       Retail                         Income Return            Capital Return
                                15%                                                                    10%
                                                                                                                 7.4%                    7.9%          7.6%        7.6%
                                10%                                                                      8%
                                                                                                                 1.9%                    2.3%          1.6%        1.9%
                                 5%                                                                      6%

                                 0%                                                                      4%
                                                                                                                 5.5%        6.1%        5.6%          6.0%        5.7%
                                 -5%                                                                     2%

                                -10%                                                                     0%
                                            2008       2009       2010       2011       2012                   Apartments Industrial     Office        Retail      All NPI

                                Source: NCREIF (NOI growth) and RREEF Real Estate (total returns forecasts).
                                As of February 2013.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                          8
                               During our five-year forecast, industrial and office properties will likely outperform. Income
                               growth for both sectors may underperform in 2013, but will strengthen starting in 2014 and
                               2015, attracting capital to both sectors. Apartment income growth and cap rate compression
                               will decelerate midway through the five-year period, resulting in lower expected total returns.
                               While the retail sector will continue to experience steady NOI growth, gains will be lower than
                               those of the cyclical sectors of office and industrial, resulting in retail underperforming in terms
                               of total return.

                               Property Market Fundamentals
                                                                                    U.S. Vacancy Rate Trends
                                                                               Actual                                                  Projected
                                                           2009            2010      2011         2012           2013       2014         2015      2016         2017

                                Apartment                 7.3%             6.0%      5.2%         4.5%           4.7%      4.8%         5.1%       5.7%         5.4%
                                Industrial               14.3%             14.3%     13.6%        12.8%          12.2%     11.2%        10.7%      10.6%        10.4%
                                Office                   16.6%             16.5%     16.0%        15.5%          14.9%     13.8%        12.8%      12.6%        12.9%
                                Retail                   12.7%             12.9%     13.0%        12.6%          11.5%     10.8%        10.3%      9.9%         9.6%
                                Sources: CBRE-EA (History) and RREEF Real Estate (Forecast).
                                As of February 2013.

                               All property market sectors are firmly into recovery, but each sector is at a different stage of
                               the cycle.

                               Apartments led into recovery and are into the growth phase of the cycle after having com-
                               pleted a third year of solid rent increases buoyed by vacancy rates at cyclical lows. However,
                               growth will likely decelerate as new supply comes online in late 2014 and 2015.

                               The industrial sector is midway through recovery. As occupancy increases and leases made
                               at the peak roll to current market rents, industrial NOI growth will accelerate.

                               The office sector is still in the early to mid-stage of recovery. Vacancy is falling, but remains
                               near cyclical highs. Robust rent growth nationally will likely wait until 2014. However, NOI
                               growth will start to improve this year as office vacancy rates decline.

                               While retail rents moved sideways in 2012, longer lease terms have allowed NOI to continue
                               to grow at a modest pace. There will likely be some positive rent movement in 2013 but
                               stronger growth must wait until 2014.

                                                                      Sector Rent Comparison Summary 4Q2012
                                                                                                  2012 = 100
                                                                                                                                                   Office CBD
                                                                                                                                                   Office Suburban
                                           2007        2008    2009        2010    2011   2012     2013   2014   2015    2016   2017
                                Note: Industrial & Retail rents are NNN.
                                Sources: REIS, CBRE-EA (History); RREEF Real Estate (Forecast).
                                As of February 2013.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                    9
                               Outlook for the Apartment Sector
                               The outlook for apartments remains positive: However, the longevity of the sector’s im-
                               pressive performance now must be considered when investing in apartments. Leading indica-
                               tors remain favorable in the near term and landlords continue to have the upper hand. Longer
                               term, indicators become less positive due to affordability, escalating construction starts and a
                               recovering for-sale housing market. The U.S. vacancy rate for the apartment sector is current-
                               ly in the mid-4% range, roughly 100 basis points below its historic average of 5.5%. The na-
                               tional effective rent growth decelerated from 2011’s 4.2% annual growth to 3.8% in 2012.

                               Strong demographics from Generation Y (or Millennials) are helping apartment fundamentals.
                               The 20 to 34 year-old age-cohorts (prime renting demographic) are expected to grow by 2.4
                               million during the next five years. The overall rate of homeownership fell to 65.4% in the fourth
                               quarter of 2012, tying with the first quarter of 2012 for the lowest rate since 1997. Additionally,
                               after declining below 500,000 in 2008, household formation has accelerated back to an annu-
                               al growth rate greater than a
                                                                   Apartment Market Forecasts - National Fundamentals
                               million. As economic condi-
                                                                                          U.S. Supply/Demand & Vacancy
                               tions improve, we expect the                           Completions        Net Absorption Vacancy Trend
                               homeownership rate could                                                                  Forecast
                                                                          400                                                         8.0
                                                                                             Supply/Demand (ths. of units)
                               rise. While new formation                  350                                                         7.0

                                                                                                                                                                                                                                                    Vacancy Trend %
                               remains below the long-term                                                                            6.0
                                                                          200                                                         5.0
                               average, most new house-                   150                                                         4.0
                               holds are likely going into                100                                                         3.0
                               apartments and fueling de-                   0
                                                                          (50)                                                        1.0
                               mand. Healthy rent growth                 (100)                                                        0.0
                               should continue in the near-
                               term as the pool of renters
                                                                   Sources: CBRE-EA and RREEF Real Estate.
                               increases while the growing         As of February 2013.
                               pipeline of new apartment
                               construction is not delivered until 2014 and 2015.

                               Investors still covet apartment investments due to the recent outperformance, but excess re-
                               turns are decelerating and spreads to other sectors will likely narrow going forward. Multifami-
                               ly transaction volume exceeded every other property type in 2012 by dollar value, and volume
                               accelerated throughout the year. However, as cap rates were already at historic lows (sup-
                               ported by attractive GSE financing), pricing did not move as much. This is most evident in the
                               REIT market where the apartment sector has outperformed in 2010 and 2011, but posted one
                               of the lowest, although still robust, returns in 2012 at 7%. The REIT market often leads the
                               private market by four quarters, and it is likely that the apartment sector will market perform or
                               underperform going forward.

                               Sector Outlook: The apartment market is forecast to produce another year of steady, solid
                               results in 2013 with rent growth forecast to average 3% to 5% - a growth rate that will be well
                               above the 15-year historical average of 1.9%. Market fundamentals are expected to favor
                               apartment landlords for another 12 to 18 months before moderating as a wave of new projects
                               are delivered to the market. In our universe of markets, almost 135,000 units are scheduled
                               for delivery in 2013, nearly double the amount completed in 2012. 1 However, construction will

                                   Across the US, permits were 308,000 in December for non-single family, which indicates development is moving closer to its average of 350,000.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                                                      10
                               be concentrated in the top markets, with one-third of the total in six metros: Washington, Dal-
                               las, New York, Seattle, Austin, and Houston. In addition, ever increasing rents and rising
                               housing affordability are expected to turn more renters into homeowners. With supply and
                               demand fundamentals becoming more balanced, the apartment market is expected to reach
                               equilibrium in the next 12 to 18 months as the vacancy rate returns to the historic average.

                                                                                         U.S. Apartment Rent Growth vs. Vacancy
                                                                           Effective Rent Growth                                                Vacancy Rate                    Average Vacancy 1997-2011
                                                                                                                                                                                                          RREEF Forecast
                                                      4.0                                                                                                                                                                               7.0
                                 Annual Rent Growth


                                                                                                                                                                                                                                              Percent Vacant
                                                      0.0                                                                                                                                                                               4.0

                                                      -2.0                                                                                                                                                                              3.0
                                                      -6.0                                                                                                                                                                              0.0




















                                Sources: CBRE-EA, Axiometrics and RREEF Real Estate.
                                As of February 2013.

