Tiaa Real Estate Account 10-Q 2009 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009

OR

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

Commission file number: 33-92990; 333-158136

TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)

NEW YORK
(State or other jurisdiction of
incorporation or organization)

NOT APPLICABLE
(I.R.S. Employer Identification No.)

C/O TEACHERS INSURANCE AND
ANNUITY ASSOCIATION OF AMERICA
730 THIRD AVENUE
NEW YORK, NEW YORK 10017-3206
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (212) 490-9000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YESS NO£

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES£ NO£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer£	Accelerated filer£
Non-accelerated filerS	Smaller Reporting Company£
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES£ NOS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

INDEX TO UNAUDITED FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
JUNE 30, 2009

	Page
Statements of Assets and Liabilities		3
Statements of Operations		4
Statements of Changes in Net Assets		5
Statements of Cash Flow		6
Notes to the Financial Statements		7
Statement of Investments		22

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TIAA REAL ESTATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
(In thousands, except per accumulation unit amounts)

	June 30, 2009			December 31, 2008
	(Unaudited)
ASSETS
Investments, at value:
Real estate properties (cost: $10,007,894 and $10,031,744)		$	8,779,353		$	10,305,040
Real estate joint ventures and limited partnerships (cost: $2,350,351 and $2,329,850)			1,762,729			2,463,196
Marketable securities:
Other (cost: $490,067 and $511,703)			490,095			511,711
Mortgage loan receivable (cost: $75,000 and $75,000)			68,279			71,767
Total investments (cost: $12,923,312 and $12,948,297)			11,100,456			13,351,714
Cash and cash equivalents			18,270			22,127
Due from investment advisor			1,716			—
Other			184,258			203,113
TOTAL ASSETS			11,304,700			13,576,954
LIABILITIES
Mortgage loans payable—Note 7 (principal outstanding: $1,936,540 and $1,910,121)			1,843,707			1,830,040
Payable for securities transactions			23			108
Due to investment advisor			—			9,892
Accrued real estate property level expenses			133,727			203,874
Security deposits held			24,794			24,116
TOTAL LIABILITIES			2,002,251			2,068,030
NET ASSETS
Accumulation Fund			9,000,544			11,106,246
Annuity Fund			301,905			402,678
TOTAL NET ASSETS		$	9,302,449		$	11,508,924
NUMBER OF ACCUMULATION UNITS OUTSTANDING— Notes 8 and 9			40,801			41,542
NET ASSET VALUE, PER ACCUMULATION UNIT—Note 8		$	220.60		$	267.35

See notes to the financial statements.

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TIAA REAL ESTATE ACCOUNT
STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2009				2008				2009				2008
INVESTMENT INCOME
Real estate income, net:
Rental income		$	238,699			$	250,966			$	480,489			$	493,807
Real estate property level expenses and taxes:
Operating expenses			55,283				64,381				121,379				127,937
Real estate taxes			32,776				33,423				67,953				66,751
Interest expense			26,624				20,942				51,668				41,787
Total real estate property level expenses and taxes			114,683				118,746				241,000				236,475
Real estate income, net			124,016				132,220				239,489				257,332
Income from real estate joint ventures and limited partnerships			30,438				37,733				60,245				68,624
Interest			483				19,728				995				54,179
Dividends			—				1,238				—				5,079
TOTAL INVESTMENT INCOME			154,937				190,919				300,729				385,214
Expenses—Note 2:
Investment advisory charges			11,153				14,170				21,021				26,602
Administrative and distribution charges			8,851				21,866				21,213				43,927
Mortality and expense risk charges			1,232				2,153				2,606				4,347
Liquidity guarantee charges			3,272				5,166				6,020				12,187
TOTAL EXPENSES			24,508				43,355				50,860				87,063
INVESTMENT INCOME, NET			130,429				147,564				249,869				298,151
REALIZED AND UNREALIZED (LOSS) GAIN ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
Net realized (loss) gain on investments:
Real estate properties			(8	)			4,480				(16,886	)			4,628
Real estate joint ventures and limited partnerships			—				—				—				(17	)
Marketable securities			1				(12,405	)			1				(11,211	)
Total realized loss on investments			(7	)			(7,925	)			(16,885	)			(6,600	)
Net change in unrealized (depreciation) appreciation on:
Real estate properties			(609,089	)			(91,679	)			(1,501,837	)			(48,878	)
Real estate joint ventures and limited partnerships			(469,617	)			(49,557	)			(703,083	)			(93,260	)
Marketable securities			(10	)			10,413				18				15,202
Mortgage loan receivable			(1,426	)			(1,385	)			(3,488	)			(799	)
Mortgage loans payable			(86,010	)			39,064				(15,322	)			4,354
Net change in unrealized depreciation on investments and mortgage loans payable			(1,166,152	)			(93,144	)			(2,223,712	)			(123,381	)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND MORTGAGE LOANS PAYABLE			(1,166,159	)			(101,069	)			(2,240,597	)			(129,981	)
NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		$	(1,035,730	)		$	46,495			$	(1,990,728	)		$	168,170

See notes to the financial statements.

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TIAA REAL ESTATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands)
(Unaudited)

	For the Three Months Ended June 30,								For the Six Months Ended June 30,
	2009				2008				2009				2008
FROM OPERATIONS
Investment income, net		$	130,429			$	147,564			$	249,869			$	298,151
Net realized loss on investments			(7	)			(7,925	)			(16,885	)			(6,600	)
Net change in unrealized depreciation on investments and mortgage loans payable			(1,166,152	)			(93,144	)			(2,223,712	)			(123,381	)
NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS			(1,035,730	)			46,495				(1,990,728	)			168,170
FROM PARTICIPANT TRANSACTIONS
Premiums			180,227				265,096				369,865				550,135
Purchase of Liquidity Units by TIAA			271,700				—				1,058,700				—
Net transfers to TIAA			(102,740	)			(252,196	)			(453,190	)			(376,642	)
Net transfers to CREF Accounts			(305,272	)			(233,174	)			(885,626	)			(521,480	)
Net transfers to TIAA-CREF Institutional Mutual Funds			(43,236	)			(50,498	)			(96,379	)			(81,349	)
Annuity and other periodic payments			(10,429	)			(21,979	)			(25,313	)			(46,929	)
Withdrawals and death benefits			(79,325	)			(143,482	)			(183,804	)			(290,845	)
NET DECREASE IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS			(89,075	)			(436,233	)			(215,747	)			(767,110	)
NET DECREASE IN NET ASSETS			(1,124,805	)			(389,738	)			(2,206,475	)			(598,940	)
NET ASSETS
Beginning of period			10,427,254				17,451,335				11,508,924				17,660,537
End of period		$	9,302,449			$	17,061,597			$	9,302,449			$	17,061,597

See notes to the financial statements.

5

TIAA REAL ESTATE ACCOUNT
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	For the Six Months Ended June 30,
	2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net (decrease) increase in net assets resulting from operations		$	(1,990,728	)		$	168,170
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Purchase of real estate properties			—				(164,087	)
Capital improvements on real estate properties			(69,547	)			(62,165	)
Proceeds from sale of real estate properties			28,880				23,421
Purchases of long term investments			(12,012	)			(53,280	)
Proceeds from sale of long term investments			—				480,832
Decrease in other investments			31,032				221,858
Decrease in payable for securities transactions			(85	)			(745	)
Change in due (from) to investment advisor			(11,608	)			18,831
Decrease in other assets			18,855				24,445
Decrease in accrued real estate property level expenses			(22,517	)			(12,991	)
Increase (decrease) in security deposits held			678				(39	)
Net realized loss on total investments			16,885				6,600
Unrealized depreciation on investments and mortgage loans payable			2,223,712				123,381
NET CASH PROVIDED BY OPERATING ACTIVITIES			213,545				774,231
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of mortgage loans payable			(1,655	)			(363	)
Premiums			369,865				550,135
Purchase of Liquidity Units by TIAA			1,058,700				—
Net transfers (to) from TIAA			(453,190	)			(376,642	)
Net transfers (to) from CREF Accounts			(885,626	)			(521,480	)
Net transfers to TIAA-CREF Institutional Mutual Funds			(96,379	)			(81,349	)
Annuity and other periodic payments			(25,313	)			(46,929	)
Withdrawals and death benefits			(183,804	)			(290,845	)
NET CASH USED IN FINANCING ACTIVITIES			(217,402	)			(767,473	)
NET (DECREASE) INCREASE IN CASH			(3,857	)			6,758
CASH
Beginning of period			22,127				6,144
End of period		$	18,270			$	12,902
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest		$	51,161			$	41,752

See notes to the financial statements.

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TIAA REAL ESTATE ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS

Note 1—Organization and Significant Accounting Policies

Business:The TIAA Real Estate Account (“Account”) is a segregated investment account of Teachers Insurance and Annuity Association of America (“TIAA”) and was established by resolution of TIAA’s Board of Trustees (the “Board”) on February 22, 1995, under the insurance laws of the State of New York, for the purpose of funding variable annuity contracts issued by TIAA. The Account offers individual and group accumulating annuity contracts (with contributions made on a pre-tax or after-tax basis), as well as individual lifetime and term-certain variable payout annuity contracts (including the payment of death benefits to beneficiaries). Investors are entitled to transfer funds to or from the Account, and make withdrawals from the Account on a daily basis under certain circumstances. Funds invested in the Account for each category of contract are expressed in terms of units, and unit values will fluctuate depending on the Account’s performance.

The investment objective of the Account is a favorable long-term rate of return primarily through rental income and capital appreciation from real estate investments owned by the Account. The Account holds real estate properties directly and through wholly-owned subsidiaries. The Account also holds interests in real estate joint ventures and limited partnerships in which the Account does not hold a controlling interest; as such, such interests are not consolidated for financial statement purposes. The Account also invests in mortgage loans receivable collateralized by commercial real estate properties. The Account also invests in publicly-traded securities and other instruments to maintain adequate liquidity levels for operating expenses, capital expenditures and to fund benefit payments (withdrawals, transfers and related transactions).

The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America which may require the use of estimates made by management. Actual results may vary from those estimates. The following is a summary of the significant accounting policies of the Account.

Basis of Presentation:The accompanying financial statements include the Account and those subsidiaries wholly-owned by TIAA for the benefit of the Account. All significant intercompany accounts and transactions between the Account and such subsidiaries have been eliminated.

Accounting for Investments at Fair Value:In September 2006, FASB issued Statement No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements. This Statement was effective as of January 1, 2008 for the Account. The adoption of Statement No. 157 did not have a material impact on the Account’s financial position or results of operations.

In February 2007, FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits entities to choose to measure financial instruments and certain other items at fair value and expanded the use of fair value measurements when warranted. The Account adopted Statement No. 159 on January 1, 2008 and reports all existing and plans to report all future mortgage loans payable at fair value. The adoption of Statement No. 159 did not have a material impact on the Account’s financial position or results of operations.

Valuation Hierarchy:In accordance with FASB Statement No. 157, “Fair Value Measurements”, the Account groups financial assets and certain financial liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, if any, and the observability of the assumptions used to determine fair value. These levels are:

Level 1—Valuations using unadjusted quoted prices for assets traded in active markets, such as stocks listed on the New York Stock Exchange. Active markets are defined as having the following characteristics for the measured asset or liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information regarding the issuer is publicly available. Level 1 assets, which may be held by the Account from time to time, include real estate related marketable securities (such as publicly traded REIT stocks).

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Level 2—Valuations for assets and liabilities traded in less active, dealer or broker markets. Fair values are primarily obtained from third party pricing services for identical or comparable assets or liabilities. Level 2 inputs for fair value measurements are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include:

a. Quoted prices for similar assets or liabilities in active markets;

b. Quoted prices for identical or similar assets or liabilities in markets that are not active (that is, markets in which there are few transactions for the asset (or liability), the prices are not current, price quotations vary substantially either over time or among market makers (for example, some brokered markets), or in which little information is released publicly);

c. Inputs other than quoted prices that are observable within the market for the asset (or liability) (for example, interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates that are observable at commonly quoted intervals); and

d. Inputs that are derived principally from or corroborated by observable market data by correlation or other means (for example, market-corroborated inputs).

Examples of securities which may be held by the Account and included in Level 2 include Certificates of Deposit, Commercial Paper, Government Agency Notes and Variable Notes.

Level 3—Valuations for assets and liabilities that are derived from other valuation methodologies, including pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections that are not observable in the market, and require significant professional judgment in determining the fair value assigned to such assets or liabilities. Examples of Level 3 assets and liabilities which may be held by the Account from time to time include investments in real estate, investments in joint ventures and limited partnerships, mortgage loan receivable and mortgage loans payable.

An investment’s categorization within the valuation hierarchy described above is based upon the lowest level of input that is significant to the fair value measurement.

The Account’s investments and mortgage loans payable are stated at fair value. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon vendor-provided, evaluated prices or internally-developed models that primarily use market-based or independently-sourced market data, including interest rate yield curves, market spreads, and currency rates. Valuation adjustments will be made to reflect changes in credit quality, a counterparty’s creditworthiness, the Account’s creditworthiness, liquidity, and other observable and unobservable data that are applied consistently over time.

The methods described above are considered to produce fair values that represent a good faith estimate of what an unaffiliated buyer in the marketplace would pay to purchase the asset or would receive to transfer the liability. Since fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, actual realizable values or future fair values may differ from amounts reported. Furthermore, while the Account believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments, while reasonable, could result in different estimates of fair value at the reporting date. As discussed below in more detail, as the Account generally obtains independent external appraisals on a quarterly basis, there may be circumstances in the interim in which the true realizable value of a property is not reflected in the Account’s daily net asset value calculation or in the Account’s periodic financial statements. This disparity may be more apparent when the commercial and/or residential real estate markets experience an overall and possibly dramatic decline (or increase) in property values in a relatively short period of time between appraisals.

The following is a description of the valuation methodologies used for investments measured at fair value.

Valuation of Real Estate Properties:Investments in real estate properties are stated at fair value, as determined in accordance with policies and procedures reviewed by the Investment Committee of the Board and in accordance with the responsibilities of the Board as a whole. Accordingly, the Account does not record depreciation. The Account’s real estate properties are generally classified within Level 3 of the valuation hierarchy. Fair value for real estate properties is defined as the most probable price for which a

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property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves judgment because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. The Account’s primary objective when valuing its real estate investments will be to produce a valuation that represents a fair and accurate estimate of the fair value of its investments. Implicit in the Account’s definition of fair value is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

• Buyer and seller are typically motivated;

• Both parties are well informed or well advised, and acting in what they consider their best interests;

• A reasonable time is allowed for exposure in the open market;

• Payment is made in terms of cash or in terms of financial arrangements comparable thereto; and

• The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Property and investment values are affected by, among other things, the availability of capital, occupancy rates, rental rates, and interest and inflation rates. As a result, determining real estate and investment values involves many assumptions. Amounts ultimately realized from each investment may vary significantly from the market value presented. Actual results could differ significantly from those estimates.

Real estate properties owned by the Account are initially valued based on an independent appraisal at the time of the closing of the purchase, which may result in a potential unrealized gain or loss reflecting the difference between an investment’s fair value (i.e., exit price) and its cost basis (which is inclusive of transaction costs).

Subsequently, each property is appraised each quarter by an independent external appraiser. In general, the Account obtains appraisals for each real estate property throughout the quarter, which is intended to result in appraisal adjustments (to the extent such adjustments are made) that happen regularly throughout each quarter and not on one specific day in each period.

TIAA’s internal appraisal staff oversees the entire appraisal process, in conjunction with the Account’s independent fiduciary (the independent fiduciary is more fully described in the paragraph below). Further, management reserves the right to order an appraisal and/or conduct another valuation outside of the normal quarterly process when facts or circumstances at a specific property change. Any differences in the conclusions of TIAA’s internal appraisal staff and the independent appraiser will be reviewed by the independent fiduciary, which will make a final determination on the matter (which may include ordering a subsequent independent appraisal). For example, under certain circumstances, a valuation adjustment could be made when bids are obtained for properties held for sale by the Account. In addition, adjustments may be made for events or circumstances indicating an impairment of a tenant’s ability to pay amounts due to the Account under a lease (including bankruptcy filing of that tenant).

An independent fiduciary, Real Estate Research Corporation, has been appointed by a special subcommittee of the Investment Committee of the Board to, among other things, oversee the appraisal process. The independent fiduciary must approve all independent appraisers used by the Account. All appraisals are performed in accordance with Uniform Standards of Professional Appraisal Practices (“USPAP”), the real estate appraisal industry standards created by The Appraisal Foundation. Real estate appraisals are estimates of property values based on a professional’s opinion. Appraisals of properties held outside of the U.S. are performed in accordance with industry standards commonly applied in the applicable jurisdiction. These independent appraisers are always expected to be MAI-designated members of the Appraisal Institute (or its European equivalent, RICS) and state certified appraisers from national or regional firms with relevant property type experience and market knowledge.

Also, the independent fiduciary can require additional appraisals if factors or events have occurred that could materially change a property’s value and such change is not reflected in the quarterly valuation review, or otherwise to ensure that the Account is valued appropriately. The independent fiduciary must also approve any valuation change of real estate related assets where a property’s value changed by more than 6% from the most recent independent annual appraisal, or if the value of the Account would change by more than 4% within any calendar quarter or more than 2% since the prior calendar month. When a real estate property is

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subject to a mortgage, the mortgage is valued independently of the property and its fair value is reported separately (see “—Valuation of Mortgage Loans Payable” below). The independent fiduciary reviews and approves all mortgage valuation adjustments before such adjustments are recorded by the Account. The Account continues to use the revised value for each real estate property and mortgage loan payable to calculate the Account’s daily net asset value until the next valuation review or appraisal.

Valuation of Real Estate Joint Ventures and Limited Partnerships:Real estate joint ventures and certain limited partnerships are stated at the fair value of the Account’s ownership interests of the underlying entities. The Account’s ownership interests are valued based on the fair value of the underlying real estate, any related mortgage loans payable, and other factors, such as ownership percentage, ownership rights, buy/sell agreements, distribution provisions and capital call obligations. Upon the disposition of all real estate investments by an investee entity, the Account will continue to state its equity in the remaining net assets of the investee entity during the wind down period, if any, which occurs prior to the dissolution of the investee entity. The Account’s real estate joint ventures and certain limited partnerships are generally classified within level 3 of the valuation hierarchy.

