Tiaa Real Estate Account 10-Q 2010 Q3 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 September 30, 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
September 30, 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

2

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

	September 30, 2010			December 31, 2009
	(Unaudited)
ASSETS
Investments, at fair value:
Real estate properties (cost: $9,514,048 and $9,408,978)		$	7,815,184		$	7,437,344
Real estate joint ventures and limited partnerships (cost: $2,268,169 and $2,437,795)			1,543,593			1,514,876
Marketable securities:
Real estate related (cost: $276,943 and $—)			274,715			—
Other (cost: $1,773,884 and $671,235)			1,773,946			671,267
Mortgage loan receivable (cost: $— and $75,000)			—			71,273
Total investments (cost: $13,833,044 and $12,593,008)			11,407,438			9,694,760
Cash and cash equivalents			9,438			24,859
Due from investment advisor			12,489			4,290
Other			184,835			188,794
TOTAL ASSETS			11,614,200			9,912,703
LIABILITIES
Mortgage loans payable—Note 8 (principal outstanding: $1,845,515 and $1,907,090)			1,843,899			1,858,110
Payable for securities transactions			12			49
Accrued real estate property level expenses			172,836			151,808
Security deposits held			24,355			22,822
TOTAL LIABILITIES			2,041,102			2,032,789
COMMITMENTS AND CONTINGENCIES—Note 11
NET ASSETS
Accumulation Fund			9,323,260			7,636,115
Annuity Fund			249,838			243,799
TOTAL NET ASSETS		$	9,573,098		$	7,879,914
NUMBER OF ACCUMULATION UNITS OUTSTANDING—Notes 9 and 10			44,957			39,473
NET ASSET VALUE, PER ACCUMULATION UNIT—Note 9		$	207.384		$	193.454

See notes to the financial statements

3

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

	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2010				2009				2010				2009
INVESTMENT INCOME
Real estate income, net:
Rental income		$	222,655			$	239,152			$	652,025			$	719,641
Real estate property level expenses and taxes:
Operating expenses			56,344				59,138				163,410				180,516
Real estate taxes			28,425				30,975				88,193				98,929
Interest expense			30,429				25,159				79,830				76,827
Total real estate property level expenses and taxes			115,198				115,272				331,433				356,272
Real estate income, net			107,457				123,880				320,592				363,369
Income from real estate joint ventures and limited partnerships			28,076				35,163				69,565				95,407
Interest			1,047				406				2,084				1,402
Dividends			1,096				—				1,096				—
TOTAL INVESTMENT INCOME			137,676				159,449				393,337				460,178
Expenses—Note 2:
Investment advisory charges			13,610				11,304				36,541				32,325
Administrative and distribution charges			6,855				8,161				19,286				29,373
Mortality and expense risk charges			1,143				1,112				3,093				3,717
Liquidity guarantee charges			3,429				3,336				9,281				9,356
TOTAL EXPENSES			25,037				23,913				68,201				74,771
INVESTMENT INCOME, NET			112,639				135,536				325,136				385,407
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
Net realized gain (loss) on investments:
Real estate properties			85				(12,741	)			(1,153	)			(29,628	)
Real estate joint ventures and limited partnerships			(3,492	)			—				(156,744	)			—
Marketable securities			2				—				2				1
Net realized (loss) on investments			(3,405	)			(12,741	)			(157,895	)			(29,627	)
Net change in unrealized appreciation (depreciation) on:
Real estate properties			249,733				(647,226	)			273,007				(2,149,064	)
Real estate joint ventures and limited partnerships			62,229				(169,738	)			218,158				(872,821	)
Marketable securities			(2,264	)			4				(2,199	)			23
Mortgage loans receivable			2,288				686				3,727				(2,802	)
Mortgage loans payable			(7,809	)			(7,436	)			(42,121	)			(22,758	)
Net change in unrealized appreciation (depreciation) on investments and mortgage loans payable			304,177				(823,710	)			450,572				(3,047,422	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE			300,772				(836,451	)			292,677				(3,077,049	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$	413,411			$	(700,915	)		$	617,813			$	(2,691,642	)

See notes to the financial statements

4

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

	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2010				2009				2010				2009
FROM OPERATIONS
Investment income, net		$	112,639			$	135,536			$	325,136			$	385,407
Net realized loss on investments			(3,405	)			(12,741	)			(157,895	)			(29,627	)
Net change in unrealized appreciation (depreciation) on investments and mortgage loans payable			304,177				(823,710	)			450,572				(3,047,422	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS			413,411				(700,915	)			617,813				(2,691,642	)
FROM PARTICIPANT TRANSACTIONS
Premiums			173,895				164,894				500,934				534,759
Purchase of Liquidity Units by TIAA			—				—				—				1,058,700
Net transfers from (to) TIAA			131,805				(56,629	)			205,606				(509,819	)
Net transfers from (to) CREF Accounts			342,414				(204,060	)			561,691				(1,089,686	)
Net transfers from (to) TIAA-CREF Funds			33,171				(36,938	)			39,573				(133,317	)
Annuity and other periodic payments			(9,646	)			(8,911	)			(28,743	)			(34,224	)
Withdrawals and death benefits			(73,322	)			(72,247	)			(203,690	)			(256,052	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM PARTICIPANT TRANSACTIONS			598,317				(213,891	)			1,075,371				(429,639	)
NET INCREASE (DECREASE) IN NET ASSETS			1,011,728				(914,806	)			1,693,184				(3,121,281	)
NET ASSETS
Beginning of period			8,561,370				9,302,449				7,879,914				11,508,924
End of period		$	9,573,098			$	8,387,643			$	9,573,098			$	8,387,643

See notes to the financial statements

5

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

	For the Nine Months Ended September 30,
	2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations		$	617,813			$	(2,691,642	)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash (used in) provided by operating activities:
Net realized loss on investments			157,895				29,627
Net change in unrealized (appreciation) depreciation on investments and mortgage loans payable			(450,572	)			3,047,422
Capital improvements on real estate properties			(88,947	)			(104,164	)
Proceeds from sale of real estate properties			—				50,883
Proceeds from mortgage loan receivable			75,000				—
Proceeds from sale of joint ventures and limited partnerships			52,782				—
Purchases of long term investments			(369,385	)			(38,454	)
(Increase) decrease in other investments			(1,030,289	)			123,288
Decrease in payable for securities transactions			(37	)			(107	)
Change in due from investment advisor			(8,199	)			(15,152	)
Decrease in other assets			3,039				13,152
Increase in accrued real estate property level expenses			4,907				12,855
Increase (decrease) in security deposits held			1,533				(37	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES			(1,034,460	)			427,671
CASH FLOWS FROM FINANCING ACTIVITIES
Mortgage loans proceeds received			273,255				—
Principal payments of mortgage loans payable			(329,587	)			(2,458	)
Premiums			500,934				534,759
Purchase of Liquidity Units by TIAA			—				1,058,700
Net transfers from (to) TIAA			205,606				(509,819	)
Net transfers from (to) CREF Accounts			561,691				(1,089,686	)
Net transfers from (to) TIAA-CREF Funds			39,573				(133,317	)
Annuity and other periodic payments			(28,743	)			(34,224	)
Withdrawals and death benefits			(203,690	)			(256,052	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES			1,019,039				(432,097	)
NET DECREASE IN CASH			(15,421	)			(4,426	)
CASH
Beginning of period			24,859				22,127
End of period		$	9,438			$	17,701
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest		$	79,677			$	76,772

See notes to the financial statements

6

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 into these financial statements. The Account also has invested in mortgage loans receivable collateralized by commercial real estate properties. Additionally, the Account invests in real estate-related and other 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.

Determination of Investments at Fair Value:The Account reports all investments and investment related mortgage loans payable at fair value. The Financial Accounting Standards Board (“FASB”) has defined fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The following is a description of the valuation methodologies used to determine the fair value of the Account’s investments and investment related mortgage payables.

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. 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 reasonable 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.

7

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.

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 or month 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). Alternatively, adjustments may be made to reflect the execution or renewal of a significant lease. 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, 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 (including those identified above) 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.

8

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.

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.

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.

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.

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.

Valuation of Mortgage Loans 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.

Valuation of Mortgage Loans Payable:Mortgage loans payable are stated at fair value. The estimated fair values of mortgage loans payable are 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. Interest expense for mortgage loans payable is recorded on the accrual basis taking into account the outstanding principal and contractual interest rates.

See Note 5—Assets and Liabilities Measured at Fair Value on a Recurring Basisfor further discussion and disclosure regarding the determination of the fair value of the Account’s investments.

Accounting for Investments:The investments held by the Account are accounted as follows:

Real Estate Properties: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.

9

Real Estate Joint Ventures:The Account has ownership interests in various real estate joint ventures (collectively, the “Joint Ventures”). The Account records its contributions as increases to its investments in the Joint Ventures, and distributions (other than liquidating distributions) from the Joint Ventures are treated as income. Income from the Joint Ventures is recorded based on the Account’s proportional interest in the income when distributed by the Joint Ventures. Income earned (or loss recognized) by the Joint Venture but not yet distributed to the Account is recorded by the Account as unrealized gains and losses.

Limited Partnerships:The Account has limited ownership interests in various private real estate funds (primarily limited partnerships) and a private real estate investment trust (collectively, the “Limited Partnerships”). The Account records its contributions as increases to the investments, and distributions (other than liquidating distributions) from the investments are treated as income. 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 a Limited Partnership, the Account will estimate the value of its interest in good faith and will from time to time seek input from the issuer or the sponsor of the investment. Changes in value based on such estimates are recorded by the Account as unrealized gains and losses.

Marketable Securities: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.

Realized and Unrealized Gains and Losses:Unrealized gains and losses are recorded as the fair values of the Account’s investments are adjusted.

Realized gains and losses are recorded at the time an investment is sold or a distribution is received. 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. Liquidating distributions received from Limited Partnerships and Joint Ventures are recognized as realized gains at the time of receipt.

Net Assets: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 and cash equivalents and investments in marketable securities;

• 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, mortality and expense fee, and liquidity guarantee fee, and certain other expenses attributable to operating the Account.

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

Cash and Cash Equivalents: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.

10

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 September 30, 2010.

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 are included in net realized and unrealized gains and losses on real estate properties 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.

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 contractually charged on these amounts.

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, payment levels are not adjusted as a result of the Account’s mortality experience. In addition, the contracts pursuant to which the Account is offered are required to stipulate the maximum expense charge for all Account level expenses that can be assessed, which is not to exceed to 2.5% of average net assets per year. The Account pays a fee to TIAA to assume mortality and expense risks.

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.

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

11

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 9—Condensed Financial Information.

Note 3—Related Party Transactions

Pursuant to its existing liquidity guarantee obligation, as of September 30, 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 September 30, 2010, TIAA paid an aggregate of $1.2 billion to purchase these Liquidity Units in multiple transactions. TIAA has purchased no liquidity units since June 1, 2009.

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

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

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

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

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

The independent fiduciary, which has the right to adjust the trigger point, has established the trigger point at 45% of the outstanding accumulation units and it will continue to monitor TIAA’s ownership interest in the Account and provide further recommendations as necessary. As of September 30, 2010, TIAA owned approximately 10.5% of the outstanding accumulation units of the Account.

As discussed in Note 2—Management Agreements and Arrangements, T IAA and Services provide services to the Account on an at cost basis. See Note 9—Condensed Financial Information for details of the expense charge and expense ratio.

12

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		24.2	%		17.3	%		11.4	%		1.2	%		2.9	%		57.0	%
Apartment		2.6	%		6.1	%		5.4	%		—	%		—	%		14.1	%
Industrial		1.4	%		6.6	%		3.9	%		1.3	%		—	%		13.2	%
Retail		3.3	%		1.0	%		8.3	%		0.3	%		2.1	%		15.0	%
Storage		0.2	%		0.2	%		0.2	%		0.1	%		—	%		0.7	%
Total		31.7	%		31.2	%		29.2	%		2.9	%		5.0	%		100.0	%

(1)	Wholly-owned properties are represented at fair value and gross of any debt, while joint venture properties are represented at the net equity value.
(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

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

Valuation Hierarchy:The Account’s fair value measurements are grouped categorically into three levels, as defined by the FASB. The levels are defined as follows:

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 held by the Account are generally marketable equity securities.

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

13

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, variable notes, United States treasury bills and debt securities.

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, and mortgage loans receivable and 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 determination of 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 in Note 1—Organization and Significant Accounting Policies in more detail, 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.

