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NAI Global Property Advisor Issue 20 Spring 2008

NAI Global Property Advisor Issue 20 Spring 2008

Beijing, is in a state of high excitement as it prepares to welcome more than 4 million visitors to the first Olympic Games in the country's history. Yet in the eight years since the games were awarded to the city, China has trans- formed itself economically and socially in ways that were unimaginable back then. Beijing itself has enjoyed unparalleled infrastructure investment since 2000, with a motorway, two ring roads, new subway lines and a railway constructed;

NAI Forms New Ventures To Help National, Global Retailers Maximize Value

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Inside As the price of oil has continued to soar and the credit crunch has dampened Western economies, the petro-dollar states of the Middle East have risen to new prominence in global markets. Little affected by credit conditions, since they generally avoid interest-bear- ingvehicles,highnetworthindividuals and institutions are seizing the opportunity to acquire large property holdings around the world. According to the McKinsey Global Institute, the total amount of Middle Eastern capital available for investment stands at just over $4 trillion. Between 2000 and 2006, Gulf Cooperation Council (GCC) private equity funds raised around $9.8 billion, much of it Commercial property markets world- wide enjoyed a strong year in 2007 with slightly declining vacancy rates, rising rents and record sale prices, according to the 22nd annual Global Market Report recently released by NAI Global. However, the outlook for 2008 is clouded by uncertainty following the mid-year emergence of the sub-prime debt problems, volatile credit markets and record high oil prices. “Fears of a slowing U.S. economy and the credit crunch are clearly having aneffectoninvestmentrealestatemarkets, even though commercial real estate fundamentals remain strong,” says NAI Global President & Chief Executive Officer Jeffrey M. Finn. “The U.S. economy remains fundamentally strong and supply is tight, especially in resurgent downtown areas. The U.S. story is counterbalanced by a dynamic global landscape with vast new markets continuing to grow at a rapid pace.” “Some pundits are predicting an imminent recession in the United States and eventually they will be correct as they have been predicting a recession for the past five years,” adds NAI Global Chief Economist Dr. Peter Linneman, Professor of Real Estate at the Wharton School, University of Pennsylvania, and principal of Linneman Associates. “The U.S. economy is too strong, and most companies and consumers are simply too well capitalized for a recession to be triggered by the current capital markets disarray.” Finn further notes opportunities will emerge from the current volatility. "The credit crunch is leaving many domestic investors on the sidelines for the time being, but a weak U.S. dollar and the Continued on page 10 Canada's Center of Gravity Shifts Westward See Page 6 L A Strong Case for Foreign Investment in U.S. Commercial Real Estate See Page 4 L Finland Leads the Technology Revolution See Page 8 L Kazakhstan Ready to Enter Global Market See Page 9 L Baltics Boom See Page 8 L 2008 Olympics Boosts Beijing Properties Middle East Investors Rise to New Prominence Continued on page 7 Global Property Markets Prepare for Uncertainty Continued on page 7 Hongbin Zhou Regional Director China NAI Global

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Real estate is a retailer’s most important asset, but maximizing the value of that asset across a national and global portfolio has always posed a challenge for fast-growing retail chains. NAI Global recently formed NAI ReStore and NAI Global Market Analytics, two new ventures that work in tandem to provide comprehensive retail real estate services worldwide. NAI ReStore is a one-stop shopforretailers, shopping center owners and developers. Led by President & CEO David Solomon, an experiencedretail operator and advisor, NAI ReStore works closely with clients to increase the speed and efficiency in the acquisition, leasing and disposition of retail properties. NAI Global Market Analytics works with retailers, financial institutions and other business types to provide customized geo-demographic analysis and customer segmentation solutions in over 50 global market centers. NAI Global Market Analytics is led by Vice President George Anderson, a geo-demographics expert with over 20 years of international experience working withretailersandfinancial institutions. To g e t h e r, NAI ReStore and NAI Global Market Analytics offer clients a holisticapproach tomanagingtheir retail portfolios, from analyzing customer and market demo- graphics, to identifying target markets, to developing and implement- ing real estate acquisition/disposition strategies. Both units leverage the local market knowledge and expertise of NAI retail specialists worldwide and NAI Global’s well-established infrastructure and technology to support retailers’ expansion around the world. “Our ability to manage individual projects as well as entire portfolios helps busy real estate departments achieve their goals more efficiently,” says Solomon. And with thorough due diligence, uniform presentations and reporting, and seamless tracking of activities on a single transaction management platform, we eliminate the inefficiency and frustration of dealing with multiple service providers and systems across multiple geographies. NAI ReStore and NAI Global Market Analytics represent a significant invest- ment in expanding NAI Global’s retail Looking back on 2007, you could say it was a tale of two markets. The year started out very strongly, with record pricing levels realized in many markets around the world. Office rental rates in London and New York topped $225 per square foot and investment sales in excess of $1 billion were commonplace. However, in the second half of the year, unbridled enthusiasm gave way to concern as a slowing U.S. economy and a credit crunch brought on by the collapse of the sub-prime mortgage market jolted investment real estate markets. Thisisaninterestingtimeincommercial real estate. For the first time in many years, we do not have a clear direction on where markets are heading. Corporate space users and investors are approaching 2008 with caution, even though commercial real estate fundamentals remain strong. We believe the slowdown in activity is only temporary as the credit markets sort themselves out and a new pricing equilibrium is established. We often talk about the U.S. being the world’s economic engine. While the U.S. is still the world’s largest economy, the markets are changing. Most of the major markets still have positive growth trends, but these economies are slowing. At the same time, the economies in emerging markets are continuing to rapidly expand, not only in China and India, but also in lesser-known places like Qatar, United Arab Emirates, Romania and Argentina. At NAI Global, we are working with major corporations, retailers, developers and financial institutions to develop expansion strategies, identify locations and retool their global supply chains to serve these fast-growing markets. Similarly, investors today are not just interested in the major money center markets, but also are moving intotheseemergingmarketswheremany of the most interesting opportunities are today. NAI Global is responding to these changing global market dynamics. We have expanded our worldwide network to 375 offices, including eight offices in India and nine offices throughout China. NAI established coverage in three new U.S. markets— Hawaii; Lansing, Michigan; and Spokane, Washington—and nine new countries—Bulgaria, Estonia, Finland, Israel, Kazakhstan, Latvia, Lithuania, Serbia and Switzerland. We are growing rapidly as our clients seek greater access in these emerging markets. In addition, we recently added several new specialty practices and centers of excellence, including NAI Global Contact Center/Site Selection Services and NAI Global Supply Chain Solutions. In this issue, you will read about NAI ReStore and NAI Market Analytics. These new business units represent a major expansion of our global retail capabilities. Further, we’ve developed exciting new programs to help investors take advantage of changing market conditions. NAI’s unique structure enables us to rapidly organize, deploy and manage global sales teams around a client’s unique objectives. Spectrus Real Estate Group, BH Properties and other large investors are taking advantage of this “leveraged sales force” to accomplish their goals with greater speed and efficiency. In addition, Jerry Monash recently joined our team as Executive Director- Investment Services, to expand our offerings for institutional investors. Whether you are buyer, seller, investor or corporate space user, 2008 is going to be a challenging year, but these are the types of times in which real money is made by seizing opportunities that others may fear. We are here to help you navigate the course as you pursue your real estate strategies. Regards, Jeffrey M. Finn President & CEO NAI Global FocusShiftstoEmerging Markets as Larger Economies Slow A Letter from the President 2 NAI Global Property Advisor www.naiglobal.com NAI Forms New Ventures To Help National,Global Retailers Maximize Value David Solomon President & CEO NAI ReStore George Anderson Vice President Analytical Services NAI Global “We have access to the capital, lenders and developers nationwide who can help make these sites a reality for our clients.”