Certain limited partnership interests for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the Board and in accordance with the responsibilities of the Board as a whole. These investments are generally classified within level 3 of the valuation hierarchy.

Valuation of Marketable Securities:Equity securities listed or traded on any national market or exchange are valued at the last sale price as of the close of the principal securities market or exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such market or exchange, exclusive of transaction costs. Such marketable securities are generally classified within level 1 of the valuation hierarchy.

Debt securities, other than money market instruments, are generally valued at the most recent bid price or the equivalent quoted yield for such securities (or those of comparable maturity, quality and type). Money market instruments, with maturities of one year or less, are valued in the same manner as debt securities or derived from a pricing matrix. Debt securities are generally classified within level 2 of the valuation hierarchy.

Equity and fixed income securities traded on a foreign exchange or in foreign markets are valued using their closing values under the valuation methods generally accepted in the country where traded, as of the valuation date. This value is converted to U.S. dollars at the exchange rate in effect on the valuation day. Under certain circumstances (for example, if there are significant movements in the United States markets and there is an expectation the securities traded on foreign markets will adjust based on such movements when the foreign markets open the next day), the Account may adjust the value of equity or fixed income securities that trade on a foreign exchange or market after the foreign exchange or market has closed. Equity securities traded on a foreign exchange or in foreign markets are generally classified within level 1 of the valuation hierarchy. Fixed income securities traded on a foreign exchange or in foreign markets are generally classified within level 2 of the valuation hierarchy.

Valuation of Mortgage Loan Receivable:The mortgage loan receivable is stated at fair value. The mortgage loan receivable is valued at least quarterly based on market factors, such as market interest rates and spreads for comparable loans, the performance of the underlying collateral, and the credit quality of the counterparty. The Account’s mortgage loan receivable is classified within level 3 of the valuation hierarchy.

Valuation of Mortgage Loans Payable:Mortgage loans payable are stated at fair value. The estimated fair value of mortgage loans payable is based on the amount at which the liability could be transferred to a third party exclusive of transaction costs. Mortgage loans payable are valued at least quarterly based on market factors, such as market interest rates and spreads for comparable loans, the performance of the underlying collateral (such as the loan-to-value ratio and the cash flow of the underlying collateral), the maturity date of the loan, the return demands of the market, and the credit quality of the Account. The Account’s mortgage loans payable are generally classified within level 3 of the valuation hierarchy. Interest expense for mortgage loans payable is recorded on the accrual basis taking into account the outstanding principal and contractual interest rates.

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Foreign currency transactions and translation:Portfolio investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of securities, income receipts and expense payments made in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the respective dates of the transactions. The effect of any changes in foreign currency exchange rates on portfolio investments and mortgage loans payable is included in net realized and unrealized gains and losses on investments and mortgage loans payable. Net realized gains and losses on foreign currency transactions include currency gains and losses between the accrual and receipt dates of portfolio investment income and between the trade and settlement dates of portfolio investment transactions and, when applicable, include maturities of forward foreign currency contracts.

Accumulation and Annuity Funds:The Accumulation Fund represents the net assets attributable to participants in the accumulation phase of their investment (“Accumulation Fund”). The Annuity Fund represents the net assets attributable to the participants currently receiving annuity payments (“Annuity Fund”). The net increase or decrease in net assets from investment operations is apportioned between the accounts based upon their relative daily net asset values. Once an Account participant begins receiving lifetime annuity income benefits, monthly payment levels cannot be reduced as a result of the Account’s adverse mortality experience. In addition, the contracts pursuant to which the Account is offered are required to stipulate the maximum expense charge for all Account level expenses that can be assessed, which is equal to 2.50% of average net assets per year. The Account pays a fee to TIAA to assume these mortality and expense risks.

Accounting for Investments:Real estate transactions are accounted for as of the date on which the purchase or sale transactions for the real estate properties close (settlement date). The Account recognizes a realized gain on the sale of a real estate property to the extent that the contract sales price exceeds the cost-to-date of the property being sold. A realized loss occurs when the cost-to-date exceeds the sales price. Any accumulated unrealized gains and losses are reversed in the calculation of realized gains and losses.

Rent from real estate properties consists of all amounts earned under tenant operating leases, including base rent, recoveries of real estate taxes and other expenses and charges for miscellaneous services provided to tenants. Rental income is recognized in accordance with the billing terms of the lease agreements. The Account bears the direct expenses of the real estate properties owned. These expenses include, but are not limited to, fees to local property management companies, property taxes, utilities, maintenance, repairs, insurance, and other operating and administrative costs. An estimate of the net operating income earned from each real estate property is accrued by the Account on a daily basis and such estimates are adjusted when actual operating results are determined.

The Account has limited ownership interests in various private real estate funds (limited partnerships and one limited liability corporation) and a private real estate investment trust (collectively, the “limited partnerships”). The Account records its contributions as increases to the investments, and distributions from the investments are treated as either income or return of capital, as determined by the management of the limited partnerships. Unrealized gains and losses are calculated and recorded when the financial statements of the limited partnerships are received by the Account; however as circumstances warrant, prior to the receipt of financial statements of the limited partnership, the Account will estimate the value of its interests in good faith and will from time to time seek input from the issuer or the sponsor of the investment vehicle. Changes in value based on such estimates are recorded by the Account as unrealized gains and losses.

Income from real estate joint ventures is recorded based on the Account’s proportional interest of the income distributed by the joint venture. Income earned by the joint venture, but not yet distributed to the Account by the joint venture investment, is recorded as unrealized gains and losses on real estate joint ventures.

Transactions in marketable securities are accounted for as of the date the securities are purchased or sold (trade date). Interest income is recorded as earned. Dividend income is recorded on the ex-dividend date or as soon as the Account is informed of the dividend. Realized gains and losses on securities transactions are accounted for on the specific identification method.

The Account’s assets as of the close of each valuation day are valued by taking the sum of:

• the value of the Account’s cash, cash equivalents, and short-term and other debt instruments;

11

• the value of the Account’s other securities and other assets;

• the value of the individual real properties (based on the most recent valuation of that property) and other real estate-related investments owned by the Account;

• an estimate of the net operating income accrued by the Account from its properties, other real estate-related investments and non real estate-related investments (including short-term marketable securities); and

• actual net operating income received from the Account’s properties, other real estate-related investments and non real estate-related investments (only to the extent any such item of income differs from the estimated income accrued for on such investments).

and then reducing the sum by the Account’s liabilities, including the daily investment management fee and certain other expenses attributable to operating the Account.

After the end of every quarter, the Account reconciles the amount of expenses deducted from the Account (which is established in order to approximate the costs that the Account will incur) with the expenses the Account actually incurred. If there is a difference, the Account adds it to or deducts it from the Account in equal daily installments over the remaining days of the following quarter. Material differences may be repaid in the current calendar quarter. The Account’s at-cost deductions are based on projections of Account assets and overall expenses, and the size of any adjusting payments will be directly affected by the difference between management’s projections and the Account’s actual assets or expenses.

Cash:The Account maintains cash in bank deposit accounts which, at times, exceeds federally insured limits. The Account’s management monitors these balances to mitigate the exposure of risk due to concentration and has not experienced any losses from such concentration.

Federal Income Taxes:Based on provisions of the Internal Revenue Code, Section 817, the Account is taxed as a segregated asset account of TIAA and as such, the Account should incur no material federal income tax attributable to the net investment activity of the Account.

Due to/from Investment Advisor:Due to/from investment advisor represents amounts that were paid or received by TIAA on behalf of the Account. Amounts generally are paid or received by the Account within one or two business days and no interest is charged on these amounts.

Reclassifications:Certain prior period amounts have been reclassified to conform to the current presentation. These reclassifications did not affect the total assets, total net assets or net increase in net assets previously reported.

Note 2—Management Agreements and Arrangements

Investment advisory services for the Account are provided by TIAA employees, under the direction of the Board and its Investment Committee, pursuant to investment management procedures adopted by TIAA for the Account. TIAA’s investment management decisions for the Account are subject to review by the Account’s independent fiduciary. TIAA also provides all portfolio accounting and related services for the Account.

Effective January 1, 2008, the Account entered into theDistribution Agreement for the Contracts Funded by the TIAA Real Estate Account(the “Distribution Agreement”), dated January 1, 2008, by and among TIAA, for itself and on behalf of the Account, and TIAA-CREF Individual and Institutional Services, LLC (“Services”), a wholly owned subsidiary of TIAA, a registered broker-dealer and a member of the Financial Industry Regulatory Authority. Pursuant to the Distribution Agreement, Services performs distribution services for the Account which include, among other things, (i) distribution of annuity contracts issued by TIAA and funded by the Account, (ii) advising existing annuity contract owners in connection with their accumulations and (iii) helping employers implement and manage retirement plans. Also effective January 1, 2008, TIAA performs administrative functions for the Account, which include, among other things, (i) computing the Account’s daily unit value, (ii) maintaining accounting records and performing accounting services, (iii) receiving and allocating premiums, (iv) calculating and making annuity payments, (v) processing withdrawal requests, (vi) providing regulatory compliance and reporting services, (vii) maintaining the Account’s records of contract ownership and (viii) otherwise assisting generally in all aspects of the

12

Account’s operations. Both distribution services (pursuant to the Distribution Agreement) and administrative services are provided to the Account by Services and TIAA, as applicable, on an at cost basis.

The Distribution Agreement is terminable by either party upon 60 days written notice and terminates automatically upon any assignment thereof.

TIAA and Services provide their services at cost. TIAA and Services receive payments from the Account on a daily basis according to formulas established each year and adjusted periodically with the objective of keeping the payments as close as possible to the Account’s expenses actually incurred. Any differences between actual expenses and the amounts paid by the Account are adjusted quarterly.

TIAA also provides a liquidity guarantee to the Account, for a fee, to ensure that sufficient funds are available to meet participant transfer and cash withdrawal requests in the event that the Account’s cash flows and liquid investments are insufficient to fund such requests. TIAA ensures sufficient funds are available for such transfer and withdrawal requests by purchasing accumulation units of the Account. See Note 3—Related Party Transactions below.

To the extent TIAA owns accumulation units issued pursuant to the liquidity guarantee, the independent fiduciary monitors and oversees, among other things, TIAA’s ownership interest in the Account and may require TIAA to eventually redeem some of its units, particularly when the Account has uninvested cash or liquid investments available. TIAA also receives a fee for assuming certain mortality and expense risks.

The expenses for the services noted above that are provided to the Account by TIAA and Services are identified in the accompanying Statements of Operations and are reflected in Note 8—Condensed Financial Information.

Note 3—Related Party Transactions

Pursuant to its existing liquidity guarantee obligation, as of June 30, 2009, the TIAA General Account owned 4.7 million accumulation units (which are generally referred to as “Liquidity Units”) issued by the Account. TIAA has paid an aggregate of $1.2 billion to purchase these Liquidity Units through June 30, 2009 in multiple transactions (approximately $1.1 billion since the beginning of 2009).

In accordance with this liquidity guarantee obligation, TIAA guarantees that all participants in the Account may redeem their accumulation units at their accumulation unit value next determined after their transfer or cash withdrawal request is received in good order. Liquidity Units owned by TIAA are valued in the same manner as accumulation units owned by the Account’s participants. Management believes that TIAA has the ability to meet its obligations under the liquidity guarantee.

As discussed in the Account’s prospectus and in accordance with a prohibited transaction exemption from the U.S. Department of Labor (PTE 96-76), the Account’s independent fiduciary, Real Estate Research Corporation, has certain responsibilities with respect to the Account that it has undertaken or is currently undertaking with respect to TIAA’s purchase of Liquidity Units, including among other things, reviewing the purchase and redemption of Liquidity Units by TIAA to ensure the Account uses the correct unit values. In addition, as set forth in PTE 96-76, the independent fiduciary’s responsibilities include:

•

  

establishing the percentage of total accumulation units that TIAA’s ownership should not exceed (the “trigger point”) and creating a method for changing the trigger point;

•

  

approving any adjustment of TIAA’s ownership interest in the Account and, in its discretion, requiring an adjustment if TIAA’s ownership of Liquidity Units reaches the trigger point; and

•

  

once the trigger point has been reached, participating in any program to reduce TIAA’s ownership in the Account by utilizing cash flow or liquid investments in the Account, or by utilizing the proceeds from asset sales. The independent fiduciary’s role in participating in any such asset sales program would include (i) participating in the selection of properties for sale, (ii) providing sales guidelines and (iii) approving those sales if, in the independent fiduciary’s opinion, such sales are desirable to reduce TIAA’s ownership of Liquidity Units.

The independent fiduciary, which has the right to adjust the trigger point, has established the trigger point at 45% of the outstanding accumulation units and it will continue to monitor TIAA’s ownership interest in the

13

Account and provide further recommendations as necessary. As of June 30, 2009, TIAA owned approximately 11.6% of the outstanding accumulation units of the Account.

Subsequent to June 30, 2009, as of August 12, 2009, pursuant to this liquidity guarantee obligation, TIAA has not made any additional purchases of Liquidity Units. As of such date, TIAA owned approximately 11.7% of the outstanding accumulation units of the Account.

As discussed in more detail in Note 2—Management Agreements and Arrangements, TIAA and Services provide services to the Account on an at cost basis. See Note 8—Condensed Financial Information for details of the expense charge and expense ratio.

Note 4—Credit Risk Concentrations

Concentrations of credit risk arise when a number of properties or tenants are located in a similar geographic region such that the economic conditions of that region could impact tenants’ obligations to meet their contractual obligations or cause the values of individual properties to decline. The Account has no significant concentrations of tenants as no single tenant has annual contract rent that makes up more than 2% of the Rental Income of the Account.

The majority of the Account’s wholly-owned real estate investments and investments in joint ventures are located in the United States. The following table represents the diversification of the Account’s portfolio by region and property type:

Diversification by Fair Value⁽¹⁾

	East			West			South			Midwest			Foreign(2)			Total
Office		22.4	%		19.4	%		12.7	%		1.2	%		2.2	%		57.9	%
Apartment		2.2	%		5.9	%		4.9	%		0.0	%		0.0	%		13.0	%
Industrial		1.5	%		6.2	%		4.0	%		1.4	%		0.0	%		13.1	%
Retail		3.5	%		1.0	%		8.4	%		0.5	%		2.1	%		15.5	%
Storage(3)		0.2	%		0.1	%		0.1	%		0.1	%		0.0	%		0.5	%
Total		29.8	%		32.6	%		30.1	%		3.2	%		4.3	%		100.0	%

(1)	Fair values for wholly-owned properties are reflected gross of any debt, while fair values for joint venture investments are reflected net of any debt.
(2)	Represents real estate investments in the United Kingdom and France.
(3)	Represents a portfolio of storage facilities.

Properties in the “East” region are located in: CT, DC, DE, KY, MA, MD, ME, NC, NH, NJ, NY, PA, RI, SC, VA, VT, WV

Properties in the “West” region are located in: AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY

Properties in the “South” region are located in: AL, AR, FL, GA, LA, MS, OK, TN, TX

Properties in the “Midwest” region are located in: IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI

Note 5—Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables show the major categories of assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 and December 31, 2008, using unadjusted quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3) (in thousands):

14

Description	Level 1: Quoted Prices in Active Markets for Identical Assets			Level 2: Significant Other Observable Inputs			Level 3: Significant Unobservable Inputs				Total at June 30, 2009
Real estate properties		$	—		$	—		$	8,779,353			$	8,779,353
Real Estate joint ventures and limited partnerships			—			—			1,762,729				1,762,729
Marketable securities—other			—			490,095			—				490,095
Mortgage loan receivable			—			—			68,279				68,279
Total Investments at June 30, 2009		$	—		$	490,095		$	10,610,361			$	11,100,456
Mortgage loans payable		$	—		$	—		$	(1,843,707	)		$	(1,843,707	)

Description	Level 1: Quoted Prices in Active Markets for Identical Assets			Level 2: Significant Other Observable Inputs			Level 3: Significant Unobservable Inputs				Total at December 31, 2008
Real estate properties		$	—		$	—		$	10,305,040			$	10,305,040
Real Estate joint ventures and limited partnerships			—			—			2,463,196				2,463,196
Marketable securities—other			—			511,711			—				511,711
Mortgage loan receivable			—			—			71,767				71,767
Total Investments at December 31, 2008		$	—		$	511,711		$	12,840,003			$	13,351,714
Mortgage loans payable		$	—		$	—		$	(1,830,040	)		$	(1,830,040	)

The following tables show the reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2009 and June 30, 2008 (in thousands):

	Real Estate Properties				Real Estate Joint Ventures and Limited Partnerships				Mortgage Loan Receivable				Total Level 3 Investments				Mortgage Loans Payable
For the three months ended June 30, 2009:
Beginning balance April 1, 2009		$	9,365,810			$	2,221,681			$	69,705			$	11,657,196			$	(1,758,488	)
Total realized and unrealized gains (losses) included in changes in net assets			(609,097	)			(469,617	)			(1,426	)			(1,080,140	)			(86,010	)
Purchases, issuances, and settlements(1)			22,640				10,665				—				33,305				791
Ending balance June 30, 2009		$	8,779,353			$	1,762,729			$	68,279			$	10,610,361			$	(1,843,707	)
For the six months ended June 30, 2009:
Beginning balance January 1, 2009		$	10,305,040			$	2,463,196			$	71,767			$	12,840,003			$	(1,830,040	)
Total realized and unrealized gains (losses) included in changes in net assets			(1,518,723	)			(703,083	)			(3,488	)			(2,225,294	)			(15,322	)
Purchases, issuances, and settlements(1)			(6,964	)			2,616				—				(4,348	)			1,655
Ending balance June 30, 2009		$	8,779,353			$	1,762,729			$	68,279			$	10,610,361			$	(1,843,707	)

15

	Real Estate Properties				Real Estate Joint Ventures and Limited Partnerships				Mortgage Loans Receivable				Total Level 3 Investments				Mortgage Loans Payable
For the three months ended June 30, 2008:
Beginning balance April 1, 2008		$	12,110,602			$	3,115,908			$	73,106			$	15,299,616			$	(1,426,620	)
Total realized and unrealized gains (losses) included in changes in net assets			(87,199	)			(49,557	)			(1,385	)			(138,141	)			39,064
Purchases, issuances, and settlements(1)			135,856				(1,665	)			—				134,191				180
Ending balance June 30, 2008		$	12,159,259			$	3,064,686			$	71,721			$	15,295,666			$	(1,387,376	)
For the six months ended June 30, 2008:
Beginning balance January 1, 2008		$	11,983,715			$	3,158,870			$	72,520			$	15,215,105			$	(1,392,093	)
Total realized and unrealized gains (losses) included in changes in net assets			(44,250	)			(93,277	)			(799	)			(138,326	)			4,354
Purchases, issuances, and settlements(1)			219,794				(907	)			—				218,887				363
Ending balance June 30, 2008		$	12,159,259			$	3,064,686			$	71,721			$	15,295,666			$	(1,387,376	)

⁽¹⁾ This line includes the net of contributions, distributions, and accrued operating income for real estate joint ventures and limited partnerships as well as principal payments on mortgage loans payable.

