Sustainable Real Estate-Sustainable Real Estate-Institutional Investor PerspectiveInstitutional Investor Perspective

Doug LawrenceManaging DirectorReal Estate Portfolio ManagersJPMorgan Global Real Assets Group212-648-2156douglas.p.lawrence@jpmorgan.com

20th Annual Pension and 20th Annual Pension and Financial Services ConferenceFinancial Services ConferenceJune 10-12 2009 Atlanta, GAJune 10-12 2009 Atlanta, GA

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WindpowerSustainable Communities

THE NEXT LONG-RUN TREND

Solar Energy

Greening U.S. Real Estate Markets

Urban Sustainable Design

The Kalahari, Manhattan, NYThe Kalahari, Manhattan, NYThe Kalahari, Manhattan, NYThe Kalahari, Manhattan, NY

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The Jury is in……

““For some For some 10,00010,000 subject and control subject and controlbuildings… we find that buildings with a buildings… we find that buildings with a “green rating” command…“green rating” command…effectiveeffective rents rents above six percent more above six percent more than otherwise than otherwise identical buildings…Selling prices of identical buildings…Selling prices of green buildings are green buildings are higher by about 16 higher by about 16 percentpercent”

Doing Well by Doing Good? Green Office Buildings-January 2009 Piet Eichholtz Maastricht University, Nils Kok Maastricht University, John M. Quigley University of California

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World Green Building CouncilWorld Green Building Council

business-led coalitionbusiness-led coalition

8,000+ companies 8,000+ companies

14 countries14 countries

50% of global construction50% of global construction

World Green Building CouncilWorld Green Building Council

business-led coalitionbusiness-led coalition

8,000+ companies 8,000+ companies

14 countries14 countries

50% of global construction50% of global construction

72% of electric consumption72% of electric consumption

39% of energy use39% of energy use

38% of greenhouse gas38% of greenhouse gas

40% of raw materials40% of raw materials

30% of waste (136mm tons/yr)30% of waste (136mm tons/yr)

14% of potable water14% of potable water

72% of electric consumption72% of electric consumption

39% of energy use39% of energy use

38% of greenhouse gas38% of greenhouse gas

40% of raw materials40% of raw materials

30% of waste (136mm tons/yr)30% of waste (136mm tons/yr)

14% of potable water14% of potable water

The Big Picture…..Real Estate will be a focus of regulation because its environmental impact is enormous

View of Manhattan from Queens West, NYView of Manhattan from Queens West, NY

Godrej Green Business Ctr. Hyderabad, India Godrej Green Business Ctr. Hyderabad, India Beijing, June 18-20, 2009

Int’l Green Building & Sustainable Cities ExpositionInt’l Green Building & Sustainable Cities Exposition

Source: USGBC: Green Building Research, World Green Building Council

Consumption EstimatesConsumption EstimatesConsumption EstimatesConsumption Estimates

China vies to be leader in electric vehicles

500,000 cars per year

Tianjin-Qingyuan Electric Vehicle Company. China’s Great Leap Forward?China’s Great Leap Forward?…….. Beijing 6/2009.. Beijing 6/2009

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There’s no way to reduce carbon emissions without tackling real estate’s contribution..public policy is shifting but not fast enough

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This Landmark decision (4/17) may impact real estate

Supreme Court Backs EPASupreme Court Backs EPA

EPA Director Lisa Jackson will EPA Director Lisa Jackson will regulate regulate carbon dioxide under the Clean Air Actcarbon dioxide under the Clean Air Act

Green House Gas Due Diligence will be requiredGreen House Gas Due Diligence will be required

Are national green building codes coming ? Are national green building codes coming ?

IM9377

The White House convened Plan Sponsors to talk about green

4/28/092 consultants-Courtland, FIS Group

2 Vendors-Turner Construction, Johnson Controls

4 pension plans-LA Power & Water, Maryland, Connecticut, Baltimore

8 Federal officials including:Jared Bernstein- Chief Economist Terrell McSweeney- Chief Domestic Policy AdvisorMoe Vela- Director of Administration

Vice President Biden is in charge of the Stimulus/Recovery Package

IM9377

What did the Administration emphasize?

4/28/09

Sustainability- key economic driver

Subsidies-domestic green products & mfg

Regulation-speed to adoptionFinancing-spur innovation and adoption

Regulation-stable, predictable

ARLEN SPECTER’s switch to the Dem= 60 vote Senate majority with Ind. allies ARLEN SPECTER’s switch to the Dem= 60 vote Senate majority with Ind. allies

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What’s the “Green” Value Thesis for real estate investors

Standard Construction Green ConstructionGreen Construction versusversus

Operating Expenses

Operating ExpensesOperating Expenses>Future Capital ExpendituresFuture Capital Expenditures

>Hard Construction Costs Hard Construction CostsHard Construction Costs=

Net Operating Income < Net Operating IncomeNet Operating Income

Similar construction costs for LEED Certified, Silver and Gold to standard, lower future cap-x, lower operating expenses, result in improved NOI and cash flows that we believe will create more value over the long-run.