                               In addition to new apartment supply, historically high housing affordability could potentially
                               soften demand. The ratio of rent to homeownership costs was at 114% during fourth quarter
                               2012, well above the long term average of 81%. A ratio above 100% signifies homeownership
                               costs are below rent levels for the median household. However, while homeownership costs
                               are low, lending standards for
                                                                             Rent-to-Homeownership Ratio
                               first-time homebuyers are
                                                                            Housing Affordability Continues to Climb
                               high, preventing a mass entry
                                                                                Ratio       Historic Avg. (1996-2011)
                               into the housing market. While                                                         Forecast
                               these standards will loosen            120%
                                                                                                               Rent-to-Ownership Ratio

                               with time, a constrained lend-         110%
                               ing environment should allow           100%

                               demand for apartments to re-            90%
                               main relatively high in the
                               short term.
                               Additionally, homeownership
                               costs vary substantially across
                               the nation. Affordability is ex-      * A rent-to-ownership ratio above 100 means ownership payments
                                                                     (Mortg+Tax+Ins) are cheaper than rent for the median homebuyer.
                               ceptionally high in the exurbs        Sources: Moody's Analytics, U.S. Census, Axiometrics & RREEF Real Estate.

                               and certain markets in the            As of February 2013.

                               Midwest, Southwest and Flori-
                               da, but renting will continue to be the cheaper option in the expensive coastal markets of the
                               San Francisco Bay Area, New York, Southern California, Washington D.C., and the Pacific
                               Northwest. These markets are most capable of outperforming the national average for sus-
                               tained rent growth over the long term.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                                                           11
                                                                                                                                                   Renting vs. Owning in 2013
                                                                                                                                         Renter Saves                                                                                                                       Owner Saves

                                  Monthly Savings*





                                                                                                 San Jose
                                                               San Francisco



                                                                                                                                                                                                                                                                             2013 US AVG.


                                                                                                                                                               Wash DC
                                                                                                                                                   San Diego

                                                                                                                         Orange County

                                                                                                                                                                                                                                                                                                      Los Angeles
                                                                               NYC (Manhattan)

                                                                                                                                                                                                                                                                                                                                  Fort Lauderdale

                                                                                                                                                    2013                             Historic Avg. (1996-2012)

                                  *Difference (or "savings") between the average metro apartment rent
                                  and the housing payment needed to buy the median metro home.
                                Sources: Moody's Analytics, Axiometrics, RREEF Real Estate.
                                As of February 2013.

                               Although the primary risk to our forecast is new supply, ever-rising rents in the face of a weak
                               economy could lead to rental affordability issues. Average effective apartment rents grew 15%
                               since year-end 2009, while personal income declined. Rising rents and declining incomes
                               have pushed the ratio of effective rent to median household income above its historic average
                               24.7%. While rents will continue to rise in the near-term, growth will not be sustainable without
                               rising incomes.

                               Sector Strategies and Megatrends: Despite the favorable indicators, opportunities for in-
                               vestment in the apartment sector for 2013 will become limited. Accordingly, investors should
                               take a tactical approach with re-
                                                                                                  Rent Affordability
                               spect to timing together with market
                                                                                        Tenants Beginning to Feel Pressure
                               and asset selection. Investors can               Year                    Median HHI*              % of HHI Spent on Rent
                               outperform by acquiring high-quality            2012                        $51,310                        24.9%
                               communities in prime low vacancy                2011                        $50,502                        24.3%
                               districts that enjoy strong demand              2010                        $51,625                        22.8%
                               drivers. Markets expected to outper-            2009                        $52,660                        21.4%
                                                                               2008                        $54,349                        22.1%
                               form in the near term include Bos-              2007                        $55,039                        22.0%
                               ton, Denver, Fort Lauderdale, Or-             Historic Average (1996-2011)                                 24.7%
                               ange County, San Diego, San Fran-            * Historical Real Median Household Income for the U.S.
                               cisco Bay Area, Seattle, and West      Source: Moody's Analytics, Axiometrics, Census ACS survey, RREEF Real Estate.

                               Palm Beach.                            As of February 2013.

                               A “Build-to-Core” strategy provides investors with the opportunity to own modern luxury prod-
                               uct in the prime apartment markets at a more attractive basis. Target prime urban districts
                               located in gateway and knowledge-based cities popular with the Millennials, along with select
                               suburban markets that enjoy highly-rated schools, high-median home prices, upscale ameni-
                               ties, and proximity to mass transit.

                               Additional opportunities may exist with repositioning older communities in high-barrier mar-
                               kets. Expensive for-sale housing and lower construction levels will allow investors to create

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                                                                                                                                                                           12
                               value in these projects. Coastal Northern and Southern California, along with South Florida
                               may provide opportunities. However, it is likely too late to execute the same strategy in low-
                               barrier markets.

                               While the construction pipeline poses challenges for investors looking to increase exposure to
                               the sector, the glut of new supply could provide tactical buying opportunities. New apartment
                               communities are under construction in most premier urban districts where it is currently diffi-
                               cult to buy, and the new properties could be available at attractive pricing compared to 2012
                               levels. Some of the top urban districts for multifamily permitting in 2012 include: Houston,
                               Austin, Seattle, Los Angeles, Charlotte, Denver, and Washington.

                               Outlook for the Industrial Sector
                               Steady recovery continues into 2013: The U.S. industrial property market remained resilient
                               in 2012. The property market finished the year on a high note with new demand up 57 million
                               square feet during the fourth quarter, marking the largest quarterly total since 2007 and the
                               tenth consecutive quarter with positive demand. The national vacancy rate fell 30 basis points
                               during the quarter and 70 basis points for the year, the most of the four property sectors. The
                               supply pipeline was modest by historical standards, and effective market rents grew by an
                               estimated 3.4% during the year.
                                                                                                         Greater Number of Industrial Markets
                               Recovery broadened by market and                                               Participating in Recovery
                                                                                                     # of Metros with Positive Demand                                       # of Metros with Negative Demand
                               product type in 2012. Forty of the top
                               50 markets posted positive net ab-
                               sorption and non-warehouse uses                               40

                               commanded a growing share of new                              30
                               demand during the second half of the
                               year. While the warehouse segment
                               will clearly continue to garner a major-
                               ity of new demand, future economic                              0
                                                                                                             2007                  2008                  2009                  2010                  2011              2012
                               growth will increase demand for flex
                                                                                             Sources: CBRE-EA and RREEF Real Estate.
                               and other higher-finish space.                                As of February 2013.

                               Market Outlook: Key indus-
                                                                  Industrial Market Forecasts – National Fundamentals
                               trial demand drivers proved
                               resilient in 2012, although                              Completions        Net Absorption Vacancy Trend
                               somewhat restrained for a                  300                                                           18.0
                                                                       Supply/Demand (MSF)

                               recovery cycle. During the                 200                                                           15.0
                                                                                                                                                                                                                              Vacancy Trend %

                               coming year employment                     100                                                           12.0

                               and population growth, as                     0                                                          9.0

                               well as expanding interna-                (100)                                                          6.0

                               tional trade and retail spend-            (200)                                                          3.0

                               ing should support ware-                  (300)                                                          0.0

                               house demand. Additionally,
                               increased housing construc-         Sources: CBRE-EA and RREEF Real Estate.
                                                                   As of February 2013.
                               tion and demand from U.S.
                               manufacturers and high-tech firms should provide support for multi-tenant industrial proper-
                               ties. Headwinds from relatively tight credit and risk-adverse small business owners will contin-
                               ue in 2013, but we expect better conditions for smaller and mid-sized businesses in the future.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                               13
                               With industrial demand drivers operating at a moderate pace for the next year, broad supply-
                               side threats are at least two years off. We expect a gradual ramp up of industrial construction
                               through 2015, but overall the next development cycle should be somewhat smaller than the
                               last, as the overall pace of economic growth will likely be lower. Growing obsolescence of old-
                               er stock will fuel some near-term replacement supply, as will a shortage of large (600,000
                               square-foot, plus) state-of-the-art bulk warehouses. We expect demand pressure will result in
                               some development in the coastal markets more so than in the Midwest and South, but all re-
                               gions could see moderate levels of bulk warehouse development in 2013 and 2014.