The amount of total gains (losses) included in changes in net assets attributable to the change in unrealized gains (losses) relating to investments and mortgage loans payable using significant unobservable inputs still held as of the reporting date is as follows (in thousands):

 

Real Estate
Properties

 

Real Estate
Joint Ventures
and Limited
Partnerships

 

Mortgage
Loan
Receivable

 

Total
Level 3
Investments

 

Mortgage
Loans
Payable

For the three months ended
June 30, 2009

 

$

(609,089

)

 

$

(469,617

)

 

$

(1,426

)

 

$

(1,080,132

)

 

$

(86,010

)

For the six months ended
June 30, 2009

 

$

(1,518,464

)

 

$

(703,083

)

 

$

(3,488

)

 

$

(2,225,035

)

 

$

(15,322

)

	Real Estate Properties				Real Estate Joint Ventures and Limited Partnerships				Mortgage Loans Receivable				Total Level 3 Investments				Mortgage Loans Payable
For the three months ended June 30, 2008		$	(86,024	)		$	(49,557	)		$	(1,385	)		$	(136,966	)		$	39,064
For the six months ended June 30, 2008		$	(43,223	)		$	(93,260	)		$	(799	)		$	(137,282	)		$	4,354

Note 6—Investments in Joint Ventures and Limited Partnerships

The Account owns interests in several real estate properties through joint ventures and receives distributions and allocations of profits and losses from the joint ventures based on the Account’s ownership interest percentages. Several of these joint ventures have mortgage loans payable on the properties owned. At June 30, 2009, the Account held 12 investments in joint ventures with non-controlling ownership interest percentages that ranged from 50% to 85%. Certain joint ventures and limited partnerships are subject to adjusted distribution percentages when earnings in the investment reach a pre-determined threshold. The Account’s equity in the joint ventures at June 30, 2009 and December 31, 2008 was $1.6 billion and $2.2 billion, respectively.

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The Account’s allocated portion of the mortgage loans payable at fair value was approximately $1.9 billion at June 30, 2009 and December 31, 2008. The Account’s interest in the outstanding principal of the mortgage loans payable on joint ventures was approximately $2.0 billion at June 30, 2009 and December 31, 2008, respectively. A condensed summary of the financial position and results of operations of the joint ventures is shown below (in thousands).

	June 30, 2009			June 30, 2008			December 31, 2008
	(Unaudited)			(Unaudited)
Assets
Real estate properties, at value		$	5,041,195		$	6,897,469		$	5,947,028
Other assets			94,336			90,141			95,411
Total assets		$	5,135,531		$	6,987,610		$	6,042,439
Liabilities and Equity
Mortgage loans payable, at value		$	2,565,310		$	2,670,061		$	2,571,843
Other liabilities			63,061			71,167			58,378
Total liabilities			2,628,371			2,741,228			2,630,221
Equity			2,507,160			4,246,382			3,412,218
Total liabilities and equity		$	5,135,531		$	6,987,610		$	6,042,439

	For the Six Months Ended June 30, 2009			For the Six Months Ended June 30, 2008			Year Ended December 31, 2008
	(Unaudited)			(Unaudited)
Operating Revenues and Expenses
Revenues		$	265,050		$	279,442		$	562,031
Expenses			158,650			169,083			333,700
Excess of revenues over expenses		$	106,400		$	110,359		$	228,331

Management of the Account monitors the financial position of the Account’s joint venture partners. To the extent that Management of the Account determines that a joint venture partner has financial or liquidity concerns, Management will evaluate all actions and remedies available to the Account under the applicable joint venture agreement to minimize any potential adverse implications to the Account.

The Account invests in limited partnerships that own real estate properties and other real estate related assets and receives distributions from the limited partnerships based on the Account’s ownership interest percentages. At June 30, 2009, the Account held five limited partnership investments and one private real estate equity investment trust (all of which featured non-controlling ownership interests) with ownership interest percentages that ranged from 5.27% to 18.46%. The Account’s ownership interest in limited partnerships was $205.0 million and $286.5 million at June 30, 2009 and December 31, 2008, respectively.

17

Note 7—Mortgage Loans Payable

At June 30, 2009, the Account had outstanding mortgage loans payable secured by the following properties (in thousands):

Property	Interest Rate and Payment Frequency(e)	Principal Amounts as of June 30, 2009				Maturity
		(Unaudited)
701 Brickell(a)	2.32% paid monthly(f)		$	126,000			October 1, 2010
Four Oaks Place(b)	2.32% paid monthly(f)			200,000			October 1, 2010
Ontario Industrial Portfolio(c)	7.42% paid monthly			8,587			May 1, 2011
1 & 7 Westferry Circus(d)	5.40% paid quarterly			221,048			November 15, 2012
Reserve at Sugarloaf(c)	5.49% paid monthly			25,338			June 1, 2013
South Frisco Village	5.85% paid monthly			26,251			June 1, 2013
Fourth & Madison	6.40% paid monthly			145,000			August 21, 2013
1001 Pennsylvania Avenue	6.40% paid monthly			210,000			August 21, 2013
50 Fremont	6.40% paid monthly			135,000			August 21, 2013
Pacific Plaza(c)	5.55% paid monthly			8,665			September 1, 2013
Wilshire Rodeo Plaza	5.28% paid monthly			112,700			April 11, 2014
1401 H Street	5.97% paid monthly			115,000			December 7, 2014
Preston Sherry Plaza	5.85% paid monthly			23,500			September 1, 2015
The Colorado(c)	5.65% paid monthly			87,264			November 1, 2015
99 High Street	5.52% paid monthly			185,000			November 11, 2015
The Legacy at Westwood(c)	5.95% paid monthly			41,758			December 1, 2015
Regents Court(c)	5.76% paid monthly			35,684			December 1, 2015
The Caruth(c)	5.71% paid monthly			41,745			December 1, 2015
Lincoln Centre	5.51% paid monthly			153,000			February 1, 2016
Publix at Weston Commons	5.08% paid monthly			35,000			January 1, 2036
Total Principal Outstanding				1,936,540
Fair Value Adjustment				(92,833	)
Total mortgage loans payable			$	1,843,707

(a)	The Account entered into a debt agreement that included an interest rate cap with its lender to reduce its exposure to the variability of changes in interest rates until maturity of the underlying debt. The interest rate on the entire $126 million mortgage is capped at 6.50%.
(b)	The Account entered into a debt agreement that included an interest rate cap with its lender to reduce its exposure to the variability of changes in interest rates until maturity of the underlying debt. The interest rate on the entire $200 million mortgage is capped at 6.50%.
(c)	The mortgage is adjusted monthly for principal payments.
(d)	The mortgage is denominated in British pounds and the principal payment had been converted to U.S. dollars using the exchange rate as of June 30, 2009. The quarterly payments are interest only, with a balloon payment at maturity. The interest rate is fixed. The cumulative (since inception) foreign currency translation adjustment was an unrealized gain of $12 million.
(e)	Interest rates are fixed, unless stated otherwise.
(f)	The interest rate for these mortgages is a variable rate at the one month London Interbank Offered Rate (“LIBOR”) plus 200 basis points and is reset monthly.

18

Note 8—Condensed Financial Information

Selected condensed financial information for an Accumulation Unit of the Account is presented below.

	For the Six Months Ended June 30, 2009				Years Ended December 31,
					2008				2007			2006			2005
	(Unaudited)
Per Accumulation Unit data:
Rental income		$	11.279			$	18.794			$	17.975		$	16.717		$	15.604
Real estate property level expenses and taxes			5.657				9.190				8.338			7.807			7.026
Real estate income, net			5.622				9.604				9.637			8.910			8.578
Other income			1.437				3.808				4.289			3.931			3.602
Total income			7.059				13.412				13.926			12.841			12.180
Expense charges(1)			1.194				2.937				2.554			1.671			1.415
Investment income, net			5.865				10.475				11.372			11.170			10.765
Net realized and unrealized (loss) gain on investments and mortgage loans payable			(52.615	)			(54.541	)			26.389			22.530			18.744
Net (decrease) increase in Accumulation Unit Value			(46.750	)			(44.066	)			37.761			33.700			29.509
Accumulation Unit Value:
Beginning of period			267.348				311.414				273.653			239.953			210.444
End of period		$	220.598			$	267.348			$	311.414		$	273.653		$	239.953
Total return			(17.49	)%			(14.15	)%			13.80%			14.04%			14.02%
Ratios to Average net Assets:
Expenses(1)			0.48%				0.95%				0.87%			0.67%			0.63%
Investment income, net			2.38%				3.38%				3.88%			4.49%			4.82%
Portfolio turnover rate:
Real estate properties			0.09%				0.64%				5.59%			3.62%			6.72%
Marketable securities			—				25.67%				13.03%			51.05%			77.63%
Accumulation Units outstanding at end of period (in thousands)			40,801				41,542				55,106			50,146			42,623
Net assets end of period (in thousands)		$	9,302,449			$	11,508,924			$	17,660,537		$	14,132,693		$	10,548,711

⁽¹⁾ Expense charges per Accumulation Unit and the Ratio of Expenses to Average net Assets reflect Account-level expenses and excludes real estate property level expenses which are included in net real estate income. If the real estate property level expenses were included, the expense charge per Accumulation Unit for the six months ended June 30, 2009 would be $6.851 ($12.127, $10.892, $9.478, and $8.441, for the years ended December 31, 2008, 2007, 2006 and 2005, respectively), and the Ratio of Expenses to Average Net Assets for the six months ended June 30, 2009 would be 2.78% (3.91%, 3.71%, 3.81% and 3.78% for the years ended December 31, 2008, 2007, 2006, and 2005, respectively).

19

Note 9—Accumulation Units

Changes in the number of Accumulation Units outstanding were as follows (in thousands):

 

For the
Six Months
Ended
June 30, 2009

 

For The Year Ended
December 31, 2008

 

(Unaudited)

Outstanding:

Beginning of period

  

41,542

   

55,106

 

Credited for premiums

  

1,510

   

3,271

 

Credited for Purchase of units by TIAA (see Note 3)

  

4,139

   

577

 

Net units credited (cancelled) for transfers, net disbursements and amounts applied to the Annuity Fund

  

(6,390

)

  

(17,412

)

End of period

  

40,801

   

41,542

 

Note 10—Commitments and Subsequent Events

The Account has evaluated subsequent events through August 13, 2009, the date these financial statements were filed.

During the normal course of business, the Account enters into discussions and agreements to purchase or sell real estate properties. On August 11, 2009, the Account sold a retail complex in Littleton, Colorado for sales proceeds of $22.0 million and realized a loss of approximately $12.7 million.

As of June 30, 2009, the Account had outstanding commitments to purchase interests in five limited partnerships and shares in a private real estate equity investment trust. As of June 30, 2009, approximately $68.5 million remains to be funded under these commitments.

The Account is party to various claims and routine litigation arising in the ordinary course of business. Management of the Account does not believe that the results of any such claims or litigation, individually, or in the aggregate, will have a material effect on the Account’s business, financial position, or results of operations.

Pursuant to the liquidity guarantee obligation, TIAA has made no additional purchases of Liquidity Units subsequent to June 30, 2009. See Note 3—Related Party Transactions for further discussion of these transactions.

Note 11—New Accounting Pronouncements

In June 2007, the Accounting Standards Executive Committee (“AcSEC”) of the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) 07-1, “Clarification of the Scope of the Audit and Accounting Guide, Investment Companies, and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.” The SOP clarifies which entities are required to apply the provisions of the Investment Companies Audit and Accounting Guide (“Guide”) and provides guidance on accounting by parent companies and equity method investors for investments in investment companies. In February 2008, FASB issued Staff Position (“FSP”) SOP 07-1-1 indefinitely delaying the effective date of SOP 07-1 to allow FASB time to consider significant issues related to the implementation of SOP 07-1. In February 2009 the Emerging Issues Task Force (“EITF”) added the Application of the AICPA Audit and Accounting Guide,Investment Companies, by Real Estate Investment Companiesto the EITF agenda which will be discussed at a future meeting. The FASB staff anticipates the creation of a Working Group to assist the EITF in addressing this issue. Management of the Account will continue to monitor FASB and EITF developments and will evaluate the financial reporting implications to the Account, as necessary.

In December 2007, FASB issued Statement No. 141(R), “Business Combinations,” which establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in a business combination or a gain from a bargain purchase. It is expected that more transactions

20

will constitute a business under FASB Statement No. 141(R). This Statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Account reports all investments in real estate at fair value and therefore does not account for the acquisition of real estate investments as a business combination under this statement.

In December 2007, FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51,” which establishes and expands accounting and reporting standards for minority interests, which will be recharacterized as noncontrolling interests, in a subsidiary and the deconsolidation of a subsidiary. This Statement is effective for fiscal years beginning on or after December 15, 2008. The adoption of Statement No. 160 did not impact the financial position or results of operations of the Account.

In April 2009, FASB issued FASB Staff Position FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements,” when the volume of activity for an asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP is effective for periods ending after June 15, 2009 with early adoption permitted. The adoption of this FSP did not have a material impact to the financial position or results of operations of the Account.

In May 2009, the Financial Accounting Standards Board issued Statement No. 165, “Subsequent Events” which establishes standards under generally accepted accounting principles (“GAAP”) required for the accounting and disclosure of subsequent events. This statement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this standard did not have a material impact on the financial statements or results of operations of the Account. The required disclosure of the date through which subsequent events has been evaluated is provided in Note 10 of the Notes to the Financial Statements.

In June 2009, the Financial Accounting Standards Board issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162.” Statement No. 168 establishes FASB Accounting Standards Codification (“Codification”) as the source of authoritative accounting principles to be applied with equal authority by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. This Statement is effective for financial statements issued for reporting periods ending after September 15, 2009 and will impact the way the Account references U.S. GAAP accounting standards in the financial statements.

21

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2009 and December 31, 2008
(Dollar values shown in thousands)

REAL ESTATE PROPERTIES—79.08% and 77.18%

Location/Description	Type	Value
		2009				2008
		(Unaudited)
Alabama:
Inverness Center	Office		$	95,105			$	102,891
Arizona:
Camelback Center	Office			53,000				58,000
Kierland Apartment Portfolio	Apartments			112,598				146,830
Phoenix Apartment Portfolio	Apartments			89,082				129,244
California:
3 Hutton Centre Drive	Office			34,952				45,710
50 Fremont	Office			323,100	(1)			386,600	(1)
88 Kearny Street	Office			75,150				99,815
275 Battery	Office			193,119				220,025
980 9th Street and 1010 8th Street	Office			142,829				151,600
Rancho Cucamonga Industrial Portfolio	Industrial			66,000				102,300
Capitol Place	Office			47,510				50,000
Centerside I	Office			36,800				46,400
Centre Pointe and Valley View	Industrial			24,403				29,000
Great West Industrial Portfolio	Industrial			75,000				93,600
Larkspur Courts	Apartments			60,900				71,500
Northern CA RA Industrial Portfolio	Industrial			47,583				63,456
Ontario Industrial Portfolio	Industrial			190,000	(1)			278,000	(1)
Pacific Plaza	Office			89,150	(1)			104,970	(1)
Regents Court	Apartments			53,806	(1)			59,000	(1)
Southern CA RA Industrial Portfolio	Industrial			90,004				107,218
The Legacy at Westwood	Apartments			79,092	(1)			89,224	(1)
Wellpoint	Office			40,000				46,000
Westcreek	Apartments			27,016				31,500
West Lake North Business Park	Office			40,361				54,425
Westwood Marketplace	Retail			82,000				95,100
Wilshire Rodeo Plaza	Office			168,943	(1)			213,783	(1)
Colorado:
Palomino Park	Apartments			147,000				173,000
The Lodge at Willow Creek	Apartments			35,100				40,000
The Market at Southpark	Retail			22,000				29,000
Connecticut:
Ten & Twenty Westport Road	Office			144,300				174,400
Florida:
701 Brickell	Office			235,682	(1)			255,000	(1)
4200 West Cypress Street	Office			37,383				41,568
Plantation Grove	Retail			10,500				11,950
Pointe on Tampa Bay	Office			46,608				49,700
Publix at Weston Commons	Retail			46,750	(1)			50,987	(1)
Quiet Waters at Coquina Lakes	Apartments			21,117				21,810
Seneca Industrial Park	Industrial			66,395				101,296

See notes to the financial statements.

22

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2009 and December 31, 2008
(Dollar values shown in thousands)

Location/Description	Type	Value
		2009				2008
		(Unaudited)
Florida: (continued)
South Florida Apartment Portfolio	Apartments		$	57,346			$	62,155
Suncrest Village	Retail			14,653				15,800
The Fairways of Carolina	Apartments			19,805				20,942
The North 40 Office Complex	Office			49,489				64,398
Urban Centre	Office			103,169				113,274
France:
Printemps de L’Homme	Retail			212,868				247,621
Georgia:
1050 Lenox Park	Apartments			49,200				57,550
Atlanta Industrial Portfolio	Industrial			48,999				54,001
Glenridge Walk	Apartments			30,300				37,575
Reserve at Sugarloaf	Apartments			35,675	(1)			44,900	(1)
Shawnee Ridge Industrial Portfolio	Industrial			62,301				69,000
Illinois:
Chicago Caleast Industrial Portfolio	Industrial			57,593				63,932
Chicago Industrial Portfolio	Industrial			69,857				78,022
Oak Brook Regency Towers	Office			67,202				75,937
Parkview Plaza	Office			60,609				65,846
Maryland:
Broadlands Business Park	Industrial			28,000				27,520
GE Appliance East Coast Distribution Facility	Industrial			35,400				40,500
Massachusetts:
99 High Street	Office			276,393	(1)			320,107	(1)
Needham Corporate Center	Office			19,504				32,494
Northeast RA Industrial Portfolio	Industrial			29,400				30,794
The Newbry	Office			268,214				315,600
Minnesota:
Champlin Marketplace	Retail			14,333				17,101
Nevada:
UPS Distribution Facility	Industrial			10,200				12,100
New Jersey:
Konica Photo Imaging Headquarters	Industrial			16,800				18,300
Marketfair	Retail			75,528				90,759
Morris Corporate Center III	Office			77,268				94,955
NJ Caleast Industrial Portfolio	Industrial			28,000				49,000
Plainsboro Plaza	Retail			26,600				33,500
South River Road Industrial	Industrial			27,000				43,872
New York:
780 Third Avenue	Office			270,000				341,000
The Colorado	Apartments			121,457	(1)			153,006	(1)
Pennsylvania:
Lincoln Woods	Apartments			30,393				32,025

See notes to the financial statements.

