Vizual Test by Joshua Douglas

2010 ANNUAL REPORT

Back to Basics

MISSION The Real Estate Roundtable brings together leaders of the nation’s top public and privately-held real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy. By identifying, analyzing and coordinating policy positions, The Roundtable’s business and trade association leaders seek to ensure a cohesive industry voice is heard by government officials and the public about real estate and its important role in the global economy. Collectively, Roundtable members’ portfolios contain over 5 billion square feet of office, retail and industrial properties valued at more than $1 trillion; over 1.5 million apartment units; and in excess of 1.3 million hotel rooms. Participating trade associations represent more than 1.5 million people involved in virtually every aspect of the real estate business.

THE REAL ESTATE ROUNDTABLE

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INTRODUCTION

BOARD OF DIRECTORS

REFINANCING CRISIS TIMELINE

CAPITAL & CREDIT

ENERGY & SUSTAINABILITY

TAX POLICY

HOMELAND SECURITY

MEMBERSHIP

COMMITTEES

STAFF

Who We Are:

THE MEMBERSHIP OF THE REAL ESTATE ROUNDTABLE 68% Owners 58% Private 42% Public 45% 14% 13% 12% 8% 4%

Mixed Office Retail Hotel Housing Industrial

4% Asset Managers 20% Financial Services 58% Investment Banks 24% Insurers 18% Mortgage Bankers

10% Real Estate Trade Organizations American Hotel & Lodging Association (AHLA) • American Resort Development Association (ARDA) • Association of Foreign Investors in Real Estate (AFIRE) • Building Owners and Managers Association Int’l. (BOMA) • CRE Finance Council (CREFC) • International Council of Shopping Centers (ICSC) • Mortgage Bankers Association (MBA) • NAIOP, the Commercial Real Estate Development Association (NAIOP) • National Apartment Association (NAA) • National Association of Home Builders (NAHB) • National Association of Real Estate Investment Managers (NAREIM) • National Association of Real Estate Investment Trusts (NAREIT) • National Association of Realtors (NAR) • National Multi Housing Council (NMHC) • Pension Real Estate Association (PREA) • Urban Land Institute (ULI)

2010 ANNUAL REPORT

Back to Basics It’s been a challenging, tumultuous year — between the gyrations of the macro economy and financial markets, deepening distress in the commercial real estate sector, and the patchwork of policy prescriptions attempting to ease the crisis.

Although employment, property values, net operating income (NOI) and transactions all took a nosedive over the past 12 months, our industry survived by staying focused on the basics of owning and operating commercial property: retaining tenants, minimizing costs and optimizing asset values. Unfortunately, something as fundamental as obtaining new financing for maturing, performing loans virtually ground to a halt as property values fluctuated, asset pricing remained difficult, the commercial mortgage-backed securities (CMBS) market remained near-dead, “toxic” assets continued to clog bank balance sheets, equity investors stayed largely on the sidelines, and as uncertainty persisted over the economy as well as the volume and “tone” of Washington policies under consideration. The Real Estate Roundtable, for its part, also stayed focused on time-tested basics: conducting solid issue analysis and research, educating policymakers about the industry’s concerns (and its importance to the U.S. economy), building coalitions with like-minded groups, and encouraging our members’ active engagement in the policymaking process. As a result, policymakers adopted or implemented key Roundtable recommendations to ease the refinancing crisis in commercial real estate. These included:

THE REAL ESTATE ROUNDTABLE

Fed’s decision to extend the Term Asset Backed Loan Facility (TALF) for new and “legacy” CMBS into 2010

■ The

IRS’ issuance of REMIC guidance making it easier for borrowers to proactively begin discussions with servicers about CMBS loan modifications (instead of forcing them to wait until loans default)

■ The

guidance encouraging banks to proceed with commercial real estate loan workouts especially in the case of performing loans

■ Regulatory

The Roundtable also successfully advocated for pro-growth net operating loss (NOL) carry-back relief (enacted in late 2009 as part of unemployment insurance legislation), which has given U.S. companies access to a timely and much needed infusion of cash, and has been especially helpful to real estate firms. In 2010, as Congress and the Administration put forth various bills to try to spur a “return to hiring,” The Roundtable looked for opportunities to advance a fast-acting energy retrofit rebate program known as Building STAR. Additionally, we sought reinstatement of 15-year leasehold improvement depreciation as part of tax “extenders” legislation — particularly important to property owners dealing with reduced NOI and increased tenant demands for significant lease concessions.

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not seas. adj.

At the same time, Roundtable: Energy Retroﬁt Incentives, Washington embarked ��-Year Leasehold Improvement on a major, much needed WILL HELP EASE CONSTRUCTION UNEMPLOYMENT rewrite of financial services regulations — 20% Nov. ‘08 including new derivatives 19.4% Nov. ‘09 15% oversight and “skin-inthe-game” rules governing 12.7% 10% securitization — and 9.4% began reviewing an array 5% 6.5% of expiring tax policies. 0% Unfortunately, there are Total Private Construction signs in both of these major Source: The Associated General Contractors of America (AGC) issue undertakings of a general policy backlash years, and as tentative signs emerge toward value-added entrepreneurial that the commercial real estate activity and risk-taking. downturn may be bottoming out at last, After years of policies allowing a highwe continue to urge policymakers to leverage, high-risk model to dominate stay focused on the basics. the global economy and financial First and foremost, that means jobs. markets, the policy “pendulum” (which rightly needed to swing to the center) Earlier this year, the Congressional may now be suddenly poised to swing Budget Office (CBO) projected average too far in the opposite direction. unemployment of 10 percent throughout 2010. And, as recently as early June, The abrupt reemergence of a “carried Fed Chairman Bernanke urged banks to interest” tax hike this spring — as a way lend to creditworthy firms, saying that to offset the costs of tax “extenders” “high unemployment . . . imposes heavy legislation — is a case in point.

“MATURITY DEFAULTS CAUSED BY AN INABILITY TO REFINANCE AND DISTRESSED PROPERTIES CAUSED BY WEAK ECONOMIC CONDITIONS TOGETHER ARE RESULTING IN AN INCREDIBLY STRESSED COMMERCIAL REAL ESTATE MARKETPLACE.” Real Estate Roundtable testimony on Capitol Hill, July 2009

Beyond the fact that it would impose a massive tax increase on real estate partnerships as the sector is struggling to recover from a crippling refinancing crisis and persistent economic weakness, the House-passed carried interest proposal now pending in the Senate could pave the way for additional policy changes (such as a capital gains tax increase) that would further erode risk-taking and entrepreneurship economy-wide. That’s why, as The Roundtable heads into a new fiscal year, as U.S. policymakers wind down some of the emergency measures of the past 2–3

costs on workers and their families, as well as on our society as a whole.” To create an environment conducive to job creation means moving away from extreme, reactive decisions meant to correct severe market dysfunction or perceived business abuses, toward policies that allow fair, sensible taxation of assets; promote sensible risk taking; and encourage long term capital formation and investment. As history has shown, policy extremes only tend to foster imbalances that create more havoc for markets, the economy, investors, and ultimately, American taxpayers.

Top: In an exchange with senior White House advisor Valerie B. Jarrett, Roundtable members emphasized the need for robust job creation, new equity sources and functioning secondary mortgage markets to help stabilize commercial real estate and support economic recovery. Center: Dr. Austan Goolsbee, a member of the White House Council of Economic Advisers and chief economist for President Obama’s Economic Recovery Advisory Board. Looking on is Real Estate Roundtable Chairman Daniel M. Neidich (Dune Real Estate Partners). Above: Roundtable President and CEO Jeffrey DeBoer, right, is greeted by Senate Energy Committee Chairman Jeff Bingaman (D-NM) after testifying on legislation to spur energy retrofits and “green jobs.” Opposite: Anticipating increased attention to transportation and infrastructure issues on Capitol Hill, The Roundtable this past year sought to help policymakers understand the connection between healthy cities, real estate, and multi-modal transportation options, including rail. Photo courtesy of Wasatch Choices 2040, a land-use and transportation planning vision encompassing four counties in Utah.

2010 ANNUAL REPORT

Thus, as Congress works to reduce the budget deficit and maintain “revenue neutrality”— through revenue offsets or “pay-fors” — lawmakers also must foster a stable, rational, nondiscriminatory environment conducive to long-term business planning and enterprise formation. Lifting uncertainty and re-instilling confidence in investors and businesses — so that they can plan for the future — is especially important now. Without knowing what their capital gains tax rates will be, or what their health care or energy costs will be, whether their workplaces will become unionized due to card check legislation, or how inherited assets will be taxed, many business owners will simply delay hiring until the outlook becomes more clear.

Top: Roundtable panelists discuss macroeconomic conditions and their implications for commercial real estate investment and capital flows (l-r): Richard Saltzman (Colony Capital); panel moderator Dr. Peter Linneman (Wharton School); and Roundtable board members Robert S. Taubman (Taubman Centers) and Michael Fascitelli (Vornado Realty Trust). Middle row (l-r): Roundtable Chairman Daniel M. Neidich (Dune Real Estate Partners) discusses the looming threat of a carried interest tax hike on real estate partnerships. Industry efforts to educate policymakers about the harm this proposal would cause include advertising in various Capitol Hill newspapers (opposite). Robert A. Alter (Sunstone Hotel Investors, Inc.) Moody’s Analytics chief economist Mark Zandi shares his prognosis for economic recovery with senior commercial real estate executives and trade association leaders. Above: Sen. Blanche Lincoln (D-AR) discusses financial services reform legislation with Roundtable board members William C. Rudin (Rudin Management Company, Inc.) and Robert S. Taubman (Taubman Centers, Inc.), and Frank G. Creamer, Jr. (FGC Advisors, LLC). Larry A. Silverstein (Silverstein Properties) at a Roundtable business meeting. Opposite (l-r): Encouraging our members' active participation in the process of shaping public policy is key to The Roundtable's policy success in Washington. Shown here are: Quintin E. Primo III (Capri Capital) and Patricia Goldstein (Emigrant Bank); Philip A. Riordan (GE Investments); Joseph F. Azrack (Apollo Global Real Estate Management, L.P.)

Equity Required for Commercial Real Estate Debt Maturities: ROUNDTABLE SEES INCREASED FOREIGN INVESTMENT AS A WAY TO HELP REBALANCE LOANS 800

(in billions) $130

Cumulative $230

$400

600

$1,030 $630 billion

400 200 $130

$100

2008/09

2010

$170 2011

2012+

Note: Assumes conservative valuation decline of 20%, original LTV of 70% and refinancing LTV of 60%. Required equity increases if value decline is higher or LTV is lower.

THE REAL ESTATE ROUNDTABLE

“People are scared to invest,” Rep. Kevin Brady (R-TX) said during a hearing of the Joint Economic Committee in February. Echoing this remark, an official with the National Federation of Independent Business told the Senate Finance Committee this year, “When Washington talks about health care mandates, expiring tax rates, card check [and] cap-and-trade, small business hears cost increases.” An agenda that’s focused on the basics also means taking additional policy action to address the refinancing crisis in real estate, so that property owners can again focus on their business and their tenants, instead of worrying how to obtain basic financing. An important piece of the puzzle that remains to be addressed is easing the tax laws surrounding foreign equity investment in U.S. commercial real estate (along the lines of “FIRPTA” reform legislation introduced in the House earlier this year). For long term economic and financial stability, capital and credit policies should encourage sensible underwriting and risk management, and should favor deleveraging over the acquisition of more and more unsustainable levels of debt.