14

The following tables show the major categories of assets and liabilities measured at fair value on a recurring basis as of September 30, 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, unaudited):

Description	Level 1: Quoted Prices in Active Markets for Identical Assets			Level 2: Significant Other Observable Inputs			Level 3: Significant Unobservable Inputs				Total at September 30, 2010
Real estate properties		$	—		$	—		$	7,815,184			$	7,815,184
Real estate joint ventures			—			—			1,305,557				1,305,557
Limited partnerships			—			—			238,036				238,036
Marketable securities:
Real estate related			274,715			—			—				274,715
Government agency notes			—			1,457,742							1,457,742
United States treasury bills			—			316,204			—				316,204
Total Investments at September 30, 2010		$	274,715		$	1,773,946		$	9,358,777			$	11,407,438
Mortgage loans payable		$	—		$	—		$	(1,843,899	)		$	(1,843,899	)

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	)

15

The following tables show the reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 2010 and September 30, 2009 (in thousands, unaudited):

	Real Estate Properties				Real Estate Joint Ventures				Limited Partnerships				Mortgage Loan Receivable				Total Level 3 Investments				Mortgage Loans Payable
For the three months ended September 30, 2010:
Beginning balance July 1, 2010		$	7,517,316			$	1,347,670			$	227,228			$	72,712			$	9,164,926			$	(1,890,016	)
Total realized and unrealized gains (losses) included in changes in net assets			249,818				47,929				10,808				2,288				310,843				(7,809	)
Purchases, sales, issuances, and settlements, net(1)			48,050				(90,042	)			—				(75,000	)			(116,992	)			53,926
Ending balance September 30, 2010		$	7,815,184			$	1,305,557			$	238,036				—			$	9,358,777			$	(1,843,899	)
For the nine months ended September 30, 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			271,854				32,113				29,301				3,727				336,995				(42,121	)
Purchases, sales, issuances, and settlements, net(1)			105,986				(41,159	)			8,462				(75,000	)			(1,711	)			56,332
Ending balance September 30, 2010			7,815,184				1,305,557				238,036				—				9,358,777				(1,843,899	)
For the three months ended September 30, 2009:
Beginning balance July 1, 2009		$	8,779,353			$	1,557,700			$	205,029			$	68,279			$	10,610,361			$	(1,843,707	)
Total realized and unrealized gains (losses) included in changes in net assets			(659,967	)			(158,752	)			(10,986	)			686				(829,019	)			(7,436	)
Purchases, sales, issuances, and settlements, net(1)			8,741				8,858				22,151				—				39,750				803
Ending balance September 30, 2009		$	8,128,127			$	1,407,806			$	216,194			$	68,965			$	9,821,092			$	(1,850,340	)
For the nine months ended September 30, 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 losses included in changes in net assets			(2,178,692	)			(769,643	)			(103,178	)			(2,802	)			(3,054,315	)			(22,758	)
Purchases, sales, issuances, and settlements, net(1)			1,779				738				32,887				—				35,404				2,458
Ending balance September 30, 2009			8,128,127				1,407,806				216,194				68,965				9,821,092				(1,850,340	)

16

⁽¹⁾ This line includes the net of contributions, distributions, and accrued operating income for real estate joint ventures and limited partnerships, principal payments received on mortgage loan receivable and principal payments made 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, unaudited):

 

Real Estate
Properties

 

Real Estate
Joint Ventures

 

Limited
Partnerships

 

Mortgage
Loan
Receivable

 

Total
Level 3
Investments

 

Mortgage
Loans
Payable

For the three months ended
September 30, 2010

$

249,733

 

$

47,919

 

$

10,808

 

$

—

 

$

308,460

 

$

(7,809

)

For the nine months ended
September 30, 2010

$

273,007

 

$

37,381

 

$

29,301

 

$

—

 

$

339,689

 

$

(42,121

)

For the three months ended
September 30, 2009

$

(659,689

)

$

(158,752

)

$

(10,986

)

$

686

 

$

(828,741

)

$

(7,436

)

For the nine months ended
September 30, 2009

$

(2,178,153

)

$

(769,643

)

$

(103,178

)

$

(2,802

)

$

(3,053,776

)

$

(22,758

)

Note 6—Investments in Joint Ventures

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 by the joint ventures. At September 30, 2010, the Account held 11 investments in joint ventures with non-controlling ownership interest percentages that ranged from 50% to 85%. Certain joint ventures 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 September 30, 2010 and December 31, 2009 was $1.3 billion. The Account’s most significant joint venture investment is the DDR TC LLC joint venture (the “DDR Joint Venture”), which is the fifth largest investment in the Account as of September 30, 2010. On July 9, 2010, the Account sold its entire interest in Tyson Executive Plaza II located in McLean, Virginia for a sales price of approximately $28.5 million resulting in a realized loss of $3.5 million.

The Account’s share of the mortgage loans payable within the joint venture investments at fair value was approximately $1.6 billion and $1.8 billion at September 30, 2010 and December 31, 2009, respectively. The Account’s share in the outstanding principal of the mortgage loans payable on joint ventures was approximately $1.6 billion and $2.0 billion at September 30, 2010 and December 31, 2009, respectively.

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 investment within the DDR Joint Venture was extended from February 2010 to February 2011. The maximum amount that may be drawn under this loan is $213.0 million. During the second quarter of 2010, the Account contributed a total of approximately $79.0 million to certain properties within the DDR Joint Venture to fund the Account’s share of debt associated with properties within the DDR Joint Venture that came due and was paid off during that quarter.

17

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

	September 30, 2010			September 30, 2009			December 31, 2009
	(Unaudited)			(Unaudited)
Assets
Real estate properties, at fair value		$	4,321,035		$	4,838,397		$	4,618,202
Other assets			145,583			93,054			89,569
Total assets			4,466,618			4,931,451			4,707,771
Liabilities and Equity
Mortgage loans payable, at fair value		$	2,235,357		$	2,579,618		$	2,526,666
Other liabilities			103,033			69,247			52,639
Total liabilities			2,338,390			2,648,865			2,579,305
Net Assets			2,128,228			2,282,586			2,128,466
Total liabilities and equity		$	4,466,618		$	4,931,451		$	4,707,771

	For the Nine Months Ended September 30, 2010			For the Nine Months Ended September 30, 2009			Year Ended December 31, 2009
	(Unaudited)			(Unaudited)
Operating Revenues and Expenses
Revenues		$	350,360		$	401,874		$	519,239
Expenses			219,011			241,602			317,428
Excess of revenues over expenses		$	131,349		$	160,272		$	201,811

On April 30, 2010 one of the properties held within the DDR Joint Venture defaulted on its interest payment on the $7.4 million mortgage secured by such property. On April 30, 2010, the loan matured in accordance with its terms 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.

Note 7—Investments in Limited Partnerships

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 September 30, 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 5.3% to 18.5%. 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 $238.0 million and $200.3 million at September 30, 2010 and December 31, 2009, respectively.

18

Note 8—Mortgage Loans Payable

At September 30, 2010, the Account had outstanding mortgage loans payable secured by the following properties (in thousands, unaudited):

Property Description	Interest Rate and Payment Frequency(3)	Principal Amounts as of September 30, 2010			Maturity
		(Unaudited)
Ontario Industrial Portfolio(1)	7.42% paid monthly		8,282			May 1, 2011
1 & 7 Westferry Circus(2)(5)	5.40% paid quarterly		211,511			November 15, 2012
Reserve at Sugarloaf(1)(5)	5.49% paid monthly		24,842			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(1)(5)	5.55% paid monthly		8,446			September 1, 2013
Wilshire Rodeo Plaza(5)	5.28% paid monthly		112,700			April 11, 2014
1401 H Street(1)(5)	5.97% paid monthly		114,013			December 7, 2014
1050 Lenox Park Apartments(5)(9)	4.43% paid monthly		24,000			August 1, 2015
San Montego Apartments(5)(6)(9)	4.47% paid monthly		21,780			August 1, 2015
Montecito Apartments(5)(6)(9)	4.47% paid monthly		20,250			August 1, 2015
Phoenician Apartments(5)(6)(9)	4.47% paid monthly		21,280			August 1, 2015
The Colorado(1)(5)	5.65% paid monthly		85,865			November 1, 2015
99 High Street	5.52% paid monthly		185,000			November 11, 2015
The Legacy at Westwood(1)(5)	5.95% paid monthly		41,133			December 1, 2015
Regents Court(1)(5)	5.76% paid monthly		35,129			December 1, 2015
The Caruth(1)(5)	5.71% paid monthly		41,088			December 1, 2015
Lincoln Centre	5.51% paid monthly		153,000			February 1, 2016
The Legend at Kierland(5)(7)(9)	4.97% paid monthly		21,825			August 1,2017
The Tradition at Kierland(5)(7)(9)	4.97% paid monthly		25,800			August 1,2017
Red Canyon at Palomino Park(5)(8)(9)	5.34% paid monthly		27,120			August 1, 2020
Green River at Palomino Park(5)(8)(9)	5.34% paid monthly		33,220			August 1, 2020
Blue Ridge at Palomino Park(5)(8)(9)	5.34% paid monthly		33,380			August 1, 2020
Ashford Meadows(5)(6)(9)	5.17% paid monthly		44,600			August 1, 2020
Publix at Weston Commons(5)	5.08% paid monthly		35,000			January 1, 2036
Total Principal Outstanding			1,845,515
Fair Value Adjustment(4)			(1,616	)
Total mortgage loans payable			1,843,899

(1)	The mortgage is adjusted monthly for principal payments.
(2)	The mortgage is denominated in British pounds and the principal had been converted to U.S. dollars using the exchange rate as of September 30, 2010. The interest rate is fixed. The cumulative foreign currency translation adjustment (since inception) was an unrealized gain of $21 million.
(3)	Interest rates are fixed, unless stated otherwise.
(4)	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 to these financial statements.
(5)	These properties are each owned by separate wholly owned subsidiaries of TIAA for 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.
(6)	Represents mortgage loans payable on these individual properties which are held within the Houston Apartment Portfolio.
(7)	Represents mortgage loans payable on these individual properties which are held within the Kierland Apartment Portfolio.
(8)	Represents mortgage loans payable on these individual properties which are held within Palomino Park.
(9)	During the quarter ended September 30, 2010 the account entered into several new loans in the aggregate amount of $273.3 million.

During the quarter ended September 30, 2010 the Account repaid a total of $326.0 million of its mortgage loans payable associated with its wholly owned real estate investments at 701 Brickell and Four Oaks Place.

19

Note 9—Condensed Financial Information

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

	For the Nine Months Ended September 30, 2010				Years Ended December 31,
					2009				2008				2007
	(Unaudited)
Per Accumulation Unit data:
Rental income		$	15.243			$	22.649			$	18.794			$	17.975
Real estate property level expenses and taxes			7.748				11.193				9.190				8.338
Real estate income, net			7.495				11.456				9.604				9.637
Other income			1.700				2.778				3.808				4.289
Total income			9.195				14.234				13.412				13.926
Expense charges(1)			1.594				2.280				2.937				2.554
Investment income, net			7.601				11.954				10.475				11.372
Net realized and unrealized gain (loss) oninvestments and mortgage loans payable			6.329				(85.848	)			(54.541	)			26.389
Net increase (decrease) in Accumulation Unit Value			13.930				(73.894	)			(44.066	)			37.761
Accumulation Unit Value:
Beginning of period			193.454				267.348				311.414				273.653
End of period		$	207.384			$	193.454			$	267.348			$	311.414
Total return(2)			7.20	%			-27.64	%			-14.15	%			13.80	%
Ratios to average net assets(2)
Expenses(1)			0.82	%			1.01	%			0.95	%			0.87	%
Investment income, net			3.93	%			5.29	%			3.38	%			3.88	%
Portfolio turnover rate(2)
Real estate investments(3)			0.57	%			0.75	%			0.64	%			5.59	%
Marketable securities(4)			—				—				25.67	%			13.03	%
Accumulation Units outstanding at end of period (in thousands):			44,957				39,473				41,542				55,106
Net assets end of period (in thousands)		$	9,573,098			$	7,879,914			$	11,508,924			$	17,660,537

(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 real estate income, net. If the real estate property level expenses were included, the expense charge per Accumulation Unit for the nine months ended September 30, 2010 would be $9.342 ($13.473, $12.127, and $10.892 for the years ended December 31, 2009, 2008 and 2007, respectively), and the Ratio of Expenses to average net assets for the nine months ended September 30, 2010 would be 4.83% (5.96%, 3.91%, and 3.71% for the years ended December 31, 2009, 2008, and 2007, respectively).
(2)	Amounts for the nine month period ended September 30, 2010 are not annualized.
(3)	Real estate investment portfolio turnover rate is calculated by dividing the lesser of purchases or sales of real estate property investments (including contributions to, or return of capital distributions received from, existing joint venture and limited partnership investments) by the average value of the portfolio of real estate investments held during the period. Amounts for the nine months ended September 30, 2010 are not annualized.
(4)	Marketable securities portfolio turnover rate is calculated by dividing the lesser of purchases or sales of securities, excluding securities having maturity dates at acquisition of one year or less, by the average value of the portfolio securities held during the period. Amounts for the nine months ended September 30, 2010 are not annualized.

20

Note 10—Accumulation Units

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

	For the Nine Months Ended September 30, 2010		For The Year Ended, December 31, 2009
	(Unaudited)
Outstanding:
Beginning of period		39,473		41,542
Credited for premiums		2,570		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		2,914		(9,349	)
End of period		44,957		39,473

Note 11—Commitments, Contingencies, and Subsequent Events

Commitments—As of September 30, 2010, the Account had outstanding commitments to purchase additional interests in three of its limited partnership investments. As of September 30, 2010, the Account’s remaining commitments totaled $33.7 million, which can be called in full or in part by each limited partnership at any time.

Contingencies—The Account is party to various claims and routine litigation arising in the ordinary course of business. Management of the Account does not believe 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.

Subsequent Events—Subsequent to September 30, 2010, the Account purchased an additional $201.7 million of real estate-related marketable securities.

Note 12—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 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.

21

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

REAL ESTATE PROPERTIES—68.51% and 76.71%

Location/Description	Type	Fair Value
		2010				2009
		(Unaudited)
Alabama:
Inverness Center	Office		$	92,674			$	90,315
Arizona:
Camelback Center	Office			33,085				37,774
Kierland Apartment Portfolio	Apartments			91,848	(1)			78,060
Phoenix Apartment Portfolio	Apartments			23,194				21,767
California:
3 Hutton Centre Drive	Office			28,900				28,752
50 Fremont Street	Office			308,504	(1)			284,283	(1)
88 Kearny Street	Office			60,149				61,600
275 Battery Street	Office			171,801				164,390
Rancho Cucamonga Industrial Portfolio	Industrial			76,125				57,327
Centerside I	Office			34,530				27,012
Centre Pointe and Valley View	Industrial			17,705				18,929
Great West Industrial Portfolio	Industrial			66,800				65,000
Larkspur Courts	Apartments			65,222				50,111
Northern CA RA Industrial Portfolio	Industrial			38,779				42,437
Ontario Industrial Portfolio	Industrial			204,486	(1)			167,998	(1)
Pacific Plaza	Office			53,495	(1)			60,075	(1)
Regents Court	Apartments			62,505	(1)			50,505	(1)
Southern CA RA Industrial Portfolio	Industrial			70,792				75,817
The Legacy at Westwood	Apartments			86,460	(1)			77,836	(1)
Wellpoint	Office			41,000				37,400
Westcreek	Apartments			27,609				23,061
West Lake North Business Park	Office			40,529				32,407
Westwood Marketplace	Retail			89,001				77,077
Wilshire Rodeo Plaza	Office			152,807	(1)			151,209	(1)
Colorado:
Palomino Park	Apartments			163,041	(1)			143,907
The Lodge at Willow Creek	Apartments			38,023				31,624
Connecticut:
Ten & Twenty Westport Road	Office			107,060				126,860
Florida:
701 Brickell Avenue	Office			192,890				198,630	(1)
North 40 Office Complex	Office			36,164				33,969
Plantation Grove	Retail			9,200				9,600
Pointe on Tampa Bay	Office			36,539				35,060
Publix at Weston Commons	Retail			42,509	(1)			38,100	(1)
Quiet Waters at Coquina Lakes	Apartments			21,421				19,918
Seneca Industrial Park	Industrial			59,979				62,341
South Florida Apartment Portfolio	Apartments			54,272				48,366
Suncrest Village Shopping Center	Retail			12,300				12,329

See notes to the financial statements.

