TIAA Real Estate Account Exposure to Sub-Prime Mortgages

Recent articles in the press have raised concerns about the impact of subprime mortgage loans on real estate funds.  As such, we have provided background information on the TIAA-CREF Real Estate Account as well as information regarding the potential impact of subprime mortgage issues on the account.

Account Composition & Objective
The Real Estate Account seeks favorable long-term returns primarily through rental income and appreciation of real estate investments owned by the Account.  The Account generally invests between 75 percent and 90 percent of its assets directly in real estate or real estate-related investments, primarily through the purchase of direct ownership interests in income-producing real estate, such as office, industrial, retail, and multi-family residential properties.  The Account invests the remaining portion of its assets in government and corporate debt securities, money market instruments and other liquid securities.

Residential and Commercial Real Estate Market Conditions
It is important to consider that there are significant differences between residential and commercial real estate markets. Market conditions that apply to commercial properties tend to be tied more closely to broader measures of economic activity than to the specific circumstances that have contributed to problems in residential real estate markets, including a general loosening of home buyer credit underwriting standards and proliferation of non-traditional loan programs targeted at residential home buyers.

Despite a recent sharp downturn in residential real estate markets, commercial real estate market conditions have thus far retained a degree of relative stability, based on continued sound underlying fundamentals supporting current property valuations. However, sub-prime issues and tightening credit can have an indirect impact on property values, and thus, on the valuation of the Account.

TIAA Real Estate Account Sub-Prime Exposure
With respect to potential risks or exposure of the TIAA Real Estate Account to difficulties that may arise as related to sub-prime mortgages, different types of holdings in the Account may be considered on a separate basis:

• Direct Real Estate.  Directly owned commercial real estate properties, which make up the majority of Account holdings, have no direct exposure to any sub-prime asset classes.
  
• Short-term Securities.  Short-term holdings, including government or corporate debt or money market instruments, have no direct exposure to any sub-prime asset classes.
  
• REITs.  REITs.  While the majority of REITs invest primarily in direct real estate properties, some REITs invest in commercial and residential mortgages and therefore may carry some exposure to sub-prime mortgages. REIT holdings represented 3.1% of total Account assets as of September 30, 2007.

Broader Implications of Sub-Prime Issues and Market Volatility
Although commercial real estate markets may enjoy a degree of protection against events affecting residential real estate markets, the economic impact of problems relating to sub-prime mortgages has spread on a global basis and has the potential to cause disruptive effects among broader financial markets and institutions, including real estate-related and other sectors throughout the economy.  Commercial real estate markets, like other economic markets, depend upon regular access to capital to function effectively and may be negatively impacted if sources of financing are restricted or become more expensive due to increasing interest rates.  In addition, valuations of directly-owned commercial real estate properties may be negatively impacted due to a general re-pricing of risk associated with recent market events.

Investing in Commercial Real Estate – Keeping a Long Term Focus
While direct exposure to commercial real estate remains an effective source of diversification in relation to investments in other asset classes, investors should be aware that strong commercial real estate returns in recent years have exceeded long term average rates of return for the asset class.  A degree of moderation in commercial real estate returns is likely to occur, irrespective of conditions existing in residential real estate markets.  TIAA-CREF encourages investors to maintain well-balanced exposure across asset classes and to avoid chasing good performance achieved in prior periods within specific asset classes. 

TIAA-CREF remains focused on developing conditions within residential real estate, sub-prime mortgage, and broader financial markets.  We will continue to seek to provide highly competitive performance within the TIAA Real Estate Account while closely managing and monitoring potential risk exposures. 

The real estate industry is subject to various risks: for a detailed discussion of these risks and other information, please consult the prospectus.

The TIAA Real Estate Account, a variable annuity account designed for retirement savings or for other long-term goals, has filed a registration statement (including a prospectus) with the Securities and Exchange Commission (SEC). Before you invest, you should read the prospectus in that registration statement; along with other documents the account has filed with the SEC, for more complete information about the TIAA Real Estate Account and its offering of securities. You may get these documents for free by visiting EDGAR on the SEC website (www.sec.gov). You may also request the prospectus by calling toll-free 800 842-2776, or download a PDF copy at http://www.tiaa-cref.org/pdf/prospectuses/realestate_prosp.pdf.

TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc. distribute securities products. You should consider the investment objectives, risks, charges and expenses carefully before investing. Please http://www.tiaa-cref.org/pdf/prospectuses/realestate_prosp.pdf or call 1 877 518-9161 for a prospectus that contains this and other information. Please read the prospectus carefully before investing. Annuity products issued by TIAA (Teachers Insurance and Annuity Association), New York, NY.