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New rules for securitization should seek to promote transparency and a sensible level of risk retention or skinin-the-game, and help restore some of the capacity lost in recent years —recognizing that we cannot and should not try to recreate the market as it was at its peak. Back to basics also means policies that encourage more conservatively structured loans, with more equity — loans that not only make sense under current conditions but which are more certain to withstand future stresses. On the environmental and energy front, it means cost-effective policies backed by facts and science, vs. speculation and hyperbole. Anticipating increased attention to transportation, infrastructure and “livability” issues — which clearly factor into efforts to reduce U.S. energy dependence and greenhouse gas emissions — The Roundtable has begun to more clearly articulate real estate’s stake in these issues. In our 2010 Policy Agenda, for example, we assert that infrastructure is a key underpinning of local, regional and national economies, and thus, is vital to the health of U.S. real estate markets.

development that includes a mix of offices, retail and housing also is a key concept in the smart growth policy toolbox — and was among the concepts discussed by U.S. Transportation Secretary Ray LaHood when he met with The Roundtable earlier this year. Despite positive signs in recent months, and some easing of the uncertainty we saw earlier this year, our industry is not out of the woods yet. In our Q2 Sentiment Survey, for example, commercial real estate executives’ overall confidence nudged a few points higher amid indications that property devaluation was finally beginning to level off and capital was becoming more available. Yet, this did not mean conditions were now “good” or “back to normal” — only that we were now, finally, seeing a light at the end of the proverbial tunnel.

Numerous participants in the April– May survey expressed tremendous uncertainty about the pace and strength of recovery, emphasizing the need for much stronger job creation. Underlining the fragile nature of the improved economic picture, seemingly isolated threats such as the Greek debt crisis have been enough to send markets into a tailspin all over again. Although significant near-term challenges remain, we will continue to advance our agenda through persistent action, coordination with our real estate trade association partners and other legislative allies, and through the active engagement of our members. We thank you for your participation with The Roundtable, for helping to boost meeting attendance to new highs, and for your ongoing financial support.

It follows then, that modern, well maintained infrastructure (including an array of transportation options for residents, commuters and businesses) will facilitate growth, investment, job creation and vibrant communities. Transit-oriented, pedestrian-friendly 2010 ANNUAL REPORT

BOARD of DIRECTORS

Chairman

President and CEO

Secretary

Treasurer

Daniel M. Neidich

Jeffrey D. DeBoer

Robert S. Taubman

Jeffrey Schwartz

James L. Helsel, Jr.

C. MacLaine Kenan

James L. Lewis

Roy Hilton March

Ronald R. Pressman

Scott Rechler

William C. Rudin

Richard Saltzman

Chief Executive Officer Dune Real Estate Partners LP

President Helsel Incorporated Treasurer, National Association of Realtors

President and CEO GE Capital Real Estate

THE REAL ESTATE ROUNDTABLE

Executive Director Arcapita Immediate Past Chairman, Association of Foreign Investors in Real Estate

Chairman and CEO RXR

Chairman, President and CEO Taubman Centers, Inc.

President Disney Vacation Club Chairman, American Resort Development Association

President Rudin Management Company, Inc.

Chairman Global Logistic Properties

CEO Eastdil Secured

President Colony Capital

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John C. Cushman, III

Michael Fascitelli

Thomas M. Flexner

Constance B. Moore

Christopher J. Nassetta

James A. Peck, FMA

L. Peter Sharpe

Douglas W. Shorenstein

Martin E. (Hap) Stein, Jr.

Chairman Cushman & Wakefield, Inc.

President and CEO BRE Properties, Inc. Immediate Past Chairman, National Association of Real Estate Investment Trusts

President and CEO The Cadillac Fairview Corporation Limited Chairman, International Council of Shopping Centers

President and CEO Vornado Realty Trust

President and CEO Hilton Worldwide Immediate Past Chairman The Real Estate Roundtable

Chairman and CEO Shorenstein Properties LLC

Global Head of Real Estate Citigroup

Senior Director â&#x20AC;&#x201C; Asset Services CB Richard Ellis Chairman, BOMA International

Chairman and CEO Regency Centers

2010 ANNUAL REPORT

COMMERCIAL REAL ESTATE REFINANCING CRISIS: Important Steps Taken, But Market Woes Far From Over 2007

2008

MAR/APR

JAN–MAR

Congressional hearings on housing downturn, problems in subprime mortgage market ___________________________________

Fed signals more interest rate cuts, acknowledges effects of subprime crisis on CRE ________________________________

Fitch: Potential increase in CMBS loan defaults over next decade ___________________________________

Roundtable urges Fed to purchase loans, CMBS to help thaw frozen credit markets ________________________________

S&P warns of loose standards for commercial lending

JULY

Real estate, financial industry discuss securitization accounting, “mark-tomarket” rules with U.S. policymakers _______________________________________

Commercial property values sag amid economic slowdown, higher financing costs

Housing rescue-GSE backstop bill signed into law _______________________________________ Paulson, FDIC lay groundwork for “covered bond” market

SEPT

Federal takeover of Fannie, Freddie _____________________________________ Lehman Brothers collapse _____________________________________ Major money market mutual fund “breaks the buck” _____________________________________ Fed rescues AIG with $85B loan package

JUL/AUG

OCT

Credit crunch intensifies, CMBS market seizes up _________________________________

Emergency interest rate cut fails to calm markets; U.S. officials continue to explore policy options ____________________________________________________________________________

President Bush, central banks seek to calm markets amid global investor flight from risk

Roundtable urges banks to make loans; urges Treasury to clarify certain REITs’ eligibility to participate in TARP ____________________________________________________________________________ Fed Chairman Bernanke expresses concern about commercial real estate ____________________________________________________________________________ Roundtable Board convenes emergency call to discuss potential solutions ____________________________________________________________________________ TARP (Troubled Asset Relief Program) enacted

NOV

Roundtable Q3 Survey: “Dark Clouds on Economic Horizon” _______________________________________________________________________ RER letter to President-elect Obama — offering assistance in addressing urgent challenges facing CRE, U.S. economy _______________________________________________________________________ RER issues 5-point liquidity plan _______________________________________________________________________ Former Treasury Secretary Henry Paulson: ABS market “currently in distress, costs of funding have skyrocketed, new issue activity has come to a halt” _______________________________________________________________________ SEPT/OCT

RER meetings with Treasury, Fed in Washington, New York _______________________________________________________________________

Labor Dept: first hiring decline in four years _____________________________________________

Term Asset-Backed Securities Loan Facility [TALF] announced; RER, 11 real estate organizations urge inclusion of highly-rated CMBS

Fed announces bold interest rate cut rate to calm markets _____________________________________________ Despite strong fundamentals, snowballing credit crunch takes toll on CRE markets, causes problems in CMBS, CDO markets

DEC

Roundtable members meet with Fed, Treasury, FDIC, Obama economic transition team ________________________________________________________ Roundtable letter to Treasury focuses on REMICs, commercial loan modifications ________________________________________________________ Fed to use “all available tools” to ease “strained” financial markets; federal funds rate cut to nearly zero

THE REAL ESTATE ROUNDTABLE

ROUNDTABLE PUTS FORTH ACTION PLAN 2009

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2010

JAN

JAN/FEB

Roundtable unveils new Economic Sentiment Index: “Survival” is CEOs’ Key Goal

New securitization accounting standards (FAS 166, 167) go into effect for most banks _____________________________________________________________ Congressional Oversight Panel warns of potential “tidal wave” of CRE-related bank losses _____________________________________________________________

FEB

Roundtable survey shows weakening CRE fundamentals _____________________________________________________________

Economic stimulus enacted with RER-backed cancellation of indebtedness (COD) language __________________________________________________________________

79 Members of Congress urge swift Treasury/Fed action to avert “devastating wave” of CRE foreclosures, bank losses _____________________________________________________________

Real estate organizations commend Treasury, Fed on including new issue, AAA-rated CMBS as eligible collateral under TALF __________________________________________________________________

Fed Survey: Credit Remains Tight, Especially for CRE _____________________________________________________________ Bernanke testifies on weakening fundamentals, financing problems in CRE markets _____________________________________________________________

Roundtable meets with New York Fed (FRBNY) to discuss TALF implementation, “Public-Private Investment Fund” (PPIF)

Dodd urges banking regulators to “redouble efforts” to stabilize CRE

MAR

Roundtable urges longer financing period for CMBS under TALF 2.0 _____________________________________

Roundtable Sentiment Survey shows markets improving, but diﬃculties far from over

Treasury announces PPIP as a way to deal with “legacy assets” congesting U.S. financial system

77 73

JUNE/JULY

Future

Fed launches TALF for new issue CMBS _____________________________________________________ RER, "Fair Value Coalition" warn Treasury that proposed accounting reforms could harm credit markets, economy; FASB announces new rules for securitizations, off-balance sheet vehicles _____________________________________________________

70 63 58

Overall

Roundtable testifies at Joint Economic Committee hearing _____________________________________________________

41 36

28 21

Fed launches TALF for “legacy” (pre-2009) CMBS _____________________________________________________ Roundtable members, Washington staff meet with New York Fed _____________________________________________________

33 28

49 38

Current

78 76 74

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

San Francisco Fed: CRE problems are “the next area of significant vulnerability for the banking system … Our biggest concern now is with maturing loans on depreciated commercial properties.”

AUG

RER 3Q 2009 Survey finds severe dysfunction in CRE credit markets; Industry's “Woes Far From Over” ________________________________________ Roundtable delegation — led by RER Chairman Daniel M. Neidich — urges additional action to restore CRE liquidity, avoid a “cascade of negative repercussions for the economy”

OCT

Federal Reserve, FDIC, NY Fed express concern over deterioration in CRE markets _________________________________________________________________ Obama briefed on problems in commercial real estate _________________________________________________________________

SEPT

Treasury Sec. Geithner cites “extremely strained” CRE financing conditions in Hill testimony ___________________________________________________________________ IRS eases REMIC tax rules, allowing proactive discussions about modifying securitized commercial mortgages; REIT markets rally

Increasing reports of CRE being “the next shoe to drop” (series of Roundtable member interviews on CNBC “Squawk Box”) _________________________________________________________________ Unemployment bill enacted with RER-backed net operating loss (NOL) carry back _________________________________________________________________ Fed extends TALF into 2010 DEC

NOV

TALF helps finance $400 M Developers Diversified deal—first CMBS issuance in 1 ½ years; credit spreads narrow

Obama presses U.S. banks to lend more, “help rebuild our economy” _______________________________________________________ Additional $1 billion in private (non-TALF-supported) CMBS issued by year-end

2010 ANNUAL REPORT

Confronting Commercial Real Estate’s Debt Maturity Crisis The Real Estate Roundtable’s capital and credit policy agenda this past year focused on restoring commercial real estate market liquidity, reducing market tension and encouraging systemic stability. Making sure that financial services overhaul legislation does not hurt real estate’s ability to form necessary capital, restore essential credit capacity and cost-effectively manage risk were other top policy priorities. To their credit, policymakers adopted or implemented several key Roundtable recommendations for restoring liquidity and easing the trillion-dollar refinancing crisis, including: extension of the Term AssetBacked Securities Loan Facility (TALF) beyond year-end 2009 (to March 31, 2010 for “legacy” commercial mortgage-backed securities [CMBS] and to June 30, 2010) in order to give the program time to work.

■ An

guidance allowing REMICS (Real Estate Mortgage Investment Conduits) to modify troubled securitized commercial mortgage loans without jeopardizing their tax status or exposing them to prohibited transaction taxes. The Sept. 2009 rule has made it easier for borrowers and servicers to address problem loans much earlier in the process, improving the likelihood of salvaging loans, maintaining properties, and saving jobs.

■ IRS

guidance in Oct. 2009 encouraging banks to extend performing CRE loans through prudent loan workouts, based less on loan-tovalue than on cash flow analysis, and encouraging new equity investments.