23

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2009 and December 31, 2008
(Dollar values shown in thousands)

Location/Description	Type	Value
		2009				2008
		(Unaudited)
Tennessee:
Airways Distribution Center	Industrial		$	15,600			$	17,400
Summit Distribution Center	Industrial			16,000				22,700
Texas:
Dallas Industrial Portfolio	Industrial			130,305				141,328
Four Oaks Place	Office			432,393	(1)			438,000	(1)
Houston Apartment Portfolio	Apartments			212,214				267,468
Lincoln Centre	Office			210,000	(1)			269,000	(1)
Park Place on Turtle Creek	Office			29,999				40,094
Pinnacle Industrial/DFW Trade Center	Industrial			34,700				38,733
Preston Sherry Plaza	Office			33,900	(1)			38,400	(1)
South Frisco Village	Retail			27,700	(1)			36,300	(1)
The Caruth	Apartments			54,087	(1)			61,349	(1)
The Maroneal	Apartments			30,950				38,456
United Kingdom:
1 & 7 Westferry Circus	Office			231,437	(1)			232,802	(1)
Virginia:
8270 Greensboro Drive	Office			46,000				57,000
Ashford Meadows	Apartments			76,751				79,319
One Virginia Square	Office			46,398				51,797
The Ellipse at Ballston	Office			72,800				84,018
Washington:
Creeksides at Centerpoint	Office			25,915				27,200
Fourth & Madison	Office			340,000	(1)			407,500	(1)
Millennium Corporate Park	Office			144,000				162,193
Northwest RA Industrial Portfolio	Industrial			18,496				24,100
Rainier Corporate Park	Industrial			68,969				81,035
Regal Logistics Campus	Industrial			51,600				67,000
Washington DC:
1001 Pennsylvania Avenue	Office			501,281	(1)			550,757	(1)
1401 H Street, NW	Office			168,821	(1)			194,600	(1)
1900 K Street	Office			237,400				245,000
Mazza Gallerie	Retail			77,743				83,003
TOTAL REAL ESTATE PROPERTIES
(Cost $10,007,894 and $10,031,744)				8,779,353				10,305,040

See notes to the financial statements.

24

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2009 and December 31, 2008
(Dollar values shown in thousands)

OTHER REAL ESTATE-RELATED INVESTMENTS—15.88% and 18.45%
REAL ESTATE JOINT VENTURES—14.03% and 16.30%

Location/Description	Value
	2009				2008
	(Unaudited)
California:
CA—Colorado Center LP
Yahoo Center (50% Account Interest)		$	168,066	(2)		$	239,748	(2)
CA—Treat Towers LP
Treat Towers (75% Account Interest)			78,769				105,074
Florida:
Florida Mall Associates, Ltd
The Florida Mall (50% Account Interest)			258,160	(2)			281,941	(2)
TREA Florida Retail, LLC
Florida Retail Portfolio (80% Account Interest)			191,510				196,202
West Dade Associates
Miami International Mall (50% Account Interest)			89,818	(2)			105,312	(2)
Georgia:
GA—Buckhead LLC
Prominence in Buckhead (75% Account Interest)			37,457				78,209
Massachusetts:
MA—One Boston Place REIT
One Boston Place (50.25% Account Interest)			154,934				212,083
Tennessee:
West Town Mall, LLC
West Town Mall (50% Account Interest)			48,472	(2)			73,969	(2)
Virginia:
Teachers REA IV, LLC
Tyson’s Executive Plaza II (50% Account Interest)			36,097				36,048
Various:
DDR TC LLC
DDR Joint Venture (85% Account Interest)			393,062	(2,3)			712,773	(2,3)
Storage Portfolio I, LLC
Storage Portfolio (75% Account Interest)			50,235	(2,3)			67,621	(2,3)
Strategic Ind Portfolio I, LLC
IDI Nationwide Industrial Portfolio (60% Account Interest)			51,120	(2,3)			67,731	(2,3)
TOTAL REAL ESTATE JOINT VENTURES
(Cost $2,078,480 and $2,068,714)			1,557,700				2,176,711
LIMITED PARTNERSHIPS—1.85% and 2.15%
Cobalt Industrial REIT (10.998% Account Interest)			24,760				31,784
Colony Realty Partners LP (5.27% Account Interest)			17,925				29,000
Heitman Value Partners Fund (8.43% Account Interest)			14,141				16,334
Lion Gables Apartment Fund (18.46% Account Interest)			129,216				186,471
MONY/Transwestern Mezz RP II (16.67% Account Interest)			16,195				17,710
Transwestern Mezz Realty Partners III, LLC (11.708% Account Interest)			2,792				5,186
TOTAL LIMITED PARTNERSHIPS
(Cost $271,871 and $261,136)			205,029				286,485
TOTAL REAL ESTATE JOINT VENTURES AND LIMITED PARTNERSHIPS
(Cost $2,350,351 and $2,329,850)			1,762,729				2,463,196

See notes to the financial statements.

25

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2009 and December 31, 2008
(Dollar values shown in thousands)

MARKETABLE SECURITIES—4.42% and 3.83%
COMMERCIAL PAPER—0.00% and 1.84%

Principal						Issuer	Yield(4)		Maturity Date		Value
2009			2008								2009			2008
											(Unaudited)
	$	—		$	50,000	Abbey National North America LLC		0.071%		1/5/09		$	—		$	49,998
		—			40,000	Bank of Nova Scotia		0.193%		1/2/09			—			39,999
		—			50,000	HSBC Finance Corporation		0.304%		1/7/09			—			49,997
		—			50,000	Rabobank USA Financial Corp		0.122%		1/5/09			—			49,999
		—			25,000	Societe Generale North America, Inc.		0.243%		1/13/09			—			24,997
		—			22,400	Toyota Motor Credit Corp.		0.406%		1/23/09			—			22,395
		—			8,200	Toyota Motor Credit Corp.		0.659%		2/4/09			—			8,196
TOTAL COMMERCIAL PAPER
(Cost $0 and $245,585)													—			245,581
GOVERNMENT AGENCY NOTES—2.55% and 1.99%
		—			25,000	Fannie Mae Discount Notes		0.030%		1/6/09			—			25,000
		—			14,200	Fannie Mae Discount Notes		0.081%		1/30/09			—			14,200
		—			33,400	Fannie Mae Discount Notes		0.152%		2/3/09			—			33,400
		45,910			—	Fannie Mae Discount Notes		0.152%-0.162%		7/13/09			45,909			—
		100			—	Fannie Mae Discount Notes		0.161%		7/20/09			100			—
		9,200			—	Fannie Mae Discount Notes		0.132%		7/29/09			9,199			—
		29,110			—	Fannie Mae Discount Notes		0.203%		8/24/09			29,105			—
		—			18,100	Federal Home Loan Bank Discount Notes		0.071%		1/5/09			—			18,100
		—			50,000	Federal Home Loan Bank Discount Notes		0.041%		1/12/09			—			50,000
		—			11,330	Federal Home Loan Bank Discount Notes		0.051%		1/21/09			—			11,330
		—			100,000	Federal Home Loan Bank Discount Notes		0.081%		1/22/09			—			100,000
		34,500			—	Federal Home Loan Bank Discount Notes		0.020%-0.132%		7/1/09			34,500			—
		24,105			—	Federal Home Loan Bank Discount Notes		0.112%		7/2/09			24,105			—
		40,000			—	Federal Home Loan Bank Discount Notes		0.162%		7/27/09			39,997			—
		15,905			—	Federal Home Loan Bank Discount Notes		0.213%		9/29/09			15,899			—
		—			14,100	Freddie Mac Discount Notes		0.203%		1/5/09			—			14,100
		50,000			—	Freddie Mac Discount Notes		0.122%		7/14/09			49,998			—
		16,000			—	Freddie Mac Discount Notes		0.132%		7/21/09			15,999			—
		18,000			—	Freddie Mac Discount Notes		0.142%		8/18/09			17,997			—
TOTAL GOVERNMENT AGENCY NOTES (Cost $282,798 and $266,118)													282,808			266,130

See notes to the financial statements.

26

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
June 30, 2009 and December 31, 2008
(Dollar values shown in thousands)

Principal		Issuer	Yield(4)		Maturity Date		Value
2009	2008						2009			2008
							(Unaudited)
UNITED STATES TREASURY BILLS—1.87% and 0.00%
71,300	—	United States Treasury Bills		0.138%-0.152%		7/23/09			71,295			—
83,340	—	United States Treasury Bills		0.223%-0.269%		10/8/09			83,298			—
16,000	—	United States Treasury Bills		0.183%		10/15/09			15,991			—
36,725	—	United States Treasury Bills		0.223%		10/22/09			36,703			—
TOTAL UNITED STATES TREASURY BILLS (Cost $207,269 and $0)								$	207,287		$	—
TOTAL MARKETABLE SECURITIES (Cost $490,067 and $511,703)									490,095			511,711
MORTGAGE LOAN RECEIVABLE—0.62% and 0.54%

					Borrower	Current Rate(5)			Maturity Date
	$	75,000	$	75,000	Klingle Corporation		0.800	%		7/10/11		68,279		71,767
TOTAL MORTGAGE LOAN RECEIVABLE (Cost $75,000 and $75,000)												68,279		71,767
TOTAL INVESTMENTS (Cost $12,923,312 and $12,948,297)											$	11,100,456	$	13,351,714

(1)	The investment has a mortgage loan payable outstanding, as indicated in Note 7.
(2)	The market value reflects the Account’s interest in the joint venture and is net of debt.
(3)	Properties within this investment are located throughout the United States.
(4)	Yield represents the annualized yield at the date of purchase.
(5)	Current rate represents the interest rate on this investment at June 30, 2009. At December 31, 2008, the interest rate on this investment was 2.57%.

See notes to the financial statements.

27

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and notes contained in this report and with consideration to the sub-section entitled “Forward-Looking Statements,” which begins below, the section of the Account’s Annual Report on Form 10-K for the year ended December 31, 2008 (the “Form 10-K”) entitled “Item 1A. Risk Factors” and the section of the Account’s Form 10-Q for the quarter ended March 31, 2009 entitled “Item 1A. Risk Factors” in Part II thereof. The past performance of the Account is not indicative of future results.

Forward-Looking Statements

Some statements in this Form 10-Q which are not historical facts may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about management’s expectations, beliefs, intentions or strategies for the future, include the assumptions underlying these forward-looking statements, and are based on current expectations, estimates and projections about the real estate industry, markets in which the Account operates, general economic conditions and the strength of the capital and credit markets, management’s beliefs, assumptions made by management and the transactions described in this Form 10-Q. While management believes the assumptions underlying any of its forward-looking statements and information to be reasonable, such information may be subject to uncertainties and may involve certain risks which may be difficult to predict and are beyond management’s control. These risks and uncertainties could cause actual results to differ materially from those contained in any forward-looking statement. These risks and uncertainties include, but are not limited to, the following:

• The risks associated with acquiring, owning and selling real property, including general economic and real estate market conditions, the availability of financing (both for the Account and potential purchasers of the Account’s properties), disruptions in the credit and capital markets, competition for real estate properties, leasing risk (including tenant defaults), and the risk of uninsured losses at properties (including due to terrorism and acts of violence);

• The risks associated with property valuations, including the fact that appraisals can be subjective in a number of respects, the fact that the Account’s appraisals are generally obtained on a quarterly basis and there may be circumstances in between appraisals in which the realizable value of a property may not always be reflected in the Account’s daily accumulation unit value calculation;

• Risks associated with borrowing activity by the Account, including the ability to obtain financing on favorable terms (or at all), which may be aggravated by general disruptions in credit and capital markets;

• Investment risk associated with participant transactions, including the fact that significant net participant transfers out of the Account may impair its ability to pursue or consummate new investment opportunities that are otherwise attractive to the Account;

• The risks associated with joint venture partnerships, including the risks that a co-venturer may have interests or goals inconsistent with the Account’s and the risk that the Account has limited rights with respect to operation of the property and transfer of the Account’s interest;

• Uncertainties associated with environmental and other regulatory matters; and

• Other factors, including the risk factors discussed in “Item 1A. Risk Factors” in the Form 10-K.

More detailed discussions of certain of those risk factors are contained in the section of the Form 10-K entitled “Item 1A. Risk Factors” and elsewhere in this Form 10-Q including in the section entitled “Item 3. Quantitative and Qualitative Disclosures About Market Risk” and the section of the Account’s Form 10-Q for the quarter ended March 31, 2009 entitled “Item 1A. Risk Factors” in Part II thereof.

Caution should be taken not to place undue reliance on management’s forward-looking statements, which represent management’s views only as of the date that this report is filed. Neither management nor the Account undertake any obligation to update publicly or revise any forward-looking statement, whether as a result of new information, changed assumptions, future events or otherwise.

28

Commercial real estate market statistics discussed in this section are obtained by the Account from sources that management considers reliable, but some of the data is preliminary for the quarter ended June 30, 2009 and may be subsequently revised. Prior period data may have been adjusted to reflect updated calculations. Investors should not rely exclusively on the data presented below in forming a judgment regarding the current or prospective performance of the commercial real estate market generally.

SECOND QUARTER 2009 U.S. ECONOMIC AND COMMERCIAL REAL ESTATE OVERVIEW

The TIAA Real Estate Account (the “Account”) invests primarily in high-quality, core commercial real estate in order to meet its investment objective of obtaining favorable long-term returns through rental income and the appreciation of its real estate holdings. The Account does not directly invest in either single-family residential real estate or residential mortgage-backed securities.

Economic and Capital Markets Overview and Outlook

The deterioration of the U.S. economy showed signs of moderating during the second quarter of 2009. Economic conditions remain extremely challenging and available data suggest that early signs of stabilization may be tenuous. Despite a discouraging employment report for June, in which 467,000 jobs were lost, job losses appear to be moderating. During the second quarter of 2009, 1.3 million jobs were lost as compared to 2.1 million during the first quarter and the pace of job losses slowed during the quarter, averaging 436,000 versus an average of 670,000 during the November 2008-March 2009 period. Financial market conditions reflect the uncertainty surrounding the economic outlook as major indices such as the Dow Jones Industrial Average and the S&P 500 gained 11% and 15%, respectively, in the second quarter and continued to improve during the early part of the third quarter. While credit availability remains constrained, credit is now flowing more freely for the highest rated companies as is indicated by the pickup in corporate bond issuance. Credit spreads have narrowed as indicated by the decline in the U.S. Treasury – Euro Dollar spread (which measures the difference between U.S. government yields and yields on dollar-denominated deposits held outside the U.S.) to levels last seen prior to the Lehman Brothers failure which occurred in September of 2008. Similarly, yields on 10-Year U.S. Treasuries peaked in June at almost 4.0%, but have since fallen to 3.5% as of the end of July. The market for structured financial products, such as commercial mortgage backed securities (“CMBS”) and residential mortgage backed securities (“RMBS”), remained quiet during the second quarter, but CMBS offerings have begun to tick up in the early part of the third quarter. Of particular note is Developers Diversified Realty’s plan to sell $600 million in bonds securitized by roughly 60 shopping centers located across the country. If successful, it would be the first major offering of CMBS to take advantage of the Federal Reserve’s Term-Asset Backed Securities Loan Facility, or TALF, program. Access to credit through the TALF program could provide much needed liquidity to the commercial real estate industry.

During the second quarter, the nation’s largest nineteen banks underwent extensive “stress tests” conducted by the federal government and many were deemed to have sufficient capital to withstand conditions that might be expected during an extended or more extreme downturn in the U.S. economy. Others raised funds to meet more stringent capital requirements. Subsequently, ten of the banks were approved to exit the Troubled Asset Relief Program (“TARP”) and several began returning the funds that were advanced by the U.S. government at the height of the financial markets crisis. In addition, the U.S. Treasury Department announced that the Public-Private Investment Partnership (“PPIP”), which was designed to help remove legacy assets from bank balance sheets, would be scaled back in response to signs of stabilization in the economy and financial markets. Additionally, the Federal Reserve announced plans to reduce the size of some of its other lending programs, particularly those that were generating limited demand. Nonetheless, access to credit remained tight, especially for small businesses and consumers, which prompted the Federal Reserve to extend the lending programs targeting these groups into early-2010. Other sectors that have come under extreme stress during the economic downturn include the auto, airline, and retail industries. In the auto sector, both General Motors and Chrysler filed for bankruptcy protection during the second quarter; however, both have since emerged from bankruptcy protection with effectively new owners, the U.S. government in the case of GM and Fiat in the case of Chrysler. In the retail sector, bankruptcy filings during the quarter included Eddie Bauer and Crabtree & Evelyn, which are indicative of the slowdown in consumer spending.

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The table below summarizes headline economic indicators. Based on preliminary estimates from the Bureau of Economic Analysis, GDP declined by 1.0% in the second quarter of 2009. This better than expected report, while subject to revision, suggests that the recession may be close to ending. Weak export activity, business investment and consumer spending contributed to the decline, but were partially offset by an increase in government spending and a drop in imports. However, the first quarter decline in GDP, which was revised downward to -6.4% from -5.5% previously, underscored the severity of the recession. Inflation remains in check, but household budgets, which benefited from a decline in energy prices during the second half of 2008, were once again forced to contend with rising gasoline prices during the second quarter of 2009. While the burgeoning federal budget deficit has some economists concerned about the prospects for inflation over the long term, core inflation (excluding energy and food) remains tame and the significant gap between the U.S. economy’s potential and current output suggests that prospects for inflation over the near term are negligible.