                                                                                                           U.S. Industrial Rent Growth vs. Vacancy
                                                                                     Effective Rent Growth                              Vacancy Rate                             Average Vacancy 1993-2011
                                                                                                                                                                                                                             RREEF Forecast
                                                               12.5                                                                                                                                                                                                 15.0
                                                               10.0                                                                                                                                                                                                 14.0
                                  Annual Percent Rent Growth

                                                                7.5                                                                                                                                                                                                 13.0
                                                                5.0                                                                                                                                                                                                 12.0

                                                                                                                                                                                                                                                                                Percent Vacant
                                                                2.5                                                                                                                                                                                                 11.0
                                                                0.0                                                                                                                                                                                                 10.0
                                                                -2.5                                                                                                                                                                                                9.0
                                                                -5.0                                                                                                                                                                                                8.0
                                                                -7.5                                                                                                                                                                                                7.0
                                                               -10.0                                                                                                                                                                                                6.0
                                                               -12.5                                                                                                                                                                                                5.0
                                                               -15.0                                                                                                                                                                                                4.0
                                Sources: CBRE-EA and RREEF Real Estate.
                                As of February 2013.

                               Effective market rents lifted off                                                                              Metro Vacancy Forecast and Change from Peak
                               bottom for modern stock and grew
                                                                                                                                                       Los Angeles
                               strongly in a handful of leading                                                                                    Seattle-Tacoma                                                                                                   2014
                                                                                                                                                    Orange County
                               coastal markets. Sustained mo-                                                                                               Portland
                                                                                                                                                Palm Beach County                                                                                                   Decline
                               mentum is benefitting landlords of                                                                                                                                                                                                   from Peak
                               modern stock in most major met-                                                                                              Houston
                               ros, but it is still too early to char-                                                                          Riverside/San Bern
                                                                                                                                                        Kansas City
                               acterize that the balance has                                                                                             San Diego
                               shifted in the favor of landlords.                                                                                          San Jose
                               We expect that market rent growth                                                                                   Fort Lauderdale
                               will continue in 2013, via conces-                                                                                                US
                                                                                                                                                          New York
                               sion burn-off and increased con-                                                                                             Orlando
                               tract rents in leading submarkets                                                                                  Dallas - Ft. Worth
                               of core metro markets. It will take                                                                              Central New Jersey
                               another three years of above av-                                                                                  Oakland/East Bay
                               erage rent growth before average                                                                                             Phoenix
                               market rents reach prior peak lev-                                                                                        Wilmington
                               els in a majority of markets.                                                                                       Washington, DC
                               The national vacancy rate is fore-                                                                                          Baltimore
                               cast to stabilize in the 10% range
                                                                                                                                                                                   -6      -4          -2      0       2        4          6          8      10     12     14                    16
                               in 2015. Forecast net absorption                                                                                                                                                         Percentage Points
                               averages 1.3% of total stock, an-                                                                              Sources: CBRE-EA and RREEF Real Estate.

                               nually. This compares to a long-                                                                               As of February 2013.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                                                                                             14
                               term average of 1.2%, and previous recovery- and growth-cycle period averages of 1.5% and
                               2.0% to 2.5%, respectively.

                               Investors should continue to pursue modern functional assets located in our target markets.
                               Future demand will track to well-established global gateways and inland hubs, as well as local
                               markets containing industries with favorable near-term growth prospects like energy, technol-
                               ogy, trade and medical/life sciences. Broad speculative supply is several years off, so there is
                               room for strong occupancy and market rent gains in all of our target markets over the mid-
                               term horizon. These dynamics should translate directly into NOI growth for industrial property
                               owners. We can broadly recommend all the metros in the top half of our vacancy rate ranking
                               exhibit, with the exception of Kansas City, while the bottom half require a higher degree of
                               submarket and product quality selectivity or outright avoidance due to persistent high vacan-
                               cy. Modern vintage, highly functional warehouse product has a distinct advantage in high va-
                               cancy markets like Atlanta and Chicago. The logistics industry is persistently pushing for
                               greater cost efficiency, putting pressure on landlords to have functional product, especially in
                               low-barrier locations.

                               Over the longer term, we advocate overweighting high-barrier markets and limiting core in-
                               vesting in lower barrier markets, which comprise larger Southern and Midwestern metros in
                               addition to Phoenix, Riverside and Philadelphia. High-barrier markets, which are all on either
                               the East or West Coasts, consistently outperform in terms of average vacancy rates. During
                               the past three years, both low- and high-barrier markets achieved strong vacancy declines,
                               but high-barrier markets tend perform better over the long term by weathering growth and re-
                               cession cycles better. High-barrier markets also tend to achieve higher rents and more sus-
                               tained rent growth.

                                                       Vacancy Trends for High-Barrier vs. Low-Barrier Markets
                                                            High-Barrier 2000s Vintage Segment                 All Vintages High Barrier
                                                            Low-Barrier 2000s Vintage Product                  All Vintages Low-Barrier







                                         2000     2001     2002      2003    2004     2005       2006   2007      2008      2009      2010   2011   2012
                                          4Q       4Q       4Q        4Q      4Q       4Q         4Q     4Q        4Q        4Q        4Q     4Q     4Q
                                                High Barrier: LA, OC, SD, SJ, SF OAK, SEA, PDX, NY, NJ, BALT, BOS, W.DC, SO.FLA
                                                Low Barrier: CHI, CIN, COL, INDY, ST.L, KC, ATL, MEM, DFW, HOU, AUS, DEN, PHX, RIV/IE, PHIL

                                Sources: CBRE-EA and RREEF Real Estate.
                                As of February 2013.

                               Market and Sector Strategies: The industrial property sector is currently attracting more at-
                               tention from investors and values are increasing in anticipation of higher growth. However,
                               core investors will still be able to find investment opportunities in 2013 as the sector is still in
                               recovery. Bulk warehouses in the largest gateway and inland hub markets (e.g. Los Angeles,

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                       15
                               Orange County, Riverside, Central New Jersey and Atlanta, Dallas and Chicago) have made
                               solid strides, but there is still more room for occupancy and rent recovery in all markets.
                               Strengthening economic recovery should benefit all industrial segments in 2013. A flight to
                               quality will continue to benefit well-located, modern bulk and multi-tenant warehouse as well
                               as functional class B properties in prime metros and submarkets. New infill supply will be lim-
                               ited in the near term as current lease rates cannot justify new construction with rents sharply
                               below replacement level rents. We continue to be cautious, however, about the prospects of
                               rent recovery for older commodity warehouse and flex space in low-barrier markets.