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Serious Misinformation: Green costs too much!

Note: Development of software applications to reduce reliance on consultants to complete paperwork, partners that will guarantee energy consumption levels,buy and install systems at less cost, and guarantee technology updates will reduce overall cost and we expect will increase the long-run value of the asset.

More ExoticTech

More ExoticTech

NOT SO! ASK THE ENGINEERS!NOT SO! ASK THE ENGINEERS!

Soft Costs are fallingSoft Costs are fallingTax treatmentTax treatmentSubsidies and grantsSubsidies and grants

Difficult to suspend disbelief-part of the lnvestor learning curveDifficult to suspend disbelief-part of the lnvestor learning curve

HinesHines

TischmanTischmanSpeyerSpeyer

Turner Turner ConstructionConstruction

Johnson Johnson ControlsControls

Davis Davis LangdonLangdon

McGraw HillMcGraw Hill

GenslerGensler

Mostly Soft Costs of consultants & learning curve

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Green saves operating expenses….we expect an increase in NOI of 4-8% over standard construction

Average bottom line savingsAverage bottom line savings

Source: LEED, U.S. Green Building CouncilSource: LEED, U.S. Green Building Council

Green is Asset Mgmt intensive

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Green gets higher direct rental rates

It looks like the rate spread has widened during this downturn

Source: CoStar Group 2009

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Green gets higher occupancy rates

Source: CoStar Group 2009, Investment Returns from Responsible Property Investing

Is there a flight to quality?

Better retention?

Or both?

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Green commands better Sales Prices / Square Foot

®

Real Estate Information

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Greening older buildings requires special skills

The Project

Johnson Controls - technology Johnson Controls - technology leaderleader

$20 million package of retrofits$20 million package of retrofits

Energy savings alone est. to be Energy savings alone est. to be $4.4 million….$4.4 million….3 year payback3 year payback

Reduce energy use by 40%Reduce energy use by 40%

Target: LEED GoldTarget: LEED Gold

JCI greens Empire State BuildingJCI greens Empire State Building

With any retrofit-there are issues

Tenant relocation costsTenant relocation costsTaking space off lineTaking space off line

Lease modification-capital costsLease modification-capital costs

Retrofitted Buildings can Retrofitted Buildings can bring:bring:

√ 3% higher occupancy rates3% higher occupancy rates

√ 7.5% increase in value7.5% increase in value

√ And use an average of 25% And use an average of 25% to 30% less energy than to 30% less energy than conventional buildingsconventional buildingsEasier to fit building to the technology,Easier to fit building to the technology,

than the technology to the buildingthan the technology to the building

Source: LEED, U.S. Green Building CouncilSource: LEED, U.S. Green Building Council

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Green is seen as Value-Added plus risk with the potential for near opportunistic returns in this current market

Exp

ect

ed

re

turn

Exp

ect

ed

re

turn

Expected risk

CoreCore

Core Core PlusPlus

Value Value addedadded

Subsidies & grants Tax abatements Lower cost financings Re-zoning benefits Lower operating costs Green technology

* Volatility or risk is reduced * Volatility or risk is reduced duedue to to

We think there is lower volatility in green real estateWe think there is lower volatility in green real estate

OpportunityOpportunityGreenGreenReal Real

EstateEstate

Source: JPMorgan Asset Management — Global Real Assets. The above is show for illustrative purposes only.*Risk characteristics (including leverage, percentage of development, lease-up risk, etc.) are somewhat subjective, and it is possible the strategy could be viewed as having risk characteristics some would consider to be more consistent with value-added strategy or opportunistic strategy. The manager seeks to achieve the stated objectives. There can be no guarantee those objectives will be met.

Projected 15%+ before tax net IRR Projected 15%+ before tax net IRR

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Future ? green cash flow underwriting = price distinction

Green Building Value Rating System-Green vs. Standard Construction

Underwriting guidelines to value green cash flows

Aiding the market in identifying higher valued collateral to the real estate finance sector and securities markets thereby facilitating new securitization opportunities, increased investor confidence and enhanced liquidity.