22

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

Location/Description	Type	Fair Value
		2010				2009
		(Unaudited)
Florida: (continued)
The Fairways of Carolina	Apartments		$	20,224			$	18,628
Urban Centre	Office			81,045				80,282
France:
Printemps de L’Homme	Retail			189,391				200,995
Georgia:
Atlanta Industrial Portfolio	Industrial			38,202				39,519
Glenridge Walk	Apartments			33,436				30,326
Reserve at Sugarloaf	Apartments			43,007	(1)			37,710	(1)
Shawnee Ridge Industrial Portfolio	Industrial			49,901				52,219
Windsor at Lenox Park	Apartments			50,533	(1)			48,223
Illinois:
Chicago Caleast Industrial Portfolio	Industrial			49,803				48,304
Chicago Industrial Portfolio	Industrial			57,776				60,908
Oak Brook Regency Towers	Office			69,466				64,265
Parkview Plaza	Office			42,860				44,360
Maryland:
Broadlands Business Park	Industrial			24,300				23,600
GE Appliance East Coast Distribution Facility	Industrial			29,300				28,900
Massachusetts:
99 High Street	Office			241,932	(1)			253,557	(1)
Needham Corporate Center	Office			14,576				16,196
Northeast RA Industrial Portfolio	Industrial			21,300				24,845
The Newbry	Office			216,934				230,375
Minnesota:
Champlin Marketplace	Retail			12,750				13,801
Nevada:
Fernley Distribution Facility	Industrial			7,100				7,600
New Jersey:
Konica Photo Imaging Headquarters	Industrial			14,400				15,100
Marketfair	Retail			64,089				65,594
Morris Corporate Center III	Office			63,917				66,478
Plainsboro Plaza	Retail			27,460				26,962
South River Road Industrial	Industrial			35,320				28,656
New York:
780 Third Avenue	Office			272,414				240,077
The Colorado	Apartments			113,943	(1)			110,144	(1)
Pennsylvania:
Lincoln Woods	Apartments			26,921				28,728
Tennessee:
Airways Distribution Center	Industrial			12,450				12,600
Summit Distribution Center	Industrial			15,633				12,300

See notes to the financial statements.

23

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

Location/Description	Type	Fair Value
		2010				2009
		(Unaudited)
Texas:
Dallas Industrial Portfolio	Industrial		$	123,277			$	125,275
Four Oaks Place	Office			366,381				409,027	(1)
Houston Apartment Portfolio	Apartments			183,902	(1)			179,717
Lincoln Centre	Office			194,196	(1)			202,029	(1)
Pinnacle Industrial Portfolio	Industrial			32,500				34,148
South Frisco Village	Retail			28,674	(1)			26,900	(1)
The Caruth	Apartments			53,175	(1)			49,641	(1)
The Maroneal	Apartments			35,566				32,179
United Kingdom:
1 & 7 Westferry Circus	Office			262,511	(1)			239,036	(1)
Virginia:
8270 Greensboro Drive	Office			28,100				34,200
Ashford Meadows Apartments	Apartments			93,775	(1)			71,105
One Virginia Square	Office			51,300				40,503
The Ellipse at Ballston	Office			74,409				65,505
Washington:
Creeksides at Centerpoint	Office			16,381				18,724
Fourth and Madison	Office			307,000	(1)			295,000	(1)
Millennium Corporate Park	Office			120,000				116,548
Northwest RA Industrial Portfolio	Industrial			14,803				17,800
Rainier Corporate Park	Industrial			59,044				65,277
Regal Logistics Campus	Industrial			46,395				47,955
Washington DC:
1001 Pennsylvania Avenue	Office			587,653	(1)			480,622	(1)
1401 H Street, NW	Office			169,672	(1)			143,555	(1)
1900 K Street, NW	Office			240,075				204,000
Mazza Gallerie	Retail			74,614				65,500
TOTAL REAL ESTATE PROPERTIES
(Cost $9,514,048 and $9,408,978)				7,815,184				7,437,344

See notes to the financial statements.

24

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

OTHER REAL ESTATE-RELATED INVESTMENTS—13.53% and 15.63%
REAL ESTATE JOINT VENTURES—11.44% and 13.56%

Location/Description	Fair Value
	2010				2009
	(Unaudited)
California:
CA—Colorado Center LP
Yahoo Center (50% Account Interest)		$	150,202	(2)		$	133,227	(2)
CA—Treat Towers LP
Treat Towers (75% Account Interest)			63,521				66,435
Florida:
Florida Mall Associates, Ltd
The Florida Mall (50% Account Interest)			231,804	(2)			252,432	(2)
TREA Florida Retail, LLC
Florida Retail Portfolio (80% Account Interest)			152,674				162,204
West Dade Associates
Miami International Mall (50% Account Interest)			90,236	(2)			76,856	(2)
Georgia:
GA—Buckhead LLC
Prominence in Buckhead (75% Account Interest)			39,165				30,952
Massachusetts:
MA—One Boston Place REIT
One Boston Place (50.25% Account Interest)			140,702				129,922
Tennessee:
West Town Mall, LLC
West Town Mall (50% Account Interest)			43,090	(2)			37,262	(2)
Virginia:
Teachers REA IV, LLC
Tyson’s Executive Plaza II (50% Account Interest)			—				26,275
Various:
DDR TC LLC
DDR Joint Venture (85% Account Interest)			306,553	(2,3)			312,182	(2,3)
Storage Portfolio I, LLC
Storage Portfolio (75% Account Interest)			50,560	(2,3)			46,269	(2,3)
Strategic Ind Portfolio I, LLC
IDI Nationwide Industrial Portfolio (60% Account Interest)			37,050	(2,3)			40,587	(2,3)
TOTAL REAL ESTATE JOINT VENTURES (Cost $1,963,929 and $2,142,016 )			1,305,557				1,314,603
LIMITED PARTNERSHIPS—2.09% and 2.07%
Cobalt Industrial REIT (10.998% Account Interest)			22,044				20,341
Colony Realty Partners LP (5.27% Account Interest)			16,400				12,123
Heitman Value Partners Fund (8.43% Account Interest)			16,103				13,736
Lion Gables Apartment Fund (18.46% Account Interest)			163,429				142,999
MONY/Transwestern Mezz RP II (16.67% Account Interest)			11,375				9,267
Transwestern Mezz Realty Partners III, LLC (11.708% Account Interest)			8,685				1,807
TOTAL LIMITED PARTNERSHIPS
(Cost $304,240 and $295,779)			238,036				200,273
TOTAL REAL ESTATE JOINT VENTURES AND LIMITED PARTNERSHIPS
(Cost $2,268,169 and $2,437,795 )			1,543,593				1,514,876

See notes to the financial statements.

25

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

MARKETABLE SECURITIES—17.96% and 6.93%
REAL ESTATE RELATED EQUITY SECURITIES—2.41% and— %

Shares				Issuer	Fair Value
2010		2009			2010			2009
					(Unaudited)
	27,966		—	Acadia Realty Trust		$	531		$	—
	7,326		—	Agree Realty Corporation			185			—
	950		—	Alexander’s, Inc.			300			—
	33,414		—	Alexandria Real Estate Equities, Inc.			2,339			—
	112,776		—	AMB Property Corporation			2,985			—
	44,162		—	American Campus Communities, Inc.			1,344			—
	78,333		—	Apartment Investment and Management Company			1,675			—
	36,180		—	Ashford Hospitality Trust, Inc.			327			—
	17,754		—	Associated Estates Realty Corporation			248			—
	55,237		—	Avalonbay Communities, Inc.			5,741			—
	75,813		—	BioMed Realty Trust, Inc.			1,359			—
	93,180		—	Boston Properties, Inc.			7,745			—
	88,611		—	Brandywine Realty Trust			1,085			—
	41,964		—	BRE Properties, Inc.			1,742			—
	44,069		—	Camden Property Trust			2,114			—
	37,048		—	CapLease, Inc.			207			—
	92,275		—	CBL & Associates Properties, Inc.			1,205			—
	43,540		—	Cedar Shopping Centers, Inc.			265			—
	5,636		—	Chatham Lodging Trust			105			—
	2,800		—	Chesapeake Lodging Trust			46			—
	36,143		—	Cogdell Spencer Inc.			228			—
	47,430		—	Colonial Properties Trust			768			—
	39,928		—	Corporate Office Properties Trust			1,490			—
	70,861		—	Cousins Properties Incorporated			506			—
	145,950		—	DCT Industrial Trust Inc.			699			—
	166,909		—	Developers Diversified Realty Corporation			1,873			—
	102,306		—	DiamondRock Hospitality Company			971			—
	56,884		—	Digital Realty Trust, Inc.			3,510			—
	61,216		—	Douglas Emmett, Inc.			1,072			—
	167,846		—	Duke Realty Corporation			1,945			—
	39,026		—	DuPont Fabros Technology, Inc.			982			—
	18,533		—	EastGroup Properties, Inc.			693			—
	40,599		—	Education Realty Trust, Inc.			290			—
	32,002		—	Entertainment Properties Trust			1,382			—
	20,715		—	Equity Lifestyle Properties, Inc.			1,129			—
	32,256		—	Equity One, Inc.			544			—
	189,588		—	Equity Residential			9,019			—
	20,009		—	Essex Property Trust, Inc.			2,190			—
	12,220		—	Excel Trust, Inc.			138			—
	59,179		—	Extra Space Storage Inc.			949			—
	41,124		—	Federal Realty Investment Trust			3,358			—
	65,809		—	FelCor Lodging Trust Incorporated			303			—
	44,963		—	First Industrial Realty Trust, Inc.			228			—
	26,042		—	First Potomac Realty Trust			391			—

See notes to the financial statements.

26

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

Shares				Issuer	Fair Value
2010		2009			2010			2009
					(Unaudited)
	50,899		—	Franklin Street Properties Corp.		$	632		$	—
	15,496		—	Getty Realty Corp.			416			—
	2,200		—	Gladstone Commercial Corporation			38			—
	56,752		—	Glimcher Realty Trust			349			—
	20,829		—	Government Properties Income Trust			556			—
	196,806		—	HCP, Inc.			7,081			—
	81,776		—	Health Care REIT, Inc.			3,871			—
	42,670		—	Healthcare Realty Trust Incorporated			998			—
	90,327		—	Hersha Hospitality Trust			468			—
	47,106		—	Highwoods Properties, Inc.			1,530			—
	24,445		—	Home Properties, Inc.			1,293			—
	83,221		—	Hospitality Properties Trust			1,858			—
	436,817		—	Host Hotels & Resorts, Inc.			6,325			—
	44,080		—	HRPT Properties Trust			1,128			—
	47,060		—	Inland Real Estate Corporation			391			—
	37,526		—	Investors Real Estate Trust			314			—
	1,500,000		—	iShares Dow Jones US Real Estate Index Fund			79,318			—
	34,395		—	Kilroy Realty Corporation			1,140			—
	268,554		—	Kimco Realty Corporation			4,230			—
	23,063		—	Kite Realty Group Trust			102			—
	46,189		—	LaSalle Hotel Properties			1,080			—
	75,367		—	Lexington Realty Trust			540			—
	68,111		—	Liberty Property Trust			2,173			—
	15,584		—	LTC Properties, Inc.			398			—
	48,087		—	Mack-Cali Realty Corporation			1,573			—
	76,615		—	Medical Properties Trust, Inc.			777			—
	20,430		—	Mid-America Apartment Communities, Inc.			1,191			—
	3,951		—	Mission West Properties, Inc.			27			—
	12,083		—	Monmouth Real Estate Investment Corporation			94			—
	19,075		—	National Health Investors, Inc.			840			—
	56,547		—	National Retail Properties, Inc.			1,420			—
	80,437		—	Nationwide Health Properties, Inc.			3,110			—
	62,688		—	Omega Healthcare Investors, Inc.			1,407			—
	8,894		—	One Liberty Properties, Inc.			142			—
	11,862		—	Parkway Properties, Inc.			176			—
	37,022		—	Pennsylvania Real Estate Investment Trust			439			—
	47,752		—	Piedmont Office Realty Trust, Inc.			903			—
	109,826		—	Plum Creek Timber Company, Inc.			3,877			—
	32,106		—	Post Properties, Inc.			896			—
	27,261		—	Potlatch Corporation			927			—
	315,508		—	ProLogis			3,717			—
	12,614		—	PS Business Parks, Inc.			714			—
	85,851		—	Public Storage, Inc.			8,331			—
	27,234		—	Ramco-Gershenson Properties Trust			292			—
	53,732		—	Rayonier Inc.			2,693			—
	70,566		—	Realty Income Corporation			2,379			—
	53,992		—	Regency Centers Corporation			2,131			—

See notes to the financial statements.

27

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

Shares				Issuer	Fair Value
2010		2009			2010			2009
					(Unaudited)
	4,236		—	Saul Centers, Inc.		$	178		$	—
	85,656		—	Senior Housing Properties Trust			2,013			—
	194,820		—	Simon Property Group, Inc.			18,068			—
	51,830		—	SL Green Realty Corp.			3,282			—
	18,965		—	Sovran Self Storage, Inc.			719			—
	99,403		—	Strategic Hotels & Resorts, Inc.			421			—
	11,136		—	Sun Communities, Inc.			342			—
	62,927		—	Sunstone Hotel Investors, L.L.C.			571			—
	27,009		—	Tanger Factory Outlet Centers, Inc.			1,273			—
	27,678		—	Taubman Centers, Inc.			1,235			—
	4,682		—	Terreno Realty Corporation			85			—
	85,681		—	The Macerich Company			3,680			—
	107,848		—	UDR, Inc.			2,278			—
	6,105		—	Universal Health Realty Income Trust			210			—
	13,406		—	Urstadt Biddle Properties Inc.			242			—
	64,629		—	U-Store-It Trust			540			—
	105,174		—	Ventas, Inc.			5,424			—
	122,317		—	Vornado Realty Trust			10,462			—
	41,408		—	Washington Real Estate Investment Trust			1,314			—
	81,088		—	Weingarten Realty Investors			1,769			—
	9,526		—	Winthrop Realty Trust			118			—
TOTAL REAL ESTATE RELATED EQUITY SECURITIES (Cost $276,943 and $—)							274,715			—

See notes to the financial statements.