Economic Indicators*

	2008			2008Q1			2008Q2			2008Q3			2008Q4			2009Q1			2009Q2			2009F			2010F
Economy (% Growth)(1)
Gross Domestic Product (GDP)		0.4	%		-0.7	%		1.5	%		-2.7	%		-5.4	%		-6.4	%		-1.0	%		-2.6	%		2.0	%
Inflation (Consumer Price Index)		0.1	%		3.7	%		6.5	%		3.1	%		-12.4	%		2.2	%		3.3	%		-0.6	%		1.8	%
Employment Growth (Thousands)		-3,078			-338			-458			-624			-1,658			-2,074			-1,308			N/A			N/A
Interest Rates(2)
10 Year Treasury		3.66	%		3.66	%		3.89	%		3.86	%		3.25	%		2.74	%		3.31	%		3.40	%		4.10	%
Federal Funds Rate		0.0-0.25	%		2.25	%		2.00	%		2.00	%		0.0-0.25	%		0.0-0.25	%		0.0-0.25	%		N/A			N/A

Sources: BEA, BLS, Federal Reserve, Blue Chip Consensus Forecasts

*	Data subject to revision
(1)	GDP growth rates are annual rates; inflation rates are annualized 3 month rates; employment growth rates are monthly changes.
(2)	The Treasury rates are an average over the stated time period. The Federal Funds rates are as of the end of the stated time period.

N/A indicates data not available.

The data in the table below show that broad indicators of economic performance remain depressed relative to 2008. The data also suggests that, notwithstanding recent signs of stabilization, the economy still has considerable ground to regain before it is healthy enough to expand in a meaningful way. For example, consumer confidence, which had begun to trend upwards, dropped again in June and remains near historic lows. Retail sales were primarily down during the quarter, although gasoline and auto sales, which are excluded in the retail sales figures shown below, both posted sizable monthly gains in June. In the housing market, existing home sales rose for the second straight month in May, due largely to sales of foreclosed homes and homes at the low end of the price spectrum. Mortgage interest rates increased slightly in the second quarter, but they remain relatively low and discounted prices and tax credits for first- time buyers have fueled sales in a number of markets. New home sales remain subdued however, as the “move-up market” remains lackluster. As of June 30, 2009, single-family housing starts are now at the highest rate this year, but are still 70-75% below levels at the 2006-2007 market peak. While some economists expect growth in the U.S. economy in the third quarter of 2009, any growth in GDP over the balance of 2009 is likely to be negligible given ongoing job losses, rising unemployment, weak consumer confidence, and the depressed housing market.

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Broad Economic Indicators*

Index 1985=100	2008			Apr-09			May-09			Jun-09
Consumer Confidence		58.0			40.8			54.8			49.3
% Change(1)
Retail Sales (excl. auto, parts & gas)		1.6	%		-0.3	%		-0.1	%		-0.2	%
Existing Home Sales		-13	%		2.4	%		1.3	%		3.6	%
New Home Sales		-38	%		-37	%		-32	%		-21	%
Single-family Housing Starts		-41	%		-43	%		-40	%		-28	%
Unemployment Rate		5.8	%		8.9	%		9.4	%		9.5	%

*	Data subject to revision
(1)	Retail sales and existing home sales monthly figures represent change from the preceding month or year; new home sales and housing starts monthly figures represent changes from the same month last year.

Sources: Conference Board, Census Bureau, Bureau of Labor Statistics

The Federal Reserve’s July 2009 Beige Book, which reported on regional economic conditions in the twelve Federal Reserve Districts (“Districts”) through mid-July, characterized economic activity as weak across the Districts since its last report in June. However, most Districts noted a moderating rate of decline, with a few even suggesting some signs of stabilization. While layoffs continued, several Districts reported selective increases in hiring as some firms seek to take advantage of unemployed talent. Generally though, employers were reported to be cutting hours, freezing wages and/or downsizing employee benefits packages to save money and avoid cutting payrolls further. Consumer spending generally remained soft with households forgoing spending on luxury items in favor of less expensive items or necessities. Auto sales picked up in some Districts, but remained weak in others. With respect to inflation, overall price levels exhibited little upward momentum since the last Beige Book report.

While the residential market was characterized as weak, many Districts reported increased home sale activity, particularly among lower-priced homes as sales were boosted by first-time home buyer tax credits. Foreclosures placed additional downward pressure on home prices in some Districts, while others reported moderating price declines. Commercial real estate market conditions weakened further or remained weak in all Districts. Rising vacancies placed significant downward pressure on rental rates. Lending activity was generally characterized as flat to down across most Districts and many banks continued to tighten lending standards. Consequently, lack of available credit was blamed for stalled or delayed construction projects and for limited sales activity.

Prospects for the second half of 2009 and throughout 2010 are highly dependent on the success of policy actions taken by the U.S. government and the Federal Reserve, and the full impacts of recent actions are likely to show over the next few quarters. In particular, the Obama administration is hopeful that the $787 billion stimulus package passed in February of 2009 will boost economic activity in the second half of the year. Because the stimulus funds have been introduced into the economy very slowly, some economists believe that a second stimulus package will be needed to generate a sustained economic recovery. Only negligible growth is expected in the third quarter of 2009, while many economists believe that the third quarter of 2009 will ultimately prove to be the trough of the recession. Since the peak of economic activity in December of 2007, U.S. employment has declined by 6.5 million jobs. Job losses are expected to continue through the rest of 2009 and possibly into 2010, and the unemployment rate is expected to reach 10% for the first time since the early 1980’s.

Economists surveyed as part of the July 2009 Blue Chip Financial Forecasts publication expect U.S. GDP to decline 2.6% for 2009 as the modest growth expected in the second half of the year will be too small to offset the sizeable declines of the first half. While past recessions were often followed by recoveries led by a rebound in consumer spending, construction spending, and home sales, many economists are expecting a tepid recovery with GDP growth of 2.0% in 2010 as the weights of financial market excesses, a housing bubble and a consumer spending bubble slowly dissipate. Members of the Federal Open Market Committee (“FOMC”) have similar expectations. As part of the June 23-24, 2009 FOMC meeting, FOMC members boosted their forecasts for economic growth in the second half of 2009 and in 2010, citing evidence that the economic contraction in the U.S. and global economies was moderating. Nonetheless, they cautioned that

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given economic conditions, their forecasts continued to be subject to greater-than-average uncertainty. Still, the revised forecast now calls for modest growth in the second half of 2009 followed by GDP growth of 2.1% – 3.3% in 2010, and above-trend growth in 2011.

Real Estate Market Conditions and Outlook

Liquidity constraints and concerns about economic and real estate market conditions kept investors on the sidelines during the first half of 2009. Preliminary data from Real Capital Analytics (“RCA”), a frequently cited industry source of commercial real estate transactions data, indicate that sales of commercial real estate properties remained depressed during the second quarter. In the second quarter 2009, $8.6 billion of properties were sold, which is 4% below first quarter 2009 volume, but 77% below the same period in 2008, when sales totaled $37.8 billion. Sales of apartment and industrial properties were up 40% and 50%, respectively, compared to first quarter though first quarter totals were especially weak. Overall, the number of properties being offered for sale increased in the second quarter and while only a limited number of distressed sales have occurred, their numbers are expected to increase which will likely add to the downward pressure on prices. RCA estimates that some 3,500 office, industrial, retail, and apartment properties with a collective value of $70 billion are currently in distress. Mortgage defaults have also increased, and given the difficulties in refinancing maturing loans, a surge in mortgage defaults is expected over the 2010-2012 period. While the sales environment is likely to remain challenging, Management believes that prospective investors are starting to view asset prices as attractive and that the lack of institutional quality property being offered for sale may provide a window for the Account to dispose of some of its non-core properties in selected markets in the coming months.

While sales activity has been limited (particularly for larger assets), available data indicate that commercial property prices declined further in the second quarter of 2009. In May of 2009, the Moody’s/REAL Commercial Property Price Index fell 29% as compared to May of 2008. (Additional data for second quarter 2009 are not yet available.) In general, properties in metro areas with the greatest transactional volume have seen prices hold up relatively better, with the exception of apartment properties, where declines were in-line with the rest of the nation.

Data released by the National Council of Real Estate Investment Fiduciaries (“NCREIF”) also showed continued declines in property values. The NCREIF Property Index (“NPI”) declined 5.20% during the second quarter of 2009. The property value component fell 6.70% which was partially offset by an income return of 1.50%. While second quarter total return was better, i.e. “less negative”, than that of the first quarter, the one-year total return for the period ending second quarter 2009 was a negative 19.6%. The ongoing deterioration in economic conditions continued to affect commercial real estate market conditions during the second quarter of 2009. Vacancy rates rose for all property types and in virtually all markets. Commercial real estate market conditions generally lag changes in economic conditions and the length and severity of the current recession make it likely that vacancies will continue to rise through the rest of 2009 and possibly into 2010. Even as the economy recovers, it will take time for business confidence and profitability to improve to the point that new space and new employees are warranted.

The table below summarizes the top five markets in which the Account had exposure as of June 30, 2009. The top five markets account for more than one-third of the Account’s total real estate portfolio in terms of value and, despite rising vacancy rates nationally, occupancy in each of the top five markets has held up comparatively well.

Metro Area	Percentage Leased (weighted)		# of Property Investments		Metro Area as a % of Total Real Estate Portfolio		Metro Area as a % of Total Investments
Washington-Arlington- Alexandria DC-VA-MD-WV		94.2%		9		12.2%		11.4%
Boston-Quincy MA		91.4%		5		7.2%		6.7%
Los Angeles-Long Beach-Glendale CA		92.6%		8		6.7%		6.2%
Houston-Bay Town-Sugar Land TX		95.0%		3		6.5%		6.1%
San Francisco-San Mateo-Redwood City CA		95.8%		4		6.3%		5.9%

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Office

Demand for office space is particularly dependent upon employment levels and growth in the finance and professional and business services sectors, although typically with a lag due to the longer-term nature of the leasing cycle. Job losses in both sectors moderated during the second quarter but continued at significant levels. The financial services sector lost approximately 103,000 jobs during the three-month period, while professional and business services shed approximately 293,000 jobs. As businesses vacated unneeded space, the national office vacancy rate continued to climb, rising to an average of 15.5% in the second quarter of 2009 as compared to 14.7% during the first quarter. The vacancy rate of the Account’s office portfolio stood at a much lower 7.8% as of the second quarter. With the exception of the Boston-Quincy MA metro area and the San Francisco-San Mateo-Redwood City CA metro areas, vacancy rates in each of the Account’s other top metropolitan office markets rose in the quarter but still remained below the national average. Of the Account’s top office markets, the Seattle-Bellevue-Everett WA metro area saw the largest increase in vacancies as two million square feet of new space was added to the market during 2009 in addition to space that was recently vacated. The table below compares the average vacancy rate of properties in the Account’s top office markets with their respective metropolitan area averages.

							Account Weighted Average Vacancy				Metro Area Vacancy*
Sector	Metro Area	Total Sector by Metro Area ($M)			% of Total Investments		2009Q1		2009Q2		2009Q1		2009Q2
Office	National							6.8%		7.8%		14.7%		15.5%
1	Washington-Arlington- Alexandria DC-VA-MD-WV		$	1,108.8		10.0%		1.4%		6.1%		12.8%		13.8%
2	Boston-Quincy MA		$	719.0		6.5%		8.2%		7.9%		12.3%		12.3%
3	San Francisco-San Mateo- Redwood City CA		$	591.4		5.3%		5.3%		4.3%		12.0%		12.6%
4	Seattle-Bellevue-Everett WA		$	509.9		4.6%		3.9%		5.0%		12.7%		14.7%
5	Houston-Bay Town- Sugar Land TX		$	432.4		3.9%		4.0%		5.0%		13.8%		15.3%

* Source: Torto Wheaton Research

Industrial

Industrial market conditions weakened further due to the falloff in consumer demand and industrial production that has occurred during the recession. Industrial space demand is heavily influenced by macroeconomic factors such as industrial production, international trade flows, and employment growth in the manufacturing, wholesale trade, and warehousing industries. Not only did U.S. industrial production decline at an 11.6% annual rate in the second quarter of 2009, but import and export activity has also fallen off dramatically. As a result, the national vacancy rate for industrial properties rose for the seventh consecutive quarter to an average of 13.0% during the second quarter of 2009, up from 12.2% in the first quarter of 2009. In comparison, the vacancy rate for the Account’s industrial portfolio declined slightly to 11.3% as a result of a proactive effort to maintain portfolio occupancy by attracting and/or retaining tenants with market-adjusted rental rates if necessary. Metropolitan area vacancy rates in each of the Account’s top industrial markets increased during the second quarter. The Los Angeles-Long Beach-Glendale CA metro area was able to maintain its position as the industrial market with the lowest vacancy rate in the U.S., despite the increase in its vacancy rate to 7.5%. The Account’s above average vacancy rate in the Los Angeles-Long Beach-Glendale CA and Riverside-San Bernardino-Ontario CA metro areas is reflective of the significant falloff in leasing activity in those markets due to the 15% and 27% decline, respectively, in the volume of goods being shipped through The Port of Los Angeles and The Port of Long Beach The table below compares the average vacancy rate of properties in the Account’s top industrial markets to their respective metropolitan area averages.

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Account
Weighted
Average
Vacancy

 

Metro Ares
Vacancy*

  

Sector

 

Metro Area

 

Total Sector
by Metro Area
($M)

 

% of Total
Investments

 

2009Q1

 

2009Q2

 

2009Q1

 

2009Q2

Industrial

 

National

     

12.3%

  

11.3%

  

12.2%

  

13.0%

 

1

 

Riverside-San Bernardino-Ontario CA

$

331.0

  

3.0%

  

20.5%

  

20.2%

  

14.8%

  

15.5%

 

2

 

Dallas-Plano-Irving TX

$

165.0

  

1.5%

  

7.9%

  

4.7%

  

14.4%

  

15.3%

 

3

 

Chicago-Naperville-Joliet IL

$

127.4

  

1.1%

  

0.6%

  

0.9%

  

13.6%

  

14.1%

 

4

 

Los Angeles-Long Beach-
Glendale CA

$

114.4

  

1.0%

  

12.1%

  

15.9%

  

6.5%

  

7.5%

 

5

 

Atlanta-Sandy Springs-
Marietta GA

$

111.3

  

1.0%

  

1.3%

  

0.0%

  

15.8%

  

17.1%

 

* Source: Torto Wheaton Research

Multi-Family

Apartment market conditions were stable during the second quarter of 2009, as compared to the first quarter of 2009, with the national vacancy rate holding steady at 7.3%. A year-over-year comparison, which is necessary to reflect the seasonality inherent in apartment leasing, show the deterioration in the market as vacancies in the second quarter of 2008 were 5.6%. The increase in vacancies since 2008 is due to a fall-off in demand and an increase in the supply of rentable space. On the demand side, mounting job losses have caused an increasing number of tenants to find roommates or move back home in the case of younger renters. On the supply side, prospective renters have an increased variety of options including single-family homes and vacant condominium units being offered for rent. The average vacancy rate for the Account’s apartment portfolio, 4.4% during the second quarter of 2009, was below the national average. With the exception of the New York metropolitan area, vacancy rates in the Account’s top metropolitan markets are above the national average; however, the table below shows that the average vacancy rate for the Account’s properties in each of its top metropolitan areas is lower than both the national average and the average for the respective metropolitan area.

      

Account
Weighted
Average
Vacancy

 

Metro Ares
Vacancy*

  

Sector

 

Metro Area

 

Total Sector
by Metro Area
($M)

 

% of Total
Investments

 

2009Q1

 

2009Q2

 

2009Q1

 

2009Q2

Apartment

 

National

     

5.8%

  

4.4%

  

7.3%

  

7.3%

 

1

 

Houston-Bay Town-
Sugar Land TX

$

243.2

  

2.2%

  

6.3%

  

5.0%

  

8.1%

  

9.1%

 

2

 

Phoenix-Mesa-Scottsdale AZ

$

201.7

  

1.8%

  

6.0%

  

5.6%

  

11.5%

  

11.6%

 

3

 

Denver-Aurora CO

$

182.1

  

1.6%

  

8.0%

  

6.0%

  

7.6%

  

7.9%

 

4

 

New York-Wayne-
White Plains NY-NJ

$

121.5

  

1.1%

  

7.0%

  

5.0%

  

6.0%

  

6.7%

 

5

 

Atlanta-Sandy Springs-
Marietta GA

$

115.2

  

1.0%

  

3.6%

  

1.3%

  

10.6%

  

10.7%

 

* Source: Torto Wheaton Research

Retail

Vacancies in U.S. neighborhood and community centers rose to an average of 12.0% in the second quarter of 2009, up from 11.5% in the first quarter. While the Account’s retail portfolio is well leased with an average vacancy rate of 7.1% as of June 30, 2009, the portfolio’s physical occupancy rate as of second quarter

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is in-line with the 12.0% national vacancy rate as tenants such as Circuit City and Linens ‘N Things have closed stores as a result of going out of business or filing for bankruptcy protection. A number of other retailers (large and small) have also closed stores due to the falloff in consumer spending. If the number of “dark” stores increases, shopper traffic could decline at weaker centers to the point that other stores close and possibly trigger the “co-tenancy clauses”, that some retailers have, with provisions for rent relief or which allow a store to close. Retail market conditions are dependent to a large degree on consumer spending, which remained weak during the three-month period despite small monthly gains in some categories. In fact, much of the June 2009 gain in retail sales can be attributed to higher gas prices and an incentive-driven increase in auto sales during the month rather than sales of apparel and other goods. Retailer bankruptcy filings continued during the second quarter, with Eddie Bauer and Crabtree & Evelyn the most recent failures. As consumers continue to spend less, additional store closings and bankruptcy filings are likely, which would likely cause vacancy rates to rise further.

Commercial Real Estate Outlook

Commercial real estate market conditions have been adversely affected by both the severity and length of the current recession, as space demand has been extremely weak or declining across all property types. It is unlikely that commercial real estate market conditions will improve significantly in the near term as economic and capital markets conditions remain unsettled, and monetary and fiscal policy actions implemented in the early part of the year have yet to show a significant impact. Though an improvement in economic activity is expected during the second half of 2009, it is unlikely to be of sufficient strength to induce businesses to expand into new space or hire in meaningful numbers. One potentially positive development has been the dramatic fall-off in construction. As the table below indicates, the level of construction has been especially modest in comparison to prior economic and commercial real estate market cycles. Looking ahead, Torto Wheaton Research’s forecast for 21 million square feet of office construction in 2010 and 10 million square feet in 2011 (not shown) is on par with construction in 1993-1996 after the real estate downturn of the late-1980’s and early-1990’s. Minimal construction coupled with several years of healthy economic growth in those years ultimately led to a strong recovery in market conditions starting in the mid-1990’s. While management remains concerned about the economic outlook, management believes that there will not be a significant amount of new space to absorb when economic conditions improve, which could in theory enable markets to recover.

