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                                                ING Clarion
Real Estate Investment:                            US View
Finding Value in a Changing Market                  APRIL 2008




REAL ESTATE

www.ingclarion.com
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                      ING Clarion
                      Research & Investment Strategy

                      230 Park Avenue
                      New York, NY 10169

                      David Lynn, Ph.D.                Shane Taylor, Ph.D.
                      Managing Director,               Senior Associate,
                      Research & Investment Strategy   Global Research
                      David.Lynn@ingclarion.com        Shane.Taylor@ingclarion.com
                      +1.212.883.2582                  +1.212.808.2118

                      Tim Wang, Ph.D.                  Bohdy Hedgcock
                      Vice President                   Associate
                      Tim.Wang@ingclarion.com          Bohdy.Hedgcock@ingclarion.com
                      +1.212.883.2754                  +1.212.808.2192

                      Matson Holbrook                  Jeff Organisciak
                      Senior Associate                 Senior Analyst
                      Matson.Holbrook@ingclarion.com   Jeffrey.Organisciak@ingclarion.com
                      +1.212.883.2739                  +1.212.883.2525

                      Grant Jiao, CFA                  Maria Luisa Paradinas
                      Senior Associate                 Analyst, Global Research
                      Grant.Jiao@ingclarion.com        MariaLuisa.Paradinas@ingclarion.com
                      +1.212.808.3610                  +1.212.883.2709

                      Patricia Jované                  Alison Sauer
                      Senior Associate                 Analyst
                      Patricia.Jovane@ingclarion.com   Alison.Sauer@ingclarion.com
                      +1.212.808.2137                  +1.212.808.2125

                      Sharon Joyce                     Jeremy Sumpter
                      Senior Associate                 Project Manager
                      Sharon.Joyce@ingclarion.com      Jeremy.Sumpter@ingclarion.com
                      +1.212.808.2132                  +1.212.883.2537




|   2
                                                               US VIEW | RESEARCH AND INVESTMENT STRATEGY




Contents
Real Estate Investment: Finding Value in a Changing Market


4    Section I      Executive Summary

5    Section II     Outlook for US Economy: Near-term Slowdown

6    Section III    Impact of the Credit Crunch: Risk Re-pricing
                    Widening Credit Spreads
                    Tightened Underwriting Criteria
                    Cap Rate Decompression

8    Section IV     Capital Markets: Dramatic Shifts and Opportunities
                    Declining Transaction Volumes
                    Shrinking CMBS and Securitization Markets
                    Increased Real Estate Allocation

11   Section V      US REIT Market: Poised for a Rebound
                    A Challenging 2007
                    Returns Should Improve in 2008

14   Section VI     US Real Estate: Finding Value in a Changing Market
                    US Real Estate Fundamentals
                    Regional Outlook
                    Multifamily
                    Industrial
                    Office
                    Retail
                    Hotel

25   Section VII    Mexico: Opportunities in Light of a Slowing Global Economy
                    Economic Outlook
                    Real Estate Opportunities

27   Section VIII   Conclusion: Back to Fundamentals




                                                                                                     3   |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                            Executive Summary


                            There is no doubt that 2007 was a transition year for US commercial real estate. Trig-
                            gered by the sub-prime fallout and credit crisis, it appears that the out-sized investment
                            returns of the past several years have come to an end. Looking forward, ING Clarion
                            anticipates that 2008 will be fraught with challenges as well as opportunities. The high-
                            lights of our view include:

The US economy is           • The US economy is going through a sharp slowdown, and a mild recession in 2008 is
going through a sharp         widely anticipated. Job growth, turning slightly negative in the first two months of
slowdown, and a mild          2008, has been slowing since mid-2007 and is likely to be sluggish through year-end.
recession in 2008 is          In December 2007, the unemployment rate rose to 5.0%, the highest level since 2005.
widely anticipated.           Additionally, the Federal Reserve has cut the federal funds rate by 300 bps to 2.25%
                              in order to boost economic growth.

                            • The US housing market downturn and credit crunch are the biggest risks to global
                              economic growth. The decline in home prices is shrinking US household net worth,
                              and this negative “wealth effect” will likely hold back consumer spending in 2008.
                              The largely-stalled credit pipeline and scaled-back lending activity have severely
                              curtailed investment and M&A projects.

                            • US commercial real estate fundamentals remain generally sound with near-term risks
                              on the demand side. Construction pipelines across all property types are still below
                              long-term averages, and credit market turmoil has made lenders more selective.
                              Many poorly-sponsored construction projects are being delayed or cancelled. Due to
                              risk re-pricing, cap rates across all property types may rise by 30-60 bps in 2008.

                            • Capital inflow is slowing in the near term as highly-leveraged buyers are forced to
                              the sidelines. With less competition, all-cash and low-leverage institutional investors
                              are better positioned to influence pricing. Relatively low cap rates continue to justify
                              value-added and development projects.

                            • Sensitized by the credit crisis, investors are increasingly migrating to quality – high-
                              quality assets in core markets attract more buyers, while poor-quality assets in
                              secondary/tertiary markets have difficulty selling. Institutional-quality assets in core
                              markets are expected to remain relatively strong in both performance and pricing.

Looking forward,            • Looking forward, the US economy may rebound in late 2008 or early 2009 as the
the US economy may            housing market bottoms out and the credit crisis runs its course. Employment and
rebound in late 2008 or       rent growth are forecast to re-accelerate in 2009-2012. Investments made in 2008
early 2009 as the hous-       could be well-positioned to capture this coming upturn cycle.
ing market bottoms
out and the credit crisis   With tightening lending and underwriting standards, speculative investments and
runs its course.            construction projects are likely to be limited, resulting in more constrained supply and
                            healthier fundamentals over the long term. We believe that commercial real estate will
                            remain an attractive asset class for the traditional reasons including high current cash
                            flow, diversification benefits, and as a hedge against inflation.




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                                                                                                                                                           US VIEW | RESEARCH AND INVESTMENT STRATEGY




Outlook for US Economy
Near-term Slowdown

Triggered by the sub-prime fallout and residential housing market downturn, the US                                                                                                                   Triggered by the
economy is going through a slowdown. Real gross domestic product (GDP) growth                                                                                                                        sub-prime fallout and
declined from 4.9% in the third quarter to 0.6% in the fourth quarter of 2007. Job                                                                                                                   residential housing
growth, turning slightly negative in the first two months of 2008, has been decelerat-                                                                                                                market downturn, the
ing since mid-2007 and is likely to be sluggish through year-end. In 2007, 1.1 million                                                                                                               US economy is going
new jobs were created, compared to 2.1 million new jobs created in 2006. The 2007                                                                                                                    through a slowdown.
year-end unemployment rate rose to 5.0% according to the Bureau of Labor Statistics,
the highest level since 2005. While government and corporate spending remain solid,
personal consumption is beginning to show weakness. Lackluster consumer spending
could possibly lead to a mild recession in early 2008 (Exhibit 1).

Exhibit 1: Slowing Near-term GDP Growth
                            8
                                                                                                                                                                  Forecast

                            6                                                                                                                                                                         Avg. Monthly New Jobs
Annualized GDP Growth (%)




                                                                                                                                                                                                      2008*        (43,000)
                            4                                                                                                                                                                         2007         95,000
                                                                                                                                                                                                      2006         175,000
                                                                                                                                                                                                      LTA**        140,000
                            2
                                                                                                                                                                                                      * Through February
                                                                                                                                                                                                      ** Long-term average between
                                                                                                                                                                                                      1985 and 2007
                            0


                            -2                                                                                                                                          Recession 2008?
                                                             Recession 1991-1992
                                                                                                                       Recession 2000-2002

                            -4
                                 1990

                                        1991

                                               1992

                                                      1993

                                                               1994

                                                                      1995

                                                                             1996

                                                                                    1997

                                                                                           1998

                                                                                                  1999

                                                                                                         2000

                                                                                                                2001

                                                                                                                       2002

                                                                                                                              2003

                                                                                                                                     2004

                                                                                                                                            2005

                                                                                                                                                   2006

                                                                                                                                                          2007

                                                                                                                                                                 2008

                                                                                                                                                                         2009

                                                                                                                                                                                2010

                                                                                                                                                                                       2011

                                                                                                                                                                                              2012




Sources: ING Clarion Research & Investment Strategy, Moody’s Economy.com (as of January 2008)


The credit crunch and housing market downturn are the biggest risks to US and global                                                                                                                 The credit crunch
economic growth. The largely-stalled credit pipeline and financing activities have                                                                                                                    and housing market
severely curtailed investment and M&A projects. The for-sale housing market continues                                                                                                                downturn are the
to soften due to tightening lending standards, low affordability, and excess supply in                                                                                                               biggest risks to US
many regions. Home prices have fallen approximately 10% year-over-year in most mar-                                                                                                                  and global economic
kets, causing negative wealth effects and weakening consumer spending power. Some                                                                                                                    growth.
potential buyers – even those with strong credit – are holding off on purchases, waiting
for even bigger discounts. ING Clarion expects that the housing market will not reach
the bottom until late 2008.