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NAITaps Monash To Head Institutional Investment Services NAI Global Property Advisor www.naiglobal.com 3 Gerald S. Monash, CCIM, recently joined NAI Global as Executive Director, Investment Services. Based in Atlanta, Georgia, Monash will lead the company’s institutional investment services practice and will head elite teams composed of NAI’s most senior investment professionals throughout the U.S. These product- specific teams will leverage the company’s national platform and local market expertise to deliver top-tier, institutionally oriented solutions and execution. NAI professionals complete over $10 billion in investment sales annually. Monash has over 25 years of experience in commercial real estate investment. Prior to joining NAI, he established and operated multiple real estate advisory firms. Previously, he was employed by MassMutual Life Insurance Company, where he created a national dispositions program. Monash is also the founder and has served as president of the southeast region of the Real Estate Investment Ad- visory Council (REIAC) for the past 14 years. “Jerry is one of the most experienced investment services professionals in the business,” notes NAI Global President & CEO Jeffrey M. Finn. “His knowledge and institutional relationships, together with the local market insight and business savvy of our investment professionals on the ground, will be a considerable asset for our institutional clients in achieving their investment goals.” ReStore ReStore Your supply chain can’t afford a weak link. NAI Global’s Supply Chain Solutions team helps clients achieve maximum efficiency and effectiveness. Every aspect of your supply chain - warehousing, transportation, inventory, facilities and logistics - is assessed. From network optimization to plant consolidation to acquisition, due diligence and integration, our turnkey solutions help clients improve speed to market and reduce costs and risks. Benefit from the business savvy of our team of experts, supported by the reach and power of our global network. Call Tony Pusillo at +1 908 400 4696 or visit www.naiglobal.com We are here. Gerald S. Monash Executive Director Investment Services NAI Global services platform, notes NAI Global President & CEO Jeffrey M. Finn. “Multi- market retailers will benefit greatly from being able to work with a single point of contact, a single transaction management platform and a standardized process to achieve their desired results,” he adds. Finn compared NAI ReStore and NAI Global Market Analytics integrated service offerings for retailers to the Corporate Services approach that is now the standard for large office and industrial space users. With 375 offices in 55 countries, NAI Global also offers the most comprehensive coverage of not only the primary markets, but also the secondary and tertiary markets clients are now targeting for expansion. NAI’s multi-disciplined approach benefits retailer clients in a number of interestingways.“Oftenwefinddevelopment sites that are either too large for a particular client’s needs alone or that may require local development contacts and expertise,” adds Solomon. “We have access to the capital, lenders and developers nationwide who can help make these sites a reality for our clients. With our combination of broad market coverage, deep local knowledge, business savvy and technology we can help clients unlock the potential and capitalize on the value of their real estate holdings.” It is also important to consider that many of the best retail opportunities now taking place are in mixed-use projects. NAI ReStore leverages the knowledge and contacts of dedicated NAI experts in hospitality, multi-family, office, transportation hub and similar verticals to uncover numerous retail opportunities that many retail-only brokers may not ever become aware of or know exactly what to do with until it’s too late. NAI has a proven track record of success with major retailers and has performed as both tenant representative, landlord representative and disposition agent for retailers like IKEA, Wal-Mart, Target Stores, Carrefour, Toys “R” Us and many others. “We think, speak and approach all projects like retailers and cross-border retail specialists because that’s who we are,” Solomon says. “We’ve learned first-hand how expensive mistakes can be, what can be done to help mitigate the risks, and how to improve, support and align the real estate assignment with the retailer's business case and objectives.” Solomon has extensive experience as a retail real estate advisor and retailer. In 1990 he founded a brokerage firm that would become one of the largest retail tenant rep and property management firms in the U.S. In addition, he founded the 20 store Israel franchise of Toys “R” Us. Solomon also founded a nationwide chain of DVD kiosks that operated inside leading retailers like Albertson’s and Barnes and Noble College Bookstores. It was sold last year to an affiliate of McDonald’s that now has over 4,000 units nationwide. Additionally, Solomon’s family has invested in and owned numerous shopping centers and was among the founding investors in retail companies such as Zany Brainy and Mid-Atlantic Restaurant Systems. Solomon has worked with a wide range of leading retailers as an advisor and as a principal during periods of rapid growth to better manage the real estate process and add value to their portfolios.