28

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

OTHER MARKETABLE SECURITIES—15.55% and 6.93%
GOVERNMENT AGENCY NOTES—12.78% 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
		—			17,470	Fannie Mae Discount Notes		0.167%		5/5/10			—			17,463
		25,000			—	Fannie Mae Discount Notes		0.183%		10/1/10			25,000			—
		8,392			—	Fannie Mae Discount Notes		0.193%		10/5/10			8,392			—
		8,225			—	Fannie Mae Discount Notes		0.203%		10/6/10			8,225			—
		50,000			—	Fannie Mae Discount Notes		0.198%		10/12/10			49,998			—
		10,300			—	Fannie Mae Discount Notes		0.203%		10/13/10			10,300			—
		34,520			—	Fannie Mae Discount Notes		0.203%		10/18/10			34,518			—
		30,325			—	Fannie Mae Discount Notes		0.193%		10/20/10			30,323			—
		30,185			—	Fannie Mae Discount Notes		0.178%-0.198%		10/25/10			30,183			—
		50,000			—	Fannie Mae Discount Notes		0.172%		10/27/10			49,996			—
		30,000			—	Fannie Mae Discount Notes		0.203%		11/1/10			29,997			—
		14,050			—	Fannie Mae Discount Notes		0.203%		11/2/10			14,048			—
		33,430			—	Fannie Mae Discount Notes		0.249%		11/8/10			33,426			—
		39,090			—	Fannie Mae Discount Notes		0.172%-0.178%		11/10/10			39,085			—
		43,790			—	Fannie Mae Discount Notes		0.172%		11/22/10			43,782			—
		20,520			—	Fannie Mae Discount Notes		0.218%		11/24/10			20,516			—
		20,031			—	Fannie Mae Discount Notes		0.183%		12/15/10			20,025			—
		9,530			—	Fannie Mae Discount Notes		0.188%		12/17/10			9,527			—
		—			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
		10,000			—	Federal Home Loan Bank Discount Notes		0.010%		10/1/10			10,000			—
		31,490			—	Federal Home Loan Bank Discount Notes		0.198%		10/8/10			31,489			—
		50,500			—	Federal Home Loan Bank Discount Notes		0.162%-0.193%		10/15/10			50,498			—
		139,977			—	Federal Home Loan Bank Discount Notes		0.041%-0.183%		10/20/10			139,970			—

See notes to the financial statements.

29

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

Principal						Issuer	Yield(4)		Maturity Date		Fair Value
2010			2009								2010			2009
											(Unaudited)
	$	27,400		$	—	Federal Home Loan Bank Discount Notes		0.162%		10/22/10		$	27,398		$	—
		45,800			—	Federal Home Loan Bank Discount Notes		0.178%		10/29/10			45,796			—
		28,000			—	Federal Home Loan Bank Discount Notes		0.172%		11/3/10			27,997			—
		25,000			—	Federal Home Loan Bank Discount Notes		0.178%		11/5/10			24,997			—
		8,990			—	Federal Home Loan Bank Discount Notes		0.183%		11/17/10			8,989			—
		25,000			—	Federal Home Loan Bank Discount Notes		0.172%		11/19/10			24,996			—
		28,000			—	Federal Home Loan Bank Discount Notes		0.122%		11/30/10			27,994			—
		20,000			—	Federal Home Loan Bank Discount Notes		0.183%		12/1/10			19,995			—
		20,000			—	Federal Home Loan Bank Discount Notes		0.271%		5/6/11			19,996			—
		100,000			—	Federal Home Loan Bank Discount Notes		0.269%		8/12/11			99,986			—
		—			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
		33,710			—	Freddie Mac Discount Notes		0.183%-0.203%		10/4/10			33,710			—
		12,000			—	Freddie Mac Discount Notes		0.203%		10/13/10			12,000			—
		7,800			—	Freddie Mac Discount Notes		0.203%		10/19/10			7,800			—
		14,620			—	Freddie Mac Discount Notes		0.167%		10/26/10			14,619			—
		21,510			—	Freddie Mac Discount Notes		0.203%		10/27/10			21,508			—
		11,188			—	Freddie Mac Discount Notes		0.198%		10/28/10			11,187			—
		100,000			—	Freddie Mac Discount Notes		0.112%		11/8/10			99,987			—
		35,610			—	Freddie Mac Discount Notes		0.172%		11/15/10			35,605			—
		10,655			—	Freddie Mac Discount Notes		0.203%		11/16/10			10,653			—
		11,500			—	Freddie Mac Discount Notes		0.218%		11/17/10			11,498			—
		49,570			—	Freddie Mac Discount Notes		0.178%		11/23/10			49,561			—
		33,000			—	Freddie Mac Discount Notes		0.183%		11/29/10			32,993			—
		25,175			—	Freddie Mac Discount Notes		0.183%		12/2/10			25,169			—
		25,000			—	Freddie Mac Discount Notes		0.183%		12/6/10			24,994			—
		28,510			—	Freddie Mac Discount Notes		0.188%		12/14/10			28,502			—
		20,520			—	Freddie Mac Discount Notes		0.193%		12/20/10			20,514			—
TOTAL GOVERNMENT AGENCY NOTES (Cost $1,457,697 and $465,072 )													1,457,742			465,092

See notes to the financial statements.

30

TIAA REAL ESTATE ACCOUNT
STATEMENT OF INVESTMENTS
September 30, 2010 and December 31, 2009
(Dollar values shown in thousands)

UNITED STATES TREASURY BILLS—2.77% 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	United States Treasury Bills		0.137%-0.162%		4/22/10			—			47,189
		—			52,530	United States Treasury Bills		0.122%-0.147%		5/13/10			—			52,506
		—			62,015	United States Treasury Bills		0.127%-0.147%		5/20/10			—			61,981
		—			20,000	United States Treasury Bills		0.137%		5/27/10			—			19,985
		29,600			—	United States Treasury Bills		0.167%		10/7/10			29,599			—
		28,325			—	United States Treasury Bills		0.227%		10/14/10			28,324			—
		30,100			—	United States Treasury Bills		0.142%-0.228%		10/21/10			30,098			—
		50,000			—	United States Treasury Bills		0.147%-0.153%		11/12/10			49,995			—
		50,000			—	United States Treasury Bills		0.163%-0.168%		11/18/10			49,992			—
		25,000			—	United States Treasury Bills		0.153%		11/26/10			24,994			—
		25,000			—	United States Treasury Bills		0.160%		12/2/10			24,994			—
		25,000			—	United States Treasury Bills		0.180%		12/9/10			24,994			—
		5,800			—	United States Treasury Bills		0.169%		12/30/10			5,798			—
		25,800			—	United States Treasury Bills		0.227%		3/31/11			25,885			—
		21,450			—	United States Treasury Bills		0.231%		4/30/11			21,531			—
TOTAL UNITED STATES TREASURY BILLS (Cost $316,187 and $206,163)													316,204			206,175
TOTAL OTHER MARKETABLE SECURITIES (Cost $1,773,884 and $671,235)													1,773,946			671,267
TOTAL MARKETABLE SECURITIES (Cost $2,050,827 and $671,235 )													2,048,661			671,267

MORTGAGE LOAN RECEIVABLE —% and 0.73%

Principal						Borrower	Current Rate(5)		Maturity Date		Fair Value
2010			2009								2010			2009
											(Unaudited)
	$	—		$	75,000	Klingle Corporation		—		—		$	—		$	71,273
TOTAL MORTGAGE LOAN RECEIVABLE (Cost $ - and $75,000 )													—			71,273
TOTAL INVESTMENTS (Cost $13,833,044 and $12,593,008)												$	11,407,438		$	9,694,760

(1)	The investment has a mortgage loan payable outstanding, as indicated in Note 8.
(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 represented the interest rate as of the current report date. At December 31, 2009, the interest rate on this investment was 1.04%.

See notes to the financial statements.

31

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 the fact that 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

32

	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 of foreign investments (primarily real estate properties), including political risk and the risk associated with currency fluctuations;
•	Conflicts of Interest: 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 Commercial Mortgage Backed Securities), 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

33

(“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 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 non real estate-related 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 in late 2008 and throughout 2009) 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.

THIRD QUARTER 2010 U.S. ECONOMIC AND COMMERCIAL REAL ESTATE OVERVIEW

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

Economic and Capital Markets Overview and Outlook

After three consecutive quarters of economic growth that began in the third quarter of 2009, the economic recovery began to slow down in the second quarter of 2010. The slowdown was due largely to cautious hiring by U.S. businesses and constrained spending by U.S. households. Currently available data suggest that the rate of growth has remained modest in recent months, and the Federal Reserve has begun to consider new measures to stimulate the economy. Fears of a “double dip” recession have diminished but nonetheless remain: the outlook for the remainder of 2010 and the first half of 2011 is for ongoing weak growth. The Bureau of Economic Analysis’ advance estimate of GDP growth for the third quarter of 2010 was 2.0%, which was slightly stronger than the tepid 1.7% gain in the second quarter of 2010. By comparison, GDP grew 3.7% in the first quarter of 2010. The improvement of GDP growth in the third quarter of 2010 as compared to the second quarter of 2010 was largely due to increases in consumer spending and businesses’ replenishment of inventories as a result of stronger sales earlier in the year. However, the pickup in consumer spending and inventory replenishment was modest. Businesses’ hesitancy to hire and add to inventories is likely to carryover into the fourth quarter as key economic indicators suggest that the recovery remains on shaky ground. Many measures of economic activity remain well below the levels attained at the height of the economic expansion. Even though the recession officially ended more than a year ago, hiring remains lackluster as only 0.6 million of the 8.3 million jobs lost since the recession began have been regained.

Prospects for the global recovery also weakened during the third quarter due in part to a recurrence of Europe’s sovereign debt crisis. The crisis, which was triggered by the potential default of Greece in early 2010, had seemingly receded after a $1 trillion rescue fund was used by the European Union and International Monetary Fund to purchase sovereign debt and bolster the value of the euro. However, the crisis flared up again when investors became concerned about Ireland’s sovereign debt after estimates of the cost to bailout several nationalized Irish banks were raised significantly. Investors were also concerned that austerity measures proposed by European governments to reduce government spending in order to meet debt limitations imposed by the European Union would further depress economic growth in Europe. The value of the euro, which declined 15% earlier in 2010, has appreciated since hitting a low late in the second quarter of 2010. The recent stabilization of the euro has allayed fears that a weak euro would exacerbate the slowdown; however, economic conditions remain weak throughout Europe and will hamper the global recovery.

34

Despite the uncertain economic environment, the Dow Jones Industrial Average added 10% in the third quarter of 2010, ending the quarter above the psychologically important 10,000 mark, and then breaching 11,000 early in the fourth quarter. Similarly, the S&P 500 added 11% during the quarter and ended the quarter above 1,100. Investors responded positively to strong earnings reports from U.S. companies, and particularly those with sizeable international operations. Nonetheless, investors were hedging their bets as Treasuries and gold attracted considerable interest. Heightened economic uncertainty and investors’ expectations of further Federal Reserve purchases of Treasuries pushed down the yield on the 10-year Treasury Note to 2.50%, the lowest rate since late 2008 and early 2009. At the same time, gold prices soared due to surging demand from the developing world, its perception as a safe haven in times of economic uncertainty, and speculation. The dollar weakened against the euro and most other major currencies, giving up gains from the first half of the year. However, the dollar remained largely unchanged versus China’s yuan (or “renminbi”) because China, which manages its currency to a nearly fixed exchange rate, has kept the yuan undervalued to stimulate exports and slow imports. This has led to tensions with the U.S. over the large trade deficit, and urging by U.S. government officials for China to revalue its currency. In October 2010, China’s Central Bank raised interest rates by 25 basis points which caused a brief sell off in global stock markets as investors worried that a slowdown in China’s economy would slow the global recovery.

The weakness of the U.S. economic recovery is expected to keep interest rates low for the foreseeable future. In the minutes from its September 21, 2010 meeting, The Federal Reserve’s Federal Open Market Committee (“FOMC”) noted that recent data indicate that “…the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained...Business spending on equipment and software is rising, though less rapidly than earlier in the year...Employers remain reluctant to add to payrolls. Housing starts are at a depressed level. Bank lending has continued to contract...” Consequently, the FOMC reiterated its commitment to maintain an accommodative monetary policy as members believed that “economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

More recently, the Federal Reserve announced plans to restart its purchases of long-term Treasuries in order to keep yields low, with such “quantitative easing” designed to stimulate business and consumer spending. While some economists have voiced concerns that the availability of so-called “cheap money” raises the possibility of new speculative bubbles, most believe the Fed has few alternatives to stimulate the economy, and that the considerable slack in the economy allows the Fed to take such actions without triggering a run-up in inflation. Others argue against further quantitative easing, warning that deflation is the true risk and cite Japan’s “lost decade” as a possible outcome. As Federal Reserve Chairman Ben Bernanke noted in his October 15, 2010 speech to the “Revisiting Monetary Policy in a Low-Inflation Environment Conference,” the Fed remains committed to achieving its twin mandates of (a) fostering maximum employment and (b) price stability, and that inflation rate that best promotes maximum employment is not necessarily zero. With core inflation running at a 1% rate thus far in 2010 as compared to the Fed’s target rate of 2%, the FOMC hopes that signaling its intention to push inflation higher will encourage businesses and consumers to spend in the near term. While noting the risks associated with quantitative easing and other nonconventional policies, Chairman Bernanke stated that “the FOMC will take account of the potential costs and risks of nonconventional policies” when considering such options.