Recently, crude oil has exceeded USD 100 per barrel and retail gasoline prices remain                                                                                                                A rising inflation rate
elevated at over USD 3 per gallon, another drag on consumer spending. Although                                                                                                                       could lead to higher
the core consumer price index (CPI) is running at about 2.5% annually, surging energy                                                                                                                interest rates thereby
and commodity prices and the declining value of the US dollar are adding inflationary                                                                                                                 decreasing demand for
pressures. A rising inflation rate could lead to higher interest rates thereby decreasing                                                                                                             commercial real estate.
demand for commercial real estate.

Looking forward, the US economy may rebound in late 2008 or early 2009 as the hous-
ing market bottoms out and the credit crisis runs its course. The current administration
and Congress have expeditiously passed a USD 168 billion economic stimulus pack-
age, which should significantly boost the economy during the second half of the year.
Employment and rent growth are forecast to re-accelerate in 2009-2011. New                                                                                                                                                       5   |
investments in 2008 could be well-positioned to capture this coming upturn cycle.
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                           Impact of the Credit Crunch
                           Risk Re-pricing

                           WIDENING CREDIT SPREADS

Investors are              The US sub-prime mortgage fallout has sent shockwaves throughout the world’s
increasingly seeking       financial system, causing volatility in the capital markets. Rising sub-prime
safety in US Treasuries,   delinquencies have led to a stalled credit pipeline and a dramatic widening of credit
and the yield of the       spreads of all non-Treasury debt including commercial mortgage-backed securities
10-year T-Bill has         (CMBS) (Exhibit 2). Investors are increasingly seeking safety in US Treasuries, and the
dropped to below           yield of the 10-year T-Bill has dropped to below 3.7%. Concerned about a possible
3.7%.                      severe economic downturn, the Federal Reserve has cut the target federal funds rate by
                           300 basis points (bps) to 2.25%, with additional cuts possible over the next few months.

                           Exhibit 2: CMBS Spreads to 10-year Treasury*
                                                    2,000
                                                                                     AAA                                     AA                                       A                                                  Sub-prime Fallout
                                                    1,750
                                                                                     BBB                                      BBB-                                    BB

                                                    1,500
                           Spreads (basis points)




                                                    1,250

                                                    1,000

                                                     750

                                                     500

                                                     250

                                                       0
                                                            2/1/2007
                                                                       2/15/2007
                                                                                   3/1/2007
                                                                                              3/15/2007
                                                                                                          3/29/2007
                                                                                                                      4/12/2007
                                                                                                                                  4/26/2007
                                                                                                                                              5/10/2007
                                                                                                                                                          5/24/2007
                                                                                                                                                                      6/7/2007
                                                                                                                                                                                 6/21/2007
                                                                                                                                                                                             7/5/2007
                                                                                                                                                                                                        7/19/2007
                                                                                                                                                                                                                    8/2/2007
                                                                                                                                                                                                                               8/16/2007
                                                                                                                                                                                                                                           8/30/2007
                                                                                                                                                                                                                                                       9/13/2007
                                                                                                                                                                                                                                                                   9/27/2007
                                                                                                                                                                                                                                                                               10/11/2007
                                                                                                                                                                                                                                                                                            10/25/2007
                                                                                                                                                                                                                                                                                                         11/8/2007
                                                                                                                                                                                                                                                                                                                     11/22/2007
                                                                                                                                                                                                                                                                                                                                  12/6/2007
                                                                                                                                                                                                                                                                                                                                              12/20/2007
                                                                                                                                                                                                                                                                                                                                                           1/3/2008
                                                                                                                                                                                                                                                                                                                                                                      1/17/2008
                                                                                                                                                                                                                                                                                                                                                                                  1/31/2008
                                                                                                                                                                                                                                                                                                                                                                                              2/14/2008




                           Source: ING Clarion Capital
                           * Newly issued CMBS




                           TIGHTENED UNDERWRITING CRITERIA

Sensitized by the          Sensitized by the sub-prime fallout, investors’ perception of risk has elevated
sub-prime fallout,         considerably. Widening credit spreads and tightened lending standards require more
investors’ perception      equity, lower loan-to-values (LTVs), and higher debt service coverage ratios for new
of risk has elevated       investments. Higher risk premia have simultaneously put upward pressure on cap
considerably.              rates and downward pressure on asset pricing. Cap rate decompression will negatively
                           impact total investment returns in the near term.




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                                                                             US VIEW | RESEARCH AND INVESTMENT STRATEGY




CAP RATE DECOMPRESSION

During the last quarter of 2007, cap rates for Class A assets in core markets rose by                 The credit crisis has
approximately 10-40 bps according to NCREIF. Going into 2008, ING Clarion expects                     proven to be longer
that credit market turmoil will continue to negatively influence commercial real estate                and more severe than
investments. The credit crisis has proven to be longer and more severe than initially                 initially expected, and,
expected, and, with no clear resolution in sight, could drag on for several months. Debt              with no clear resolution
financing will remain relatively more expensive and cap rates could continue to rise                   in sight, could drag on
accordingly. Capital inflow into commercial real estate will slow down substantially in                for several months.
the near future as highly-leveraged buyers are forced to the sidelines. With less compe-
tition, all-cash and low-leverage institutional investors are better positioned to influ-
ence pricing. Many poorly-sponsored construction projects could be delayed or even
cancelled. Overall, ING Clarion expects cap rates for core properties in primary markets
to rise modestly by 30-60 bps for new transactions in 2008 (Exhibit 3). In this period of
expected low transaction volume, it may take several months for buyers and sellers to
reach new “equilibrium pricing.”

Exhibit 3: Expected Rise in Cap Rates*
                                          Cap Rates and Cap Rate Changes
                                 2007Q4                         2008E         Cap Rate Change (bps)
  Apartment                       5.15%                       5.45 - 5.75%           30-60
  Industrial                      6.00%                       6.30 - 6.60%           30-60
  Office                          5.32%                       5.62 - 5.92%           30-60
  Retail                          6.00%                       6.30 - 6.60%           30-60

Sources: ING Clarion Research & Investment Strategy, NCREIF
* Cap rates are for institutional-quality assets




                                                                                                                         7   |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                           Capital Markets
                           Dramatic Shifts and Opportunities

                           DECLINING TRANSACTION VOLUMES

                           According to Real Capital Analytics (RCA), transaction volumes set new records for all
                           property types in 2007, with the total amount surging to USD 523.0 billion compared
                           to USD 366.5 billion in 2006 (Exhibit 4). A significant component of the higher volume
                           was the privatizations of Equity Office Properties (USD 39 billion), Hilton Hotels (USD 26
                           billion), and Archstone-Smith Trust (USD 22 billion).

