Tiaa Real Estate Account 10-Q 2010 Q1 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 March 31, 2010

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; 333-165286

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
MARCH 31, 2010

	Page
Statements of Assets and Liabilities		3
Statements of Operations		4
Statements of Changes in Net Assets		5
Statements of Cash Flows		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)

	March 31, 2010			December 31, 2009
	(Unaudited)
ASSETS
Investments, at fair value:
Real estate properties (cost: $9,441,661 and $9,408,978)		$	7,280,352		$	7,437,344
Real estate joint ventures and limited partnerships (cost: $2,262,520 and $2,437,795)			1,453,522			1,514,876
Marketable securities (cost: $830,185 and $671,235)			830,196			671,267
Mortgage loan receivable (cost: $75,000 and $75,000)			71,459			71,273
Total investments (cost: $12,609,366 and $12,593,008)			9,635,529			9,694,760
Cash and cash equivalents			2,151			24,859
Due from investment advisor			8,987			4,290
Other			173,855			188,794
TOTAL ASSETS			9,820,522			9,912,703
LIABILITIES
Mortgage loans payable—Note 7 (principal outstanding: $1,892,515 and $1,907,090)			1,882,479			1,858,110
Payable for securities transactions			—			49
Accrued real estate property level expenses			160,112			151,808
Security deposits held			22,980			22,822
TOTAL LIABILITIES			2,065,571			2,032,789
NET ASSETS
Accumulation Fund			7,522,890			7,636,115
Annuity Fund			232,061			243,799
TOTAL NET ASSETS		$	7,754,951		$	7,879,914
NUMBER OF ACCUMULATION UNITS OUTSTANDING— Notes 8 and 9			39,657			39,473
NET ASSET VALUE, PER ACCUMULATION UNIT—Note 8		$	189.70		$	193.45

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 March 31,
	2010				2009
INVESTMENT INCOME
Real estate income, net:
Rental income		$	212,645			$	241,790
Real estate property level expenses and taxes:
Operating expenses			59,311				66,096
Real estate taxes			29,742				35,177
Interest expense			24,620				25,044
Total real estate property level expenses and taxes			113,673				126,317
Real estate income, net			98,972				115,473
Income from real estate joint ventures and limited partnerships			18,982				29,807
Interest			407				512
TOTAL INVESTMENT INCOME			118,361				145,792
Expenses—Note 2:
Investment advisory charges			10,886				9,868
Administrative and distribution charges			7,102				12,362
Mortality and expense risk charges			954				1,374
Liquidity guarantee charges			2,862				2,748
TOTAL EXPENSES			21,804				26,352
INVESTMENT INCOME, NET			96,557				119,440
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
Net realized gain (loss) on investments:
Real estate properties			(1,238	)			(16,878	)
Real estate joint ventures and limited partnerships			(153,233	)			—
Net realized loss on investments:			(154,471	)			(16,878	)
Net change in unrealized appreciation (depreciation) on:
Real estate properties			(189,439	)			(892,748	)
Real estate joint ventures and limited partnerships			120,474				(233,466	)
Marketable securities			(20	)			28
Mortgage loans receivable			186				(2,061	)
Mortgage loans payable			(25,795	)			70,688
Net change in unrealized depreciation on investments and mortgage loans payable			(94,594	)			(1,057,559	)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND MORTGAGE LOANS PAYABLE			(249,065	)			(1,074,437	)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS		$	(152,508	)		$	(954,997	)

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 March 31,
	2010				2009
FROM OPERATIONS
Investment income, net			96,557				119,440
Net realized loss on investments			(154,471	)			(16,878	)
Net change in unrealized depreciation on investments and mortgage loans payable			(94,594	)			(1,057,559	)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS			(152,508	)			(954,997	)
FROM PARTICIPANT TRANSACTIONS
Premiums			161,074				189,638
Purchase of Liquidity Units by TIAA			—				787,000
Net transfers to TIAA			(17,840	)			(350,450	)
Net transfers to CREF Accounts			(25,056	)			(580,354	)
Net transfers to TIAA-CREF Funds			(15,776	)			(53,143	)
Annuity and other periodic payments			(10,232	)			(14,884	)
Withdrawals and death benefits			(64,625	)			(104,480	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS			27,545				(126,673	)
NET DECREASE IN NET ASSETS			(124,963	)			(1,081,670	)
NET ASSETS
Beginning of period			7,879,914				11,508,924
End of period		$	7,754,951			$	10,427,254

See notes to the financial statements.

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

	For the Three Months Ended March 31,
	2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net decrease in net assets resulting from operations		$	(152,508	)		$	(954,997	)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash (used in) provided by operating activities:
Capital improvements on real estate properties			(23,613	)			(43,553	)
Proceeds from sale of real estate properties			—				28,889
Purchases of long term investments			(2,060	)			(158	)
Proceeds from sale of long term investments			24,491				—
(Increase) decrease in other investments			(152,785	)			36,491
Decrease in payable for securities transactions			(49	)			(108	)
Change in due from investment advisor			(4,697	)			(15,277	)
Decrease (increase) in other assets			13,936				(11,798	)
(Decrease) increase in accrued real estate property level expenses			(765	)			14,075
Increase (decrease) in security deposits held			158				(149	)
Net realized loss on investments			154,471				16,878
Net change in unrealized depreciation on investments and mortgage loans payable			94,594				1,057,559
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES			(48,827	)			127,852
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of mortgage loans payable			(1,426	)			(864	)
Premiums			161,074				189,638
Purchase of Liquidity Units by TIAA			—				787,000
Net transfers to TIAA			(17,840	)			(350,450	)
Net transfers to CREF Accounts			(25,056	)			(580,354	)
Net transfers to TIAA-CREF Funds			(15,776	)			(53,143	)
Annuity and other periodic payments			(10,232	)			(14,884	)
Withdrawals and death benefits			(64,625	)			(104,480	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			26,119				(127,537	)
NET (DECREASE) INCREASE IN CASH			(22,708	)			315
CASH
Beginning of period			24,859				22,127
End of period		$	2,151			$	22,442
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest		$	24,859			$	25,890

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 subsidiaries wholly owned by TIAA for the benefit of the Account. 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 and such differences may be material. 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:The Financial Accounting Standards Board (“FASB”) has provided authoritative guidance for fair value measurements and disclosures. Additionally, the guidance defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and requires certain disclosures about fair value measurements. This guidance indicates, among other things, that a fair value measurement under an exit price model assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.

This guidance also permits entities to elect to measure financial instruments and certain financial assets and liabilities at fair value and expand the use of fair value measurements when warranted. The Account reports all investments and mortgage loans payable at fair value.

Valuation Hierarchy: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

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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 loans 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, counterparty’s creditworthiness, the Account’s creditworthiness, liquidity, and other observable and unobservable inputs 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 property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair

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value involves judgment because the actual fair 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. Key inputs and assumptions include rental income and expense amounts, related rental income and expense growth rates, discount rates and capitalization rates. Valuation techniques include discounted cash flow analysis, prevailing market capitalization rates or multiples applied to earnings from the property, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties. Amounts ultimately realized from each investment may vary significantly from the fair 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 of its real estate properties spread out throughout the quarter, which is intended to result in appraisal adjustments, and thus, adjustments to the valuations of its holdings (to the extent such adjustments are made) that happen regularly throughout each quarter and not on one specific day in each period.

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. For example, under certain circumstances a valuation adjustment could be made when bids are obtained for properties held for sale by the Account or when a contract for the sale of a property is executed. 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 due to a bankruptcy filing of that tenant). Also, adjustments may be made to reflect factors (such as sales values for comparable properties or local employment rate) bearing uniquely on a particular region in which the Account holds properties. 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). 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).

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. Under the Account’s current procedures, each independent

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appraisal firm will be rotated off of a particular property at least every three years, although such appraisal firm may perform appraisals of other Account properties subsequent to such rotation.

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 property is valued independently of the mortgage and the property and mortgage fair values are 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:Real estate joint ventures 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 are generally classified within level 3 of the valuation hierarchy.

Valuation of Real Estate Limited Partnerships:Limited partnership interests are stated at the fair value of the Account’s ownership in the partnership which is based on the most recent net asset value of the partnership, as reported by the sponsor. Since market quotations are not readily available, the limited partnership interests 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. Equity and fixed income securities traded in foreign markets that are adjusted based upon significant movements in the United States markets are generally classified within level 2 of the valuation hierarchy.

Valuation of Mortgage Loan Receivable:Mortgage loans receivable are stated at fair value and are initially valued at the face amount of the mortgage loan funding. Subsequently, mortgage loans receivable are valued at least quarterly based on market factors, such as market interest rates and spreads for comparable loans, the liquidity for mortgage loans of similar characteristics, the performance of the underlying collateral and

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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 liquidity for mortgage loans of similar characteristics, 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.

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. The Account pays a fee to TIAA to assume these mortality and expense risks. 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.

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 based upon the net asset value of the limited partnership 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

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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 net 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 investments in short-term and other debt instruments;

• the value of the Account’s other securities and other non real estate 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 since the end of the prior valuation day (including short-term marketable securities); and

• actual net operating income earned from the Account’s properties, other real estate-related investments and non real estate-related investments (but 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, administration and distribution fees 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 balances in bank deposit accounts which, at times, exceed 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 federal income tax attributable to the net investment activity of the Account. Management has concluded that the Account does not have any uncertain tax positions as of March 31, 2010.

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.

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.

12

The Account is a party to 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. In addition, 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 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 March 31, 2010, the TIAA General Account owned 4.7 million accumulation units (which are generally referred to as “Liquidity Units”) issued by the Account. Since December 2008 and through March 31, 2010, TIAA has paid an aggregate of $1.2 billion to purchase these Liquidity Units in multiple transactions.

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:

13

• 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 Account and provide further recommendations as necessary. As of March 31, 2010, TIAA owned approximately 11.9% of the outstanding accumulation units of the Account.

As discussed 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 may 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 substantial 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		24.4	%		17.3	%		11.9	%		1.2	%		2.8	%		57.6	%
Apartment		2.5	%		5.5	%		5.3	%		0.0	%		0.0	%		13.3	%
Industrial		1.4	%		6.6	%		4.1	%		1.4	%		0.0	%		13.5	%
Retail		3.2	%		0.9	%		8.4	%		0.5	%		2.1	%		15.1	%
Storage Facilities		0.2	%		0.1	%		0.1	%		0.1	%		0.0	%		0.5	%
Total		31.7	%		30.4	%		29.8	%		3.2	%		4.9	%		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.

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.

14

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 March 31, 2010 and December 31, 2009, 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):

Description	Level 1: Quoted Prices in Active Markets for Identical Assets			Level 2: Significant Other Observable Inputs			Level 3: Significant Unobservable Inputs				Total at March 31, 2010
Real estate properties		$	—		$	—		$	7,280,352			$	7,280,352
Real Estate joint ventures			—			—			1,248,562				1,248,562
Limited partnerships			—			—			204,960				204,960
Marketable securities:
Government Agency Notes			—			490,099			—				490,099
United States Treasury Bills			—			340,097			—				340,097
Mortgage loan receivable			—			—			71,459				71,459
Total Investments at March 31, 2010		$	—		$	830,196		$	8,805,333			$	9,635,529
Mortgage loans payable		$	—		$	—		$	(1,882,479	)		$	(1,882,479	)

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, 2009
Real estate properties		$	—		$	—		$	7,437,344			$	7,437,344
Real Estate joint ventures			—			—			1,314,603				1,314,603
Limited partnerships			—			—			200,273				200,273
Marketable securities:
Government Agency Notes			—			465,092			—				465,092
United States Treasury Bills			—			206,175			—				206,175
Mortgage loan receivable			—			—			71,273				71,273
Total Investments at December 31, 2009		$	—		$	671,267		$	9,023,493			$	9,694,760
Mortgage loans payable		$	—		$	—		$	(1,858,110	)		$	(1,858,110	)

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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 months ended March 31, 2010 and March 31, 2009 (in thousands):

	Real Estate Properties				Real Estate Joint Ventures				Limited Partnerships				Mortgage Loans Receivable				Total Level 3 Investments				Mortgage Loans Payable
For the three months ended March 31, 2010:
Beginning balance January 1, 2010		$	7,437,344			$	1,314,603			$	200,273			$	71,273			$	9,023,493			$	(1,858,110	)
Total realized and unrealized gains (losses) included in changes in net assets			(190,677	)			(35,778	)			3,019				186				(223,250	)			(25,795	)
Purchases, sales, issuances,and settlements(1)			33,685				(30,263	)			1,668				—				5,090				1,426
Ending balance March 31, 2010		$	7,280,352			$	1,248,562			$	204,960			$	71,459			$	8,805,333			$	(1,882,479	)
For the three months ended March 31, 2009:
Beginning balance January 1, 2009		$	10,305,040			$	2,176,711			$	286,485			$	71,767			$	12,840,003			$	(1,830,040	)
Total realized and unrealized gains (losses) included in changes in net assets			(909,626	)			(174,185	)			(59,281	)			(2,062	)			(1,145,154	)			70,688
Purchases, sales, issuances,and settlements(1)			(29,604	)			(8,049	)			—				—				(37,653	)			864
Ending balance March 31, 2009		$	9,365,810			$	1,994,477			$	227,204			$	69,705			$	11,657,196			$	(1,758,488	)

⁽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

 

Limited
Partnerships

 

Mortgage
Loans
Receivable

 

Total
Level 3
Investments

 

Mortgage
Loans
Payable

For the three months ended March 31, 2010

 

$

(189,439

)

 

$

(30,518

)

 

$

3,019

  

$

186

  

$

(216,752

)

 

$

(25,795

)

For the three months ended March 31, 2009

 

$

(909,375

)

 

$

(174,185

)

 

$

(59,281

)

 

$

(2,062

)

 

$

(1,144,903

)

 

$

70,688

 

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 March 31, 2010, 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 March 31, 2010 and December 31, 2009 was $1.2 billion and $1.3

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billion, respectively. The Account’s most significant joint venture investment is the DDR TC LLC joint venture, which is the fifth largest investment in the Account as of March 31, 2010.

