Lionstone Group and California State Teachers' Retirement System Create $100 Million Discretionary Real Estate Investment Fund.

HOUSTON -- The Lionstone Group, a research-based real estate investment firm, announced today that it has formed a discretionary $100 million real estate investment fund with California State Teachers' Retirement System (CalSTRS). The fund, which is known as Lionstone Cash Flow Office Two, marks Lionstone's first commitment from CalSTRS. CalSTRS commitment can grow to more than $500 million over time with Lionstone contributing one percent of the total equity. This combined equity added to debt of up to 50% LTV brings the total buying power of the fund to approximately $1 billion.

Lionstone's Cash Flow Office One fund with Oregon Public Employees Retirement Fund (OPERF) has consistently exceeded NCREIF returns since inception in 2002. Both Cash Flow Office Funds target high-occupancy office buildings in 'permanent' locations of major U.S. cities.

"We are very happy to be working with CalSTRS on this new fund. With the success of our first office fund, we have proven our investment thesis and further refined our investment process to pinpoint locations that produce buildings with lower risk," said Lionstone Principal Dan Dubrowski.

In December 2002, OPERF committed $75 million in Cash Flow Office One with the expectation that Lionstone would invest the capital within 24 months. Lionstone invested over 80% of the capital within 12 months at returns above projection. OPERF expanded its funding in Cash Flow Office One in 2004. Cash Flow One has now invested over $200 million of equity and owns 20 buildings around the country valued at $550 million.

"CalSTRS is looking forward to a successful partnership with Lionstone. We believe the management team is very entrepreneurial and their skill set will enable CalSTRS to continue growing a core real estate portfolio," said CalSTRS Portfolio Manager Michael Thompson.

"We are honored to have such a leading institution as the California State Teachers Retirement System as one of our investors," said Lionstone Principal Glenn Lowenstein.

Formed in 2001 by partners Dubrowski, Lowenstein, and Tom Bacon, the Lionstone Group is a limited partnership that creates national investment strategies through primary research. Each Lionstone strategy is executed by dedicated teams with discretionary capital. Cash Flow Office was the firm's first strategy. A second strategy, Urban Core, was formulated for 2004.

With a $142 billion investment portfolio, the California State Teachers' Retirement System is the second-largest public pension fund in the United States. It provides retirement, disability and survivor benefits to California's 776,000 public school educators from kindergarten through community college.