                           Exhibit 4: Record Transaction Volumes in 2007 (in USD Billions)
                                                                    Apartment          Industrial          Office          Retail   Hotel    Total
                                                    2001               20.5              13.6               32.1           11.7      0.3     78.2
                                                    2002               22.7              11.6               41.3           26.8      0.3    102.7
                                                    2003               30.3              14.5               46.8           30.1      1.3    123.0
                                                    2004               51.0              21.0               74.4           58.5     16.1    221.0
                                                    2005               88.8              36.9              104.1           50.9     29.5    310.2
                                                    2006               91.7              43.6              138.2           54.8     38.2    366.5
                                                    2007               99.6              48.0              215.4           72.1     87.9    523.0

                           Sources: ING Clarion Research & Investment Strategy, Real Capital Analytics


Transaction volumes        The sub-prime fallout and credit market volatility are reducing the number of buyers,
in the second half         particularly highly-leveraged ones. At the same time, some owners are choosing to
of 2007 were down          hold properties through the downturn rather than to sell at reduced prices. Transaction
approximately 18%          volumes in the second half of 2007 were down approximately 18% from the first half
from the first half of      of the year. ING Clarion expects this downtrend to continue at least through the first
the year.                  half of 2008.


                           SHRINKING CMBS AND SECURITIZATION MARKETS

This dramatic shift in     New CMBS issuance in the US totaled USD 235.8 billion in 2007, a 10% increase over
the capital markets        2006; however, the issuance volume has fallen off sharply since September 2007. The
presents opportunities     CMBS market is currently in disarray with wide bid-ask spreads and extremely low
to lend capital directly   liquidity. Triggered by the credit crunch, worldwide securitization, including asset-
to high-quality            backed securities (ABS), mortgage-backed securities (MBS), CMBS, and collateralized
investment projects        debt obligations (CDOs), has declined sharply (Exhibit 5). This dramatic shift in the capi-
at more attractive         tal markets presents opportunities for pension funds, insurance companies, commercial
                           banks, and syndicates to lend capital directly to high-quality investment projects at
spreads.
                           more attractive spreads. Balance sheet lending is expected to regain popularity.

                           Exhibit 5: Worldwide Securitization (ABS, MBS, CMBS, CDOs) Declined Sharply
                                                              900
                                                                                                                                                   -62%
                           Quarterly Issuance (USD Billion)




                                                              800
                                                              700                                          +357%
                                                              600
                                                              500
                                                              400
                                                              300
                                                              200
                                                              100
                                                                0
                                                                    2001        2002                2003            2004     2005   2006    2007

|   8                      Sources: ING Clarion Research & Investment Strategy, Commercial Mortgage Alert
                                                                                                 US VIEW | RESEARCH AND INVESTMENT STRATEGY




INCREASED REAL ESTATE ALLOCATION

Despite the recent market turmoil, commercial real estate continues to be an attractive                               The recent volatility in
asset class, especially for institutions, because of its diversification benefits, high cur-                            equity markets, falling
rent cash flow component, and hedge against inflation. The recent volatility in equity                                  US Treasury yields,
markets, falling US Treasury yields, and rising credit risks could make private real estate                           and rising credit risks
investment more attractive.                                                                                           could make private real
                                                                                                                      estate investment more
According to Kingsley Associates’ 2008 Plan Sponsor Survey, pension funds are increas-                                attractive.
ing target allocations in real estate. New capital flows to real estate are projected to be
USD 76 billion in 2008, a 65% increase from 2007 (Exhibit 6)! Whether this materializes
remains to be seen. Opportunistic and value-added strategies continue to gain a larger
share of new capital. Allocation to foreign real estate is also expected to soar, thanks to
higher returns in some markets.

Exhibit 6: Pension Funds Projected New Capital to Real Estate
                80
                                                                                                                76

                70


                60                                                                          59


                                                                               51
                50
                                                                                                        46
                                                                   44
 USD Billions




                40
                      37
                                                      34
                             31
                30                        28


                20


                10


                 0

                     2000   2001        2002        2003         2004         2005        2006          2007   2008
Sources: ING Clarion Research & Investment Strategy, Kingsley Associates, Institutional Real Estate, Inc.




                                                                                                                                         9   |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




US real estate assets   The US dollar has declined approximately 35% against major foreign currencies since
have become less        2001. One of the effects of this is that US real estate assets have become less expensive
expensive for foreign   for foreign buyers to purchase. In fact, according to RCA, foreign capital flows into
buyers to purchase.     US commercial real estate have increased by more than 11 times since 2000, totaling
                        approximately USD 33 billion in 2007 (Exhibit 7). With a weakening dollar, ING Clarion
                        expects foreign capital inflow to remain strong in 2008.

                        Exhibit 7: Foreign Capital Flows into US Real Estate

                                                               $35                                                                                1120



                                                               $30
                                                                                                                                                  110




                                                                                                                                                         US Dollar vs. Major Foreign Currencies
                        Foreign Capital Flows (USD Billions)




                                                               $25


                                                                                                                                                  100
                                                               $20



                                                               $15
                                                                                                                                                  90


                                                               $10

                                                                                                                                                  80
                                                               $5



                                                               $0                                                                                 70
                                                                     2000   2001       2002           2003   2004      2005         2006   2007

                                                                              Foreign Capital Flows             Value of the US Dollar

                        Sources: ING Clarion Research & Investment Strategy, Real Capital Analytics




|   10
                                                                                           US VIEW | RESEARCH AND INVESTMENT STRATEGY




U.S. REIT Market
Poised for a Rebound

A CHALLENGING 2007

Despite the receipt of a healthy 4% plus dividend, US real estate investment trusts                                     Though real estate
(REITs) suffered one of the worst years ever, falling almost 17% in 2007 (much of it                                    fundamentals have
during the fourth quarter), the first annual decline in real estate stocks since 1999. The                               remained generally
fourth quarter return was one of the lowest quarterly returns in the history of the MSCI                                healthy, confidence
US REIT Index (Exhibit 8). Though real estate fundamentals have remained generally                                      about future prospects
healthy, confidence about future prospects eroded as the year progressed. At first, the                                   eroded as the year
concern was about rising interest rates and the need for real estate to be re-priced to                                 progressed.
remain competitive in a world of higher fixed-income yields. By the second half of the
year, however, concerns about the downside began to negatively impact real estate
stock prices. A spreading financial sector crisis emanating from a sharp slowdown in
the US residential market and increasing defaults in sub-prime mortgage loans caused
confidence to slip and expectations for economic growth to fall. By year-end, the con-
cern had shifted from runaway growth and inflation to whether the US might slip into
recession with spillover effects to the rest of the world’s economies.

Exhibit 8: US REIT Relative Performance (% Return)

                                                                      Trailing          Trailing           Trailing
                                    4th Quarter                       3 Years           5 Years            10 Years
                                       2007              2007       (Annualized)      (Annualized)       (Annualized)
  MSCI U.S. REIT Index                -13.17           -16.82            8.23             17.91             10.37
  S&P 500 (Large Co. Stocks)            -3.33            5.50            8.61             12.83              5.90
  Russell 2000 (Small Co. Stocks)       -4.58           -1.56            6.80             16.25              7.08
  Lehman Gov’t/Corporate Bonds          3.32             7.75            3.88               4.25             5.92

Sources: ING Clarion Real Estate Securities, Morgan Stanley Capital International, Thompson DataStream



RETURNS SHOULD IMPROVE IN 2008

The economic outlook is the key to our forecast as real estate demand is a function of                                  In our opinion, real
economic growth. There is reason for concern - our expectation is for a significant slow-                                estate stocks already
down in the US economy, possibly even a mild recession. If the Federal Reserve Board                                    reflect the effects of
and US government remain vigilant and committed to mitigating the effects of the                                        the anticipated
present financial crisis, a recovery may occur in late 2008 or early 2009. In our opinion,                               recession, cushioning
real estate stocks already reflect the effects of the anticipated recession, cushioning the                              the potential for
potential for further downside.                                                                                         further downside.




                                                                                                                                          11     |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                          It is clear that real estate is much less expensive in the public market than in the private
                          market. Private market values remain a very relevant reference point as almost 90% of
                          US real estate is privately owned. At the end of 2007, the average discount of public
                          market to private market value, or net asset value (NAV), was 17% (Exhibit 9). Relative
                          to prevailing private market values, the discounts offered in the public markets seem
                          compelling. The question is whether this is a sign of bad things to come for private
                          market real estate or a tremendous buying opportunity in the public markets (because
                          the gap between real estate stock prices and private market values can close either by
                          NAVs coming down or by REIT prices going up).