                               Our top markets for investment during the next few years comprise metros that benefit from
                               some or all of the following: trade linkages to Asia, Mexico/Latin America and Canada, larger
                               populations with above average growth and incomes, transportation hubs, high tech, medical
                               and energy nodes. Demand in the global gateway and top inland hub markets will continue to
                               drive vacancy and rent recovery trends. Strong activity in Atlanta, Chicago and Dallas is ex-
                               pected, pushing these markets into the top ten U.S. metros in terms of net absorption. River-
                               side, Los Angeles, Houston and Phoenix should also exhibit strong demand and occupancy
                               patterns and likely be top performers during the next few years. Markets in California, the Pa-
                               cific Northwest, South Florida and the Northeast are attractive investment targets for higher
                               finish industrial product such as flex and R&D, but only for highly functional assets. Infill multi-
                               tenant warehouse should also be targeted in these high value markets.

                               Outlook for the Office Sector
                               Still Looking for Lift: With only a smattering of markets performing strongly, the last three
                               years have been an arduous ride for the office sector. But, the payoff is coming, and by 2014
                               we should be able to confirm that we are firmly into recovery. Leading submarkets remain
                               clustered in global gateway metros and locations with tech- and energy-rich economies. Even
                               so, the tide has changed in two early recovery markets – New York and Washington D.C. –
                               which were dealt blows by the very sectors that thrust them into recovery (finance and federal
                               government, respectively). Urban submarkets remain key foundations for investment, but se-
                               lect close-in suburban nodes are one year closer to accelerated rent recovery. Still, challeng-
                               es facing demand recovery arise from shadow space lingering in empty cubicles, tenants us-
                               ing space more efficiently, continued financial sector retrenchments, and federal fiscal woes.

                               Sector Outlook: Office ab-                            Office Market Forecasts - National Fundamentals
                               sorption since 2010 has                                                                U.S. Supply/Demand & Vacancy
                               been fairly flat. However,                                               Completions                               Net Absorption                             Vacancy Trend
                               demand should finally begin                                100
                               accelerating in 2013, achiev-                               80
                                                                   Supply/Demand (MSF)

                                                                                           60                                                                                                                            16.0
                                                                                                                                                                                                                                Vacancy Trend %

                               ing more net absorption than                                40
                               in 2012. New construction                                   20                                                                                                                            15.0
                               will double this year, but is                              (20)                                                                                                                           14.0
                               coming off a near-record low                               (40)
                                                                                          (60)                                                                                                                           13.0
                               level, and major additions                                 (80)
                               are still years away. None-                               (100)                                                                                                                           12.0

                               theless, a handful of metros
                               are already seeing a pickup         Sources: CBRE-EA and RREEF Real Estate.
                               in new supply, with Houston,        As of February 2013.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                                16
                               New York and Washington D.C. accounting for one-half of all completions scheduled for 2013.
                               Beyond 2013, we expect to see construction activity reviving in strong locations, such as San
                               Francisco, where projects have recently begun breaking ground.

                                                              Office Absorption vs. Job Growth for Sum of Markets
                                                                          Net Absorption   Office Job Growth
                                                                                                               RREEF Forecast
                                                       200                                                                      1,200

                                                       150                                                                      900

                                Net Absorption (MSF)

                                                                                                                                         Office Employee Growth
                                                       100                                                                      600

                                                                                                                                           (Ths. of Employees)
                                                        50                                                                      300

                                                         0                                                                      0

                                                        -50                                                                     -300

                                                       -100                                                                     -600

                                                       -150                                                                     -900

                                                       -200                                                                     -1,200
                                Sources: CBRE-EA and RREEF Real Estate.
                                As of February 2013.

                               The U.S. vacancy rate ended 2012 at 15.4%, only 50 bps below the 2011 level. However,
                               these figures mask a divergence in performance across the country, in which most metro va-
                               cancies declined 50 bps to 200 bps, but a few saw increases, particularly Washington D.C.,
                               the nation’s second largest office market, which rose 180 bps.

                               Vacancies should tick down by a similar degree in 2013, and should tighten much more no-
                               ticeably during 2014 through 2016, dipping into the 12% range in 2015. As a result, rent
                               growth will be lukewarm this year, but will begin picking up significantly in 2014, with the
                               strongest gains achieved during 2015. Despite only nominal rent growth early in the forecast
                               period, NOI should improve due to declining vacancy.

                               Market Outlook: The office recovery is not yet widespread. Early recovery office markets
                               continue to be those with strong technology, energy, education and healthcare components.
                               Austin, Boston, San Francisco, San Jose and Houston continued to turn in strong perfor-
                               mances, and these metros should lay claim to the highest peak-to-peak rent gains through
                               2017. Most of the early recovery markets have moved out of the top ten for future rent growth
                               during the next five years, but with their early start, these metros will hit their previous peak
                               rents before other markets.

                               New York saw its net absorption last year shrink to one-third of its 2011 level and continues to
                               warrant caution due to its weakened financial sector jobs outlook this year, but we still expect
                               strong rent gains during the forecast period. Washington – the nation’s leading market out of
                               the recession – weakened during 2012 as the metro gave back most of the net absorption it
                               had racked up during the recovery. A restrained near-term outlook on demand, combined with
                               the city’s relatively robust pipeline of new supply, will cause rent growth for the metro to lag,
                               and increases selectivity of investing within the market. In addition, low cap rates in Washing-
                               ton D.C. add to risk in this market.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                        17
                                                                                                                 U.S. Office Rent Growth vs. Vacancy
                                                                                            Effective Rent Growth                                           Vacancy Rate                                         Average Vacancy 1993-2011
                                                                                                                                                                                                                                                            RREEF Forecast
                                                               12.5                                                                                                                                                                                                                                   20.0

                                  Annual Percent Rent Growth
                                                                7.5                                                                                                                                                                                                                                   17.5

                                                                                                                                                                                                                                                                                                                    Percent Vacant
                                                                2.5                                                                                                                                                                                                                                   15.0
                                                                -2.5                                                                                                                                                                                                                                  12.5
                                                                -7.5                                                                                                                                                                                                                                  10.0
                                                               -12.5                                                                                                                                                                                                                                  7.5

                                Sources: CBRE-EA and RREEF Real Estate.
                                As of February 2013.

                               Investment capital remains strongly focused on key submarkets in primary CBDs, but is mov-
                               ing toward suburban and secondary markets. Outside of the top-tier markets, recommended
                               alternatives include Los Angeles, Orange County and San Diego. These metros currently
                               have vacancies higher than the national average, but occupancy gains should climb faster
                               than the U.S. average and put these metros among the top five markets in terms of market
                               fundamentals improvements through 2017. Orange County and San Diego have already ex-
                               perienced declines of 180 bps and 250 bps, respectively, during 2012. And Seattle, whose
                               vacancy declined 170 bps last year, belongs on the list as its downtown continues to benefit
                               from Amazon’s growth and the metro’s strong technology drivers.

                               Oakland/East Bay is forecast to benefit on the coattails of neighboring Silicon Valley and San
                               Francisco, but is more of a cyclical play. Miami is another cyclical metro to watch, although its
                               growth will be more delayed than many. Atlanta and Phoenix – markets dependent upon
                               housing growth – still warrant avoiding. However, these markets are also capable of tremen-
                               dous growth when caught at the right time in the cycle.

                               Sector Strategies and Megatrends: Gateway metros with vibrant downtowns will continue to
                               see outperformance of market fundamentals for core investment strategies. As companies
                               continue to focus on increasing worker productivity and providing environments that attract
                               good employees, locations with amenities and transportation hubs will remain particularly de-
                               sirable, as will buildings possessing high functionality and LEED certification.

