GARY MOZER'S COMMENTS FROM MAY 2001

$3,300,000 (5-Year Term CMBS) Refinance for 100% Occupied Class "B" Office Building in the West Valley: This 1982 built, 4-story, 30,000 s.f. building includes freeway signage. Our borrower purchased the property last year at 60% occupancy quickly leased up to 100%. Owner/User Element: The borrower occupies 20% of the building. GSP arranged non-recourse financing, allowing our borrower to pay off recourse debt in full and take some "cash-out". The 5-year term allows for flexibility and takes advantage of the lower yield on the 5 year Treasury. Terms: (1) Rate: 5 year T + 2.35%; (2) Term/Amort: 5/30; (3) LTV: 75%; (4) DCR: 1.30; (5) Non-recourse; (6) Lender Fee: Par. (Lee Norman, Peter Smyslowski)

$2,400,000 for 2 Contiguous Office/Retail Properties on Leasehold, Non-Cross Collateralized: GSP arranged cash-out refinance on a debt free leasehold for the acquisition of the adjoining property. Our borrower acquired the adjacent property with no out-of-pocket expense. How? (1) Property #1: Single-tenant, 25,000 s.f. office, owned by borrower since the early 1990's; (2) Property #2: 8 tenant office building, 12,000 s.f., 100% occupied with tenants in occupancy for over 10 years; (3) GSP arranged simultaneous escrows on both properties with the same lender, allowing borrower to acquire #2 with no additional cash. Issues: (1) Tenant in building #1 has monthly fixed rent increases, achieving market rent on December 1, 2001, while amortizing TI expenses paid by tenant, DCR at closing was approximately 1.0; (2) Borrower required additional cash-out; (3) Fee holder would not execute a ground lease estoppel; (4) Borrower required the loans be non-crossed to retain flexibility. Solutions: (1) Lender was comfortable with quality of tenant in building #1 and "bridged" the cash flow until stabilization; (2) Lender allowed for an earn-out when property stabilizes in December 2001; (3) Portfolio lender recognized the long-standing relationship between borrower and fee holder and did not require estoppel. Terms (for both transactions): (1) Rate: 8.25% fixed; (2) Term/Amort: 5/23; (3) LTV: 75%; (4) DCR: 1.25; (5) Full recourse; (6) Lender Fee: 1.0%; (7) Prepay: 3, 2, 1, 0, 0 (David Stepanchak, Steven Hamermesh)

(1) Lenders are acting more and more like traditional Wall Street capital markets players: Real estate mortgages are one of many fixed income instruments for investment. Institutions are looking at "risk adjusted yields" when compared to ABS, residential backed securities, CMBS bonds, credit card debt securitizations, corporate bonds, etc.; (2) Information: The CMBS "feedback loop" is getting tighter: originators go to market more often, the B piece buyers kick out problem deals due to property type/submarket dynamics, the originator then uses this information to price and/or decline new loans; (3) Office Markets: When analyzing a submarket, the key statistic is sublet vacancy, not standard vacancy-also leasing "velocity" is slowing; (4) Bid/Ask Chasm: Many sellers of commercial properties are unable to get their price. Why? Cap rates haven't moved that much, but underwriting for vacancy, rollover costs and expenses has risen (Reasons: dot.com meltdown, utilities, etc); (5) Lending: Plenty of capital for the right deals, cautious; (6) Concessions: For the first time in recent years, concessions (free rent, TI money from landlord, etc) are popping up in certain markets; (7) Banks: The FDIC is vigilant, going into offices and "scrubbing files" on recent loans, the good news: the banks are much better capitalized than the early 90's and average leverage is lower, more borrower equity in properties; (8) Construction: Much less "spec" development, large loan syndicates (multiple banks teaming up on a transaction) is tougher as the number of players lessens due to consolidation; (9) "Workouts" Are Back: Not on real estate loans but on corporate loans: companies have gone belly-up and banks that made business loans are working out assets which may include real estate. Delinquencies remain very low (sub 1.00%) for real estate, all product types; (10) Opportunity Funds: Yield expectations are dropping, 1997-2000: as high as 25-30%, now: low 20's; (11) REITS: No longer considered a "growth" play, now an "index" play. Even though market caps are less than Net Asset Value, the share prices are in line with liquidation value; (12) Pension Funds: Many are favoring direct investment in real estate. Advantage: Bonds, REIT stocks, etc. are "marked to market" daily, while real estate assets are not; (12) Greenspan: The effect of the rate cuts on the economy will lag 6-12 months, in other words we haven't benefited yet. (Gary E. Mozer, David R. Pascale, Jr.)