Operating in a

Market

CoreNet GlobalMid-Atlantic Chapter

January 25, 2012

Global

2

Introductions

Moderator: Eric Thorpe, Managing Partner, Terra Novo LLC

Panelists: Barry Beswick, Regional Director, Capital One

Pierce DeGross, Vice President, Global Workplace Services, Hilton Worldwide

Thierry Delvaux, Managing Director – International Desk, Jones Lang LaSalle

Jo Ann Lane, Global Real Estate Leader, Genworth

Pete Stanford, Managing Director, Principal, Cassidy Turley

3

Global Trends Impacting CRE

Demographic Drivers– China, Europe, Japan, Russia

– Africa, Brazil, India, Indonesia, US

Cultural and political evolution– India, Middle East, Latin America

Economic Challenges– Business continuity, debt, education,

natural resources, trade

Service provider industry– Present structure is a North American

and West European model

4

Global Demographic and Debt Data

Country Fertility Rate Net Migration

Death Rate

Population Growth Rate

Public Debt / GDP

United States 2.06 4.18 8.38 0.96 68.9%

Brazil 2.18 -0.09 6.36 1.13 57.5%

Canada 1.58 5.65 7.98 0.79 82.0%

China 1.54 -0.33 7.03 0.49 17.4%

India 2.62 -0.05 7.48 1.34 55.2%

Indonesia 2.25 -1.15 6.26 1.07 25.6%

Japan 1.21 0 10.09 -0.28 200.5%

Russia 1.42 0.29 16.04 -0.47 9.0%

South Korea 1.23 0 6.26 0.23 23.6%

Sources: CIA World Fact Book, 2011 Estimates; The Economist, Global Debt Clock, 2011 Estimates.1Note: Debt figures are derived from national definitions and therefore may vary from country to country.

5

Overview

Operating in a Global Market – A General Perspective Case Studies – CRE projects from around the globe

– Shanghai, China– Tokyo, Japan– Glasgow, Scotland– Shannon, Ireland– Mexico City, Mexico– Bangalore, India

Key Lessons Learned Question and Answer Session

6

Americas Asia PacificEMEA

Key International Markets

7

% of occupied stock

Offices – Net Absorption, Year to Q3 2011

Source: Jones Lang LaSalle, October 2011. Covers all office sub-markets in each city. Tokyo - CBD-3 kus

AmericasEMEA

Asia Pacific

8

Completions as % of existing stock

Source: Jones Lang LaSalle, October 2011. Covers all office sub-markets in each city. Tokyo - CBD-3 kus

Office Supply Pipeline - Major Markets, 2012 - 2013

2012

2013

9

% change q-o-q

Global Office Index – Prime Rents

Based on rents for Grade A space. In local currency. Source: Jones Lang LaSalle, October 2011.

Global Top 10 Performers in Q3 2011

Americas EMEA

Asia Pacific

10

Global Office Index – Prime Rents

Global Top 10 Performers in Q3 2011

Based on rents for Grade A space. In local currency. Source: Jones Lang LaSalle, October 2011.

AmericasEMEAAsia Pacific

% change q-o-q

11

Q3 2011

Rental Value

growth slowing

Rental Value growth

accelerating

Rental Values bottoming out

Rental Values falling

Based on rents for Grade A space in CBD or equivalent. In local currency.As of Q3 2011

Paris, StockholmMumbai, Sydney, Tokyo

Hong Kong

London, Shanghai

Milan, Johannesburg

Chicago Madrid, Seoul

Rental Value growth slowing

Rental Values falling

Rental Value

growth accelerati

ng

Rental Values bottoming out

Detroit

Los Angeles

Amsterdam

San FranciscoBerlin

Moscow

Q3 2010

Mexico City

SingaporeNew York, Brussels, Frankfurt

Atlanta, Dallas, Toronto, RomeDubai

Washington DC

Sao PauloBeijing

Detroit Dubai, Seoul

San Francisco

New York

Washington DC, Toronto Milan

Dallas, Mumbai

Atlanta, Frankfurt Johannesburg

ChicagoRomeTokyo

Los Angeles AmsterdamBrussels

MadridBerlin, Sydney

Stockholm

Sao PauloParis

Beijing

London

Moscow

Mexico City

Hong Kong

Singapore

Shanghai

AmericasEMEAAsia Pacific

Prime Offices – Rental Clock, Q3 ‘10 vs Q3 ‘11

12

Case Study – Shanghai, CHINA Project Objective

– Determine if existing 12,500 RSF office should be expanded or relocated to accommodate a rapidly growing China business