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While much has been made about a slowing U.S. economy and a weak U.S. dollar, foreign investors should consider U.S.commercialrealestateaprimetarget. The reasons are simple: solid long term macro-economic growth; political stability; an entrepreneurial and dynamic private sector; growth demographics; a massively undervalued currency; risk mitigation through diversification across a broad array of large metropolitan areas; and a variety of proven invest- ment vehicles. Few, if any, other mar- kets provide this compelling combination of benefits. The long-term U.S. economy is strong, relative to most other developed economies. Real GDP growth in the third quarter of 2007 was 4.9%, even in the teeth of a major credit and housing crisis. This growth weakened in the fourth quarter but the U.S. economy continues to roll along in spite of dire predictions to the contrary. Hours worked remain solid, claims for unem- ployment insurance remain flat, and the U.S. economy continues to add jobs. Core inflation remains below 2.5%, while inflation inclusive of energy prices runs a volatile course around this rate of inflation (up to around 2% over or under the core rate, depending on energy pricing cycles). Service sector inflation, which represents more than half of all consumption activity, has moderated to 3.3%. After the December 11 cut by the Fed, the Fed Funds rate stood at 4.25%, finally in the upper end of a justifiable range. Inflation is still not a major threat, and as we go to print, the Fed has (belatedly) done what we have suggested it do, which is to cut rates further. Between their emergency sessiononJanuary22andtheirscheduled meeting on January 31, the Fed dropped the Fed Funds rate by 125 basis points to 3%. While this should help recapitalize some lenders by reducing cost of capital, and generally create a more neutral investment environment, inflation will have to be watched. Inflation should not be a big problem, but could drift upward by about 50 basis points. Residential sub-prime mortgage delinquencies and defaults continue to rise, though they remain low on prime loans. Sub-prime defaults reflect: slow mortgage insurance workouts post-Katrina; a localized recession in Ohio and Michigan; and the almost complete delinquency of the nearly 500,000 empty roofs owned by speculators. We suspect that speculative owners represent some $100 billion to $140 billion of delinquent debt. Record global economic growth since 2001 meant that income and wealth were created faster than at any other point in history, creating a situation where investable wealth grew faster than the existing investment infrastructure could prudently handle. In short, it meant that investors had more money than brains! That, plus the Fed’s four-year mandate to invest in long/risky assets but borrow short, led many investors to conduct sloppy due diligence, as not enough investors were geared up to wisely invest long and risky. This was particularly the case for new collateralized debt instruments. This resulted in the substitution of ratings and the mantra that “I don’t need to do diligence because someone else is taking care of it.” This slippage in diligence was capitalized on by packagers of risk (particularly debt), who were more than happy to sell overrated paper to investors with more money than brains. When the music stopped, many investors discovered that the ratings were hollow, and that no one had been doing the diligence. Real household wealth rose in 2007, fueled by a rising stock market and largely flat home prices. The true household savings rate—the increase in net household wealth relative to personal income–-was approximately 18%. This is in notable contrast to the official personal savings rate, which remains approximately zero. But the official savings rate is seriously flawed in many ways. For example, it fails to treat the unrealized appreciated value of assets as savings. Hence, according to the official measure, Bill Gates’ wealth is less today than when he founded Microsoft, because he has sold Microsoft shares over the past 30 years, while the appreciated value of his unsold Microsoft’s stock is not treated as savings. In addition to strength in fundamental indicators, the U.S. is one of the only developed economies in the world that offers a massive market with a single language, a unified, relatively honest and transparent legal system, population mobility and a population growth of roughly three million people per year. It’s particularly important to recognize that the U.S. is perhaps the world’s most entrepreneurialandcompetitivedeveloped economy, with smaller government burden. With about 32% of theeconomy coming from the government, as compared with approximately 50% in major European nations, the U.S. simply is a more fertile growth environment. And while there are cycles in every economy, the service-oriented U.S. economy offers more long-term stability than other developed economies. A Strong Case for Foreign Investment In U.S. Commercial Real Estate By Dr. Peter Linneman, Ph.D. Chief Economist, NAI Global Principal, Linneman Associates Few, if any, markets provide such a compelling combination of benefits.

