investing in us core real estate

The case for investing in U.S. core real estateProviding efficient access to the diverse U.S. market

William MaherHead of Research & Strategy, [email protected]

Contacts:

Daniel MahoneyVice President, Research & [email protected]

LaSalle Research & StrategyJuly 2015

THE

The large size of the U.S. and its variety ofeconomic drivers provide both investmentopportunity and diversification benefits tointernational real estate portfolios. U.S. open-endcore funds maximize these benefits and helpmitigate the risks of cross-border investing byoffering immediate diversification across U.S.markets and property types, steady income, andhigh transparency thanks to the availability of awidely used benchmark, the NCREIF Open EndDiversified Core Equity (ODCE) Index. They arealso a tax efficient option for institutional investorsand typically outperform direct investments intheir first year in rising market environments.

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LASALLE INVESTMENT MANAGEMENT | RESEARCH & STRATEGY THE CASE FOR INVESTING IN U.S. CORE REAL ESTATE | 3

Why the U.S.

Market Size

The U.S. is the world’s largest institutionalreal estate market, home to an estimatedone quarter – $2.4 trillion – of allinstitutional property. In 2014, U.S. realestate transaction volume totaled $385billion, 43% of the global total. Thisactivity provides steady opportunity fornew investments and a wide menu ofmarkets and property types, all with acommon regulatory structure and sharedmarket conventions. The U.S. has moreinstitutional real estate assets undermanagement than the next three largestinstitutional markets combined – Japan,China and the U.K. Lower risk stabilizedassets represent the largest and mostliquid portion of the U.S. market.

As the world’s single largest consumermarket, the U.S. is less dependent onexports than other major developedmarkets. Exports of goods and services in 2014 were just 13% of GDP. Thiscompares to 19% in Japan, 20% inAustralia, 28% in the U.K., and 31% in Canada. The majority of U.S. goodsexports go to Canada and Mexico, withonly 7% of exports in 2015 year-to-dategoing to China. As a result, volatilecommodity prices have less impact on GDP and real estate demand. The recent decline in oil prices is a negativefor a few U.S. markets, like Houston, but demand for real estate in most U.S.markets benefits from lower commodityprices and resulting reduction in energycosts. This may make U.S. propertyinvestments a good complement to realestate in markets where tenant demand is driven by manufacturing exports or commodity exports.

The Institutional Real Estate Universe(% of global by market)

Source: LaSalle Investment Management2015 Global Real Estate Universe

United States 25.3%

Canada 3.1%

Mexico 3.1%

Brazil 2.1%

Other 2.9%

UK 7.2%

France 3.9%

Germany 4.7%Italy 1.5%Spain 0.8%Netherlands 1.5%

Middle East & Africa 5.4%Other 4.5%

China 8.8%

Singapore 1.4%

Hong Kong 2.3%

Australia 2.4%

Japan 7.9%

Turkey 0.8%

CEE 1.4%

Other 4.8%

Sweden 1.9%

Switzerland 2.3%

Lower risk stabilizedassets represent thelargest and mostliquid portion of theU.S. market.

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Transparency

The U.S. ranks as the world’s secondmost transparent real estate market in JLL’s latest Global Real EstateTransparency Index (http://www.jll.com/greti/rankings). The U.S. is the globalleader in tracking real estate market data,ranking first on this component oftransparency. Granular building-leveldatabases, time series data at thesubmarket level across property types, and robust transaction data give investors a clear view of market conditions. Onperformance measurement, the U.S. ranksbehind only the U.K. and Australia, withlong return benchmarks enabling investorsto track performance. The U.S. NCREIFODCE Index, described in detail later, is the world’s longest-running real estate fundbenchmark. The U.S. also ranks among thetop ten real estate markets on governance,regulatory and legal protections, and theappraisal and transactions process.

Performance and Fair Value

Size and transparency are necessaryprerequisites for core investment, but real estate performance is paramount.Historically, U.S. property has deliveredtotal returns between those of globalequities and fixed income securities, similarto property returns in the U.K., Australia,Canada, and Japan (see table below). U.S. real estate is no longer as attractivelypriced as in 2010 to 2013, with its yieldspread relative to corporate bonds belowaverage as of July 2015. However, realestate continues to offer an attractivepremium relative to risk free U.S. Treasuries.This spread between the NCREIF incomeyield and U.S. Treasuries is near its 15-yearaverage as of July 2015.