■ Regulatory

THE REAL ESTATE ROUNDTABLE

Throughout the fall of 2009 and into 2010, The Roundtable intensified pressure on policymakers to pay attention to the deepening problems in U.S. commercial real estate markets, meeting with members of the House and Senate; senior staff at the White House and Treasury Department; U.S. Federal Reserve Board; Federal Reserve Bank of New York; U.S. Comptroller of the Currency (OCC); Federal Deposit Insurance Corp. (FDIC); Senate Banking and House Financial Services committees; and top Senate and House leaders. Since the fiscal year began, policymakers and the press increasingly joined us in “sounding the alarm.” Last July, for example, Joint Economic Committee (JEC) Chair Carolyn Maloney (D-NY) warned about a “ticking time bomb” in commercial real estate, and New York Fed President William Dudley said this sector would likely be a “significant drag on the economy over the next year.” In September 2009 testimony before the Congressional Oversight Panel (COP), Treasury Secretary Timothy Geithner cited “extremely strained” CRE financing conditions. The following month, the Fed singled out commercial real estate as the weakest part

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of the economy; the FDIC’s Sheila Bair and expressed concern about continuing deterioration in CRE markets; and President Obama was briefed about “looming problems” in the sector. As Fox Business News reported at the time, the issue was “now on the President’s radar screen.” A COP report issued in February 2010 was particularly helpful in drawing attention to deepening problems in the sector, urging coordinated policy action “to address forthrightly and transparently the state of the commercial real estate markets — and the potential impact that a breakdown in those markets could have on local communities, small businesses and individuals.” As the recession deepened and rising unemployment pushed vacancy levels to new highs — causing further deterioration in net operating income (NOI) and property values — it became clear that new policy steps would be needed to address the still-unresolved refinancing crisis in commercial real estate. Thus, as the year progressed, The Roundtable increasingly emphasized: creation, to help lift consumer spending and business demand for commercial space, which would improve cash-flow, property values, and borrowers’ ability to attract new equity partners;

■ Job

investment in U.S. commercial real estate markets (in particular, by reforming the 1980 Foreign Investment in Real Property Tax Act (FIRPTA);

■ Equity

■ Addressing

ongoing dysfunction in securitization markets, reflected by banks’ reluctance to “warehouse” loans on their books before packaging them into securities; advancing measures to help banks dispose of troubled assets and restructure their balance sheets;

Clockwise from top left: FDIC Chairman Sheila Bair discusses recent changes in securitization accounting standards for banks (FAS 166, 167) as well as proposals for a new securitization model. Fed Governor Kevin M. Warsh, right, Roundtable board member William C. Rudin (Rudin Management Company) and Penny Pritzker (Pritzker Realty Group). Commodity Futures Trading Commission Chairman Gary Gensler and Roundtable board member Michael Fascitelli (Vornado Realty Trust). Roundtable President and CEO Jeffrey DeBoer testifies before Congress about deteriorating conditions in commercial real estate. Other witnesses included Roundtable board member James Helsel (National Association of Realtors), right; Richard Parkus (Deutsche Bank); and Jon Greenlee (Federal Reserve).

■ Enhancing credit capacity

(e.g., by resolving conduit aggregation risk challenges and developing a framework for a U.S. “covered bond” market).

Addressing the Refinancing Crisis: A Closer Look Reviving Securitization Markets and Clearing Balance Sheets: TALF and PPIP As the fiscal year began, securing an extension of the TALF program was a key policy goal, since newly issued AAArated CMBS had only become eligible for TALF financing in late June 2009, while the legacy CMBS program was scheduled to become operational in July. As Roundtable President and CEO Jeffrey DeBoer testified before the JEC last summer, “due to the long lead time necessary to assemble TALF-eligible CMBS transactions, the program’s remaining term does not permit adequate time to develop sufficient volume to address the massive credit shortfall to

the sector.” Without an extension, he explained, “only a very limited number of CMBS securitizations will take place under TALF, and the program will end before it has had the desired effect on price discovery and a return of an active securitization market.” Fortunately, Fed policymakers ultimately extended TALF for ABS and legacy CMBS to March 31 of this year; and to June 30, 2010 for new issue CMBS. The program has helped reduce spreads and stimulate securitization activity in asset backed and CMBS markets. Despite the relatively low volume — $30 million — of newly-issued CMBS directly supported by TALF in 2009, the program paved the way for nearly $3 billion in private (non-TALF-supported) CMBS issuance before the end of the year. While credit markets have improved somewhat and spreads have narrowed, investors are largely sticking to very conservative deals. New CMBS issuance

2010 ANNUAL REPORT

remains stalled, with only $309 million in securities issued to date in 2010. Clearly, the refinancing crisis in commercial real estate is far from over. Efforts to remove so-called “toxic” or legacy assets from bank balance sheets have proved elusive despite the $700 billion Troubled Asset Relief Program (TARP). In fact, the January TARP Special Inspector General Report to Congress concludes that, while the TARP program helped stabilize the financial system, the program’s original goals have not been met. The Public Private Investment Program (PPIP) has only produced lackluster results — with virtually no volume in the Legacy Loans Program and a maximum capacity of $40 billion through the Legacy Securities Program. Further, lending continues to decrease, month after month; home foreclosures remain at record levels; and unemployment is still the highest it’s been in generations. Top (l-r): Senate Banking Committee Chairman Christopher J. Dodd (D-CT) discusses efforts to craft “new rules of the road” for Wall Street. Financial overhaul legislation recently cleared the full Senate with derivatives, securitization, and other provisions affecting commercial real estate. During final Senate consideration of the bill, Banking Committee member Bob Corker (R-TN) sought to offer a real estatebacked amendment requiring systemic risk regulators to examine the potential effect of new accounting regulations. Middle row (l-r): FDIC Vice Chairman Martin J. Gruenberg discusses the rising number of problem loans during a Roundtable business meeting. Banking regulators this past fall issued guidance encouraging CRE loan workouts, a step that has helped reduce the pace of foreclosures. House Financial Services Committee member Travis W. Childers (D-MS) with (l-r) CRE Finance Council CEO Dorothy Cunningham, BOMA Chairman James A. Peck (CB Richard Ellis), and BOMA President and COO Henry H. Chamberlain. Above (l-r): New York Fed President William Dudley, left, with Roundtable board members Thomas M. Flexner (Citigroup) and William C. Rudin (Rudin Management Company), Roundtable President and CEO Jeffrey DeBoer, and Roundtable Chairman Daniel M. Neidich (Dune Real Estate Partners). Joint Economic Committee Chair Carolyn B. Maloney (D-NY) has warned repeatedly this past year that the mountain of maturing debt and ongoing refinancing challenges represent a “ticking time bomb” in commercial real estate markets. Opposite: Testifying before Congress in February, Fed Chairman Ben Bernanke expressed concern about weakening fundamentals in commercial real estate, and how this could undermine economic recovery efforts.

TALF Helps Rein in CMBS Spreads 1200 1000 800

400 200

J F M A M J

J A S O N D J F M A M J

2008

J A S O N D J F M A M

2009

2010 Source: Trepp

As the report warned, approximately $1.4 trillion in U.S. real estate loans will come due between 2010 and 2014, with nearly half of those loans currently “underwater.” Further, a “significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American.”

Protecting Capital Formation, Restoring Credit as Congress Rewrites Financial Services Regs

600

The February report by COP, Commercial Real Estate Losses and the Risk to Financial Stability, and high-profile press interviews by COP Chair Elizabeth Warren, have helped bolster the case for additional policy action to prevent a rising tide of CRE delinquencies, defaults and foreclosures — and the associated stresses this would place on the financial system and economy.

THE REAL ESTATE ROUNDTABLE

Financial services regulatory reform legislation approved by the House in December and by the Senate in May would make historic changes to the

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government’s oversight of U.S. financial markets and revolutionize the way businesses and consumers deal with financial products. Differences between the two bills must still be resolved before the legislation can go to the President for his signature. As the reconciliation process begins, The Roundtable remains focused on three primary issues in the Housepassed “Wall Street Reform and Consumer Protection Act” (H.R. 4173) and the Senate-passed “Restoring American Financial Stability Act of 2010": OTC Derivatives Reform The proposed legislation would establish federal regulation of over-the-counter (OTC) derivatives. The Roundtable, as part of the Coalition for Derivatives End-Users, continues to urge policymakers to preserve real estate companies’ ability to manage their individual risk exposures by ensuring access to reasonably priced and customized OTC derivative products. At the same time, the coalition seeks to prevent over regulation of companies

The Senate bill does not provide an exemption based on the size of the fund being advised, but would exempt advisers with less than $100 million of assets under management across all funds. It would also exempt from registration advisers to “private equity funds” (a term to be defined by the Securities and Exchange Commission [SEC]). While the House bill requires the SEC to impose special reporting and recordkeeping obligations on venture capital funds, the Senate version does not, but instead requires that the SEC issue final rules to require private equity fund advisers to maintain such records and reports as the SEC determines are necessary and appropriate. Asset-Backed Securitization (ABS) Reform — “Skin in the Game” Both measures would tighten regulations governing the securitization process — making broad changes in how credit rating agencies are regulated, and requiring retention of 5 percent of the

“I AM HERE TO SOUND THE ALARM BELL.” Roundtable President & CEO Jeffrey DeBoer, July 9, 2009, in testimony before Congress' Joint Economic Committee about the ongoing refinancing crisis in commercial real estate

that do not pose a risk to the broader financial system. The coalition continues to encourage reforms appropriately focused on dealers and those who trade derivatives for profit, while protecting the proven risk management strategies of American businesses. Registration of Investment Advisers The House-passed bill would require the registration of investment funds (including large hedge and private equity funds) if they have assets under management of at least $150 million. It would also subject these funds to significant disclosure and systemic risk regulation by a proposed new Financial Stability Council.

credit risk on any loan that is sold in a pool of loans backing an ABS issuance. Both bills provide a favorable structure for risk-retention requirements for CMBS issuers. An amendment successfully offered during Senate floor voting in May will allow CMBS B-piece buyers to satisfy the risk retention requirement, helping to mitigate the impact of new accounting rules (FAS 166, 167) on CMBS issuers.

Our policy successes this past year would not have been possible without extensive coordination with The Roundtable board, our coalition partners in the real estate and financial services industries, a unified industry presence on key issues, and our Real Estate Capital Policy Advisory Committee (RECPAC), ably led this past year by co-chairs by Michael Graziano (Goldman, Sachs & Co.) and Guy Metcalfe (Morgan Stanley). We also greatly appreciate the active involvement of our members, many of whom traveled to Washington and New York to meet with policymakers and regulators—and, in some cases, to testify on the industry’s behalf. The membership’s high degree of responsiveness to our various e-mail alerts and “calls to action” has been very gratifying.

The Roundtable continues to work with policymakers on exploring appropriate vehicles to enhance market liquidity, restore credit capacity for commercial real estate and encourage systemic stability. 2010 ANNUAL REPORT

Advancing Energy Efficient Buildings as a Cornerstone of Sustainability This past year, The Real Estate Roundtable made considerable progress advancing its energy and environmental policy agenda. Our balanced and forward-thinking sustainability platform emphasizes voluntary, market-based incentives and public-private partnerships as an effective alternative to governmental mandates that can have significant negative unintended consequences.

With the White House and key lawmakers continuing to press for climate change and energy legislation — and federal statistics showing that the “commercial sector” and its tenants account for 46% of building energy use in this country — we continued to reinforce the message that real estate is a key part of the solution to help reduce U.S. electricity demand and associated greenhouse gas emissions. Advocating for policies to encourage greater energy efficiency in buildings, especially through retrofits of existing structures, remained our top priority. This is, in part, because today’s marketplace expects Class A buildings to meet more stringent energy and sustainability standards. It is also because the vast stock of existing buildings presents a significant opportunity for improving energy performance, reducing costs, and cutting greenhouse gases.

THE REAL ESTATE ROUNDTABLE

High Performance Buildings Policy: A Closer Look Advancing “Building STAR” to Spur Energy Retrofits, Green Jobs As U.S. policymakers stepped up debate on job-creation proposals in recent months, The Roundtable and coalition partners advocated enactment of an energy retrofit incentive program for commercial and multi-family buildings that could create thousands of “green jobs.” The centerpiece of the “Building STAR” program is a federal rebate for energy efficiency investments (covering equipment, materials, and services). It would also authorize federal funding that states could use to extend low-interest loans to building owners to help underwrite the remaining portion of their energy efficiency investments.