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Some observers note a weak dollar and exchange rate volatility as factors that make U.S. investments uncertain. The reality is that most investors who are making long-term bets on the U.S. economy do so by deploying funds into an economy, keeping those funds in the U.S. via follow-on or re-investment opportunities. This is especially true given the size and long-term growth of the U.S. economy. So there is rarely true currency repatriation upon sale. Rather, investors simply find the next project into which they can reinvest funds, keeping their ‘foreign’ funds in the U.S. The long-term stability of the U.S. economy also allows investors the option to ‘ride out’ any pricing dips. If an investor looked at investing 12 months ago into a project, and believed then that it was overpriced by even 5%, the investor should look now and see how much better it looks with a slightly weaker currency. The table below illustrates the “savings” to investors from various countries, looking at a like-priced property one year ago and today. The U.S. political system has consistently proven to be stable, with political change tending to be centrist in nature. This is the predictability of a well-established democracy, where satisfying diverse populations of voters means not straying too far in any direction. We have often said that one of the best situations for U.S. investors is that nothing happens politically. The frequent political gridlock of the U.S. system is beneficial to businesses and investors who want to move forward without wondering what tomorrow brings. The U.S. has proven it can rationally handle and accept close political outcomes. Even in the Bush/Gore election, with its 19 levels of electoral technicalities, was there even a single incident or threat of strikes, rioting, or serious protest? No! Take for contrast France, seemingly a rival to the U.S. in terms of its system of democracy and development. When a decision occurs that is dissatisfactory to truckers, what happens? The country stands still because the roads get blocked. When was the last time any large-scale impediment to business occurred? There is also no one single “U.S. market.” When investing in U.S. commercial real estate, it is important to understand–and take advantage of–the fact that the nation is made up of some 363 geographic divisions called Metropolitan Statistical Areas. Each MSA, defined as having a population of at least 50,000 in one urbanized core area, has a distinct economic profile, depending on the region’s infrastructure, geography, the skill set and education of the labor pool, industry clusters, largest employers, access to related firms, lifestyle considerations, etc. Investing across geographies within the U.S. provides a high level of economic diversification, thereby spreading the overall investment risk accordingly. From a risk management perspective, investors can target specific markets for devel- opment projects and specific markets for acquisitions. Tactically, there is also an ease within U.S. commercial development markets, whereby the vehicles available are also very developed. REITs and partners who exercise an array of strategies (repositioning, developing, hold/stabilize, etc.) give investors a selection of entry points and risk balancing approaches to this broadly developed market. It is also easier administratively. In markets such as the U.S., there may be no single answer as to which of the available strategies is best, but once an investorpicksastrategy,theadministrative steps needed to invest funds are known. There is no interpretation of the law on how to accomplish a firm’s desired investment. In emerging markets, by contrast, the book is still unwritten, so to speak. Entering an emerging market with a unique strategy may mean the investing firm literally has to interpret the law and create the path by which to execute on the strategy. All of this simply adds up to the U.S. being – now, and going forward – a strong economy into which firms can placetheircommercialpropertyinvestment dollars (or converted Yen, Euros, Pounds or other currencies), with the expectation of several things occurring. First, the market will not collapse and leave the investor with no exit doors. Timing may be affected slightly, as will be the case in any market, but long term, the market will always provide a robust set of exits to those who know how to find them. Second, the funds deployed them- selves will not suffer any real loss over the long term due to currency or credit crises. Short-term timings may cause some shifting in execution, but historically there have not been extended periods for which these shifts must last, there- fore strategy should not be affected. Third, the political system is both rock solid, and efficiently geared towards stability, offering investors the assuredness that the market, not ill-equipped politicians, will drive business decisions. And finally, the entry and exit points are easily definable, with many partners and agents ready and willing to help foreign firms enter the market efficiently. Dr. Peter Linneman is Chief Economist of NAI Global and Principal in Linneman Associates, a real estate research and advisory consultancy. Linneman also serves as Albert Sussman Professor of Real Estate, Finance & Economic Policy at the Wharton School, University of Pennsylvania.

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Huge wealth coming out of Alberta's oil sands has caused Canada's economic center of gravity to shift westward, with British Columbia enjoying unprecedented prosperity and new waves of investment. "Things can't get any better from an economic point of view," says Greg McPhie, Managing Partner of NAI Commercial in Va n c o u v e r. "We have full employment, yields at historic lows and hun- dreds of billions of dollars worth of infrastructure and other con- struction projects under way. We are taking over fromOntarioand Quebec as the economic driver of the country." Vancouver, along with the mountain resort of Whistler, is already excited by the prospect of the 2010 Winter Olympics, yet this development forms only a small fraction of the investment currently progressing in the region. For a change, the Canadian economy is in better shape than its southern neighbor, the US. Yet a looming recession in the US is causing some anxiety in Canada, since more than 70 percent of the country's exports go to the US. The Bank of Canada cut interest rates in December 2007 to 4.25 percent hoping to head off a downturn. High commodity prices for oil, gas, minerals and timber have kept the Canadian economy buoyant, while levels of mergers and acquisitions both inbound and outbound have hit historic highs. Swedish, Norwegian and even Indian companies have made significant purchases in the past year, while Canadian companies such as British Columbia-based Goldcorp have acquired US rivals such as Glamis Gold. Canadian pension funds are highly capitalized and keen to invest inter- nationally, either directly or through private equity funds such as Blackstone and KKR. The main British Columbia pension fund has around CAN$150bn to invest and is increasingly looking outside the country for opportunities. Our large pension funds have very active real estate portfolios," comments Greg McPhie in Vancouver. "But since we are a relatively small economy, we're easily saturated, so they're forced to look elsewhere." McPhie has noted funds are investing far more heavily in Asia than ever before. "The strong dollar has pro- duced a better frame of mind," he adds. Supply of commercial real estate in British Columbia and Alberta has been extremely tight for the past few years: the value of industrial space in Alberta has now reached CAN$280 per square foot, compared with historic levels of around $60 per square foot - but Greg McPhie expects a healthier supply to emerge in 2008, bringing the market more into balance. Over in Toronto the economy has been troubled by falling demand in the automotive sector (which makes up 60 percent of Ontario's economy) and by the stronger Canadian dollar removing the financial incentive for US companies to relocate northwards. Nevertheless, the country's overall robust economic health is keeping Ontario and Quebec in reasonable shape, with the financial services sector in particular thriving. Around 70 percent of Canada's financial transactions take place in Toronto. Rising demand for office space from occupiers such as the royal Bank of Canada and consultant KPMG will keep the local office market healthy, according to Brian French, director of NAI Commercial in Toronto. "The major institutional investors have boosted their provision for real estate," adds French. "But the big change in the country has been the oil boom." 6 NAI Global Property Advisor www.naiglobal.com Greg McPhie Managing Partner NAI Commercial Vancouver Canada's Center of Gravity Shifts Westward Vancouver, British Columbia, Canada Calgary, Alberta, Canada Sweeny Sterling Finlayson & Co. Architects Inc., Toronto, Canada Brian French Managing Director Canada NAI Global