Historic Returns by Asset Class and Market to 31 March 2015

Average Annual Total return

Global Stocks1

Global RE

Securities2

GlobalCorporateBonds3

GlobalGovernmentBonds4

GlobalProperty Fund Index(IPD)5

US ODCE Fund Index(NCREIF)6

UKPropertyFund Index (IPD)7

AustraliaCore

WholesaleFunds

(Mercer/IPD)8

Europe Core Funds(INREV)9

1 Year 14.3% 16.1% 7.2% 8.5% 12.6% 13.4% 15.9% 10.2% 8.6%

3 Years 15.1% 12.8% 5.7% 4.8% 10.6% 12.7% 9.3% 9.4% 4.3%

5 Years 11.2% 12.1% 6.2% 4.6% 11.6% 14.5% 8.8% 9.6% 4.6%

10 Years 7.5% 7.9% 5.7% 4.1% - 7.0% 3.4% - -

20 Years 8.0% 9.5% 6.6% 5.3% - 9.1% 7.5% - -

Notes on sources:

1. MSCI All Country Gross World Total Return Index in Local Currency

2. EPRA/NAREIT Global (Developed) Index Total Return in US Dollars

3. Citigroup World Corporate Bond Index Total Return in US Dollars (Local Currency History Not Available Prior to 1999)

4. Citigroup World Government Bond Index All Maturities Total Returns in Local Currency

5. IPD Global Quarterly Property Fund Index Total Returns in local currency (average leverage is 20.7%)

6. US NCREIF Open End Diversified Core Equity (ODCE) Index Total Returns in US Dollars (average leverage is 21.7%)

7. AREF IPD UK Quarterly Property Funds Index in British Pounds. All pooled property funds index. (average leverage is 9.3%)

8. Mercer/IPD Monthly Core Wholesale Fund Index (Frozen) Total Return in Australian Dollars. Pre-fee NAV.

9. Europe Core Funds Total Return in Local Currency. Comprised of 68% open-end funds and 32% closed-end funds. Total GAV of €130.8. 72% Continental Europe. 24.5% Leverage.


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ODCE Vacancy Rate by Property Type

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Historic data sources: NCREIF ODCE Data as of Q1 2015. Forceast data source: Lasalle Investment Management. Forecast most recent as of June 2015

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Dominant Grocery-Anchored Retail, University Commons, outside Austin TX

The outlook for U.S. real estate netincome growth is strong over the nextthree years. LaSalle forecasts thatincome growth will average 4% for thefour major property types, driven by thecombination of 3 to 4% rent growth andrisking occupancy. Property ownerscontinue to gain pricing power asvacancy tightens, and vacancy ratesare now below long-term averagesacross property types. LaSalle is beingmore selective, resulting in a lowersuccess rate in competitive auctions,but continues to see attractiveinvestment opportunities across thegrowing volume of transactions, bothon and off-market.

Core investing offers attractive risk adjustedreturns for investors with long investmenthorizons. High quality, stabilized, long-leasedassets are less sensitive than higher riskstrategies to market volatility. With highoccupancy and a small share of leasesrolling over each year, income is more stableand liquidity is likely to hold up better in toptier locations. We believe that U.S. core fundswhich focus on secular changes indemographics, technology, and urbanization(DTU) will generate superior income growthover multiple cycles. This long-terminvestment perspective is especially attractiveas we enter the sixth year of the currenteconomic recovery; the last three U.S. cycleslasted for eight years on average.


Cross-Border Diversification

Property fundamentals and capital markets differ across countries, providingdiversification benefits. This shifts out the efficient risk-return frontier for a cross-border portfolio, an effect which may be greater when differences in debtmarkets are included (the table below is based on unleveraged returns only).Debt is currently accretive for most coreU.S. property acquisitions. The 2008-2009Global Financial Crisis highlighted theinterconnectedness of real estate marketsacross borders and drove up the cross-country correlations, but correlations aredown over the previous five years aseconomies have once again started tomove at different speeds. For example, the U.S. – Australia local currencycorrelation since 2010, while still high, has dropped to 0.75. Correlations haveturned negative between the U.S. andJapan, and the U.S. and U.K.

