Investment Approach

Our real estate operations' approach to investing is guided by some core investment principles, many of which are similar to our corporate private equity operation, including global scope, focus on large transactions, significant number of exclusive opportunities, superior financing expertise and operations oversight. In addition, our real estate investment approach includes:

Flexible Investment Strategy
Our real estate investments have been made in a variety of sectors, geographic locations and business climates and run the gamut from acquisitions of single assets to acquisitions of large, multi-asset public companies and from stable assets to assets that require repositioning or extensive overhaul. Our real estate opportunity funds have made a significant number of investments in lodging, major urban office buildings, residential properties, distribution and warehousing centers and a variety of real estate operating companies. This broad investment mandate allows us to source and execute unique and complex transactions, including direct equity investments in real property, debt investments secured by real estate, privately placed real estate securities, joint ventures and real-estate operating companies.

Institutional Quality Assets with Temporary Flaws
We try to identify well-located institutional quality properties that suffer from temporary or correctable flaws in their tenancy, physical attributes, capital structures, market position and/or management. By exploiting the pricing and operating inefficiencies inherent in assets of this nature and employing intensive asset management to correct the identified flaws, we can reposition such assets for subsequent sale to institutional investors at attractive pricing.

Complex Situations Requiring Creative Solutions
We believe that our ability to source, evaluate and execute complex transactions within a short time frame is one of our competitive advantages. We focus on finding creative solutions to complex situations involving under-performing and/or improperly capitalized assets in an effort to both make investments at attractive valuations and to create incremental value in the investment.

Real Estate Asset Management Oversight
We have 11 professionals solely dedicated to real estate asset management. Regional asset management teams are deployed in various areas and industries such as a European hotel real estate team and a Scandinavian office buildings team. We use our asset management team extensively in our investment analysis process, and we specifically seek out investment opportunities where we can leverage the skills and expertise of our asset management professionals. We also seek to partner with real estate operators who have specific knowledge and insight into local real estate markets or asset classes. These partners not only provide us with hands-on operating knowledge and expertise, but are also a source of proprietary deal flow.

Joint Acquisitions with Corporate Private Equity
We believe that we benefit from the ability to combine the investment capabilities of our real estate opportunity funds with our corporate private equity funds when investing in operating companies that have significant real estate assets. Among the transactions in which the two operations have partnered are the acquisitions of Hilton Hotels Corporation, Center Parcs Ltd., a U.K. leisure park business, Extended Stay America, Inc., a U.S. hotel business, Southern Cross/NHP, a U.K. care home business, and Spirit Group Ltd., a U.K. pubs business.

Theme-Oriented Investments
We regularly monitor real estate markets in an effort to identify and develop the most promising investment themes based on asset class, geography or targeted groups of sellers. We believe this allows us to develop expertise rapidly within special areas, to react quickly to potential opportunities and to develop relationships with key partners. We have often been able to anticipate promising new investment themes before they become generally appreciated. We were among the first to purchase assets from the Resolution Trust Corporation in the early 1990s, to execute large-scale investments in real estate companies and REITs, to identify the post-2001 recovery in lodging and to anticipate the appreciation of the value of central business district office buildings in the 2004-2006 time periods.

Public-to-Private Transactions
Since 2004 our real estate opportunity funds completed a total of 13 going-private acquisitions of publicly-traded real estate companies. While to date the majority of our public-to-private transactions have focused on hotel, residential property and industrial companies and office REITs, future targets may include other real estate intensive businesses (either alone or in partnership with our corporate private equity funds). We believe that overhead savings, wholesale to retail discounts, financing improvements, tax savings, revenue enhancements, operational efficiencies and unexploited land or assets can be found in many public real estate-related companies.

Hotel Repositionings
Over the last 15 years, our real estate opportunity funds have been among the largest buyers and sellers of hotels in the world, having acquired 4,730 hotels (including both leisure and hotel investments) with approximately 743,500 rooms and a value of approximately $57 billion. These investments have included all segments of the lodging industry, from limited service to five-star, super-luxury hotels. We believe that a substantial portion of our success in the sector can be attributed to the operating platform that we have created to manage our hotel acquisitions. We provide in-house operating expertise in every facet of the business, including revenue enhancement and yield management initiatives, cost restructuring, redeployment of food and beverage operations, marketing, technology (particularly reservation systems and Internet-related functions), special amenities such as spas, health clubs and golf, and capital investments in renovations and building additional rooms. In addition, our real estate asset management team has combined numerous selected hotel properties acquired by our funds (either directly or through our acquisition of hotel companies) to form the LXR Luxury Resorts & Hotels chain of luxury hotels.

Global Opportunities
Our real estate business is a global operation that pursues real estate opportunities throughout the world. In Europe, we work from our operating base in London and an office in Paris and we deploy professionals throughout Europe. We have offices in Mumbai, Tokyo and Hong Kong. Approximately 23.5% of the $13.1 billion of aggregate capital invested by our real estate opportunity funds in the three years ended September 30, 2008 has been invested outside the United States.

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