Ross C. DeVol, Director

TRANSACTION OF THE WEEK!!!

$9,200,000 ($106 Loan/Sq. Ft., 68% of Total Project Cost) Non-Recourse Interim Financing for 86,503 Sq. Ft. Office Building: GSP arranged $9,200,000 of non-recourse interim financing (68% of total project cost) for the refinance of 86,503 sq. ft. office building in Orange County, CA. The Property: The property was acquired by the client in mid-1999 and due to a quick close requirement the client assumed the seller’s existing $8MM loan. The property, 100% occupied with 2 tenants (each rolling in 2002), had approximately $175,000 of deferred maintenance work. The client needed financing that would provide capital for the deferred maintenance costs plus provide a leasing reserve of approx. $800,000 once the 2 existing tenants’ leases rolled to market. The property is a Class A, 2-story office building located on approx. 4.1 acres, built late 1970’s, average in-place rents 20% below market. Location: Institutional quality, "high identity" in-fill location adjacent to upscale bedroom communities and major transportation corridors. Area features numerous amenities including restaurants, hotels, and prime retail. Submarket Occupancy: 95%+. Reposition: Borrower will upgrade the deferred maintenance and raise rents to market upon tenant roll-over. Senior Debt Structure: (1) Initial Funding (including closing costs): $8,225,000; and (2) Renovation and Leasing Reserve,: Approx. $975,000. Total Funding: Approx.$9,200,000 (68% of total project cost). Senior Debt Terms: (1) Loan Amount: $9,200,000 (approx. 68% of total cost); (2) Rate: LIBOR + 2.50%; (3) Term: 4 years; (4) Interest only Yrs. 1-3 with 25 year amortization Yr. 4; (5) Non-recourse; (6) Lender Fee: 1.00%; (7) Prepayment: Year 1 - locked, Mos. 13-18 - 0.50% fee; thereafter par. (Gary E. Mozer, Lee T. Norman)

Ross C. DeVol, Director, Regional and Demographic Studies for The Milken Institute, was the featured speaker on March 21^st at Luncheon I of the 4 Private Briefings at the 2000 GSP Executive Luncheon Series to benefit the A-T Medical Research Foundation: Mr. DeVol provided the 100 attendees an excellent overview of the economy, focusing on information technology trends that he considers especially important to the real estate industry: Technology: (1) High tech is in the forefront of today’s economy, leading to greater productivity and enhanced long-term growth potential. High Tech Industries: Fastest growing in the country - technology cluster location is determining whether several markets are succeeding or failing. (2) Business Cycle: "Fortunately we haven't had a business cycle for a while, but I don't think that the business cycle has been outlawed….. there's increasing evidence that many of these high tech industries are going to be impacted more by the business cycle in the future." (3) Hi-tech stats: in the past 3 years it has accounted for more than half of total economic growth in the nation. Information technology as a share of total US capital spending: 1970-7%, Today-55%; Corporations are spending money because it is improving the bottom line; (4) Why do certain markets attract hi-tech? Proximity to universities, government research centers (skilled labor pool). Also: tax structure, space costs, overall business climate, access to venture capital……#1 Market: Silicon Valley, which is nearly 3 times more important than #2: Dallas….. #3: Los Angeles, when high tech entertainment is factored in. (fastest growing hi tech market in the 1990’s: Albuquerque, NM).; (5) Hi-Tech will be susceptible to business cycles as it becomes more integrated into the overall economy. (6) What about here?: "Now the good news is, out of the top 50 high tech production centers in the country Los Angeles is actually 14th in terms of immunity to recession." Also: entertainment/hi-tech accounts for 25% of all West LA leasing activity now; (7) California represents 20% of national hi-tech output; (8) Silicon Valley attracts 1/3 of venture capital placements in the country, California overall: 40/%; (9) "Commercial real estate is really being driven to a large extent by high tech services and the supplier infrastructure such as the legal financial services and advertising that develops around them."; (10) Trend: San Jose/Silicon Valley recently has seen a decline in office rents. Why? Landlords are accepting equity positions in pre IPO firms in lieu of higher rent. Statisticians have not yet factored that value into rent numbers.

Macro Economy/Fed Watch: (1) Productivity is up dramatically since 1996 due to the "payoff" from massive information tech investment averaging + 2.5% - 3.0% per year, Greenspan understands this but he doesn’t want to count on continued increases when he sets policy; (2) Unemployment/CPI Relationship: The old rule was that unemployment under 6.0% would cause unacceptable inflation… this standard held from 70’s through early 90’s…. Now that unemployment is at 4.0% and inflation is holding, the old rules don’t apply; (3) Real capital spending was very volatile from 1960-1992, since 1992 it has been very stable, with a much higher rate of investment growth allowing better business planning and less cyclical business growth; (4) NASDAQ/"Wealth Effect": Exponential expansion in tech stocks based upon expectation of future growth. Price/Earnings ratios: 1996—app. 30x, Today—over 140x; Greenspan is concerned these equities are overpriced: "He won't admit it publicly, but in raising interest rates he's really trying to attack the stock market. You will never hear him say that in public, but I guarantee you that's what he's trying to do." Why? He is concerned about the impact on wealth and how wealthy consumers feel, which affects retail spending and therefore, inflation. (5) Fed’s primary concern: labor market tightness, especially if unemployment goes below 4.0%; (6) What’s next? After this week’s 25 bp increase by the Fed, we will see one in May and then in June and: "in June, I think the risk is that the Fed, if it hasn't seen sufficient slowing in the overall economy may raise interest rates 50 basis points at that time"; (7) Why? Year by year economic growth is almost 5%, Greenspan wants it under 4.0% and will increase rates accordingly to get there.

Closing Remarks re: California: (1) Residential: Strong job/wealth growth has improved housing demand, while supply growth is well below its peak back in the mid to late 1980’s. Apartment markets are especially tight; (2) Office demand is up and this is driven by non-traditional space: warehouse, campus environments, etc. Watch for an increase in new office construction statewide this year; (3) Southern California activity is up driven by entertainment/e-commerce especially in West LA, Glendale, Pasadena, etc. Key Factor: Creativity and knowledge of the local workforce. Major risk for real estate: interest rates rising too quickly… "Overall I think that Southern California's real estate market is well balanced, demand in supply conditions are in very good shape, but I guess I would conclude by saying, watch out for the Fed. Thank you." (David R. Pascale, Jr.)

HOT MONEY!

Fannie Mae Update: Fannie Mae recently introduced a pilot program to provide financing for manufactured housing communities. For the right property they can finance up to 80% LTV with a 10 year term at an all-in fixed rate of 8.25% as of today. Amortization is 25 years (30 year only with a waiver). Properties must have 90% occupancy for 90 days and a minimum of 50 pads (66% of the pads which must accommodate double wide homes). Loan amounts considered are between $2,000,000 and $8,500,000.