The recovery continues to be hampered by the aftermath of the housing boom. The housing market currently features stagnant home values and lackluster sales activity despite very attractive mortgage interest rates. Foreclosure rates are still high, and sales of foreclosed homes have accounted for half of all existing home sales in recent months. The number of existing homes available for sale represents a 10.7 month supply which is almost double that of a healthy market. A number of major financial institutions froze foreclosure activity due to documentation problems associated with the foreclosure process. Subsequently, several such institutions have announced that they would resume foreclosures. However, uncertainty remains and law suits and court challenges could reinstate the ban or further slow the market’s recovery. The banking industry has increased its lending of late, albeit modestly, but credit availability remains tight for small businesses and consumers. Consumers are also spending very cautiously due to concerns about their jobs, the value of their homes, and the volatility of the stock market, and in order to reduce outstanding debt. Though corporate profits are surging and businesses are spending on computers and capital equipment, they are not yet hiring in significant numbers and continue to hold large amounts of cash on their balance sheets. In addition, growing State and local government budget deficits are necessitating cuts in employment, spending, and

35

services which may depress economic activity at the local level. In the aggregate, risks to the recovery remain weighted to the downside, with the likelihood of a prolonged and sporadic recovery appearing the likely outcome.

Recent trends in key economic indicators are summarized in the table below. The loss of 218,000 jobs during the third quarter of 2010 versus a gain of 570,000 in the second quarter of 2010 was due in large part to layoffs of temporary workers hired for the 2010 Census. Hiring for the 2010 Census accounted for the lion’s share of the job gains in the second quarter. By comparison, private sector employment (not shown below) has grown modestly, with gains of 274,000 in the third quarter of 2010 as compared 353,000 in the second quarter. Private sector job growth through the first three quarters of 2010 has averaged just 95,000 per month, which is far short of the job growth that is necessary to recoup the eight million jobs lost since the start of the recession as well as the job growth necessary to provide employment to the 150,000 persons that enter the labor force each month. That is not expected to change soon as the consensus estimate of economists surveyed as part of the September 2010 Blue Chip Survey is that private sector employment will grow by roughly 100,000 jobs per month over the remainder of 2010 and by 155,000 per month in 2011. Until job growth picks up appreciably from its current pace, the unemployment rate is likely to remain elevated through the end of 2010 and well into 2011.

Economic Indicators*

	2009			2009Q4			2010Q1			2010Q2			2010Q3			Forecast
																2010			2011
Economy(1)
Gross Domestic Product (GDP)		-2.6	%		5.0	%		3.7	%		1.7	%		2.0	%		2.7	%		2.5	%
Employment Growth (Thousands)		-4,740			-269			261			570			-218			1,032			2,052
Interest Rates(2)
10 Year Treasury		3.26	%		3.46	%		3.72	%		3.49	%		2.79	%		3.20	%		3.20	%
Federal Funds Rate		0.0-0.25	%		0.0-0.25	%		0.0-0.25	%		0.0-0.25	%		0.0-0.25	%		N/A			N/A

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

*	Historical data subject to revision
(1)	GDP growth rates are annual rates; employment numbers are monthly changes, except forecasts, which are annual totals.
(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 indicators of U.S. economic activity, such as those summarized in the table below, highlight the weaknesses that remain in the U.S. economy. Consumer confidence, after inching up in August, dipped in September and remains entrenched at a historically low level. Similarly, the housing market remains depressed, as sales of new and existing homes dropped sharply after the expiration of government incentive programs that stimulated the market earlier in the year. More recently, existing home sales increased 10% in September following a 7.3% increase in August. However, median prices fell 2.4% in September with distressed sales accounting for 35% of all sales. Sales of existing single-family homes are currently running at a four million annual pace which is almost 20% below the same time last year and almost 40% below the sales pace at the market peak. Similarly, new home sales remain close to the slowest pace on record, and housing starts have fallen to historic lows as builders are unwilling to compete with a glut of new and existing homes being offered for sale. The unemployment rate is currently 9.6% and has remained at or above 9.5% since mid-2009.

36

Broad Economic Indicators*

Index 1985=100	Full Year						July 2010			Aug 2010			Sept 2010
	2008			2009
Consumer Confidence (1985 = 100)		58.0			45.2			51.0			53.2			48.5
% Change from prior month or year
Inflation (Consumer Price Index)		3.8	%		-0.4	%		0.3	%		0.3	%		0.1	%
Retail Sales (excl. auto, parts & gas)		1.2	%		-2.0	%		0.1	%		0.9	%		0.4	%
Existing Home Sales		-13.1	%		4.9	%		-27.0	%		7.3	%		10.0	%
New Home Sales		-37.5	%		-22.7	%		-8.1	%		1.1	%		6.6	%
Single-family Housing Starts		-40.5	%		-28.4	%		-5.1	%		1.4	%		4.4	%
Annual or Monthly Average
Unemployment Rate		5.8	%		9.3	%		9.5	%		9.6	%		9.6	%

* Data subject to revision

Inflation is the year-over-year percentage change in the unadjusted annual average.

Sources: Conference Board, Census Bureau, Bureau of Labor Statistics, National Association of Realtors

Reports from the twelve Federal Reserve Districts (“Districts”) contained in the October 2010 Beige Book indicated that economic growth continued across the country since its September report but at a modest pace. Consumer spending increased, but consumers remained cautious with spending largely limited to necessities and non-discretionary items. Growth in the manufacturing sector continued with increases in production and new orders. Activity at professional and business services firms remained stable or was up slightly. Commercial real estate market conditions remained weak, with rents remaining under downward pressure for most types of property. The only exception was the apartment sector where stronger leasing activity resulted in fewer concessions, especially in New York City. Residential real estate markets were uniformly weak with home sales sluggish or declining, and inventories of available homes remaining elevated or rising in most Districts. Similarly, lending activity was stable but at low levels in most Districts, with businesses continuing to postpone capital spending plans because of economic and public policy uncertainties. Consumer lending also remained sluggish. With respect to inflation, price increases have been limited to selected food commodities and industrial materials whereas prices of final goods and services have remained stable. Wage pressures were virtually non-existent as there was an ample supply of qualified workers for open positions. However, hiring remained limited, with firms reluctant to add to permanent payrolls. In short, regional reports provided anecdotal confirmation of the weaker macroeconomic data released during the quarter.

The weakening of key economic indicators in the third quarter prompted many economists to downgrade their forecasts of economic growth for the remainder of 2010 and the first half of 2011. The consensus of economists surveyed as part of the September 10th Blue Chip Economic Indicators publication is for GDP to grow at roughly a 3% pace in 2011, and economic activity expected to remain weak during the last quarter of 2010 and the first half of 2011. The consensus forecast is for GDP to grow at an annual rate of 2.3% in the fourth quarter of 2010 and 2.5% in the first quarter of 2011. Similarly, in the economic forecast prepared for the September FOMC meeting, FOMC staff lowered projections of economic activity over the second half of 2010 and slightly reduced its forecast of growth in 2011. While FOMC staff still expects a moderate strengthening of the economic expansion in 2011 and further gains in 2012, a downward revision of its forecast was necessary given that recently released economic data was weaker than expected.

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 September 30, 2010 and may subsequently be revised. Prior period numbers may have been adjusted to reflect updated data. Industry sources such as CB Richard Ellis Economic Advisors calculate vacancy 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 real estate market generally.

37

Commercial property sales continued to show strong gains as compared to depressed 2009 sales activity. According to Real Capital Analytics, sales of office, industrial, retail, and apartment property totaled almost $30 billion in the third quarter of 2010, which was 35% above that in the second quarter of 2010 and double that of the third quarter of 2009. The office and apartment sectors were most active in recent months, and sales across all property types were concentrated in a handful of major markets such as Washington DC, New York, Boston, Chicago, San Francisco and Los Angeles. Sales activity in secondary and tertiary markets was far weaker. Commercial property prices have increased too. However, the Moody’s/REAL Commercial Property Price Index (“Moody’s CPPI”) declined 3.3% in August, which was the third consecutive monthly decline. According to Moody’s, prices remain well below those at the peak of the market, and still below those of a year ago, with August 2010 prices on average still 7.6% below those in August 2009. Another commercial price index shows sizeable price increases from the market’s low point. Green Street Advisors’ Commercial Property Price Index (“GSA CPPI”) increased 3% in September, the fifteenth consecutive monthly increase, and is now 30% above its lows of May 2009. The difference in Moody’s and Green Street’s indices is primarily due to methodology. Moody’s index is a “same property” sales index which uses sales activity and econometric models to estimate “same property” values. Moody’s results also include sales of distressed properties which appear to be largely responsible for the index’s recent monthly declines. By comparison, Green Street uses recent sales activity, changes in REIT company and property values, and anecdotal information from industry contacts to estimate overall commercial real estate values. To a large degree, Green Street’s estimates appear to be a more accurate assessment of market activity as listings of top properties have attracted considerable interest and numerous aggressive bids. Moreover, the increased level of sales activity, the greater interest in commercial real estate from institutions, foreign buyers and funds, and improved credit market conditions collectively suggest that prices have potentially increased measurably from their lows. According to Green Street, three factors are responsible for the rebound in prices: (1) plunging return hurdles across most asset classes; (2) a lack of distressed sellers; and (3) a quicker than expected rebound in fundamentals, albeit still weak, in some major property sectors.

Commercial real estate is generally a lagging industry, and accordingly, real estate returns have shown only modest improvement compared to those of other asset classes. National Council of Real Estate Investment Fiduciaries (“NCREIF”) NCREIF Property Index (“NPI”) returns for the third quarter of 2010 were 3.86%, which was the third consecutive quarter of positive returns for the NPI. Returns were positive for all property types, with each sector experiencing property value appreciation and relatively attractive income returns.

Commercial real estate fundamentals remain weak, but there has been modest improvement in market conditions. Vacancy rates remain elevated, but have largely stabilized and, in a number of markets, have inched down. While leasing activity has picked up, rents remain under downward pressure and generous concessions are frequently required to secure tenants. Tenants have a variety of space options and significant negotiating power with landlords, but many tenants have been spurred into action as they expect that opportunities to lock-in space at favorable rates are likely to diminish in the near future. Property prices have largely stabilized, and have increased for high quality properties in top markets. While transaction volume is still relatively modest, it has picked up dramatically as prospective buyers are out in force for institutional quality property has come to market: there is lesser interest in lower quality properties in secondary and tertiary markets. The level of distressed sales activity is rising, with Moody’s estimating that distressed sales have accounted for roughly 25% of sales in 2010, and often at significant discounts. However, the impact of distressed property sales on the market has thus far been far less severe than initially anticipated.

Selected Occupancy Data

Data for the Account’s top five markets in terms of market value as of September 30, 2010 are provided below. These markets represent 42% of the Account’s total real estate portfolio and occupancies of the properties owned in all of the top markets except Boston remained at or above 90% overall. The average occupancy for the Account’s Boston properties (86.3%) is reflective of a lease expiration and move-out of a large tenant in the second quarter of 2010; one quarter of that space has been re-leased and discussions with potential tenants for portions of the remaining space are underway.

The high overall occupancy of the Account’s properties in its major markets and the portfolio as a whole is partly attributable to the quality of the Account’s properties, as top properties on average currently have higher occupancies than that of the overall market. Management believes the Account’s mix of core

38

properties, which are predominantly in the top 50 United States markets, is largely responsible for higher than average occupancy levels.

Metropolitan Area

 

Account %
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

 

96.2%

  

8

  

14.5%

  

11.6%

 

Los Angeles-Long Beach-Glendale CA

 

90.7%

  

8

  

7.1%

  

5.7%

 

Boston-Quincy MA

 

86.3%

  

5

  

7.0%

  

5.6%

 

San Francisco-San Mateo-Redwood City CA

 

93.2%

  

4

  

6.6%

  

5.3%

 

Houston-Bay Town-Sugar Land TX

 

95.4%

  

3

  

6.4%

  

5.1%

 

* 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.

Office

According to CB Richard Ellis Economic Advisors (“CBRE-EA”), the national office vacancy rate averaged 16.6% in the third quarter of 2010 as compared to 16.7% in second quarter of 2010. By comparison, the vacancy rate for the Account’s office portfolio was 11.0% as of the third quarter of 2010, as compared to 11.9% in second quarter of 2010. As shown in the table below, the average vacancy rates of the Account’s properties in all of its top markets declined during the third quarter. Further, the average vacancy rate of the Account’s properties in all of its major markets was below the comparative market vacancy. In Washington DC, for example, the Account’s weighted average vacancy was 4.9% compared to 13.1% for the overall market. The Account’s results are largely consistent with conditions at the national level where top quality buildings are largely outperforming the overall market. Gains in the portfolio came despite lackluster employment growth. Demand for office space is driven largely by growth in office jobs in the financial sector, where employment declined by 14,000 in the third quarter of 2010, and professional and business services sectors, where employment grew by a modest 37,000 during the third quarter. Office market conditions are likely to remain lackluster until job growth in the financial and professional and business services sectors picks up significantly; however, office properties in the Account’s top markets appear well positioned to benefit from further improvement in market conditions.

      

Account
Weighted
Average
Vacancy

 

Metropolitan
Area
Vacancy*

 

Sector

 

Metropolitan Area

 

Total Sector
by Metro Area
($M)

 

% of Total
Investments

 

2010Q2

 

2010Q3

 

2010Q2

 

2010Q3

Office

 

National

     

11.9%

  

11.0%

  

16.7%

  

16.6%

 

1

 

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

$

1,151.2

  

10.1%

  

6.0%

  

4.9%

  

13.5%

  

13.1%

 

2

 

Boston-Quincy MA

$

614.1

  

5.4%

  

14.4%

  

12.8%

  

13.1%

  

13.2%

 

3

 

San Francisco-San Mateo-Redwood City CA

$

540.5

  

4.7%

  

8.3%

  

7.8%

  

14.7%

  

14.1%

 

4

 

Seattle-Bellevue-Everett WA

$

443.4

  

3.9%

  

9.3%

  

9.1%

  

17.4%

  

16.8%

 

5

 

Los Angeles-Long Beach-Glendale CA

$

384.5

  

3.4%

  

16.3%

  

15.8%

  

16.7%

  

17.2%

 

* 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. Historical data subject to revision.