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Middle East Investors Rise to New Prominence being invested in private equity funds and in property. Some of the most recent investments have been at the highest financial level. Several Middle East sovereign funds have taken significant stakes in large private equity houses, among them the investment arm of the Abu Dhabi government which acquired a 7.5 percent stake in Washington DC-based Carlyle Group. The Abu Dhabi Investment Authority acquired a large stake in New York-based Apollo Management, while Dubai International Capital bought a 9.9 percent stake in Och-Ziff Capital Management. The latest potential deal could be an- other Middle Eastern sovereign fund buying a stake in Colony Capital, one of the world's wealthiest property investors. Colony closed its largest ever acquisition in December 2007 when it paid $8.8 billion for control of Station Casinos. The company also owns stakes in French retailer Carrefour and Raffles Hotel in Singapore. "Windfall petrodollars combined with a reluctance to invest in a less tolerant West has produced a boom," says Colony's founder, chairman and chief executive, Thomas Barrack. "The Middle East, India and China are the current boom." Great Britain has enjoyed a steadily rising inflow of property investment funds from the Middle East. Many billions of pounds are invested each year in UK real estate, partly because Middle Eastern funds feel comfortable with the com- mercial environment in the country. "The UK market is seen as a safe haven for Gulf oil money," says Nick Edmondes, partner at investment consultancy Trowers & Hamlins. "Low political risk, high liquidity and a legal system favorable to Islamically compliant investment structures are important considerations for Middle East investors." On becoming Prime Minister in the summer of 2007, one of the first announcements that Gordon Brown made was his full support for Shariah- compliant investment conditions to be strengthened in the UK. Britain should become a hub for Islamic finance, he argued. There is now a wide selection of Shariah-compliant investment vehicles, including mortgages and commercial property-related instruments, helping the UK to capitalize on the new wave of Middle Eastern investment. In the City of London, several high profile projects are being backed by Middle Eastern money, including the 288-meter Helter Skelter office building and the 242-meter Heron Tower. a new airport terminal with its own high- speed rail connection to the city center; apart from the dozens of sporting venues all over the city. More than $40 billion has been spent on upgrading the city's facilities, providing employment for hundreds of thousands of Chinese workers. Approximately 35,000 people were employed on the airport terminal alone. "Beijing changes just about every day," says Hongbin Zhou, NAI Global’s Shanghai-based Regional Director for China. The financial structure of many Olympic projects has broken with tradi- tion. The metroline, costing around $750 million, was funded through a joint venture between five domestic Chinese companies rather than with government financing. Although there is still close supervision from the government, such private finance initiatives may signal a new openness to other kinds of invest- ment not yet seen in the country. All over China there are ambitious infrastructure projects and commercial property developments in progress. In the past 18 months alone more than 58,000 miles of roads linking towns and villages have been built to improve rural living standards. Retail brands are expanding fast, with chains such as department store Parkson finding favor with fund managers like Gartmore China Opportunities, which registered 69.4 percent gains in 2007. Clothing chain Li Ning, named after its founder, the gold medal-winning Chinese gymnast, now has more than 4,000 stores and has a market cap of almost $2 billion after its shares doubled in value during 2007. China's financial sector has remained immune to the shocks of the sub-prime mortgage collapse and the credit crunch, with groups such as China Construction Bank and Industrial and Commercial Bank performing well. They have also benefited from the rising income levels of the Chinese urban middle class. "Between 2001 and 2005 per capita urban incomes in China grew at a rate of 15 percent a year," says Charlie Awdry, Fund Manager at Gart- more China Opportunities. "More people are moving to the cities and in the cities, incomes are rising. They are much more confident about using credit cards and taking out mortgages." According to Zhou, the Beijing hospitality sector has seen the most dramatic effects from the Olympic Games. Both hotel rooms and services apartments have seen significant rental increases in recent months, an effect expected to last until the games are over. Zhou argues that Beijing is now growing at an equal pace with Shanghai, as it benefits from the Olympics, from increased Foreign Direct Investment and from massive government spending. The commercial real estate market, he adds, should remain stable or even grow slightly during 2008, despite government attempts to cool the sector. Beijing National Stadium Continues from front cover Continues from front cover Olympic Year Boosts Beijing Beijing olympic construction