Local CurrencyReturns AUS JPN FRA GER UK CAN US

Australia 1.00 0.90 0.93 -0.06 0.57 0.61 0.87

Japan 1.00 0.86 -0.09 0.43 0.58 0.81

France 1.00 1.00 -0.12 0.47 0.86 0.80

Germany 1.00 -0.10 -0.11 0.10

UK 1.00 0.25 0.57

Canada 1.00 0.66

US 1.00

15 Year Unleveraged Return Correlations (Assumes Perfect Currency Hedging)

Local CurrencyReturns AUS JPN FRA GER UK CAN US

Australia 1.00 0.35 -0.06 0.75 -0.05 0.20 0.75

Japan 1.00 -0.90 0.80 0.09 -0.06 -0.03

France 1.00 1.00 -0.67 -0.15 0.45 0.51

Germany 1.00 0.50 -0.53 0.12

UK 1.00 -0.31 -0.26

Canada 1.00 0.27

US 1.00

5 Year Unleveraged Return Correlations (Assumes Perfect Currency Hedging)

Source: MSCI / IPD, NCREIF

Correlations are downcompared to the previousfive years as economieshave once again started tomove at different speeds

Walkable Urban Multifamily Apartments, 505 North State Street, Chicago IL

The table above shows return correlations in local currency, which implicitly(and unrealistically) assumes perfect currency hedging.

Due to limited index history, Japan correlations are based on data from2002-2014 (13 years). Return correlations are quarterly except in the casesof France and Germany, where only annual data is available.


Currency Risk

International investing, whether in realestate or equities, the U.S. or Europe,involves currency risk. This risk can bepartially hedged at low cost in the short-term through forward exchange contractsor (more costly) options. Unlike fixedincome investing, where future cash flowsare known, real estate cash flows areuncertain, which presents a challenge forhedging. Future cash flows and terminalvalues need to be forecast in order tohedge and if they differ from thoseforecasts, investors may find themselvesover or under-hedged. In practice, manyinvestors hedge on a sliding scale, withmore complete hedging for expected near-term distributions that have morecertainty and lower hedge ratios for moreuncertain cash flows far into the future.Core U.S. Funds have the benefit ofconsistent distributions, which makes

short-term hedging easier. However, mostcash flows of core real estate assets arefar in the future, tied up in the capital valueof the asset. There is potential refinancingrisk if liquidity is needed to roll-over shortterm hedges for this capital value.

Many large investors use an overlayhedge program, taking into account netpositions across asset class and currencies,and do not hedge individual investments.For investors with a long-term horizon, it can often make sense to leave cross-border investments unhedged; whileexchange rates are certain to be volatile,the current spot rate already reflects themarket’s long term forecast. In thecorrelation table below, realized returns in a single currency are much lesscorrelated, due to currency movementsthat were driven by cross-borderdifferences in exchange rates, tradebalance, and growth.

Source: MSCI / IPD, NCREIF

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AUS JPN FRA GER UK CAN US

Australia (AUD Return) 1.00 -0.07 0.45 0.02 0.35 0.28 0.20

Japan (JPY Return) 0.29 1.00 0.65 0.34 0.36 0.35 0.51

France (Euro Return) 0.34 0.05 1.00 -0.12 0.35 0.46 0.40

Germany (Euro Return) -0.24 -0.03 -0.12 1.00 -0.03 -0.17 0.23

UK (GBP Return) 0.03 -0.44 -0.44 -0.79 1.00 0.02 -0.07

Canada (CAD Return) 0.26 -0.12 0.35 -0.13 0.06 1.00 0.30

US (USD Return) 0.20 0.01 0.32 -0.04 0.43 0.39 1.00

15 Year Unleveraged Return Correlations in a Single Currency(Unhedged Returns)

The analysis above shows the correlation between returns if an investorhad no currency hedging and converted their invested capital back into theirdomestic currency at the market exchange rate at the end of each period.

