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					July 2006 Volume 10 Number 5

Global Real Estate Now
Insights, observations and research from PricewaterhouseCoopers international
real estate accounting, tax and business advisory services professionals.*
2   Real estate investment – a global market emerges
    By Dr. Jane Murray, Asia Pacific Head of Research, Jones Lang LaSalle and
    Pádraig Brown, International Capital Group, Jones Lang LaSalle

12 The Gulf Region: An unparalleled growth curve led by Dubai
    By Ailsa Pollard, Advisory Director, Dean Rolfe, Tax Partner, and Stuart Smith,
    Advisory Partner, PricewaterhouseCoopers, Middle East
    The Gulf Region is at the forefront of major economic development initiatives in
    the Middle East.

23 Local real estate funds come to Central Europe
    By Glen Lonie, CEE/CIS Real Estate Partner, and Zenon Folwarczny, Manager,
    PricewaterhouseCoopers, Prague
    New Czech fund structures may help widen the property playing field
    in Central Europe.

26 View from Germany: The consideration of vacancy in
   property valuation
    By Florian Hackelberg, Senior Consultant, PricewaterhouseCoopers Real Estate,
    Berlin, Germany
    Vacancy considerations involve more than just empty space.

33 Uruguay: A land of opportunity
    By Daniel Garcia Peleteiro, Partner, Daniel Porcaro, Executive Director,
    Real Estate Services, PricewaterhouseCoopers, Uruguay, and Martin van der Zwan,
    Senior Manager, PricewaterhouseCoopers, Amsterdam
    Uruguay is on its way to becoming a beachhead of economic stability
    and opportunity.

40 No slowdown in US property markets,
   PricewaterhouseCoopers survey finds
    By Peter F. Korpacz, Director, PricewaterhouseCoopers Global Strategic Real Estate
    Research Services Group, Baltimore and Susan M. Smith, Manager,
    PricewaterhouseCoopers Real Estate Business Advisory Services, New York
    Survey says – US commercial real estate remains a strongly favored alternative
    for investors.

49 Global Real Estate IT Implementations: Logistical and
   Control Considerations
    By Scott Williamson, Senior Manager, Systems and Process Assurance,
    PricewaterhouseCoopers, McClean, VA, and David Yakowitz, Director, Advisory
    Performance Improvement, PricewaterhouseCoopers, Chicago, IL
    Meeting regulatory and reporting challenges through information technology.
Dear Reader:
Welcome to the July 2006 edition of PricewaterhouseCoopers Global Real
Estate Now magazine.

If anyone still has doubts about the durability of the global property trend, they
need only peruse our current issue for a glimpse of reality.

In particular, I would like to point out    Region weigh in on the tremendous
our feature article titled “Real estate     growth that is taking place in a feature
investment – a global market emerges”       article that we expect will become a
written by our industry colleagues at       regular “Eye on the Middle East”
Jones Lang LaSalle, Dr. Jane Murray,        component of our worldwide coverage.
Asia Pacific Head of Research and
                                            In addition, we are pleased to offer
Padraig Brown, of JLL’s International
                                            updates on developments in both
Capital Group. Their guest contribution
                                            Germany and the Czech Republic in
stems in part from the JLL annual Global
                                            our “Eye on Europe” section, as well as
Capital Flows study, which tracks real
                                            a close look at the rapidly emerging real
estate investments and capital flows in
                                            estate market in Uruguay (“Eye on the
over 100 markets worldwide and
                                            Americas”). Finally, our regular Tech
analyses more than 5,000 individual
                                            Corner contributors offer practical
transactions across Europe, North
                                            guidance to players on the world
America and Asia Pacific.
                                            property stage with their article:
Readers will no doubt come away with        “Global real estate IT implementations:
the knowledge that the global real estate   Logistical and control considerations.”
market is both active and growing.
                                            As we go to press, new legislation
Thanks to Dr Murray and her colleagues
                                            is imminent concerning the
for their hard work and input.
                                            establishment of UK REITs. Look for
Likewise, our American                      commentary on this new development
PricewaterhouseCoopers colleagues           as well as insights into other trends
also weigh in with a survey of their own    affecting the evolving global property
– the Korpacz Real Estate Investor          market in our November issue.
Survey®, which tracks the top US
                                            Kind regards
metropolitan markets and the various
commercial real estate industry sectors
on a quarterly basis. Readers who are
interested in investing in any of these
areas should consider the Korpacz
                                            Simon Jeffreys
survey a “must” read.
                                            Global Investment Management & Real
One of the most active developing real      Estate Leader
estate markets in the world today is in
the Middle East – in particular, the
emirates of the Gulf Region. In this
issue, our colleagues based in the Gulf
Real estate investment –
a global market emerges

By Dr. Jane Murray, Asia Pacific Head of Research, Jones Lang LaSalle and
Pádraig Brown, International Capital Group, Jones Lang LaSalle
                               PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE                        3

                             Real estate markets are globalising rapidly.
                             Once dominated by local entrepreneurs, commercial
                             real estate is becoming an increasingly global business
                             as investors search across national borders for
                             enhanced returns and diversification.

Direct commercial real       Increased attention from international           and now account for 35% of total
                             players has made local markets                   transactions. Inter-regional2 investment
estate investment jumped     increasingly competitive and liquid, with        flows soared to US$114bn (up 40%),
to an all time record of     strong unsatisfied demand chasing                and now comprise almost a quarter of
                             increasingly scarce assets and resulting         total transactions.
US$475bn in 2005, a 21%      in significant yield compression.
increase over 2004 levels.   Improving transparency levels and the            Regional variations
                             lowering of foreign investment barriers
                                                                              On a regional level, total transaction and
                             are facilitating the movement of real
                                                                              cross-border activity increased strongly
                             estate towards a truly global asset class.
                                                                              in Europe, Asia Pacific and North
                             Jones Lang LaSalle’s annual Global               America. However, these regions
                             Capital Flows study has been tracking            demonstrate distinct variations:
                             the relentless globalisation of real estate
                                                                              European real estate investment
                             investment markets since 2003. This
                                                                              increased 20% to US$191bn, of which
                             2005 3rd edition leverages the firm’s
                                                                              59% was cross-border (up from 48%
                             Capital Markets and Research
                                                                              in 2004). Inter-regional investment
                             capabilities in over 100 markets
                                                                              represented 37% of total volumes,
                             worldwide to capture and analyse over
                                                                              marking Europe as the most “globalised”
                             5,000 individual transactions recorded in
                                                                              real estate market. Global3 and US
                             Europe, North America and Asia Pacific.
                                                                              sources of funds accounted for
                             It provides the definitive guide to global
                                                                              approximately two thirds of cross-border
                             commercial real estate investment
                                                                              investment in Europe, while dominant
                             activity and cross-border capital flows.
                                                                              intra-regional investors included
                                                                              German, Irish and UK sources of funds.
                             Record investment – record
                             cross-border activity                            Asia Pacific was the fastest-growing
                                                                              market, with investment growing 46% to
                             Direct commercial real estate investment
                                                                              US$68bn. Cross-border investment
                             jumped to an all time record of
                                                                              increased to 29% of total investment,
                             US$475bn1 in 2005, a 21% increase over
                                                                              with inter-regional investment comprising
                             2004 levels. Cross-border investment
                                                                              17%. Global and US sources of funds
                             flows increased to US$164bn (up 43%)
                              Figure 1: Direct commercial real                          Figure 2: Direct commercial real
                              estate investment, 2003-2005                              estate investment by region

                                                             US$                Asia              US$
                                                             354bn            Pacific             67.5bn

                                                               US$                                                    US$
                       2004                                                   Europe
                                                               393bn                                                  191.4bn

                                                                       US$     North                                      US$
                                                                       475bn America                                      216bn


                                 Inter-Regional Investment        Intra-Regional Investment     Domestic Investment

                              Source: Jones Lang LaSalle; Property Data (UK); KTI Finland; Real Capital Analytics (USA)

While total                   provided the bulk of inter-regional                       unsatisfied. Jones Lang LaSalle estimate
                              capital. Dominant intra-regional                          that over 50% of investors cannot locate
investment grew               purchasers were Australian and                            suitable assets. For every $1 of real
by 21% in 2005,               Singaporean sources of funds.                             estate investment product, there is $2
                                                                                        seeking to purchase that investment.
inter-regional flows          North America remained the largest
                                                                                        This demand-supply imbalance is
                              investment destination, with investment
grew by 40% –                                                                           intensifying competition in local markets,
                              rising 17% to US$216bn – nearly half
                                                                                        forcing down yields, and driving the
reaching US$114bn.            of total global transaction volumes.
                                                                                        globalisation of the asset class as
                              Cross-border investment rose strongly to
                                                                                        investors search distant horizons for
                              16% of total investment and was almost
                                                                                        enhanced investment opportunities
                              entirely represented by inter-regional
                                                                                        and returns.
                              investment. Significant inter-regional
                              purchases were made by Australian,
                                                                                        Rapid globalisation
                              German, global, Hong Kong and Middle
                              Eastern sources of funds.                                 Inter-regional investment flows comprise
                                                                                        almost a quarter of direct commercial
                              Unprecedented liquidity                                   real estate investment. Furthermore,
                                                                                        this phenomenon is accelerating.
                              The record investment volumes have
                                                                                        While total investment grew by 21% in
                              resulted in unprecedented liquidity in real
                                                                                        2005, inter-regional flows grew by
                              estate markets. In the established
                                                                                        40% – reaching US$114bn.
                              markets of Europe and North America,
                              we estimate over 10%4 of investor                         As figure 3 shows, the dominant
                              owned real estate (both public and                        inter-regional activity was by global
                              private) was transacted in 2005. Despite                  sources of funds investing into Europe.
                              these record investment levels, a huge                    These funds, which are predominantly
                              weight of investment demand remains                       unlisted vehicles, made significant
                                                            PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE                            5

                                                          investments in the UK, Germany, France             represented strong net purchase
                                                          and Sweden, and were also active in                activity (accompanied by very low
                                                          Mexico, China and the USA.                         corresponding sales activity). These
                                                                                                             investors have started to target Europe
                                                          Trans-Atlantic real estate investment is
                                                                                                             in 2006. Reciprocally, North American
                                                          the longest established inter-regional
                                                                                                             investors demonstrated renewed interest
                                                          investment market. North American
                                                                                                             in Japan and increased interest in China.
                                                          investors remained strong net
                                                          purchasers of European real estate,                Middle Eastern investors retained
                                                          making significant investments in                  their position as major exporters of
                                                          Germany, the UK and France. German                 inter-regional capital. Investments were
                                                          investors, in particular the open-ended            predominantly in transparent and
                                                          funds which are re-weighting their                 liquid markets. The UK and the US
                                                          portfolios in favour of international              were prime targets followed by France
                                                          assets, invested heavily in the US and             and Germany.
                                                          Canadian markets. German investors
                                                          were also active in European countries,            Liquid, transparent and high
                                                          namely the UK, France, the Netherlands,            growth markets are attractive
                                                          Poland and Sweden.
                                                                                                             Inter-regional capital continues to target
                                                          A notable feature of the 2005 study was            the most liquid and transparent real estate
                                                          the emergence of significant capital               markets. The US and UK together
                                                          exports from the Asia Pacific region to            attracted over half of total inter-regional
                                                          North American markets. The majority of            investment followed by Germany, France
                                                          this investment came from Australian               and Sweden. These five markets
                                                          Listed Property Trusts (LPTs) and was              accounted for 80% of total inter-regional
                                                          invested in US retail assets. These                investment. High growth economies in
                                                          investment flows were significant as they          Asia and Latin America and the recovering
                                                          were negligible in 2004 and as they                Japanese market were also favoured.

A notable feature of the                                  Figure 3: Inter-Regional Investment – Purchases and Sales 2005

2005 study was the
emergence of significant
capital exports from the
Asia Pacific region to
North American markets.