                               Not all target office metros are situat-                                                                                                                          CBD vs. Suburban Vacancy
                               ed in central cores. Also likely to thrive                                                                                                                                   CBD                             Suburban                                  Difference
                               are mixed-use environments that are                                                                                                                                                                                                                    RREEF Forecast
                               well-served by public transport, alt-
                               hough generally more automobile-
                               centric than CBD markets. These in-                                                                                                10%

                               clude: West Los Angeles, generally                                                                                                   5%

                               including the corridor from Miracle                                                                                                  0%

                               Mile to Santa Monica in Los Angeles;
                               North Cities, focusing on University
                                                                                                                                                                  Based on selected CBD and suburban submarkets.
                               Town Center, in San Diego; Ir-                                                                                                     Sources: CBRE-EA and RREEF Real Estate.

                               vine/Newport Beach in Orange Coun-                                                                                                 As of February 2013.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                                                                                                                                   18
                               ty; and Coral Gables in Miami. As vacancies in these submarkets tighten ahead of their met-
                               ros, rent spikes should follow.

                               Risks to the pace of recovery in office fundamentals include weak employment outlooks for
                               the finance and federal government sectors, shadow space left behind as employers shed
                               workers faster than space during the prior downturn, and increased emphasis on achieving
                               space efficiencies by tenants. Attesting to the latter two concerns, firms leased only about 80
                               square feet of multi-tenant space per office job added in 2012, half the long-term average
                               space utilization of 163 square feet per office worker. This drag has been incorporated into
                               our forecast, as space usage works its way closer to the long-term average square feet per
                               office worker. A further byproduct of denser occupancies is that this trend could also magnify
                               the importance of floor plate efficiencies and the adequacy of building systems to accommo-
                               date them.

                                                                                                            Office Area per Office Employee
                                                                                                SF/Office Employee                                           Average SF/Employee 1990-2007
                                                                                                                                                                                                                                          RREEF Forecast

                                SF/Office Employee





                                Sources: CBRE-EA, BLS, Moody’s Analytics, RREEF Real Estate.
                                As of February 2013.

                               Outlook for the Retail Sector
                               A Bifurcated Retail Sector Still Struggles to Regroup: Key economic and market funda-
                               mentals are in place to fuel at least a moderate recovery in the retail sector. Retailers are
                               stronger, consumers more solvent, and new retail supply restrained. However, the recovery is
                               proving to be decidedly uneven, with superior markets and shopping centers thriving while
                               their inferior counterparts struggle or fail. Thus, the retail sector overall continues to improve
                               slowly, with tepid leasing just outpacing historically low construction, but the bigger story is the
                               split between winners and losers as vacancies remain well above historical norm.

                               Sector Outlook: Construction continues at a record low pace as investors plow more capital
                               into improving existing assets rather than funding new construction. New development in 2012
                               amounted to only about 10% of its long-term average, and we do not anticipate returning to
                               historical levels for many years, although new supply will continue growing with the recovery.
                               Thus, in the near-term, any new demand translates into occupancy gains. And, there is even
                               better news to report this year. To start, consumers are in their strongest position in at least
                               five years: home sales and home prices are up, foreclosures are down, household debt is
                               down, and jobs and incomes are rising (if slowly). These improvements have driven retail
                               sales above pre-recession peaks in most segments (except housing related).

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                                                                   19
                               Also favorable for the retail sector is the improved financial strength and outlook of the na-
                               tion’s retailers, who, like consumers, are in their strongest position since the recession. The
                               renewed retail sales are an important factor, but retailers are also operating smarter now with
                               stronger balance sheets and better business models. Accordingly, announced store openings
                               far outpace store closings, notwithstanding headlines highlighting the struggles of some prom-
                               inent retail chains. These factors together should limit downside risk for the sector and justify
                               continued investment in better retailer centers.

                               Still, we do not anticipate this recovery to be nearly as robust as in other recent cycles. First,
                               growth is rather limited in all of the key drivers of retail sales demand such as jobs, personal
                               income, housing values, and consumer confidence. Indeed, holiday retail sales in 2012 were
                               up less than 1%, well below industry expectations of 3% to 4% and the slowest since 2008.
                               Second, despite the uptick in leasing, retailers are cautious and are gaining a much greater
                               focus on profitability over market share, which limits new store demand. Smaller store proto-
                               types are also restraining retail space leasing.

                               Third, e-commerce continues to challenge traditional bricks-and-mortar as internet technology
                               transforms both consumer behavior and retailing business models. Finally, the sector suffers
                               from the legacy overhang of obsolete retail space that owners are either unwilling or unable to
                               convert to more productive use. All of these factors act as headwinds to a stronger recovery,
                               despite some otherwise favorable fundamentals.

                               Market Outlook: After stalling out early in 2012, the retail sector’s weak recovery has re-
                               sumed, with retailers leasing slightly more space than they are giving back and investors
                               keeping new construction at historic lows. Currently about 9.0% of shopping center space is
                               vacant, down marginally from 9.3% at the end of 2011, and down only 70 basis points from its
                               peak in first quarter 2010 based on CoStar data. Still, at least the momentum is positive, with
                               occupancy gains in each of the past two quarters following three consecutive quarters without
                               improvement. Meanwhile, rents continue to fall, after hints of stabilization in early 2012 proved
                               ephemeral. CoStar estimates that shopping center rents fell another 1.2% last year, for a total
                               decline of 15% since the market peak.

                               Our forecast calls for grad-         Retail Market Forecasts - National Fundamentals
                               ual market recovery in the                               U.S. Supply/Demand & Vacancy
                               near term in line with recent                        Completions        Net Absorption Vacancy Trend
                               trends, with accelerating              80
                                                                   Supply/Demand (MSF)

                               gains in the following years.          60
                                                                                                                                                                                                                Vacancy Trend %
                                                                      50                                                            11.0
                               We forecast vacancies in               40                                                            10.0
                               community and neighbor-                30
                                                                      10                                                            8.0
                               hood shopping centers to                0                                                            7.0
                               decline slowly from the cur-          (10)
                                                                     (20)                                                           6.0
                               rent level of 12.7% to less           (30)                                                           5.0

                               than 10% by 2015 – as
                               moderate demand absorbs         Sources: CBRE-EA and RREEF Real Estate.

                               existing vacancies with little  As of February 2013.

                               new space added to the market. However, the recovery continues to be decidedly uneven,
                               though more markets are beginning to turn the corner to improvement. Better properties in
                               higher-income supply-constrained locations are firmly into recovery, while weaker centers and
                               markets continue to struggle with store closures, elevated vacancies, and rent declines. The-

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                  20
                               se centers are also more vulnerable to the growing threat posed by online retailing. CoStar
                               reported positive net absorption this year in 91 of the 142 metro areas it tracks (64%), up just
                               slightly from 2011 (62%).

                               Despite firm rent growth at the best-located centers with high occupancies, rents remain stub-
                               bornly flat overall throughout the United States, with only one-third (48) of metro areas report-
                               ing positive shopping center rent movement last year. Moreover, rents remain flat even
                               though sales volume continues to grow, which should provide the foundation for greater future
                               rent growth. This suggests tenants maintain pricing power at all but the best centers. For this
                               reason, we maintain a relatively modest five-year rent growth forecast averaging 3.2% annual-
                               ly, with the greatest growth expected in 2014 through 2016, and peak rents not reached na-
                               tionally again until 2017.

                                                                                                             U.S. Retail Rent Growth vs. Vacancy
                                                                                    Effective Rent Growth                                        Vacancy Rate                                    Average Vacancy 1993-2011
                                                                                                                                                                                                                                    RREEF Forecast
                                                            8.0                                                                                                                                                                                                        13.0

                                AnnualPercent Rent Growth


                                                                                                                                                                                                                                                                              Percent Vacant
                                                            -4.0                                                                                                                                                                                                       6.0

                                                            -6.0                                                                                                                                                                                                       5.0
                                Sources: CBRE-EA and RREEF Real Estate.
                                As of February 2013.