Due to limited index history, Japan correlations are based on data from2002-2014 (13 years). Return correlations are quarterly except in the casesof France and Germany, where only annual data is available.


1. Immediate Diversification AcrossU.S. Markets, Property Types, andTenants, for both Small and LargeTicket Sizes

Within the U.S., investors in core fundsare immediately diversified by propertytype, by market, and by tenants and leasematurities. By contrast, direct investorsbuilding a portfolio from scratch throughindividual acquisitions face significantconcentration risk in the first several yearsof constructing such a portfolio. Corefunds enable investors with smaller ticketsto access the benefits of diversification,which might be unachievable throughdirect investment.

The wide variety of property types andmarkets in the U.S. makes nationaldiversification valuable. The underlyingdrivers of real estate demand vary betweenU.S. metropolitan areas: there are resource-driven markets like Houston, government-driven markets like Washington D.C., andtech-driven markets like San Francisco.Markets move at a range of speeds, from

fast-growing low barrier-to-entry marketslike Dallas, to slower growth higher barrier-to-entry markets like Boston and New York.The table below shows the total returncorrelations between the eight largestmarkets in the US for institutional investment,many of which are below 0.75. Core fundswith investments across these marketsachieve superior risk-adjusted returns.

Similarly, diversification by property type is another important advantage. The scale of the U.S. market, combined withrelatively limited government rentregulation, has created an especially widevariety of investable property types. Uniqueamong major markets, U.S. multifamilyrentals make up a quarter of all institutionalproperty investments. Institutions reportingto NCREIF also own over $67 billion ofindustrial and logistics, primarily distributionwarehouses; these are 12% of thebenchmark. Niche or specialty propertytypes such as medical office buildings,parking, self-storage, truck terminals,seniors housing, and student housing haveattracted many institutional investors.

Why Open-end Core Funds

US Market 30 Year Correlation Matrix

NY LAWash.DC

ChicagoSF BayArea

Boston Dallas Houston

NY 1.00 0.86 0.84 0.83 0.67 0.73 0.68 0.52

LA 1.00 0.81 0.79 0.77 0.67 0.68 0.54

Wash. DC 1.00 0.80 0.60 0.68 0.61 0.45

Chicago 1.00 0.67 0.66 0.65 0.51

SF Bay Area 1.00 0.61 0.62 0.48

Boston 1.00 0.63 0.37

Dallas 1.00 0.68

Houston 1.00

Source: NCREIF Based on quarterly returns over last 30 years, all property types

Within the U.S. market, core funds stand out as attractive vehicles for cross-borderinvestors for five reasons:


Niche properties have also seen their caprate spreads over traditional property typessteadily narrow over the last decade, andthey continue to have higher averageincome yields vs. traditional office,multifamily, retail, and industrial assets.

LaSalle’s latest estimate of the real estateuniverse shows that multifamily rentalsmake up 36% of the potential investableU.S. property stock, with other nicheproperty types making up 11%. For U.S.REITs, multifamily and niche are 53% total gross assets under management.

The ability to access and diversify acrossmultifamily and other niche property types, at scale, distinguishes the U.S. from other major real estate markets.Investors benefit from this variety. Forexample, U.S. multifamily residential iscountercyclical relative to other propertytypes. Because demand is relativelyinelastic and owners can keep propertiesnear full occupancy by immediatelyadjusting rents, it tends to outperform theindex during downturns and underperformlate in expansions. This quality makes it an especially good complement toportfolios that are over-weight propertytypes like office that have more pro-cyclical characteristics, as highlighted inthe graph above.

2. NCREIF ODCE Benchmark Index

A key driver of transparency is availabilityof real estate indices that enable investorsto monitor their managers and trackperformance. The 37 year-old NCREIFOpen End Diversified Core Equity (ODCE)Index, stands out as good benchmark,since it captures the impact of leverageand fund-level costs and is thereforedirectly comparable to individual fundreturns. Only five other countries havecore fund indices with more than 10 yearsof history, and none of these are as largeas ODCE, with as much history, or with asmuch granular attribution data available.