Historic and Projected Construction*

 

Average

 

Forecast

 

Average

 

2006-2008

 

2009

 

2010

 

1989-1991

 

1999-2001

Office

  

66

   

59

   

21

   

85

   

91

 

Industrial

  

182

   

81

   

69

   

184

   

257

 

Apartment

  

225

   

178

   

79

   

257

   

212

 

Retail

  

30

   

12

   

10

   

45

   

32

 

* in millions of sq. ft. except apartments, which are in thousands of units.

Source: Torto Wheaton Research

Given economic and credit market conditions, returns for many types of assets have been dismal as the recession lengthened and intensified. However, there are indications that asset prices in general have bottomed out. In the stock market, for example, the Dow Jones Industrial Average (“DJIA”) has declined nearly 50% since the start of the when it hit its low point in first quarter of 2009. The DJIA subsequently gained almost 30% from its low point at the end of the quarter and added another 10% as of early third quarter 2009. By comparison, the one year NPI return for the period ending June 30, 2009 was a negative 19.6%. Further declines in the NPI in the upcoming quarters appear likely, though they may not be as large, as market conditions remain challenging, rental rates decline, and vacant space is re-leased at lower rental rates. Investors have also raised their return requirements, which management believes are likely to continue to push property prices lower.

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Despite significant economic headwinds, the Account’s properties are still well-leased at over 92% occupancy, and management believes the long-term nature of the properties’ leases should generate cash flow to both service existing debt and generate an attractive income return. As shown below, the income return has historically been a major component of the Account’s total return, and management believes that income returns should offset a portion of the fluctuations in capital returns that are expected as the market continues to adjust.

Market conditions remain challenging with much of the current leasing activity consisting of tenants renewing leases that are expiring or renegotiating leases to reduce the amount of space being leased and/or current rental rates. Given current market conditions, the Account has renewed or renegotiated certain existing leases at lower effective rental rates, as necessary or appropriate in order to maintain a high level of portfolio occupancy. Management’s focus on leasing and tenant retention is designed to preserve the Account’s income stream and to minimize the capital expenditures that are typically needed to lease vacant space. Rents have declined across most property types and markets which has thereby reduced the Account’s overall level of rental income collected in the second quarter; however, Management has undertaken an extensive effort to reduce property level expenses and costs. This effort has generated reductions in operating expenses that to a large degree have offset the decline in rental income at a number of the Account’s properties.

Management believes that the Account’s property portfolio, which consists largely of high quality assets in major metropolitan areas, should be able to withstand current market stresses relatively better than properties in secondary markets or of lesser quality. As economic and capital market conditions stabilize, management intends to continue to resize and rebalance its entire portfolio in target markets and in sectors which management believes are expected to outperform. Such a program is intended to position the Account to benefit from an anticipated improvement in economic and market conditions over the coming years. Once economic and capital market conditions stabilize, management believes the Account’s portfolio of high quality assets should be well positioned to generate a more normalized level of returns. In addition to improved economic and capital markets conditions, management believes the Account’s returns should benefit in the future from its conservative “core” investment strategy, focus on institutional quality properties, markets and locations, and stabilized assets with strong historical occupancy and staggered lease expirations.

Investments as of June 30, 2009

As of June 30, 2009, the Account had total net assets in the amount of $9.3 billion, a 19.2% decrease from December 31, 2008, and a 45.5% decrease from June 30, 2008. The decrease in the Account’s net assets from June 30, 2008 to June 30, 2009 was primarily caused by the depreciation in value of the Account’s wholly-owned real estate properties and those owned in joint venture investments (approximately 53% of the decrease) and net participant transfers out of the Account (approximately 47% of the decrease).

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As of June 30, 2009, the Account owned a total of 108 real estate property investments (96 of which were wholly-owned, 12 of which were held in joint ventures). The real estate portfolio included 45 office property investments (five of which were held in joint ventures and one located in London, England), 26 industrial property investments (including one held in a joint venture), 20 apartment complexes, 16 retail property investments (including five held in joint ventures and one located in Paris, France), and a 75% joint venture interest in a portfolio of storage facilities. Of the 108 real estate property investments, 27 are subject to debt (including seven joint venture property investments).

Total debt on the Account’s wholly-owned real estate portfolio as of June 30, 2009 was $1.8 billion, representing 19.8% of Total Net Assets. The Account’s share of joint venture debt ($1.9 billion) is netted against the underlying properties when determining the joint venture values shown on the Statement of Investments. When the joint venture debt is also considered, total debt on the Account’s portfolio as of June 30, 2009 was $3.7 billion, representing 40.1% of Total Net Assets. The Account currently has no Account-level debt.

Management believes that the Account’s real estate portfolio is diversified by location and property type. The largest investment, 1001 Pennsylvania Avenue, located in Washington, DC represented 4.52% of Total Investments and 4.85% of Total Real Estate Investments. As discussed in the Account’s prospectus, the Account does not intend to buy and sell its real estate investments simply to make short-term profits. Rather, the Account’s general strategy in selling real estate investments is to dispose of those assets that have either maximized in value, have underperformed or face deteriorating property-specific or market conditions, represent properties needing significant capital infusions in the future, or which management deems are appropriate to dispose of in order to remain consistent with its intent to diversify the Account by property type and geographic location. The Account will reinvest any sale proceeds that it does not need to pay operating expenses or to meet redemption requests (e.g., cash withdrawals or transfers).

The following charts reflect the diversification of the Account’s real estate assets by region and property type and list its ten largest investments. All information is based on the fair values of the investments at June 30, 2009.

Diversification by Fair Value⁽¹⁾

 

East

 

West

 

South

 

Midwest

 

Foreign⁽²⁾

 

Total

Office

  

22.4

%

  

19.4

%

  

12.7

%

  

1.2

%

  

2.2

%

  

57.9

%

Apartment

  

2.2

%

  

5.9

%

  

4.9

%

  

0.0

%

  

0.0

%

  

13.0

%

Industrial

  

1.5

%

  

6.2

%

  

4.0

%

  

1.4

%

  

0.0

%

  

13.1

%

Retail

  

3.5

%

  

1.0

%

  

8.4

%

  

0.5

%

  

2.1

%

  

15.5

%

Storage⁽³⁾

  

0.2

%

  

0.1

%

  

0.1

%

  

0.1

%

  

0.0

%

  

0.5

%

Total

  

29.8

%

  

32.6

%

  

30.1

%

  

3.2

%

  

4.3

%

  

100.0

%

(1)	Fair values for wholly-owned properties are reflected gross of any debt, while fair values for joint venture investments are reflected net of any debt.
(2)	Represents real estate investments in the United Kingdom and France.
(3)	Represents a portfolio of storage facilities.

Properties in the “East” region are located in: CT, DC, DE, KY, MA, MD, ME, NC, NH, NJ, NY, PA, RI, SC, VA, VT, WV

Properties in the “West” region are located in: AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY

Properties in the “South” region are located in: AL, AR, FL, GA, LA, MS, OK, TN, TX

Properties in the “Midwest” region are located in: IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI

37

Top Ten Largest Real Estate Investments

Property or Joint Venture Name	City	State	Type	Value ($M)(a)			Property as a % of Total Real Estate Portfolio(b)		Property as a % of Total Investments
1001 Pennsylvania Avenue	Washington	DC	Office		501.3	(c)		4.85		4.52
Four Oaks Place	Houston	TX	Office		432.4	(d)		4.18		3.90
DDR Joint Venture	Various	USA	Retail		393.1	(e)		3.80		3.54
Fourth and Madison	Seattle	WA	Office		340.0	(f)		3.29		3.06
50 Fremont	San Francisco	CA	Office		323.1	(g)		3.13		2.91
99 High Street	Boston	MA	Office		276.4	(h)		2.67		2.49
780 Third Avenue	New York City	NY	Office		270.0			2.61		2.43
The Newbry	Boston	MA	Office		268.2			2.59		2.42
The Florida Mall	Orlando	FL	Retail		258.2			2.50		2.33
1900 K Street	Washington	DC	Office		237.4			2.30		2.14

(a)	Value as reported in the June 30, 2009 Statement of Investments. Investments owned 100% by TIAA are reported based on fair value. Investments in joint ventures are reported at fair value and are presented at the Account’s ownership interest.
(b)	Total Real Estate Portfolio excludes the mortgage loan receivable.
(c)	This property is shown gross of debt. The value of the Account’s interest less leverage is $293.6 M.
(d)	This property is shown gross of debt. The value of the Account’s interest less leverage is $254.9M.
(e)	This property is held in a 85%/15% joint venture with Developers Diversified Realty Corporation (“DDR”), and consists of 65 retail properties located in 13 states and is shown net of debt.
(f)	This property is shown gross of debt. The value of the Account’s interest less leverage is $197.8 M.
(g)	This property is shown gross of debt. The value of the Account’s interest less leverage is $190.1 M.
(h)	This property is shown gross of debt. The value of the Account’s interest less leverage is $96.0 M.

As of June 30, 2009, the Account also held investments in government agency notes representing 2.55% of Total Investments, U.S. Treasury Bills representing 1.87% of Total Investments, real estate limited partnerships representing 1.85% of Total Investments, and a mortgage loan receivable representing 0.62% of Total Investments.

Results of Operations

Six months ended June 30, 2009 compared to six months ended June 30, 2008

Performance

The Account’s total return was -17.49% for the six months ended June 30, 2009 as compared to the positive return of 0.97% for the six months ended June 30, 2008. The Account’s performance in the second quarter of 2009 reflects a continued decline in the aggregate net asset value of the Account’s real estate property investments, including investments owned in joint ventures and limited partnerships, lower income from marketable securities and unrealized losses from the mortgage loans payable. The first half of 2009 saw continued valuation declines resulting from the weakened economy and faltering financial and credit markets. Transaction activity continues to remain at historically low levels and capital depreciation has occurred in most markets.

The Account’s annualized total returns (after expenses) over the past one, three, five, and ten year periods ended June 30, 2009 were -29.84%, -5.24%, 2.52%, and 4.83%, respectively. As of June 30, 2009, the Account’s annualized total return since inception was 5.83%.

The Account’s total net assets decreased from $17.1 billion at June 30, 2008 to $9.3 billion at June 30, 2009. The primary drivers of this 45.5% decrease were depreciation in value of the Account’s wholly owned, joint venture, and limited partnership real estate investments (approximately 53% of the decrease) and net participant transfers out of the Account (approximately 47% of the decrease).

38

Income and Expenses

The Account’s net investment income, after deduction of all expenses, was 16.2% lower for the six months ended June 30, 2009, as compared to the same period in 2008. This decline is due to declines in Net real estate income, Income from real estate joint ventures and limited partnerships, and Interest and Dividend income, offset somewhat by decreases in Account level expenses.

The Account’s real estate holdings, including real estate joint ventures and limited partnerships, generated approximately 99.7% and 84.6% of the Account’s Total investment income (before deducting Account level expenses) during the six months ended June 30, 2009 and 2008, respectively. The 21.9% decrease in the Account’s Total investment income was due to a 98.3% decrease in the Account’s interest and dividend income and a 6.9% decrease in Net real estate income.

Net real estate Income decreased approximately 6.9% in the six months ended June 30, 2009, as compared to the same period in 2008. This decrease is primarily due to less rental income ($13.3 million when compared to the same period in 2008), an increase in interest expense ($9.9 million) offset by reductions in property operating expenses of approximately $6.6 million. The decline in rental income in the six months ended June 30, 2009 is due primarily to lower income from properties that were sold since June of 2008 and lease termination income that was earned in the second quarter of 2008. Interest expense increased due to the $557 million of additional debt that was incurred during the second half of 2008. Property operating expense reductions are the result of lower insurance costs (approximately $1.0 million), lower utility costs (approximately $2.0 million), and reductions in various other property operating expenses.

Income from real estate joint ventures and limited partnerships was $60.2 million for the six months ended June 30, 2009, as compared to $68.6 million for the six months ended June 30, 2008. This 12.2% decrease is due to a decrease in income earned and distributed by the joint ventures (primarily the DDR joint venture). The DDR Joint Venture is highly concentrated in the retail sector and experienced tenant bankruptcies including Circuit City, Goody’s and Linens and Things in the late part of 2008 that have reduced the income of the venture available to distribute during the six months ended June 30, 2009.

The decrease in interest income is due to a lower marketable security balance in the first six months of 2009 compared to the same period in 2008, along with a decrease in yields earned on those securities. Also, during the second quarter of 2008, the Account sold the real estate equity securities and did not hold any of those securities in 2009, which resulted in no dividend income for the first six months of 2009, compared with dividend income of $5.1 million in the same period during 2008.

The Account incurred overall Account level expenses of $50.9 million for the six months ended June 30, 2009, which represents a 41.6% decrease from $87.1 million for the same period in 2008. The decreases in Investment advisory and Administrative and distribution charges are due to two factors. First, during the first quarter of 2008, there were increased costs allocated to the Account associated with new technology investments that have been reduced significantly in the first half of 2009. The other factor is the general decline in the costs allocated to manage and distribute the Account and is consistent with the reduction in the average net assets of the Account. Investment advisory charges will not decline at the same rate as net assets as certain of these costs are not directly associated to the net asset value of the Account. Mortality and expense risk expenses and Liquidity guarantee expenses declined during the six months ended June 30, 2009 primarily due to lower net assets as compared to the same period in 2008. The decline of the liquidity guarantee expenses resulting from the decline in net assets was partially offset by the increase in the fees that TIAA charges to provide the liquidity guarantee from 10 basis points to 15 basis points effective May 1, 2009.

Net Realized and Unrealized Gains and Losses on Investments and Mortgage Loans Payable

The Account had Net realized and unrealized losses on investments and mortgage loans payable of $2.2 billion for the six months ended June 30, 2009, a significant increase in loss when compared to a net realized and unrealized loss of $130.0 million for the six months ended June 30, 2008. The decrease in net realized and unrealized gains and losses on investments and mortgage loans payable was primarily driven by a net realized and unrealized loss on the Account’s wholly-owned real estate property investments of $1.5 billion for the six months ended June 30, 2009 compared to a loss of $44.3 million during the same period in 2008. Additionally, the Account’s interests in joint ventures and limited partnerships posted a Net realized and unrealized loss of $703.1 million for the six months ended June 30, 2009 as compared to a Net realized and unrealized loss of $93.3 million for the six months ended June 30, 2008. The variance in the Net realized and unrealized gains and losses on wholly-owned real estate property investments and those held in joint ventures was due to the

39

decline in value of the Account’s existing real estate assets, which reflected the net effects of a weaker overall economy and continued shortage of liquidity in the commercial real estate markets in the first half of 2009.

Mortgage loans payable experienced an unrealized loss of approximately $15.3 million during the six months ended June 30, 2009 compared to an unrealized gain of $4.4 million in the same period in 2008. Valuation adjustments associated with mortgage loans payable are highly dependent upon interest rates, spreads, investment return demands, the performance of the underlying real estate investment, and where applicable, foreign exchange. Of the $15.3 million unrealized loss, foreign exchange fluctuations (due to a weakening U.S. dollar during the first half of 2009) accounted for an approximately $28.1 million loss which was offset by a gain of approximately $12.8 million for the six month period. This $12.8 million gain resulted from the higher loan to value ratios on the Account’s underlying properties (as a result of the significant declines in property values).

Three months ended June 30, 2009 compared to three months ended June 30, 2008

Performance

The Account’s total return was -9.96% for the three months ended June 30, 2009. This was a significant decline compared to the positive return of 0.27% for the three months ended June 30, 2008. The Account’s performance in the second quarter of 2009 reflects a decline in the aggregate net asset value of the Account’s real estate property investments, including investments owned in joint ventures and limited partnerships, as well as lower income from marketable securities and unrealized losses from the mortgage loans payable.

Income and Expenses

The Account’s net investment income, after deduction of all expenses, was 11.6% lower for the three months ended June 30, 2009, as compared to the same period in 2008.

The Account’s real estate holdings, including real estate joint ventures and limited partnerships, generated approximately 99.7% and 89.0% of the Account’s total investment income (before deducting Account level expenses) during the three months ended June 30, 2009 and 2008, respectively. The 18.8% decrease in the Account’s total investment income (before Account level expenses) was due to a 97.6% decrease in the Account’s interest income, a 19.3% decline in Income from real estate joint ventures and limited partnerships and a 6.2% decrease in Net real estate income.

The decrease in interest income is due to a lower marketable security balance in the second quarter of 2009 compared to the same period in 2008, along with a decrease in yields earned on those securities.

Net real estate income decreased approximately 6.2% in the three months ended June 30, 2009, as compared to the same period in 2008. This decrease is primarily due to lower rental revenues ($12.3 million) and an increase in interest expense ($5.7 million) resulting from the additional debt that was incurred during the second half of 2008, offset by a reduction in Operating expenses of $9.1 million. The decline in rental income in the three months ended June 30, 2009 is due primarily to lower income from properties that were sold since June 2008 and lease termination income that was earned in the second quarter of 2008. Property operating expense reductions are the result of lower insurance costs (approximately $4.2 million), lower utility costs (approximately $1.3 million), and reductions in various other property operating expenses.

Income from real estate joint ventures and limited partnerships was $30.4 million for the three months ended June 30, 2009, as compared to $37.7 million for the three months ended June 30, 2008. This 19.3% decrease is due to a decrease in income earned and distributed by the joint ventures. In particular, the DDR Joint Venture is highly concentrated in the retail sector and experienced tenant bankruptcies in the late part of 2008 that have reduced the income of the venture available to distribute during the three months ended June 30, 2009.

The Account incurred overall Account level expenses of $24.5 million for the three months ended June 30, 2009, which represents a 43.5% decrease from $43.4 million for the same period in 2008. The decreases in Investment advisory and Administrative and distribution charges are due to the general decline in the costs allocated to manage and distribute the Account, which is consistent with the reduction in the average net assets of the Account. Investment advisory charges will not decline at the same rate as net assets as certain of these costs are not directly associated to the net asset value of the Account. Mortality and expense risk expenses and Liquidity guarantee expenses declined during the second quarter of 2009 primarily due to the lower net assets as compared to the same period in 2008. The decline of the liquidity guarantee expenses

40

resulting from the decline in net assets was partially offset by the increase in the fees that TIAA charges to provide the liquidity guarantee from 10 basis points to 15 basis points effective May 1, 2009.