                          Exhibit 9: Share Price Premium/Discount to Estimates of NAV
                           40%
                                                                                                    +30%

                           30%

                                                              +18%
                           20%


                           10%


                             0%


                           -10%
                                                                             -8%

                           -20%                                                                                                                                                                -17%


                            -30$

                                            -36%
                           -40%
                                   Jan-90

                                            Jan-91

                                                     Jan-92

                                                                Jan-93

                                                                         Jan-94

                                                                                  Jan-95

                                                                                           Jan-96

                                                                                                     Jan-97

                                                                                                              Jan-98

                                                                                                                       Jan-99

                                                                                                                                Jan-00

                                                                                                                                         Jan-01

                                                                                                                                                  Jan-02

                                                                                                                                                           Jan-03

                                                                                                                                                                    Jan-04

                                                                                                                                                                             Jan-05

                                                                                                                                                                                      Jan-06

                                                                                                                                                                                                Jan-07




                          Sources: ING Clarion Real Estate Securities; Green Street Advisors (through 12/31/07)


Private market values     Private market values are likely to decline in 2008. Private market investors will require
are likely to decline     lower prices for real estate to compensate for slower earnings growth, more limited
in 2008.                  debt availability, higher debt costs, and higher risk premia – all of which will cause cap
                          rates to move up and real estate values to decline. Debt availability has been reduced,
The re-pricing process    and lower LTVs are required in any real estate deal today; consequently, the weighted
has already begun in      average cost of capital to buy real estate assets has increased. The re-pricing process has
the public markets,       already begun in the public markets, where prices often move quickly and in anticipa-
where prices often        tion of expected future events. In the private market, the same process often takes a
move quickly and          few more quarters to play out.
in anticipation of
expected future events.




|   12
                                                                     US VIEW | RESEARCH AND INVESTMENT STRATEGY




It is apparent that investors’ expectations for real estate are gloomy. Furthermore,
the news is likely to get worse in terms of private market real estate. More headlines
about declining home prices, sub-prime mortgage write-offs, and higher residential
mortgage delinquencies are a virtual certainty and will affect the general mood about
both residential and commercial real estate. More directly relevant to the commercial
real estate companies we invest in will be the flow of data suggesting that private
market real estate values are coming down. Unwinding overleveraged real estate deals
made before the current credit market turmoil, as well as redemptions in open-end real
estate funds causing forced sales, may create some pressure on cap rates and produce
some sensational headlines about real estate value declines. It will be difficult, there-
fore, for real estate stocks to mount a sustainable and meaningful rally early in 2008,
and we expect REIT market volatility in the early part of the year.

If there is a silver lining to the storm clouds that gathered over the property sector in     With an average divi-
2007, it is that real estate stocks are poised to deliver positive returns in 2008. As dis-   dend of just under 5%
cussed above, valuations at year-end incorporate a fairly pessimistic view of the econ-       and the prospect of 7%
omy and real estate values. Real estate company earnings are expected to slow in 2008         to 8% earnings growth,
to 8% and even more in 2009 to 7%, which is still consistent with long-term averages.         ING Clarion believes
As mentioned earlier, the economic outlook is key to these forecasts, and ING Clarion         that real estate stocks
will remain diligent in assessing the impact of any further deterioration in economic         have the potential to
conditions on our real estate company earnings models. With an average dividend of            return 5% to 10% in
just under 5% and the prospect of 7% to 8% earnings growth, ING Clarion believes              2008, even with an
that real estate stocks have the potential to return 5% to 10% in 2008, even with an          anticipated drop in
anticipated drop in NAVs and some related earnings multiple contraction. Even factor-         NAVs and some related
ing in an anticipated drop in private real estate market values due to higher cap rates,      earnings multiple con-
it appears that the bad news is already more than priced into real estate stocks.             traction.




                                                                                                               13   |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                           US Real Estate
                           Finding Value in a Changing Market

                           US REAL ESTATE FUNDAMENTALS

US commercial real         US commercial real estate fundamentals are generally sound with solid rent growth,
estate fundamentals        albeit at a slower pace than in recent years, and stabilizing vacancy rates in most core
are generally sound        markets. Within the next several months, demand for space is expected to soften, along
with solid rent growth,    with the slowing US economy, before re-accelerating in 2009-2011. In 2008, vacancy
albeit at a slower pace,   rates are expected to rise moderately. Rent growth is expected to remain positive dur-
and stabilizing vacancy    ing the economic slowdown but will increase at a slower pace.
rates in most core
markets.                   On the supply side, construction pipelines across all property types are below their
                           long-term averages (Exhibit 10). Higher construction costs and more stringent local
On the supply side,        entitlement processes have restrained the supply pipelines. Although construction
construction pipelines     activity has picked up, demand is expected to outpace supply over the next five years,
across all property        which should bode well for new and existing investments. Profitable opportunities
types are below their      should exist for selected core investments and well-sponsored value-added and devel-
long-term averages.        opment projects.

                           Exhibit 10: Construction Pipeline
                                                          4%



                                                                       Long-term Average*   3-Year Forecast

                                                          3%
                           Construction as a % of Stock




                                                          2%




                                                          1%




                                                          0%

                                                               Apartment           Office       Industrial            Retail                 Hotel

                           Sources: ING Clarion Research & Investment Strategy, Torto Wheaton Research, Reis, Inc., Smith Travel Research (as of 2007Q4)
                           * Long-term averages cover the following periods: Apartment (1981-2007); Office (1988-2007); Industrial (1990-2007); Retail
                           (1981-2007); and Hotel (1996-2007).




|   14
                                                                                                       US VIEW | RESEARCH AND INVESTMENT STRATEGY




Private real estate investment continues to generate competitive risk-adjusted returns                                                Private real estate
relative to other asset classes. In 2007, the private real estate index (NCREIF Property                                              investment continues to
Index) achieved a strong total return of 15.9% (Exhibit 11). Office and hotel properties                                               generate competitive
outperformed other property types. Office markets in the East and West and industrial                                                  risk-adjusted returns
markets in the West had significant gains. Looking forward, ING Clarion expects that                                                   relative to other asset
core real estate investment returns will likely be in the high single digits (between                                                 classes.
bonds and equities).

Exhibit 11: Historic Asset Class Performance (% Annualized Returns)
  Asset Class                                      1 Yr            3 Yr             5 Yr                 10 Yr              Std Dev
 NCREIF Property Index                             15.9            17.5             15.1                  12.9                  4.4
 S&P 500                                            5.5             8.6             12.8                   5.9                17.3
 Dow Jones Industrial Average                       8.9             9.7             12.2                   7.4                14.3
 Russell 2000                                      -1.6             6.8             16.3                   7.1                18.6
 Lehman Government Bond                             8.7             4.9                4.1                 5.7                  4.7
 T-Bill (90 days)                                   4.7             4.2                3.0                 3.6                  1.8

Sources: ING Clarion Research & Investment Strategy, NCREIF, NAREIT, MorningStar (as of December 31, 2007)




REGIONAL OUTLOOK

ING Clarion analyzes major markets based on trends and forecasts in population
growth, job growth, gross metro product (GMP), fundamentals of local economies,
and health of the residential housing markets (Exhibit 12).