                               While asset selection is particularly important for retail investments, we continue to believe
                               that the markets with the best prospects are the relatively affluent metros having the greatest
                               constraints to supply. Most of these metros are found on the coasts: New York, San Francis-
                               co, South Florida, and Seattle, among others. We also believe in the improving fundamentals
                               found in strongly growing metros such as Austin and Denver. Conversely, with many retailers
                               abandoning secondary markets and second-tier metros, we remain wary of investing outside
                               the top markets, particularly those located in the nation’s faster growing southern metros,
                               which experienced the greatest vacancy spikes and rent declines and will be the slowest to
                               recover. We also are concerned with the assets most vulnerable to e-commerce, such as
                               power centers and commodity retail space, especially those located in non-prime locations.

                               RREEF Real Estate U.S. House Portfolio
                               The RREEF Real Estate House Portfolio is a recommended allocation by property sector for
                               core portfolios in the United States. The RREEF Real Estate House View is formulated using
                               both quantitative and qualitative modeling, integrated with the RREEF Real Estate House
                               View. The resulting weights we believe aid in providing long-term risk-adjusted outperfor-
                               mance to our portfolios versus the market as a whole and against relevant benchmarks and
                               indices. The analysis focuses on the four major property sectors and excludes hotels.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                                                                                                     21
                               The table below summarizes the recommended weightings in comparison with the NCREIF
                               property index (NPI). An active overweight is recommended for the industrial sector, a market
                               weighting to the retail sector and an underweight to the apartment and office sectors.

                                                                   House Portfolio Construction – Sector Allocation
                                                                                                                  Quantitative                                                      Recommended
                                                  NPI                                                                          Qualitative                  House            Active
                                    Sector                               Research Forecasts                         Input1                                                          House Portfolio
                                                 Weights                                                                        Inputs2                    Portfolio3         Bet
                                                                                                                   Weights                                                             Range

                                                               • Strong near term growth.
                                                               • Current rents are already above
                                                                                                  Model sug-
                                                                 the previous peak.                           Largely fully
                                Apartment           25%                                          gests under-                                                  22%            (3%)           17% - 27%
                                                               • New supply and competition        weight
                                                                 from for-sale housing in longer
                                                               • Tenant demand increasing.                                               Attractive
                                                               • Domestic leading indicators                       Model sug-             relative
                                Industrial          14%          positive.                                         gests over-          valuation,             25%            11%            20% - 30%
                                                               • Rents rising, and gain momen-                       weight              poised to
                                                                 tum in next two years.                                                 outperform
                                                               • Vacancy at inflection but still
                                                                 high; new construction low.                       Model sug-          Late recov-
                                Office              35%        • Values below peak and below                      gests under-         ery but get-            30%            (5%)           25% - 35%
                                                                 replacement cost except in                         weight             ting closer
                                                                 prime markets.
                                                               • Bifurcated market and asset                                           Stable cash
                                                                 selection is critical.                            Model sug-
                                                                                                                                       flow; muted
                                Retail              23%                                                            gests over-                                 23%             0%            18% - 28%
                                                               • Consumer confidence improving                                           recovery
                                                               • Construction at historic lows                                           forecast
                                Hotel                3%        N/A                                                Underweight                N/A                0%            (3%)              0%
                                 Quantitative inputs based on RREEF Real Estate Quantitative Allocation Model.
                                  Qualitative Inputs include inputs from Transactions, Asset Management and Portfolio Management teams.
                                  House Portfolio is the target allocation that incorporates both qualitative and quantitative views in addition to tactical and strategic considerations.
                                Source: NCREIF and RREEF Real Estate.
                                As of February 2013.

                               Apartments – Underweight: Apartment property fundamentals have recovered and are
                               providing robust NOI growth, with low income yields. As rent growth slows in the sector, total
                               returns will begin decelerating. With this in mind, the RREEF Real Estate House Portfolio
                               suggests underweighting the apartment sector with a 22% weighting.

                               Industrial – Overweight: The overweight to the industrial sector is due to improving funda-
                               mentals leading to NOI growth, as well as high cap rate spreads relative to the other property
                               types. Overall, the industrial sector is expected to outperform the NPI during the next five
                               years and the RREEF Real Estate House Portfolio suggests an allocation of 25%.

                               Office – Underweight: While the office sector is expected to outperform the NPI during the
                               next five years, the NPI is heavily weighted to the sector, so underweighting would be pru-
                               dent. Even with an underweight on the sector, office is the most heavily weighted sector in the
                               RREEF Real Estate House Portfolio at a 30% allocation. Additionally, the office sector is likely
                               to perform better midway through the five-year period, and it may be advantageous to wait in
                               metros lagging the most.

                               Retail – Market Weight: Retail has performed well during the last few years, and property
                               fundamentals have strengthened for the best properties, but the recovery is forecast to be
                               only moderate. The index is expected to market perform during the next few years and as
                               such the RREEF Real Estate House Portfolio suggests market weighting the sector at a 23%

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                 22
                               Sustainability Strategy
                               In addition to the traditional market and financial risk factors that must be considered in capital
                               allocations, investors increasingly consider the sustainability of the assets they acquire and
                               how they are managed. This is particularly true for real property markets, where a diverse set
                               of economic, market and regulatory forces continue to converge and move the industry to
                               adopt practices and take actions that increase the efficiency and overall quality of the com-
                               mercial building stock.

                               According to a March 2012 survey conducted by JCI 2, the interest in sustainability by global
                               executives and building owners responsible for energy management and investment deci-
                               sions in commercial and public-sector buildings increased to 85% globally, up from 70% in
                               2011 and 60% in 2010. Across all regions, energy cost savings is the greatest motivation for
                               such focus. The actions of governments through regulations and incentives are a consistently
                               strong motivator in developed economies, while energy security is a greater factor in develop-
                               ing countries. Interest in “green” buildings also continues to grow, as 44% of respondents in-
                               dicated their organizations planned to pursue voluntary green building certifications for exist-
                               ing buildings in the next year, up from 35% in 2011.

                               Building on previous research linking green building labels and high energy ratings to value in
                               the United States, United Kingdom and Australia, a study published in 2012 of U.S. REITs 3
                               showed that stock prices already reflect the higher cash flows deriving from investments in
                               more efficient properties. The same study showed that achieving green labels and ratings
                               reduces market beta, which translates into a reduced probability of incurring a loss. The two
                               main identified drivers are lower occupancy risk and less exposure to energy price fluctua-
                               tions. The statistically significant findings showed that, on average, a one percent increase in
                               the weight of green properties within an overall REIT portfolio was found to decrease market
                               beta by 0.14 for LEED-certified properties and by 0.01 to 0.03 for Energy Star-certified proper-

                               In the wake of Hurricane Sandy, which hit the East Coast of the United States at the end of
                               October 2012, building resiliency and climate change preparedness have entered the conver-
                               sation as another important factor in future location decisions of corporations, which could
                               impact long-term asset values. Throughout the New York and New Jersey region, major ten-
                               ants were forced to either pursue short-term leases in alternative spaces, or crowd into unaf-
                               fected offices that they already lease in other parts of the city or region 4. In Lower Manhattan
                               alone, nearly one-third of the 101 million square feet of office space was either closed, pow-
                               ered by generators or had no heat due to the flooding. Investors are now realizing they must
                               thoroughly consider vulnerability to weather extremes and their potential impact on value. In-
                               terestingly, most “green” building labels are designed to measure impact on the environment,
                               but not to respond to the impacts of the environment. The very definition of “sustainability”
                               may expand in light of this and other like major events.