    Global      Asia Pacific      North America

    Europe       Middle East

Source: Jones Lang LaSalle; Property Data (UK);
KTI Finland; Real Capital Analytics (USA)
Note: Direction of arrows indicate flow of capital e.g.
North American investors made purchases in Europe
amounting to US$9.2bn, and US$6.2bn of sales.
6   PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE

                                                 United States                                             was also significant, namely Irish
                                                                                                           (US$7.6bn) and German sources of
                                                 Inter-regional investors purchased
                                                                                                           funds (US$4.3bn).
                                                 US$21.8bn and sold US$14.0bn of US
                                                 commercial real estate. The market                        Germany
                                                 attracts significant capital due to its size,
                                                                                                           Inter-regional investors showed strong
                                                 strong economy and established
                                                                                                           interest in the recovering German
                                                 strength in occupier markets.
                                                                                                           market, purchasing US$10.8bn of
                                                 Inter-regional investment was dominated
                                                                                                           commercial real estate, while selling
                                                 by Australian LPTs, which invested
                                                                                                           US$6.1bn. Germany offers cross-border
                                                 over US$8bn in joint ventures with
                                                                                                           investors a significant stock of
                                                 established domestic property
                                                                                                           investment opportunities due to its
                                                 companies. German (US$3.9bn),
                                                                                                           relative size and increasingly frequent
                                                 Hong Kong (US$2.4bn) and Middle
                                                                                                           sale and leaseback opportunities.
                                                 Eastern sources of funds (US$2.4bn)
                                                                                                           Additionally, German Open Ended Funds
                                                 were active purchasers.
                                                                                                           have come under pressure to re-balance
                                                 United Kingdom                                            their heavily domestic-weighted
                                                                                                           portfolios in favour of international
                                                 Inter-regional investors found the UK an
                                                                                                           assets. The withdrawal of many German
                                                 attractive market due to its liquid and
                                                                                                           funds from the domestic market has
                                                 transparent market, long term leases and
                                                                                                           been replaced by strong investment by
                                                 relatively attractive tax treaties. These
                                                                                                           global (US$5.8bn) and US sources of
                                                 funds purchased US$19.8bn and sold
                                                                                                           funds (US$2.9bn). UK funds (US$5.6bn)
                                                 US$13.6bn of UK commercial real
                                                                                                           dominated intra-regional investment.
                                                 estate. Inter-regional investment was
                                                 dominated by global (US$9.9bn), Middle                    The availability of very large residential
                                                 Eastern (US$5.9bn) and US sources of                      portfolios attracted substantial
                                                 funds (US$2.4bn). Intra-regional capital                  investment from cross-border investors

                                                 Figure 4: Inter-Regional Investment – By Destination Country 2005











                                                -15          -10            -5           0             5            10           15          20         25


                                                      Purchases     Sales

                                                 Source: Jones Lang LaSalle; Property Data (UK); KTI Finland; Real Capital Analytics (USA)
France’s high               traditionally focussed on commercial      China
                            investments. For reasons of
transparency, large         consistency, these flows do not
                                                                      China’s economic success and
                                                                      improving transparency is creating
office market and           appear in our analysis.5
                                                                      huge demand from investors keen to
good rental growth          France                                    benefit from the scale of real estate
                                                                      opportunity available. Inter-regional
prospects attracted         France’s high transparency, large
                                                                      capital purchased US$2.3bn of assets
inter-regional investors.   office market and good rental growth
                                                                      and made negligible sales. Global
                            prospects attracted inter-regional
                                                                      sources of funds were particularly
                            investors who purchased US$7.2bn
                                                                      active in retail and office markets,
                            and sold US$5.0bn. Global
                                                                      purchasing over US$1.6bn of assets.
                            (US$4.2bn) and US investors
                                                                      Significant investments were also
                            (US$2.3bn) dominated inter-regional
                                                                      made by US, Australian and
                            purchase activity. German and UK
                                                                      Singaporean sources of funds.
                            investors were also active.
                                                                      Retail and office buildings in Shanghai
                                                                      are the main focus for cross-border
                            Sweden’s commercial property market       investors. However as competition for
                            offers international investors a highly   investment intensifies, we are seeing a
                            sophisticated economy with attractive     number of investors beginning to
                            demand dynamics in addition to a          target secondary cities.
                            good source of investment grade
                                                                      Although inter-regional transaction
                            assets. Global sources of funds were
                                                                      volumes are currently insignificant
                            the most active investors, purchasing
                                                                      relative to the larger markets of UK,
                            US$1.5bn of assets.
                                                                      US, Germany and France, the
                                                                      proportion of investible stock is
                                                                      continuing to grow with rapid
2005 was a strong       economic expansion, relaxation of           Japan
                        foreign investment laws and improving
year for cross-border   transparency.
                                                                    With improved economic performance
                                                                    and an end to deflation in Japan, real
flows into Latin        Latin America                               estate investors are returning to the
America.                                                            Japanese market, driving down yields.
                        2005 was a strong year for cross-border
                                                                    Investment volumes were up 28% on
                        flows into Latin America. Mexican real
                                                                    2004 levels, with the majority of
                        estate was an attractive target with
                                                                    investments made by local listed,
                        global sources of funds purchasing
                                                                    unlisted and institutional funds.
                        over US$1.7bn of assets, and US
                                                                    Hungry domestic investors crowded
                        sources of funds purchasing US$0.8bn.
                                                                    out inter-regional investment with only
                        Purchasers from Asia Pacific emerged,
                                                                    US sources of funds investing in
                        led by Singaporean funds, and
                                                                    significant volume. Inter-regional
                        European sources of funds were
                                                                    purchase activity totalled US$1.6bn in
                        involved in sale and leaseback
                                                                    2005 whilst US$0.9bn was recorded
                        transactions and office purchases.
                                                                    in sales. A shortage of quality investment
                        Latin American markets beginning to         opportunities led a number of investors
                        emerge as popular destinations for          to seek arbitrage opportunities
                        inter-regional capital include Sao Paulo,   through purchases of real
                        Rio de Janeiro and Buenos Aires. With       estate-rich corporations.
                        stable economic growth, declining
                                                                    Japanese investors – dominant
                        unemployment, improving sovereign risk
                                                                    inter-regional players in the 1980’s – have
                        and increased access to credit, capital
                                                                    recently re-emerged and we are noting
                        flows into Latin America are predicted to
                                                                    very early signs of a revival of Japanese
                        accelerate in 2006.
                                                                    private and institutional investment into
                                                                    the US and European markets.
                               PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE                                  9

                          With Japanese corporate earnings                         aggressive on price in the US and some
                          rebounding, unemployment and office                      European markets in 2005, crowding out
                          vacancy rates declining, the scene is set                other investors and contributing to the
                          for a strong recovery in the occupier                    search for cross-border opportunities.
                          market – Japan is a market to watch                      Institutions were most active in the UK,
                          in 2006.                                                 US, Mexico, France and South Korea.

                                                                                   Listed funds and developers/property
                          Who is investing inter-regionally?
                                                                                   companies were also significantly more
                          Unlisted funds were the dominant                         active in inter-regional markets than in
                          inter-regional purchasers in 2005,                       2004. Both were significant capital
                          purchasing US$35bn of commercial real                    exporters to the US market.
                          estate outside of their “home” region –
                          an increase of 73% over 2004 levels.                     Which sectors were attractive?
                          Many of these funds took advantage of
                                                                                   During 2005, there was little change
                          low-interest rate environments to pursue
                                                                                   to the sectoral type bought by
                          arbitrage opportunities and heavily
                                                                                   inter-regional investors. Office
                          leverage returns. A number of large US
                                                                                   transactions remained dominant,
                          REITS were privatised in 2005, further
                                                                                   accounting for over half of inter-regional
                          swelling the volumes of unlisted funds.
                          Unlisted funds were most active in
                          the UK, German, US, French and
                          Swedish markets.
                                                                                   Will real estate globalisation
                          Institutions were significantly more active
                                                                                   We are witnessing an unprecedented
                          in 2005, increasing by 55% their
                                                                                   weight of capital seeking real estate
                          inter-regional purchases over 2004 levels.
                                                                                   opportunities and expect this to continue
                          However they were still overall net sellers.
                                                                                   in 2006 due to a number of factors.
                          Institutions were significantly more

                          Figure 5: Inter-Regional Investment – By Investor Type 2005




Dev/Prop Companies




Hotel Owner/Operator

                         -25      -20       -15      -10   -5      0       5       10       15      20      25        30   35       40


                                Purchases         Sales

                          Source: Jones Lang LaSalle; Property Data (UK); KTI Finland; Real Capital Analytics (USA)
 10        PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE

Figure 6: Inter-Regional                            Debt environments are expected to          investments are made through unlisted
Investment by market sector 2005                    remain favourable, enabling arbitrage      funds, and we have seen that these
                                                    opportunities in markets with a positive   funds have a high propensity to invest
                                                    yield spread over swap rates.              inter-regionally.

                                                    Improving market transparency and          While the majority of real-estate
    10%                                             practice presents investors with           investment capital continues to flow into
                                                    opportunities to search for assets,        established markets in the US and
                                                    transfer best practice, build scale and    Western Europe, yield compression in
                                                    benefit from real estate cycles on a       these markets is leading to an
                                                    global level.                              increasingly global search for return.
                                                                                               Markets in Asia, Eastern Europe and
                                                    The ‘baby-boom’ generation is rapidly
                                                                                               Latin America are rapidly developing
                                                    approaching retirement age in most
   Office        Retail   Industrial                                                           and offer exciting opportunities for
   Hotel         Other
                                                    developed economies, putting fund
                                                                                               investors to compete for growth
                                                    managers under pressure to both
Source: Jones Lang LaSalle
                                                                                               and diversification. This will help drive
                                                    maximise returns and diversify their
                                                                                               the continued globalisation of real
                                                    portfolios outside of their domestic
                                                                                               estate investment.
                                                    markets. A large portion of these

                                                    Dr. Jane Murray can be reached via email at:

                                                    Pádraig Brown can be reached vie email at:

Improving market
transparency and practice
presents investors with
opportunities to search for
assets, transfer best
practice, build scale and
benefit from real estate
cycles on a global level.
                                                     Dr Jane Murray and her counterparts in Europe and the Americas oversee a
                                                     global team of more than 200 researchers who provide a range of global,
                                                     regional and local research offerings to the clients of Jones Lang LaSalle.

                                                     Jones Lang LaSalle’s International Capital Group extends the reach and impact
                                                     of local and regional Capital Markets teams, delivering consistent, high-quality
                                                     investment sales, acquisition and financing services to inter-regional investors.
                                                     In 2005, Jones Lang LaSalle completed institutional property sales and
                                                     acquisitions, debt financing and equity placements on assets and portfolios
                                                     valued in excess of US$43 billion.

                                                     This article has been produced solely as a general guide and does not constitute advice by
                                                     Jones Lang LaSalle. Whilst the material contained in the article has been prepared in good faith and
                                                     with due care, no representation is made for the accuracy of the whole or any part of the article.
                                                     No liability for negligence or otherwise is assumed by Jones Lang LaSalle for any loss or damage
                                                     suffered by any party resulting from their use of this article. The whole or any part of this article must
                                                     not be reproduced or copied without Jones Lang LaSalle’s written consent.

  This study focuses on the commercial real estate sectors popular with inter-regional investors, and excludes multi-family residential real estate.
  The multi-family residential real estate market is a growing sector with approximately US$120bn invested in the US, Germany, Sweden, Japan, Hong Kong,
  Singapore and Mexico in 2005. With few exceptions (notably Germany), these markets are dominated by domestic investors and cross-border investment
  activity is low.
  Cross-border investment is classified as “intra-regional” investment (both purchaser and vendor originate from the region where the transaction occurs)
  and “inter-regional” investment (purchaser, vendor or both originate from outside the region where the transaction occurs)
  A “global source of funds” is an investment fund that raises capital from multiple countries, i.e. the source of capital is not identifiable to a single
  country or region.
  Source: LaSalle Investment Management
  Cross-border investors purchased over US$25bn of German residential real estate in 2004 - 2005.
The Gulf Region:
An unparalleled growth curve
led by Dubai

By Ailsa Pollard, Advisory Director, Dean Rolfe, Tax Partner, and Stuart Smith,
Advisory Partner, PricewaterhouseCoopers, Middle East
                                                       PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE                          13

                                                     The real estate market in the Gulf Region is
                                                     booming. Construction projects planned or under
                                                     development in the Gulf Region have crossed the
                                                     USD $1 trillion mark.