Exhibit 12: Bright Spots in the Economic Landscape



            Seattle


       Portland
                                                                                                                       Boston
                                                                    Minneapolis
                                                                                                                 New York
                                                                                             Detroit
                                                                             Chicago               Cleveland
                                  Salt Lake City
     San Francisco                                                                                      Washington DC
                                       Denver
      San Jose
                      Las Vegas


             Los Angeles                                                                                   Charlotte

                            Phoenix
                                                                                                       Atlanta
        San Diego                                                   Dallas
                                                      Fort Worth


                                                          Austin   Houston                                          Orlando

                                                                                                        Tampa
                                                                                                                       Miami
                                                                                  Expansion
                                                                                  Mixed
                                                                                  Contraction



Sources: ING Clarion Research & Investment Strategy, Moody’s Economy.com


                                                                                                                                                       15   |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




Despite the gloomy         Despite the gloomy outlook of the US economy in the near term, there are several
outlook of the US          expanding regions showing above-average growth and relatively healthy fundamentals
economy in the near        (Exhibit 13). These markets are typically driven by high-tech, biotech, energy, commodi-
term, there are several    ties, international trade, housing affordability, and quality of life. Such factors make
expanding regions          these regions especially suitable for value-added and development investment projects.
showing above-average
growth and relatively      Exhibit 13: Tech, Energy, Trade, Commodities, and Affordability Driving Growth
healthy fundamentals.
                               Trend                Region                           Comments
                               Expansion            Seattle/Portand                  Strong high-tech, biotech, manufacturing, and trade
                                                    San Francisco/San Jose           Strong high-tech, biotech, manufacturing, and trade
                                                    Salt Lake City/ Denver           Booming telecom, high-tech, commodity, and energy
                                                    Texas                            Booming energy, high-tech, high growth in population/jobs
                                                    Atlanta/Carolinas                High growth in population/jobs
                               Mixed                So Cal/Las Vegas/Phoenix         Negative impact of housing markets on local economies
                                                    Florida                          Negative impact of housing markets on local economies
                                                    Boston/NYC/DC                    Pullback from the financial industry
                                                    Minneapolis/Chicago              Weak population and job growth
                               Contraction          Detroit/Cleveland                Decline in population/manufacturing jobs

                           Source: ING Clarion Research & Investment Strategy (as of January 2008)




                           MULTIFAMILY MARKET OUTLOOK

                           Multifamily Market Fundamentals
US multifamily market      US multifamily market fundamentals are sound, supported by favorable demographic
fundamentals are           trends, a declining for-sale housing market, and a restrained construction pipeline.
sound, supported by        Members of the 75-million-strong Echo Boomer cohort1 are entering the workforce and
favorable demographic      will constitute the primary demand for apartments as the population of primary renters
trends, a declining for-   (age 19-35 years) expands by 3.2 million over the next four years. Because of tightening
sale housing market,       lending standards, fewer renters will be able to afford homes, helping to boost apart-
and a restrained           ment demand in the near term.
construction pipeline.
                           During 2007, the national apartment vacancy rate dropped 20 bps to 5.6% according to
                           Reis, Inc.; however, that rate is forecast to edge up to over 6% in 2008 and 2009 as job
                           growth slows. Effective rent growth in 2007 was strong at 4.5%, with markets such as
                           New York, San Francisco, San Jose, Stamford, Northern New Jersey, and Seattle experi-
                           encing the largest rent increases. Looking forward, ING Clarion expects apartment rent
                           growth to slow to approximately 3-4% annually over the next five years. Transaction
                           volume in 2007 was USD 99.6 billion according to RCA, largely driven by the USD 22 bil-
                           lion Archstone-Smith Trust deal, compared to USD 91.7 billion in 2006.




                           1
                             The Echo Boomer cohort consists of individuals who were born to members of the Baby Boomer
|   16                     generation between roughly 1982 and 1995.
                                                                                              US VIEW | RESEARCH AND INVESTMENT STRATEGY




Shadow Market Impacts
Several markets, especially in Florida where condominium construction and conversion
activities far outpaced demand, continue to be challenged with rising vacancy rates and
depressed rent growth (Exhibit 14). Additionally, in markets where the for-sale housing
sector is taking the hardest hit, some vacant, single-family homes are competing with
Class A apartments, putting significant downward pressure on rent growth.

Exhibit 14: Condominium Conversion and Shadow Market

                  2003 Year-end   2003-2007Q3    Inventory       2007Q3 Apt     Estimated Shadow   % of Apt   % of Housing
 Markets          Apt Inventory    Conversion    Reduction        Inventory         Inventory*      Stock       Stock**

 Orlando            136,521         31,813          23%            111,458           23,953          21%          2.8%
 Ft. Lauderdale      96.099         27,340          28%             71,923           14,279          20%          1.8%
 Miami              134,685         28,651          21%            111,289           18,977          17%          1.9%
 Tampa              157,708         21,935          14%            142,991           22,572          16%          1.9%
 W. Palm Beach       64,829         14,586          22%             53,664            5,567          10%          0.9%
 Las Vegas          135,285         15,394          11%            123,843            9,988           8%          1.3%
 San Diego          181,796         12,745             7%          175,633           14,031           8%          1.3%
 DC Metro           371,344         15,346             4%          370,637           24,079           6%          1.3%
 Phoenix            250,239         21,637             9%          243,284           11,904           5%          0.7%


Sources: ING Clarion Research & Investment Strategy, Reis, Inc., Witten Advisors
* Excess vacant single-family homes, condominiums, and apartments vs. local norm as of 2007Q3. These units are either
competing or likely to compete in the local rental market
** Includes single-family homes, condominiums, and apartments


Multifamily Sector Outlook
With the lowest cap rate among the four core property types, the multifamily sector                                          With the lowest cap
faces the greatest threat from rising cap rates. Moreover, job growth, the engine of                                         rate among the four
apartment demand, has turned slightly negative for the first two months of 2008. The                                          core property types, the
apartment markets with excess vacant condo or single-family homes will likely suffer                                         multifamily sector faces
the most (Exhibit 15).                                                                                                       the greatest threat
                                                                                                                             from rising cap rates.
After cap rate adjustments, new apartment investments in markets that are not suffer-
ing from excess shadow vacancy should perform well. Supply-constrained markets such
as New York, San Francisco, San Jose, Los Angeles, Seattle, Boston, and Northern New
Jersey continue to be attractive. Furthermore, stressed assets such as vacant condo-
miniums and selected land sites may offer opportunistic plays. Investment in Class B
apartments in core markets can present opportunities, as these properties may attract
Echo Boomers who are graduating from college.

Exhibit 15: SWOT Analysis of Multifamily Market
 Strengths                                   Opportunities
 Echo Boomers                                Stressed assets
 Moderate supply pipeline                    Development

  Weaknesses                                 Threats
  Shadow vacancy                             Cap rate decompression
  Slowing job growth                         Improving for-sale affordability


Source: ING Clarion Research & Investment Strategy




                                                                                                                                               17   |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                        INDUSTRIAL MARKET OUTLOOK

                        Industrial Market Fundamentals
Supply and demand       Supply and demand fundamentals of the industrial sector remained balanced through
fundamentals of         2007. According to Torto Wheaton Research (TWR), the nationwide industrial vacancy
the industrial sector   rate was essentially static at 9.4% but is expected to edge up to the long-term rate of
remained balanced       10% in 2008 and 2009 as the US economy slows. Average rents rose 3.6% in 2007 and
through 2007.           are expected to slow to an average annual growth rate of 3% over the next five years.
                        On the supply side, industrial development activities are still modest nationwide, con-
                        strained by limited suitable building sites near coastal ports and soaring construction
                        costs. In 2007, USD 48.0 billion of industrial properties were traded according to RCA,
                        compared to USD 43.6 billion in 2006.