                               More than 130 port cities and U.S. $3 trillion of assets are at risk globally from extreme
                               weather and sea-level rise, according to a study by the OECD 5, and a number of global gate-

                               2 Johnson Controls, International Facility Management Association and the Urban Land Institute (2012): “2012 Energy Efficiency Indicator: GLOBAL Results
                               3 Eichholtz, P., et al., Portfolio greenness and the financial performance of REITs, Journal of International Money and Finance (2012), doi:10.1016/j.jimonfin.2012.05.014
                               4 “Future Is in Limbo for the Damaged Buildings Close to the Water’s Edge,” New York Times, November 5th, 2012, N. R. Kleinfileld
                               5 http://www.oecd-ilibrary.org/content/workingpaper/011766488208

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                 23
                               way cities rank among the top 20 by total asset value at risk 6. As the impacts of climate
                               change cause large-scale damage, national and international support for both more regulation
                               on the public side, and more efficient buildings from tenants should only increase, further re-
                               defining standards of institutional-quality buildings and the responsibilities of fiduciaries. Ener-
                               gy benchmarking and disclosure requirements continue to proliferate globally, just one exam-
                               ple of how government is becoming increasingly involved in guiding improvements to energy
                               efficiency, rising transparency and availability of data.

                               As more information on energy and sustainability becomes available – both in the public do-
                               main and privately – more sophisticated investment decisions related to improving sustainabil-
                               ity performance will become integrated into strategic decision-making. As highlighted in our
                               2012 Metrics White Paper, in order to improve such performance, investors must focus on
                               metrics that can be consistently and accurately measured over time – and facilitate the kinds
                               of investment decisions required to improve sustainability performance – most pointedly, cost
                               and consumption data that is normalized and placed within the appropriate context.

                               Accordingly, sustainability considerations are becoming an increasingly important and integral
                               component of commercial real estate investment decisions. In 2012, almost 450 property
                               companies and funds around the world participated in the Global Real Estate Sustainability
                               Benchmark (GRESB), providing aggregate information for 36,000 properties, and covering
                               U.S. $1.3 trillion in AUM, which represents a 30% increase in AUM over 2011. Of course,
                               market standards and government regulations vary widely by geography and product type,
                               requiring that investors understand the nuances of local environmental standards and regula-
                               tions as well as the traditional market and financial factors that underpin investment decisions.
                               Responsible fiduciary practices demand that investment managers possess and apply such
                               knowledge to identify and manage the risks and opportunities that sustainability presents in
                               the same manner that they do more traditional ones.

                               6 “Top 20 Cities with Billions at Risk from Climate Change,” Bloomberg, July 5th, 2012, E. Roston

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                               24
                               Appendix I: RREEF Real Estate Target Markets
                               Investible Metros: RREEF Real Estate screened top U.S. metros, which represent 86% of
                               the NCREIF National Property Index (NPI), and identified the investment markets for each
                               property sector that we believe have the best prospects for superior performance during the
                               market cycle or a portion of it. This metro selection is based on property market size, liquidity,
                               growth characteristics, income, historical returns and other factors indicative of future perfor-
                               mance. The list of these metros remains generally static, although some metros may be add-
                               ed or subtracted over time due to structural market changes.

                               Target Investible Metros: These are a subset of the universe of investible metros and in-
                               clude markets expected to outperform or market perform during the next three to five years.

                                                                                      RREEF Target Markets Table
                                                                          Target Investible Metros                             Investible Metros
                                             Market                            Apartments                        Industrial                         Office              Retail*
                                Atlanta                                                                                                                                
                                Austin                                                                                                                                 
                                Baltimore                                                                             
                                Boston                                                                                                                                  
                                Chicago                                                                                                                                
                                Dallas                                                                                                                                 
                                Denver                                                                                                                                 
                                Fort Lauderdale                                                                                                                        
                                Houston                                                                                                               
                                Long Island                                                                                                                               
                                Los Angeles                                                                                                                            
                                Miami                                                                                                                                  
                                Minneapolis                                                                           
                                New York                                                                                                                               
                                Northern New Jersey                                                                                                                     
                                Oakland / East Bay                                                                                                                     
                                Orange County                                                                                                                          
                                Philadelphia                                                                                                                             
                                Phoenix                                                                                                               
                                Portland                                                                                                                               
                                Riverside                                                                             
                                San Diego                                                                                                                              
                                San Francisco                                                                                                                          
                                San Jose                                                                                                                               
                                Seattle                                                                                                                                
                                Toronto (Canada)                                                                       
                                Washington DC                                                                                                                          
                                West Palm Beach                                                                                                                        
                                Total                                                 26                               25                              21                 22
                                *For retail properties, the top two centers in most major markets would also be recommended in addition to the list of target metros.
                                Source: RREEF Real Estate.
                                As of February 2013.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                              25
                               Appendix II: RREEF Real Estate House Portfolio
                               Scenario Analysis: The following table provides a check on our allocation recommendation
                               and shows a historical view of how our recommendation would perform during distinct cycles
                               in the real estate market over the last 24 years. In each instance, our recommendation would
                               result in superior risk-adjusted performance as evidenced by the comparison of the Sharpe
                               ratio relative to the NPI. In addition, the recommendation should be expected to produce ex-
                               cess performance in all but one period, 2004Q1-2007Q2. In this instance, the overweight in
                               NCREIF to the office sector produced better relative performance when compared to the
                               House portfolio. In addition, we also seek to achieve appropriate risk-adjusted excess per-
                               formance through prudent market and asset selection as described in the sections above.

                                                                         Results of House Portfolio Scenario Analysis
                                                                                                      Apartment                    Industrial                    Office                      Retail

                                   House Portfolio Recommendation                                         22%                         25%                         30%                         23%
                                                                                        Scenario I                                  Scenario II                                  Scenario III
                                                                                    (1989Q1 – 1993Q4)                           (1994Q1 – 1998Q4)                            (2001Q1 – 2003Q4)
                                                                                    NPI                House                    NPI                House                    NPI                 House
                                                                                  Returns             Portfolio               Returns             Portfolio               Returns              Portfolio

                                   Annualized Total Return                        0.20%                0.63%                  10.81%               11.33%                  7.67%                8.31%
                                   Volatility                                     3.59%                3.48%                   2.18%               1.91%                   1.14%                1.11%
                                   Sharpe Ratio                                    (1.70)              (1.69)                   0.51                 0.72                    0.23                0.53
                                                                                                  Scenario IV                                                         Scenario V
                                                                                              (2004Q1 – 2007Q2)                                                   (2007Q3 – 2012Q4)
                                                                                    NPI Returns                 House Portfolio                        NPI Returns                  House Portfolio

                                   Annualized Total Return                            17.08%                          17.06%                               3.81%                           3.78%
                                   Volatility                                          1.87%                           1.87%                               8.23%                           8.05%
                                   Sharpe Ratio                                          3.98                           3.95                                (0.27)                         (0.28)

                                   Note: Risk Free Rate used for Sharpe Ratio calculation is the average 10-Year Treasury Yield for the relevant period. For illustrative
                                   purposes only. House Portfolio Returns are shown gross of advisory fees. Performance would have been lower if fees had been
                                   shown. Please see "Important Notes" for more information. Represents back-tested performance. Please see disclosure at bottom of
                                   page for more information regarding the use back-tested performance. Past performance is no guarantee of future results 7.
                                   Sources: NCREIF and RREEF Real Estate.
                                   As of February 2013.