The Account’s share of the mortgage loans payable within the joint venture investments at fair value was approximately $1.5 and $1.8 billion at March 31, 2010 and December 31, 2009, respectively. The Account’s share in the outstanding principal of the mortgage loans payable on joint ventures was approximately $1.7 and $2.0 billion at March 31, 2010 and December 31, 2009.

On February 26, 2010, the maturity date of a loan in the outstanding principal amount of $168.3 million (with the Account’s share totaling $143.1 million) with respect to certain of the properties held in the Account’s joint venture with DDR was extended from 2010 to 2011. The maximum amount that may be drawn under this loan is $215 million.

A condensed summary of the financial position and results of operations of the joint ventures is shown below (in thousands).

	March 31, 2010			March 31, 2009			December 31, 2009
	(Unaudited)			(Unaudited)
Assets
Real estate properties, at fair value		$	4,177,429		$	5,492,750		$	4,618,202
Other assets			92,115			85,283			89,569
Total assets		$	4,269,544		$	5,578,033		$	4,707,771
Liabilities and Equity
Mortgage loans payable, at fair value		$	2,167,374		$	2,406,493		$	2,526,666
Other liabilities			52,556			58,168			52,639
Total liabilities			2,219,930			2,464,661			2,579,305
Equity			2,049,614			3,113,372			2,128,466
Total liabilities and equity		$	4,269,544		$	5,578,033		$	4,707,771

	For the Three Months Ended March 31, 2010			For the Three Months Ended March 31, 2009			Year Ended December 31, 2009
	(Unaudited)			(Unaudited)
Operating Revenues and Expenses
Revenues		$	122,356		$	132,902		$	519,239
Expenses			76,870			82,307			317,428
Excess of revenues over expenses		$	45,486		$	50,595		$	201,811

Subsequent to March 31, 2010, one of the properties within the DDR TC LLC joint venture (the “Venture”) defaulted on an interest payment in respect of a $7.35 million mortgage secured by such property. On April 30, 2010, the loan matured and the Venture did not make the required pay off on such date. Currently the managing member of the Venture is in negotiations with the lender regarding such defaults. These defaults on this non-recourse loan did not impact any of the other properties within the Venture, the Venture itself, or the Account.

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 real estate-related securities and the Account receives distributions from the limited partnerships based on the Account’s ownership interest percentages. At March 31, 2010, 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%. Under the terms of the partnership agreements governing such investments, and based upon the expected term of each such partnership, the partnerships could engage in liquidation activities beginning in 2012 through 2015. The Account’s ownership interest in limited partnerships was $205.0 million and $200.3 million at March 31, 2010 and December 31, 2009, respectively.

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Note 7—Mortgage Loans Payable

At March 31, 2010, the Account had outstanding mortgage loans payable secured by the following properties (in thousands):

Property	Interest Rate and Payment Frequency(5)	Principal Amounts as of March 31, 2010				Maturity
		(Unaudited)
701 Brickell(1)(8)	2.24% paid monthly(6)		$	126,000			October 1, 2010
Four Oaks Place(2)(8)	2.24% paid monthly(6)			200,000			October 1, 2010
Ontario Industrial Portfolio(3)	7.42% paid monthly			8,405			May 1, 2011
1 & 7 Westferry Circus(4)(8)	5.40% paid quarterly			203,606			November 15, 2012
Reserve at Sugarloaf(3)(8)	5.49% paid monthly			25,041			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(3)(8)	5.55% paid monthly			8,535			September 1, 2013
Wilshire Rodeo Plaza(8)	5.28% paid monthly			112,700			April 11, 2014
1401 H Street(3)(8)	5.97% paid monthly			114,653			December 7, 2014
The Colorado(3)(8)	5.65% paid monthly			86,246			November 1, 2015
99 High Street	5.52% paid monthly			185,000			November 11, 2015
The Legacy at Westwood(3)(8)	5.95% paid monthly			41,380			December 1, 2015
Regents Court(3)(8)	5.76% paid monthly			35,349			December 1, 2015
The Caruth(3)(8)	5.71% paid monthly			41,349			December 1, 2015
Lincoln Centre	5.51% paid monthly			153,000			February 1, 2016
Publix at Weston Commons(8)	5.08% paid monthly			35,000			January 1, 2036
Total Principal Outstanding				1,892,515
Fair Value Adjustment(7)				(10,036	)
Total mortgage loans payable			$	1,882,479

(1)	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%.
(2)	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%.
(3)	The mortgage is adjusted monthly for principal payments.
(4)	The mortgage is denominated in British pounds and the principal payment had been converted to U.S. dollars using the exchange rate as of March 31, 2010. The quarterly payments are interest only, with a balloon payment at maturity. The interest rate is fixed. The cumulative foreign currency translation adjustment (since inception) was an unrealized gain of $29 million.
(5)	Interest rates are fixed, unless stated otherwise.
(6)	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.
(7)	The fair value adjustment consists of the difference (positive or negative) between the principal amount of the outstanding debt and the fair value of the outstanding debt. See Note 1 of these financial statements.
(8)	These properties are each owned by separate wholly owned subsidiaries of TIAA for the benefit of the Account. The assets and credit of each of these borrowing entities are not available to satisfy the debts and other obligations of the Account or any other entity or person other than such borrowing entity.

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Note 8—Condensed Financial Information

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

	For the Three Months Ended March 31, 2010
					Years Ended December 31,
					2009				2008				2007				2006
	(Unaudited)
Per Accumulation Unit data:
Rental income		$	5.233			$	22.649			$	18.794			$	17.975			$	16.717
Real estate property level expenses and taxes			2.798				11.193				9.190				8.338				7.807
Real estate income, net			2.435				11.456				9.604				9.637				8.910
Other income			0.477				2.778				3.808				4.289				3.931
Total income			2.912				14.234				13.412				13.926				12.841
Expense charges(1)			0.537				2.280				2.937				2.554				1.671
Investment income, net			2.375				11.954				10.475				11.372				11.170
Net realized and unrealized gain (loss) on investments and mortgage loans payable			(6.131	)			(85.848	)			(54.541	)			26.389				22.530
Net (decrease) increase in Accumulation Unit Value			(3.756	)			(73.894	)			(44.066	)			37.761				33.700
Accumulation Unit Value:
Beginning of period			193.454				267.348				311.414				273.653				239.953
End of period		$	189.698			$	193.454			$	267.348			$	311.414			$	273.653
Total return			(1.94	)%			(27.64	)%			(14.15	)%			13.80	%			14.04	%
Ratios to Average net Assets:
Expenses(1)			0.28	%			1.01	%			0.95	%			0.87	%			0.67	%
Investment income, net			1.25	%			5.29	%			3.38	%			3.88	%			4.49	%
Portfolio turnover rate:
Real estate properties			0.02	%			0.75	%			0.64	%			5.59	%			3.62	%
Marketable securities			—				—				25.67	%			13.03	%			51.05	%
Accumulation Units outstanding at end of period (in thousands)			39,657				39,473				41,542				55,106				50,146
Net assets end of period (in thousands)		$	7,754,951			$	7,879,914			$	11,508,924			$	17,660,537			$	14,132,693

⁽¹⁾ Expense charges per Accumulation Unit and the Ratio of Expenses to Average net Assets reflect the year to date Account-level expenses and exclude 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 three months ended March 31, 2010 would be $3.335 ($13.473, $12.127, $10.892, and $9.478, for the years ended December 31, 2009, 2008, 2007 and 2006, respectively), and the Ratio of Expenses to Average Net Assets for the three months ended March 31, 2010 would be 1.75% (5.96%, 3.91%, 3.71%, and 3.81% for the years ended December 31, 2009, 2008, 2007, and 2006, respectively).

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Note 9—Accumulation Units

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

 

For the
Three Months
Ended
March 31, 2010

 

For the Year Ended
December 31, 2009

 

(Unaudited)

Outstanding:

Beginning of period

  

39,473

   

41,542

 

Credited for premiums

  

847

   

3,141

 

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

  

—

   

4,139

 

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

  

(663

)

  

(9,349

)

End of period

  

39,657

   

39,473

 

Note 10—Commitments and Subsequent Events

As of March 31, 2010, the Account had outstanding commitments to purchase interests in four of its limited partnership with approximately $40.5 million remaining to be funded under these commitments, which could be called in full or in part by the limited partnership at any time.

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.

Other than the defaults on the debt within the DDR TC LLC joint venture as discussed in Note 6, there are no material subsequent events.

During the normal course of business, the Account enters into discussions and agreements to purchase or sell real estate properties and subsequent to March 31, 2010, no properties were purchased or sold.

Note 11—New Accounting Pronouncements

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”), which amends guidance related to the identification of a variable interest entity, variable interests, the primary beneficiary, and expands required note disclosures to provide greater transparency to the users of financial statements. In December 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which amended the Codification with the guidance contained in SFAS No. 167. In February 2010, the FASB issued ASU No. 2010-10, “Amendments for Certain Investment Funds,” which defers the applicability of ASU No. 2009-17 in certain instances. These standards were effective on January 1, 2010 and did not result in a significant impact to the Account’s financial position or results of operations.

In August 2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair Value.” This ASU clarifies the application of certain valuation techniques in circumstances in which a quoted price in an active market for the identical liability is not available and clarifies that inputs to the valuation should not be adjusted when estimating the fair value of a liability in which contractual terms restrict transferability. This ASU became effective on October 1, 2009 and the adoption did not have a significant impact to the Account’s financial position or results of operations.

In September 2009, the FASB issued ASU No. 2009-12, “Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” This ASU permits, as a practical expedient, an investor the ability to estimate the fair value of an investment in certain entities on the basis of the net asset value per share of the investment (or its equivalent) determined as of the reporting entity’s measurement date. The investee must satisfy specific requirements before the investor is permitted to utilize this practical expedient

20

as a method of valuation. The amendments in this ASU are effective for interim and annual periods ending after December 15, 2009. The adoption of this ASU did not have a significant impact to the Account’s financial position or results of operations.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” which requires new disclosures related to transfers in and out of levels 1 and 2, and the separate disclosure of purchases, sales, issuances and settlements when reconciling activity in level 3. This ASU also amends prior disclosure requirements to call for the disaggregation of assets and liabilities into appropriate subsets, and the disclosure of valuation techniques and inputs for recurring and nonrecurring fair value measurements in levels 2 and 3. The new disclosure requirement for reconciling level 3 activity is effective January 1, 2011. All other new or amended disclosure requirements were effective January 1, 2010 for the Account and are reflected in the notes to the financial statements. These changes did not impact the Account’s financial position or results of operations.

In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements.” This ASU amends Topic 855, “Subsequent Events” by not requiring a reporting entity that files financial statements with the Securities and Exchange Commission (“SEC filers”), or a conduit bond obligor to disclose the date through which subsequent events are evaluated. This ASU is effective for SEC filers upon issuance of the final ASU. The Account has adopted this revision as of December 31, 2009.