                        Expanding Global Trade and Strong Exports
So far, the slowing     So far, the slowing economy has had a minor impact on the nation’s demand for ware-
economy has had a       house space, which is fueled by expanding global trade. The depreciating US dollar has
minor impact on the     boosted export growth by more than 12% annually since 2003 (Exhibit 16). West Coast
nation’s demand for     warehouse markets such as Southern California, San Francisco, and Seattle experienced
warehouse space,        low vacancy rates and strong rent growth. In addition, vacancy rates in several R&D flex
which is fueled by      (San Jose) and manufacturing markets (Chicago and Charlotte) continued to improve.
expanding global
trade.                  Exhibit 16: Expanding US Trade
                                                    20%
                                                                                                                                                                                                 Forecast

                                                    15%
                        Year-Over-Year Growth (%)




                                                    10%



                                                     5%



                                                     0%



                                                    -5%
                                                                         Imports                 Exports

                                                    -10%
                                                           1990

                                                                  1991

                                                                          1992

                                                                                 1993

                                                                                        1994

                                                                                               1995

                                                                                                      1996

                                                                                                             1997

                                                                                                                    1998

                                                                                                                           1999

                                                                                                                                  2000

                                                                                                                                         2001

                                                                                                                                                2002

                                                                                                                                                       2003

                                                                                                                                                              2004

                                                                                                                                                                     2005

                                                                                                                                                                            2006

                                                                                                                                                                                   2007

                                                                                                                                                                                          2008

                                                                                                                                                                                                  2009

                                                                                                                                                                                                         2010

                                                                                                                                                                                                                2011

                                                                                                                                                                                                                       2012




                        Sources: ING Clarion Research & Investment Strategy, Moody’s Economy.com (as of January 2008)




|   18
                                                                     US VIEW | RESEARCH AND INVESTMENT STRATEGY




Industrial Sector Outlook
With expanding global trade projected for the next few years, markets in coastal ports
and intermodal hubs will continue to benefit. Investments in supply-constrained coastal
markets including Los Angeles, Orange County, Riverside, Northern New Jersey, Seattle,
and Miami remain attractive. Niche opportunities exist in markets such as Charleston,
Houston, Savannah, Oakland, and Austin. R&D flex assets, especially in high-tech and
biotech-concentrated markets such as San Jose and San Diego, may offer unique oppor-
tunities (Exhibit 17).

Exhibit 17: SWOT Analysis of Industrial Market

   Strengths                               Opportunities
  Expanding global trade                   Best port mkts/gateways
  Strong US Exports                        R&D flex

   Weaknesses                              Threats
   Easy to build                           Potential supply
   Decelerating imports                    Recession risk


Source: ING Clarion Research & Investment Strategy




OFFICE MARKET OUTLOOK

Office Market Fundamentals
The office sector is expected to face substantial headwinds in 2008 and possibly 2009        The office sector is
before recovering strongly in 2010-2011. In 2007, several central business district (CBD)   expected to face
office markets experienced significant rent growth and declining vacancy rates, and the       substantial headwinds
CBD office sub-sector achieved a remarkable 24.3% annual total return according to           in 2008 and possibly
NCREIF. In particular, New York, San Francisco, Los Angeles, San Jose, Seattle, and Aus-    2009 before recovering
tin experienced notable declines in vacancy rates and near double-digit rent growth.        strongly in 2010-2011.
Primarily driven by rising vacancy rates in suburban office markets, the 2007 national
average vacancy rate edged up 50 bps to 13.1% according to TWR and is expected to
spike to over 14% in 2008 and 2009 in response to a softer economy. Average office
rents rose 9.8% in 2007 and are expected to increase by approximately 2-4% annually
over the next five years. On the supply side, the construction pipeline will remain mod-
erate through 2012. Driven by the sale and subsequent re-trades of Equity Office assets,
total office transaction volume surged to USD 215.4 billion in 2007 according to RCA,
significantly more than the USD 138.2 billion in 2006.




                                                                                                             19      |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                         Slow Growth of Office Using Jobs
The credit crunch and    The credit crunch and sub-prime losses are negatively impacting US office employment,
sub-prime losses are     especially in the financial sector. Financial centers such as Manhattan, San Francisco,
negatively impacting     and Boston may be impacted as several large financial institutions have suffered huge
US office employment,     losses. Although office employment growth has been decelerating in the near term
especially in the        relative to 2006, demand for office space is forecast to re-accelerate in 2009-2011
financial sector.         (Exhibit 18).

                         Exhibit 18: Annual Office Employment Growth
                                                 5%
                                                                                                  Housing Market Peaked                Forecast
                                                 4%                                                                                                        Accelerating Growth
                                                                            Tech Bubble
                                                 3%
                         Year-Over-Year Growth




                                                 2%

                                                 1%

                                                 0%

                                                 -1%
                                                                                                          Sub-prime Crisis
                                                 -2%

                                                 -3%
                                                                                                 Recession
                                                 -4%
                                                       1999


                                                              2000


                                                                     2001


                                                                               2002


                                                                                          2003


                                                                                                   2004


                                                                                                             2005


                                                                                                                     2006


                                                                                                                             2007


                                                                                                                                    2008


                                                                                                                                             2009


                                                                                                                                                    2010


                                                                                                                                                            2011


                                                                                                                                                                    2012
                         Sources: ING Clarion Research & Investment Strategy, Moody’s Economy.com (as of January 2008)


                         Office Sector Outlook
Sensitized by the        Sensitized by the sub-prime situation, investors are increasingly seeking safety in high-
sub-prime situation,     quality office properties in core markets; however, the office sector has historically
investors are            been relatively volatile. Selectivity in regard to market, property location, and pricing is
increasingly seeking     increasing in importance. Recent transactions in markets such as Midtown Manhattan
safety in high-quality   showed negative spreads between cap rates and the 10-year Treasury yield. Double-
office properties in      digit rent growth assumptions in underwriting must be carefully evaluated. Better
core markets; however,   investment opportunities may exist in the top secondary markets.
the office sector has
historically been
relatively volatile.




|   20
                                                                     US VIEW | RESEARCH AND INVESTMENT STRATEGY




Deep, supply-constrained markets, such as New York, San Francisco, Los Angeles, and
Washington DC, still have bright, long-term prospects. Despite the near-term slow-
down, most US corporations (with the exception of financial institutions, home build-
ers, and auto manufacturers) have strong balance sheets. Business services, information
technology, finance, insurance, and management consulting are expected to regain
robust job growth in 2009-2012. Consequently, knowledge-based and technology-
concentrated office markets, including Boston, San Jose, Austin, and Seattle, are
expected to continue to benefit. Furthermore, a modest office supply pipeline contin-
ues to justify value-added and development projects (Exhibit 19).

Exhibit 19. SWOT Analysis of Office Market
  Strengths                                Opportunities
  Low vacancy in CBDs                      Best secondary markets
  Rent growth momentum                     Value-added/development

   Weaknesses                              Threats
  High volatility                          Pullback in financials
  Slowing job growth                       Recession risk

Source: ING Clarion Research & Investment Strategy




RETAIL MARKET OUTLOOK

Retail Market Fundamentals
The retail sector is under pressure due to falling home prices, a slowing job market, and   The retail sector is
the credit crisis. The residential housing downturn had an immediate impact on big-box      under pressure due to
retailers with those selling home furnishings, construction materials, and garden equip-    falling home prices, a
ment experiencing the steepest declines. According to Reis, the national retail vacancy     slowing job market,
rate edged up 40 bps to 7.5% in 2007 and is expected to rise modestly through 2008 as       and the credit crisis.
consumer spending softens. Net absorption fell short of new construction, reflecting the     The residential housing
hesitation from retailers and moderating retail sales. Average effective rent growth was    downturn had an
only 2.9% in 2007, below the trend in recent years, and is expected to remain below 3%      immediate impact on
over the next three years.                                                                  big-box retailers.

Several West Coast markets, including Los Angeles, Orange County, San Jose, San
Francisco, and Seattle, experienced low vacancy rates and strong rent growth in 2007.
Overall, strong demographic trends, relatively low interest rates, rising wages, and
resilient consumer spending should support the retail sector going forward. Transaction
volume totaled USD 72.1 billion in 2007 according to RCA, compared to USD 54.8 billion
in 2006.




                                                                                                              21      |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                         Sluggish Consumer Spending
With a softening         In 2007, retail sales grew 4.1% according to Moody’s Economy.com, the slowest pace
economy and fears of     since 2002. ING Clarion expects that 2008 will be a more challenging year for consumer
an imminent recession,   spending (Exhibit 20). With a softening economy and fears of an imminent recession,
retailers are expected   retailers are focusing on same-store profitability and are expected to temper expansion
to temper expansion      plans over the next twelve months, negatively impacting rent growth. Most recently,
plans over the next      major retailers including Macy’s, CompUSA, and Sharper Image announced the clos-
twelve months,           ing of hundreds of under-performing stores. Malls may experience rising vacancies as
negatively impacting     consumer spending continues to soften. Even upscale retailers such as Tiffany & Co. and
rent growth.             Coach reported disappointing US sales, suggesting pullback on the part of high-end
                         consumers.

