Morgan Stanley Real Estate

Real Estate Capital Markets

16 June 2009

Capital Market Themes

•Although credit markets have improved, they remain structurally impaired and selective–Banking system’s capacity to provide capital appears to be decreasing–TALF-related promise in the securitization markets yet to be fully realized–Preference for higher quality names and more defensive sectors•As such, balance sheet focus and liquidity remain the biggest areas of investor focus–Fundamentals are assumed to be bad•Transaction activity around the balance sheet de-risking / repair theme–Transformational and across all asset types–Global theme across sectors (real estate, auto parts, basic materials, utilities, etc)–Select issuers raising opportunistic capital•Investors are rewarding proactive capital raising in the face ofuncertain environment–Stocks responding positively to issuances at historically low prices–What is dilution?•Beyond the equity markets, both the convertible and public bond markets are showing positive signs–Convertible market driven by fundamental interest at more normalized pricing (“best way to play therebound”)–Straight debt market, both IG and HY, open at market clearing yields despite recent pullback

Government Action Mending the Markets?

3•Public equity markets tradingup significantly since Marchlows –S&P500 is up 36% from alow on March 9

•Short interest has increasedsubstantially through thedownturn•Government asset resolutionprograms are starting to havean impact–helping to re-openthe investment grade creditmarkets –Issuance volumes improvingsince December –Credit spreads have declinedmaterially since March