BACK to BASICS

An invitation to testify before the Senate Energy Committee in March was a fortuitous opportunity to raise visibility of the Building STAR program. Roundtable President and CEO Jeff DeBoer testified that “The Building STAR Energy Efficiency Act of 2010” (S. 3079) would: ■ Quickly

and cost-effectively create thousands of well-paying jobs that cannot be out-sourced — as many as 150,000 jobs in some of the economy’s hardest-hit sectors, including construction, manufacturing, and distribution, over the next two years

■ Leverage

every dollar of federal spending to generate $2–3 in private investment

■ Save

billions of dollars per year in energy costs

■ Cut

nearly 21 million metric tons of greenhouse gases — the equivalent of taking nearly 4 million cars off the road

■ Stimulate

CRE market activity that will help lift battered commercial property values

■ “Lubricate

financing, which can lead to new developments and more jobs down the road”

Other opportunities for raising awareness of Building STAR included: ■ A

media campaign to educate lawmakers and the public about the program’s benefits

■ Meetings

with key White House staff, including senior Obama advisor Valerie Jarrett (who addressed our 2010 State of the Industry and Spring 2010 Roundtable meetings)

■ Written

testimony submitted to the House Ways and Means Committee in conjunction with an April 14 hearing on the “green economy”

■ A

U.S. Green Building Council (USGBC) event at the National Press Club in late April announcing a legal research paper prepared for the Obama

Clockwise from top left: Rep. Ed Perlmutter (D-CO), right, author of the “Livable Communities Act of 2010,” and Roundtable board member Jeffrey Schwartz (Global Logistic Properties). Senate Energy Committee member Richard Burr (R-NC) and Sustainability Policy Advisory Committee (SPAC) Co-Chairman Dennis D. Oklak (Duke Realty Corp.). Sen. Lisa Murkowski (R-AK) interacts with The Roundtable’s Jeff DeBoer and other witnesses at a Senate Energy Committee hearing in March. Sen. Jeanne Shaheen (D-NH), a member of the Senate Energy Committee, former Roundtable Chairman Nelson C. Rising (Maguire Properties), and Roundtable member James A. Thomas (Thomas Properties Group). Opposite page: Belmar Office & Shopping Complex, Lakewood, CO, generates 1.25 million kW hours annually through its 1,741 kW solar array, and saves over 2 million lbs of CO2 per year (Photo courtesy MMA Renewable Ventures/Fotowatio)

Administration with The Real Estate Roundtable’s assistance, and covering a “suite” of energy efficiency incentives that could be implemented without congressional approval Recent developments would result in the application of Davis-Bacon prevailing wage and administrative requirements to the proposed Building STAR rebate program. The Roundtable does not believe the legislation would be as robust with a Davis-Bacon trigger, and will pursue other avenues consistent with Building STAR’s spirit but without burdensome payroll, paperwork, and associated regulations.

Promoting Long-Term Energy Efficiency Financing Solutions While short-term stimulus measures such as Building STAR are appropriate in our recessionary economy, policymakers also must examine long-term financing platforms for energy efficiency upgrades in commercial structures. As the Pew Center on Global Climate Change reported in April 2010, corporate officers cite a lack of funds and financing as the

single greatest impediment to capital investment in energy efficiency upgrades. For this reason, The Roundtable has positioned itself at the center of policy discussions regarding long-term finance of energy efficiency projects. Property Assessed Clean Energy (PACE) Bonds An increasing number of states and localities have enacted legislation authorizing Property Assessed Clean Energy (PACE) bonds, and federal legislation is now pending in Congress to encourage this type of financing (e.g., H.R. 3835, introduced by Rep. Steve Israel [D-NY]). Generally, under PACE programs, a building owner receives proceeds from a municipal bond issue to pay for expensive modernization projects; the owner then repays the retrofit loan concurrently with a property tax assessment. Although the concept holds significant promise as a mechanism for financing commercial real estate energy retrofits, many lenders remain concerned 2010 ANNUAL REPORT

that any mortgage interest they have in a property could become subordinated upon attachment of a PACE lien. To help address these concerns, The Roundtable’s lending and sustainability experts are working to identify “best practices” that might encourage more acceptance of PACE programs within the lending community. Tax Incentives for Energy Efficiency Another means of long-term financing that holds promise for commercial building owners and managers is the energy efficiency tax deduction in the Internal Revenue Code. The deduction, first enacted in 2005, has not been fully utilized by the real estate community because of overly ambitious performance standards and inadequate implementation by tax regulators.

Top: Senate hearing on energy retrofit incentives. Middle row (l-r): Senate Energy Committee Chairman Jeff Bingaman (D-MN) oversees a March 2010 hearing on energy retrofit incentives that included Roundtable testimony on Building STAR. Roundtable President and CEO Jeffrey DeBoer cites economic and environmental benefits of Building STAR legislation during a Senate Energy Committee hearing. Other witnesses included Stacey Epperson (Frontier Housing), Phil Giudice (Massachusetts Dept. of Energy Resources), and Terrance Mierzwa (Consumers Energy). Above (l-r): Panel discussion featuring U.S. Transportation Secretary Ray LaHood (left) and U.S. Public Buildings Commissioner Robert A. Peck, with Roundtable member Charles B. Leitner (RREEF Alternative Investments) serving as moderator. SPAC CoChairman Fred A. Seigel (Beacon Capital Partners, LLC) and former U.S. Public Buildings commissioner David Winstead (Ballard Spahr). Opposite (l-r): Deborah M. Estes, senior counsel to the Senate Energy Committee, discusses the outlook for energy and climate legislation with SPAC members. Looking on is Roundtable Vice President and Counsel Duane Desiderio. Sen. Debbie Stabenow (D-MI) questions witnesses during a Senate Energy Committee hearing.

A Decade of Partnership with EPA on E�� S�� Cumulative No. of Buildings to earn the ENERGY STAR Label

9,000 8,000 7,000 6,000 5,000 4,000

2,000 1,000 ’99

’00

’01

’02

’03

’04

’05

’06

’07

’08

’09

A decade ago, The Roundtable worked closely with the U.S. Environmental Protection Agency (EPA) and Department of Energy (DOE) to make sure the ENERGY STAR building labeling program would be workable for our industry, and participated in the opening ceremony in New York on March 28, 2000. We continue to partner with EPA today, working to expand the types of buildings covered under the program.

In February, The Roundtable and the U.S. Green Building Council assisted Mr. Reichert at a press event in his home district, to highlight his tax bill and draw greater attention to the need for financial incentives to spur energy efficiency projects. The event, held at a LEED-certified building owned by Beacon Capital, was also an opportunity to highlight the work of one of our member firms in the sustainability arena.

Conveying Concern Over Proposed U.S. Building Codes, Labeling Requirements

3,000

In an effort to expand the deduction’s usefulness, The Roundtable has joined several of its real estate trade association partners in supporting legislation introduced by Rep. Dave Reichert (R-WA), H.R. 4226, that would expand the amount of the maximum deduction to $3 per square foot of building area; allow more incentives for partial deductions; and address administrative problems with the program.

THE REAL ESTATE ROUNDTABLE

As Congress considered various energy and climate bills these past 12 months, The Roundtable continued to express concern over the prospect of mandatory federal building codes. At the same

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time, we worked constructively to shape an outcome that could support U.S. energy efficiency and emissions reduction goals without placing undue burdens on an already stressed commercial real estate sector. As part of these efforts, we argued that improving voluntary, market-driven efforts such as the federal Energy Star program — coupled with new economic incentives such as Building STAR — ultimately would prove far more successful than a heavy-handed regulatory approach. The “cap and trade” climate bill that cleared the House last June (H.R. 2454, also known as “Waxman-Markey”) and similar legislation approved by the Senate Environment Committee in November (S. 1733) both include incentives for energy retrofits in buildings. However, these measures also include problematic language that could lead to the creation of a national building code.

among real estate stakeholders so they would have an opportunity to voice their concerns on this controversial topic. Building labeling regulations in Europe and at the state level have grown in response to greater consumer demands for information on buildings’ energy performance. And, while labeling platforms such as EPA’s Energy Star gain in popularity, problems deriving from “split incentives”— or, the inability of a building owner to access data on a tenant’s energy usage—will need to be addressed as energy information programs evolve.

WITH THE WHITE HOUSE AGAIN PRESSING FOR CLIMATE CHANGE AND CLEAN ENERGY LEGISLATION, WE COULD SEE RENEWED EFFORTS ON CAPITOL HILL TO TRY TO ADVANCE ONEROUS BUILDING CODE LANGUAGE. With the BP oil spill spreading beyond the Gulf of Mexico and the White House again pressing for climate change and clean energy legislation, we could see renewed efforts on Capitol Hill to try to advance this onerous building code language. In advocating against federal building code requirements for new construction, we find persuasive the fact that 75%–85% of buildings in urban areas today will still be here in 2030. Thus, regulations aimed at new construction would only impact about 15% of the marketplace by 2030, and would not make a significant dent in U.S. energy consumption and emissions. As to building labeling, The Roundtable this past year facilitated dialogue

The Roundtable will continue to chart a position on building labeling that accommodates these perspectives, while recognizing prevailing trends calling for dissemination of energy information in the marketplace.

Cultivating New Alliances to Advance Our Agenda To help secure broader congressional support for key policy initiatives in today’s increasingly partisan political atmosphere, The Roundtable this past year made great strides in forging alliances with non-traditional coalition partners to identify common interests and shared priorities.

manufacturing sector, environmental organizations, and energy efficiency advocates. Working with organizations such as the American Council for an Energy Efficient Economy (ACEEE), we reached consensus on key legislative proposals and explained real estate’s stake in energy efficiency policies by addressing the groups’ membership at its annual meeting. Likewise, in cooperation with the USGBC, the Natural Resources Defense Council and others, The Roundtable assisted with a major research project requested by the Obama Administration. The project identified Executive Branch legal authorities that could be used immediately to incentivize retrofits in commercial buildings — without new legislation from Congress. As we reflect on the policy achievements of the past year — and prepare for potential policy risks and opportunities in the year ahead — we wish to recognize the tremendous input, expertise and energy of our Sustainability Policy Advisory Committee (SPAC). In particular, we thank the committee’s co-chairs, Fred A. Seigel (Beacon Capital Partners) and Dennis D. Oklak (Duke Realty Corporation); as well as vice chair Brenna Walraven (USAA Real Estate Company) for their time, leadership and good counsel on behalf of the broader real estate industry.

For example, as a member of the Energy Future Coalition, we have implemented joint strategies with labor groups, the 2010 ANNUAL REPORT

Fostering Job Creation and Equity Investment With commercial real estate markets in serious distress as a result of the massive refinancing crisis and prolonged economic weakness, The Real Estate Roundtable this past year focused on tax policies aimed at fostering a climate for job growth and encouraging substantial equity infusions into the market place. Our hope is that this will facilitate transactions — down 80–90 percent since 2007 — and enable the hundreds of billions of dollars in maturing loans to be refinanced. This would help to reduce the pace of foreclosures and defaults and prevent further bank losses and economic pain. Among the biggest threats to investment and job creation — and a key focus of our energies — is House legislation to dramatically raise taxes on partnership “carried interest,” approved in late May as a way to help pay for tax “extenders.” Despite significant, ongoing coalition efforts to educate policymakers about the negative economic consequences of this proposal, a carried interest tax increase of some kind is now increasingly likely. However, negotiations remain extremely fluid at this writing — with some Senators continuing to express reservations about the tax hike — leaving the door open to the possibility that it could still be dropped altogether, or reworked in order to soften its impact on real estate and other stakeholders. In the area of job creation and investment, we also worked to build support for a fast-acting energy retrofit and “green jobs” proposal (Building STAR) as well as reinstatement/extension of 15-year leasehold improvement depreciation.