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Spurred by the world-class products and innovation of its most famous company, mobile phone manufacturer Nokia, Finland has become a highly advanced technology centre, attracting growing inward investment and the research arms of companies from around the world. In commercial property terms, this has entailed the development of several major science parks, where hundreds of companies create products and services to exploit rapidly evolving wireless internet applications, among many other fields. In the northern Finnish city of Oulu, for example, companies are able to trial wireless applications on a wide scale, since the whole city has wireless access. A local science park, Technopolis, was the first in Scandinavia when it opened in 1982. It now houses around 200 high-tech companies in a total of 180,000 sq m of space, the highest number of companies in any European science park. Nokia's main R&D centre is here, attracting many smaller suppliers and application developers. The first GSM technology base station was developed in Oulu in 1991 and the city is now host to wireless television research. Oulu's university combines a traditional university, a technical university and a business school, providing an ideal mix of disciplines for budding technology entrepreneurs. Many hundreds of the 17,000 students work part-time for local companies, gaining industry ex- perience, supplementing their college grants and increasing their chances of workingintheindustryoncetheygraduate. In the wider economy, Finland provides a safe and convenient access point to the Russian market - even some Russian companies come across the border to avoid the security and legal risks of their own country - and North American mining companies come to exploit Finland's abundant natural resources. In 2007 a series of cross-border acquisitions raised the profile of Finnish industry, as the banking activities of Sampo Group were bought by Denmark's Danske bank for 4bn and Finnish asset management company FIM was acquired by Glitnir of Iceland for 341m. Politically, Finland has an uneasy relationship with Russia, which is unhappy about its neighbour's expressed wish to join NATO, but warmer relations with Norway and Sweden (there is a significant minority Swedish population, especially on the south coast, and many Finns speak Swedish). The broad direction of the Finnish economy (and particularly its position as a high technology innovator) is extremely positive, reports Janne Nuutinen, business director of new NAI member NAI Finland in Helsinki. "This is a high tech land. And if companies are planning investment, it is very stable and safe environment. There are no political crises or tsunamis." Nuutinen has been providing strategic advice for multinational clients expanding into emerging economies, besides working on major developments in Finland.

NAI Global Property Advisor www.naiglobal.com In the four years since they joined the European Union, the three Baltic states (Estonia, Lithuania and Latvia) have been the fastest- growing economies in the continent. In 2006 their combined average GDP growth was just below 10 percent, dropping slightly to 7.7 percent in 2007, while foreign direct investment - largely driven by privatization – has risen dramatically in recent years. Almost a third of this investment has gone directly into the real estate sector, as demand for high spec offices, retail premises and residential space has continued to increase. Large multinational companies such as Pricewaterhouse- Coopers and KPMG, and major regional Scandinavian banks such as Sampo have taken significant amounts of space in the three countries, mainly in their capital cities. Since leaving the Soviet Union in 1991, the Baltic States have re-aligned themselves to conduct more trade and have more political cooperation with their western European and Scandinavian neighbours. In 1992 the Council of the Baltic Sea States was established, creating stronger links between all 10 countries that border the Baltic Sea (and Iceland, which joined in 1995). Today, the majority of trade is conducted with Sweden, Norway and within the Baltics themselves. While Russia remains an export location, relations between the countries and their former ruler cooled markedly following independence and are only now returning to a stable level, according to Valdis Ligers, NAI Business director at NAI Baltics in Latvia. The company joined NAI in 2007 and operates across all three states. "Germany is now our number three partner," says Ligers. "The business environment is becoming i n c r e a s i n g l y international." A number of large office devel- opments are cur- rently in progress, i n c l u d i n g Ulemiste City in Estonia's capital Tallinn, with 180,000 sq m of space, Vilnius Office Park in the capital of Lithuania (33,000 sq m) and Reitumu Capital Centre in the Latvian capital Riga (16,500 sq m). Retail markets across the region are expanding fast. Experts predict that the Baltic States will see retail sales grow more quickly than anywhere else in Europe over the next decade, as Latvia (82 percent), Estonia (68 percent) and Lithuania (67 percent) catch up with their Western neighbours. The retail property market has doubled in size over the past decade. For the region's economists, the main worry is that so much rapid expansion will cause overheating and prompthighinflation.Latviawillexperience 8 per cent-plus inflation in 2008, according to The Economist. All three states have larger than average current account deficits, with Latvia's among the highest in Europe at around 18 percent and Estonia's at around 14 percent. Economists are cautioning Baltic governments to reduce these deficits and try to curb inflation, but such runaway growth is hard to control. A major incentive, however, is membership of the euro single currency, which the Baltic States will not achieve unless they bring inflation into check. This is anticipated sometime between 2012 and 2016. Baltics Boom Eero Asikainen Business Manager NAI Finland Finland Leads the Technology Revolution Valdis Ligers Business Director NAI Baltics Lativia Janne Nuutinen Business Director NAI Finland Oulu, Finland

