Goldman Sachs' Revised Economic Forecast

$6,700,000 Bridge Financing for Award Winning, Newly Constructed, 20-Unit Courtyard Apartment Complex in West Hollywood ($335,000/unit): GSP arranged a bridge financing to take out a $6,000,000 construction loan, pay-off $400,000 in construction cost overruns, cover 100% of all transaction costs, and holdback funds for supplemental interest reserve. Certificate of Occupancy was issued in March 2002. The new loan funded upon reaching 90% occupancy. Average rents: $4,200/month. Borrower is currently processing for condo map. Property is professionally managed by Moss & Company contains a mix of both long term and short term leases (including some furnished "corporate suites"). Accolades: (1) "Seven Fountains is the most romantic apartment complex to be built in Los Angeles in the past 50 years", according to Los Angeles Magazine in its October 2001 issue; (2) January 2002 Angeleno magazine (one of the 20 best new things in LA); (3) Winner of CNU Charter Award (for architecture). Property Specs: (1) 20 custom courtyard residences (no two floor plans are alike), 1, 2 and 3 bedroom units; (2) All units feature privately accessed home offices, private outdoor living spaces (roof-top decks, "sleeping porches" and terraces); (3) True gourmet kitchens with top-of-the-line appliances, hand-painted custom tile counters and back splashes; (4) Spacious courtyards; (5) Lush landscaping; (6) Community fireplace; (7) Custom outdoor furnishings; (8) Outdoor spa; (9) Magnificent custom bronze statue "angel in repose" gracing the main entry; (10) Seven custom mosaic and tile fountains located throughout the development; (11) Spanish Revival architecture inspired by the surrounding historic courtyard apartments built in the 20's and 30's. (website:www.7fountains.com) Terms: (1) Prime + 1.00%; (2) Term/Amort: 12 months/interest only; (3) LTV: 75%; (4) DCR: 1.40; (5) Partial Release provisions for eventual condo use; (6) Lender Fee: 1.0%. (Andrew Levant, Shlomi Ronen)

Regional Construction Lender Announces "Blue Light Special"-No Lender Fee for Construction/Major Rehab Loans Apped from Now Until October 31, 2002!! This lender is making a major push for year end volume by waiving their usual 1.0% fee for construction and major rehab loans, they also have slashed their floor rates. Program Highlights: (1) Loan Size: $1,000,000 - $10,000,000; (2) Rates: Prime + 1.00% (6.00% floor for multifamily, 6.25% floor for commercial); (3) Max Loan: 80% loan to cost (85% loan to cost for selected apartments), not to exceed 75% of stabilized value; (4) Geographic: Southern California and coastal counties to the north.

Goldman Sachs' Revised Economic Forecast Moves Market: This week Goldman Sachs lowered its GDP growth and interest rate forecasts. We have abstracted items that we feel are of interest in trying to understand dynamics affecting the interest rate market and the Treasury Rally that has pushed rates to the lowest levels since Sid Wallis (our 82 year young Vice Chairman Emeritus) was in short pants. The Stock Market: There is evidence that the stock market decline has caused firms to cut back in terms of hiring and investment. GDP: A lowered GDP growth path is modestly projected over the next six quarters with growth at or below a 21/2% pace over the next 12 months. 4th Quarter Fed Actions: A cut of 50 to 100 basis points in the FOMC's federal funds rate target in the fourth quarter. The logic is as follows: Below-trend growth causes the unemployment rate to rise, raising the risks of a double-dip and a Japanese-style outcome. To guard against this, Fed officials take out insurance by aggressively easing monetary policy. Reasons: Data released over the past week indicate weakening consumer confidence, a sharp decline in the ISM index, and a large decline in hours worked. Recent economic news has confirmed that the stock market decline has affected business hiring and investment decisions. Learning From the Post Japanese Bubble: The recent Fed staff study of the Japanese post bubble experience makes it clear that monetary authority should err on the side of easing in this type of situation. However, Goldman does not expect the easing to take place until next quarter because it will take time for the FOMC to be convinced that their growth forecasts are too optimistic and greater easing is warranted. A Distinct Loss of Recovery Momentum: Reports on business conditions have taken a decided turn for the worse in recent days, suggesting that the economy's recovery momentum may be rapidly dissipating. Payroll employment growth for July was anemic, rising by just 6,000; more importantly, aggregate hours worked fell by 0.6%. Purchasing managers reported an abrupt stall in factory growth last month, which is disturbing in that it hints at materially diminished support for the economy from inventory replenishment. Equally impressive was a slide in the new orders component of over 10 points to 50.4%, the lowest level since November. The unusually large negative gap between orders and production (-5.3%) may augur an early broad slowdown in goods output. Updated GDP figures confirm a sluggish economic tone thus far in 2002. Overall Real Growth: Overall real growth fell to 1.1% (annual rate) last quarter, as final sales edged down 0.1%, due to slower consumption gains (+1.9%) and a huge drag from the net exports sector. Private real final sales rose just 0.6% annualized during the first half. Thus, four-fifths of the net GDP gains during the first half of the year came from inventories and government spending-two sectors that now may be poised to lose strength. Meanwhile, annual benchmark revisions pulled down significantly the levels of GDP, final sales, and corporate profits in 2000 and 2001. This indicates that the correction of private financial imbalances has been an even more powerful suppressing influence on US income and output than was realized. Real growth in 2001 on average was slashed by nearly a full percent, to 0.3% from 1.2%, with three negative quarters for GDP now instead of just one. Real spending in the quarter fell 12.4%, the largest decline in 11 years, and it ended the period on a sharp downward slope. Treasury Confirms Large Borrowing Need: The US Treasury this week confirmed that unfavorable budget conditions are forcing a sharp further increase in funding volumes, and this is leading to increased long-duration borrowing. Officials project a net $147 billion of marketable financing for the last two quarters of 2002, which would exceed the $126.5-billion amount raised the same six months last year. This year/year funding rise is more impressive when one considers that there was a large tax rebate program last summer, but none this year. The Fed has shown a reduced willingness to rely heavily on short-duration vehicles (bills and 2-year notes) for funding the expansion of the fiscal deficits.