Mega Project Distribution across                     High oil prices have resulted in record          • Easing of ownership regulations
the Gulf Cooperation Council                         surpluses in the Region. This increased             allowing foreign ownership in
(“GCC”) by $ amount                                  liquidity, along with an ongoing                    some countries.
                                                     repatriation of funds into the Region
     5% 3%          3%                                                                                Developers continue to unveil plans for
                                                     from overseas, has been channeled into
                                                                                                      large scale multi-use developments
                                                     the stock markets and the real estate
                                                                                                      across the Region on a regular basis,
                                                     markets in both the public and private
     9%                                                                                               with a significant number of them falling
                                                     sectors. Supported by strong
                                                                                                      into the “mega-project” definition
  10%                     51%                        economies, rapidly growing populations,
                                                                                                      (investment of over USD $500 million).
                                                     government investment in infrastructure
    7%                                                                                                This pipeline of new supply across all
                                                     and change in regulations to enable
            12%                                                                                       real estate sectors (residential,
                                                     easier foreign ownership, the real estate
                                                                                                      commercial, hotels, retail and leisure)
                                                     market is set to continue on a high
                                                                                                      will absorb some of the existing
                                                     growth curve.
    Dubai         Abu Dubai      Rest of UAE                                                          latent demand. The challenge is to
    Saudi Arabia                                     Key Drivers of the surge in                      identify when and if the situation will go
    Kuwait        Oman        Bahrain   Qatar        Real Estate Activity:                            into oversupply.
Source: Zawya (in addition includes recent figures
associated with launch of the Bawadi Mega            • High oil prices and increased liquidity.       Currently about two-thirds of the real
Project in Dubai)                                                                                     estate “mega projects” in the Gulf are
                                                     • Strong economic growth.
                                                                                                      being undertaken in the UAE (the UAE
                                                     • Repatriation of funds following
                                                                                                      consists of seven emirates: Dubai, Abu
                                                       September 11th.
                                                                                                      Dhabi, Ajman, Fujairah, Sharjah, Ras Al
                                                     • Governments’ commitment towards
                                                                                                      Khaimah, and Umm al-Qaiwain).
                                                       economic diversification.
                                                                                                      The dynamic real estate market in the
                                                     • Rapid population growth; the United            UAE, that over the past five years has
                                                       Arab Emirate’s (UAE) saw one of the            fuelled more than USD $300 billion in
                                                       world’s fastest population growth rates        local, regional and international
                                                       over the last five years.                      investment commitments in the country,
                                                     • The UAE foreign direct investment              has resulted in the UAE achieving the
                                                       doubled in 2005, to USD $18 billion.           highest investment ranking of all the
                                                                                                      Gulf Cooperation Council (GCC)
                                                                                                      countries in real estate investments.
To date, Dubai has      Dubai – the Forerunner in                      Vegas strip. This will include the
                        Real Estate Development                        world’s largest hotel with 6,500 rooms.
led the way in the
                                                                     • The world’s first underwater
                        To date, Dubai has led the way in the
real estate boom,                                                      hotel (Hydropolis) – a USD $500
                        real estate boom, with real estate
                                                                       million project.
with real estate        services and the construction industry
                        accounting for approximately 25% of          • Significant globally profiled land
services and the                                                       reclamation projects such as Nakheel’s
                        Dubai’s GDP, with Abu Dhabi and the
construction industry   rest of the Gulf region following at pace.     “The Palm” and “The World.”

accounting for          The facts speak for themselves:              • The longest in-door ski slope opened
                                                                       in Dubai in 2005.
approximately 25%       Dubai Real Estate Activity: Fast Facts
                                                                     • The world’s tallest dedicated hotel
of Dubai’s GDP,         • 17% of the world’s cranes are                building, Jumeirah’s Burj Al Arab, has

with Abu Dhabi and        estimated to be currently in Dubai           become an icon of Dubai’s skyline.
                          (given a population of only 1.4 million
the rest of the           this is a significant figure).
                                                                     The average annual growth of Dubai’s
                                                                     economy in the last decade has been
Gulf region following   • The world’s tallest tower is under         estimated at approximately 10%, and
at pace.                  construction in Dubai.                     has been accelerating over the last two
                        • The world’s largest shopping mall is       years, recording 17% growth in 2004
                          being built.                               and 16% growth in 2005 (source: Dubai
                        • The world’s largest leisure and            Department of Economic Development).
                          hospitality development has recently       The fact that such growth is sustained is
                          been launched (Bawadi) and is due for      clearly impressive, and the growth is not
                          completion in phases between 2010          being driven in the main by the high oil
                          and 2014 – a USD $27 billion project       prices, as the oil sector only contributes
                          at 10km will be longer than the Las        10% of the UAE’s economy (and less
                                                                     than 5% in Dubai). This along with a
                             PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE                          15

                           strong population growth (estimated at           The Regulatory Environment
                           6-7% per annum) necessitates the need
                           for additional real estate.                      Recent changes in regulations allowing
                                                                            freehold ownership for foreigners have
                           The leaders of Dubai, formerly the late          opened up the Dubai property market to
                           HH Sheikh Maktoum bin Rashid Al                  international investors.
                           Maktoum and more recently HH Sheikh
                           Mohammed bin Rashid Al Maktoum,                  Dubai announced earlier this year

                           Vice President and Prime Minister of the         that it would offer expatriates limited

                           UAE, and Ruler of Dubai, have been               freehold ownership and formal 99-year

                           crucial in directing the growth of the real      leases, a significant step towards

                           estate sector. Their vision of Dubai as          providing a legal basis for the foreign

                           both a trade and tourism hub has been            investment that has poured into the

                           supported by government-owned real               property market since 2002. Formal

                           estate companies and significant                 ownership laws will give foreign

                           investment in infrastructure – roads,            investors a greater degree of comfort

                           additional airports and ports – as well as       when they buy property in Dubai

                           by the marketing of Dubai as a major             and will facilitate the financing of

                           business hub and tourism destination.            such investment.

                           In addition, the UAE has a tax ‘friendly’        Sustainability
                           environment as well as a reasonably
                           extensive network of international double        Currently demand for residential,
                           tax treaties which may, where treaty             commercial and hotel property exceeds
                           conditions are satisfied, provide certain        supply – with rents soaring by up to
                           tax advantages for both outbound and             40% a year, commercial occupancy
                           inbound investment.                              levels running at 99% and hotel
                                                                            occupancy at 85% – some of the
                                                                            highest rates in the world. There is

Recent changes in
regulations allowing
freehold ownership for
foreigners have
opened up the Dubai
property market to
international investors.
16   PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE

                                              significant new supply in the pipeline –    sector, with residential real estate
                                              with over 70,000 new hotel rooms            expected to be the first to go into
                                              planned, and an expected doubling of        oversupply. However, this is natural in a
                                              commercial space to over 2.8 million m2     maturing market and should cause
                                              by 2008, along with new real estate         prices and occupancy rates to remain at
                                              developments being launched every day.      sustainable levels. For example, in a
                                                                                          maturer market commercial oversupply
                                              There is also much discussion
                                                                                          of 10% would be expected to allow for
                                              concerning if and when the real estate
                                                                                          natural movement in the market.
                                              “bubble” will burst in Dubai. However it
                                              is our belief that what lies ahead is a     As the balance of demand and supply
                                              maturing and stabilising of the market      is achieved, the more critical elements
                                              with a resulting end to the disparity       to the success of each development will
                                              between demand and supply, and a            become the quality of the build, the
                                              potential correction to the pricings and    property’s location, the reputation of the
                                              occupancy levels in the market, rather      developers, and their ability to deliver
                                              than a crash in real estate values. As an   on time.
                                              example, Dubai rental yields have
                                                                                          Key to the real estate success of Dubai
                                              dropped in the last year from 8-9% to a
                                                                                          will be the ability for existing and
                                              still healthy 6-7% which is a more
                                                                                          planned infrastructure to keep pace.
                                              sustainable level going forward.
                                                                                          Increasing traffic congestion is in part
                                              Even with a population expected to          being dealt with via projects such as the
                                              more than double to 4 million by 2017,      introduction of the Dubai metro. Whilst
                                              and tourist arrivals expected to reach 15   many additional infrastructure projects
                                              million per annum by 2010, supply will at   are planned across the region, it is vital
                                              some point overtake demand in the next      that government decision-making
                                              three to five years. This will occur at     processes do not slow down progress.
                                              differing degrees depending on the

Key to the real estate
success of Dubai will be
the ability for existing
and planned infrastructure
to keep pace.
Dubai International        Implications                             Capital recently set up an investment
                                                                    vehicle to develop a chain of Holiday
Capital recently set up    With the current level of real estate    Inn Expresses throughout the Region.
                           activity, construction costs have
an investment vehicle to                                            In addition, products which have been
                           increased by 15% in the last two         used in the rest of the world are now
develop a chain of         years and are set to continue            appearing in the Middle East, for
Holiday Inn Expresses      increasing, and construction delays      example serviced apartments and
                           are occurring due to limited supply of   fractional ownership units.
throughout the Region.     raw materials, for example glass.
                           Whilst some of the additional costs      Additional challenges include the need
                           are being passed on to the consumer,     for efficient use of energy in buildings
                           developer profit margins are being       as the UAE looks at ways to respond
                           squeezed as end prices of real estate    to its potential future power shortage
                           are stabilising and costs are            to cope with the construction boom
                           increasing.                              and rapidly growing population.

                           A more balanced mix of real estate is    The Wider Gulf Cooperation
                           expected. For example, to balance        Council (GCC) Region
                           the considerable skew towards luxury
                           4-star and 5-star hotel developments     Whilst the world’s spotlight has been
                           that are in the pipeline, Istithmar      focused on the Dubai real estate
                           Hotels, a subsidiary of Istithmar PJSC   market with its penchant for record-
                           (an international investment house       breaking real estate icons, the rest of
                           based in the UAE), has signed a          the Gulf Region is also experiencing
                           master franchise agreement with easy     significant real estate activity – with
                           Hotel Limited to open a chain of         Abu Dhabi, Saudi Arabia, Qatar,
                           budget hotels across the Middle East.    Kuwait, Bahrain and Oman all
                           At the same time, Dubai International    launching major development projects.
Real estate            Abu Dhabi is catching up with Dubai,          Opportunities across all Real
                       and the Kingdom of Saudi Arabia is            Estate Sectors
development            emerging rapidly as a key area for real
                                                                     All real estate sectors have huge
companies that         estate development, with USD $200
                       billion of projects under construction in     potential for growth – commercial, retail,
have cut their teeth   the last 12 months alone – the scale          residential, hospitality and leisure –
in the Dubai market    of development is predicted to overtake       often combined in large multi-use

                       the amount in the UAE over the next           developments covering all sectors and
are now looking                                                      supporting residential populations in
                       five years.
further afield for                                                   excess of 100,000.
                       Real estate development companies that
new opportunities.     have cut their teeth in the Dubai market      Whilst the majority of the real estate

                       are now looking further afield for new        activity is in new developments, there

                       opportunities. Jumeirah is expanding          are also many developments related to

                       its portfolio of luxury hotels locally,       the regeneration of the traditional inner

                       regionally and internationally, and earlier   cities. As the cities in the Gulf have

                       this year assumed the management of           grown rapidly and the amount of new,

                       the prestigious Essex House in New            higher quality real estate stock has

                       York. Emaar Properties, a company             increased rapidly, their historical central

                       founded in 1997 in Dubai and now with         business districts have become

                       a USD $20 billion market capitalization       neglected with low quality real estate.

                       (May 2006), has expanded within and           There is a growing recognition that these

                       beyond the Middle East – to Abu Dhabi,        districts need to be rejuvenated to

                       Saudi Arabia, Egypt, Morocco, Jordan,         become traditional downtowns.

                       India and Pakistan – exporting its            Significant developments are now being
                       formula of large-scale residential            seen in Saudi Arabia, Qatar and elsewhere
                       developments replete with golf courses        in the Middle East, and we will cover each
                       and other “lifestyle” amenities.              of these markets in future articles.
                                PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE                        19

                              REITS (or real estate funds)                     Partly for these reasons, and partly as a
                                                                               result of the Middle East’s unique
                              As property companies and institutional          commercial and tax environment, we are
                              investors deal with the booming real             seeing a shift in the choice of fund
                              estate sector and see many intriguing            domicile from more traditional offshore
                              opportunities, there are also many               locations to regional vehicles (e.g.,
                              challenges and concerns, such as                 Bahrain, DIFC).
                              investment products, Sharia’a (Islamic
                              law) compliance, legal ownership                 That said, the Region does have a
                              restrictions, tax issues and the overall         complicated commercial, legal and tax
                              regulatory environment.                          environment. Whilst there is a stated
                                                                               goal of closer economic, legal and tax
                              Whilst Bahrain has traditionally been the        positions across the GCC, it is important
                              regional fund location of choice                 to recognise that each of the countries
                              (primarily due to its benign tax                 making up the GCC have different
                              environment), Dubai in the form of the           regulatory and legal frameworks and
                              newly-opened Dubai International                 therefore the challenges across the
                              Finance Centre (DIFC) is now looking to          Region from a real estate investment
                              lead the way in the development of the           perspective will vary.
                              regional/international financial services
                              environment in the Region. In particular         With many of the traditional and more
                              the DIFC has introduced new laws which           mature real estate markets in Europe
                              specifically deal with real estate funds,        and America offering safe but limited
                              although the DIFC tax advantaged                 returns, many international investors are
                              environment means that there is no need          looking towards the emerging markets
                              to have specific tax rules dealing with          as an attractive alternative investment
                              REITS as such. Qatar’s Financial Centre          opportunity. Key to the success of the
                              (QFC) is similarly looking to follow suit.       real estate market in the Gulf and the
                                                                               wider Middle East Region will be:

As property companies
and institutional investors
deal with the booming
real estate sector and
see many intriguing
opportunities, there
are also many challenges
and concerns.
20   PricewaterhouseCoopers Global Real Estate Now July 2006 FEATURE

                                              • Continuing to open the markets            • Ensuring that in the medium term the
                                                to foreign ownership and providing          market develops so that its secondary
                                                a clearly defined real estate               market strengthens and it allows
                                                freehold entitlement.                       owners and investors an easier exit
                                              • Maintaining an attractive                   route from their investments.
                                                tax environment with low
                                                                                          Given the scale of some of these
                                                transaction costs.
                                                                                          projects, there is likely to be significant
                                              • Developing new Islamic capital            social and economic impact on the local
                                                market products.                          environment. Governments need to put
                                              • Increasing competition and regulation     in place “master plans” for their
                                                amongst mortgage providers.               countries to ensure that infrastructure
                                              • Developing a more balanced mix            and supporting services such as schools
                                                across all real estate categories.        and hospitals are built to support the
                                                                                          “cities” that are being created, and
                                              • Providing the ability of supporting
                                                                                          that employment opportunities are
                                                infrastructure to keep pace with real
                                                                                          available to accommodate the rapidly
                                                estate developments.
                                                                                          growing population.