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Apartment and Office complement each otherPerformance relative to the NCREIF Index

Source: NCREIF Property Index

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NCREIF ODCE Fund IndexBy the numbers

As of Q1 2015Funds Included 23

Inception Date January 1978

Gross Asset Value $173 billion

Leverage 21.7%

Occupancy 92.8%

Diversification by Property TypeMultifamily residential 25.4%

Industrial 12.2%

Office 39.1%

Retail 19.1%

Hotels 1.3%

Self-Storage 1.9%

Others (Parking, Land) 1.0%


3. Core Funds, on Average,Outperformed Direct Investments in Year 1

Returns on existing properties havehistorically outperformed those of new direct investments in the first year of ownership, making core funds acompelling alternative to direct investment.Fund investments have an advantagecoming out of the gate. Over the past 11 years, first year returns for newlypurchased assets have trailed the overallNCREIF Property Index by 2.7%. Lookingonly at positive return years, the lag is3.9%. This initial performance gap is caused by several factors. A new directacquisition has added acquisition andadministrative start-up costs that arewritten off in their initial year. Also, initialincome yields on core investments tend to be lower than the index as a whole. For example, average going-in cap ratesfor market acquisitions are slightly lowerthan the trailing year index return, despite typically higher occupancy for new acquisitions.

The ODCE Index is compiled by NCREIF,an independent non-profit association,whose members include pension fundinvestors and investment managers.ODCE includes 23 funds that conform to strict criteria for inclusion. Funds mustbe 95% or more invested in the U.S. and80% of fund assets must be invested instabilized core assets. To qualify forinclusion in the index, the fund must be diversified, with no more than 65% ofvalue in any one property type or regionand leverage may not exceed 40%.Current Q1 2015 member fund loan-to-value ranges from 14% to 36%, averaging21.7%. IPD / MSCI, which entered theU.S. relatively recently, maintains a similarcompetitive index, including 21 of thesame 23 funds. Having both indices is aboon for transparency and the IPD Indexis useful for building cross-border indices.Two-thirds of the core open end fundassets tracked by IPD’s Global PropertyFund Index are in the U.S. However, theNCREIF ODCE Index is the more widelyused of the two indices.

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Returns differ from those shown on page 2 because they are shown on an annual basis, through year-end 2014, rather than through Q1 2015 Gross, Value Weighted Pre-fee Returns. Source: NCREIF

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NCREIF ODCE Fund Index History


Parking and hotels offer upside when theeconomy is strong. Truck terminals havevery high income returns throughout thecycle. Self-storage, student housing, andseniors housing are necessity-drivenniches and their demand holds up well inrecessions. Among these niches, LaSalleespecially recommends self-storage,medical office, and parking because theytypically require low capital expenditures,and often have tenants that are morelikely to remain when their leases expire.

4. Specialist Strategies, Expertise, and Relationships

ODCE Index funds primarily invest instabilized core apartments, industrial,office, and retail properties. Some fundsalso selectively invest in higher riskprojects, such as apartment andwarehouse development, up to a limit. Mostfunds have 5 to 10% of gross assets undermanagement invested in these strategies.This enables core funds to develop-to-coreto take advantage of cyclical strength inproperty fundamentals. ODCE funds alsoselectively invest in several niche propertytypes. These specialized strategies capturediversification benefits that reduce overallportfolio risk and generate higher returns.They require specialized property typeexpertise, through in-house experts, andthrough strong joint venture operatingpartner relationships. This is a key benefitto investing through a core fund. Given thesize of a typical separate account, or with anew fund, it is very difficult to reach a scalewhere this extensive diversification intoniche sectors is possible at a reasonablecost. The greater scale of a core open endfund also enables them to invest in largerassets than a typical separate account.Larger assets can be more efficient tomanage and have historically outperformedsmaller assets.

Securing attractive acquisitions andmaximum pricing on dispositions is in partdriven by having strong credibility in themarketplace for transaction professionalismand for following through on commitmentsin a timely way. As a result, core open-endfunds, due to their size, long track record,and the discretionary nature of their capital,tend to be favored in many transactionsover other buyers who are smaller, lesswell-known, or have non-discretionarycapital sources. Niche properties types,several described in more detail below,have a different set of income drivers andcharacteristics that are often uncorrelated.Medical office capitalizes on changesunderway in U.S. healthcare delivery thathave little to do with the economic cycle.