THE REAL ESTATE ROUNDTABLE

The re-imposition of a 39-year depreciation schedule for leasehold improvements in January hit real estate owners with what amounts to another significant tax increase, just as they are struggling to hold onto tenants, maintain operating income and cope with significant erosion of equity. Both issues are still pending. More broadly, The Roundtable has warned that uncertainty over the many major policy issues on Congress’ agenda — e.g., financial services overhaul, health care, card check, climate change, carried interest — is undermining businesses’ confidence and ability to plan for the future, including their ability to manage risk. Looming questions about the tax code are also compounding employers’ reluctance to invest in new projects and expand their payrolls. Significant congressional debate is expected in coming months about the expiring 15 percent capital gains tax rate and estate tax policy — both of which have major implications for owners and operators of commercial real estate. A key issue for our industry going forward (in addition to taxpayers’ need for certainty) is the valuation system used for inherited assets (stepped-up vs. carryover basis). In terms of our other major tax policy goal this past year — encouraging

BACK to BASICS

Above (L-R): Wharton real estate professor Dr. Peter Linneman and legendary real estate entrepreneur Sam Zell (Equity Group Investments) discuss factors inhibiting commercial real estate market activity, including banks' reluctance to make new loans in the face of tighter regulatory and accounting requirements, and the need for new equity sources. Senate Real Estate Caucus Chairman Johnny Isakson (R-GA), center, with NAIOP Chairman Lawrence Pobuda (Stewart Lawrence Group) and Roundtable member Ron D. Sturzenegger (Bank of America Merrill Lynch). Senate Finance Committee member John Kerry (D-MA) during a hearing on conditions in commercial real estate.

equity infusions into commercial real estate markets to help address the estimated $1 trillion equity gap — we are pleased to report that House legislation has been introduced to reform the outdated and discriminatory Foreign Real Property Tax Act of 1980 (FIRPTA). However, it is still early in the process, and we continue working with coalition partners and legislative allies to find an appropriate “vehicle” to which the bill can be attached. The other challenge, of course, is how to “pay for” the legislation in today’s exceptionally budget-conscious, “pay-as-you-go” environment, where projected reductions in tax revenue generally must be “offset” with revenue raisers, in order to maintain a neutral effect on the federal budget. Given these realities — and what is likely to be a shorter-than-usual election-year schedule — we also continue to pursue possible regulatory changes as a kind of “down payment” toward full-blown FIRPTA reform. Although the highly partisan atmosphere on Capitol Hill and election-year time pressures do not bode well for bipartisan action, we continue to look for opportunities to advance other tax policy goals, including reform of the passive loss and at-risk rules; depreciation rules governing commercial buildings (so that they reflect economic usefulness); and unrelated business income tax (UBIT) rules.

Tax Policies: A Closer Look Easing REMIC Tax Rules to Facilitate Loan Modifications, Stabilize Markets As part of our multi-pronged efforts to restore liquidity and stabilize commercial real estate markets, The Roundtable this past year advocated regulatory changes that would temporarily allow Real Estate Mortgage Investment Conduits (REMICs) to modify troubled commercial mortgage loans without jeopardizing their tax status or exposing them to prohibited transaction taxes. We are pleased to report that the IRS and Treasury did just that when they announced Revenue Procedure 2009-45 this past September. The new rules, which are retroactive to Jan. 1, 2008, permit modifications to a mortgage such as changes in interest rates, term of the loan, collateral, guarantees and penalties, as long as the loan remains secured by real property. The guidance has made it easier for borrowers and servicers to address problem loans much earlier in the process, thereby improving the likelihood of salvaging the loan, maintaining the property, and saving associated jobs. However, The Roundtable continues working to secure additional clarification to ensure that REMICs truly have the flexibility they need to negotiate loan modifications, as intended by the new regulations.

Providing Certainty on Estate Tax Policy; Ensuring Step-up in Basis With key Senate lawmakers working behind the scenes toward an estate tax compromise — and the issue likely to come to the forefront later this year — The Roundtable continues working to ensure full stepped-up basis treatment for inherited assets going forward. As directed under 2001 tax relief legislation, the estate tax was phased out completely as of January 2010, but is scheduled to reappear next year at higher, pre-2001 levels ($1 million exemption and 55 percent tax rate). Also as scheduled, the valuation method for inherited assets changed from stepped-up to carry-over basis for the year 2010, creating potential capital gains tax liabilities for heirs wishing to sell inherited property. Although stepped-up basis is set to return in 2011, it is hard to predict what new combination of rates and exemption levels tax-writers will ultimately come up with — which means, as always, that we must be engaged in the process and educate policymakers about our industry’s concerns. Thus far, only the House has acted in this area. Legislation approved at yearend 2009 would repeal the complete elimination of estate taxes and the switch from stepped-up to carryover basis that took effect in January 2010. 2010 ANNUAL REPORT

The House bill also would raise the exclusion amount to $3.5 million and set a top tax rate of 45 percent. A bipartisan proposal being developed by Senate Finance Committee members Jon Kyl (R-AZ) and Blanche Lincoln (D-AR) is expected to set a 35 percent tax rate for estates in excess of $3.5 million; however, the exemption would increase over time to $5 million and would not be indexed for inflation.

Blocking an Anti-Jobs, Anti-Investment Tax Hike on Carried Interest

Top (l-r): Senate Finance Committee member Robert Menendez (D-NJ) and Roundtable members Anthony E. Malkin (Malkin Holdings) and Raymond C. Mikulich (Ridgeline Capital Partners). House Republican Whip and Ways and Means Committee member Eric Cantor (R-VA). Middle row (l-r): Senate Finance Committee Chairman Max Baucus (D-MT) is at the center of congressional negotiations over tax extenders and carried interest. Senate Finance Committee counsel David Hughes addresses The Roundtable’s Tax Policy Advisory Committee (TPAC). Looking on are (l-r) Thomas F. Nealon (LNR Property Corp.), TPAC Chairman Kenneth F. Bernstein (Acadia Realty Trust), and Vice Chairman Robert D. Schachat (Ernst & Young LLP). Above (l-r): Roundtable Vice President and Counsel David F. Pearce, House Financial Services Committee member Christopher Lee (R-NY) and CRE Finance Council President Patrick C. Sargent. Senator Tom Coburn (R-OK) and Association of Foreign Investors in Real Estate (AFIRE) Chief Executive James Fetgatter discuss tax policy steps to encourage foreign investment in U.S. commercial real estate. Opposite (l-r): House Ways and Means Committee member Joseph Crowley (D-NY), author of Roundtablesupported legislation to modify the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). Reps. Allyson Y. Schwartz (D-PA) and Melissa L. Bean (D-IL) with Roundtable member Bruce R. Cohen (Wrightwood Capital).

Foreign Investment in U.S. Real Estate Declines ROUNDTABLE PUSHES FOR FIRPTA REFORM Billions

$50 $40 $30 $20 $10

‘03

‘04

‘05

‘06

‘07 ‘08 ‘09 Source: Real Capital Analytics, Inc.

The sharp drop in foreign investment in U.S. real estate in 2008 and 2009 is attributed to the recession, the ongoing tax penalty of the Foreign Investment in Real Property Tax Act (FIRPTA), and a negative 2007 IRS Tax Notice. Notably, the statistics for 2007 include two very large transactions that, together, accounted for 35% of the total. However, even taking that into account, all countries decreased their investment in 2008 and 2009.

THE REAL ESTATE ROUNDTABLE

Although prospects for a carriedinterest tax hike appeared “dead” just a few months ago, this onerous tax proposal has suddenly re-emerged as a way to bridge the difference in cost between the Senate and House versions of tax “extenders” legislation. Unfortunately, with lawmakers under pressure to maintain budget neutrality and not add to an already skyrocketing deficit (and significant press scrutiny fueling interest in this tax proposal), there is a great temptation on Capitol Hill to use the partnership carried interest as a revenue raiser. The characterization of this as a “fairness” issue by some also has helped give this issue “legs” in a very short span of time. Throughout the past year, The Roundtable and 16 national real estate trade organizations worked consistently and intensively to block the House carried interest proposal, which would more than double taxes on commercial real estate investment partnerships and undermine positive efforts by the Administration to stabilize property values, reduce debt and create jobs. With negotiations still very fluid at this point, we continue working to get our message out to policymakers through a variety of channels, including personal meetings, ads in prominent publications such as Roll Call, industry letters and white papers.

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The Senate in March passed tax extenders legislation (H.R. 4213) that was an amended version of a similar bill approved by the House in December 2009. When the revenue raisers in the Senate version were used to pay for health care reform, the Senate extender bill was left without a revenue source, creating added pressure to seriously consider the carried interest proposal. The measure subsequently cleared the House in late May with a phased-in carried interest tax hike. Action now moves back to the Senate, which is expected to modify the House bill further after the Memorial Day recess. The tax extenders legislation also includes positive, real estate-supported provisions to extend 15-year depreciation for leasehold improvements and to allow immediate expensing of brownfield cleanup costs.

jobs /stimulus /small business incentive legislation) would need to be put forth in a bipartisan and bicameral manner, which at present does not look likely. A key step forward this past fiscal year was the introduction of FIRPTA legislation in January by House Ways and Means Committee member Joseph Crowley (D-NY), along with co-sponsors Melissa Bean (D-IL) and Patrick Tiberi (R-OH).

DESPITE ELECTION-YEAR PRESSURES ON CAPITOL HILL, WE CONTINUE TO LOOK FOR OPPORTUNITIES TO REFORM THE TAX RULES GOVERNING FOREIGN INVESTMENT IN REAL PROPERTY. Encouraging Foreign Equity Investment in U.S. Real Estate The Roundtable this past year made considerable progress in setting the stage for future reform or repeal of FIRPTA. Changing this law is critical to attracting more foreign equity investment in U.S. commercial real estate, which would help address the vast equity gap caused by property devaluation and lender demands for bigger down payments in order to refinance maturing loans. Key impediments are the potential cost of the legislation and the lack of a legislative vehicle to which the modification proposal can be attached. For FIRPTA reform to get a chance to be enacted into law, a viable legislative vehicle (such as

H.R. 4539 (the “Real Estate Revitalization Act of 2010” or RERA) would: (1) eliminate FIRTPA’s “U.S. Real Property Holding Corporation” provisions; (2) characterize REIT capital gain distributions to foreign shareholders (that are attributable to the disposition of U.S. real property) as ordinary dividends subject to a U.S. withholding tax of 30 percent (or lower treaty rate); and, (3) treat REIT liquidating distributions as ordinary dividends subject to a 30 percent U.S. withholding tax (or lower treaty rate) to the extent that a distribution exceeds the foreign investor’s basis in its REIT stock.

On the Senate side, The Roundtable and other interested groups are advocating for a broader proposal that would incorporate partnerships. Senators from both parties are seriously considering introducing a standalone bill. Again, the delay to introduction is the estimated cost of the legislation. In light of these realities, we remain open to advancing changes through the regulatory process. At a minimum, we are urging policymakers to address the negative implications of IRS Notice 2007-55, which treats liquidating distributions as FIRPTA gain, and subjects all foreign investments to the FIRPTA tax. At The Roundtable's request, Rosen Consulting Group prepared an analysis to quantify the increased investment in U.S. real estate that would result from FIRPTA’s elimination or modification. As we reflect on our tax-related activities of the past year, we wish to acknowledge the tremendous work and input of our Tax Policy Advisory Committee. In particular, we thank TPAC Chairman Kenneth F. Bernstein (Acadia Realty Trust) and Vice Chairman Robert D. Schachat (Ernst & Young LLP) for their time and energy.

RERA would not change the tax treatment of U.S. investors in REITs and other corporations that invest in U.S. real estate.

2010 ANNUAL REPORT

Homeland Security & Real Estate: Enhancing Vigilance in the Face of Ongoing Threats

The Real Estate Roundtable this past year continued working on numerous fronts to help real estate businesses better manage risks associated with terrorism as well as other kinds of manmade and natural disasters. These risks include the growing threat of multiple, decentralized attacks on “soft,” “civilian-centric” targets such as hotels, office buildings, shopping malls and public transportation (as in the case of attacks in Mumbai, London, Madrid, Moscow and elsewhere in recent years). Additionally, as U.S. Department of Homeland Security (DHS) Secretary Janet Napolitano has asserted, “Homebased terrorism … is now part of the threat picture that we must confront.” One of the primary ways we are working to help owners and operators better manage these evolving challenges is to cultivate information sharing — not only between law enforcement and counter-terrorism agencies and our industry, but also within our own membership and the broader real estate community. As demonstrated time and again, information-sharing can play a vital role in protecting the homeland — and critical sectors such as real estate — from a range of threats. Yet, recent incidents point to the need for timely dissemination of actionable intelligence to appropriate parties in advance of such incidents. Only by improving this process, can private industry hope to mitigate such threats.