                                              Ailsa Pollard can be reached via email at:

                                              Dean Rolfe can be reached via email at:

                                              Stuart Smith can be reached via email at:

Given the scale of
some of these projects,
there is likely to be
significant social and
economic impact on the
local environment.
Eye on Europe
                                                PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON EUROPE                  23

                                              Year to year real estate investment in Central Europe
                                              continues to rise, with inbound foreign investors thus
                                              far dominating the field. Key investors for the region
                                              have come from a number of territories and different
                                              sources – pan-European investment funds, German
                                              open- and closed-end funds, private equity and high
                                              net worth money have all figured prominently.

Local real estate funds come
to Central Europe
By Glen Lonie, CEE/CIS Real Estate Partner,   While to date there has been a certain           the mix of development and investment
and Zenon Folwarczny, Manager,
PricewaterhouseCoopers, Prague
                                              amount of additional interest from               activities – should open the Czech real
                                              indigenous investors, what has been              estate market for the general public.
                                              lacking is the availability of local fund        Real Estate Funds have the legal form of
                                              and collective investment vehicles to            open-end funds and may invest in real
                                              allow a fuller participation in the markets.     estate or real estate companies located
                                              With new legislation passed in April of          in or outside the Czech Republic.
                                              this year, the Czech Republic may be             Because they are marketed to the
                                              considered a regional leader in the              general public, these vehicles will have a
                                              development of these vehicles –                  relatively high degree of regulation and
                                              with Slovakia, Hungary and Poland not            are also subject to liquidity (20-49%
                                              far behind.                                      must be kept in liquid assets) and
                                                                                               leverage (20-50% of value, depending
                                              The updated Czech Act on Collective
                                                                                               on security arrangements) restrictions.
                                              Investments allows for new real estate
                                              investment via either “Real Estate               Funds of Qualified Investors replace four
                                              Funds” or “Funds of Qualified Investors.”        types of special funds – venture capital
                                                                                               funds, derivatives funds, special property
                                              Real Estate Funds are a significant
                                                                                               funds and mixed funds. They have much
                                              development as they will allow for
                                                                                               greater flexibility than Real Estate
                                              participation in real estate investment at
                                                                                               Funds and can invest in any kind of
                                              a retail level. Abolition of the previous
                                                                                               assets as prescribed within the statute.
                                              minimum required investment of CZK 2
                                                                                               There are no leverage limitations and
                                              million (EUR 70,000) and other
                                                                                               there are multiple forms of incorporation
                                              constraints regarding the scope of
                                                                                               allowed – either as a joint stock
                                              activities – which effectively restricted
Funds of Qualified           company, closed-ended unit fund or             part of existing international fund
                             open-ended mutual fund. If established         structures.
Investors replace four       as a joint stock company or a closed-
                                                                            The Slovak Republic also recently
types of special funds –     ended mutual fund, the fund has to be
                                                                            introduced real estate mutual open- and
                             liquidated or transformed into an open-
venture capital funds,       ended unit fund after 10 years, although
                                                                            closed-end funds requiring a minimum
                                                                            investment of EUR 3,000 that may invest
derivatives funds, special   this limitation is expected to be removed
                                                                            in real estate or real estate companies
                             by a subsequent amendment. Funds of
property funds and                                                          under some diversification requirements
                             Qualified Investors are designed for
mixed funds.                 experienced investors, comprising up to
                                                                            and leverage limitations. There is no
                                                                            taxation at the fund level as this is
                             100 participants, and are subject to few
                                                                            shifted to investors at the rate of 19%,
                             reporting/regulatory limitations.
                                                                            subject to certain personal exemptions.
                             From a tax perspective both Real Estate
                                                                            In both Hungary and Poland it is
                             Funds and Funds of Qualified Investors
                                                                            possible to establish funds under local
                             are subject to a 5% corporate tax rate.
                                                                            investment rules; however to date in
                             In an international context, Real Estate
                                                                            Poland they have only rarely focused on
                             Funds are not entitled to the benefits of
                                                                            real estate investment. They are also
                             double tax treaties or EU directives,
                                                                            subject to certain restrictions. For
                             whereas a Fund of Qualified Investors
                                                                            example, in Poland it is necessary to
                             incorporated as a joint stock company
                                                                            meet diversification requirements to hold
                             does in principle qualify from the Czech
                                                                            at least four properties.
                             perspective. This creates interesting
                             possibilities for international investors to   In both Hungary and Poland, there
                             use Funds of Qualified Investors for           is no taxation at the level of the
                             making Czech real estate investments –         fund and distributions are subject to
                             by combining a low tax burden with low         tax in the hands of individual and
                             regulatory limitations it may become a         corporate investors.
                             widely used real estate holding vehicle.
                             It is easy to see these entities becoming
                             PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON EUROPE                  25

                           In Poland, returns to investors are              and Funds of Qualified Investors
                           subject to tax at normal personal and            in the Czech Republic and other
                           corporate rates and, significantly, real         vehicles ultimately tap a new source of
                           estate funds are eligible for double tax         money looking to buy into the existing
                           treaty benefits.                                 limited supply of property, will they find
                                                                            a niche, or will they compete with
                           In Hungary funds are not eligible for
                                                                            existing investors – thereby creating
                           treaty benefits. Any dividend income
                                                                            further pressures on investment yields in
                           from the funds is exempt to corporate
                                                                            already heated markets? Only time
                           investors whereas capital gains are
                                                                            will tell.
                           subject to 16% corporate tax. Dividends
                           and capital gains are subject to a tax
                           rate of 25% for individuals.

                           What remains open is the impact that
                           these local collective investment vehicles
                           will have on the overall Central European
                           property markets. If Real Estate Funds

                           Glen Lonie can be reached via email at:

                           Zenon Folwarczny can be reached via email at:

In both Hungary and
Poland it is possible to
establish funds under
local investment rules;
however to date in
Poland they have only
rarely focused on real
estate investment.
 26     PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON EUROPE

                                                Until a few years ago, property vacancy was
                                                viewed primarily as a short-term problem or something
                                                that was the result of poor building condition.
                                                Consequently, vacancy was only considered as a
                                                calculative allowance for vacancy in normal valuation
                                                practice, leading to a reduction of about 2.0% to
                                                4.0% from the gross rental income. Basically, this
                                                allowance was mostly a reflection of the risk of tenant
                                                bankruptcy or tenant fluctuation.

View from Germany:
The consideration of vacancy in
property valuation
By Florian Hackelberg, Senior Consultant,       According to the German Property            development of new kinds of office
PricewaterhouseCoopers Real Estate,
Berlin, Germany
                                                Owners Association (Bundesverband für       workplaces (e.g., “sharing desk”
                                                Wohneigentum e.V.), because of the          or “hoteling”) together with projected
                                                decrease in population in large parts of    economic growth, all lead to the
                                                Germany, the number of vacant               likelihood that the demand for office
                                                residential units in eastern Germany has    workspace will not increase in the
                                                risen to 1.3 to 1.4 million.1This amount    near-term.
                                                corresponds to about 13% of the total
                                                                                            Currently, even high class commercial
                                                residential housing stock in the new
                                                                                            properties in Germany’s top locations
                                                federal states. As a result, surveyors in
                                                                                            host vacancy rates in the double-digit
                                                these regions often find properties
                                                                                            range. 2It is estimated that a reduction in
                                                which are in fair condition and arranged
                                                                                            such oversupply of commercial space
                                                well, but nevertheless have vacancy
                                                                                            will proceed moderately and that a full
                                                rates of over 30%. Such structural
                                                                                            letting (vacancy rate lower than 3%-5%)
                                                vacancy exists not only in eastern
                                                                                            will not occur in the near future.
                                                Germany, but in some regions of the
                                                western part, as well.                      Currently there are very few clear
                                                                                            regulations or generally valid approaches
                                                High vacancy rates are also affecting
                                                                                            for a structured and transparent
                                                commercial properties. The combined
                                                                                            consideration of vacancy in property
                                                effects of a significant increase in
                                                                                            valuation. For that reason, a close review
                                                corporate efficiency, as well as the
                                                                                            of several practical recommendations
The combined effects of      that have been developed for the               It is important to distinguish between
                             consideration of different vacancy             a temporal vacancy – the so-called
a significant increase in    scenarios in the valuation process may         vacancy reserves – and an ongoing,
corporate efficiency, as     be in order.                                   or ‘structural’, vacancy scenario.
                                                                            Structural vacancy is caused less by
well as the development      The Impact of Vacancy on                       market volatility, but rather implicated
of new kinds of office       Income Approach                                by excess supply and low economic
                                                                            potential of a region. The German
workplaces (e.g., “sharing   Existing vacancy rates and increased
                                                                            Institute of Auditors5 (IDW) gives the
desk" or “hoteling”)         vacancy risk in the real estate market
                                                                            following explanation: “A structural
                             have sustainable impact on a property’s
together with projected      valuation. Because office and leased
                                                                            vacancy exists when, in spite of all
                                                                            efforts, a substantial part of the space
economic growth,             residential properties are mainly
                                                                            remains unrented and, after thorough
                             regarded as investment properties, they
all lead to the likelihood                                                  consideration of the situation, an
                             are valued by an income approach
                                                                            improvement cannot be anticipated.”
that the demand              according to the German Appraisal
                                                                            The following table gives an overview of
                             Standard (WertV). Thus, it is not the
for office workspace will                                                   the different vacancy scenarios.
                             initial historical costs of a property which
not increase in the          are relevant for its market value, but         A further assessment of the income
near-term.                   rather its future generated rental income.     approach (according to WertV) shows
                                                                            that nearly all of its value-related factors
                             In academic literature the term
                                                                            are directly influenced by vacancy.
                             “vacancy” is defined as “a temporal or
                                                                            Structural vacancy can even have an
                             permanent disuse of a real estate unit”3.
                                                                            effect on the ground value of a property.
                             According to Kleiber4, vacancy means
                                                                            Thus all value relevant parameters of the
                             that a real estate unit is unrented
                                                                            income approach entail the possibility of
                             because of, for example, changed
                                                                            considering actual vacancy or increased
                             market conditions or economic
                                                                            vacancy risk.
                             and structural problems in a region,
                             and hence does not generate                    Further investigations of different
                             rental revenues.                               possibilities show that the decision in
 28   PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON EUROPE

                                              Figure 1: Vacancy scenarios


                                                                                                   Existing vacancy
                                                                         vacancy risk

                                                        Vacancy reserves          Temporary vacancy           Structural vacancy

                                              Source: PricewaterhouseCoopers

Due to the fact that only                     favour of one of the parameters to             raised cap rate can cover the higher risk
                                              indicate vacancy within the income             of the property’s performance (i.e., the
major adjustments in the                      approach calculation always depends on         risk that the assumed market rent is not
vacancy risk factor                           the individual existing vacancy scenario.      going to be generated over the
                                                                                             remaining useful life). Additionally, an
influence the fair value                      As a basis for each decision-making
                                                                                             increased cap rate considers a scenario
                                              process, the distinction must be made
significantly, it is                                                                         in which the risk of an increasing
                                              between the increased risk of future
                                                                                             vacancy rate is not decreasing, but at
becoming an increasingly                      vacancy and an already existing vacancy
                                                                                             least stays constant.
common practice to                            category (see chart).
                                                                                             In such an approach, however, one
adjust the credit loss and                    Increased Vacancy Risk                         must check whether locally published
vacancy risk via a vacancy                                                                   cap rates already contain an increased
                                              If there is an increased vacancy risk for
                                                                                             vacancy risk for the region itself.
rate of only up to about                      a property (e.g., only one tenant with a