                                 Simulated/Back-tested Performance: Please note that simulated/back-tested performance results have inherent limitations. The performance results do not represent
                               results of actual trading using client assets, but were obtained by the retroactive application of constraint assumptions to actual allocations. No representation is being
                               made that any account will achieve profits or losses similar to those shown. These simulated returns do not reflect the deduction of investment advisory fees. A client’s
                               return will be reduced by advisory fees and any other expenses that may be incurred in the management of its investment advisory account. Past performance is not
                               guarantee of future results.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                                                     26
                               Important Information
                               © 2013. All rights reserved. RREEF Real Estate, part of RREEF Alternatives, the alternative investments business of Deutsche Bank’s
                               Asset & Wealth Management division, offers a range of real estate investment strategies, including: core and value-added and opportun-
                               istic real estate, real estate debt, and real estate and infrastructure securities.
                               In the United States RREEF Real Estate relates to the asset management activities of RREEF America L.L.C., and Deutsche Investment
                               Management Americas Inc.; in Germany: RREEF Investment GmbH, RREEF Management GmbH and RREEF Spezial Invest GmbH; in
                               Australia: Deutsche Asset Management (Australia) Limited (ABN 63 116 232 154) an Australian financial services license holder; in
                               Japan: Deutsche Securities Inc. (For DSI, financial advisory (not investment advisory) and distribution services only); in Hong Kong:
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                               agement (Hong Kong) Limited (for RREEF Real Estate’s real estate securities business); in Singapore: Deutsche Asset Management
                               (Asia) Limited (Company Reg. No. 198701485N); in the United Kingdom: Deutsche Alternative Asset Management (UK) Limited,
                               Deutsche Alternative Asset Management (Global) Limited and Deutsche Asset Management (UK) Limited; in Italy: RREEF
                               Fondimmobiliari SGR S.p.A.; and in Denmark, Finland, Norway and Sweden: Deutsche Alternative Asset Management (UK) Limited and
                               Deutsche Alternative Asset Management (Global) Limited; in addition to other regional entities in the Deutsche Bank Group.
                               Key RREEF Real Estate research personnel are voting members of various RREEF Real Estate investment committees. Members of the
                               investment committees vote with respect to underlying investments and/or transactions and certain other matters subjected to a vote of
                               such investment committee. Additionally, research personnel receive, and may in the future receive incentive compensation based on the
                               performance of a certain investment accounts and investment vehicles managed by RREEF Real Estate and its affiliates.
                               This material was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive
                               it. It is intended for informational purposes only. It does not constitute investment advice, a recommendation, an offer, solicitation, the
                               basis for any contract to purchase or sell any security or other instrument, or for Deutsche Bank AG or its affiliates to enter into or arrange
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                               any warranty as to the accuracy, reliability or completeness of information which is contained in this document. Except insofar as liability
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                               change. This document is only for professional investors. This document was prepared without regard to the specific objectives, financial
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                               An investment in real estate involves a high degree of risk, including possible loss of principal amount invested, and is suitable only for
                               sophisticated investors who can bear such losses. The value of shares/ units and their derived income may fall or rise. Any forecasts
                               provided herein are based upon RREEF Real Estate’s opinion of the market at this date and are subject to change dependent on the
                               market. Past performance or any prediction, projection or forecast on the economy or markets is not indicative of future performance.
                               The forecasts provided are based upon our opinion of the market as at this date and are subject to change, dependent on future changes
                               in the market. Any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets is
                               not necessarily indicative of the future or likely performance.
                               Certain RREEF Real Estate investment strategies may not be available in every region or country for legal or other reasons, and infor-
                               mation about these strategies is not directed to those investors residing or located in any such region or country.
                               As noted in the performance tables and charts included herein, investment management fees have not been deducted. In the event that
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                               account appreciated by 10% a year for five years, the total annualized return for five years prior to deducting fees at the end of the five-
                               year period would be 10%. If total account fees were 0.10% for each of the five years, the total annualized return of the account for five
                               years at the end of the five-year period would be 9.89%. Past performance is not indicative of future results.
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                               agement (Australia) Limited or any other member of the Deutsche Bank Group. Deutsche Asset Management (Australia) Limited is not an
                               Authorised Deposit taking institution under the Banking Act 1959 nor regulated by the Australian Prudential Authority. Investments are
                               subject to investment risk, including possible delays in repayment and loss of income and principal invested.
                               For Investors in Hong Kong:
                               Interests in the funds may not be offered or sold in Hong Kong or other jurisdictions, by means of an advertisement, invitation or any other
                               document, other than to Professional Investors or in circumstances that do not constitute an offering to the public. This document is
                               therefore for the use of Professional Investors only and as such, is not approved under the Securities and Futures Ordinance (SFO) or the
                               Companies Ordinance and shall not be distributed to non-Professional Investors in Hong Kong or to anyone in any other jurisdiction in
                               which such distribution is not authorised. For the purposes of this statement, a Professional investor is defined under the SFO.

RREEF REAL ESTATE U.S. Real Estate Strategic Outlook | February 2013                                                                                                      27
Office Locations:            Global Research Team
Chicago                      Global
875 North Michigan Avenue
                             Mark Roberts
41st Floor
                             Head of Research & Strategy
IL 60611-1901
United States
Tel: +1 312 266 9300         Americas
                             Ross Adams                              Alexander Makarovski
Frankfurt                    Industrial Specialist                   Performance & Risk Analysis
Mainzer Landstraße 178-190   ross.adams@rreef.com                    alexander.makarovski@rreef.com
60327 Frankfurt am Main
Germany                      Bill Hersler                            Alex Symes
Tel: +49 69 71704 0          Office Specialist                       Economic & Quantitative Analysis
                             bill.hersler@rreef.com                  alex.symes@rreef.com
One Appold Street            Ana Leon                                Brooks Wells
London EC2A 2UU              Property Market Research                Apartment Specialist
United Kingdom               ana.leon@rreef.com                      brooks.wells@rreef.com
Tel: +44 20 754 58000
                             Andrew J. Nelson                        Jay Wengang
New York                     Retail & Sustainability Specialist      Performance & Risk Analysis
345 Park Avenue              andrewj.nelson@rreef.com                jay.wengang@rreef.com
24th Floor
New York                     Jaimala Patel
NY 10154-0102                Quantitative Strategy
United States                jaimala.patel@rreef.com
Tel: +1 212 454 6260

San Francisco
101 California Street        Simon Durkin                            Maren Vaeth
26th Floor                   Head of Europe                          Property Market Research
San Francisco                simon.durkin@rreef.com                  maren.vaeth@rreef.com
CA 94111
United States                Jaroslaw Morawski                       Simon Wallace
Tel: +1 415 781 3300         Property Market Research                Property Market Research
                             jaroslaw.morawski@rreef.com             simon.wallace@rreef.com
One Raffles Quay             Arezou Said
South Tower                  Property Market Research
Singapore 048583             arezou.said@rreef.com
Tel: +65 6538 7011
                             Asia Pacific
Floor 17                     Leslie Chua                             Minxuan Hu
Sanno Park Tower             Head of Asia Pacific ex-Japan & Korea   Property Market Research
2-11-1 Nagata-cho            leslie.chua@rreef.com                   minxuan.hu@rreef.com
Tokyo                        Koichiro Obu                            Natasha Lee
Japan                        Head of Japan & Korea                   Property Market Research
Tel: +81 3 5156 6000         koichiro.obu@rreef.com                  natasha-j.lee@rreef.com


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