21

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
March 31, 2010 and December 31, 2009
(Dollar values shown in thousands)

REAL ESTATE PROPERTIES—75.55% and 76.71%

Location/Description	Type	Fair Value
		2010				2009
		(Unaudited)
Alabama:
Inverness Center	Office		$	90,244			$	90,315
Arizona:
Camelback Center	Office			30,974				37,774
Kierland Apartment Portfolio	Apartments			76,471				78,060
Phoenix Apartment Portfolio	Apartments			21,157				21,767
California:
3 Hutton Centre Drive	Office			26,307				28,752
50 Fremont Street	Office			287,518	(1)			284,283	(1)
88 Kearny Street	Office			57,027				61,600
275 Battery Street	Office			155,057				164,390
Rancho Cucamonga Industrial Portfolio	Industrial			69,100				57,327
Centerside I	Office			27,102				27,012
Centre Pointe and Valley View	Industrial			20,000				18,929
Great West Industrial Portfolio	Industrial			64,900				65,000
Larkspur Courts	Apartments			48,062				50,111
Northern CA RA Industrial Portfolio	Industrial			39,595				42,437
Ontario Industrial Portfolio	Industrial			169,000	(1)			167,998	(1)
Pacific Plaza	Office			56,543	(1)			60,075	(1)
Regents Court	Apartments			52,007	(1)			50,505	(1)
Southern CA RA Industrial Portfolio	Industrial			70,536				75,817
The Legacy at Westwood	Apartments			74,577	(1)			77,836	(1)
Wellpoint	Office			37,400				37,400
Westcreek	Apartments			21,728				23,061
West Lake North Business Park	Office			33,002				32,407
Westwood Marketplace	Retail			77,000				77,077
Wilshire Rodeo Plaza	Office			142,550	(1)			151,209	(1)
Colorado:
Palomino Park	Apartments			142,710				143,907
The Lodge at Willow Creek	Apartments			33,708				31,624
Connecticut:
Ten & Twenty Westport Road	Office			122,400				126,860
Florida:
701 Brickell Avenue	Office			188,981	(1)			198,630	(1)
North 40 Office Complex	Office			35,187				33,969
Plantation Grove	Retail			9,270				9,600
Pointe on Tampa Bay	Office			31,197				35,060
Publix at Weston Commons	Retail			38,109	(1)			38,100	(1)
Quiet Waters at Coquina Lakes	Apartments			19,321				19,918
Seneca Industrial Park	Industrial			55,254				62,341
South Florida Apartment Portfolio	Apartments			48,300				48,366
Suncrest Village Shopping Center	Retail			12,300				12,329
The Fairways of Carolina	Apartments			18,414				18,628
Urban Centre	Office			79,045				80,282

See notes to the financial statements.

22

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
March 31, 2010 and December 31, 2009
(Dollar values shown in thousands)

Location/Description	Type	Fair Value
		2010				2009
		(Unaudited)
France:
Printemps de L’Homme	Retail		$	182,134			$	200,995
Georgia:
Atlanta Industrial Portfolio	Industrial			38,320				39,519
Glenridge Walk	Apartments			30,814				30,326
Reserve at Sugarloaf	Apartments			38,002	(1)			37,710	(1)
Shawnee Ridge Industrial Portfolio	Industrial			51,500				52,219
Windsor at Lenox Park	Apartments			46,220				48,223
Illinois:
Chicago Caleast Industrial Portfolio	Industrial			48,200				48,304
Chicago Industrial Portfolio	Industrial			57,459				60,908
Oak Brook Regency Towers	Office			60,013				64,265
Parkview Plaza	Office			42,719				44,360
Maryland:
Broadlands Business Park	Industrial			23,700				23,600
GE Appliance East Coast Distribution Facility	Industrial			28,100				28,900
Massachusetts:
99 High Street	Office			250,388	(1)			253,557	(1)
Needham Corporate Center	Office			16,300				16,196
Northeast RA Industrial Portfolio	Industrial			24,100				24,845
The Newbry	Office			223,628				230,375
Minnesota:
Champlin Marketplace	Retail			13,500				13,801
Nevada:
Fernley Distribution Facility	Industrial			7,600				7,600
New Jersey:
Konica Photo Imaging Headquarters	Industrial			14,300				15,100
Marketfair	Retail			64,180				65,594
Morris Corporate Center III	Office			67,046				66,478
Plainsboro Plaza	Retail			26,777				26,962
South River Road Industrial	Industrial			29,000				28,656
New York:
780 Third Avenue	Office			246,233				240,077
The Colorado	Apartments			103,983	(1)			110,144	(1)
Pennsylvania:
Lincoln Woods	Apartments			26,846				28,728
Tennessee:
Airways Distribution Center	Industrial			12,800				12,600
Summit Distribution Center	Industrial			11,800				12,300
Texas:
Dallas Industrial Portfolio	Industrial			122,864				125,275
Four Oaks Place	Office			365,423	(1)			409,027	(1)

See notes to the financial statements.

23

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
March 31, 2010 and December 31, 2009
(Dollar values shown in thousands)

Location/Description	Type	Fair Value
		2010				2009
		(Unaudited)
Texas: (continued)
Houston Apartment Portfolio	Apartments		$	168,762			$	179,717
Lincoln Centre	Office			195,988	(1)			202,029	(1)
Pinnacle Industrial Portfolio	Industrial			32,512				34,148
South Frisco Village	Retail			27,115	(1)			26,900	(1)
The Caruth	Apartments			49,538	(1)			49,641	(1)
The Maroneal	Apartments			32,637				32,179
United Kingdom:
1 & 7 Westferry Circus	Office			238,443	(1)			239,036	(1)
Virginia:
8270 Greensboro Drive	Office			33,900				34,200
Ashford Meadows Apartments	Apartments			79,313				71,105
One Virginia Square	Office			43,808				40,503
The Ellipse at Ballston	Office			66,320				65,505
Washington:
Creeksides at Centerpoint	Office			16,564				18,724
Fourth and Madison	Office			285,000	(1)			295,000	(1)
Millennium Corporate Park	Office			115,972				116,548
Northwest RA Industrial Portfolio	Industrial			15,800				17,800
Rainier Corporate Park	Industrial			59,092				65,277
Regal Logistics Campus	Industrial			46,300				47,955
Washington DC:
1001 Pennsylvania Avenue	Office			502,223	(1)			480,622	(1)
1401 H Street, NW	Office			147,079	(1)			143,555	(1)
1900 K Street, NW	Office			207,040				204,000
Mazza Gallerie	Retail			60,944				65,500
TOTAL REAL ESTATE PROPERTIES
(Cost $9,441,661 and $9,408,978)			$	7,280,352			$	7,437,344

See notes to the financial statements.

24

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
March 31, 2010 and December 31, 2009
(Dollar values shown in thousands)

OTHER REAL ESTATE-RELATED INVESTMENTS—15.09% and 15.63%
REAL ESTATE JOINT VENTURES—12.96% and 13.56%

Location/Description	Fair Value
	2010				2009
	(Unaudited)
California:
CA—Colorado Center LP
Yahoo Center (50% Account Interest)		$	140,487	(2)		$	133,227	(2)
CA—Treat Towers LP
Treat Towers (75% Account Interest)			62,926				66,435
Florida:
Florida Mall Associates, Ltd
The Florida Mall (50% Account Interest)			251,148	(2)			252,432	(2)
TREA Florida Retail, LLC
Florida Retail Portfolio (80% Account Interest)			148,425				162,204
West Dade Associates
Miami International Mall (50% Account Interest)			76,081	(2)			76,856	(2)
Georgia:
GA—Buckhead LLC
Prominence in Buckhead (75% Account Interest)			31,171				30,952
Massachusetts:
MA—One Boston Place REIT
One Boston Place (50.25% Account Interest)			131,217				129,922
Tennessee:
West Town Mall, LLC
West Town Mall (50% Account Interest)			32,263	(2)			37,262	(2)
Virginia:
Teachers REA IV, LLC
Tyson’s Executive Plaza II (50% Account Interest)			26,046				26,275
Various:
DDR TC LLC
DDR Joint Venture (85% Account Interest)			268,371	(2,3)			312,182	(2,3)
Storage Portfolio I, LLC
Storage Portfolio (75% Account Interest)			42,629	(2,3)			46,269	(2,3)
Strategic Ind Portfolio I, LLC
IDI Nationwide Industrial Portfolio (60% Account Interest)			37,798	(2,3)			40,587	(2,3)
TOTAL REAL ESTATE JOINT VENTURES (Cost $1,965,074 and $2,142,016)			1,248,562				1,314,603
LIMITED PARTNERSHIPS—2.13% and 2.07%
Cobalt Industrial REIT (10.998% Account Interest)			18,463				20,341
Colony Realty Partners LP (5.27% Account Interest)			13,300				12,123
Heitman Value Partners Fund (8.43% Account Interest)			14,959				13,736
Lion Gables Apartment Fund (18.46% Account Interest)			148,501				142,999
MONY/Transwestern Mezz RP II (16.67% Account Interest)			8,139				9,267
Transwestern Mezz Realty Partners III, LLC (11.708% Account Interest)			1,598				1,807
TOTAL LIMITED PARTNERSHIPS
(Cost $297,446 and $295,779)			204,960				200,273
TOTAL REAL ESTATE JOINT VENTURES AND LIMITED PARTNERSHIPS
(Cost $2,262,520 and $2,437,795)			1,453,522				1,514,876

See notes to the financial statements.

25

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
March 31, 2010 and December 31, 2009
(Dollar values shown in thousands)

MARKETABLE SECURITIES—8.62% and 6.93%
GOVERNMENT AGENCY NOTES—5.09% and 4.80%

Principal						Issuer	Yield(4)		Maturity Date		Fair Value
2010			2009								2010			2009
											(Unaudited)
	$	—		$	4,700	Fannie Mae Discount Notes		0.041%		1/13/10		$	—		$	4,700
		—			25,000	Fannie Mae Discount Notes		0.091%		1/19/10			—			25,000
		—			49,300	Fannie Mae Discount Notes		0.020%		1/27/10			—			49,299
		—			25,000	Fannie Mae Discount Notes		0.051%		2/4/10			—			24,999
		—			20,000	Fannie Mae Discount Notes		0.091%		2/8/10			—			19,999
		—			18,873	Fannie Mae Discount Notes		0.071%		2/16/10			—			18,872
		—			10,000	Fannie Mae Discount Notes		0.101%		3/1/10			—			9,999
		31,800			—	Fannie Mae Discount Notes		0.091%		4/21/10			31,799			—
		17,470			17,470	Fannie Mae Discount Notes		0.167%		5/5/10			17,469			17,463
		21,200			—	Fannie Mae Discount Notes		0.152%		5/26/10			21,197			—
		12,900			—	Fannie Mae Discount Notes		0.188%		6/14/10			12,897			—
		22,333			—	Fannie Mae Discount Notes		0.173%		7/14/10			22,322			—
		30,530			—	Fannie Mae Discount Notes		0.208%		8/11/10			30,506			—
		—			10,990	Federal Home Loan Bank Discount Notes		0.001%		1/4/10			—			10,990
		—			4,419	Federal Home Loan Bank Discount Notes		0.041%		1/13/10			—			4,419
		—			44,000	Federal Home Loan Bank Discount Notes		0.081%		1/15/10			—			44,000
		—			25,300	Federal Home Loan Bank Discount Notes		0.071%		1/22/10			—			25,300
		—			41,200	Federal Home Loan Bank Discount Notes		0.051%		2/24/10			—			41,200
		—			15,770	Federal Home Loan Bank Discount Notes		0.081%		3/5/10			—			15,770
		16,900			—	Federal Home Loan Bank Discount Notes		0.122%		4/7/10			16,900			—
		15,400			—	Federal Home Loan Bank Discount Notes		0.122%		4/8/10			15,400			—
		34,510			—	Federal Home Loan Bank Discount Notes		0.122%		4/14/10			34,509			—
		18,520			—	Federal Home Loan Bank Discount Notes		0.132%		4/16/10			18,520			—
		56,590			—	Federal Home Loan Bank Discount Notes		0.101%-0.132%		4/23/10			56,588			—
		50,000			—	Federal Home Loan Bank Discount Notes		0.142%		4/30/10			49,998			—
		28,300			—	Federal Home Loan Bank Discount Notes		0.152%		5/19/10			28,297			—
		18,600			—	Federal Home Loan Bank Discount Notes		0.152%		5/21/10			18,598			—
		—			10,000	Freddie Mac Discount Notes		0.091%		1/20/10			—			10,000
		—			50,541	Freddie Mac Discount Notes		0.041%-0.076%		1/25/10			—			50,540
		—			11,800	Freddie Mac Discount Notes		0.051%		2/2/10			—			11,800
		—			47,000	Freddie Mac Discount Notes		0.030%		2/16/10			—			46,998
		—			19,010	Freddie Mac Discount Notes		0.132%		2/26/10			—			19,009
		—			5,736	Freddie Mac Discount Notes		0.081%		3/1/10			—			5,736
		—			9,000	Freddie Mac Discount Notes		0.071%		3/8/10			—			8,999
		37,000			—	Freddie Mac Discount Notes		0.091%-0.122%		4/19/10			36,999			—
		21,500			—	Freddie Mac Discount Notes		0.106%		4/26/10			21,499			—
		21,640			—	Freddie Mac Discount Notes		0.132%		5/5/10			21,638			—
		25,000			—	Freddie Mac Discount Notes		0.147%		5/24/10			24,997			—
		9,968			—	Freddie Mac Discount Notes		0.152%		6/1/10			9,966			—
TOTAL GOVERNMENT AGENCY NOTES (Cost $490,077 and $465,072)												$	490,099		$	465,092

See notes to the financial statements.