8%-10%.                                       short-term lease contract and without
                                                                                             Existing Vacancy
                                              securitisation of contract extension,
                                              weak economic region, inflexible ground        Generally speaking, it is possible to
                                              plan, etc.), it may be possible to take        take existing vacancy into account by
                                              this into account in the income approach       increasing the vacancy risk factor.
                                              through an increased risk of rent loss         Due to the fact that only major
                                              due to vacancy (“vacancy risk factor”),        adjustments in the vacancy risk factor
                                              low rental assumption, or an increased         influence the fair value significantly, it is
                                              cap rate (Liegenschaftszinssatz).              becoming an increasingly common
                                                                                             practice to adjust the credit loss and
                                              In this context adjusting the cap rate
                                                                                             vacancy risk via a vacancy rate of only
                                              seems to be the best alternative.
                                                                                             up to about 8%-10%.
                                              The cap rate reflects the individual
                                              assumption of return on the property           For higher vacancy rates, a reduction of
                                              investment. Specifically in cases of           the gross operating income is favoured
                                              property related risks of vacancy, a           over an adjustment to the vacancy risk
                              PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON EUROPE                   29

                            factor. Therefore a distinction must be          operating costs that must be covered
                            made between temporary and long-term             by the landlord due to the vacancy.
                            structural vacancy.                              These vacancy costs are primarily
                                                                             influenced by the operating costs
                            This percentage-based case-by-case
                                                                             resulting from the vacant space.
                            differentiation as shown above should
                                                                             A recommended benchmark for such
                            not induce one to prefer a static
                                                                             vacancy costs for residential properties
                            approach to an individual analysis
                                                                             is about €1.50 per sqm and month.
                            which includes a detailed investigation
                                                                             (The official Berlin representative list of
                            of the vacancy reasons. At the same
                                                                             rents assumes these operating costs to
                            time, it must be taken into account
                                                                             be in a range of €1.18 to €1.82 for each
                            that an adjustment of the vacancy risk
                                                                             sqm of residential space.)6 Monthly
                            factor affects the net operating income
                                                                             vacancy-caused operating costs for
                            over the whole remaining useful life of
                                                                             commercial space total approximately
                            the property.
                                                                             €2.5 per sqm rentable area, and in some
                                                                             cases even more.
                            Temporary Vacancy
                                                                             Additional crucial considerations for
                            For properties that already show a
                                                                             determining the influence of temporary
                            considerable vacancy rate (higher than
                                                                             vacancy on the fair value of the property
                            8%-10%), but of a temporary nature,
                                                                             include the vacancy ratio, and even
                            this can be viewed as a so-called
                                                                             more importantly, the duration of the
                            “under-rented phase” without adjusting a
                                                                             vacancy period.
                            factor over the whole remaining useful
                            life of the property.                            As long as it is not an intentional
                                                                             vacancy accepted by the property’s
                            In this scenario, the assumed fair value
                                                                             owner, the estimation of the vacancy
                            without vacancy must be reduced by the
                                                                             duration is the critical and determining
                            capitalised income loss and by the
                                                                             point for the property valuation. Of

As long as it is not an
intentional vacancy
accepted by the
property’s owner, the
estimation of the vacancy
duration is the critical
and determining point for
the property valuation.
 30   PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON EUROPE

                                              primary relevance for the estimation of      the scenario which takes the reduced
                                              the vacancy period is the market             income into account by choosing the
                                              situation as of the effective date of        local average rent only for a reduced
                                              valuation. The basis for each prognosis      total area. In individual cases a
                                              must be a comprehensive market               combination of both scenarios might
                                              analysis which includes the actual           be appropriate.
                                              demand for rental space, as well as
                                                                                           Additionally, it must be determined
                                              rental space offered on the market and
                                                                                           whether long-term vacancy influences
                                              areas under construction, and future
                                                                                           the remaining useful life of the property –
                                              developments in the real estate market.
                                                                                           which may often be the case. It is not
                                              Furthermore, specific property-related
                                                                                           recommended to adjust the cap rate
                                              circumstances, such as the unit’s layout,
                                                                                           additionally, due to the fact that the
                                              location in the property, and the
                                                                                           vacancy risk is already taken into
                                              prevailing lighting conditions have to be
                                                                                           account elsewhere.
                                              taken into consideration.
                                                                                           If the gross operating income of
                                              Long Term (Structural) Vacancy               a property affected by long-term
                                                                                           vacancy and also reduced by the
                                              If, as of the valuation date, the property
                                                                                           vacancy operating costs becomes
                                              is affected by long term significant
                                                                                           negative, then in economic terms the
                                              vacancy, this circumstance must be
                                                                                           building is deemed inefficient and has
                                              considered in the gross operating
                                                                                           to be torn down or its usage changed.
                                              income over the entire remaining useful
                                                                                           The potential costs of a renovation or
                                              life. In this case, the recommended
                                                                                           structural alteration have to be estimated
                                              course is either to assume the relevant
                                                                                           in each individual case and then
                                              areas to be without rental income
                                                                                           compared with the potential further
                                              (the vacancy operating costs explained
                                                                                           usage of the property. Depending on
                                              above have to be taken into account
                                                                                           whether or not the property, for legal
                                              accordingly) or to significantly reduce
                                                                                           or other reasons, can be torn down
                                              the sustainable rental income.
                                                                                           immediately or within a reasonable time,
                                              Depending on whether the vacancy
The basis for each                            reasons are due to the property’s
                                                                                           the property should be valued by using
                                                                                           the liquidation method as regulated in
prognosis must be a                           character or to the economic
                                                                                           the German WertV § 20 para. 1, 2 and 3.
                                              environment, the reduced substantial
comprehensive market                          rental income assumption has to be
                                                                                           Balanced Interests
analysis which includes                       related to the whole property or parts
                                              thereof. Existing vacancy does not           The recommendations mentioned above
the actual demand for                         necessarily have to be equivalent to the     offer a structured approach for
rental space, as well as                      vacancy assumption in the valuation.         considering specific vacancy scenarios.
rental space offered on                       Thus two different scenarios can be
                                                                                           Moreover, a transparent representation
                                                                                           of the vacancy and its assumed
the market and areas                          covered. On the one hand, the scenario
                                                                                           development over the lifetime of the
                                              of an increased chance to re-let the
under construction, and                       vacant areas by an assumed lower rental
                                                                                           property is taken into consideration.

future developments in                        income, and thus a reduction of the
                                              vacancy rate; and on the other hand,
the real estate market.
The potential costs of a   Nevertheless, each property valuation                   viewed and chosen separately, but
                           requires an exact assessment of the                     always in their balanced ratio and
renovation or structural   individual case, based on which the                     interwoven combination, in order to
alteration have to be      decision for consideration, using one of                achieve adequate market values.
                           the vacancy parameters, has to be
estimated in each          made. Furthermore, the parameters and
individual case and then   value approaches should never be

compared with the
potential further usage
of the property.

                           Florian Hackelberg can be reached via email at:

                             Bundesverband für Wohneigentum e.V, “Wohnungswirtschaftlicher Strukturwandel in Ostdeutschland”, 2004
                             Deutsche Gesellschaft für Immobilienfonds, “Marktreport Deutschland 2005”, 2005
                             Sander/Weber, “Lexikon der Immobilienwertermittlung”, 2003
                             Kleiber/Simon/Weyers, “Verkehrswertermittlung von Grundstücken”, 2002
                             Institut der Wirtschaftsprüfer, “Prüfungshinweis: Berücksichtigung von Immobiliensicherheiten bei der
                             Prüfung der Werthaltigkeit von ausfallgefährdeten Forderungen bei Kreditinstituten (IDW PH 9.522.1)”, 2005
                             Senatsverwaltung für Stadtentwicklung Berlin, “Berliner Mietspiegel 2005”, 2005
Eye on the Americas
                                         PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON AMERICAS                 33

                                       During the 1990s, the Uruguayan economy presented
                                       high rates of growth, with real product (physical
                                       volume of goods and services production) growing
                                       from 1990 to 1998 at a cumulative rate of 3.9%.

Uruguay: A land of opportunity
By Daniel Garcia Peleteiro, Partner,   This impressive rate of economic growth         Macroeconomic context
Daniel Porcaro, Executive Director,
Real Estate Services,
                                       can be explained by several key factors:
PricewaterhouseCoopers, Uruguay, and   an important regional demand from               The macroeconomic scenario used by
Martin van der Zwan, Senior Manager,
                                       Argentina and Brazil, a rise in local           the economic team to carry out the
PricewaterhouseCoopers, Amsterdam
                                       demand due to an increase in the                expenses and investments analysis

                                       general population’s income and an              of the state budget for the period

                                       expansion of credit, which helped               2005-2009 assumes that the solid pace

                                       increase consumption. Subsequent to             of growth will remain. Most likely, the

                                       this, the Uruguayan economy went                increase in production would be

                                       through a recession period that lasted          sustained mainly by increases in private

                                       four years due to the Brazilian                 consumption, exports and a recovery in

                                       devaluation in 1999 and the ensuing             fixed asset investments.

                                       crisis in Argentina.                            Real estate investments in Uruguay have

                                       Beginning in 2003, the Uruguayan                become an attractive market for local,

                                       economy started to show recovery                regional and foreign investors due to the

                                       indicators; its recovery was consolidated       economic stability of the country and

                                       in 2004 when the Gross Domestic                 the region, a low inflation rate, the state

                                       Product (“PBI”) increased over 12%.             fiscal discipline, the revaluation of

                                       Growth in 2005 was 6.6%. Greater                “peso” against “dollar” and low interest

                                       dynamism in the global economy                  rates in alternative investments.

                                       and commerce, the good prices of                Beginning with the third quarter of
                                       primary products that the country               2003, the building industry started to
                                       commercializes and the economic                 recover a good level of activity in its
                                       growth in the region can be identified          main two investment locations:
                                       as some of the external factors that            Montevideo (capital city) and Punta del
                                       fostered this activity recovery.                Este (one of the main seaside resorts
                                                                                       in South America).
 34   PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON THE AMERICAS

                                              Figure 1. 2005-2009 Macroeconomic Projections

                                              National accounts (change in real terms)              2005    2006    2007     2008    2009

                                              GDP                                                  5.5%    4.0%    3.5%    3.0%      3.0%
                                              Imports of goods and services                       16.2%    11.0%   6.5%    5.2%      5.0%
                                              Fixed asset investments                             25.1%    14.8%   10.8%   7.3%      6.3%
                                              Final consumer spending                              6.5%    4.1%    3.6%    3.0%      3.0%
                                              Exports of goods and services                       12.5%    9.5%    5.0%    4.5%      4.5%

                                              Foreign sector (change in US dollars)

                                              FOB exports of goods                                15.8%    12.5%   8.0%    5.8%      5.6%
                                              CIF imports of goods (excluding petroleum)          22.7%    13.4%   8.0%    5.8%      5.6%

                                              Prices and salaries (annual average change)

                                              CPI                                                  4.9%    6.3%    4.9%    4.4%      4.0%
                                              Exchange rate                                       -13.2%   1.4%    1.3%    1.7%      1.5%
                                              Average Wage Index                                   9.4%    10.8%   8.4%    7.8%      7.0%
                                              Public                                              10.2%    9.4%    8.3%    7.7%      6.8%
                                              Private                                              9.0%    11.4%   8.4%    7.8%      7.1%

                                              Source: PricewaterhouseCoopers

Construction of new                           Construction of new dwelling houses in        In the rest of the country, investment in
                                              Montevideo has been on the rise since         fields for agropecuary exploitation is
dwelling houses in                            the first half of 2004, mainly focused on     most popular with foreign investors.
Montevideo has been on                        high quality and luxury buildings, thus
                                              confirming the strength of the economic       Investments in public and
the rise since the first half                 recovery at the highest social levels.        private sectors
of 2004, mainly focused
                                              But a scarcity of available mortgage          While the private building sector
on high quality and luxury                    credits for the middle class suggests         has had more influence on the growth
buildings, thus confirming                    that, although there exist high rates of      of this industry since 2004, it is the
                                              unsatisfied housing demand, the building      public building sector that is
the strength of the                           sector has not managed to consolidate         expected to acquire more dynamism,
economic recovery at the                      projects to satisfy said demand.              based on observed improvement in the
                                                                                            state accounts.
highest social levels.                        During the last two years, there has
                                              been a tremendous spate of building           When analyzing the evolution of the last
                                              activity in Punta del Este involving new      years, it is generally accepted that
                                              high category dwelling houses.                private investment in the building
                                              The main seaside resort in South              industry is the weightiest, being on
                                              America, home to many of Argentina’s          average in the neighborhood of 65%.
                                              and Brazil’s wealthiest private citizens,
                                                                                            Notwithstanding, the investments area
                                              has had a strong demand from
                                                                                            was the one that saw the greatest
                                              European investors, specially Spanish
                                                                                            increase allotted in the last state budget
                                              and Italian ones. Important real estate
                                                                                            drawn by the government – as much as
                                              developments, such as the building
                                                                                            46% more in real times compared to the
                                              of tourist complexes and marinas,
                                                                                            previous budget. This increase will be
                                              are supported by the government
                                                                                            channeled mainly to public facilities
                                              and municipal authorities so that the
                                                                                            works, social housing and buildings for
                                              seaside facilities can attain levels of
                                                                                            public education and health.
                                              international excellence.
                               PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON THE AMERICAS              35

                             Real Estate Activity in                            to the needs of a second dwelling house
                             Montevideo                                         or a seasonal dwelling house for high
                                                                                income individuals in the region, and
                             Facing improved economic                           increasingly frequently, from Europe.
                             perspectives, many real estate investors’
                             impression was that real estate prices             The average registered price per square
                             may have reached a “plateau” in 2003               meter generally results in values that are
                             and they could be expected to slowly               higher than those in Montevideo.
                             start increasing.                                  The analysis based on the size of the
                                                                                property shows that the larger the
                             As a result, the number of transactions            surface area is, the higher the
                             in Montevideo greatly increased in 2004            transaction values per square meter are.
                             (24%) to a level that nearly equaled the           As a result, there have been cases where
                             number of transactions that took place             real estate values have reached US$
                             in 1998, before the recession.                     3,300 per square meter for properties of

                             Among the reasons cited for the                    about 300 and 400 square meters.