Infill Medical Office Building, Massachusetts Eye & Ear Outpatient Center,Boston MA

Medical Office: Medical office buildings(MOBs) are a specialized type of office thataccount for approximately 10% of the U.S.office sector; they are typically smaller,about 60,000 square feet. Large privatehealthcare systems, as well as independentpractices, lease space in these buildings for outpatient consultations and minorprocedures. The U.S. healthcare industry is consolidating and many large healthcarenetworks are leasing MOBs to reduce costs(relative to on-campus hospital care) and becloser to patients. This is creating strongdemand from high-credit quality tenants.Moreover, the Affordable Care Act(“Obamacare”) has led to sharp increasesin health insurance coverage and greaterdemand for medical services. Medicaltenants tend to invest their own capital intenant improvements and are sticky, withabove average renewal rates. MOB vacancyincreased very little during the GFC andhealthcare job growth remained positive.


Self-storage: U.S. self-storage propertieslease storage units to individuals for storingpersonal property. While leases are short-term, tenants tend to renew leases for manyyears. Their property in the storage unitsalso acts as collateral, discouraging rentdelinquency. Self-storage properties benefitfrom low capital expenditures and steadyincome growth. Properties in major metros,in locations with high population density,high incomes, and low ratios of existingstorage units to population, are well-protected from new supply. Owning severalproperties within a single market is often anadvantage because it provides economies of scale in marketing and operations.

Parking Garages: U.S. parking investmentsare typically multi-level parking structures,with a mix of transient daily parkers, regularmonthly commuters, and long term tenantssuch as nearby hotels. Most low densitylocations in the U.S. offer free parking, but in higher value locations, primarily urbanCBDs, parking commands significant rents.The higher the density, the greater thedemand for and willingness to pay forparking, and the trend toward urbanizationand greater density in U.S. downtowns hassupported rapid revenue growth through rateincreases. Urban parking garages often siton valuable land that could potentially beredeveloped into higher value office andmixed-use developments at some point inthe future.

5. Tax Efficiency

Open-end core funds are among the most tax efficient ways for cross-borderinvestors to access the U.S. market. A direct property investment (outside afund) by overseas investors in the U.S. – without a partner – is relatively onerousfrom a tax perspective. By contrast, clubinvestments and direct investment withless than a 50% interest may offer bettertax efficiency, but these non-controllinginterests can be harder to find and canrequire significant investor resources toassemble and review. U.S Open-end corefunds provide good efficiency for investorswith a long hold investment horizon.Investors are strongly encouraged toconsult their independent tax advisors fordetailed guidance on the legal and taxconsequences of different structures.

Pelican Parking Garage, Miami Beach FL

Self-storage, outside Philadelphia PA

LASALLE

Conclusion

For real estate investors venturing acrossborders, the U.S. market often makessense as a first, or second, step. Its sizeand transparency means cross-borderinvestors can access more opportunitiesfor the same fixed search and time costsassociated with learning a new market.U.S. returns have historically provideddiversification benefits. U.S. returns havecorrelations well below one with othermajor real estate markets. And the U.S.market has investable property types notavailable in many other markets, includinga large multifamily sector and nicheproperty types like medical office.

Core open end funds are an especiallyefficient way to access the U.S. marketbecause they provide immediatediversification, even for investors with small ticket sizes. Funds are diversified by property type, markets, tenants andassets, which reduces concentration risk.

It is especially valuable because of large differences in drivers between U.S.markets and property types, ranging fromtechnology (San Francisco Bay Area) to government (Washington D.C.), tohealthcare (medical office). The scale of an open-end core fund gives investorsaccess to larger deals, specialized nichesectors, and acquisition opportunities that are inaccessible to smaller investors. Core funds also benefit from the highlytransparent NCREIF ODCE Indexbenchmark, tend to outperform directinvestments in their first year, and offer tax efficiency.

Transit-Oriented Office, Virginia Square, outside Washington D.C.