Net Realized and Unrealized Gains and Losses on Investments and Mortgage Loans Payable

The Account had Net realized and unrealized losses on investments and mortgage loans payable of $1.2 billion for the three months ended June 30, 2009, a significant increase in loss when compared to a Net realized and unrealized loss of $101.1 million for the three months ended June 30, 2008. The decrease in Net realized and unrealized gains and losses on investments and mortgage loans payable was primarily driven by a Net realized and unrealized loss on the Account’s wholly-owned real estate property investments of $609.1 million for the three months ended June 30, 2009 compared to a loss of $87.2 million during the same period in 2008. Additionally, the Account’s interests in joint ventures and limited partnerships posted a net realized and unrealized loss of $469.6 million for the three months ended June 30, 2009 as compared to a net realized and unrealized loss of $49.6 million for the three months ended June 30, 2008. The variance in the Net realized and unrealized gains and losses on wholly-owned real estate property investments and those held in joint ventures was due to the decline in value of the Account’s existing real estate assets, which reflected the net effects of a weaker overall economy and continued shortage of liquidity in the commercial real estate markets during the three months ended June 30, 2009 compared to the same period in 2008.

Mortgage loans payable experienced an unrealized loss of approximately $86.0 million during the second quarter of 2009 compared to an unrealized gain of $39.1 million in the same period in 2008. Valuation adjustments associated with mortgage loans payable are highly dependent upon interest rates, spreads, investment return demands, the performance of the underlying real estate investment, and where applicable, foreign exchange. Of the $86.0 million unrealized loss, foreign exchange fluctuations (due to a weakening U.S. dollar during the second quarter of 2009) accounted for approximately $28.7 million of the unrealized loss. The remaining $57.3 million of unrealized loss was primarily due to changes in risk premiums and increased returns demanded by the market associated with the higher loan to value ratios on the Account’s underlying properties.

Liquidity and Capital Resources

As of June 30, 2009 and 2008, the Account’s liquid assets (i.e., cash, marketable securities, and receivables for short-term securities sold) had a value of $0.5 billion and $3.2 billion, respectively (approximately 4.6% and 17.2% of the Account’s total investments at such dates, respectively). The decrease in the Account’s liquid assets as of June 30, 2009 compared to June 30, 2008 was due primarily to sustained significant net participant transfers out of the Account since early 2008 and in particular, during the six months ended December 31, 2008. When compared to December 31, 2008, the Account’s liquid assets have remained relatively stable as a result of Liquidity Units (accumulation units purchased by TIAA are generally referred to as Liquidity Units) purchased by TIAA during the first half of 2009 to respond to net participant transfer activity out of the Account during this period. As of August 12, 2009, the Account’s liquid assets had a value of approximately $450 million (approximately 4.2% of the Account’s total investments).

During the six months ended June 30, 2009, the Account received $369.9 million in premiums and had an outflow of $1.4 billion in net participant transfers to TIAA, the CREF accounts, and TIAA-CREF affiliated mutual funds, while, during the six months ended June 30, 2008, the Account received $550.1 million in premiums and had an outflow of $979.5 million in net participant transfers to TIAA, the CREF accounts, and TIAA-CREF affiliated mutual funds. During the three months ended June 30, 2009, the Account received $180.2 million in premiums and had an outflow of $451.2 million in net participant transfers to TIAA, the CREF accounts, and TIAA-CREF affiliated mutual funds, while, during the three months ended June 30, 2008, the Account received $265.1 million in premiums and had an outflow of $535.9 million in net participant transfers to TIAA, the CREF accounts, and TIAA-CREF affiliated mutual funds.

Primarily as a result of significant net participant transfers, on December 24, 2008, pursuant to TIAA’s existing liquidity guarantee obligation, the TIAA general account purchased $155.6 million of Liquidity Units issued by the Account. Subsequent to December 24, 2008 and through August 12, 2009, the TIAA general account has purchased an additional $1.059 billion in the aggregate of Liquidity Units in a number of separate transactions. During the quarter ended June 30, 2009, the TIAA general account purchased $271.7 million in the aggregate of Liquidity Units in a number of separate transactions. As disclosed under “Establishing and Managing the Account—the Role of TIAA—Liquidity Guarantee” in the Account’s

41

prospectus, in accordance with this liquidity guarantee obligation, TIAA guarantees that all participants in the Account may redeem their accumulation units at their accumulation unit value next determined after their transfer or cash withdrawal request is received in good order. Management cannot predict the extent to which future TIAA Liquidity Unit purchases, if any, will be required under this liquidity guarantee, nor can management predict when such Liquidity Units will be redeemed by the Account in part, or in full. Management believes that TIAA has the ability to meet its obligations under this liquidity guarantee.

TIAA’s obligation to provide Account participants liquidity through purchases of Liquidity Units is not subject to an express regulatory or contractual limitation, although as described in the paragraph below, the independent fiduciary may (but is not obligated to) require the reduction of TIAA’s interest through sales of assets from the Account if TIAA’s interest exceeds the trigger point. Even if the independent fiduciary so requires, TIAA’s obligation to provide liquidity under the guarantee, which is required by the New York State Insurance Department, will continue. While the independent fiduciary is vested with oversight and approval over any redemption of TIAA’s Liquidity Units, it is expected that, unless the trigger point has been reached, redemptions of TIAA owned Liquidity Units would occur once the Account has experienced net participant inflows for an extended period of time and maintains an adequate level of cash or liquid investments.

Whenever TIAA owns Liquidity Units, the Account’s independent fiduciary will monitor the Account, including reviewing the purchase and redemption of Liquidity Units by TIAA to ensure the Account uses the correct accumulation unit values. In addition, the independent fiduciary’s responsibilities include:

• establishing the percentage of total accumulation units that TIAA’s ownership should not exceed (the “trigger point”) and creating a method for reviewing the trigger point;

• approving any adjustment of TIAA’s ownership interest in the Account and, in its discretion, requiring an adjustment if TIAA’s ownership of Liquidity Units reaches the trigger point; and

• once the trigger point has been reached, participating in a program, if any, to reduce TIAA’s ownership in the Account by utilizing cash flow or liquid investments in the Account, or by utilizing the proceeds from asset sales. If the independent fiduciary were to determine that TIAA’s ownership should be reduced following the trigger point, its role in participating in any asset sales program would include (i) participating in the selection of properties for sale, (ii) providing sales guidelines and (iii) approving those sales if, in the independent fiduciary’s opinion, such sales are desirable to reduce TIAA’s ownership of Liquidity Units.

As of the date of this Form 10-Q, the independent fiduciary, which has the right to adjust the trigger point, has established the trigger point at 45% of the outstanding accumulation units and it will continue to monitor TIAA’s ownership interest in the Account and provide further recommendations as necessary. As of August 12, 2009, TIAA owned approximately 11.7% of the outstanding accumulation units of the Account. In establishing the appropriate trigger point, including whether or not to require certain actions once the trigger point has been reached, the independent fiduciary will assess, among other things and to the extent consistent with the Prohibited Transaction Exemption (PTE 96-76) issued by the U.S. Department of Labor in 1996 with respect to the liquidity guarantee and the independent fiduciary’s duties under ERISA, the risk that a conflict of interest could arise due to the level of TIAA’s ownership interest in the Account.

The Account’s liquid assets continue to be available to purchase additional suitable real estate properties and to meet the Account’s expense needs and participant redemption requests (i.e., cash withdrawals, benefit payments, or transfers). While the Account’s liquid investments have dropped below 15% of its total assets during this recent period of significant net participant outflows, the Account’s investment strategy remains to invest between 75% and 85% of its assets directly in real estate or real estate-related investments with the goal of producing favorable long-term returns primarily through rental income and appreciation. In the near term, the Account’s cash and marketable securities will likely comprise less than 10% of the Account’s assets, but management intends to increase the Account’s holdings in cash and short-term marketable securities to the extent practicable, consistent with its investment strategy and objective.

Management continues to believe that the significant recent net negative outflow may be a reflection of participant concerns with the downturn in the U.S. and global economy, the turmoil in the capital and credit markets, and their current and potential future net effect on commercial real estate in particular. Management cannot predict whether the net outflows will continue at the same rate, a higher rate, or at all in the future. If net outflows were to continue at the same or at a higher rate, it could have a negative impact on

42

the Account’s operations and returns. Additionally, continued net outflow activity could require TIAA to purchase additional Liquidity Units, perhaps to a significant degree.

The Account’s net investment income continues to be an additional source of liquidity for the Account but it decreased from $298.2 million for the six months ended June 30, 2008 to $249.9 million for the six months ended June 30, 2009.

The Account, under certain conditions more fully described on page 11 of the Account’s prospectus (as supplemented from time to time), dated May 1, 2009 under “Borrowing”, may borrow money and assume or obtain a mortgage on a property (i.e., to make leveraged real estate investments). Also, to meet any short-term cash needs, the Account may obtain a line of credit that may be unsecured and/or contain terms that may require the Account to secure the loan with one or more of its properties. Under the Account’s current investment guidelines, the Account’s total borrowings may not exceed 30% of the Account’s Total Net Assets at the time of incurrence. At the time the Account (or a joint venture in which the Account is a partner) enters into a revolving line of credit, management deems the maximum amount which may be drawn under that line of credit as fully incurred, regardless of whether the maximum amount available has been drawn from time to time. As the Account’s Total Net Assets fluctuate from time to time (whether due to valuation adjustments on the underlying assets or otherwise), the Account’s total borrowings may exceed 30% of Total Net Assets, even without the incurrence of additional leverage at such time. Under these current guidelines, at any time when the Account has total borrowings in excess of 30% of Total Net Assets, it may not incur additional debt. In calculating this limit, only the Account’s actual percentage interest in any borrowings is included, and not that of any joint venture partner. Further, the Account may only borrow up to 70% of the then-current value of a property, although construction loans may be for 100% of the costs incurred in developing a property. As of June 30, 2009 the Account did not have any construction loans.

As of June 30, 2009, the Account’s total borrowings, including debt on the Account’s wholly owned investments and the Account’s share of debt on investments in joint ventures (including the undrawn principal portion of a line of credit), represented 40.1% of the Account’s Total Net Assets. Total outstanding principal amount of indebtedness on the Account’s wholly owned investments and the Account’s share of debt on the Account’s joint venture investments (including the undrawn principal portion of a line of credit) represented 30.3% of the Account’s total gross assets as of June 30, 2009. As of August 12, 2009, these Account’s total borrowings represented 42.8% of the Account’s Total Net Assets.

Recent Transactions

The following describes property transactions by the Account in the second quarter of 2009. Except as noted, the expenses for operating the properties purchased are either borne or reimbursed, in whole or in part, by the property tenants, although the terms vary under each lease. The Account is responsible for operating expenses not reimbursed under the terms of a lease. All rental rates are quoted on an annual basis unless otherwise noted.

Purchases

None.

Sales

None.

Financings

None.

Critical Accounting Policies

The financial statements of the Account are prepared in conformity with accounting principles generally accepted in the United States of America.

In preparing the Account’s financial statements, management is required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets

43

and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Accounting for Investments at Fair Value

In September 2006, Financial Accounting Standards Board (“FASB”) issued Statement No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements. This statement was effective as of January 1, 2008 for the Account. The adoption of Statement No. 157 did not have a material impact on the Account’s financial position or results of operations.

In February 2007, FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits entities to choose to measure financial instruments and certain other items at fair value and expanded the use of fair value measurements when warranted. The Account effectively adopted Statement 159 on January 1, 2008 and reports all existing and plans to report all future mortgage loans payable at fair value using this Statement. The adoption of Statement No. 159 did not have a material impact on the Account’s financial position or results of operations.

Valuation Hierarchy

In accordance with FASB Statement No.157, “Fair Value Measurements”, the Account groups financial assets and certain financial liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, if any, and the observability of the assumptions used to determine fair value. These levels are:

Level 1—Valuations using unadjusted quoted prices for assets traded in active markets, such as stocks listed on the New York Stock Exchange. Active markets are defined as having the following characteristics for the measured asset or liability: (i)many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information regarding the issuer is publicly available. Level 1 assets which may be held by the Account from time to time include Real Estate related Marketable Securities (such as publicly traded REIT stocks).

Level 2—Valuations for assets and liabilities traded in less active, dealer or broker markets. Fair values are primarily obtained from third party pricing services for identical or comparable assets or liabilities. Level 2 inputs for fair value measurements are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include:

a.	Quoted prices for similar assets or liabilities in active markets;
b.	Quoted prices for identical or similar assets or liabilities in markets that are not active (that is, markets in which there are few transactions for the asset (or liability), the prices are not current, price quotations vary substantially either over time or among market makers (for example, some brokered markets), or in which little information is released publicly);
c.	Inputs other than quoted prices that are observable within the market for the asset (or liability) (for example, interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates that are observable at commonly quoted intervals); and
d.	Inputs that are derived principally from or corroborated by observable market data by correlation or other means (for example, market-corroborated inputs).

Examples of securities which may be held by the account and included in Level 2 include Certificate of Deposits, Commercial Paper, Government Agency Bonds and Variable Notes.

Level 3—Valuations for assets and liabilities that are derived from other valuation methodologies, including pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker-traded transactions. Level 3 valuations incorporate certain assumptions and projections that are not observable in the market, and require significant professional judgment in determining the fair value assigned to such assets or liabilities. Examples of Level 3 assets and liabilities which may be held by the Account from time to time include investments in real estate, investments in joint ventures and limited partnerships, mortgage loan receivable and mortgage loans payable.

An investment’s categorization within the valuation hierarchy described above is based upon the lowest level of input that is significant to the fair value measurement.

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The Account’s investments and mortgage loans payable are stated at fair value. Effective January 1, 2008, in connection with the adoption of SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities”, the Account reports all existing and plans to report all future mortgage loans payable at fair value. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon vendor-provided, evaluated prices or internally-developed models that primarily use market-based or independently-sourced market data, including interest rate yield curves, market spreads, and currency rates. Valuation adjustments will be made to reflect changes in credit quality, a counterparty’s creditworthiness, the Account’s creditworthiness, liquidity, and other observable and unobservable data that are applied consistently over time.

The methods described above are considered to produce fair values that represent a good faith estimate of what an unaffiliated buyer in the marketplace would pay to purchase the asset or would receive to transfer the liability. Since fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, actual realizable values or future fair values may differ from amounts reported. Furthermore, while the Account believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments, while reasonable, could result in different estimates of fair value at the reporting date.

The following is a description of the valuation methodologies used for investments measured at fair value.

Valuation of Real Estate Properties

Investments in real estate properties are stated at fair value, as determined in accordance with policies and procedures reviewed by the Investment Committee of the Board and in accordance with the responsibilities of the Board as a whole. Accordingly, the Account does not record depreciation. The Account’s real estate properties are generally classified within Level 3 of the valuation hierarchy. Fair value for real estate properties is defined as the most probable price for which a property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves judgment because the actual market value of real estate can be determined only by negotiation between the parties in a sales transaction. The Account’s primary objective when valuing its real estate investments will be to produce a valuation that represents a fair and accurate estimate of the fair value of its investments. Implicit in the Account’s definition of fair value is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

• Buyer and seller are typically motivated;

• Both parties are well informed or well advised, and acting in what they consider their best interests;

• A reasonable time is allowed for exposure in the open market;

• Payment is made in terms of cash or in terms of financial arrangements comparable thereto; and

• The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Property and investment values are affected by, among other things, the availability of capital, occupancy rates, rental rates, and interest and inflation rates. As a result, determining real estate and investment values involves many assumptions. Amounts ultimately realized from each investment may vary significantly from the market value presented. Actual results could differ significantly from those estimates.

Real estate properties owned by the Account are initially valued based on an independent appraisal at the time of the closing of the purchase, which may result in a potential unrealized gain or loss reflecting the difference between an investment’s fair value (i.e., exit price) and its cost basis (which is inclusive of transaction costs).

Subsequently, each property is appraised each quarter by an independent external appraiser. In general, the Account obtains appraisals for each real estate property throughout the quarter, which is intended to result in appraisal adjustments (to the extent such adjustments are made) that happen regularly throughout each quarter and not on one specific day in each period.

TIAA’s internal appraisal staff oversees the entire appraisal process, in conjunction with the Account’s independent fiduciary (the independent fiduciary is more fully described in the paragraph below). Further, management reserves the right to order an appraisal and/or conduct another valuation outside of the normal

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quarterly process when facts or circumstances at a specific property change. Any differences in the conclusions of TIAA’s internal appraisal staff and the independent appraiser will be reviewed by the independent fiduciary, which will make a final determination on the matter (which may include ordering a subsequent independent appraisal). For example, under certain circumstances, a valuation adjustment could be made when bids are obtained for properties held for sale by the Account. In addition, adjustments may be made for events or circumstances indicating an impairment of a tenant’s ability to pay amounts due to the Account under a lease (including bankruptcy filing of that tenant).

An independent fiduciary, Real Estate Research Corporation, has been appointed by a special subcommittee of the Investment Committee of the Board to, among other things, oversee the appraisal process. The independent fiduciary must approve all independent appraisers used by the Account. All appraisals are performed in accordance with Uniform Standards of Professional Appraisal Practices (“USPAP”), the real estate appraisal industry standards created by The Appraisal Foundation. Real estate appraisals are estimates of property values based on a professional’s opinion. Appraisals of properties held outside of the U.S. are performed in accordance with industry standards commonly applied in the applicable jurisdiction. These independent appraisers are always expected to be MAI-designated members of the Appraisal Institute (or its European equivalent, RICS) and state certified appraisers from national or regional firms with relevant property type experience and market knowledge.

Also, the independent fiduciary can require additional appraisals if factors or events have occurred that could materially change a property’s value and such change is not reflected in the quarterly valuation review, or otherwise to ensure that the Account is valued appropriately. The independent fiduciary must also approve any valuation change of real estate related assets where a property’s value changed by more than 6% from the most recent independent annual appraisal, or if the value of the Account would change by more than 4% within any calendar quarter or more than 2% since the prior calendar month. When a real estate property is subject to a mortgage, the mortgage is valued independently of the property and its fair value is reported separately. The independent fiduciary reviews and approves all mortgage valuation adjustments before such adjustments are recorded by the Account. The Account continues to use the revised value for each real estate property and mortgage loan payable to calculate the Account’s daily net asset value until the next valuation review or appraisal.