                             increased level of registered activity             Some important market details regarding
                             included a medium-term recovery in                 first category dwelling houses are
                             prices and the maintained low rentability          summarized in Figure 3.
                             of alternative investments.

                             Some important market details are                  Future Outlook for the Real
                             summarized in Figure 2.                            Estate Market

                                                                                According to the main market operators’
                             Real Estate Activity in Punta                      opinion, growth in the real estate market
                             del Este                                           during the next few years will be

                             In Punta del Este, the typical real estate         concentrated on the following areas:

                             offering is basically designed to respond

While the private building   Figure 2. Montevideo market details

sector has had more          Kind of Building                                Total cost           Average            Average
                                                                   (lot included) US$      sale price US$     rent price US$
influence on the growth      Residential
of this industry since       On the coast                                         950               1500
                             Other locations                                      800               1200
2004, it is the public
                             Offices Premium
building sector that is      Preferential zone 850                                850               1500                 12

expected to acquire more     Other locations                                      700               1250                 10

dynamism, based on           Source: PricewaterhouseCoopers

observed improvement in
the state accounts.
 36   PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON THE AMERICAS

                                              1. Development of low income housing          Investing in Uruguay
                                                in Montevideo; specially through
                                                long-term financing and the available       Economic Policy

                                                State subsidies,                            The fact that policies of liberalization

                                              2. Real estate developments for the           and opening up of the economy have

                                                middle class in Montevideo through          been persistently maintained for more

                                                the implementation of long-term lines       than 20 years, as well as the nation’s

                                                of credit,                                  strict compliance with international
                                                                                            obligations, have contributed to the
                                              3. Office buildings and commercial real       favorable positioning of Uruguay in the
                                                estate developments in Montevideo,          international markets, and to the
                                                                                            development of an extended reputation
                                              4. Luxury residences with specific
                                                                                            as a regional finance center with a long
                                                attractions (golf, yacht, etc.) in Punta
                                                                                            tradition of liberty and security.
                                                del Este,
                                                                                            Uruguay has a regime of full liberty for
                                              5. Infrastructure building works
                                                                                            movement of capital, foreign exchange
                                                and other facilities (schools, hospitals,
                                                                                            and gold, inbound and outbound from
                                                                                            abroad, and an exchange system of free
                                              The main limitation to the                    convertibility for the local currency.
                                              implementation of real estate                 Furthermore, there are no limitations
                                              developments is the scarcity of available     whatsoever to purchase land or invest in
                                              internal financing. As a consequence,         any kind of properties.
                                              financing through foreign capitals plays
                                                                                            Customary forms of doing business
                                              a role of great importance.
                                                                                            Foreign investment in the purchase
                                                                                            of local properties may utilise
                                                                                            different legal structures with different
                                                                                            fiscal consequences.

Uruguay has a regime                          Figure 3. Punta del Este market details

of full liberty for                           Type of housing                                                 Total cost          Average
                                                                                                    (lot included) US$     sale price US$
movement of capital,                          Residential
foreign exchange and                          On the coast                                                        1050               1800
                                              Peninsula                                                           1200               2000
gold, inbound and
outbound from abroad,                         Source: PricewaterhouseCoopers

and an exchange system
of free convertibility for
the local currency.
In order to develop           The most popular structures used by         reduced scope of application and with
                              foreign investors to purchase properties    a low contribution to the overall tax
large-scale projects, local   in Uruguay involve either an offshore       collection; (ii) introduction of an income
and foreign corporate         company or a locally incorporated           tax on Individuals; (iii) reduction of the
                              company in the form of a business           CIT statutory rate from 30% to 25%;
forms are complemented        corporation. A foreign investor may also    (iv) introduction of transfer pricing rules;
by management trusts          purchase properties in Uruguay not only     (v) modifications in the application of
                              through a legal entity but also as a        withholding taxes on Uruguayan source
and local guarantees.
                              physical entity.                            income; (vi) exemption of withholding tax
                                                                          on dividends and profits remittances to
                              In order to develop large-scale projects,
                                                                          non-residents; (vii) reduction of the
                              local and foreign corporate forms are
                                                                          general VAT rate from 23% to 21% and
                              complemented by management trusts
                                                                          of the reduced rate from 14% to 10%;
                              and local guarantees.
                                                                          (viii) maintenance of the source principle
                              Tax Reform                                  for levying taxes as well as the existing
                                                                          preferential tax regimes applicable to
                              In November 2005 the draft of a major       Free Zones, forestry and industrial and
                              tax reform was published. In March 2006     commercial qualifying investments.
                              the Uruguayan government submitted
                              for Congressional consideration the         Taxation of real estate business
                              proposed reform’s final draft version.
                                                                          Pursuant to tax reform, the taxation
                              According to the authorities, the reform
                                                                          of real estate transactions carried out
                              seeks to improve fairness, increase tax
                                                                          in Uruguay by non-residents would be
                              efficiency (based on a simplification of
                                                                          as follows.
                              the current tax structure) and promote
                              investment and employment.                  In the case of a foreign corporation or a
                                                                          foreign physical entity that purchases
                              The major changes contained in the
                                                                          properties in Uruguay for further sale or
                              original draft published in November
                                                                          rental, the incomes earned in Uruguay
                              2005 are: (i) elimination of 15 taxes of
                                                                          shall be levied upon by the
Foreign investors find it                           Income Tax to Non-Residents (“IRNR”)              Foreign investors find it interesting to
                                                    at a rate of 10% applied to the selling           use local business corporations with
interesting to use local                            price of the transaction.                         bearer shares (non-nominative) since
business corporations                               In the event the property purchase is
                                                                                                      the sale of shares is not levied upon
                                                                                                      by the profits tax. The sale of shares
with bearer shares                                  carried out through a local company
                                                                                                      of a local company (before carrying
                                                    (the most commonly-used form is the
(non-nominative) since                                                                                out a due diligence) is sometimes
                                                    business corporation organized in
                                                                                                      more convenient than the sale of
the sale of shares is                               Uruguay), the earned income shall be
                                                                                                      assets thereof.
not levied upon by the                              levied at a rate of 25% applied to the
                                                    net fiscal income – which is obtained by          The following table summarizes the
profits tax.                                        deducting the fiscal value of the real            fiscal treatment regarding profits tax
                                                    estate from the obtained income. It is            respective to real estate sales, income
                                                    possible to deduct financing costs, real          earned through property rentals and sale
                                                    estate depreciation and all the necessary         of shares under the above-mentioned
                                                    expenses to maintain the property in              legal structures.
                                                    good conditions to determine the fiscal
                                                    net income.

Figure 4. Overview of fiscal treatment of various factors

Type of income                     Applicable Tax    Foreign physical or legal entity          Applicable Tax      Local legal entity

Real estate sale                   IRNR              10% on income                             IRAE                25% on net income

Real estate rental                 IRNR              10% on income deducting                   IRAE                25% on incomes deducting
                                                     expenses without amortizations                                expenses and including

Sale of shares                     IRNR              Exempted                                  IRAE                Exempted

Dividend remittance                IRNR              Exempted                                  IRAE                Exempted

IRNR: Income Tax to Non-Residents
IRAE: Income Tax to Business Activities
Source: PricewaterhouseCoopers
                                PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON THE AMERICAS          39

                              In terms of income taxation, Uruguay            Both parties to the transfer contract are
                              adheres to the source criterion. As a           subject to this tax at a rate of 2% each
                              result, income earned from activities           on the property´s tax valuation (generally
                              developed and assets located in the             lower than market value). In agricultural
                              country are subject to local taxes.             areas, under certain conditions, this tax
                                                                              is not applicable to the transference of
                              Owing to this characteristic, foreign
                                                                              real estate.
                              investors who are interested in the
                              region use Uruguayan investing trusts           Value Added Tax
                              that invest in properties in Argentina
                                                                              Uruguayan Value Added Tax (“VAT”)
                              and Brazil because incomes earned in
                                                                              is levied at 10% on the first sale of real
                              said countries are exempted from taxes
                                                                              estate. The sale of second-hand real
                              in Uruguay.
                                                                              estates is exempted from this tax.
                              Other taxes applicable to real estate           Real estate rentals are exempted from
                              activity are the following:                     this tax.

                              Transfer Tax                                    Municipal taxes

                              Acquisition of Uruguay real estate is           Municipal taxes levied on properties may
                              subject to property transfer tax. This tax      differ depending on the location thereof.
                              is levied on the transfer of real estate.

                              Daniel Garcia Peleteiro can be reached via email at:

                              Daniel Porcaro can be reached via email

                              Martin van der Zwan can be reached via email at:

In terms of income
taxation, Uruguay adheres
to the source criterion.
As a result, income
earned from activities
developed and assets
located in the country
are subject to local taxes.
 40    PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON THE AMERICAS

                                               The PricewaterhouseCoopers’ Korpacz Real Estate
                                               Investor Survey® is a quarterly analysis of timely data
                                               and opinions expressed by professionals involved with
                                               the US real estate industry, including institutional
                                               investors, REITs, pension funds, mortgage bankers,
                                               developers and insurance companies.

No slowdown in US property
markets, PricewaterhouseCoopers
survey finds
By Peter F. Korpacz, Director,                 PricewaterhouseCoopers’ Korpacz Real      sentiment of confidence among
PricewaterhouseCoopers Global Strategic
Real Estate Research Services Group,
                                               Estate Investor Survey® 2nd Quarter       investors about the future.
Baltimore and Susan M. Smith, Manager,         2006 edition finds US commercial real
PricewaterhouseCoopers Real Estate
Business Advisory Services, New York
                                               estate still being perceived as a         Office Markets
                                               favorable allocation alternative for
                                                                                         That attitude seems especially
                                               investors – despite concerns about
                                                                                         prevalent within the national Commercial
                                               higher energy costs, rising interest
                                                                                         Business District (CBD) office market,
                                               rates and the possibility of higher
                                                                                         where investors continue to focus
                                               capitalisation rates down the road.
                                                                                         their attention on new acquisitions
                                               With the overall economy showing          of individual properties as well as
                                               continued strong gains in employment      complete portfolios.
                                               as well as high levels of consumer
                                                                                         Though recent increases in interest rates
                                               confidence, investors seem poised
                                                                                         are putting the brakes on the purchasing
                                               to continue their long-standing
                                                                                         ability of some leveraged buyers,
                                               infatuation with the US commercial
                                                                                         many all-cash buyers, such as pension
                                               property markets.
                                                                                         funds, are picking up the slack and
                                               And while the relative strengths of       aggressively pursuing investment
                                               individual property sectors vary from     opportunities in many individual markets.
                                               market to market, underlying              In fact, overall transaction activity of
                                               fundamentals continue to evoke a strong   significant CBD office properties was up
                                                                                         a full 10% in the first quarter of 2006,
With the overall economy    compared to the same period in 2005,          office market stood at $22.71, a full
                            with Manhattan, Chicago, Los Angeles          4.50% increase over the $21.73
showing continued strong    and Phoenix heading the list of most          level recorded during the same period
gains in employment as      active US office markets over the             in 2005.
                            past year.
well as high levels of                                                    Thanks to steady demand and rising
                            In the national suburban office market,       rental rates landlords in many areas have
consumer confidence,
                            steady employment gains and limited           begun scaling back on concessions and
investors seem              amounts of new supply are helping to          incentives used to lure tenants when the
poised to continue their    lower vacancy rates across the board          markets were softer. As vacancy rates
                            while leading to increased rental rates in    continue to fall, many investors are also
long-standing infatuation   many individual areas. In the first quarter   looking forward to the potential for rental
with the US commercial      of 2006, the overall weighted average         increases if this positive trend continues.
                            rental rate for the national suburban
property markets.