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Kazakhstan Ready to Enter Global Market Kazakhstan Emerging Market Spotlight NAI Global Property Advisor www.naiglobal.com 9 We are here. Finding the right location has almost nothing to do with real estate. Labor costs greatly outweigh real estate costs in a typical call/contact center. The NAI Global Contact Center/Site Selection Services team offers over 25 years of experience to help companies optimize their investment to attract the right people, reduce turnover and dramatically reduce labor costs. With 8,000 professionals in 55 countries, we offer local insight and business savvy anywhere around the world. We’ve already completed assignments on over 7 million square feet of space while saving our clients over $2.4 billion annually. Visit naicontactcenters.com today or call Van Power at +1 214 256 7156 to find the right space for your next success. The Central Asian republic of Kazakhstan is preparing to welcome a series of multinational investors and developers, according to Bahitbek Katen, Managing Partner of NAI Kazakhstan Aristan in Almaty. "Ikea is planning to open two megastores, each with more than 100,000 sq m," he says. "We are also expecting majorinvestmentin commercial property from Hong Kong and Korean groups in several new cities which are under development." The oil and mineral rich state has risen to international prominence as energy and natural resource prices have soared. Kazakhstan has one of the richest deposits of uranium in the world, besides chromium, lead and zinc, among other minerals. Gross domestic product (GDP) in the country has risen by more than 8 percent per year in the past six years, with commercial real estate values exploding: class A office space in Almaty has jumped from $400 per sq m in 2002 to $6,000 per sq m today. The commercial property market is however suffering from the effects of the global credit crunch, since many developers tookhighlyleveraged positions in recent years and questions over future financing arrangements are now being raised. At least $40 billion has been borrowed from international banks in recent years. In many ways, Kazakhstan is an economic and social model for the post-Soviet era. Although it has many ethnic minorities and religions, including Russians, Tatars, Uzbeks and Ukrainians, there is very little ethnic discord and the government of Nursultan Nazarbayev has kept the country stable, while enjoying rapidly improving economic conditions. As a predominantly Islamic country, Kazakhstan has attracted investors from the Middle East and has developed Islamic financial instruments to suit groups such as sovereign country funds. Yet for some international corporations the country has been hard to categorize – neither truly Asian, European or Middle Eastern, it somehow slips in between all these groupings. This country of 15 million people living in an area the size of Western Europe certainly welcomes foreign investment. "At the moment real estate is the only means of diversifying out of energy and mining," says Katen. "We expect to see a great deal of activity in the coming years." For example, the office and retail stock in the main economic centre of Almaty is expected to double in the next two years. NAI Kazakhstan Aristan joined the NAI group in 2007. Almaty can be compared with Dubai, according to Katen, as a rapidly expanding international centre in an oil rich state. He believes that Kazakhstan's government should draw on the example of the Middle Eastern state and encourage more free market development and remove some of the bureaucratic obstacles to commercial development that currently deter some investors. "We need to see more transparency in areas such as planning approvals," says Katen.

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ASIA-PACIFIC relative returns to other global real estate markets make U.S. real estate quite attractive to offshore investors,” he said. In 2007, U.S. markets reported gen- erally tightening vacancies and modest increases in rents. With any lingering remnants from the dot-com bust erased in 2006, the supply side is remarkably stable, as evidenced by the modest drop in the vacancy rate for Downtown Class A office space from 9.85 percent in 2006 to 9.55 percent in 2007. A 16.4 percent increase in the national average rental rate for Downtown Class A space translates into sticker shock for tenants with leases expiring in resurgent down- town areas such as New York City, Boston, San Francisco and Los Angeles, where supply is scarce and rents have risen more dramatically. Suburban markets nationwide mirrored the vacancy trend without the velocity of rental rate growth. The national vacancy rate for Suburban Class A space declined slightly from 13.16 percent in 2006 to 12.87 percent in 2007, while rental rates increased 5.6 percent from $24.49 in 2006 to $25.87 in 2007. Market conditions in the industrial sector also improved, with the biggest gains recorded in the bulk warehouse sector. Demand for bulk warehouse space has been strong in prior years, but not strong enough to keep pace with new supply. The national average vacancy rate for bulk warehouse space declined to 9.09 percent in 2007, its lowest level in over five years, after increasing four of the five previous years. Retail vacancy rates declined modestly in all categories and are at their lowest levels in over five years. The most significant growth in rental rates occurred in regional malls, where the national average rose from $44.97 in 2006 to $46.26 in 2007. The rental rate for downtown retail climbed from $47.70 in 2006 to $48.09 in 2007. “The outlook for 2008 calls for con- tinued stability with moderate growth in occupancy and rental rates,” Finn says. “Tenants in the most supply-constrained cities may have to consider other alter- natives, such as splitting headquarters and back-office functions or relocating to lower-cost space in the suburbs.” In Canada, a very strong 2007 economic performance promises to run through into 2008, based on low unemployment, a strong Canadian dollar and a large budget surplus. High petro- leum and mineral prices have prompted massive industrial development in Alberta, supporting the country's booming conditions. NORTH AMERICA Manufacturing continues to be focused on China, but as prices for real estate, utilities and labor rise, companies are pursuing a 'China plus one' approach, where they locate a facility in China and a second facility in another low-cost country in Asia. India has 1.1 billion people and cheaper production costs. China and India are attracting a lot of attention for joint venture development opportunities with local developers. However, investors should tread carefully. Most local developers in these markets do not have the experience in dealing with Western investors. Therefore, the time and effort invested in each project will be significantly greater than what Western investors generally expect. While prices for real estate, utilities and labor all remain low by Western standards, they have begun to increase in China, thanks in part to the vast in- vestment that the country has enjoyed in recent years. In 2005 for example, China received $70 billion in foreign manufacturing investment, compared with $7 billion going into India. There remain difficulties in India relating to investment, including poor infrastructure, a rigid labor market and an elaborate bureaucracy. Foreign investors are still barred from acquiring many types of asset in India, although more generous FDI rules are being introduced. Commercial real estate development is progressing in China and India, often through joint ventures, but some smaller markets are being ignored in favor of the more developed economies of Japan, South Korea, Hong Kong, Singapore and Australia. For example, there are significant challenges facing investors in Vietnam, Malaysia, Thailand, Indonesia and the Philippines, including a lack of transparency, complex rules overlocalpartnersanduntestedstructures, and unreliable judicial systems. Never- theless, economic growth in Vietnam is predicted to exceed 10 percent this year and the country is expected to join the World Trade Organisation this year. Continues from front cover Global Property Markets Prepare for Uncertainty Boston, Massachusetts, USA Singapore, Republic of Singapore