                         Exhibit 20. Retail Sales Slowing
                                                     9
                                                                                                                                                                                                Forecast
                                                     8


                                                     7
                         Year-Over-Year Change (%)




                                                     6


                                                     5


                                                     4


                                                     3


                                                     2
                                                                                                          Retail Sales
                                                     1
                                                                                                          Personal Disposable Income

                                                     0
                                                         1990

                                                                1991

                                                                       1992

                                                                              1993

                                                                                     1994

                                                                                            1995

                                                                                                   1996

                                                                                                            1997

                                                                                                                   1998

                                                                                                                          1999

                                                                                                                                 2000

                                                                                                                                        2001

                                                                                                                                               2002

                                                                                                                                                      2003

                                                                                                                                                             2004

                                                                                                                                                                    2005

                                                                                                                                                                           2006

                                                                                                                                                                                  2007

                                                                                                                                                                                         2008

                                                                                                                                                                                                  2009

                                                                                                                                                                                                         2010

                                                                                                                                                                                                                2011

                                                                                                                                                                                                                       2012




                         Sources: ING Clarion Research & Investment Strategy, Moody’s Economy.com (as of January 2008)




|   22
                                                                          US VIEW | RESEARCH AND INVESTMENT STRATEGY




Retail Sector Outlook
Despite near-term weakness, the demand for retail space is expected to recover in 2010         Despite near-term
and 2011, although the anticipated recovery is largely dependent on the rebound of             weakness, the
economic growth and the housing market. Energy prices and inflation could continue              demand for retail
to weigh on consumer sentiment. Markets such as New York, Washington DC, Miami,                space is expected to
West Palm Beach, Houston, and several West Coast metros continue to be attractive.             recover in 2010 and
Some retail stores may go out of business during 2008, providing value-added opportu-          2011, although the
nities to upgrade tenant quality and mix. Because supply is forecast to lag demand over        anticipated recovery is
the next five years, opportunities exist for re-development and selective development           largely dependent on
in high-growth markets (Exhibit 21).                                                           the rebound of eco-
                                                                                               nomic growth and the
Exhibit 21: SWOT Analysis of Retail Market                                                     housing market.

  Strengths                                Opportunities
  Growing disposable income                Re-development
  Long-term leases                         Selective development

   Weaknesses                              Threats
   Negative wealth effects                 Lackluster consumer spending
   Slowing job growth                      High energy/healthcare costs

Source: ING Clarion Research & Investment Strategy




HOTEL MARKET OUTLOOK

Hotel Market Fundamentals
The US hotel sector has experienced strong growth and is in the middle of its current
cycle that began in 2002. Advanced bookings from several large hotel chains suggest
solid demand in 2008. According to Smith Travel Research, the 2007 national average
occupancy rate stabilized at 63.2%. Revenue per available room (RevPAR) grew by 5.7%
in 2007 and is expected to increase approximately 3-4% in 2008-2010 (if the economy can
avoid a severe recession). Occupancy rates are expected to drop modestly in 2008 and
RevPAR growth will be achieved mainly through increasing average daily rates (ADR).

On the supply side, the hotel pipeline is still below its long-term average, although
construction is projected to increase substantially after 2008. Luxury and Upper Upscale
segments are relatively insulated because of high construction costs and more difficult
local entitlement processes. Investors continued to show strong interest in hotel assets
in 2007 with hotel transaction volume totaling USD 87.9 billion according to RCA, more
than double that of 2006. A particularly notable transaction in 2007 was the USD 26
billion privatization of Hilton Hotels by Blackstone.




                                                                                                                 23      |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                            Declining US Dollar Fueling Domestic Hotel Demand
The US dollar has           The US dollar has depreciated approximately 35% against major currencies since 2001 and is
depreciated                 expected to remain weak for the foreseeable future. As a result, demand from international
approximately 35%           travelers continues to grow. Meanwhile, domestic travelers, concerned about reduced spend-
against major               ing power overseas, are increasingly traveling within the US. International gateway cities and
currencies since 2001       vacation destinations, including New York City, Los Angeles, Miami, Orlando, San Francisco,
and is expected to          Honolulu, Las Vegas, and Washington DC, should have high growth potential for business and
remain weak for the         leisure travel (Exhibit 22).
foreseeable future. As
a result, demand from       Exhibit 22: Overseas Visitors to Selected US Destinations in 2006
international travelers       Rank                       Metro                                   Market Share                    Visitation (000)
continues to grow.              1                        New York City                             28.7%                               6,219
                                2                        Los Angeles                               11.6%                               2,514
                                3                        Orlando                                    9.2%                               1,993
                                3                        San Francisco                              9.2%                               1,993
                                5                        Miami                                      9.1%                               1,972
                                6                        Oahu/Honolulu                              8.0%                               1,733
                                7                        Las Vegas                                  7.6%                               1,647
                                8                        Metro DC Area                              4.9%                               1,062
                                8                        Chicago                                    4.9%                               1,062
                                10                       Boston                                     4.6%                                 997

                            Sources: U.S. Department of Commerce, International Trade Administration, Office of Travel and Tourism Industries


                            Hotel Sector Outlook
Despite strong momen-       Despite strong momentum, hotel returns could be at risk should a recession occur. The hotel
tum, hotel returns          sector is volatile because hotels operate essentially by one-night leases, and hotel demand is
could be at risk should     highly correlated with GDP growth. Businesses and consumers normally reduce travel during
a recession occur. The      a severe economic downturn. Caution should be observed in core hotel investments over the
hotel sector is volatile,   next six months as the national economic downturn plays out. Nonetheless, a recession could
and hotel demand is         present excellent opportunities to buy high-quality hotel assets at reduced prices. Further, the
highly correlated with      hotel sector still has room for potential cap rate compression if Treasury yields remain rela-
GDP growth.                 tively low (Exhibit 23).

Business hotels and         Within the hotel sector, Upscale, Upper Upscale, and Luxury segments are projected to
resorts in selected,        outperform the other segments over the next three years. Strong brand names have created
supply-constrained          customer loyalty, which facilitates pricing premiums. Business hotels and resorts in selected,
markets may perform         supply-constrained markets may perform most favorably. Furthermore, we believe that
most favorably.             many projects in the current pipeline will be delayed or canceled, creating opportunities for
                            well-sponsored development projects to move forward. The extended-stay hotel segment is
                            expected to perform well because current supply is significantly lagging demand. During the
                            last recession, occupancy in extended-stay hotels remained relatively stable, suggesting that
                            the segment may experience less volatility through an economic downturn.

                            Exhibit 23: SWOT Analysis of Hotel Market

                               Strengths                                 Opportunities
                              Strong RevPAR growth                       Cap rate compression
                              High occupancy                             Selective development

                               Weaknesses                                Threats
                               Short-term leases                         Large supply pipeline
                               Operating Intensive                       Recession risk
|   24
                            Source: ING Clarion Research & Investment Strategy
                                                                                 US VIEW | RESEARCH AND INVESTMENT STRATEGY




Mexico
Opportunities in Light of a Slowing
Global Economy
ECONOMIC OUTLOOK

Mexico’s GDP growth rate in 2008 is expected to be 3.3% based on early estimates by                            In 2007, Mexico’s
the Economist Intelligence Unit (EIU) and Banamex. Since 2000, Mexico’s annual growth                          economy expanded at a
rate has averaged 3.0%, reaching 4.8% in 2006, the highest point over a seven-year                             rate of 3.4%, driven by
period. In 2007, Mexico’s economy expanded at a rate of 3.4%, driven by high oil                               high oil prices, strong
prices, strong industrial and agriculture output, and a rise in construction activity. The                     industrial and agricul-
deceleration of the US economy will have a tangible impact on the country, since the                           ture output, and a rise
US currently accounts for approximately 80% of Mexican exports. Less demand for                                in construction activity.
goods made in Mexico will result in a decrease in production, hurting the industrial
sector and leading to slower growth in 2008. Nonetheless, Asian and European compa-
nies are expected to broaden their reach into the Latin American market by establish-
ing manufacturing and assembly plants in Mexico.