26

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
March 31, 2010 and December 31, 2009
(Dollar values shown in thousands)

UNITED STATES TREASURY BILLS—3.53% and 2.13%

Principal						Issuer	Yield(4)		Maturity Date			Fair Value
2010			2009									2010			2009
												(Unaudited)
	$	—		$	24,515	United States Treasury Bills		0.066%-0.152%		2/25/10			$	—		$	24,514
		47,200			47,200	United States Treasury Bills		0.137%-0.162%		4/22/10				47,196			47,189
		25,000			—	United States Treasury Bills		0.127%		4/29/10				24,997			—
		52,530			52,530	United States Treasury Bills		0.122%-0.147%		5/13/10				52,521			52,506
		62,015			62,015	United States Treasury Bills		0.127%-0.147%		5/20/10				62,003			61,981
		20,000			20,000	United States Treasury Bills		0.137%		5/27/10				19,996			19,985
		12,300			—	United States Treasury Bills		0.164%		7/29/10				12,294			—
		17,600			—	United States Treasury Bills		0.173%-0.193%		8/12/10				17,588			—
		21,545			—	United States Treasury Bills		0.184%		8/19/10				21,529			—
		82,040			—	United States Treasury Bills		0.167%-0.188%		8/26/10				81,973			—
TOTAL UNITED STATES TREASURY BILLS (Cost $340,108 and $206,163)														340,097			206,175
TOTAL MARKETABLE SECURITIES (Cost $830,185 and $671,235)														830,196			671,267
MORTGAGE LOAN RECEIVABLE—0.74% and 0.73%
						Borrower	Current Rate(5)		Maturity Date		��
		75,000			75,000	Klingle Corporation		1.030%		7/10/11				71,459			71,273
TOTAL MORTGAGE LOAN RECEIVABLE (Cost $75,000 and $75,000)														71,459			71,273
TOTAL INVESTMENTS (Cost $12,609,366 and $12,593,008)													$	9,635,529		$	9,694,760

(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 March 31, 2010. At December 31, 2009, the interest rate on this investment was 1.04%.

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, and the section of the Account’s Annual Report on Form 10-K for the year ended December 31, 2009 (the “Form 10-K”) entitled “Item 1A. Risk Factors.” 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:

• Acquiring and Owning Real Estate: The risks associated with acquiring and owning real property, including general economic and real estate market conditions, the availability of, and economic cost associated with, financing the Account’s properties, the risk that the Account’s properties become too concentrated (whether by geography, sector or by tenant mix), competition for acquiring real estate properties, leasing risk (including tenant defaults) and the risk of uninsured losses at properties (including due to terrorism and acts of violence);

• Selling Real Estate: The risk that the sales price of a property might differ, perhaps significantly, from its estimated or appraised value, leading to losses or reduced profits to the Account, the risk that the Account might not be able to sell a property at a particular time for a price which management believes represents its fair or full value, the lack of availability of financing (for potential purchasers of the Account’s properties), disruptions in the credit and capital markets, and the risk that the Account may be required to make significant expenditures before the Account is able to market and/or sell a property;

• Valuation: 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 periods in between appraisals of a property during which the value attributed to the property for purposes of the Account’s daily accumulation unit value may be more or less than the actual realizable value of the property;

• Borrowing: Risks associated with financing the Account’s properties, including the risk of default on loans secured by the Account’s properties (which could lead to foreclosure), the risk associated with high loan to value ratios on the Account’s properties (including the fact that the Account may have limited, or no net value in such a property), the risk that significant sums of cash could be required to make principal and interest payments on the loans and the risk that the Account may not have the ability to obtain financing or refinancing on favorable terms (or at all), which may be aggravated by general disruptions in credit and capital markets;

• Participant Transactions: 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 or that significant net participant transfers into the Account may take time to invest in attractive investment opportunities;

• Joint Venture Investments: The risks associated with joint venture partnerships, including the risk that a co-venturer may have interests or goals inconsistent with that of the Account, that a co-venturer may

28

	have financial difficulties, and the risk that the Account may have limited rights with respect to operation of the property and transfer of the Account’s interest;
•	Regulatory Matters: Uncertainties associated with environmental and other regulatory matters;
•	Foreign Investments: The risks associated with purchasing, owning and disposing foreign investments (primarily real estate properties), including political risk and the risk associated with currency fluctuations;
•	Conflicts of Interests: Conflicts of interest associated with TIAA serving as investment manager of the Account and provider of the liquidity guarantee at the same time as TIAA and its affiliates are serving as an investment manager to other real estate accounts or funds, including conflicts associated with satisfying its fiduciary duties to all such accounts and funds associated with purchasing, selling and leasing of properties;
•	Required Property Sales: The risk that, if TIAA were to own too large a percentage of the Account’s accumulation units through funding the liquidity guarantee, the independent fiduciary could require the sales of properties to reduce TIAA’s ownership interest, which sales could occur at times and at prices that depress the sale proceeds to the Account;
•	Liquid Assets and Securities: Risks associated with investments in liquid assets or investment securities (which could include, from time to time, corporate bonds, REIT securities and CMBS), including financial/credit risk, market volatility risk, interest rate volatility risk and deposit/money market risk; 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 also contained in this Form 10-Q including in the section entitled “Item 3. Quantitative and Qualitative Disclosures About Market Risk.”

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.

ABOUT THE TIAA REAL ESTATE ACCOUNT

The TIAA Real Estate Account was established in February 1995 as a separate account of TIAA and interests in the Account were first offered to eligible participants on October 2, 1995. 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 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.

Investment Objective and Strategy

The Account seeks favorable long-term returns primarily through rental income and appreciation of real estate investments owned by the Account. The Account will also invest in publicly traded securities and short-term higher quality liquid investments that are easily converted to cash to enable the Account to meet participant redemption requests, purchase or improve properties or cover other expense needs.

Real Estate-Related Investments.The Account intends to have between 75% and 85% of its net assets invested directly in real estate or real estate-related investments with the goal of producing favorable long-term returns primarily through rental income and appreciation. The Account’s principal strategy is to purchase direct ownership interests in income-producing real estate, primarily office, industrial, retail, and multi-family residential properties. The Account can also invest in real estate or real estate-related investments through joint ventures, real estate partnerships or common or preferred stock or other equity securities of companies whose operations involve real estate (i.e.,that primarily own or manage real estate), including real estate investment trusts (“REITs”). To a limited extent, the Account can also invest in conventional mortgage loans, participating mortgage loans, and collateralized mortgage obligations, including commercial mortgage-backed securities (“CMBS”) and other similar investments. Under the Account’s

29

current investment guidelines, the Account is authorized to hold up to 10% of its invested assets in commercial mortgage loans (of all types), and up to 10% of its invested assets in CMBS. The Account from time to time will also make foreign real estate investments, which, together with foreign real estate related and foreign liquid investments, are expected to comprise no more than 25% of the Account’s total assets.

Non Real Estate-Related Investments.The Account will invest the remaining portion of its assets (intended to be between 15% and 25% of its net assets) in liquid investments; namely, securities issued by U.S. government agencies or U.S. government sponsored entities, corporate debt securities, money market instruments and, at times, stock of companies that do not primarily own or manage real estate. There will be periods of time (including since late 2008) during which the Account’s liquid investments will comprise less than 15% (and possibly less than 10%) of its assets (on a net basis and/or a gross basis), especially during and immediately following periods of significant net participant outflows. Alternatively, in some circumstances, the portion of the Account’s net assets invested in liquid investments may exceed 25%. This could happen, for example, if the Account receives a large inflow of money in a short period of time, there is a lack of attractive real estate investments available on the market, and/or the Account anticipates more near-term cash needs.

FIRST QUARTER 2010 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.

The U.S. economy continued to improve during the first quarter of 2010. While the National Bureau of Economic Research (“NBER”) has not yet announced that the recession has ended, most economists believe that the recession ended during the second half of 2009. Once it has officially ended, the so-called “Great Recession” will have been the longest and deepest economic downturn since the Great Depression. As evidence of the recovery, the advanced estimate for Gross Domestic Product (“GDP”) in the first quarter of 2010 was an increase of 3.2%, which marked the third consecutive quarter of GDP growth. GDP growth was well below the 5.6% gain recorded during the fourth quarter of 2009, but the rate of growth in the fourth quarter was not sustainable, and was attributable in large part to the effects of the fiscal stimulus. More modest GDP growth is expected in the coming quarters as the effects of fiscal stimulus wane. In addition to GDP growth, there are indications that the labor market has started to recover. While the recovery of the job market currently lags that of overall economic activity, modest job growth has been recorded in recent months. With broad economic indicators continuing to show improvement, it appears that monetary and fiscal policy enacted during the depths of the recession helped lead the economy out of recession and provided a solid foundation for consumers and businesses to build upon in 2010-2011.

During the first quarter of 2010, the Federal Reserve began to unwind some of the policy measures enacted during the recession. For example, the Federal Reserve Bank ended its purchases of Fannie-Mae and Freddie-Mac debt and securities, which had provided support to the housing market. While mortgage interest rates have been drifting upwards, rates remain attractive and near historic lows. The Federal Reserve also ended nearly all of the special liquidity programs that were enacted to stimulate credit flows during the credit crunch, as it now believes that financial market conditions have become supportive of economic growth. Even with these positive developments, the economy remains fragile and the recovery has been anemic. To keep the recovery on track, members of the Federal Open Market Committee (“FOMC”) reaffirmed their commitment at the March 16, 2010 meeting to keep “exceptionally low levels of the federal funds rate for an extended period.” In addition to low interest rates, fiscal stimulus remains an option if the recovery stalls. As of April 2010, $219 billion of the $787 billion economic stimulus package had been disbursed and another $160 billion committed for funding which leaves $408 billion of available funds.

With improvements in the economy and capital markets conditions, equity markets across the globe have rebounded strongly. The Dow Jones Industrial Average (“DJI”) approached 11,000 during the first quarter of 2010 and broke through that mark in early April. The DJI was last at this level in September 2008.During the first quarter of 2010, the DJI gained 4.1% and the broader S&P 500 added 4.9%. The DJI and S&P 500 are now 66% and 72%, respectively, above their recessionary lows. The improvement in economic conditions has pushed the 10-year Treasury yields up close to 4.00% as investors began to anticipate that the Federal Reserve would start to raise interest rates as well as to seek out higher returns. After being dormant for

30

virtually all of 2009, CMBS issuance began to pick up during the fourth quarter of 2009, and gained further ground during the first quarter of 2010. Most of this issuance occurred without the support of the Federal Reserve’s Term Asset-Backed Securities Loan Facility program, which is indicative of increased investor interest in real estate and securitized investments. By comparison, credit availability for consumers and businesses remained tight as banks are focused on restoring their balance sheets and profits.

Despite the improvement in key economic indicators, downside risks remain. In particular, housing market conditions were still weak for most of the quarter, notwithstanding the availability of the tax credits for first-time home buyers and historically low mortgage interest rates. Whether the recent stabilization of home prices and some improvement in monthly home sales are a temporary benefit from the tax credit program, or the start of a lasting recovery, it is not yet evident. Similarly, both job growth and consumer spending have shown signs of reviving, but they remain weak relative to historic norms. Finally, the Federal Reserve has proven remarkably adept during the crisis, but there is little room to maneuver if the economy were to experience a “double-dip.” Fortunately, inflation risks appear minimal, providing some leeway for the Federal Reserve to keep interest rates low until the recovery is firmly entrenched.