                            Figure 1. Overall Vacancy Rate Trends/National Suburban Office Market

                            Time Period                                                        %               Change
                                                                                                         (Basis Points)

                            1Q 06                                                          16.1%                   -60

                            4Q 05                                                            16.7                  -70

                            3Q 05                                                            17.4                  -50

                            2Q 05                                                            17.9                  -70

                            1Q 05                                                            18.6                  -40

                            4Q 04                                                            19.0                  -70

                            3Q 04                                                            19.7                  -30

                            2Q 04                                                            20.0                  -30

                            1Q 04                                                            20.3                    0

                            Source: PricewaterhouseCoopers
With so many warehouse      Industrial Markets                            Flex/R&D Markets

markets performing          The national warehouse market                 Like their office and warehouse
                            continues to perform well with many           counterparts, many individual flex/R&D
well, investment demand
                            individual geographic markets reporting       markets across the country have seen
as been voracious, with     strong demand, decreasing vacancy             declines in vacancy in recent months
a record $10.5 billion of   rates and rising rental rates. With so        thanks to improved tenant demand and
                            many warehouse markets performing             a lack of new construction. In Los
significant industrial      well, investment demand has been              Angeles County the overall vacancy rate
assets traded during the    voracious, with a record $10.5 billion of     for flex/R&D space fell to 5.4% in the
                            significant industrial assets traded during   first quarter of 2006. And while vacancy
first quarter of 2006.      the first quarter of 2006.                    rates for flex/R&D space are significantly
                                                                          higher in many other local markets, they
                            Industrial assets in the western part
                                                                          have been trending downward as well.
                            of the country continue to attract the
                                                                          For example, in Denver the overall
                            lion’s share of investor interest. In Los
                                                                          vacancy rate for flex/R&D space
                            Angeles, for example, a total of 190
                                                                          declined to 16.3% at year-end 2005,
                            industrial assets changed hands in the
                                                                          while in Charlotte, it dipped to 19.2% in
                            12 months leading up to April 2006.
                                                                          the first quarter of 2006.
                            Other very active markets along the
                            West Coast included Seattle, Orange           While the national average rental rate for
                            County and San Jose. On the East              flex space increased 4.5% (to $9.08 per
                            Coast, industrial sales activity has been     square foot) between year-end 200
                            particularly robust in and around large       and the first quarter of 2006, many
                            metropolitan areas such as Boston,            individual flex markets posted higher
                            where 71 industrial properties were           rates, led by the San Francisco
                            bought and sold in the 12 months              Peninsula ($22.20 per square foot),
                            leading up to April 2006, and Suburban        Los Angeles/Ventura County ($16.60 per
                            Maryland, where 151 industrial                square foot), Pleasanton/ Walnut Creek,
                            properties were traded during the same        California ($15.25 per square foot), and
                            time frame.                                   Washington, DC ($13.03 per square foot).
                             PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON THE AMERICAS            43

                           Individual flex markets that posted             overall capitalisation rates begin to
                           the lowest average rental rate as of            stablise, with a likely upward trend
                           March 2006 were Cincinnati ($4.00 per           in the offing.
                           square foot), Nashville ($4.00 per square
                                                                           Power Centers
                           foot), Minneapolis ($4.60 per square
                           foot), and Fresno, California ($4.80 per        In the national power center market,
                           square foot).                                   the survey found the performance of
                                                                           individual big-box and discount retailers
                           Retail Markets                                  varied from location to location.
                                                                           Even so, many continued to outperform
                           Regional Mall
                                                                           traditional merchants in terms of
                           While a number of national retailers have       year-to-year retail sales growth. As a
                           announced plans to close stores or scale        result, investor interest remains very
                           back on planned openings, the retail            strong for well-located power centers
                           industry as a whole continues to perform        that offer a diverse tenant mix and high
                           well and attract investors’ interest.           barriers to entry. While some investors
                           The national regional mall market saw a         expressed concern about the possibility
                           total of 100 malls sold across the              of rising overall cap rates, most were
                           country during the 12 months leading up         optimistic that this would be offset by
                           to May, 2006. And while the volume of           increases in net operating income.
                           retail properties offered for sale remains      National power center investors also
                           heavy, total sales volume has slowed            recognize a “bigger is better” factor,
                           recently, with only 12 regional malls           according to the survey, as they
                           trading hands during the first quarter of       expressed a distinct preference for
                           2006. One reason for the drop-off is that       big-box versus “mom-and-pop” sized
                           investors are finding fewer quality assets      stores which are seen as carrying more
                           available for sale, according to the            risk and higher levels of overall
                           survey. In addition, investors are seeing       capitalization rates (OARs).

While a number of
national retailers have
announced plans to close
stores or scale back on
planned openings,
the retail industry as a
whole continues to
perform well and attract
investors’ interest.
 44   PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON THE AMERICAS

                                              Strip Shopping Centers                        Net Lease Markets
                                              While the national strip shopping center      Transaction volume in each net lease
                                              market continues to attract interest          segment (sale-leaseback, 1031
                                              from many investors, total sales volume       exchange, and triple-net-leased
                                              in this sector fell by as much as 12%         properties) remained at vigorous levels
                                              between the first quarter of 205 and the      during the first quarter of 2006.
                                              first quarter of 2006. One reason for
                                              this decline, especially among                The sheer volume of net lease

                                              grocery-anchored centers, is increased        transactions has resulted in a tighter

                                              competition for big-box merchants and         variance between OARs for investment

                                              bulk warehouse retailers – a situation        grade and sub-investment grade

                                              that is further reflected by a continuing     tenants. As a result, investors are

                                              spate of grocery store closing,               placing greater emphasis on the

                                              bankruptcies and consolidations across        underlying fundamentals of the real

                                              many geographic markets.                      estate in a net lease transaction.
                                                                                            Given the shrinking gap between
                                              At the same time, many investors report       short-term and long-term interest rates,
                                              that available assets are priced at           transaction activity may be further
                                              premium levels, even though overall           stimulated in the sale-leaseback sector
                                              capitalization rates appear to have           as corporations seek alternate methods
                                              stabilized or begun to rise. The apparent     of raising capital.
                                              gap in bidding versus asking price will
                                              likely be further exacerbated by growing      In fact, sale leasebacks have emerged

                                              competition from new centers. Shopping        as a popular long-term capital source for

                                              center industry analysts expect available     convenience store (“c-store”) operators,

                                              space to increase by 377 million feet in      the survey finds. While the c-store sector

                                              2006, resulting in a 20-basis-point rise in   historically has been dominated by

                                              the national vacancy rate by the end of       REITs, an increasing number of

                                              the year.                                     institutions, including private 1031

Many investors report
that available assets are
priced at premium levels,
even though overall
capitalization rates appear
to have stabilized or
begun to rise.
After a record number     investors, are considering c-store           related to rising interest rates.
                          acquisitions due to their higher yields in   While rising interest rates typical
of condo conversions in   the competitive retail investment market.    strengthen the multifamily market, the
2005, the first three     Generally, c-stores backed by corporate      return of some condos to rental units
                          credit are more appealing than those         may have a short-term negative effect
months of 2006 saw        with franchise credit. Thus, in lieu of      on apartment market fundamentals.
only 14,000 units         corporate credit, the valuation of the       This effect may be especially evident in
                          underlying real estate is critical.          markets such as South Florida, where
converted – the lowest
                          One drawback to c-store investments as       a large number of investors entered the
level since mid-2004.     a long-term player in the net lease          condo market with the intent of
                          market is their dependence on fuel sale      capitalizing on a housing trend.
                          revenues since pricing pressures exist
                                                                       At the same time, rising interest rates and
                          from other retailers.
                                                                       overall capitalization rates are reducing
                                                                       margins in many apartment transactions,
                          Apartment Markets
                                                                       thereby pricing many leveraged buyers
                          The recent winter months saw a jump in       out of the market. As a result, the
                          interest rates, a drop-off in concessions,   slowdown in condo conversions remains
                          sluggish apartment absorption and a          in evidence, dropping to 15% of all sales
                          general slowdown in condo conversions.       during the first quarter of 2006.
                          During the first quarter of 2006, Fort       By comparison, condo conversions
                          Lauderdale, Los Angeles and Orange           accounted for approximately 25% of total
                          county each reported the lowest              apartment sales in 2005.
                          apartment vacancy rates nationwide.
                                                                       By geographic market, Broward County
                          After a record number of condo               and Orlando continue to see significant
                          conversions in 2005, the first three         activity, but sales have slowed
                          months of 2006 saw only 14,000 units         significantly in Tampa, Naples/Sarasota,
                          converted – the lowest level since           Phoenix and Las Vegas, when compared
                          mid-2004. Part of the reason may be          to 2005.
46   PricewaterhouseCoopers Global Real Estate Now July 2006 EYE ON THE AMERICAS

                                             Peter F. Korpacz can be reached via email at:

                                             Susan M. Smith can be reached via email at:

                                             The second quarter 2006 Korpacz Real Estate Investor Survey® provides detailed
                                             overviews of national retail markets, including regional mall, power center and strip
                                             shopping center overviews; overviews of 14 major office markets; and national
                                             overviews of the Flex/R&D, Warehouse, Apartment, Net Lease, and National
                                             Development Land markets. The report also features up-to-date commentaries
                                             concerning Valuation Issues, Technology News and Trends, Economic News, and the
                                             Real Estate Capital Markets.

                                             Each quarterly issue of the survey also contains current, prior-quarter, and year-ago
                                             rates, cash flow assumptions, and other criteria used to analyze real estate
                                             investments; more than 40 tables, including Yield Comparisons, Dividend
                                             Comparisons, Key Value Indicators by market, Marketing Time, Institutional-Grade vs.
                                             Noninstituitonal-Grade Property rates, and Forecast Periods and Growth Rates.

                                             One year online or electronic (PDF) subscriptions to the survey can be purchased for
                                             $350 at
Tech Corner
                                           PricewaterhouseCoopers Global Real Estate Now July 2006 TECH CORNER                  49

                                         Recent years have seen a significant increase in the
                                         level of investment by real estate companies in
                                         technology projects. There are a number of drivers for
                                         this increase in activity, including the availability of
                                         technology, the ability to fund a change, and a growing
                                         driver related to improving the controls environment.

Global Real Estate IT
Implementations: Logistical and
Control Considerations
By Scott Williamson, Senior Manager,     The controls driver relates not only to the     Configuration Considerations
Systems and Process Assurance,
PricewaterhouseCoopers, McClean, VA,
                                         regulatory impact of Sarbanes-Oxley and
and David Yakowitz, Director, Advisory   Basel II compliance, but also to the            Many technology vendors have
Performance Improvement,
                                         rewards for any company looking to              responded to the growing demand for
PricewaterhouseCoopers, Chicago, IL
                                         enforce a strong control environment.           configurable and automated controls

                                         Whether or not controls considerations          with enhancements to their products.

                                         are a main driver of the project, all           Therefore, to the extent the project

                                         technology implementations must now             involves the implementation of package

                                         comprehensively consider compliance             solutions, it is important to understand

                                         and controls.                                   the options provided. Failure to do so
                                                                                         has led some real estate companies to
                                         In this article, we explore the key control     design manual processes or customized
                                         considerations that should be taken into        controls when simple configuration
                                         account in technology implementation            changes could have achieved the
                                         projects. The ability to leverage flexible      same objective.
                                         configuration options from vendors are
                                         discussed along with the key areas of           The majority of real estate software

                                         automated application controls and              providers now offer highly configurable

                                         program development controls. Finally,          user security options with their software.