THE REAL ESTATE ROUNDTABLE

The attempted downing of a U.S. airliner outside Detroit in December (the “Christmas Day” attack) — was an unfortunate reminder of what can happen when intelligence agencies fail to “connect the dots” on information from various sources. On 9/11, the inability of different types of first responders to communicate with each other was another tragic — and preventable — instance of failed “information sharing.” Thanks to the vigilance of American citizens and quick thinking by law enforcement officials, an attempted car bombing in Manhattan’s Times Square was thwarted and a suspect was successfully apprehended as he attempted to flee the country at JFK international airport. Since the suspect was a naturalized U.S. citizen, this incident is considered another example of homegrown terrorism. By expanding and improving upon our partnerships with national real estate trade organizations, other critical infrastructure sectors and counter-terrorism entities at all levels of government, we

BACK to BASICS

threats as well as public health risks such as a potential flu pandemic) ■ Improving coordination with other

critical infrastructure sectors by having HSTF Vice Chairman Joe Donovan serve as co-chair of DHS’ Commercial Facilities Sector Coordinating Council (CFSCC), one of 17 infrastructure and resource sectors identified as needing protective/mitigative action ■ Facilitating information sharing

within the commercial real estate industry on security-related “best practices” robust partnerships with local, state and federal authorities (including law enforcement agencies and DHS) to improve the quality and timeliness of threatrelated information shared with our industry; the usefulness of programs, tools and resources developed by these entities; and to allow for joint planning and exercises

■ Cultivating

Clockwise from top left: NAIOP President Thomas J. Bisacquino, NAIOP Chairman Lawrence A. Pobuda (Stewart Lawrence Group), and House Intelligence Committee member John Kline (R-MN). Homeland Security Task Force Vice Chairman Joseph B. Donovan (Beacon Capital Partners) discusses real estate industry efforts to ensure preparedness against manmade and natural disasters. Roundtable members Andrew Davidoff (The Emmes Group of Companies) and John S. Hagestad (SARES/REGIS Group) with Sen. Mark Begich (D-AK), a member of the Senate Armed Services Committee. Senate Homeland Security Committee member John McCain (R-AZ) and Transwestern Interests Chairman Robert Duncan. Opposite: Improving the quality and timeliness of information sharing is critical to thwarting potential terrorist attacks, such as the recent car bombing attempt in Times Square (photo credit: Andrew Gordon Photography © 2000)

can improve the quantity and quality of information being shared. This includes making sure that intelligence sent through the real estate ISAC (Information Sharing and Analysis Center) is timely and “actionable.” These exchanges also include observations shared by individual real estate companies with local or federal counter-terrorism officials (e.g., on perceived surveillance activities by would-be terrorists); or “best practices” shared among Roundtable members and members of real estate trade groups. Additionally, these partnerships provide an important vehicle for improving emergency preparedness and resilience within the broader real estate community. Although terrorism prevention remains the ultimate goal, we cannot underestimate the importance of preparedness and resilience as a complement to prevention efforts. Our activities in the Homeland Security arena reflect our collective efforts to

cultivate partnerships and improve the quality /quantity of information sharing. The year’s highlights include: ■ Meeting with

Secretary Napolitano, along with industry leaders and DHS senior staff, to discuss real estate efforts to enhance building security protocol and the industry’s critical role in infrastructure security the Real Estate InformationSharing and Analysis Center (ISAC) join the National Council of Information Sharing and Analysis Centers (National Council of ISACs), which works to advance the physical and cyber security of critical infrastructure in North America by facilitating interaction among the ISACs and government

■ Having

■ Identifying and

facilitating opportunities to improve emergency preparedness and resilience within our industry on a range of security risks (manmade and natural disasters, physical and cyber

Of course, none of these accomplishments would have been possible without the energy and leadership shown by Homeland Security Task Force Chairman James Reid (CB Richard Ellis), and vice chairmen Joseph B. Donovan (Beacon Capital Partners LLC) and James Rosenbluth (Cushman & Wakefield). The task force provides a forum where building security professionals and senior executives from leading U.S. real estate entities, as well as representatives of the national real estate trade groups, can consider the “gold standard” for security-related practices in our highly diverse industry.

Improving Preparedness and Resilience for a Range of Risks In line with federal efforts to promote disaster preparedness and recovery among U.S. citizens, businesses and communities, The Roundtable this year continued working to ensure that the nation’s real estate sector is well prepared for a range of potential emergencies and highly disruptive scenarios.

2010 ANNUAL REPORT

These include manmade disasters such as terrorist attacks; natural disasters such as earthquakes and hurricanes; and disease outbreaks/epidemics, such as the global flu scare that erupted around May 2009. Our work in this area includes getting real estate firms to think through the steps needed after a disaster to help them (and their tenants) minimize disruptions and get back up and running as quickly as possible.

Top: HSTF Vice Chair Jim Rosenbluth (Cushman & Wakefield), Prudential Vice President of Global Security (and former FBI counter-terrorism official) Joseph Billy, Jr., and Roundtable Senior Vice President Clifton E. Rodgers, Jr. Middle row (l-r): Darrell Darnell, director of critical infrastructure protection and resilience policy at the White House, and Roundtable HSTF Vice Chairman Jim Reid (CB Richard Ellis). U.S. Homeland Security Secretary Janet Napolitano discusses critical infrastructure and asset protection at a meeting of the Real Estate Board of New York (REBNY). Also shown are (l-r) REBNY President Steven Spinola, Roundtable President and CEO Jeffrey DeBoer, and William Flynn, DHS Office of Infrastructure Protection. Above (l-r): Senate Intelligence Committee member Saxby Chambliss (R-GA), center, and Roundtable members Eugene J. Godbold, Jr. (Bank of America Merrill Lynch) and Thomas J. Hutchison, III (Hutchison Advisors, Inc.). Wilson “Dave” Crafton and Craig Conklin, both of the U.S. Department of Homeland Security (DHS). Opposite (l-r): Shorenstein Properties Chairman and CEO Douglas W. Shorenstein and Senate Homeland Security Committee member Michael Bennet (D-CO). Sen. Susan M. Collins (R-ME), top Republican on the Senate Homeland Security Committee, during a congressional hearing at which The Roundtable testified.

Real Estate ISAC: CONDUIT FOR DISSEMINATING THREAT AND WARNING INFORMATION

Fed. Gov’t. Source (DHS, FBI, etc.)

Real Estate ISAC

ISAC Members (Associations)

Real Estate Industry Participants

The Real Estate ISAC, a 24/7 conduit between the federal government and CRE sector for exchanging threat-related information, is now part of the National Council of ISACs, which works to protect the physical and cyber security of critical infrastructure in North America.

THE REAL ESTATE ROUNDTABLE

Along these lines, the January 2010 meeting of our Homeland Security Task Force featured a briefing by former Federal Bureau of Investigation (FBI) counter-terrorism official Joseph Billy, Jr. (Prudential), focused on providing commercial facilities owners with actionable and relevant intelligence and on developing and sharing ideas on mitigation strategies. Now in charge of Prudential’s global security operation, Mr. Billy previously served as assistant director of the FBI’s Counterterrorism Division, where he oversaw all of the agency’s U.S. and overseas counterterrorism efforts. The January meeting also featured Darrell Darnell from the White House National Security Council, who briefed the task force on Obama Administration efforts to establish a White House Resilience Policy Directorate and who reviewed the importance of encouraging critical infrastructure resilience as part of an effective security response. Clearly, rebuilding the capability of America’s homeland security response is a top priority for the HSTF. In the face of emerging risks to economic and national security, the Partnership for Critical Infrastructure Security (PCIS) continues to play a vital role in protecting critical IT infrastructure and keeping the Internet running. We were joined by PCIS Founding and Past Chairman Ken Watson (Cisco Systems, Inc.) to update us on the work of the PCIS.

BACK to BASICS

An important study was recently completed by the Interagency Biological Restoration Demonstration (IBRD) regarding the continuum of prevention, response and recovery activities and responsibilities for a wide-area biological attack. Steve Stein, director of the Northwest Regional Technology Center for Homeland Security at the Pacific Northwest National Laboratory, led a discussion on the study, lessons learned and what still needs to be done.

Improving the Quality of Shared Information On the information-sharing front, The Roundtable this past year continued its efforts to refine the quality and quantity of threat-related information shared by the federal government — as well as state and local agencies — with our industry. Cultivating robust public-private partnerships is a big part of our work in this area, as it allows for the exchange of threat and vulnerability information relevant to the security of specific soft targets and their immediate environs.

and media facilities — have an opportunity to discuss sensitive security issues with federal officials in an atmosphere of mutual trust and respect. The council is co-chaired by HSTF Vice Chairman Joe Donovan. “Over-classification” of Threat-Related Intelligence Responding to concerns that “overclassification” of threat-related intelligence has limited the usefulness and timeliness of information provided to local law enforcement and the private sector, DHS is working on a new protocol designed to ensure consistent classification of non-classified (but still “sensitive”) information across the entire federal government.

THE DHS-ORGANIZED COMMERCIAL FACILITY SECTOR COORDINATING COUNCIL PROVIDES A FORUM WHERE REAL ESTATE AND OTHER SECTORS CAN DISCUSS SENSITIVE SECURITY ISSUES WITH FEDERAL OFFICIALS IN AN ATMOSPHERE OF MUTUAL TRUST AND RESPECT. Such partnerships also provide a vehicle for joint planning and exercises. Commercial Facility Sector Coordinating Council (CFSCC) An important vehicle for improving threat-related information shared by federal agencies is the DHS-organized Commercial Facility Sector Coordinating Council (CFSCC). Here, representatives of an exceptionally broad array of assets — including hotels, office buildings, shopping malls, casinos, sporting facilities, amusement parks, museums

As The Roundtable has urged, federal officials are taking steps to familiarize themselves with the business models and operations of the critical infrastructure entities with which they are sharing threat-related information. This includes DHS’s work with the retail sector on the active-shooter guidelines, and its Bomb Making Material Awareness Program (BMAP), which has improved understanding of retail and lodging operational issues. DHS officials have also improved their understanding of the lodging industry

through their joint efforts to develop a “protective measures” guide.

Advancing and Sharing “Best Practices” Promoting security-related best practices within the industry, remains another key focus of The Roundtable’s Homeland Security Task Force. Earlier this year, the Task Force offered comments to DHS on key elements of an emerging new program for certifying businesses that meet a voluntary national standard for emergency preparedness. Importantly, the 2007 law requiring DHS to set up such a program emphasized that the standards-adoption process be done in close consultation with industry ISACs (such as the Real Estate ISAC) and DHS Sector Coordinating Councils (such as the Commercial Facility Sector Coordinating Council, co-chaired by a Roundtable representative). The Roundtable task force previously reviewed a preparedness standard developed by the National Fire Protection Association (NFPA 1600) — likely to form the basis of the standard adopted by DHS — and found it to be reasonable, flexible and risk-based. However, individual task force members have expressed concerns to DHS officials (e.g., during Roundtable task force meetings) and we continue working to ensure that these concerns are addressed in the final voluntary standards.

2010 ANNUAL REPORT

ROUNDTABLE MEMBERS James R. Abrahamson

Robert P. Brennan, Jr.

Sam Davis

Michael J. Alter

Debra A. Cafaro

Michael Depatie

President, the Americas InterContinental Hotels Group President The Alter Group, Ltd.

Robert A. Alter

Executive Chairman Sunstone Hotel Investors, Inc.

Joseph F. Azrack

Managing Partner Apollo Global Real Estate Management, L.P

Peter E. Baccile

Vice Chairman of Investment Banking JP Morgan

Thomas J. Baltimore, Jr. Co-Founder and President RLJ Development, LLC

Keith F. Barket

Senior Managing Director Angelo, Gordon & Co.

Michael Barr

Portfolio Manager – Head of Real Estate Paulson & Co., Inc.