Key economic indicators are summarized in the table below. Of note are the recent improvements in the job market as the nation recorded its first quarter of job growth since the fourth quarter of 2007. During the first quarter of 2010, jobs were added in two of the three months of the quarter, including an estimated 162,000 jobs during March. March job gains were also widespread, with payrolls in industries such as retail, construction and manufacturing expanding. Government payrolls grew as well, as the Census Bureau hired temporary workers in preparation for the 2010 Census. In addition, payrolls of temporary help firms grew for the sixth consecutive month, which is a notable trend since businesses often hire temporary employees prior to hiring them on a full-time basis. Economic output, as measured by GDP, expanded by 3.2% in the first quarter of 2010. While well short of 5.6% gain in the fourth quarter of 2009, growth of 3.2% was nonetheless encouraging as it was driven not just by the slowdown in inventory reduction, but also by growth in consumer spending.

Economic Indicators*

	2009			2009Q1			2009Q2			2009Q3			2009Q4			2010Q1			Forecasted						2008
																			2010			2011
Economy(1)
GDP		-2.4	%		-6.4	%		-0.7	%		2.2	%		5.6	%		3.2	%		3.0	%		4.0	%		0.4	%
Employment Growth (Thousands)		-4,740			-2,258			-1,430			-783			-269			162			1,176			3,000			-3,623
Interest Rates(2)
10 Year Treasury		3.26	%		2.74	%		3.31	%		3.52	%		3.46	%		3.72	%		4.00	%		4.60	%		3.66	%
Federal Funds Rate		0.0-0.25	%		0.0-0.25	%		0.0-0.25	%		0.0-0.25	%		0.0-0.25	%		0.0-0.25	%		N/A			N/A			0.0-0.25	%

Sources: BEA, BLS, Federal Reserve, Blue Chip Consensus Forecasts, and Economy.com.

*	Data subject to revision
(1)	GDP growth rates are annual rates; employment numbers are quarterly 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.

Other economic indicators, such as those summarized in the table below, point to the downside risks that remain. For example, while the unemployment rate has stabilized, it continues to be at a historically high level. High unemployment, in turn, weighs on consumer confidence, which is at historically low levels. Still, it appeared that consumers have started spending again, though recent sales gains were in part due to comparisons with very weak sales recorded in early 2009. For most retailers, sales have a long way to go before they approach the levels seen before the start of the recession. After receiving a temporary boost from the tax credits available to first-time home buyers, both existing and new home sales dropped through most of the first quarter of 2010. Poor weather was partly responsible for the decline in construction, and while sales activity increased sharply in March, as prospective buyers rush to take advantage of available tax credits which will expire this spring. Many economists question whether the momentum will continue after expiration of the tax credit program on April 30, 2010.

31

Broad Economic Indicators*

Index 1985=100	Full Year						January 2010			February 2010			March 2010
	2008			2009
Consumer Confidence		58.0			45.2			56.5			46.4			52.5
% Change(1)
Inflation (Consumer Price Index)		3.8	%		-0.4	%		0.2	%		0.0	%		0.1	%
Retail Sales (excl. auto, parts & gas)		1.6	%		-1.9	%		0.6	%		1.1	%		0.7	%
Existing Home Sales		-13.1	%		4.9	%		-7.2	%		-0.8	%		6.8	%
New Home Sales		-37.5	%		-22.9	%		-4.2	%		-4.1	%		26.9	%
Single-family Housing Starts		-40.5	%		-28.4	%		5.4	%		5.7	%		-0.9	%
Unemployment Rate		5.8	%		9.3	%		9.7	%		9.7	%		9.7	%

*	Data subject to revision
(1)	Monthly figures represent change from the preceding month.

Annual inflation is calculated as the year over year percent change in the unadjusted annual average. Unemployment rates are the annual average.

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

The Federal Reserve Bank’s April 2010 Beige Book, which reported on regional economic conditions in the twelve Federal Reserve Districts (“Districts”) through April 5, 2010 generally characterized economic activity as having improved somewhat. Manufacturing activity, as measured by orders, shipments or production, increased in nearly every District. While labor market conditions were still characterized as weak, there was hiring in some Districts, particularly for temporary workers. Hiring among financial firms in New York had not yet improved, however. Because the labor market remained weak, there was no upward pressure on wages in any Districts. Retail prices remained stable too, even though retail sales were generally noted to have strengthened. Lending activity in the Districts was mixed. Overall loan volume generally decreased, and banks continued to tighten lending standards for commercial mortgages. Similarly, businesses in some Districts noted continued difficulty in securing credit.

Housing activity was noted to have improved modestly across most Districts, although from very low levels. However, some concern was expressed that the improvement was temporary and may fade following the expiration of the tax credit program. By comparison, there was virtually no improvement in commercial real estate activity in most Districts. Downward pressure on rents resulting from lease concessions being offered by landlords was noted in several Districts, while contacts in other Districts noted that leasing activity generally stemmed from renewals, rather than demand for new space. Construction activity likewise remained weak.

Economists’ views about the prospects for 2010 and 2011 were largely unchanged during the first quarter of 2010. Although the impacts from fiscal policy will likely wane over the balance of 2010 and into 2011, most economists believe that the foundation for a sustainable recovery has been established. The consensus forecast of economists surveyed as part of the April 2010 Blue Chip Economic Indicators publication call for GDP growth of 3.1% over the course of 2010. As consumer and business balance sheets strengthen during the year, spending and hiring are expected to start growing again and thereby establish the conditions for additional gains in 2011. Staff and members of the Federal Reserve’s Open Market Committee (“FOMC”) have similar expectations. Following their mid-March meeting, FOMC staff members “. . . continued to anticipate a moderate pace of economic recovery over the next two years. . .” While the FOMC cautioned that the housing market presents a downside risk to growth, businesses and consumers appear to be making strides towards a more normalized level of economic activity.

Real Estate Market Conditions and Outlook

(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 are preliminary for the quarter ended March 31, 2010 and may be subsequently revised. Prior period data may have been adjusted to reflect updated calculations. Industry sources such as CB Richard Ellis Economic Advisors calculate vacancy data based on square footage. Except where otherwise noted, the Account’s vacancy data is calculated as a percentage of net rentable space leased, weighted by square footage, in keeping with industry standards. 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).

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Preliminary data from Real Capital Analytics (“RCA”), a frequently cited source of commercial real estate transactions data, indicate that $14.1 billion traded hands during the first quarter of 2010, 45% above the first quarter of 2009, which marked the low point in commercial real estate transaction activity. While first quarter 2010 sales were somewhat below the $18.7 billion from fourth quarter of 2009, fourth quarter volumes were inflated by a surge of end-of-year sales which is a common pattern. According to RCA, activity in the first quarter of 2010 was largely driven by sales of core assets. Still, the number of distressed properties continued to increase, particularly in the office and industrial sectors. The increase in distressed properties is a function of rising vacancy rates and declining rents which have negatively impacted property cash flows. Following three consecutive months of increases, the Moody’s/REAL Commercial Property Price Index (“CPPI”) declined 2.6% in February 2010 (the most recent data available). Commercial property prices are 25.8% below those in February of 2009 and 41.6% below peak 2007 pricing. Property prices in the nation’s top metro areas had initially held up better than the national average, but they are now lagging national trends in the apartment and industrial sectors.

	National			Top 10 MSAs*
	4Q08-4Q09			4Q08-4Q09
All Property Types
Apartments		-20.4	%		-24.4	%
Industrial		-23.2	%		-27.3	%
Office		-19.8	%		-14.6	%
Retail		-19.0	%		-18.4	%

* Based on the total value of property sold in Metropolitan Statistical Area (“MSA”)

Source: Moody’s/REAL CPPI, Real Capital Analytics

First quarter 2010 data from the National Council of Real Estate Investment Fiduciaries (“NCREIF”) provide additional evidence in support of the recent price increases that had been shown by the CPPI. The NCREIF Property Index (“NPI”) showed the first positive quarter total return (0.76%) since the second quarter of 2008. The appreciation, or property value, component was still negative for the quarter, but only marginally at -0.90%. This was offset by a 1.66% income return.

Commercial real estate market conditions, which typically lag trends in the overall economy, have not yet benefited from the recent improvement in economic conditions. For example, vacancy rates continue to rise, though at a much more moderate pace compared to recent quarters. Nonetheless, downward pressure on rents will remain as long as the amount of vacant space continues to increase. Despite indications that property prices are nearing bottom, sales activity remains depressed and must increase substantially before property prices stabilize. Three consecutive quarters of GDP growth is another potential catalyst for property prices as investors factor an imminent recovery into their underwriting. At a fundamental level, the tentative gains in the labor market bode well for future space demand by the nation’s businesses, though the leasing cycle tends to lag hiring. Data for five key markets in which the Account had exposure as of March 31, 2010 are provided below. The top five markets (by fair value) represent 41% of the Account’s total real estate portfolio and occupancies of the properties owned by the Account in each market remained near or above 90% leased overall.

Metropolitan Area

 

Percent
Leased
Market
Value
Weighted*

 

# of Property
Investments

 

Metro Areas as a
% of Total Real
Estate Portfolio

 

Metro Area as a
% of Total
Investments

Washington-Arlington-
Alexandria DC-VA-MD-WV

  

95.6%

   

9

   

13.7%

   

12.1%

 

Boston-Quincy MA

  

91.2%

   

5

   

7.6%

   

6.7%

 

Los Angeles-Long Beach-Glendale CA

  

89.6%

   

8

   

7.0%

   

6.2%

 

Houston-Bay Town-Sugar Land TX

  

94.8%

   

3

   

6.7%

   

5.9%

 

San Francisco-San Mateo-Redwood City CA

  

94.7%

   

4

   

6.4%

   

5.7%

 

* Weighted by market value, which differs from the calculations provided for market comparisons to CBRE-EA data and are used here to reflect the fair market value of the Account’s monetary investments in those markets.

33

Office

Demand for office space is highly dependent upon job creation in the financial and professional and business services sectors. During the first quarter of 2010, weakness in the financial services sector was still evident. A total of 58,000 jobs were lost in the first quarter of 2010 as compared to 26,000 jobs lost in the fourth quarter of 2009. Over the course of the recession, more than 600,000 financial services jobs disappeared nationwide. By comparison, the professional and business services sector added 74,000 jobs during the first quarter of 2010, as compared to a gain of 139,000 jobs in the fourth quarter of 2009. Increases in temporary employment have been driving the expansion of the professional and business services sector, which is often a leading indicator of permanent hiring. Even with the growth in the professional and businesses services sector, national office market conditions deteriorated further in the first quarter of 2010. According to CB Richard Ellis Economic Advisors (“CBRE-EA”), the national vacancy rate rose to 16.6% in the first quarter of 2010 from 16.3% in the fourth quarter of 2009. Vacancies rose in most markets tracked by CBRE-EA. One notable exception was Washington D.C., which is the Account’s top office market. In Washington, D.C., vacancy rates were down slightly, which was “probably” due to continued federal government spending and hiring. Elsewhere, vacancy rates increased in metro areas which are particularly dependent on the financial services sector such as Boston and San Francisco. In Seattle and Houston, construction was the primary culprit. Reflective of overall market conditions, the Account’s office vacancy rate similarly increased to an average of 11.3% in the first quarter of 2010, up from 10.5% in the fourth quarter of 2009. However, the vacancy rate of the Account’s properties in its top markets declined and are below their respective market averages. The table below compares the average vacancy rate of the Account’s office properties to their respective market averages.

      

Account
Weighted
Average
Vacancy

 

Metropolitan
Area
Vacancy*

Sector

 

Metropolitan Area

 

Total Sector
by Metro Area
($M)

 

% of Total
Investments

 

2009Q4

 

2010Q1

 

2009Q4

 

2010Q1

Office

 

National

     

10.5%

  

11.3%

  

16.3%

  

16.6%

 

1

 

Washington-Arlington-Alexandria DC-VA-MD-WV

$

1,026.4

  

10.7%

  

6.9%

  

5.4%

  

14.1%

  

13.9%

 

2

 

Boston-Quincy MA

$

621.5

  

6.5%

  

9.6%

  

9.2%

  

13.1%

  

13.3%

 

3

 

San Francisco-San Mateo-
Redwood City CA

$

499.6

  

5.2%

  

6.3%

  

5.6%

  

14.4%

  

14.7%

 

4

 

Seattle-Bellevue-Everett WA

$

417.5

  

4.3%

  

9.7%

  

8.8%

  

16.7%

  

17.2%

 

5

 

Houston-Bay Town-
Sugar Land TX

$

365.4

  

3.7%

  

6.0%

  

5.4%

  

15.8%

  

16.3%

 

* Source: CBRE-EA. Vacancy is defined as the percentage of space vacant. The Account’s vacancy is defined as the weighted percentage of unleased space.