Challenges– Market dynamics: high vacancy moving to low in 1 year– Speed of decision making required balancing business risks– New internal role for CRE in location where decisions were

localized– Instituting new workplace design

Value Delivered– Negotiated a smart expansion in adjacent space on floor with growth capability– Leveraged internal Hotel Design/Const. team along with JLL PM to design new workplace– Engaged Regional leaders to assist in socializing new workplace design with leaders in

Shanghai– Leveraged regional outside legal counsel to help manage through interesting market led

legal discussions Key Lessons Learned

– Seek pre-approval for any Asia project given market dynamics (multiple country experience)– Over communicate with key stakeholders in China given distance and lack of face time– Increase accountability/ownership of decisions

13

Case Study – Tokyo, JAPAN Project Objective

– Relocate existing 15K RSF Tokyo office to larger space in newer building Challenges

– Occupy space in 5 suites on 4 floors in 1950’s building – Rapidly growing business with no good expansion capability– Earthquake concerns paramount given March 2011 quake– Old IT infrastructure supporting multiple locations

Value Delivered– Relocated to new larger 16K RSF space at same rental cost– Ability to get entire operation on one floor with expansion

capability– Instituted new workplace design and enhanced IT infrastructure to better support the

business– Located two blocks away from our current hotel property – Achieved sustainability goals given very advanced building systems (HVAC, lighting, etc.)

Key Lessons Learned– Spend time gaining trust of local decision makers while aligning with regional leaders to

ensure success– Go to market as one-team with clear goals/objectives and understanding of who is leading

transaction– Take the time to understand the local business custom

14

Case Study – Glasgow, SCOTLAND Project Objective

– Determine what to do with existing 37K RSF office with upcoming lease expiration and changing business objectives (multi. Stakeholders)

Challenges– Legacy global back-office space with changing role– Dynamic headcount situation and some business

uncertainty– IT challenges with location supporting operations in

other countries– Tired facility with non-conventional owner/landlord

Value Delivered– Aided business leaders in understanding headcount

dynamics and solidifying “end-state” population– Achieved lease flexibility - able to terminate the new

on 35% of space in 2 years with improved lease economics on a 5-year lease– Obtained internal capital to do a much needed upgrade

while getting landlord to improve the exterior Key Lessons Learned

– Get to know your Landlord and local business custom up front – Don’t let the past drive the future– Sometimes projects take longer than normal and build that into your plan

15

Case Study – Shannon, IRELAND Project Objective

– Upgrade/Modernize EU Ops/AP Center and manage long-term business growth and productivity

Challenges– EU Debt Crisis impact on cost approval / funding by government & LL

– Government Incentives

– Options: Build-to-Suit vs. new 1st gen vacant building vs. 30Y old facility

Value Delivered– Comprehensive review of current site capital maintenance

program

– Negotiation leverage of competing options

– Due diligence/Structural survey for new 1st gen vacant building

– Lease vs. Purchase proforma financial analysis

Key Lessons Learned– Irish government bureaucratic process

– GNW business relationships with LL/local government officials

– Free Zone tax and business benefits

16

Case Study – Mexico City, MEXICO Project Objective

– Manage immediate business growth, improve long-term secured office environment /release HQ guaranty

Challenges– Existing premises cannot house immediate growth in contiguous space – Create negotiation leverage with current LL for renewal vs. relocation – Cost implications of upgrading office environment

Value Delivered– New 1st Gen full floor office with improved space

efficiency – Lowered the effective occupancy cost vs. renewal

turn-key build-out & no dilapidations– Improved office environment - life safety systems, – client service and employee amenities– Safety/security upgrades – adjoining hotel and

transportation access to airport Key Lessons Learned

– Importance of safety/security for both local business and visiting HQ leadership– Culture impact on LL negotiations/competitive process– Space efficiency and effective occupancy cost to gain project approval

17

Case Study – Bangalore, INDIA Project Objective

– Relocate employees from 2 existing locations into new 60K SF office

Challenges– International-quality space inside Special Economic Zone– Employees of recently acquired entity had to move on

specific date– Significant facility/communications upgrades over

previous site– Incredibly dense bureaucratic processes, especially

SEZ rules Value Delivered

– New environment to accommodate doubled size of staff in India– Brought many “corporate standards” into design & fit-up– Introduced new employees into culture during move process– New space/location became recruiting tool for further growth

Key Lessons Learned– Remote project management difficult under best circumstances – get used to ‘0-Dark:30’

conf. calls– Value presence/knowledge of local management – Inclusiveness is critical – win over the locals to become part of the solution

18

Key Lessons Learned

Synergy of Corporate HQ & Service Provider is critical to success

Respect the local culture Precise communication and discipline process is

magnified Landscape of competent service providers is

constantly changing – “best-in-class” partners endure regardless of brand or business card

Multiple local service providers may be necessary in certain countries

19

Most Importantly… Expect the Unexpected!