Jamie Behar

Managing Director – Real Estate and Alternative Investments Promark Global Advisors chairman of the board, pension real estate association

Albert P. Behler

President and CEO Paramount Group, Inc.

Michael D. Berman

President CWCapital Chairman-Elect, Mortgage Bankers Association

Kenneth F. Bernstein

Senior Managing Director Guggenheim Capital Markets Chairman, President and CEO Ventas, Inc.

Timothy H. Callahan

Chief Executive Officer Callahan Capital Partners

R. Byron Carlock Jr.

President and CEO CNL Lifestyle Company, LLC

Martin J. Cicco

Senior Managing Director and Head of Real Estate Evercore Partners

Jeffrey B. Citrin

Managing Principal Square Mile Capital Management LLC

Jerome J. Claeys III Chairman Heitman LLC

Richard B. Clark

CEO Brookfield Properties Corporation

Bruce R. Cohen

Chief Executive Officer Wrightwood Capital

Christopher F. Cole Chief Executive Officer Cole Companies

Stephen J. Congel

Chief Executive Officer The Pyramid Companies

Terry Considine

Chairman of the Board, CEO and President AIMCO

Edward C. Coppola

President and Chief Executive Officer Acadia Realty Trust

President Macerich

Michael J. Biber

Chairman Felcor Lodging Trust, Inc. IMMEDIATE PAST CHAIRMAN, AMERICAN HOTEL & LODGING ASSOCIATION

Managing Partner Osprey S.A., Ltd.

Neil G. Bluhm

Principal Walton Street Capital

Clifford A. Booth

President Westmount Realty Capital, LLC

Jacques Brand

Managing Director Deutsche Bank

Thomas Corcoran

Frank G. Creamer, Jr. Managing Director FGC Advisors, LLC

Senior Managing Director Allstate Investments, LLC CEO and President Kimpton Hotels

James J. Didion

Principal J.J.D. Properties, Ltd. CHAIRMAN EMERITUS, THE REAL ESTATE ROUNDTABLE

Peter F. Donovan

Senior Managing Director CB Richard Ellis, Inc. CHAIRMAN, NATIONAL MULTI HOUSING COUNCIL

T. Patrick Duncan

President and CEO USAA Real Estate Company

Robert Duncan

Chairman Transwestern Interests

Douglas Durst

Co-President The Durst Organization

Eric Eichler

Chairman LCOR Incorporated

Dan A. Emmett

Chairman Douglas Emmett, Inc.

Mark Ettenger

Eugene A. Gorab

President and CEO Greenfield Partners, LLC

Rick Graf

President Pinnacle REGION VI VICE PRESIDENT, NATIONAL APARTMENT ASSOCIATION

Jonathan D. Gray

Senior Managing Director and Co-Head of Real Estate Blackstone Real Estate Advisors

Michael J. Graziano Managing Director Goldman, Sachs & Co.

Stephen L. Green

Chairman of the Board of Directors SL Green Realty Corp.

Steven Grimes

President and CEO Inland Western Retail Real Estate Trust, Inc.

Spencer B. Haber

Chief Executive Officer H/2 Capital Partners

Kevin R. Hackett President and CEO Rockefeller Group International, Inc.

Michael Fascitelli *

John S. Hagestad

President and Chief Executive Officer Vornado Realty Trust

Mark Finerman

Managing Principal LoanCore Capital

Kenneth Fisher Partner Fisher Brothers

Thomas M. Flexner *

Global Head of Real Estate Citigroup

Thomas Garbutt

Managing Director SARES/REGIS Group

Patrick Halter

Chief Executive Officer Principal Real Estate Investors

E. Davisson Hardman Managing Director Warburg Pincus

Charles N. Hazen

Chief Executive Officer Hines REIT

James L. Helsel, Jr. *

Managing Director, Head of Global Real Estate TIAA-CREF

Partner RSR Realtors, LLC TREASURER, NATIONAL ASSOCIATION OF REALTORS

Edward Glickman

Lonny Henry

Chairman Cushman & Wakefield, Inc.

Andrew Davidoff

Eugene J. Godbold, Jr.

CEO The Emmes Group of Companies

Senior Executive Vice President and Chief Credit Officer Emigrant Bank

President Pier Holdings

President and Chief Operating Officer Pennsylvania Real Estate Investment Trust

John C. Cushman, III *

Patricia Goldstein

Vice Chairman J.P. Morgan Securities Inc.

Mitchell Hersh

President and CEO Mack-Cali Realty L.P.

President, Commercial Real Estate Banking Bank of America Merrill Lynch * ROUNDTABLE BOARD MEMBER

THE REAL ESTATE ROUNDTABLE

BACK to BASICS

Gary Holmes

CEO and President CSM Corporation

Jackson Hsieh

Vice Chairman – Global Head of Real Estate UBS Investment Bank

Thomas J. Hutchison, III CEO Hutchison Advisors, Inc.

Dan Ivanoff

Managing Investment Partner Schnitzer West

William S. Janes Managing Partner Iron Point Partners

Stephen P. Joyce

President and Chief Executive Officer Choice Hotels International

Benjamin V. Lambert

Chairman Eastdil Secured CHAIRMAN EMERITUS, THE REAL ESTATE ROUNDTABLE

Eric B. Larson

President Larson Realty Group

Richard LeFrak

Chairman, President and CEO LeFrak Organizations, Inc.

Charles B. Leitner

Roy Hilton March * Chief Executive Officer Eastdil Secured

George M. Marcus

Chairman Marcus & Millichap Company

Gary Mendell

Chairman and Chief Executive Officer HEI Hotels & Resorts

Robert R. Merck

Global Head RREEF

Senior Managing Director and Head of Real Estate Investments MetLife

James M. Lewis *

Guy Metcalfe

President Disney Vacation Club CHAIRMAN, AMERICAN RESORT DEVELOPMENT ASSOCIATION

Douglas T. Linde

President Boston Properties, Inc.

Managing Director Morgan Stanley

Raymond C. Mikulich Managing Director Ridgeline Capital Group

Chairman, CEO New England Development

Chaim Katzman

Chairman of the Board Gazit Group USA Inc.

Edmond A. Kavounas Chairman and Chief Executive Officer Rockwood Capital, LLC

C. MacLaine Kenan *

Executive Director Arcapita IMMEDIATE PAST CHAIRMAN, ASSOCIATION OF FOREIGN INVESTORS IN REAL ESTATE

Alex Klatskin

Partner Forsgate Industrial Partners

James D. Kuhn

President Newmark Knight Frank

John Z. Kukral

President Northwood Investors

Leonard Litwin

Chairman; Chief Executive Officer Glenwood Management Corp.

Dennis Lopez

Global Chief Investment Officer AXA Real Estate Investment Managers

Robert J. Lowe

Chairman and CEO Lowe Enterprises, Inc. CHAIRMAN EMERITUS, THE REAL ESTATE ROUNDTABLE

Peter Lowy

CEO Westfield, LLC

Matthew J. Lustig

Managing Director Lazard Freres & Co., LLC

Victor B. MacFarlane Managing Principal MacFarlane Partners

Anthony E. Malkin President Malkin Holdings

Chief Executive Officer Dune Real Estate Partners LP CHAIRMAN, THE REAL ESTATE ROUNDTABLE

David Neithercut President and Chief Executive Officer Equity Residential

Jeremy Newsum

Executive Trustee Grosvenor Estate CHAIRMAN, THE URBAN LAND INSTITUTE

Thomas H. Nolan, Jr.

President and COO General Growth Properties, Inc.

Philip W. Norwood President and CEO Faison

Dennis D. Oklak

Chairman and Chief Executive Officer Duke Realty Corporation

THE ROUNDTABLE OFFERS A UNIQUE FORUM WHERE TOP REAL ESTATE INDUSTRY AND TRADE ASSOCIATION LEADERS WORK TOGETHER TO IDENTIFY, PRIORITIZE, AND ADDRESS THE KEY POLICY RISKS AND OPPORTUNITIES FACING THE ECONOMY AND OUR INDUSTRY. Stephen R. Karp

Daniel M. Neidich *

Howard P. Milstein

Chairman and CEO Milstein Brothers Capital Partners

Hamid R. Moghadam

Chairman and CEO AMB Property Corporation

Constance B. Moore *

President and Chief Executive Officer BRE Properties, Inc. IMMEDIATE PAST CHAIR, NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS

Christopher J. Nassetta * President and CEO Hilton Worldwide Chairman Emeritus, The Real Estate Roundtable

Timothy J. Naughton

President AvalonBay Communities, Inc.

Lee S. Neibart

Global Chief Executive Officer AREA Property Partners

James A. Peck *

Senior Director – Asset Services CB Richard Ellis CHAIR, BUILDING OWNERS AND MANAGERS ASSOCIATION INTERNATIONAL

Lawrence A. Pobuda

Partner Stewart Lawrence Group CHAIRMAN, NAIOP, THE COMMERCIAL REAL ESTATE DEVELOPMENT ASSOCIATION

Richard Powers

Participating Managing Director Goldman, Sachs & Co.

Ronald R. Pressman * President and CEO GE Capital Real Estate

Quintin E. Primo III CEO Capri Capital

Penny Pritzker

President Pritzker Realty Group, L.P.

Walter C. Rakowich Chief Executive Officer ProLogis

Charles A. Ratner

President and CEO Forest City Enterprises, Inc.

Anne L. Raymond Managing Director Crow Holdings

Scott Rechler *

Chairman and CEO RXR 2010 ANNUAL REPORT

Jeffrey L. Swope

Managing Partner Champion Partners, Ltd.

Steven B. Tanger

President and Chief Executive Officer Tanger Factory Outlet Centers

A. Alfred Taubman

Taubman Centers, Inc. CHAIRMAN EMERITUS, THE REAL ESTATE ROUNDTABLE

Robert S. Taubman * Eric C. Resnick

John K. Saer, Jr.

William J. Shaw

Vice Chairman Marriott International, Inc.

Chairman, President and CEO Taubman Centers, Inc. SECRETARY, THE REAL ESTATE ROUNDTABLE

Philip A. Riordan

Richard Saltzman *

Douglas W. Shorenstein *

Edmund Taylor

Managing Director KSL Capital Partners Senior Vice President GE Investments

Nelson C. Rising

President and CEO Maguire Properties CHAIRMAN EMERITUS, THE REAL ESTATE ROUNDTABLE

Joseph E. Robert, Jr. Chairman and CEO J.E. Robert Companies

Peter C. Roberts

Chief Executive Officer â&#x20AC;&#x201C; Americas Jones Lang LaSalle

Adam R. Rose

Co-President Rose Associates, Inc.

Stephen M. Ross

Chairman and Chief Executive Officer The Related Companies, L.P.

Randall K. Rowe

Chairman Green Courte Partners, LLC CHAIRMAN EMERITUS, THE REAL ESTATE ROUNDTABLE

Alexander S. Rubin Managing Director Moelis & Company

William C. Rudin * President Rudin Management Company, Inc.

Member Kohlberg Kravis Roberts & Co. President Colony Capital

Patrick C. Sargent

Corporate Partner Andrews Kurth LLP PRESIDENT, COMMERCIAL MORTGAGE SECURITIES ASSOCIATION

Sheridan Schechner Managing Director Barclays Capital

Marc D. Schnitzer

CEO and President Centerline Capital Group

Jeffrey Schwartz *

Chairman Global Logistic Properties TREASURER, THE REAL ESTATE ROUNDTABLE

Fred A. Seigel

President and Chief Operating Officer Beacon Capital Partners, LLC

Douglas W. Sesler

Managing Director Bank of America Merrill Lynch

Peter Sharpe *

President and CEO The Cadillac Fairview Corporation Limited CHAIRMAN, INTERNATIONAL COUNCIL OF SHOPPING CENTERS

Chairman and CEO Shorenstein Properties LLC

Larry A. Silverstein President and CEO Silverstein Properties

David Simon

Chairman and Chief Executive Officer Simon Property Group

Joseph J. Sitt

Managing Director Credit Suisse

James A. Thomas

Chairman, President and CEO Thomas Properties Group

Thomas W. Toomey President and CEO UDR

Simon M. Turner

Chief Executive Officer Thor Equities

President, Global Development Starwood Hotels and Resorts Worldwide, Inc.