Industrial

Industrial market conditions are driven to a large degree by macroeconomic factors such as GDP growth, industrial production, international trade and employment growth in industries such as transportation and warehousing and wholesale trade. Relevant indicators are largely positive as GDP has grown for three consecutive quarters and industrial production continues to expand. Even with the improvement in macroeconomic conditions, industrial availability rates have yet to benefit and are still increasing, albeit only marginally in recent quarters. According to CBRE-EA, the industrial availability rate averaged 14.0% in the first quarter of 2010 as compared to 13.9% in the fourth quarter of 2009. By comparison, the Account’s overall vacancy rate declined to 13.0% in the first quarter of 2010 from 13.6% in the fourth quarter of 2009. It should be noted that industrial tenants frequently lease large amounts of space and often entire buildings. As a result, the vacancy rate of the Account’s industrial properties and those in its major markets can change significantly from quarter to quarter depending upon the departure or addition of a large tenant. However, rents paid by industrial tenants tend to be much lower than those of other property types such that fluctuations in the occupancy rate of the Account’s industrial portfolio has less of an impact on the Account’s total revenues. As reported by CBRE-EA, availability rates were either stable or declined in three of the

34

Account’s top markets. Availability rates increased in Atlanta and Dallas, but the Account’s properties in those markets remained well-leased. In the Riverside-San Bernardino-Ontario CA metropolitan area, which is the Account’s top market, the vacancy rate of the Account’s properties dropped sharply in the first quarter of 2010 due to the leasing of a large vacant space. Conversely, the average vacancy rate for the Account’s properties in the Los Angeles metropolitan area increased, though only modestly. The table below compares availability rates in the Account’s top industrial markets to their respective market averages.

      

Account
Weighted
Average
Vacancy

 

Metropolitan
Area
Availability*

Sector

 

Metropolitan Area

 

Total Sector
by Metro Area
($M)

 

% of Total
Investments

 

2009Q4

 

2010Q1

 

2009Q4

 

2010Q1

Industrial

 

National

     

13.6%

  

13.0%

  

13.9%

  

14.0%

 

1

 

Riverside-San Bernardino-Ontario CA

$

303.0

  

3.1%

  

21.1%

  

16.2%

  

15.8%

  

15.9%

 

2

 

Dallas-Plano-Irving TX

$

155.4

  

1.6%

  

6.4%

  

4.8%

  

16.1%

  

16.6%

 

3

 

Chicago-Naperville-Joliet IL

$

105.7

  

1.1%

  

0.9%

  

2.6%

  

15.0%

  

14.8%

 

4

 

Los Angeles-Long Beach-
Glendale CA

$

90.5

  

0.9%

  

11.5%

  

12.0%

  

8.2%

  

8.1%

 

5

 

Atlanta-Sandy Springs-
Marietta GA

$

89.8

  

0.9%

  

3.0%

  

2.8%

  

17.7%

  

18.0%

 

* Source: CBRE-EA. Availability is defined as the percentage of space available for rent. The Account’s vacancy is defined as the weighted percentage of unleased space.

Multi-Family

Apartment market conditions improved during the first quarter of 2010. According to CBRE-EA, the national vacancy rate fell to 6.6% during the first quarter of 2010 as compared to 7.3% during the first quarter of 2009. (A year-over-year comparison better accounts for the seasonal leasing patterns inherent in the apartment market.) Persistently high unemployment may make further declines in the vacancy rate more difficult in the future, but for now, rent discounts helped spur demand in a number of markets. The Account’s apartment properties reflected national trends as the vacancy rate declined to an average of 3.8% in the first quarter of 2010 from 4.5% in the fourth quarter of 2009. Per CBRE-EA, vacancy rates declined in Atlanta and Phoenix, two of the Account’s top markets that have experienced persistently high vacancy rates. Vacancy rates for the Account in New York remained below the national average. The Account’s properties in its top markets all experienced vacancy declines in the first quarter of 2010. In fact, the Account’s single apartment property in New York is now fully leased. The table below compares the average vacancy rate of the Account’s apartment properties to their respective market averages.

      

Account
Weighted
Average
Vacancy

 

Metropolitan
Area
Vacancy*

Sector

 

Metropolitan Statistical Area

 

Total Sector
by Metro Area
($M)

 

% of Total
Investments

 

2009Q4

 

2010Q1

 

2009Q4

 

2010Q1

Apartment

 

National

     

4.5%

  

3.8%

  

7.4%

  

6.6%

 

1

 

Houston-Bay Town-
Sugar Land TX

$

201.4

  

2.1%

  

7.4%

  

5.0%

  

10.3%

  

10.3%

 

2

 

Denver-Aurora CO

$

176.4

  

1.8%

  

3.8%

  

3.1%

  

7.2%

  

5.5%

 

3

 

Atlanta-Sandy Springs-
Marietta GA

$

115.0

  

1.2%

  

2.8%

  

2.3%

  

10.8%

  

10.4%

 

4

 

New York-Wayne-
White Plains NY-NJ

$

104.0

  

1.1%

  

1.2%

  

0.0%

  

6.4%

  

6.3%

 

5

 

Phoenix-Mesa-Scottsdale AZ

$

97.6

  

1.0%

  

4.8%

  

4.1%

  

11.6%

  

9.7%

 

* Source: CBRE-EA. Vacancy is defined as the percentage of units vacant. The Account’s vacancy is defined as the weighted percentage of unleased space.

35

Retail

The retail sector also received encouraging news during the first quarter of 2010 in the form of increasing retail sales nationwide. Though comparisons should be considered in the context of an exceptionally weak 2009, preliminary data released by the U.S. Department of Commerce indicate that sales increased in nearly all merchandise categories in the first quarter of 2010. Among retailers, sales gains reported by luxury retailers, department stores, and discounters provided evidence that the rebound was broad-based. Nonetheless, CBRE-EA reported that retail vacancy rates increased to an average of 12.8% in the first quarter of 2010 as compared to 12.6% during the fourth quarter of 2009. The vacancy of the Account’s retail properties increased as well, to an average of 15.5% in the first quarter of 2010 versus 14.7% in the fourth quarter of 2009. Since the recession began, the retail sector has suffered from, among other things, the closure of a number of large-format “big box” retailers such as Linens ‘N Things and Circuit City, who declared bankruptcy and subsequently ceased operations. The closures have not only left dark stores in shopping centers around the country, but also reduced the number of potential replacement tenants. The Account’s retail portfolio has been affected by these closures, and backfilling the empty space has proven challenging. The vacancy rate of the Account’s retail portfolio averaged 15.5% in the first quarter of 2010 as compared with 14.7% in the fourth quarter of 2009. The increase in the Account’s vacancy rate was reflective of continued weakness in the retail sector and more moderate consumer spending as struggling retailers will often keep stores open through the important holiday season and then close stores in the first quarter of the year. However, recent increases in consumer spending bode well for the retail sector in the coming quarters. However, prospects for the retail market appear more favorable as consumers begin to feel more confident about their jobs and the future.

2010 Outlook

Conditions in the U.S. commercial real estate market continue to lag broader economic trends. However, once the economic expansion gains momentum, businesses is anticipated to start to hire once again and begin planning for future growth. While a recovery in market conditions is likely to be gradual, it should not be hindered by an overhang of new buildings. As shown in the table below, the amount of construction in 2010 is projected to be minimal compared with other post-boom years. The retail market, in particular, is not expected to see much construction in 2010, which should help shopping center owners backfill vacant space.

Historic and Projected Construction^*

 

Annual Average

 

2010
Forecasted

 

1991-1993
Cycle

 

2002-2004
Cycle

Office

  

30

   

49

   

22

 

Industrial

  

90

   

137

   

37

 

Apartment

  

N/A

   

198

   

59

 

Retail

  

30

   

21

   

3

 

*	in millions of square feet except apartments, which are in thousands of units.
(1)	Source: CBRE-EA

Throughout the economic downturn, management has focused on maintaining the portfolio’s income returns through proactive asset management activities including an aggressive leasing program and rigorous expense management. As a result of these efforts, the Account’s commercial properties were 86.7% leased as of the first quarter of 2010, and the Account’s property portfolio has produced a stable income return throughout the recession. As shown in the table below, the income return was 1.92% in the first quarter of 2010, compared to the 1.99% in the fourth quarter of 2009. Throughout the downturn, income returns have helped to partially offset declines in the Account’s capital return.

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Another key objective continuing into 2010 is to rebalance the portfolio’s property type concentrations and reallocate its exposure towards selected major markets. In addition to six property sales and six partial sales in the fourth quarter of 2009, in the first quarter of 2010, 16 retail properties were sold in various locations by the Account’s joint venture with DDR. The primary driver of the Account’s sales program is to better align its geographic and sector allocations to achieve optimal performance. These sales also generated cash proceeds which management believes will serve to enhance liquidity and which can be available to meet participant redemption requests, repay debt and/or make new acquisitions of properties. Management believes that there could be opportunities to acquire high quality properties at significant discounts in 2010 and 2011 as properties encumbered by maturing debts and deteriorating values are now over-levered and their owners and/or lenders are forced to sell their equity positions.

Management also continues to address maturing debt obligations which come due throughout 2010. Management intends to selectively pursue new financings and refinancings of existing debt obligations in circumstances where such new loans are projected to be accretive to the Account’s returns, in accordance with the Account’s current investment guidelines. See the subsection entitled “—Liquidity and Capital Resources.” In some circumstances, the Account may own some underperforming properties that are subject to debt, where insufficient cash flow from the property may cause such a property to be in noncompliance with certain covenants imposed by the terms of such debt, and/or where cash flow may be inadequate to make required payment on such debt or to repay principal when due (each of which could result in a default on the loan). In such a case, management will evaluate the options available to the Account, consistent with the Account’s long-term investment strategy. As of March 31, 2010, the Account’s liquidity as indicated by total cash, cash equivalents and marketable securities has increased to 10.73% of net assets as compared with 8.83% of net assets as of December 31, 2009.

Throughout 2010, management intends to continue to realign the Account’s geographic and property sector mix to better position the Account in target markets which are projected to outperform when the commercial real estate market recovers. In addition to a focus on target markets, Management will maintain its “core” investment strategy that emphasizes institutional quality properties, and particularly stabilized assets with strong historical occupancy and favorable lease expiration schedules.

Investments as of March 31, 2010

As of March 31, 2010, the Account had total net assets of $7.8 billion, a 1.6% decrease from December 31, 2009, and a 25.6% decrease from March 31, 2009. The decrease in the Account’s net assets as of March 31, 2010 as compared to December 31, 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, while net investment income and net participant flows into the Account offset the overall decrease.

As of March 31, 2010, the Account owned a total of 101 real estate property investments (89 of which were wholly owned, 12 of which were held in joint ventures). The real estate portfolio included 40 office property investments (five of which were held in joint ventures and one located in London, England), 25 industrial

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property investments (including one held in a joint venture), 20 apartment complexes, 15 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 101 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 March 31, 2010 was $1.9 billion. The Account’s share of joint venture debt ($1.5 billion) is netted against the underlying properties when determining the joint venture values presented on the Statement of Investments. When the joint venture debt is also considered, total debt on the Account’s portfolio as of March 31, 2010 was $3.4 billion, representing a loan to value ratio of 31.2%. 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 Account’s largest investment, 1001 Pennsylvania Avenue located in Washington, DC, represented 5.89% of total real estate investments and 5.21% of total 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 management believes: (i) have either maximized in value, (ii) have underperformed or face deteriorating property-specific or market conditions, (iii) need significant capital infusions in the future, (iv) are appropriate to dispose of in order to remain consistent with its intent to diversify the Account by property type and geographic location, or to reallocate the Account’s exposure to or away from certain property types in certain geographic locations. The Account could reinvest any sale proceeds that it does not need to pay operating expenses or to meet debt service or redemption requests (e.g., cash withdrawals or transfers, and any redemption of TIAA’s liquidity units in the future).

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 March 31, 2010.

Diversification by Fair Value⁽¹⁾

	East			West			South			Midwest			Foreign(2)			Total
Office		24.4	%		17.3	%		11.9	%		1.2	%		2.8	%		57.6	%
Apartment		2.5	%		5.5	%		5.3	%		0.0	%		0.0	%		13.3	%
Industrial		1.4	%		6.6	%		4.1	%		1.4	%		0.0	%		13.5	%
Retail		3.2	%		0.9	%		8.4	%		0.5	%		2.1	%		15.1	%
Storage Facilities		0.2	%		0.1	%		0.1	%		0.1	%		0.0	%		0.5	%
Total		31.7	%		30.4	%		29.8	%		3.2	%		4.9	%		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.

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.