39

Industrial

Conditions in the industrial market are influenced to a large degree by GDP growth, industrial production, and international trade flows. With macroeconomic indicators such as GDP growth and survey readings from the Institute for Supply Management showing weakness after improving earlier in the year, industrial market conditions also remained weak. According to CBRE-EA, the national industrial availability rate was 14.0% during the third quarter of 2010 as compared to 14.1% during the second quarter of 2010. By comparison, the vacancy rate for the Account’s industrial property portfolio averaged 8.5% in the third quarter of 2010 as compared to 7.2% in the second quarter of 2010. As shown in the table below, the average vacancy of the Account’s properties in three of its five top markets did increase during the third quarter of 2010, but the average vacancy rate of the Account’s properties in all but one of its major markets was once again well below the comparative market vacancy. The Account’s Riverside, California properties, for example, are fully leased as compared with a 15.4% metropolitan area vacancy. The only exception was Los Angeles where the average vacancy of the Account’s properties was 13.6% in the third quarter of 2010 as compared to an 8.1% market vacancy with the above-average vacancy rate due to recent lease expirations and defaults of several smaller tenants.

      

Account
Weighted
Average
Vacancy

 

Metropolitan
Area
Availability*

 

Sector

 

Metropolitan Area

 

Total Sector
by Metro Area
($M)

 

% of Total
Investments

 

2010Q2

 

2010Q3

 

2010Q2

 

2010Q3

Industrial

 

National

     

7.2%

  

8.5%

  

14.1%

  

14.0%

 

1

 

Riverside-San Bernardino-Ontario CA

$

347.4

  

3.0%

  

0.0%

  

0.0%

  

15.7%

  

15.4%

 

2

 

Dallas-Plano-Irving TX

$

155.8

  

1.4%

  

4.5%

  

6.3%

  

16.1%

  

15.9%

 

3

 

Chicago-Naperville-Joliet IL

$

107.6

  

0.9%

  

2.3%

  

2.3%

  

15.3%

  

15.1%

 

4

 

Los Angeles-Long Beach-Glendale CA

$

88.5

  

0.8%

  

11.3%

  

13.6%

  

8.0%

  

8.1%

 

5

 

Atlanta-Sandy Springs-Marietta GA

$

88.1

  

0.8%

  

1.8%

  

5.0%

  

18.3%

  

18.8%

 

* 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. Historical data subject to revision.

Multi-Family

Preliminary data from CBRE-EA indicate that apartment market conditions strengthened significantly. The U.S. apartment vacancy rate averaged 5.7% as of the third quarter of 2010 compared to 7.3% in the third quarter of 2009. (Year-over-year comparisons are necessary to account for seasonal leasing patterns.) The improvement in market conditions was due to a decline in home-ownership rates resulting from the housing crisis and an increase in household formations as a result of modest job growth. The vacancy rate of the Account’s multi-family portfolio averaged 2.7% in the third quarter of 2010 compared to 2.6% in the second quarter of 2010. As shown in the table below, the average vacancy rates for the Account’s properties in its top apartment markets were all well below their comparative market averages.

40

      

Account
Weighted
Average
Vacancy

 

Metropolitan
Area
Vacancy*

 

Sector

 

Metropolitan Statistical Area

 

Total Sector
by Metro Area
($M)

 

% of Total
Investments

 

2010Q2

 

2010Q3

 

2010Q2

 

2010Q3

Apartment

 

National

     

2.6%

  

2.7%

  

6.3%

  

5.7%

 

1

 

Houston-Bay Town-Sugar Land TX

$

219.5

  

1.9%

  

2.7%

  

3.3%

  

9.8%

  

9.7%

 

2

 

Denver-Aurora CO

$

201.1

  

1.8%

  

2.6%

  

2.5%

  

5.5%

  

4.8%

 

3

 

Atlanta-Sandy Springs-Marietta GA

$

127.0

  

1.1%

  

1.9%

  

1.9%

  

9.2%

  

9.3%

 

4

 

Phoenix-Mesa-Scottsdale AZ

$

115.0

  

1.0%

  

4.3%

  

3.4%

  

10.0%

  

9.6%

 

5

 

New York-Wayne-White Plains NY-NJ

$

113.9

  

1.0%

  

0.0%

  

0.0%

  

5.9%

  

6.0%

 

* 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. Historical data subject to revision.

Retail

Macro-economic indicators for the retail sector first turned positive in Fall 2009 and have strengthened gradually since. Despite cautious spending by U.S. households, retail sales excluding motor vehicles and gas have grown steadily on a year-over-year basis through the nine months of 2010. While comparisons are favorable largely because 2009 sales were extremely weak, available data for the third quarter of 2010 indicate that retail sales excluding motor vehicles and gas have grown at a 4-5% rate. Similarly, “same store sales growth,” a key industry metric, is now largely positive for leading retailers after significant declines throughout much of the past three years. Same store sales have continued to increase in 2010, but with the strongest results for discounters. Despite recent increases, the outlook for consumer spending remains uncertain as ongoing weakness in the job market, modest income growth, stagnant housing values, and tight credit are likely to constrain spending in the quarters ahead. Availability rates in community and neighborhood shopping centers were unchanged averaging 13.2% in both the third quarter of 2010 and the second quarter of 2010. This is the first quarter that the availability rate has not increased since 2007. Though vacancies persist because of the weak macroeconomic environment, the stabilization in availability rates and the continued growth in retail sales bode well for retail market prospects. Reflective of both the modest improvement in the retail market and the challenging economic and leasing environment that remains, the vacancy rate for the Account’s retail portfolio declined to 14.7% during the third quarter of 2010 from 15.0% in the second quarter of 2010.

Outlook

Recent weakness in U.S. macroeconomic conditions has had a mixed impact on commercial real estate market conditions. Vacancy rates for all property types declined slightly in the third quarter of 2010 even though economic growth was lackluster. Similarly, property values and returns both strengthened over the quarter, and the attractive relative returns of commercial real estate compared with other asset types, coupled with the return of institutional investors, pension funds, and foreign investors to the market we believe bode well for values and returns generally in the near term. Still, the tenuous nature of the recovery and the likelihood of very modest employment growth in the coming quarters suggest that real estate market fundamentals will remain soft and improve at a very gradual pace. While a slow growth environment has historically provided a favorable backdrop for commercial real estate, especially if combined with minimal construction, the lackluster recovery poses risk to commercial real estate given the linkages between job growth, space demand, and rent growth.

Management’s strategies for navigating through the recent downturn included a focus on maintaining the Account’s income returns through aggressive property management and leasing in combination with expense management. Results for the third quarter of 2010 demonstrate the improvements resulting from execution of the strategy as the Account’s commercial property portfolio was 89.1% leased, which helped produce an

41

income return of 2.01%. This income return, coupled with a 4.32% capital return, made the return for the third quarter of 2010 the strongest quarterly property return in the Account’s history. (See graph below.)

During the downturn, management also sought to realign geographic and property sector allocations so that the Account’s holdings are concentrated in target major markets with a balance of property types. The sales of $385 million of property investments in 2010, of which $28.5 million closed in the third quarter of 2010, have contributed to this objective of rebalancing of the Account’s property type and market concentrations to be consistent with management’s investment strategy and objectives. In addition, management reduced the Account’s overall level of debt, extended its aggregate debt maturity schedule, and significantly lowered its overall interest rate. Activities taken during the third quarter of 2010 consistent with this strategy, and coupled with significant participant inflows to the Account, have significantly bolstered the Account’s available cash.

Consistent with the Account’s overall investment strategy of having between 75% and 85% of net assets invested directly in real estate or real estate-related securities such as REITs, a portion of the Account’s available cash has recently been invested in equity REITs. REIT investments account for approximately 2.9% of total net assets as of the end of third quarter of 2010, and additional REIT investments have been made early in the fourth quarter of 2010. Since its inception, the Account has invested in equity REITs from time to time to provide exposure to the commercial real estate sector while generating a solid dividend return. Management also believes that REITs, because of their relative liquidity, are appropriate investments for portions of the Account’s available cash.

As the Account’s liquidity has improved, management intends to consider new acquisitions of real properties. Management believes that, notwithstanding the fact that commercial real estate prices have increased from their lows in the latter half of 2009, properties can still be acquired at relatively attractive prices and initial cash-on-cash returns. Acquisitions will, as always, be evaluated in the context of overall fund objectives, including target market concentrations, property sector allocations, and a “core” investment strategy with an emphasis on institutional quality properties, particularly those that have a strong occupancy history and favorable tenant rollover schedules. Consideration may also be given to using the Account’s available cash to redeem some or all of the Liquidity Units held by the TIAA General Account. Any decision to redeem any portion of TIAA’s Liquidity Units will be subject to the approval of the Account’s independent fiduciary. Management believes that the Account’s current liquidity provides flexibility to consider new acquisitions, purchases of real-estate related securities such as REITs, redemption of Liquidity Units, management of debt, capital expenditures and such other uses which, in the aggregate, should position the Account to benefit from an expected recovery in the commercial real estate market.

Investments as of September 30, 2010

As of September 30, 2010, the Account had total net assets of $9.6 billion, a 21.5% increase from December 31, 2009, and a 14.1% increase from September 30, 2009. The increase of the Account’s net assets as of September 30, 2010 as compared to December 31, 2009 was primarily caused by the appreciation in

42

value of the Account’s wholly owned real estate properties and those owned in joint venture investments, as well as an increase in participant transfers into the Account for this period.

As of September 30, 2010, the Account owned a total of 100 real estate property investments (89 of which were wholly owned, 11 of which were held in joint ventures). The real estate portfolio included 39 office property investments (five of which were held in joint ventures and one located in London, England), 25 industrial 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 one 75% owned joint venture interest in a portfolio of storage facilities. Of the 100 real estate property investments, 29 are subject to debt (including seven joint venture property investments).

Total debt on the Account’s wholly owned real estate portfolio as of September 30, 2010 was $1.8 billion. The Account’s share of joint venture debt ($1.6 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 September 30, 2010 was $3.4 billion, representing a loan to value ratio of 26.6%. 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 6.4% of total real estate investments and 5.2% 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, and/or (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 intends to 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 September 30, 2010.

Diversification by Fair Value⁽¹⁾

 

East

 

West

 

South

 

Midwest

 

Foreign⁽²⁾

 

Total

Office

 

24.2

%

 

17.3

%

 

11.4

%

 

1.2

%

 

2.9

%

 

57.0

%

Apartment

 

2.6

%

 

6.1

%

 

5.4

%

 

—

%

 

—

%

 

14.1

%

Industrial

 

1.4

%

 

6.6

%

 

3.9

%

 

1.3

%

 

—

%

 

13.2

%

Retail

 

3.3

%

 

1.0

%

 

8.3

%

 

0.3

%

 

2.1

%

 

15.0

%

Storage

 

0.2

%

 

0.2

%

 

0.2

%

 

0.1

%

 

—

%

 

0.7

%

Total

 

31.7

%

 

31.2

%

 

29.2

%

 

2.9

%

 

5.0

%

 

100.0

%

(1)	Wholly-owned properties are represented at fair value and gross of any debt, while joint venture properties are represented at the net equity value.
(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

43

Top Ten Largest Real Estate Investments

Property Investment Name	City	State	Type	Value ($M)(a)			Property as a % of Total Real Estate Portfolio		Property as a % of Total Investments
1001 Pennsylvania Avenue	Washington	DC	Office		587.7	(b)		6.44		5.15
Four Oaks Place	Houston	TX	Office		366.4			4.02		3.21
50 Fremont	San Francisco	CA	Office		308.5	(c)		3.38		2.70
Fourth and Madison	Seattle	WA	Office		307.0	(d)		3.37		2.69
DDR Joint Venture	Various	USA	Retail		306.6	(e)		3.36		2.69
780 Third Avenue	New York City	NY	Office		272.4			2.99		2.39
Westferry Circus	London	UK	Office		262.5	(f)		2.88		2.30
99 High Street	Boston	MA	Office		241.9	(g)		2.65		2.12
1900 K Street	Washington	DC	Office		240.1			2.63		2.10
The Florida Mall	Orlando	FL	Retail		231.8	(h)		2.54		2.03

(a)	Value as reported in the September 30, 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 which is net of any debt.
(b)	This property investment is presented gross of debt with fair value of $218.9 million.
(c)	This property investment is presented gross of debt with fair value of $136.5 million.
(d)	This property investment is presented gross of debt with fair value of $146.4 million.
(e)	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 with fair value of $973.3 million.
(f)	This property investment is presented gross of debt with fair value of $214.3 million.
(g)	This property investment is presented gross of debt with fair value of $183.8 million.
(h)	This property investment is a 50%/50% joint venture with Simon Property Group, L.P., and is presented net of debt with fair value of $180.1 million.

As of September 30, 2010, the Account also held investments in real estate limited partnerships representing 2.1% of total investments, real estate-related equity securities representing 2.4% of total investments, U.S. treasury bills representing 2.8% of total investments, and government agency notes representing 12.8% of total investments.

Results of Operations

Nine months ended September 30, 2010 compared to nine months ended September 30, 2009

Performance

The Account’s total return was 7.2% for the nine months ended September 30, 2010 as compared to -23.8% for the nine months ended September 30, 2009. The Account’s performance during 2010 reflects an increase in the aggregate net asset value of the Account’s real estate property investments, including investments owned in joint ventures, income from property investments and marketable securities, and an increase in unrealized gains on investments.

The Account’s annualized total returns (after expenses) over the past one, three, five, and ten year periods ended September 30, 2010 were 1.8%, -12.1%, -2.2%, and 3.0%, respectively. As of September 30, 2010, the Account’s annualized total return since inception was 4.9%.

The Account’s total net assets increased from $8.4 billion at September 30, 2009 to $9.6 billion at September 30, 2010. The primary driver of this 14.1% increase was net participant transactions into the Account.

Net Investment Income

The table below shows the results of operations for the nine months ended September 30, 2010 and 2009 and the dollar and percentage changes for those periods (dollars in thousands).