In 2007, 840,000 jobs were created in Mexico.2 In order to mitigate the impact of a
potential US economic recession and to maintain job growth, the Mexican government
is investing an unprecedented amount in infrastructure projects (USD 4 billion).3 The
expansion of ports, road and rail networks, and the construction of the largest
deep-sea water port in Mexico at Punta Colonet, Baja California, bodes well for the
future of Mexican industry and domestic consumption. Although a softer economy
translates into slower growth of remittances4, long considered an important driver for
domestic spending, greater availability and affordability of credit will likely boost the
retail and housing markets. Between 2001 and 2006, an average of 676,000 mortgage
loans5 was disbursed per year, falling short of average annual demand by 17%.6 With
an estimated housing deficit of at least five million units, strong demographic and eco-
nomic fundamentals, and an increasing variety of financing options, home mortgages
are expected to be in great demand over the next 10 to 15 years.



REAL ESTATE OPPORTUNITIES

Mexico offers numerous real estate investment opportunities with its stable political                          Mexico offers
and economic climate although it remained rated as a medium-risk market for invest-                            numerous real
ment according to ING Real Estate’s August 2007 reevaluation of market risk.7 The eco-                         estate investment
nomic characteristics and growth patterns of the industrialized northern states confirm                         opportunities with
their integration into the global economy. For several of the southern states, however,                        its stable political and
economic opportunities are largely lacking except for those afforded by increasing                             economic climate.
levels of tourism and infrastructure investment. Given the regional and local character
of the economy, selectivity in asset choice should be observed.




2
  According to Instituto Nacional de Estadística Geografía e Informática (INEGI).
3
  According to the Economist Intelligence Unit (EIU).
4
  Wages of Mexican workers living in the US that are wired to their families in Mexico.
5
  Includes loans for the acquisition of new housing, physical improvements and infrastructure.
6
  According to Bank of Mexico.
7
  The ING REIM Market Risk Matrix uses three equally weighted variables to assess real estate risk: ING Country Risk
Ratings, International Monetary Fund (IMF) Economic Country Classification and the Jones Lang LaSalle Real Estate
Transparency Index.                                                                                                                25     |
US VIEW | RESEARCH AND INVESTMENT STRATEGY




                       Key opportunities, by property sector, include:

                       • Retail: Investment in retail real estate is attractive, as Mexico remains under-retailed
                         primarily in secondary markets (Mexico contains 1.6 square feet of retail space per
                         capita, while the US has over 20 square feet per capita). Widening availability of
                         credit, rising income levels, and the rapid growth of key population cohorts will con-
                         tinue to strengthen this sector. Top markets for retail investment are Cancún, in the
                         Yucatán peninsula, and Tijuana, along the US-Mexico border.

                       • Residential: Mexico’s housing market will likely continue to be the fastest growing
                         sector over a five-year horizon, with strong performance also anticipated from the
                         high-end segment of the second-home residential sector. Favorable demographics, a
                         rising middle class seeking better quality housing, and a growing mortgage market
                         will drive demand for residential properties. Top residential markets, based on popu-
                         lation growth and rising mortgage demand, are also found in Cancún and Tijuana.

                       • Hospitality: In 2006, Mexico ranked eighth among global tourism markets based on
                         the number of international tourist arrivals. Mexico is a preferred vacation destina-
                         tion for many Americans, attracted by the country’s 6,300 miles of coastline, proximal
                         location, and affordability. The high-end segment of Mexico’s hospitality sector has
                         grown faster than other areas of the market as measured by growth in RevPAR and
                         ADR. Top markets for hospitality sector investment are Playacar, in the Yucatán pen-
                         insula south of Cancún, and Cabo San Lucas, in Baja California Sur.

                       • Industrial: Industrial market dynamics are shifting toward warehouse and distribu-
                         tion space for goods intended for the growing consumer market in large urban
                         areas. As more investors enter Mexico’s industrial market, returns are being com-
                         peted downward, so investors should choose their markets and investments carefully.
                         Top industrial markets are located in northern border states where infrastructure and
                         logistics are better served.

                       • Office: Office market investments are generally unattractive outside of Mexico City
                         and Monterrey. From a regional perspective, northern cities, state capitals, and cities
                         in peninsular regions place prominently in an overall investment ranking of metro-
                         politan areas, while no top metros are located in the less-developed southern states
                         of Guerrero, Oaxaca, and Chiapas.




|   26
                                                                                                    US VIEW | RESEARCH AND INVESTMENT STRATEGY




Conclusion
Back to Fundamentals

US commercial real estate is facing several challenges: slowing economic growth, credit
market turmoil, and cap rate decompression. It is likely that commercial real estate
values will experience a correction. Nonetheless, ING Clarion believes that the ongoing
credit crisis is a positive development for the US commercial real estate market in the
long run. With tightening lending and underwriting standards, speculative investments
and construction projects are likely to be limited, resulting in more constrained sup-
ply and healthier fundamentals over the long term. Also of importance to institutional
investors in the US is the outlook in Mexico, which is positioned to offer numerous
real estate investment opportunities with its stable political and economic climate. We
believe that commercial real estate will remain an attractive asset class for the tradi-
tional reasons including high current cash flow, diversification benefits, and as a hedge
against inflation.




DISCLAIMER
This publication has been prepared on behalf of ING solely for the information of its clients. It is not investment advice or an
offer or solicitation for the purchase or sale of any financial instrument. While reasonable care has been taken to ensure that
the information contained herein is not untrue or misleading at the time of publication, ING makes no representation that
it is accurate or complete. The assumptions used in making forecasts rely on a number of economic and financial variables.
These variables are subject to change and may affect the likely outcome of the forecasts. The information contained herein
is subject to change without notice. ING and any of its officers or employees may, to the extent permitted by law, have a
position or otherwise be interested in any transactions, in any investments (including derivatives) referred to in this publica-
tion. ING may provide banking or other services (including acting as adviser, manager, lender or liquidity provider) for, or solicit
banking or other business from, any company referred to in this publication. Neither ING nor any of its officers or employees
accepts any liability for any direct or consequential loss arising from any use of this publication or its contents. Copyright and
database rights protection exists in this publication and it may not be reproduced, distributed or published by any person for
any purpose without the prior express consent of ING. All rights are reserved. Any investments referred to herein may involve
significant risk, are not necessarily available in all jurisdictions, may be illiquid and may not be suitable for all investors. The
value of, or income from, any investments referred to herein may fluctuate and/or be affected by changes in exchange rates.
Past performance is not indicative of future results. Investors should make their own investment decisions without relying on
this publication. Only investors with sufficient knowledge and experience in financial matters to evaluate the merits and risks
should consider an investment in any issuer or market discussed herein and other persons should not take any action on the
basis of this publication. Additional information is available on request. At the date hereof, the author, and/or the ING Group
may be buying, selling, or holding significant long or short positions; acting as investment and/or commercial bankers; be
represented on the board of the issuer; and/or engaging in market making in securities mentioned herein.

In the United Kingdom, this report is approved and distributed by ING Real Estate Investment Management (UK Funds) Limited
which is Authorised and Regulated by the Financial Services Authority. Interested parties are advised to contact the ING entity
they currently deal with, or the ING entity that has distributed this report to them. Transactions should be executed through an
ING entity in the client’s home jurisdiction unless otherwise permitted by law. This publication is intended to provide informa-
tion to assist investors in making their own investment decisions, not to provide investment advice to any specific investor.
Investments discussed and recommendations made herein may not be suitable for all investors: readers must exercise their own
independent judgement as to the suitability of such investments and recommendations in light of their own investment objec-
tives, experience, taxation status and financial position. Past performance is not necessarily indicative of future performance:
the value, price or income from investments may fall as well as rise. You should not deal in derivatives unless you understand
the nature of the contract that you are entering into and the extent of your exposure risk.                                              27   |
ING REAL ESTATE GLOBAL NETWORK

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