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Top Ten Largest Real Estate Investments

Property Investment 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		502.2	(c)		5.89		5.21
Four Oaks Place	Houston	TX	Office		365.4	(d)		4.28		3.79
50 Fremont	San Francisco	CA	Office		287.5	(e)		3.37		2.98
Fourth and Madison	Seattle	WA	Office		285.0	(f)		3.34		2.96
DDR Joint Venture	Various	USA	Retail		267.5	(g)		3.14		2.78
The Florida Mall	Orlando	FL	Retail		251.1	(h)		2.94		2.61
99 High Street	Boston	MA	Office		250.4	(i)		2.94		2.60
780 Third Avenue	New York City	NY	Office		246.2			2.89		2.56
Westferry Circus	London	UK	Office		238.4	(j)		2.80		2.47
The Newbry	Boston	MA	Office		223.6			2.62		2.32

(a)	Value as reported in the March, 31, 2010 Statement of Investments. Investments owned 100% by the Account 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 investment is presented gross of debt. The value of the Account’s interest less the fair value of leverage is $287.8M.
(d)	This property investment is presented gross of debt. The value of the Account’s interest less the fair value of leverage is $165.4M.
(e)	This property investment is presented gross of debt. The value of the Account’s interest less the fair value of leverage is $152.7M.
(f)	This property investment is presented gross of debt. The value of the Account’s interest less the fair value of leverage is $140.8M.
(g)	This property is held in a 85%/15% joint venture with Developers Diversified Realty Corporation (DDR), and consists of 49 retail properties located in 13 states and is presented net of debt of $1.0 billion.
(h)	This property investment is a 50%/50% joint venture with Simon Property Group, L.P., and is presented net of debt of $121.0 million.
(i)	This property investment is presented gross of debt. The value of the Account’s interest less the fair value of leverage is $60.8M.
(j)	This property investment is presented gross of debt. The value of the Account’s interest less the fair value of leverage is $40.9M.

As of March 31, 2010, the Account also held investments in a mortgage loan receivable representing 0.74% of total investments, real estate limited partnerships representing 2.13% of total investments, U.S. Treasury Bills representing 3.53% of total investments, and government agency notes representing 5.09% of total investments.

Results of Operations

Three months ended March 31, 2010 compared to three months ended March 31, 2009

Performance

The Account’s total return was -1.94% for the three months ended March 31, 2010 as compared to -8.36% for the three months ended March 31, 2009. The Account’s performance in the first quarter of 2010 reflects a continued decline in the aggregate net asset value of the Account’s real estate property investments, including investments owned in joint ventures, lower income from marketable securities, and unrealized losses from the mortgage loans payable.

The Account’s annualized total returns (after expenses) over the past one, three, five, and ten year periods ended March 31, 2010 were -22.58%, -12.65%, -2.35%, and 2.65% respectively. As of March 31, 2010, the Account’s annualized total return since inception was 4.43%.

The Account’s total net assets decreased from $10.4 billion at March 31, 2009 to $ 7.8 billion at March 31, 2010. The primary driver of this 25.6% decrease was depreciation in value of the Account’s wholly owned, joint venture, and limited partnership real estate investments (approximately 86% of the decrease), while net participant withdrawals and transfers out of the Account (net of $271.7 million of Liquidity Units purchased by TIAA subsequent to March 31, 2009) accounted for approximately 14% of the decrease.

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Net Investment Income

The table below shows the results of operations for the three months ended March 31, 2010 and 2009 and the dollar and percentage changes for those periods (dollars in thousands).

	For the Three Months Ended March 31,						Change
	2010			2009			$				%
INVESTMENT INCOME
Real estate income, net:
Rental income		$	212,645		$	241,790		$	(29,145	)		-12.1	%
Real estate property level expenses and taxes:
Operating expenses			59,311			66,096			(6,785	)		-10.3	%
Real estate taxes			29,742			35,177			(5,435	)		-15.5	%
Interest expense			24,620			25,044			(424	)		-1.7	%
Total real estate property level expenses and taxes			113,673			126,317			(12,644	)		-10.0	%
Real estate income, net			98,972			115,473			(16,501	)		-14.3	%
Income from real estate joint ventures and limited partnerships			18,982			29,807			(10,825	)		-36.3	%
Interest			407			512			(105	)		-20.5	%
TOTAL INVESTMENT INCOME			118,361			145,792			(27,431	)		-18.8	%
Expenses
Investment advisory charges			10,886			9,868			1,018			10.3	%
Administrative and distribution charges			7,102			12,362			(5,260	)		-42.5	%
Mortality and expense risk charges			954			1,374			(420	)		-30.6	%
Liquidity guarantee charges			2,862			2,748			114			4.1	%
TOTAL EXPENSES			21,804			26,352			(4,548	)		-17.3	%
INVESTMENT INCOME, NET		$	96,557		$	119,440		$	(22,883	)		-19.2	%

The decrease in real estate rental income for the quarter ended March 31, 2010 as compared to the same period in 2009 is primarily a result of the seven full and six partial wholly owned property investment sales that occurred after the March 2009 reporting period. These disposed properties accounted for approximately $16.0 million of the $29.0 million total change. The remaining $13.0 million is attributed to increased vacancies at certain properties, increased rent concessions, lower rents on new leases, and lower common area charges resulting from the properties maintaining lower property operating expenses.

Operating expenses declined in the first quarter of 2010 as a result of fewer property investments under management. Property investments that were sold accounted for approximately $3.3 million, or 49%, of the total decline in operating expenses. Approximately $3.5 million of the remaining decrease in operating expense was the result of lower insurance and general building and maintenance expenses.

Real estate taxes are lower as a result of fewer property investments under management. Property investments that were sold accounted for approximately $1.7 million, or 31%, of the decrease in real estate taxes. Approximately $2.8 million of the decline was due to a favorable appeal at one property ($1.1 million) and a lower assessed value at another ($1.7 million of the decline).

The $10.8 million decline in income from real estate joint ventures and limited partnerships was primarily attributed to an increase in vacancies across the joint venture portfolios. This resulted in less income to the Account as compared to the period ended March 31, 2009.

The Account incurred a 17.3% or $4.5 million decrease in overall Account level expenses for the period ended March 31, 2010 as compared to the period ended March 31, 2009. The decrease in overall expenses is principally due to lower average net assets as compared to the same period in the prior year. Administrative and distribution charges (which closely follow average net assets) were approximately $5.3 million lower than the quarter ended March 31, 2009.

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

The table below shows the net realized and unrealized gains and loss on investments and mortgage loans payable for the three months ended March 31, 2010 and 2009 and the dollar and percentage changes for those periods (dollars in thousands).

	For the Three Months Ended March 31,								Change
	2010				2009				$				%
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
Net realized gain (loss) on investments:
Real estate properties		$	(1,238	)		$	(16,878	)		$	15,640			-92.7	%
Real estate joint ventures and limited partnerships			(153,233	)			—				(153,233	)		100.0	%
Total realized loss on investments			(154,471	)			(16,878	)			(137,593	)		89.1	%
Net change in unrealized appreciation (depreciation) on:
Real estate properties			(189,439	)			(892,748	)			703,309			-78.8	%
Real estate joint ventures and limited partnerships			120,474				(233,466	)			353,940			-151.6	%
Marketable securities			(20	)			28				(48	)		-171.4	%
Mortgage loans receivable			186				(2,061	)			2,247			-109.0	%
Mortgage loans payable			(25,795	)			70,688				(96,483	)		-136.5	%
Net change in unrealized depreciation on investments and mortgage loans payable			(94,594	)			(1,057,559	)			962,965			-91.1	%
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND MORTGAGE LOANS PAYABLE		$	(249,065	)		$	(1,074,437	)		$	825,372			-76.8	%

During the quarter ended March 31, 2010, the Account experienced a net realized and unrealized loss on investments and mortgage loans payable of $249.1 million compared to a net realized and unrealized loss of $1.1 billion for the period ended March 31, 2009. The overall decrease in net loss was driven by a reduction in the rate of decline in the values of the wholly owned real estate properties and investments in real estate joint ventures.

The net realized and unrealized losses on the Account’s wholly owned real estate property investments and those held in joint ventures experienced a moderation in the rate of valuation decline with some properties within the portfolio experiencing valuation increases. The valuation increases were generally due to property specific reasons such as new leases, improved local market rents, and decreases in projected taxes and other property operating expenses. Furthermore, a number of the Account’s wholly owned real estate properties experienced no change or increased in fair value during the first quarter of 2010, compared to only two wholly owned real estate properties experiencing increases during the first quarter of 2009.

The net realized and unrealized losses on wholly owned investments declined significantly in the three months ended March 31, 2010 compared to the period ended March 31, 2009. Of the $190.7 million of net change in realized and unrealized loss during the three months ended March 31, 2010, the majority was related to valuation losses ($152.0 million) and losses related to foreign currency translation ($37.5 million).

Real estate joint ventures and limited partnerships experienced a net realized and unrealized loss of approximately $32.8 million for the three months ended March 31, 2010. As a result of the sale of 16 property investments from within the DDR TC LLC joint venture, approximately $148.0 million of cumulative unrealized loss was reclassified from unrealized loss to realized loss. In total, net realized and unrealized loss on investments in joint ventures and limited partnerships was significantly lower than the $233.5 million loss experienced during the quarter ended March 31, 2009. Furthermore, three joint venture and three limited partnership investments experienced increases in fair value during the first quarter of 2010.

Mortgage loans payable experienced an unrealized loss of approximately $25.8 million during the first quarter of 2010 compared to an unrealized gain of approximately $70.7 million in the same period of 2009. The unrealized loss experienced during the first quarter of 2010 consists of upward debt valuation adjustments (presented as losses to the Account) of approximately $38.9 million offset by approximately $13.1 million of valuation gains as a result of foreign currency translation (due to the strengthening U.S.

41

dollar). The valuation adjustments were a result of changes in property values for properties encumbered by debt across the portfolio and their affects on loan to value ratios, which directly impacts property debt valuation.

Liquidity and Capital Resources

As of March 31, 2010 and 2009, the Account’s liquid assets (i.e., cash, marketable securities, and receivables for short-term securities sold) had a value of $0.8 billion and $0.5 billion, respectively (approximately 8.6% and 4.2% of the Account’s total investments at such dates, respectively). When compared to March 31, 2009, the Account’s liquid assets have increased by approximately $0.3 billion as a result of moderated net participant activity from the Account, income generated from its real estate investments, and proceeds from selective asset sales, many of which occurred in the fourth quarter of 2009. When compared to December 31, 2009, the Account’s liquid assets have increased by approximately $0.1 billion as the result of net participant inflows into the Account and income generated from its real estate investments.

During the three months ended March 31, 2010, the Account received $161.1 million in premiums and had an outflow of $58.7 million in net participant transfers to TIAA, the CREF accounts, and TIAA-CREF affiliated mutual funds, while during the three months ended March 31, 2009, the Account received $189.6 million in premiums and had an outflow of $983.9 million in net participant transfers to TIAA, the CREF accounts, and TIAA-CREF affiliated mutual funds (excluding the $787.0 million of purchases of Liquidity Units by TIAA). By comparison, during the three months ended December 31, 2009, the Account received $168.7 million in premiums and had an outflow of $181.0 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 out of the Account, pursuant to TIAA’s existing liquidity guarantee obligation, the TIAA general account has purchased approximately $1.2 billion of Liquidity Units issued by the Account in a number of separate transactions between December 24, 2008 and June 1, 2009. During the period June 2, 2009 through May 13, 2010, the TIAA general account did not purchase any additional Liquidity Units. As disclosed under “Establishing and Managing the Account—the Role of TIAA—Liquidity Guarantee” in the Account’s 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. While net redemption activity has significantly slowed since the first quarter of 2009, 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. While the Account experienced net participant inflows during the first quarter of 2010, management cannot predict whether the net inflows will continue. If net outflows were to occur (even if not at the same intensity as in 2008 and early 2009), it could have a negative impact on the Account’s operations and returns. Additionally, continued net outflow activity could require TIAA to purchase additional Liquidity Units, perhaps to a significant degree.

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.

Whenever TIAA owns Liquidity Units, the duties of the Account’s independent fiduciary, as part of its monitoring of the Account, include 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

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• 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. 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 March 31, 2010, TIAA owned approximately 11.9% 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.

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 would only occur: (i) once the Account has experienced net participant inflows for an extended period of time and (ii) if the Account is otherwise projected to maintain a level of liquid assets, taking into account any pending cash needs (including for debt service and outstanding principal balances at maturity), at or close to its long-term investment goal (currently at least 15% of the Account’s assets). The independent fiduciary may, however, authorize or direct the redemption of TIAA’s liquidity units (or a portion thereof) at any time and TIAA will request the approval of the independent fiduciary before liquidity units are redeemed. Upon termination and liquidation of the Account (wind-up), any liquidity units held by TIAA will be the last units redeemed, unless the independent fiduciary directs otherwise.