44

	For the Nine Months Ended September 30,						Change
	2010			2009			$				%
INVESTMENT INCOME
Real estate income, net:
Rental income		$	652,025		$	719,641		$	(67,616	)		-9.4	%
Real estate property level expenses and taxes:
Operating expenses			163,410			180,516			(17,106	)		-9.5	%
Real estate taxes			88,193			98,929			(10,736	)		-10.9	%
Interest expense			79,830			76,827			3,003			3.9	%
Total real estate property level expenses and taxes			331,433			356,272			(24,839	)		-7.0	%
Real estate income, net			320,592			363,369			(42,777	)		-11.8	%
Income from real estate joint ventures and limited partnerships			69,565			95,407			(25,842	)		-27.1	%
Interest			2,084			1,402			682			48.6	%
Dividends			1,096			—			1,096			—
TOTAL INVESTMENT INCOME			393,337			460,178			(66,841	)		-14.5	%
Expenses:
Investment advisory charges			36,541			32,325			4,216			13.0	%
Administrative and distribution charges			19,286			29,373			(10,087	)		-34.3	%
Mortality and expense risk charges			3,093			3,717			(624	)		-16.8	%
Liquidity guarantee charges			9,281			9,356			(75	)		-0.8	%
TOTAL EXPENSES			68,201			74,771			(6,570	)		-8.8	%
INVESTMENT INCOME, NET		$	325,136		$	385,407		$	(60,271	)		-15.6	%

The $67.6 million decrease in real estate rental income for the nine months ended September 30, 2010 as compared to the nine months ended September 30, 2009 was primarily a result of the seven full and six partial wholly owned property investment sales that occurred in the second half of 2009. These disposed properties accounted for approximately $45.9 million, or 67.9%, of the $67.6 million total change. Of the remaining $21.7 million decrease, termination fee income offset the decline by approximately $6.4 million, but the total decrease was attributed to increased vacancies at certain properties, reduced rental rates, and rent concessions for renewed leases, as well as lower common area charges resulting from the properties maintaining lower property operating expenses.

Operating expenses declined approximately 9.5% for the nine months ended September 30, 2010 as a result of fewer property investments under management. Property investments that were sold accounted for approximately $11.6 million, or 67.8%, of the total decline in operating expenses. Approximately $5.5 million of the remaining decrease in operating expense was the result of lower insurance and general building and maintenance expenses.

Real estate taxes experienced a 10.9% decrease for the nine month period ended September 30, 2010 as compared to the same period in the prior year. This was a result of fewer property investments under management and lower tax assessments across the existing properties held by the Account.

Interest expense increased approximately $3.0 million, or 3.9% for the nine months ended September 30, 2010. The increase was primarily related to the 10 new debt obligations that were added in July 2010, which accounted for approximately $5.4 million of additional expense for the three months ended September 30, 2010. This was partially offset by one property sale in the second half of 2009 that had a mortgage and favorable foreign currency changes on the foreign mortgage.

The $25.8 million decline in income from real estate joint ventures and limited partnerships was primarily attributed to a decrease in revenues as a result of an increase in vacancies as well as rent concessions across the joint venture portfolios held by the Account. Furthermore, the decrease in income from joint ventures and limited partnerships can be attributed to the sale of 16 properties from within the DDR joint venture in early 2010. This resulted in less income to the Account as compared to the comparable period of September 30, 2009.

45

The Account experienced an 8.8%, or $6.6 million, decrease in overall Account level expenses for the nine month period ended September 30, 2010 as compared to the comparable period of September 30, 2009. The decrease in overall expenses was primarily due to lower average net assets as compared to the same period in the prior year. Administrative and distribution charges accounted for a significant portion of the decrease with approximately $10.1 million lower than the comparable period of September 30, 2009.

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

The table below shows the net realized and unrealized gains and losses on investments and mortgage loans payable for the nine months ended September 30, 2010 and 2009 and the dollar and percentage changes for those periods (dollars in thousands).

	For the Nine Months Ended September 30,								Change
	2010				2009				$				%
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
Net realized gain (loss) on investments:
Real estate properties		$	(1,153	)		$	(29,628	)		$	28,475			96.1	%
Real estate joint ventures and limited partnerships			(156,744	)			—				(156,744	)		—
Marketable securities			2				1				1			100.0	%
Total realized loss on investments:			(157,895	)			(29,627	)			(128,268	)		n/m
Net change in unrealized appreciation (depreciation) on:
Real estate properties			273,007				(2,149,064	)			2,422,071			112.7	%
Real estate joint ventures and limited partnerships			218,158				(872,821	)			1,090,979			125.0	%
Marketable securities			(2,199	)			23				(2,222	)		n/m
Mortgage loans receivable			3,727				(2,802	)			6,529			233.0	%
Mortgage loans payable			(42,121	)			(22,758	)			(19,363	)		-85.1	%
Net change in unrealized appreciation (depreciation) on investments and mortgage loans payable			450,572				(3,047,422	)			3,497,994			114.8	%
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE			292,677				(3,077,049	)			3,369,726			109.5	%
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$	617,813			$	(2,691,642	)		$	3,309,455			123.0	%

n/m – Not meaningful

During the nine months ended September 30, 2010, the Account experienced a net realized and unrealized gain on investments and mortgage loans payable of $292.7 million compared to a net realized and unrealized loss of $3,077.0 million for the period ended September 30, 2009. The overall net gain was driven by an increase in the values of wholly owned real estate properties and investments in real estate joint ventures, compared to declining values in the comparable period of 2009.

The Account’s valuation increases in 2010 were generally due to decreases in overall market capitalization rates as well as property specific drivers such as new leases, improved local market rents, decrease in real estate taxes, and improved occupancy levels at certain properties. Approximately 75% of the Account’s wholly owned real estate properties and investments in joint ventures experienced an increase in fair value during the nine months ended September 30, 2010, as compared to the comparable period of 2009.

The net realized and unrealized gains on wholly owned investments increased significantly during the nine months ended September 30, 2010 compared to the same period of 2009. Of the $271.9 million of net realized and unrealized gains during the nine months ended September 30, 2010, the majority was related to valuation gains of $290.6 million offset by losses related to foreign currency translation of $18.7 million as a result of the strengthening U.S. dollar.

Real estate joint ventures and limited partnerships experienced a net realized and unrealized gain of approximately $61.4 million for the nine months ended September 30, 2010. The unrealized net gain is

46

attributed to $218.2 million in unrealized gain as a result of increased property values offset by $156.7 million realized loss from the sales of 16 property investments from the Account’s DDR TC LLC joint venture and the Tyson’s Executive Plaza II joint venture.

During the nine months ended September 30, 2010, the Account’s marketable securities position was $2.0 billion which was comprised of $274.7 million of real estate-related marketable securities and $1.8 billion of other securities such as U. S. Treasuries and Government Agency notes. The net realized and unrealized loss of $2.2 million experienced by the Account on marketable securities was due to a small decline in the value of real estate-related equity securities.

For the period ended September 30, 2010, the Account had a net unrealized gain on the mortgage loan receivable of $3.7 million compared to $2.8 million loss for the comparable period in 2009, as the mortgage loan receivable was paid in full during September 2010.

During the nine months ended September 30, 2010, mortgage loans payable experienced an unrealized loss of approximately $42.1 million compared to an unrealized loss of approximately $22.8 million for the comparable period of 2009. The $42.1 million unrealized loss experienced during 2010 primarily consists of $47.3 million in valuation adjustments (presented as losses to the Account) due to continued declines in treasury rates coupled with decreasing loan to value ratios, offset by approximately $5.2 million of valuation gains as a result of foreign currency translation. For the $22.8 million loss during the comparable period of 2009, $21.7 million related to foreign currency fluctuations, due to the strengthening of the U.S. dollar throughout the current year.

Three months ended September 30, 2010 compared to three months ended September 30, 2009

Performance

The Account’s total return was 4.7% for the three months ended September 30, 2010 as compared to -7.64% for the three months ended September 30, 2009. The Account’s performance in the third quarter of 2010 reflects an increase in the aggregate net asset value of the Account’s real estate property investments, including investments owned in joint ventures, income from property investments and marketable securities, and unrealized gains on investments, while slightly offset by unrealized losses related to mortgage loans payable and marketable securities.

Net Investment Income

The table below shows the results of operations for the three months ended September 30, 2010 and 2009 and the dollar and percentage changes for those periods (dollars in thousands).

47

 

For the Three Months
Ended September 30,

 

Change

 

2010

 

2009

 

$

 

%

INVESTMENT INCOME

Real estate income, net:

Rental income

$

222,655

 

$

239,152

 

$

(16,497

)

 

-6.9

%

Real estate property level expenses and taxes:

Operating expenses

 

56,344

  

59,138

  

(2,794

)

 

-4.7

%

Real estate taxes

 

28,425

  

30,975

  

(2,550

)

 

-8.2

%

Interest expense

 

30,429

  

25,159

  

5,270

  

-21.0

%

Total real estate property level expenses and taxes

 

115,198

  

115,272

  

(74

)

 

-0.1

%

Real estate income, net

 

107,457

  

123,880

  

(16,423

)

 

-13.3

%

Income from real estate joint ventures and limited partnerships

 

28,076

  

35,163

  

(7,087

)

 

-20.2

%

Interest

 

1,047

  

406

  

641

  

157.9

%

Dividends

 

1,096

  

—

  

1,096

  

0.0

%

TOTAL INVESTMENT INCOME

 

137,676

  

159,449

  

(21,773

)

 

-13.7

%

Expenses:

Investment advisory charges

 

13,610

  

11,304

  

2,306

  

20.4

%

Administrative and distribution charges

 

6,855

  

8,161

  

(1,305

)

 

-16.0

%

Mortality and expense risk charges

 

1,143

  

1,112

  

31

  

2.8

%

Liquidity guarantee charges

 

3,429

  

3,336

  

93

  

2.8

%

TOTAL EXPENSES

 

25,037

  

23,913

  

1,124

  

4.7

%

INVESTMENT INCOME, NET

$

112,639

 

$

135,536

 

$

(22,897

)

 

-16.9

%

The $16.5 million or 6.9% decrease in real estate rental income for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009 was primarily a result of the seven full and six partial sales of wholly owned property investments that occurred in the second half of 2009. The disposed properties accounted for approximately $14.3 million, or 86.7% of the $16.5 million total change. Of the remaining $2.2 million, termination fee income offset the decline by approximately $5.5 million, but the total decrease was attributed to increased vacancies at certain properties, reduced rental rates and concessions for renewed leases, and lower common area charges resulting from the properties maintaining lower property operating expenses.

Operating expenses declined for the three months ended September 30, 2010 by $2.8 million, or 4.7% as a result of fewer property investments under management. Property investments that were sold accounted for approximately $4.1 million less in operating expenses. When comparing existing properties for the three months ended September 30, 2010 to the three months ending September 30, 2009 operating expenses increased approximately $1.3 million, primarily attributed to increases in utilities and bad debt expenses when compared to the same period in 2009.

Real estate taxes decreased for the three month period ended September 30, 2010 as compared to the same period in the prior year. This was a result of fewer property investments under management, accounting for approximately $1.9 million of the $2.5 million decrease, and lower tax assessments at certain properties accounting for the remainder of the difference.

Interest expense increased $5.3 million, or 21.0% in the three month period ended September 30, 2010 as compared to the same period ending September 30, 2009. The increase was primarily related to the 10 new debt obligations that were added in July 2010, which accounted for approximately $5.4 million of additional expense for the three months ended September 30, 2010.

The $7.1 million decline in income from real estate joint ventures and limited partnerships was primarily attributed to a decrease in revenues as a result of an increase in vacancies as well as rent concessions across the joint venture investments held by the Account. Furthermore, the decrease in income from joint ventures and limited partnerships can be attributed to the sale of 16 properties from the DDR Joint Venture in early 2010. This resulted in less income to the Account as compared to the period ended September 30, 2009.

48

The Account incurred a 4.7% or $1.1 million increase in overall Account level expenses for the three month period ended September 30, 2010 as compared to the three month period ended September 30, 2009. The increase in overall expenses is principally due to higher average net assets as compared to the same period in the prior year. Investment advisory and administrative and distribution charges were approximately $1.0 million higher than the quarter ended September 30, 2009.

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 September 30, 2010 and 2009 and the dollar and percentage changes for those periods (dollars in thousands).

	For the Three Months Ended September 30,								Change
	2010				2009				$				%
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE
Net realized gain (loss) on investments:
Real estate properties		$	85			$	(12,741	)		$	12,826			100.7	%
Real estate joint ventures and limited partnerships			(3,492	)			—				(3,492	)		—
Marketable securities			2				—				2			—
Total realized loss on investments:			(3,405	)			(12,741	)			9,336			100.7	%
Net change in unrealized appreciation (depreciation) on:
Real estate properties			249,733				(647,226	)			896,959			138.6	%
Real estate joint ventures and limited partnerships			62,229				(169,738	)			231,967			136.7	%
Marketable securities			(2,264	)			4				(2,268	)		n/m
Mortgage loans receivable			2,288				686				1,602			233.5	%
Mortgage loans payable			(7,809	)			(7,436	)			(373	)		-5.0	%
Net change in unrealized appreciation (depreciation) on investments and mortgage loans payable			304,177				(823,710	)			1,127,887			136.9	%
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND MORTGAGE LOANS PAYABLE			300,772				(836,451	)			1,137,223			136.0	%
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$	413,411			$	(700,915	)		$	1,114,326			159.0	%

n/m – Not meaningful

During the quarter ended September 30, 2010, the Account experienced a net realized and unrealized gain on investments and mortgage loans payable of $300.8 million compared to a net realized and unrealized loss of $836.5 million for the quarter ended September 30, 2009. The overall change was driven by an increase in the values of the wholly owned real estate properties and investments in real estate joint ventures in 2010 compared to declining values in the comparable period of 2009. Approximately 75.3% of the Account’s wholly owned real estate properties experienced an increase in fair value during the third quarter of 2010, compared to only 6.3% of wholly owned real estate properties experiencing increases during the third quarter of 2009. The net realized and unrealized gain for the three months ended September 30, 2010 was $249.7 million compared to a $660.0 million loss for September 30, 2009. The $249.7 million of unrealized gain during the three months ended September 30, 2010 is comprised of $206.0 million due to valuation gains and $43.7 million gains related to foreign currency translation.