70 Partners-including JPMorgan

A global standard-like LEED-but for cash flowsPrimary Market

1.  Loan application review2.  Loan committee decision making3.  Purchase and sale negotiations

Secondary Market- Portfolio Analysis and Disclosure

1.  Pooled debt/equity investment vehicles (private / public)2.  Real estate private equity portfolios3.  REIT stock analysis

Primary Market

1.  Loan application review2.  Loan committee decision making3.  Purchase and sale negotiations

Secondary Market- Portfolio Analysis and Disclosure

1.  Pooled debt/equity investment vehicles (private / public)2.  Real estate private equity portfolios3.  REIT stock analysis

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Summary: Sustainable Real Estate may have 9 benefits for the investor…

Protection against technological obsolescence

Protection against physical obsolescence

Protection against inflation

Protection against appraisal risk

Greater NOI and greater Cash flow

Better future disposition value

Alignment with Public Policy

Ability to mitigate risk through public incentives, subsidies and grants

Better overall portfolio diversification

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Biographies-Portfolio Managers

Douglas P. Lawrence, managing director, is the Portfolio Manager of the Urban Renaissance Property strategy for J.P.Morgan Asset Management – Global Real Assets. Prior to this role, he was a Client Portfolio Manager for JPMIM wherein he was responsible for helping clients design and implement their real estate strategies and portfolios. Douglas has 24 years of industry experience. An employee of JPMAM-Global Real Assets since July 1997, he was previously a senior asset manager responsible for managing more than four million square feet of real estate assets. He won nine (9) national and regional awards in this role for JPMAM – Global Real Assets. Before joining the firm, he was a Senior Asset Manager for TIAA-CREF. He also worked in the public sector as the Asset Manager for the City of Hartford. Prior to that post, he was a residential developer in the Southwest.

Douglas obtained a B.A. from Yale University and an M.B.A. from the University of Connecticut in International Business Finance. He is Chairman of the Real Estate Committee of the $500 million Abyssinian Development Corporation. He is a member of the Pension Real Estate Association, Urban Land Institute, National Association of Securities Professionals, National Association of Real Estate Investment Managers, International Conference of Shopping Centers, and U.S. Green Building Council. Douglas holds FINRA series 7 & 63 licenses. He is a member of the Capital Markets Partnership which is establishing underwriting guidelines for green real estate.

Lewis P. Jones, managing director, is the Portfolio Manager of the Urban Renaissance Property strategy for J.P.Morgan Asset Management – Global Real Assets. An employee since 1988, Lewis has 21 years of industry experience and has been a senior member of the Acquisitions Team.

Prior to joining JPMAM – Global Real Assets in 2005, Lewis served as President of the JPMorgan Chase Community Development Corporation, where he held overall management responsibility for the firm’s community development lending and investment activities, which have totaled more than $5 billion since the corporation was established in 1987. These activities included real estate construction lending and equity investments in projects focusing on urban revitalization that use low income housing and new markets tax credits. Prior to joining the firm, Lewis practiced law, worked as an investment banker in public finance and was a reporter. Lewis holds an A.B. from Harvard College and a J.D. and M.B.A. from Columbia University. He is a member of the Urban Land Institute and has served on several of its inner city advisory panels. Additionally, Lewis is a member of the International Conference of Shopping Centers, and the Pension Real Estate Association. He also serves on the boards of Mount Sinai Hospital Center, the Housing Partnership Development Corporation and Neighborhood Restore and has previously served on the board of the Enterprise Foundation. Lewis holds FINRA series 7 & 63 license. He is a member of the Capital Markets Partnership which is establishing underwriting guidelines for green real estate.

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This document is intended solely to report on various investment views held by J.P. Morgan Asset Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Indices do not include fees or operating expenses and are not available for actual investment. The information contained herein employs proprietary projections of expected returns as well as estimates of their future volatility. The relative relationships and forecasts contained herein are based upon proprietary research and are developed through analysis of historical data and capital markets theory. These estimates have certain inherent limitations, and unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees or other costs. References to future net returns are not promises or even estimates of actual returns a client portfolio may achieve. The forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Real estate and infrastructure investing may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate and infrastructure investing may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower.

The value of investments and the income from them may fluctuate and your investment is not guaranteed. Past performance is no guarantee of future results. Please note current performance may be higher or lower than the performance data shown. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in emerging markets may be more volatile than other markets and the risk to your capital is therefore greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of investments made.

All case studies are shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. They are based on current market conditions that constitute our judgment and are subject to change. Results shown are not meant to be representative of actual investment results. Past performance is not necessarily indicative of the likely future performance of an investment.

Any securities mentioned throughout the presentation are shown for illustrative purposes only and should not be interpreted as recommendations to buy or sell. A full list of firm recommendations for the past year is available upon request.

J.P. Morgan Asset Management is the marketing name for the asset management business of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., JPMorgan Investment Advisors Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.

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