Valuation of Real Estate Joint Ventures and Limited Partnerships

Real estate joint ventures and certain limited partnerships are stated at the fair value of the Account’s ownership interests of the underlying entities. The Account’s ownership interests are valued based on the fair value of the underlying real estate, any related mortgage loans payable, and other factors, such as ownership percentage, ownership rights, buy/sell agreements, distribution provisions and capital call obligations. Upon the disposition of all real estate investments by an investee entity, the Account will continue to state its equity in the remaining net assets of the investee entity during the wind down period, if any, which occurs prior to the dissolution of the investee entity. The Account’s real estate joint ventures and certain limited partnerships are generally classified within level 3 of the valuation hierarchy.

Certain limited partnership interests for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Investment Committee of the Board and in accordance with the responsibilities of the Board as a whole. These investments are generally classified within level 3 of the valuation hierarchy.

Valuation of Marketable Securities

Equity securities listed or traded on any national market or exchange are valued at the last sale price as of the close of the principal securities market or exchange on which such securities are traded or, if there is no sale, at the mean of the last bid and asked prices on such market or exchange, exclusive of transaction costs. Such marketable securities are generally classified within level 1 of the valuation hierarchy.

Debt securities, other than money market instruments, are generally valued at the most recent bid price or the equivalent quoted yield for such securities (or those of comparable maturity, quality and type). Money market instruments, with maturities of one year or less, are valued in the same manner as debt securities or derived from a pricing matrix. Debt securities are generally classified within level 2 of the valuation hierarchy.

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Equity and fixed income securities traded on a foreign exchange or in foreign markets are valued using their closing values under the valuation methods generally accepted in the country where traded, as of the valuation date. This value is converted to U.S. dollars at the exchange rate in effect on the valuation day. Under certain circumstances (for example, if there are significant movements in the United States markets and there is an expectation the securities traded on foreign markets will adjust based on such movements when the foreign markets open the next day), the Account may adjust the value of equity or fixed income securities that trade on a foreign exchange or market after the foreign exchange or market has closed. Equity securities traded on a foreign exchange or in foreign markets are generally classified within level 1 of the valuation hierarchy. Fixed income securities traded on a foreign exchange or in foreign markets are generally classified within level 2 of the valuation hierarchy.

Valuation of Mortgage Loan Receivable

The mortgage loan receivable is stated at fair value. The mortgage loan receivable is valued based on market factors, such as market interest rates and spreads for comparable loans, and the performance of the underlying collateral. The Account’s mortgage loan receivable is classified within level 3 of the valuation hierarchy.

Valuation of Mortgage Loans Payable

Mortgage loans payable are stated at fair value. The estimated fair value of mortgage loans payable is based on the amount at which the liability could be transferred exclusive of transaction costs. Mortgage loans payable are valued based on market factors, such as market interest rates and spreads for comparable loans, the performance of the underlying collateral, and the credit quality of the Account. The Account’s mortgage loans payable are generally classified within level 3 of the valuation hierarchy. Interest expense for mortgage loans payable is recorded on the accrual basis taking into account the outstanding principal and contractual interest rates.

Foreign currency transactions and translation

Portfolio investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the end of the period. Purchases and sales of securities, income receipts and expense payments made in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the respective dates of the transactions. The effect of any changes in foreign currency exchange rates on portfolio investments and mortgage loans payable is included in net realized and unrealized gains and losses on investments and mortgage loans payable. Net realized gains and losses on foreign currency transactions include disposition of foreign currencies, and currency gains and losses between the accrual and receipt dates of portfolio investment income and between the trade and settlement dates of portfolio investment transactions and, when applicable, include maturities of forward foreign currency contracts.

Accumulation and Annuity Funds

The Accumulation Fund represents the net assets attributable to participants in the accumulation phase of their investment (“Accumulation Fund”). The Annuity Fund represents the net assets attributable to the participants currently receiving annuity payments (“Annuity Fund”). The net increase or decrease in net assets from investment operations is apportioned between the accounts based upon their relative daily net asset values. Once an Account participant begins receiving lifetime annuity income benefits, monthly payment levels cannot be reduced as a result of the Account’s adverse mortality experience. In addition, the contracts pursuant to which the Account is offered are required to stipulate the maximum expense charge for all Account-level expenses that can be assessed, which is equal to 2.50% of average net assets per year. The Account pays a fee to TIAA to assume these mortality and expense risks.

Accounting for Investments

Real estate transactions are accounted for as of the date on which the purchase or sale transactions for the real estate properties close (settlement date). The Account recognizes a realized gain on the sale of a real estate property to the extent that the contract sales price exceeds the cost-to-date of the property being sold.

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A realized loss occurs when the cost-to-date exceeds the sales price. Any accumulated unrealized gains and losses are reversed in the calculation of realized gains and losses.

Rent from real estate properties consists of all amounts earned under tenant operating leases, including base rent, recoveries of real estate taxes and other expenses and charges for miscellaneous services provided to tenants. Rental income is recognized in accordance with the billing terms of the lease agreements. The Account bears the direct expenses of the real estate properties owned. These expenses include, but are not limited to, fees to local property management companies, property taxes, utilities, maintenance, repairs, insurance, and other operating and administrative costs. An estimate of the net operating income earned from each real estate property is accrued by the Account on a daily basis and such estimates are adjusted when actual operating results are determined.

The Account has limited ownership interests in various real estate funds (limited partnerships and one limited liability corporation) and a private real estate investment trust (collectively, the “limited partnerships”). The Account records its contributions as increases to the investments, and distributions from the investments are treated as either income or return of capital, as determined by the management of the limited partnerships. Unrealized gains and losses are calculated and recorded when the financial statements of the limited partnerships are received by the Account. As circumstances warrant, prior to the receipt of financial statements of the limited partnership, the Account will estimate the value of its interests in good faith and will from time to time seek input from the issuer or the sponsor of the investment vehicle. Changes in value based on such estimates are recorded by the Account as unrealized gains and losses.

Income from real estate joint ventures is recorded based on the Account’s proportional interest of the income distributed by the joint venture. Income earned by the joint venture, but not yet distributed to the Account by the joint venture investment, is recorded as unrealized gains and losses on real estate joint ventures.

Transactions in marketable securities are accounted for as of the date the securities are purchased or sold (trade date). Interest income is recorded as earned. Dividend income is recorded on the ex-dividend date or as soon as the Account is informed of the dividend. Realized gains and losses on securities transactions are accounted for on the specific identification method.

New Accounting Pronouncements

In June 2007, the Accounting Standards Executive Committee (“AcSEC”) of the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) 07-1, “Clarification of the Scope of the Audit and Accounting Guide, Investment Companies, and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.” The SOP clarifies which entities are required to apply the provisions of the Investment Companies Audit and Accounting Guide (“Guide”) and provides guidance on accounting by parent companies and equity method investors for investments in investment companies. In February 2008, FASB issued Staff Position (“FSP”) SOP 07-1-1 indefinitely delaying the effective date of SOP 07-1 to allow FASB time to consider significant issues related to the implementation of SOP 07-1. In February 2009 the Emerging Issues Task Force (“EITF”) added theApplication of the AICPA Audit and Accounting Guide,Investment Companies, by Real Estate Investment Companiesto the EITF agenda which will be discussed at a future meeting. The FASB staff anticipates the creation of a Working Group to assist the EITF in addressing this issue. Management of the Account will continue to monitor FASB and EITF developments and will evaluate the financial reporting implications to the Account, as necessary.

In December 2007, FASB issued Statement No. 141(R), “Business Combinations,” which establishes principles and requirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in a business combination or a gain from a bargain purchase. It is expected that more transactions will constitute a business under FASB Statement No. 141(R). This Statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Account reports all investments in real estate at fair value and therefore does not account for the acquisition of real estate investments as a business combination under this statement.

In December 2007, FASB issued Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51,” which establishes and expands accounting and reporting

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standards for minority interests, which will be recharacterized as noncontrolling interests, in a subsidiary and the deconsolidation of a subsidiary. This Statement is effective for fiscal years beginning on or after December 15, 2008. The adoption of Statement No. 160 did not impact the financial position or results of operations of the Account.

In April 2009, FASB issued FASB Staff Position FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements”, when the volume of activity for an asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP is effective for periods ending after June 15, 2009 with early adoption permitted. The adoption of this FSP did not have a material impact to the financial position or results of operations of the Account.

In May 2009, the Financial Accounting Standards Board issued Statement No. 165 “Subsequent Events” which establishes standards under generally accepted accounting principles (“GAAP”) required for the accounting and disclosure of subsequent events. This statement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this standard did not have a material impact on the financial statements or results of operations of the Account. The required disclosure of the date through which subsequent events have been evaluated is provided in Note 10 to the notes to the financial statements.

In June 2009, the Financial Accounting Standards Board issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162.” Statement No. 168 establishes FASB Accounting Standards Codification (“Codification”) as the source of authoritative accounting principles to be applied with equal authority by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. This Statement is effective for financial statements issued for reporting periods ending after September 15, 2009 and will impact the way the Account references U.S. GAAP accounting standards in the financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Account’s real estate holdings, including real estate joint ventures and limited partnerships, which, as of June 30, 2009, represented 95.0% of the Account’s total investments, expose the Account to a variety of risks. These risks include, but are not limited to:

• General Real Estate Risk—The risk that the Account’s property values or rental and occupancy rates could go down due to general economic conditions, a weak market for real estate generally, disruptions in the credit and/or capital markets, or changing supply and demand for certain types of properties;

• Appraisal Risk—The risk that the sale price of an Account property (i.e., the value that would be determined by negotiations between independent parties) might differ substantially from its estimated or appraised value, leading to losses or reduced profits to the Account upon sale;

• Risk Relating to Property Sales—The risk that the Account might not be able to sell a property at a particular time for its full value, particularly in a poor market. This might make it difficult to raise cash quickly and also could lead to Account losses;

• Risks of Borrowing—The risk that interest rate changes may impact Account returns if the Account takes out a mortgage on a property, buys a property subject to a mortgage or holds a property subject to a mortgage; and

• Foreign Currency Risk—The risk that the value of the Account’s foreign investments, related debt, or rental income could increase or decrease due to changes in foreign currency exchange rates or foreign currency exchange control regulations, and hedging against such changes, if undertaken by the Account, may entail additional costs and be unsuccessful.

Given the significant concentration (95% as of June 30, 2009) of the Account’s total investments being held in real estate and real estate related assets, the Account’s net asset value will experience a more pronounced impact from valuation adjustments to its real properties than it would during periods in which the Account held between 75% and 85% of its investments in real estate and real estate related assets. The

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Account believes the diversification of its real estate portfolio, both geographically and by sector, along with its quarterly valuation procedure, helps manage the real estate and appraisal risks described above.

As of June 30, 2009, 5.0% of the Account’s total investments were comprised of marketable securities and an adjustable rate mortgage loan receivable. As of June 30, 2009, marketable securities include high-quality short-term debt instruments (i.e., commercial paper and government agency notes). The Statement of Investments for the Account sets forth the general financial terms of these instruments, along with their fair values, as determined in accordance with procedures described in Note 1 to the Account’s financial statements. The Account’s marketable securities other than its mortgage loan receivable are considered held for trading purposes. Currently, the Account does not invest in derivative financial investments, nor does the Account engage in any hedging activity other than the interest rate cap agreements contained in two mortgage loans payable the Account entered into during the third quarter of 2008. These interest rate cap agreements (which cap the interest rate on each mortgage loan payable at 6.50%) are discussed in Note 7 to the Account’s financial statements contained herein.

The Account’s investments in cash equivalents, marketable securities (whether debt or equity), and mortgage loans receivable are subject to the following general risks:

• Financial/Credit Risk—The risk, for debt securities, that the issuer will not be able to pay principal and interest when due (and/or declare bankruptcy or be subject to receivership) and, for equity securities such as common or preferred stock, that the issuer’s current earnings will fall or that its overall financial soundness will decline, reducing the security’s value.

• Market Volatility Risk—The risk that the Account’s investments will experience price volatility due to changing conditions in the financial markets regardless of the credit quality or financial condition of the underlying issuer. This risk is particularly acute to the extent the Account holds equity securities, which have experienced significant short-term price volatility over the past year. Also, to the extent the Account holds debt securities, changes in overall interest rates can cause price fluctuations.

• Interest Rate Volatility—The risk that interest rate volatility may affect the Account’s current income from an investment.

• Deposit/Money Market Risk—The risk that, to the extent the Account’s cash held in bank deposit accounts exceeds federally insured limits as to that bank, the Account could experience losses if banks fail. The Account does not believe it has exposure to significant concentration of deposit risk. In addition, there is some risk that investments held in money market accounts can suffer losses.

In addition, these securities, to the extent the Account were to hold mortgage-backed securities (including commercial mortgage-backed securities (“CMBS”), are subject to prepayment risk or extension risk (i.e., the risk that borrowers will repay the loans earlier or later than anticipated). If the underlying mortgage assets experience faster than anticipated repayments of principal, the Account could fail to recoup some or all of its initial investment in these securities, since the original price paid by the Account was based in part on assumptions regarding the receipt of interest payments. If the underlying mortgage assets are repaid later than anticipated, the Account could lose the opportunity to reinvest the anticipated cash flows at a time when interest rates might be rising. The rate of prepayment depends on a variety of geographic, social and other functions, including prevailing market interest rates and general economic factors. The market value of these securities is also highly sensitive to changes in interest rates. Note that the potential for appreciation, which could otherwise be expected to result from a decline in interest rates, may be limited by any increased prepayments. These securities may be harder to sell than other securities.

In addition to these risks, real estate equity securities (such as REIT stocks) and mortgage-backed securities would be subject to many of the same general risks inherent in real estate investing, making mortgage loans and investing in debt securities.

Other risks inherent to, and associated with, the acquisition, ownership and sale of real estate and real estate related investments and other investments the Account makes from time to time are detailed elsewhere in this Form 10-Q, including in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the risk factors discussed in both “Item 1A. Risk Factors” in the Form 10-K and in Part II, Item 1A, in the Account’s Form 10-Q for its quarter ended March 31, 2009.

ITEM 4. CONTROLS AND PROCEDURES.

(a) The registrant maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the registrant’s reports under the Securities

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Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the registrant’s Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and participation of the registrant’s management, including the registrant’s CEO and CFO, the registrant conducted an evaluation of the effectiveness of the registrant’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act as of June 30, 2009. Based upon management’s review, the CEO and the CFO concluded that the registrant’s disclosure controls and procedures were effective as of June 30, 2009.

(b)Changes in internal control over financial reporting. There have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

There are no material legal proceedings to which the Account is a party, or to which the Account’s assets are subject.

ITEM 1A. RISK FACTORS.

There have been no material changes from our risk factors as previously reported in the Account’s Annual Report on Form 10-K for the year ended December 31, 2008, as updated in the Account’s Quarterly Report on Form 10-Q for the three months ended March 31, 2009.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 5. OTHER INFORMATION.

The Code of Ethics for TIAA’s senior financial officers, including its principal executive officer, principal financial officer, principal accounting officer, or controller, and persons performing similar functions, has been filed as an exhibit to the Form 10-K and can also be found on the following two web sites, http://www.tiaa-cref.org/prospectuses/index.html and http://www.tiaa-cref.org/about/governance/corporate/
topics/annual_reports.html. Information included in such websites is expressly not incorporated by reference into this Quarterly Report on Form 10-Q.

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ITEM 6. EXHIBITS

(1)	(A)	Distribution Agreement for the Contracts Funded by the TIAA Real Estate Account, dated as of January 1, 2008, by and among Teachers Insurance and Annuity Association of America, for itself and on behalf of the Account, and TIAA-CREF Individual & Institutional Services, LLC.(5)
(3)	(A)*	Restated Charter of TIAA
	(B)*	Bylaws of TIAA (as amended)
(4)	(A)	Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account Endorsements(2), Keogh Contract,(3) Retirement Select and Retirement Select Plus Contracts and Endorsements(1) and Retirement Choice and Retirement Choice Plus Contracts.(3)
	(B)	Forms of Income-Paying Contracts(2)
(10)	(A)	Independent Fiduciary Agreement, dated February 22, 2006, by and among TIAA, the Registrant, and Real Estate Research Corporation(4)
	(B)	Amendment to Independent Fiduciary Agreement, dated December 17, 2008, between TIAA, on behalf of the Registrant, and Real Estate Research Corporation(6)
	(C)	Custodian Agreement, dated as of March 3, 2008, by and between TIAA, on behalf of the Registrant, and State Street Bank and Trust Company, N.A.(7)
(14)		Code of Ethics of TIAA(8)
(31)*		Rule 13a-15(e)/15d-15(e) Certifications
(32)*		Section 1350 Certifications

*	Filed herewith.
(1)	Previously filed and incorporated herein by reference to the Account’s Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed April 29, 2004 (File No. 333-113602).
(2)	Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 2 to the Registration Statement on Form S-1 filed April 30, 1996 (File No. 33-92990).
(3)	Previously filed and incorporated herein by reference to the Account’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 filed May 2, 2005 (File No. 333-121493).
(4)	Previously filed and incorporated herein by reference to Exhibit 10.(a) to the Annual Report on Form 10-K of the Account for the period ended December 31, 2005, filed with the Commission on March 15, 2006 (File No. 33-92990).
(5)	Previously filed and incorporated herein by reference to the Account’s Current Report on Form 8-K, filed with the Commission on January 7, 2008 (File No. 33-92990).
(6)	Previously filed and incorporated herein by reference to the Account’s Current Report on Form 8-K, filed with the Commission on December 22, 2008 (File No. 33-92990).
(7)	Previously filed and incorporated herein by reference to Exhibit 10.(b) to the Annual Report on Form 10-K of the Account for the fiscal year ended December 31, 2007 and filed with the Commission on March 20, 2008 (File No. 33-92990).
(8)	Previously filed and incorporated herein by reference to Exhibit 14 to the Annual Report on Form 10-K of the Account for the year ended December 31, 2008 and filed with the Commission on March 20, 2009 (File No. 33-92990).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant, TIAA Real Estate Account, has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York, on the 13th day of August, 2009.

	TIAA REAL ESTATE ACCOUNT
	By:	TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
August 13, 2009	By:	/s/ Roger W. Ferguson, Jr.
		Roger W. Ferguson, Jr. President and Chief Executive Officer
August 13, 2009	By:	/s/ Georganne C. Proctor
		Georganne C. Proctor Executive Vice President and Chief Financial Officer

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