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France and Germany are experiencing economic expansion fed by historic levels of global growth. Property markets across the continent have been strong, although some shifts may occur as a result of overreaction to U.S. sub-prime concerns. The most expensive office space in the world can be found in London’s West End, where peak rents in Mayfair top $225 per square foot. Rental increases also have been particularly strong in Budapest (up 17.5 percent), Madrid (up 20 percent), Moscow (up 25 percent), Oslo (up 65 percent), Paris (up 10 percent) and Warsaw (up 30 percent). Copenhagen, London, Madrid, Moscow, Paris and Düsseldorf, Frankfurt and Stockholm all claim vacancy rates of 5 percent or less. Retail is particularly strong in Budapest, where rents have increased 25 percent, and in Moscow, where rents are up 45 percent. Economists predict that GDP growth across the Euro area will be 2.1 percent in 2008, as tight credit markets and economic uncertainty restrain spending and investment. To the east, however, the recent EU members the Czech Republic, Hungary and Poland are performing well, with prospective GDP growth rates of 3 percent, and 5.1 percent respectively. The Baltic States of Latvia, Estonia and Lithuania are all predicted to achieve above 5 percent growth in 2008, while new EU entrants Bulgaria and Romania have forecast GDP growth of 6.3 percent and 6.2 percent respectively, with similar figures for both Russia and Ukraine. Commercial property investment was at record levels in the first six months of 2007, much of it in the UK, France and Germany, but by the fourth quarter of the year activity had slowed considerably. Despite falling interest rates in the U.S. and the UK, investment figures are not expected to pick up until later in 2008. Build on the power of our network. ™ KUWAIT SERBIA GUAM ISRAEL

  • NAI Global Corporate Headquarters 4 Independence Way Suite 400 Princeton, NJ 08540 USA tel +1.609.945.4000 fax +1.609.945.4001 Ted Parcel tparcel@naiglobal.com
  • Asia Pacific Regional Headquarters 14/F Wilson House 19-27 Wyndham Street Central, Hong Kong 000 tel +852.2868.0966 fax +852.2810.6981 Stephen Atherton satherton@naiglobal.com
  • Canada Regional Headquarters 5160 Explorer Drive Suite 17 Mississauga, Ontario L4W 4T7 Canada tel +416.233.5302 fax +905.629.7002 Brian French bfrench@naiglobal.com
  • EMEA Regional Headquarters 10 Piccadilly London, W1J 0DD United Kingdom tel +44.870.701.6046 fax +44.870.703.6999 David Perry dperry@naiglobal.com
  • India & Middle East B-189, 1st Floor Greater Kailash - I New Delhi, 110 048 India tel +91 11 2923 5449 Deepshikha Sinha dsinha@naiglobal.com
  • Latin America and the Caribbean Greenberg Traurig Centre Brickell Key Drive, #1019 Miami, FL 33131 USA tel +1.305.416.0117 fax +1.786.556.7758 David L. Berger dberger@naiglobal.com

NAI Global Property Advisor www.naiglobal.com 11

NAI Global Resources & General Information NAI Global is one of the world's leading providers of commercial real estate services. NAI manages a network with 8,000 professionals and 375 offices in 55 countries worldwide.We bring together people and resources wherever needed to deliver outstanding results for our clients, and complete over $45 billion in transactions annually. Our clients come to us for our deep local knowledge.They build their businesses on the power of our global managed network. NAI Global Property Advisor is published twice a year by NAI Global. © Copyright 2008. For more information call +1.609.945.4000 or visit www.naiglobal.com EUROPE LATIN AMERICA

A long-awaited period of sustained economic growth is finally occurring in much of Latin America. After decades of failed economic policies and dubious politics, much of the region is slowly enteringtherealmofstableandproductive economies. Brazil is now awash with capital for Class A office, industrial and retail developments, as well as speculative acquisitions. Lease rates for all product types have increased 15-20 percent due to heightened demand and lack of inventory. Colombia may be the region’s best-kept secret. Although growth has slowed from 6.8 percent in 2006 to a projected 4.9 percent for 2008, inflation has been tamed to 4 percent. Real estate development activity is strong, but supply lags demand, particularly for higher-end office, retail and industrial properties. Developers can’t keep pace with demand in Mexico either, where all property types have single-digit vacancy rates. Prices for well-located land parcels are expected to rise as much as 15 percent in 2008. Many Latin American countries are running trade surpluses and have improved their coverage of short-term debt with international reserves. These economies should be able to survive a moderate global slowdown over the coming years and the travails of the U.S. economy appear not to have impacted on the region, in contrast to previous cycles. São Paulo, Brazil Madrid, Spain ________________________________________

NAI Global Property Advisor www.naiglobal.com.

Prepared and Issued by NAI GLOBAL www.naiglobal.com / Published to the Site www.naibaltics.com by NAI Baltics – commercial real estate services in the Latvia, Lithuania, Estonia. Your trustworthy partner, advisor and consultant in the Baltics and Worldwide.

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Commercial Real Estate

"Avers Centrs Ltd with NAI Baltics as broker and investment acquisition consultant recently carried out a sale - leaseback transaction of its newly-built logistics warehouse complex in Riga, Latvia. We are very pleased with the transaction and NAI Baltics role in managing the transaction process, in particular considering current fluctuating market circumstances. NAI Baltics management of the process, from start to finish, was excellent, starting from the offering memorandum, to their management of the property tours, buyer selection process, due diligence and close. The entire team was extremely professional and knowledgeable. All during the complicated and lengthy transaction, their attentiveness, attention to details, clear and timely communication, the negotiating and mediation skills, and problem-solving abilities were notably worthwhile in completing a transaction. We are looking forward to working with NAI Baltics team again, and highly recommend them in the event you are considering utilizing their services."
Mihails Litevskis ( Михаил Литевский )
Member of the Board
Avers Centrs Ltd.

Commercial Real Estate

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