The Account’s valuation increases experienced during the third quarter of 2010 were generally due to decreases in overall market capitalization rates as well as property specific drivers such as new leases, improved local market rents, decrease in real estate taxes, and improved occupancy levels at certain properties. Approximately $193.4 million or 64.3% of the Account’s net realized and unrealized gains on investments during the third quarter of 2010 were experienced in two primary U.S. markets as well as the Account’s two foreign properties. Specifically, the California market accounted for approximately $106.8 million of the unrealized gain for the quarter ended September 30, 2010 with both the San Francisco and Los Angeles areas accounting for approximately $73.7 million. Furthermore, the Washington D.C. market experienced significant gains accounting of approximately $44.1 million of unrealized gains during the three

49

months ended September 30, 2010. The Account’s two foreign properties located in France and Great Britain had fairly large increases in value during the third quarter of 2010 with $42.5 million in unrealized gains, primarily as a result of foreign exchange gains as the U.S. dollar weakened during the quarter.

Real estate joint ventures and limited partnerships experienced a net realized and unrealized gain of approximately $58.7 million for the three months ended September 30, 2010. This is comprised of $62.2 million in unrealized gain offset by $3.5 million loss in realized loss on a property where the Account exercised a buy-sell provision and sold its entire interest in the Tyson’s Executive Plaza II joint venture. In total, net realized and unrealized gains on investments in joint ventures and limited partnerships was significantly improved compared to the $169.7 million loss experienced during the quarter ended September 30, 2009.

The Account’s marketable securities position increased by approximately $786.3 million during the three months ended September 30, 2010, while its marketable securities position decreased during the comparable period of 2009. The net realized and unrealized loss of $2.3 million experienced by the Account on marketable securities was due to overall market declines in Real Estate Equity securities.

For the period ended September 30, 2010, the Account had a net unrealized gain on the mortgage loan receivable of $2.3 million compared to $0.7 million gain for the comparable period of 2009. The mortgage loan receivable was paid in full on September 14, 2010.

Mortgage loans payable experienced an unrealized loss of approximately $7.8 million during the third quarter of 2010 compared to an unrealized loss of approximately $7.4 million in the comparable period of 2009. The unrealized loss experienced during the third quarter of 2010 consists of $2.9 million in reductions to mortgage loans payable due to valuation adjustments (presented as a gain to the Account) offset by approximately $10.7 million of valuation losses as a result of foreign currency translation, due to the weakening of the dollar during the quarter.

Liquidity and Capital Resources

As of September 30, 2010 and 2009, the Account’s liquid assets (i.e., cash and marketable securities) had a value of $2.1 billion and $411.0 million, respectively (approximately 21.5% and 4.9% of the Account’s Net Assets at such dates, respectively). When compared to September 30, 2009, December 31, 2009, and June 30, 2010, the Account’s liquid assets have increased by approximately $1.7 billion, $1.4 billion, and $786.6 million, respectively. These increases are primarily the result of increased net participant activity into the Account, income generated from its real estate investments, income earned from joint venture investments, and proceeds from selective sales of real properties.

During the nine months ended September 30, 2010, the Account received $500.9 million in premiums and had inflows of $806.9 million in net participant transfers from TIAA, the CREF accounts, and TIAA-CREF affiliated mutual funds, while during the nine months ended September 30, 2009, the Account received $534.8 million in premiums and had an outflow of $1.7 billion in net participant transfers to TIAA, the CREF accounts, and TIAA-CREF funds (excluding the $1.1 billion of purchases of Liquidity Units by TIAA in the nine months ended September 30, 2009).

Liquidity Guarantee

Primarily as a result of significant net participant transfers out of the Account during late 2008 and early 2009, pursuant to TIAA’s existing liquidity guarantee obligation, the TIAA general account purchased approximately $1.2 billion of Accumulation Units (“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 November 11, 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.

Net participant transfers out of the Account significantly slowed following the first quarter of 2009, and net participant transfer activity turned to inflows in early 2010, which has continued through the date of this report. As a result, while management cannot predict whether any future TIAA Liquidity Unit purchases will be required under this liquidity guarantee, it is unlikely that additional purchases will be required in the near term. However, management cannot predict for how long net inflows will continue to occur. In addition,

50

effective March 31, 2011, individual participants will be limited from making internal transfers into their Account accumulation if, after giving effect to such transfer, the total value of such participant’s Account accumulation (under all contracts issued to such participant) would exceed $150,000. This limitation is subject to certain exceptions and will be in effect in the jurisdictions that have approved the limitation. Management expects that participant inflow activity will be tempered, perhaps to a significant degree, following the effective date of this limitation. 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 and could require TIAA to purchase additional Liquidity Units, perhaps to a significant degree, as was the case in late 2008 and early 2009.

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. Management believes that TIAA has the ability to meet its obligations under this liquidity guarantee.

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

•

  

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 September 30, 2010, TIAA owned approximately 10.5% 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.

Management expects, unless the trigger point has been reached, redemptions of any liquidity units would not occur until: (i) the Account has experienced net participant inflows for an extended period of time, (ii) there is no significant deterioration in participant inflows projected in the near term and (iii) the Account is otherwise projected to maintain a level of liquid assets, taking into account any pending and near term cash needs (including for capital expenditures, property cash needs, debt service, and outstanding principal balances at maturity), above its minimum long-term investment goal (which currently is to hold at least 15% of the Account’s net assets in liquid assets), as well as opportunities to invest in real estate related assets, consistent with the Account’s investment strategy. The independent fiduciary, which oversees the guarantee features, will approve all redemption of liquidity units, and may authorize or direct the redemption of TIAA’s liquidity units (or a portion thereof) at any time. 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.

51

The Account’s net investment income continues to be an additional source of liquidity for the Account. Net investment income decreased from $385.4 million for the nine months ended September 30, 2009 to $325.1 million for the nine months ended September 30, 2010. The total decline was a result of wholly owned property investment sales that occurred in the second half of 2009, joint venture sales and joint venture property sales that occurred during 2010, as well as increased vacancies at certain properties, reduced rental rates, rent concessions for renewed leases, as well as lower common area charges resulting from the properties maintaining lower property operating expenses.

While the Account’s liquid investments 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. As of September 30, 2010, cash and marketable securities comprised approximately 21.5% 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 September 30, 2010, the Account had approximately $2.7 million in principal amount of debt obligations due in the fourth quarter of 2010 related to wholly owned real estate investments and the Account’s share of debt associated with its investments in joint ventures. In addition, the Account has approximately $260.7 million in principal amount of debt obligations due in the first nine months of 2011 related to wholly owned real estate investments and the Account’s share of debt associated with its investments in joint ventures. 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 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 September 30, 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

52

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 September 30, 2010, the Account’s loan to value ratio was approximately 26.6%.

Recent Transactions

The following describes property transactions by the Account during the third 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

Tyson Executive Plaza II

On July 9, 2010, the Account sold its entire interest (representing a 50% interest) in an office building in McLean, Virginia for a sales price of approximately $28.5 million and realized a loss of approximately $3.5 million. The Account purchased its joint venture interest in this property investment on July 11, 2000. The original investment in this portfolio was $24.7 million and costs to date were $32.0 million.

Financings

On September 30, 2010 the Account repaid a total of $326.0 million of its mortgage loans payable associated with its wholly owned real estate investments at 701 Brickell and Four Oaks Place.

Florida Mall—Orlando, FL

On August 10, 2010, a joint venture located in Orlando, FL, in which the Account maintains a 50% ownership interest, obtained approximately $375.0 million in financing through two loans of approximately $187.5 million each. A portion of the proceeds were used to pay off an existing debt obligation within the joint venture of approximately $240.6 million and had a fixed interest rate of 7.55%. These new obligations mature in 10 years and have fixed interest rates of 5.25%.

1050 Lenox Park Apartment—Atlanta, GA

On July 2, 2010, the Account entered into a mortgage agreement in the principal amount of $24.0 million with a fixed interest rate of 4.43% for a period of 5 years.

San Montego Apartments—Houston, TX

On July 2, 2010, the Account entered into a mortgage agreement in the principal amount of $21.8 million with a fixed interest rate of 4.47% for a period of 5 years.

Montecito Apartments—Houston, TX

On July 2, 2010, the Account entered into a mortgage agreement in the principal amount of $20.3 million with a fixed interest rate of 4.47% for a period of 5 years.

Phoenician Apartments—Houston, TX

On July 2, 2010, the Account entered into a mortgage agreement in the principal amount of $21.3 million with a fixed interest rate of 4.47% for a period of 5 years.

53

Ashford Meadows—Herndon, VA

On July 2, 2010, the Account entered into a mortgage agreement in the principal amount of $44.6 million with a fixed interest rate of 5.17% for a period of 10 years.

The Legend at Kierland—Phoenix, AZ

On July 9, 2010, the Account entered into a mortgage agreement in the principal amount of $21.8 million with a fixed interest rate of 4.97% for a period of 7 years.

The Tradition at Kierland—Phoenix, AZ

On July 9, 2010, the Account entered into a mortgage agreement in the principal amount of $25.8 million with a fixed interest rate of 4.97% for a period of 7 years.

Red Canyon at Palomino Park—Denver, CO

On July 9, 2010, the Account entered into a mortgage agreement in the principal amount of $27.1 million with a fixed interest rate of 5.34% for a period of 10 years.

Green River at Palomino Park—Denver, CO

On July 9, 2010, the Account entered into a mortgage agreement in the principal amount of $33.2 million with a fixed interest rate of 5.34% for a period of 10 years.

Blue Ridge at Palomino Park—Denver, CO

On July 9, 2010, the Account entered into a mortgage agreement in the principal amount of $33.4 million with a fixed interest rate of 5.34% for a period of 10 years.

For additional details concerning these and other of the Account’s mortgage loans payable, see Note 8—Mortgage Loans Payable.

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.

Determination of Investments at Fair Value:The Account reports all investments and investment related mortgage loans payable at fair value. The Financial Accounting Standards Board (“FASB”) has defined fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The following is a description of the valuation methodologies used to determine the fair value of the Accounts investments and investment related mortgage payables.

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. 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

54

valuation that represents a reasonable 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.

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 or month 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). Alternatively, adjustments may be made to reflect the execution or renewal of a significant lease. 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, 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

55

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 (including those identified above) 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.

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.

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.

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.

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.

Valuation of Mortgage Loans 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

56

loans of similar characteristics, the performance of the underlying collateral and the credit quality of the counterparty.

Valuation of Mortgage Loans Payable:

Mortgage loans payable are stated at fair value. The estimated fair value of mortgage loans payable are 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. Interest expense for mortgage loans payable is recorded on the accrual basis taking into account the outstanding principal and contractual interest rates.

See Note 5—Assets and Liabilities Measured at Fair Value on a Recurring Basisfor further discussion and disclosure regarding the determination of the Account’s investments fair values.

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 are included in net realized and unrealized gains and losses on real estate properties 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.

Accumulation and Annuity Funds:The accumulation fund represents the net assets attributable to participants in the accumulation phase of their investment (“Accumulation Fund”). The annuity fund represents the net assets attributable to the participants currently receiving annuity payments (“Annuity Fund”). The net increase or decrease in net assets from investment operations is apportioned between the accounts based upon their relative daily net asset values. Once an Account participant begins receiving lifetime annuity income benefits, monthly payment levels cannot be reduced as a result of the Account’s adverse mortality experience. In addition, the contracts pursuant to which the Account is offered are required to stipulate the maximum expense charge for all Account level expenses that can be assessed, which is not to exceed to 2.5% of average net assets per year. The Account pays a fee to TIAA to assume mortality and expense risks.

Accounting for Investments:The investments held by the Account are accounted as follows:

Real Estate Properties:

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.

Limited Partnerships:

The Account has limited ownership interests in various private real estate funds (primarily limited partnerships) 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 income. 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 a Limited

57

Partnership, the Account will estimate the value of its interest in good faith and will from time to time seek input from the issuer or the sponsor of the investment. Changes in value based on such estimates are recorded by the Account as unrealized gains and losses.

Real Estate Joint Ventures:

The Account has limited ownership interests in various real estate joint ventures (collectively, the “Joint Ventures”). The Account records its contributions as increases to its investments in the Joint Ventures, and distributions from the Joint Ventures are treated as income. Income from the Joint Ventures are recorded based on the Account’s proportional interest of the income distributed by the Joint Ventures. Income earned by the Joint Venture, but not yet distributed to the Account by the Joint Ventures are recorded as unrealized gains and losses.

Marketable Securities:

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.

Realized and Unrealized Gains and Losses:

Unrealized gains and losses are recorded as the fair values of Accounts investments are adjusted.

Realized gains and losses are recorded at the time an investment is sold or a distribution is received. 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. Distributions received from Limited Partnerships and Joint Ventures are recognized as realized gains at the time of receipt.

Net Assets:

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 and cash equivalents and investments in marketable securities;

• 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 and Cash Equivalents: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.

58

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 September 30, 2010.

Due 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 contractually charged on these amounts.

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 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.

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 September 30, 2010, represented 82.0% of the Account’s total investments, expose the Account to a variety of risks. These risks include, but are not limited to:

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

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

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

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

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

59

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 September 30, 2010, 18.0% of the Account’s total investments were comprised of marketable securities. As of September 30, 2010, marketable securities include high-quality debt instruments (i.e., government agency notes) and REIT securities. 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 herein. The Account’s marketable securities are considered held for trading purposes. Currently, the Account does not invest in derivative financial investments, nor does the Account engage in any hedging activity.

The Account’s investments in cash equivalents and marketable securities (whether debt or equity) 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 (“CEO”) and the Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

60

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 September 30, 2010. Based upon management’s review, the CEO and the CFO concluded that the registrant’s disclosure controls and procedures were effective as of September 30, 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.

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 Account’s Annual Report on Form 10-K for the year ended December 31, 2009 and can also be found on the following two web sites, http://www.tiaa-cref.org/public/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.

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)
*	(C)	Form of Contract Endorsement for Internal Transfer Limitation
(10)	(A)	Independent Fiduciary Agreement, dated February 22, 2006, by and among TIAA, the Registrant, and Real Estate Research Corporation(4)

61

	(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).

62

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 12th day of November, 2010.

	TIAA REAL ESTATE ACCOUNT
	By:	TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
November 12, 2010	By:	/s/ Roger W. Ferguson, Jr.
		Roger W. Ferguson, Jr. President and Chief Executive Officer
November 12, 2010	By:	/s/ Virginia M. Wilson
		Virginia M. Wilson Executive Vice President and Chief Financial Officer

63