20

Operating in a Global Market

Question and Answer Session

21

Thank you to our Sponsors!PINNACLE SPONSORS:

GOLD SPONSORS:

22

Thank you to our Sponsors!SILVER SPONSORS:

BRONZE SPONSORS:

23

Appendix

24

Key Business Term Differences

US/Canada Process International Custom

Process Lead Time 6-7 Months 9 Months +

Rentable Area of Premises 12-15% Add-On FactorEfficiency Ratio of 50-100% =

Up to 200% Add-On Factor

Lease Term 5 Year with 3 Year/Break OptionVaries by Country

1-20 Years, Statutory Law

Currency US/Canadian $Varies by Country – Local Currency

Inflation Risk

Tenant Improvements Landlord Completes “Turnkey”No LL Contribution to Costs, Process

Managed by Tenant

Security Deposit Negotiated – Typically None1-6 Months Required (or Bank

Guarantee)

Legal Review of Lease Completed Internally Outside Counsel Necessary

Taxes Typically None VAT/IVA/GST – 5% to 22%

End of Lease Term Remove Wiring, or None “Dilapidations” or “Make Good”

25

Process Challenges

Independent Client Business Units, weak ties to Corporate alignment

Limited HQ understanding of local customs and practices Variety of Language, Customs & Culture, Time Zones Markets with Very Low Vacancy, Non-Transparent processes Business Development – fluid business requirements in new

countries Role of Local Broker in Process can vary by country Legal conflicts (outside/local counsel vs. Corporate legal

policies) EHS/Life Safety conflicts (new country security vs. Corporate

policies)

26

Country Reading Scale Math Scale Science Scale

United States 500 487 502

Brazil 412 386 405

Canada 524 527 529

China (Shanghai) 556 600 575

India1 337/317 351/338 348/325

Indonesia 402 371 383

Japan 520 529 539

Russia 459 468 478

South Korea 539 546 538

OECD Average 493 496 501

Source: OECD Programme for International Student Assessment (PISA) 2009 Plus Results.1Note: Data is not consistent with that from other countries. Includes Tami-Nadu and Himachal Pradesh only.

• Statistically significantly above the OECD average

• Not statistically significantly different from the OECD average

• Statistically significantly below the OECD average

Global Education Data

27

Office Vacancy Rates - Major Markets, Q3 2011

0

5

10

15

20

25To

ront

o

Sao

Paul

o

New

Yor

k

Mex

ico

City

Was

hing

ton

DC

San

Fran

cisc

o

Los

Ange

les

Chi

cago

Bost

on

Lond

on

Paris

Stoc

khol

m

Mad

rid

Brus

sels

Fran

kfur

t

Mos

cow

Toky

o C

BD

Hon

g Ko

ng

Sing

apor

e

Shan

ghai

Beijin

g

Sydn

ey

Mum

bai

Europe 10.2% Asia Pacific 10.2%

Regional vacancy rates based on 46 markets in the Americas, 24 markets in Europe and 24 markets in Asia Pacific.Covers all office sub-markets in each city. All grades except Asia and Latin America (Grade A only). Tokyo relates to CBD only.Source: Jones Lang LaSalle, October 2011

Americas 16.9%%

28

Global Office Market Conditions Matrix*, 2011-13

* Relates to conditions in the overall office market of a city. Conditions for prime CBD space may differ from the above. Source: Jones Lang LaSalle, October 2011

Market MARKET

Chicago Brussels Beijing

Los Angeles Frankfurt Hong Kong

New York London Mumbai

San Francisco Madrid Shanghai

Toronto Moscow Singapore

Washington DC Paris Sydney

Mexico City Stockholm

Sao Paulo Dubai

2011 2012 2013 Market 2011 2012 2013 Market 2011 2012 2013

Tenant FavourableNeutral MarketLandlord Favourable

Tokyo

29

Global Office Index – Prime Rents, 2008-2011R

enta

l Cha

nge

(% Q

oQ)

Asia Pacific – stock weighted average of 27 markets; Americas – stock weighted average of 30 markets: Europe – stock weighted average of 24 marketsGlobal Index based on GDP weighted average of the three regional indicesSource: Jones Lang LaSalle, October 2011

30

% change

Prime Offices – Rental Change, Q3 ‘10 – Q3 ‘11

Based on rents for Grade A space in CBD or equivalent. In local currency.Source: Jones Lang LaSalle, October 2011.

Americas EMEA

Asia Pacific

31

GDP Change, % pa

Demand Drivers – GDP Change, 2012-2013

Source: IHS Global Insight, Experian, Jones Lang LaSalle, Conference Board of Canada, Deloitte Access Economics, October 2011.

Americas EMEA

Asia Pacific