The Account’s net investment income continues to be an additional source of liquidity for the Account even though it has decreased from $145.8 million for the three months ended March 31, 2009 to $118.4 million for the three months ended March 31, 2010.

While the Account’s liquid investments have dropped below 15% of its total investments during this recent period of significant net participant outflows, the Account’s investment strategy remains to invest between 75% and 85% of its net 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 15% of the Account’s net 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. As of March 31, 2010, cash and short-term marketable securities comprised approximately 10.8% of the Account’s net assets.

The Account’s liquid assets continue to be available to purchase additional suitable real estate properties and to meet the Account’s debt obligations, expense needs, and participant redemption requests (i.e., cash withdrawals, benefit payments, or transfers). As of December 31, 2009, the Account had approximately $704.3 million in principal amount of debt obligations due during 2010 related to wholly owned real estate investments and the Account’s share of debt associated with its investments in joint ventures. On February 26, 2010, the maturity date of a loan in the outstanding principal amount of $168.3 million (with the Account’s share totaling $143.1 million) with respect to certain of the properties held in the Account’s joint venture with DDR was extended from 2010 to 2011. The maximum amount that may be drawn under this loan is $213 million.

Management believes that the Account, and the joint venture entities in which the Account invests, will have the ability to address these obligations in a number of ways, including among others, refinancing or extending such debt or repaying the principal due at maturity.

Leverage

The Account 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

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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.

The Account is authorized to borrow money in accordance with its investment guidelines. Under the Account’s current investment guidelines, which were modified as to borrowing in mid-2009, the Account’s loan to value ratio (as defined below) is to be maintained at or below 30%. However, until December 31, 2011, the Account is authorized to incur and/or maintain indebtedness on its properties in an aggregate principal amount not to exceed the aggregate principal amount of debt outstanding as of the date of adoption of such guidelines (approximately $4.0 billion). Such incurrences of debt from time to time may include:

• placing new debt on properties;

• refinancing outstanding debt;

• assuming debt on acquired properties or interests in the Account’s properties; and/or

• extending the maturity date of outstanding debt.

In calculating this limit, only the Account’s actual percentage interest in any borrowings is included, and not that percentage interest held by 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 March 31, 2010 the Account did not have any construction loans. Also, 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.

In addition, by December 31, 2011, management intends to reduce the Account’s ratio of outstanding principal amount of debt to total gross asset value (i.e., a “loan to value ratio”) to 30% or less and thereafter intends to maintain its loan to value ratio at or below 30% (measured at the time of incurrence and after giving effect thereto). The Account’s total gross asset value, for these purposes, is equal to the total fair value of the Account’s assets (including the fair value of the Account’s interest in joint ventures), with no reduction associated with any indebtedness on such assets.

As of March 31, 2010, the Account’s loan to value ratio was approximately 31.2%.

Recent Transactions

The following describes property transactions by the Account in the first quarter of 2010. 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

DDR Joint Venture Portfolio—Various

On March 4, 2010, 16 retail properties were sold in various locations by the Account’s joint venture with Developers Diversified Realty Corporation (“DDR”). The Account holds an 85% interest in this joint venture. The Account’s portion of the net sales price was approximately $32.3 million (after taking into account the assumption by the purchaser of the Account’s portion of debt on the properties equal to $328.4 million) and the Account realized a loss of approximately $152.7 million, the majority of which had been previously recognized as an unrealized loss. The Account purchased these properties on February 27, 2007. The Account’s portion of the original investment in these properties was $505.5 million and costs to date were $512.3 million (both excluding the effect of any debt) according to the records of the Account.

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Financings

On February 26, 2010, the maturity date of a loan in the principal amount of $168.3 million (with the Account’s share totaling $143.1 million) with respect to certain of the properties held in the Account’s joint venture with DDR was extended from 2010 to 2011.

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

Accounting for Investments at Fair Value

Accounting for Investments at Fair Value:The Financial Accounting Standards Board (“FASB”) has provided authoritative guidance for fair value measurements and disclosures. Additionally, the guidance defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and requires certain disclosures about fair value measurements. This guidance indicates, among other things, that a fair value measurement under an exit price model assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.

This guidance also permits entities to elect to measure financial instruments and certain financial assets and liabilities at fair value and expanded the use of fair value measurements when warranted. The Account reports all investments and mortgage loans payable at fair value.

Valuation Hierarchy: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 Certificates of Deposit, Commercial Paper, Government Agency Bonds and Variable Notes.

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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 loans 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, counterparty’s creditworthiness, the Account’s creditworthiness, liquidity, and other observable and unobservable inputs 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 property will sell in a competitive market under all conditions requisite to a fair sale. Determination of fair value involves judgment because the actual fair 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. Key inputs and assumptions include rental income and

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expense amounts, related rental income and expense growth rates, discount rates and capitalization rates. Valuation techniques include discounted cash flow analysis, prevailing market capitalization rates or multiples applied to earnings from the property, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties. Amounts ultimately realized from each investment may vary significantly from the fair 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 of its real estate properties spread out throughout the quarter, which is intended to result in appraisal adjustments, and thus, adjustments to the valuations of its holdings (to the extent such adjustments are made) that happen regularly throughout each quarter and not on one specific day in each period.

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. For example, under certain circumstances a valuation adjustment could be made when bids are obtained for properties held for sale by the Account or when a contract for the sale of a property is executed. 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 due to a bankruptcy filing of that tenant). Also, adjustments may be made to reflect factors (such as sales values for comparable properties or local employment rate) bearing uniquely on a particular region in which the Account holds properties. 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). 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).

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. Under the Account’s current procedures, each independent appraisal firm will be rotated off of a particular property at least every three years, although such appraisal firm may perform appraisals of other Account properties subsequent to such rotation.

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 property is valued independently of the mortgage and the property and mortgage fair values are 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.

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Valuation of Real Estate Joint Ventures:

Real estate joint ventures 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 are generally classified within level 3 of the valuation hierarchy.

Valuation of Real Estate Limited Partnerships:

Limited partnership interests are stated at the fair value of the Account’s ownership in the partnership which is based on the most recent net asset value of the partnership, as reported by the sponsor. Since market quotations are not readily available, the limited partnership interests 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. Equity and fixed income securities traded in foreign markets that are adjusted based upon significant movements in the United States markets are generally classified within level 2 of the valuation hierarchy.

Valuation of Mortgage Loan Receivable

Mortgage loans receivable are stated at fair value and are initially valued at the face amount of the mortgage loan funding. Subsequently, mortgage loans receivable are valued at least quarterly based on market factors, such as market interest rates and spreads for comparable loans, the liquidity for mortgage loans of similar characteristics, 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 liquidity for mortgage loans of similar characteristics,

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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.

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. The Account pays a fee to TIAA to assume these mortality and expense risks. 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.

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 based upon the net asset value of the limited partnership 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

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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 net 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 investments in short-term and other debt instruments;

• the value of the Account’s other securities and other non real estate 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 since the end of the prior valuation day (including short-term marketable securities); and

• actual net operating income earned from the Account’s properties, other real estate-related investments and non real estate-related investments (but 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, administration and distribution fees 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.

New Accounting Pronouncements

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”), which amends guidance related to the identification of a variable interest entity, variable interests, the primary beneficiary, and expands required note disclosures to provide greater transparency to the users of financial statements. In December 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which amended the Codification with the guidance contained in SFAS No. 167. In February 2010, the FASB issued ASU No. 2010-10, “Amendments for Certain Investment Funds,” which defers the applicability of ASU No. 2009-17 in certain instances. These standards were effective on January 1, 2010 and did not result in a significant impact to the Account’s financial position or results of operations.

In August 2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair Value.” This ASU clarifies the application of certain valuation techniques in circumstances in which a quoted price in an active market for the identical liability is not available and clarifies that inputs to the valuation should not be adjusted when estimating the fair value of a liability in which contractual terms restrict transferability. This ASU became effective on October 1, 2009 and the adoption did not have a significant impact to the Account’s financial position or results of operations.

In September 2009, the FASB issued ASU No. 2009-12, “Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” This ASU permits, as a practical expedient, an investor the ability to estimate the fair value of an investment in certain entities on the basis of the net asset value per share of the investment (or its equivalent) determined as of the reporting entity’s measurement date. The investee must satisfy specific requirements before the investor is permitted to utilize this practical expedient as a method of valuation. The amendments in this ASU are effective for interim and annual periods ending

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after December 15, 2009. The adoption of this ASU did not have a significant impact to the Account’s financial position or results of operations.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” which requires new disclosures related to transfers in and out of levels 1 and 2, and the separate disclosure of purchases, sales, issuances and settlements when reconciling activity in level 3. This ASU also amends prior disclosure requirements to call for the disaggregation of assets and liabilities into appropriate subsets, and the disclosure of valuation techniques and inputs for recurring and nonrecurring fair value measurements in levels 2 and 3. The new disclosure requirement for reconciling level 3 activity is effective January 1, 2011. All other new or amended disclosure requirements were effective January 1, 2010 for the Account and are reflected in the notes to the financial statements. These changes did not impact the Account’s financial position or results of operations.

In February 2010, the FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements.” This ASU amends Topic 855, “Subsequent Events” by not requiring a reporting entity that files financial statements with the Securities and Exchange Commission (“SEC filers”), or a conduit bond obligor to disclose the date through which subsequent events are evaluated. This ASU is effective for SEC filers upon issuance of the final ASU. The Account has adopted this revision as of December 31, 2009.

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 March 31, 2010, represented 90.6% 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 (90.6% as of March 31, 2010) 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 its target of between 75% and 85% of its net assets in real estate and real estate related assets. The 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 March 31, 2010, 9.4% of the Account’s total investments were comprised of marketable securities and an adjustable rate mortgage loan receivable. As of March 31, 2010, marketable securities include high-quality short-term debt instruments (i.e., 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

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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, to the extent the Account were to hold mortgage-backed securities (including CMBS, these securities 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 fair 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. For more information on the risks associated with all of the Account’s investments, see the Account’s most recent prospectus.

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 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 March 31, 2010. Based upon management’s review, the CEO and the CFO concluded that the registrant’s disclosure controls and procedures were effective as of March 31, 2010.

(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, 2009.

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. [REMOVED AND RESERVED].

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)	Charter of TIAA.(8)
	(B)	Restated Bylaws of TIAA (as amended).(9)
(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)
(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 by reference to Exhibit 3(A) to the Account’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 and filed with the Commission on August 13, 2009 (File No. 33-92990).
(9)	Previously filed and incorporated by reference to Exhibit 3(B) to the Account’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 and filed with the Commission on August 13, 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 May, 2010.

	TIAA REAL ESTATE ACCOUNT
	By:	TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
May 13, 2010	By:	/s/ Roger W. Ferguson, Jr.
		Roger W. Ferguson, Jr. President and Chief Executive Officer
May 13, 2010	By:	/s/ Georganne C. Proctor
		Georganne C. Proctor Executive Vice President and Chief Financial Officer

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EXHIBIT 31

CERTIFICATIONS

I, Roger W. Ferguson, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of the TIAA Real Estate Account;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 13, 2010	/s/ Roger W. Ferguson, Jr.
	Roger W. Ferguson, Jr. President and Chief Executive Officer Teachers Insurance and Annuity Association of America

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I, Georganne C. Proctor, certify that:

1. I have reviewed this quarterly report on Form 10-Q of the TIAA Real Estate Account;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

May 13, 2010	/s/ Georganne C. Proctor
	Georganne C. Proctor Executive Vice President and Chief Financial Officer, Teachers Insurance and Annuity Association of America

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EXHIBIT 32

CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Teachers Insurance and Annuity Association of America, do hereby certify, to such officer’s knowledge, that:

The quarterly report on Form 10-Q of the TIAA Real Estate Account (the “Account”) for the quarter ended March 31, 2010 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Account.

May 13, 2010	/s/ Roger W. Ferguson, Jr.
	Roger W. Ferguson, Jr. President and Chief Executive Officer, Teachers Insurance and Annuity Association of America
May 13, 2010	/s/ Georganne C. Proctor
	Georganne C. Proctor Executive Vice President and Chief Financial Officer, Teachers Insurance and Annuity Association of America

A signed original of this written statement required by Section 906 has been provided to the TIAA Real Estate Account and will be retained by the Account and furnished to the Securities and Exchange Commission or its staff upon request.

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