J. Allen Smith

David A. Twardock

Chief Executive Officer Prudential Real Estate Investors

Robert J. Speyer President Tishman Speyer

Kevin Stahl

President Prudential Mortgage Capital Company

W. Edward Walter

President and CEO Host Hotels & Resorts, Inc.

Head of Real Estate Investment Banking RBC Capital Markets

Earl E. Webb

Martin E. Stein, Jr. *

Ronald Weidner

Chairman and CEO Regency Centers

R. Dary Stone

Vice Chairman Cousins Properties Incorporated

Robert G. Stuckey Managing Director The Carlyle Group

Ron D. Sturzenegger

Managing Director, Global Head of Real Estate, Gaming and Lodging Investment Banking Bank of America Merrill Lynch

Jay Sugarman

Chairman and CEO iStar Financial Inc.

Gerard H. Sweeney

President and CEO Brandywine Realty Trust

President, U.S. Operations Avison Young - Chicago, LLC CIO Allianz Real Estate GmbH (De)

J. McDonald Williams

Chairman Ameritus Trammell Crow Company CHAIRMAN EMERITUS, THE REAL ESTATE ROUNDTABLE

Scott A. Wolstein

CEO and Chairman Developers Diversified Realty Corp.

Robert Zerbst

Special Adviser and Former CEO and Chairman CB Richard Ellis Investors, LLC CHAIRMAN, NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT MANAGERS

Richard S. Ziman Chairman AVP Advisors, LLC

* ROUNDTABLE BOARD MEMBER

THE REAL ESTATE ROUNDTABLE

PRESIDENT’S COUNCIL MEMBERS Frederick L. Allen

Senior Partner Allen, Matkins, Leck, Gamble, Mallory & Natsis, LLP

Dorothy L. Alpert

U.S. Real Estate Leader Deloitte LLP

Riprand Count Arco

Founder and Chairman American Asset Corporation

George L. Argyros Chairman and CEO Arnel & Affiliates

Phil Belling

Managing Principal LBA Realty

Michael T. Blair Partner Mayer Brown LLP

Terry S. Brown

Joseph A. DeLuca

W. Robert Hannah

Brian DiDonato

Charles B. Harrison

Douglas J. Donatelli

Darrell Harvey

Paul C. Dougherty

David Hernandez

Mark W. Elliott

Michael P. Higgins

Jay Epstien

Thomas J. Hughes

S. Richard Fedrizzi

Robert J. Ivanhoe

Principal MHD Capital Partners LLC Senior Partner Sorin Capital Management, LLC Chairman and CEO First Potomac Realty Trust President PRP, L.L.C.

Senior Managing Director Hodges Ward Elliott, Inc. Partner DLA Piper US LLP

CEO Edens & Avant

President, CEO and Founding Chairman U.S. Green Building Council

Gary Buechler

William J. Ferguson

Michael L. Campbell

Douglas E. Fleit

CEO, Americas Lend Lease Americas Inc. Managing Partner Phene Capital

BACK to BASICS

Co-Chairman FPL Advisory Group

CEO America’s Capital Partners Mid-Atlantic

THE PRESIDENT’S COUNCIL CONSISTS OF APPROXIMATELY 100 SENIOR EXECUTIVES FROM MAJOR REGIONAL REAL ESTATE FIRMS AND INDUSTRY CONSULTING GROUPS, AND KEY TRADE ASSOCIATION STAFF WITH POLICY EXPERTISE IN PARTICULAR ISSUE AREAS.

President Insight Real Estate, LLC President REIT Funding, LLC

Co-CEO The Ashforth Company Vice President and Tax Counsel Hunt Consolidated, Inc. Managing Director CIBC World Markets

President and CEO LNR Property Corporation Partner Greenberg Traurig, LLP

David M. Jacobs

Partner / Chief Financial Officer E2M Partners, LLC

Richard D. Jones

Partner and Co-Chair, Finance and Real Estate Group Dechert LLP

Michael Katz

Vice President Sterling Equities

Scott M. Kelley

CEO ACA Advisors, LLC

R. Patricia Kelly

Executive Vice President, Commercial Real Estate Citizens Financial Group

Jeffrey E. Kelter Lynn Cherney Spencer Stuart

Bruce Choate

President and CEO Watson Land Company

John Cibinic

Partner Beekman Advisors, Inc.

Roger Cozzi

CEO Gramercey Capital Corp.

Thomas Darden

CEO Cherokee Investment Partners

Patricia DelRosso

President Inland Real Estate Exchange Corporation

Joseph Philip Forte Attorney at Law Alston & Bird, LLP

Alexandra S. Glickman

Area Vice Chairman, Managing Director – Practice Leader Arthur J. Gallagher & Co.

Michael Glosserman Managing Director The JBG Companies

Alan L. Gosule

Partner Clifford Chance US, LLP

Thomas E. Griffin

President, National Accounts Jones Lang LaSalle

Michael Halloran

President and CEO KTR Capital Partners

Richard A. Kessler

Chief Operating Officer Benenson Capital Partners, LLC

Robert T. Koger President and CEO Molinaro Koger

Ronald J. Kravit

Managing Principal Cerberus Real Estate

Scott Lawlor

Founder and CEO Broadway Partners

Frank Liantonio

EVP – Capital Markets Group Cushman & Wakefield, Inc.

President and CEO NES Financial

2010 ANNUAL REPORT

Keven Lindemann Director, Real Estate SNL Financial

Richard M. Lipton Partner Baker & McKenzie

Diana C. Liu

General Counsel Artemis Real Estate Partners

Anthony J. LoPinto

Senior Client Partner and Real Estate Practice Head Korn/Ferry International

Bruce W. MacEwen

Vice President – Director of Taxes Portman Holdings

David P. O’Connor

Senior Managing Director High Rise Capital Management, LP

Jeremiah O’Connor

Managing Partner O’Connor Capital Partners

Paul Pariser

Co-CEO Taconic Investment Partners LLC

John H. Pelusi, Jr.

Executive Managing Director and Managing Member Holliday Fenoglio Fowler, L.P.

Stephen Plavin

Chief Operating Officer Capital Trust

Blake D. Rubin

Partner McDermott Will & Emery LLP

Hiroki Saito

President and CEO Mitsui Fudosan America, Inc.

B. Francis Saul III President Saul Centers, Inc.

Paul Saylor

Dan Vinson

Managing Director, Co-Head of CMBS Capital Markets (U.S.) Eurohypo AG New York

William H. Walton

Managing Member Rockpoint Group, LLC

Thomas G. Wattles Chairman DCT Industrial Trust

CEO/President CS Capital Management, Inc.

Anthony Westreich

Gregory W. Schultz

James R. Williams

Managing Director, Strategic Clients First American Title Insurance Company

President and CEO Monday Properties Partner Cozen O’Connor

David L. Winstead Attorney Ballard Spahr

Kenneth J. Witkin

Roseview Securities LLC

Dennis Yeskey

Senior Advisor – Head of Real Estate AlixPartners LLP

David M. Zachar

Executive Vice President, Commercial Mortgage Lending PPM Finance, Inc.

Simon Ziff

President Ackman-Ziff Real Estate Group

R. Paul Mehlman

Jerome Rappaport, Jr.

Henry T. Segerstrom

Gilbert G. Menna

Diana Reid

Jay Shah

Walter Mercer

Jim Reid

Chris M. Smith

Partner Landmark Partners

Partner Goodwin Procter, LLP Executive Vice President SunTrust Bank

Ray Milnes

National Director Real Estate KPMG

Executive Vice President PNC Real Estate President CB Richard Ellis, Eastern Division

Burton P. Resnick

Managing Partner C. J. Segerstrom & Sons

CEO Hersha Hospitality Trust Practice Leader, Property Group Shearman & Sterling

Craig H. Solomon

Chairman and CEO Jack Resnick & Sons, Inc.

Managing Principal Square Mile Capital Management, LLC

George Rizk

Donald E. Suter

Partner Sonnenschein Nath & Rosenthal LLP

Jeffrey Rogers

John A. Taylor

Thomas F. Moran

Jonathan F.P. Rose

Daniel R. Tishman

Martin D. Nass

Howard Roth

Timothy J. Trifilo

Edward J. Minskoff

President Edward J. Minskoff Equities, Inc.

Patrick G. Moran

Chairman Moran & Company

Managing Partner, Global Real Estate Practice CTPartners

President New Boston Fund

THE REAL ESTATE ROUNDTABLE

Head of Real Estate Investments DE Shaw & Co. President and COO Integra Realty Resources, Inc. President Jonathan Rose Companies, LLC Global and Americas Director of Real Estate Ernst & Young LLP

Managing Principal M3 Capital Partners LLC Head of Global High Yield Debt Prudential Real Estate Investors Chairman and CEO Tishman Realty Corporation Partner PricewaterhouseCoopers LLP

COMMITTEES

BACK to BASICS

Homeland Security Task Force

Research Committee

Chairman

Patrick Halter

Chairman

Jim Reid

Principal Real Estate Investors

Vice Chairman

Sustainability Policy Advisory Committee (SPAC)

CB Richard Ellis, Eastern Division

Joseph B. Donovan

Beacon Capital Partners, LLC

Vice Chairman James Rosenbluth

Cushman & Wakefield

Co-Chairman Dennis D. Oklak

Duke Realty Corporation

THE ROUNDTABLEâ&#x20AC;&#x2122;S POLICY ADVISORY COMMITTEES EXCHANGE VIEWS ON EXISTING AND EMERGING REAL ESTATE POLICY ISSUES, AND HELP SHAPE OUR OVERALL POLICY AGENDA. THE COMMITTEES ALSO PROVIDE AN INVALUABLE OPPORTUNITY FOR DIALOGUE BETWEEN COMMITTEE MEMBERS AND NATIONAL POLICYMAKERS AND THEIR KEY STAFF MEMBERS. Real Estate Capital Policy Advisory Committee (RECPAC)

Co-Chairman Fred A. Seigel

Beacon Capital Partners, LLC

Vice Chair Brenna S. Walraven

USAA Real Estate Company

Tax Policy Advisory Committee (TPAC) Chairman Kenneth F. Bernstein Acadia Realty Trust

Co-Chairman Michael J. Graziano Goldman, Sachs & Co.

Vice Chairman Robert D. Schachat

Ernst & Young LLP

Co-Chairman Guy Metcalfe Morgan Stanley

Real Estate Roundtable Political Action Committee (REALPAC) Co-Chairman Martin J. Cicco MJC Associates

Co-Chairman Scott Rechler RXR

2010 ANNUAL REPORT

ROUNDTABLE STAFF

Jeffrey D. DeBoer

President & Chief Executive Officer

Clifton E. (Chip) Rodgers, Jr.

David F. Pearce, Jr.

Duane Desiderio

Xenia (“Ksen’ya”) Jowyk

Scott Sherwood

Nancy G. Pitcher

Elizabeth H. Karch

Katie Minan

Senior Vice President

Director of Public Affairs

Michelle M. Reid Meetings Director & Executive Assistant

THE REAL ESTATE ROUNDTABLE

Systems Administrator

Vice President & Counsel

Director of Public Affairs

Staff Assistant

Vice President & Counsel

Director of Administration

BACK to BASICS The Roundtable engages in a core set of activities within Washington's legislative and regulatory arenas. These include: ■ Identifying

issues of major significance to a broad cross-section of the income-producing real estate business

■ Facilitating

the personal involvement of industry leaders in the national policymaking process

■ Coordinating

advocacy activities with real estate and non-real estate interests

Success in Washington takes time. Time to identify and analyze important issues; time to educate policymakers; and time to cultivate strategic partnerships with like-minded groups. The kind of time The Roundtable devotes to Washington.

2010 ANNUAL REPORT

MARKET SQUARE WEST, 801 PENNSYLVANIA AVENUE, NW SUITE 720, WASHINGTON, DC 20004 202.639.8400, fax 202.639.8442, www.rer.org