Past Performance not Indicative of Future ResultsPast performance is not indicative of future results. No assurance can be given that the returns presented herein will be equal orsimilar to those achieved or expected to be achieved by an investor in any particular US core fund benchmarked to the ODCE Index or otherwise. The ultimate returns realized by any future investment will depend on numerous factors that are subject to uncertainty.

General Risks of Investing in Private Real Estate FundsInvestments in private real estate funds are speculative and involve special risk and there can be no assurance that a fund’sinvestment objectives will be realized or that suitable investments may be identified. An investor could lose all or a substantial portion of his or her investment. Private funds are generally not subject to the same regulatory oversight as registered funds.Investments may involve complex tax structures resulting in delays in distributing important tax information, may not be required to provide periodic pricing or valuation information, lack diversification, limited transparency, and may employ leverage and otherspeculative investment practices.

Real Estate RisksThe securities of issuers that are principally engaged in the real estate sector may be subject to risks similar to those associated with the direct ownership of real estate. These include: declines in real estate values, defaults by mortgagors or other borrowers and tenants,increases in property taxes and operating expenses, overbuilding, fluctuations in rental income, changes in interest rates, possible lack of availability of mortgage funds or financing, extended vacancies of properties, changes in tax and regulatory requirements (includingzoning laws and environmental restrictions), losses due to costs resulting from the cleanup of environmental problems, liability to thirdparties for damages resulting from environmental problems, and casualty or condemnation losses. In addition, the performance of thelocal economy in each of the regions in which the real estate owned by a portfolio company is located affects occupancy, market rentalrates and expenses and, consequently, has an impact on the income from such properties and their underlying values. No investmentstrategy or risk management technique can guarantee return or eliminate risk in any market environment.

The Sponsor makes no guarantee that the Fund will be able to achieve these targets in the long term. Targets are objectives and should not be construed as providing any assurance as to the results that may be realized in the future from investments in the Fund.Many factors affect Fund performance including changes in market conditions and interest rates and changes in response to othereconomic, political or financial developments. These targets are being shown for information purposes only and should not be reliedupon to make predictions of actual future performances. The information underlying any targets or other forecasts has been obtainedfrom or is based upon sources believed to be reliable, but the Sponsor assumes any responsibility for, or makes any representation orwarranty, express or implied as to the adequacy, accuracy or completeness of, any such information.

Important NoticeAny opinions, forecasts, projections or other statements, other than statements of historical fact that are made in this document areforward-looking statements. Actual events or results or the actual performance of the Fund may differ materially from those reflected or contemplated in such forward-looking statements. Accordingly, LaSalle makes no express or implied representation or warranty, and no responsibility is accepted with respect to the adequacy, accuracy, completeness or reasonableness of the facts, opinions,estimates, forecasts, or other information set out in this document or any further information, written or oral notice, or other document at any time supplied in connection with this document. All assumptions, figures and calculations contained in the information must beindependently verified by the professional investor and recipients should independently evaluate specific investments and strategies.

This information is intended to provide general information about common characteristics of open end real estate core funds. Thispublication does not constitute an offer to sell, or the solicitation of an offer to buy, any securities or any interests in investment fundssponsored by, or the advisory services of, LaSalle Investment Management and is subject to correction, completion and amendmentwithout notice. Any such offer, if made, will only be made by means of a confidential prospectus. The prospectus will include informationregarding investment risk and investors should have the financial ability and willingness to accept these risks. All information obtainedfrom third party sources is believed to be reliable and current, but accuracy cannot be guaranteed and we do not undertake to update any information contained in this document. All assumptions, figures and calculations contained in the information must be independently verified by the professional investor. This publication has been prepared without regard to the specific investmentobjectives, financial situation or particular needs of recipients. No legal or tax advice is provided. Recipients should independentlyevaluate specific investments and trading strategies and should engage its own legal, financial and tax advisors prior to investing inreal estate. By accepting receipt of this publication, the recipient agrees not to distribute, offer or sell this publication or copies of itand agrees not to make use of the publication other than for its own general information purposes.

Copyright © 2015 LaSalle Investment Management. All rights reserved. No part of this publication may be reproduced byany means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopyingand recording on magnetic tape, or included in any information store and/or retrieval system without prior permission ofLaSalle Investment Management.

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