                                         we offer insights on how to incorporate a       In addition to role-based application and

                                         controls track into the planning and            report security, most packages offer

                                         execution of technology projects.               record and field level security options.
                                                                                         Serious consideration should be given to
The majority of real estate   the need for this level of security as its   For real estate companies doing
                              use often requires additional                business in multiple countries, the
software providers now        administration and may increase              configuration related to multi-currency
offer highly configurable     performance overhead. Role-based             processing should be carefully designed.
                              security typically addresses the majority    There are often multiple options for
user security options with    of security requirements.                    handling currency functions such as
their software.                                                            exchange rates, alternate currency
                              Another area of controls support in
                                                                           processing, gains and losses,
                              package technology that has seen
                                                                           revaluations, restatements, and
                              significant advances in recent years is
                                                                           consolidations. In addition to
                              configurable workflow. The real estate
                                                                           multi-currency issues, multi-national
                              business involves many processes that
                                                                           companies also need to take
                              require review and approval, from
                                                                           multi-language capabilities into account
                              standard financial processes such as
                                                                           when designing controls processes.
                              voucher and journal entry processing to
                              specific real estate processes like          Finally, many vendors allow for variable
                              deal-approval. Some vendors provide          configurations within the same
                              general workflow “engines” that can be       applications. For example, accounts
                              configured to support a variety of           payable processing at the property level
                              processes. Others have developed             may require different controls than
                              specific, pre-built workflows that require   corporate accounts payable. It may be
                              very little configuration. These             possible to accommodate both sets of
                              capabilities should be well understood       requirements without customization if
                              before decisions are made about which        property level users and corporate
                              controls requirements can be                 users can utilize the same applications
                              automated. Consideration should also         but with differing configurations. This
                              be given to the escalation and               capability should be carefully considered
                              monitoring capabilities of workflow since    during analysis and design as it may
                              these are key controls procedures.           reduce the need for customization
                                                                           and/or manual procedures.
                              PricewaterhouseCoopers Global Real Estate Now July 2006 TECH CORNER                    51

                            Automated Application Controls                  systems. An additional benefit of
                                                                            AACs is that they can streamline
                            Many of the configuration decisions             the compliance assessment
                            made during the set up of a new                 process, especially as it relates to
                            application will have a direct impact on        Sarbanes-Oxley compliance.
                            the ability to rely on automated
                            application controls (AAC) within the           If your company has tested the overall
                            application. AACs can be defined as             IT General Controls to ensure that they
                            specific points of control within the           are operating effectively, then you can
                            application that give the user comfort          test each instance of an AAC just once
                            that the financial outputs are accurately       and have comfort that it will continue
                            presented. Examples of AACs could               to operate effectively. In contrast, any
                            include specific calculations that are          alternative manual controls would require
                            relied upon (e.g., depreciation expense),       the retention of evidence each time the
                            business rules that are enforced by the         control executes and the compliance
                            application (e.g., approval thresholds or       testing would require full sample sizes to
                            a three-way match on invoices), as well         ensure operating effectiveness.
                            as the enforcement of segregation of
                                                                            The key point to understand regarding
                            duties within the application (e.g., not
                                                                            AACs is that proper planning needs to
                            allowing a single user to set up vendors,
                                                                            take place up front to identify
                            approve invoices, and cut checks).
                                                                            opportunities to leverage these controls
                            Access controls and segregation of              and ensure that the configuration is
                            duties is one area that many legacy             consistent with the control objectives.
                            systems have not adequately supported.
                            All of these examples can replace               Program Development Controls
                            manual recalculation and approval
                                                                            Controls compliance also extends to the
                            controls that many companies still
                                                                            program development controls, as part
                            maintain as workarounds for legacy

For real estate companies
doing business in
multiple countries, the
configuration related to
multi-currency processing
should be carefully
 52   PricewaterhouseCoopers Global Real Estate Now July 2006 TECH CORNER

                                              of the overall IT general controls that are   access between the development,
                                              in place throughout the implementation        testing and production environments.
                                              of a significant application.                 Segregation of duties ensures that only
                                                                                            approved and tested changes are
                                              The intent of program development
                                                                                            moved into the final production
                                              controls is to ensure a standardized
                                                                                            environment for the application.
                                              process is in place as the company
                                              progresses through each phase of the          An additional component of IT general
                                              system development life cycle                 controls that supports segregation of
                                              (described below).                            duties, as well as program change
                                                                                            controls, is the ability of the application
                                              Each company required to comply with
                                                                                            to produce an automated change log to
                                              Sarbanes-Oxley will be specifically
                                                                                            effectively manage all changes to the
                                              tested to ensure that these controls were
                                                                                            accounting application.
                                              in place and effective throughout the
                                              implementation. The specific guidance         For all these controls, it is important to
                                              for areas of focus may vary slightly          recognize that many companies do
                                              between accounting firms, but basically       follow this process as part of a system
                                              the goal is to ensure proper upfront          development life cycle, but the control
                                              business approval, confirmation of            owners are not properly documenting
                                              functional and technical requirements,        the operation of the control to evidence
                                              quality assurance testing, accurate data      that these controls did take place.
                                              conversion, “go-live” approval, and
                                                                                            Overall, the goal should be to ensure
                                              effective documentation and training are
                                                                                            that these controls are identified early in
                                              all in place.
                                                                                            the process, controls owners are
                                              Implicit in this process is that proper       established, and internal testing should
                                              segregation of duties is enforced             be done at each major milestone to
                                              throughout the implementation to control      ensure compliance.

Implicit in this process is
that proper segregation
of duties is enforced
throughout the
implementation to control
access between the
development, testing and
production environments.
During the analysis phase,      Planning for the Controls Track           considering the use of third-party
                                                                          advisors are including controls sections
it is important first to        While there may be numerous               in their requests for information/proposal
                                approaches to implementation, we will
identify all of the controls-                                             (RFI’s/RFP’s). Integrators and advisors
                                refer to the system development life      including PricewaterhouseCoopers are
related requirements.           cycle as having the following phases:     updating their methodologies to

                                • Planning – Determine project tasks,     incorporate controls-related activities

                                  resources, budgets, risks               and deliverables.

                                • Analysis – Determine what the           During the planning phase of the
                                  solution needs to address and           implementation, a “controls track”
                                  configuration options                   should be clearly defined. Regardless
                                • Design – Determine how the              of the approach and methodology
                                  solution will work                      being used for the implementation

                                • Build/Configure/Test – Develop or       project, controls activities will occur

                                  configure solutions and ensure they     during each phase of the project.

                                  are working as intended                 These tasks need to be clearly defined,
                                                                          dependencies identified, and resources
                                • Deploy – Prepare organization
                                                                          allocated appropriately. A discussion of
                                  for new applications and cut-over to
                                                                          the key components of the controls
                                  new solutions
                                                                          track follows.
                                In this section, we will discuss key
                                controls considerations for each phase
                                of the life cycle.                        During the analysis phase, it is
                                                                          important first to identify all of the
                                                                          controls-related requirements. Since
                                The consideration of controls during      the implementation project is likely to
                                implementation cannot occur too early.    include business process change, there
                                Even prior to the planning phase of the   is a dependency on the definition of
                                project, many companies that are          the future-state business processes.
During the analysis phase,    Controls requirements cannot be            Controls requirements should be
                              completed without consideration of         assigned to appropriate design
inventories of offline data   changes to business processes.             workshops. For example, a real estate
sources such as               During the analysis phase, inventories
                                                                         company who recently implemented
                                                                         a shared services model during a
spreadsheets also should      of offline data sources such as
                                                                         technology implementation used specific
                              spreadsheets also should be completed
be completed so that                                                     controls resources on the project to
                              so that opportunities to move processes
                                                                         participate in process and organization
opportunities to move         and data into the new system can
                                                                         design workshops as well as functional
processes and data into       be analyzed.
                                                                         design sessions.
the new system can            Once the requirements are documented,
                                                                         The controls team should also be
                              an analysis should be performed to
be analyzed.                                                             responsible for review and approval of
                              understand the capabilities of the
                                                                         all major design deliverables including
                              technology being implemented to
                                                                         specifications for custom development
                              support the controls requirements.
                                                                         and reports. Specific controls design
                              Decisions can then be made on which        considerations are considered below.
                              of the requirements will be addressed by
                                                                         Configure/Build and Test
                              technology and which will need to be
                              addressed procedurally. In addition,       Testing is a key activity and must be
                              during the analysis phase, the controls    performed to ensure that the controls
                              team should review and validate the data   solutions that have been delivered
                              conversion strategy.                       during the configure/build phase are
                                                                         working as intended. Any controls
                                                                         requirements that are being addressed
                              Based on the outputs of the analysis       through automated processes, such as
                              phase, during the design phase the         workflow, should be incorporated into
                              controls track should focus on exactly     system test scripts.
                              how the requirements will be met.
                             PricewaterhouseCoopers Global Real Estate Now July 2006 TECH CORNER                                 55

                           While it is not typical to test                            As a company considers technology
                           manual/procedural controls requirements                    strategy and planning, it is important to
                           during system testing, it is important to                  ensure that compliance and controls are
                           cover these. Depending on the project                      integrated into the process.
                           approach, this is normally accomplished
                                                                                      Significant opportunities exist to
                           either during user-acceptance testing
                                                                                      strengthen and automate the controls
                           and/or business simulation prior to
                                                                                      environment often through simple
                                                                                      configuration and leverage of recent
                           Deploy                                                     enhancements by technology vendors.

                           Following finalization of the solution in                  Clear identification of controls objectives
                           the test phase, the controls track should                  will greatly facilitate the ability to ensure
                           ensure that final controls solutions are                   that automated application controls and
                           properly documented. In addition,                          program development controls are
                           a thorough review of the end-user                          properly defined and incorporated.
                           training materials must be performed
                                                                                      Finally, controls considerations must be
                           to ensure that users affected by the
                                                                                      addressed at the outset of the project
                           implementation clearly understand
                                                                                      plan and incorporated into every phase
                           controls expectations under the new
                                                                                      of the project.
                           processes and technology. It is also the
                           responsibility of the controls track to
                           evaluate the data conversion/cut-over
                           strategy and ensure proper controls are
                           in place to validate the conversion at

As a company considers     Figure 1. Top 5 Controls Challenges During Implementation

technology strategy        1 Define and incorporate a “Controls” track in the project plan.

and planning, it is        2 Allocate sufficient resources early in the project to define and validate controls requirements.

                           3 Understand the capabilities of the technology and leverage them to design process improvement and
important to ensure that     automation of controls.

compliance and controls    4 Ensure adequate test conditions for controls are defined and validate test results.

                           5 Assurance of comprehensive program development controls throughout the project.
are integrated into
the process.               Source: PricewaterhouseCoopers

                           Scott Williamson can be reached via email at:

                           David Yakowitz can be reached via email at:
Real Estate                                 PricewaterhouseCoopers regularly produces surveys, newsletters and brochures on
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Insights, observations and research         • Global Real Estate Now, published three times per year.
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Global Real Estate Leaders                             European Real Estate Leaders                            Gary Cutson
                                                                                                               US Real Estate Tax Leader
Simon Jeffreys                                         Henrik Steinbrecher                                     New York, United States of America
Global Investment Management                           European Real Estate Leader                             Tel: [1] (646) 471 8805
& Real Estate Leader                                   Stockholm, Sweden                                       Email:
London, United Kingdom and                             Tel: [46] (8) 555 330 97
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Tel: [44] 20 7212 4786 and                                                                                     US Real Estate Advisory Leader
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[1] 617 530 7688
                                                       Global Real Estate Tax Leader                           Tel: [1] (646) 471 8877 or
                                                       Berlin, Germany                                         [1] (646) 471 2666
Uwe Stoschek                                           Tel: [49] (30) 2636 5286                                Email:
Global Real Estate Tax Leader                          Email:
Berlin, Germany
Tel: [49] (30) 2636 5286
                                                       Kees Hage                                               Middle East Real Estate Leaders
                                                       European Real Estate Assurance Leader
Email:                                                                                 Ashruff Jamall
                                                       Rotterdam, The Netherlands
                                                                                                               Middle East Real Estate Assurance Leader
William E. Croteau                                     Tel: [31] (10) 407 6414
                                                                                                               Dubai, United Arab Emirates
Global Real Estate Assurance Leader                    Email:
                                                                                                               Tel: [971] (4) 3043105
San Francisco, United States of America
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Tel: [1] (415) 498 7405
                                                       European Real Estate Advisory Leader
Email:                                                                              Stuart Smith
                                                       Berlin, Germany
                                                                                                               Middle East Real Estate Advisory Leader
Patrick Leardo                                         Tel: [49] (30) 26 36 1149
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Global Real Estate Advisory Leader                     Email:
                                                                                                               Tel: [971] (2) 6946802
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Tel: [1] (646) 471 8877 or
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[1] (646) 471 2666                                                                                             Dean Rolfe
                                                       Europe and CIS
Email:                                                                             Middle East Real Estate Tax Leader
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                                                                                                               Dubai, United Arab Emirates
                                                       Tel: [420] 251 152 619
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Asia Pacific Investment Management                     United Kingdom
& Real Estate Leader                                   Real Estate Leaders                                     Latin America
Hong Kong                                                                                                      Real Estate Tax Leader
                                                       John Forbes
Tel: [852] 2289 1133                                                                                           Alvaro Taiar
                                                       UK Real Estate Tax Leader
Email:                                                                                 Latin America Real Estate Tax Leader
                                                       London, United Kingdom
James Dunning                                                                                                  Tel: [55] (11) 3674 3833
                                                       Tel: [44] (0) 20 7804 3161
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Tel: [61] (2) 8266 2933
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Email:                                                                                Merryn Stewart
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Tel: [852] 2289 3789                                                                                           Email:
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                                                       Real Estate Leaders                                     Editor of Global Real Estate Now
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