Ross Devol, Director of Regional/Demographic

$14,200,000 Bridge Loan Consolidates Debt and Establishes Pre-Development Working Capital for Entrada De Santa Barbara, a Singular 11 Lot Assemblage in Santa Barbara (2nd GSP Financing Bringing Total to $21,200,000): Developer began assembling this singular development site 20 years ago. The property, which is non-replicable, is located at the foot of State Street along the beachfront. It has been the subject of an arduous approval process, with the developer dealing with no growth factions, the California Coastal Commission and defending attendant law suits seeking to overturn the approvals, all of which have delayed the project and substantially escalated the project costs. The financing arranged in late 2000 by GSP/Rifkind consolidated the then existing debt and freed up capital to complete the land assemblage and complete the entitlement process. The Approved Development Plan: The development will include a "world class" interval time-share being developed in joint venture with one of the leading urban and resort hospitality companies, 20,000 s.f. of high end store front retailing in an urban walking environment, a public parking structure and the new City of Santa Barbara Visitor Center which has 1,000,000 visitors per year. New Financing and What it Accomplished: (1) Retires the existing debt, which ultimately had a 2nd and 3rd mortgage; (2) Funds a 1 year interest reserve; (3) Funds approximately $4,000,000 for pre-development working capital for architecture, engineering and marketing, and the remaining soft costs needed to take the project to the construction phase scheduled for late 2002. Given the substantial LLC capitalization to date, this financing meant the developer did not have to fund additional personal capital or any LLC capital calls. Terms: 1 yr. fixed rate bridge loan with extensions, interest only, no participation. 60% of the appraised "as-is value" of approximately $23,500,00 with the other terms subject to a Confidentiality Agreement. The developer estimates that the entitled land has a fair market development value in excess of $40,000,000. (David Rifkind, Jim Neuman, George Smith, Gary M. Tenzer, David Ellis)

Big Picture
Current US Business cycle: Unique- different from all other post-war "downturns". Downturn was led by slowdown in IT equipment investment, then exacerbated by 9/11. Manufacturing sector experienced a severe recession-18 consecutive negative months. Capacity utilization was worst since 1982. Good news: manufacturing has turned the corner based on Jan/Feb 2002 numbers. (2) Federal Reserve: Able to cut rates quickly to mitigate decline due to low inflation. Consumer and housing sectors kept economy afloat--helped by low interest rates. (3) Unique dynamic in Recent Downturn: Dramatic drop in business investment (particularly technology/telecom) played a leading role; (4) Inventory Liquidation: 4th Quarter 2001 largest in U.S. History-$120 billion; (5) GDP "Quirk": GDP is calculated using the "rate of decline" not the decline itself, this methodology will add approximately 4 percentage points to 1st quarter 2002 GDP. (6) Profits/Equity Markets: 2001/2002 was first time S&P fell 2 consecutive years since 1973/1974. Profits have been "severely depressed" because margins have deteriorated as prices have been stable while human capital costs have risen. (7) Software: Ubiquitous in the modern world, software is found in cars, homes, appliances, etc. U.S. software sales fell in 2001 for the first time ever. (8) Communications equipment: Orders rose 25% per year from 1997 to 2000, internet bubble period. Good news: the drop in orders has bottomed out, not dropping 40-60% per year as in late 2000-2001. (9) Consumers dampened the severity of the recession despite negative wealth effect from collapsing stock market. Low rates for car purchases and home refinances were a factor. (10) DeVol's Interest Rate Outlook: Fed will not raise at next meeting, rates "aren't going anywhere" right now. By December, look for short term rates to be around 3%. (11) Stock Market: Equity valuations rose 600% between 1990-1999. Total equities actually exceeded total real estate in aggregate dollars during 1999. Since then equities have lost $4 trillion in value (from app $12 T to $8 T) while real estate values have risen $2 T (to app $13 T). Consumers again recognize the value of their homes as being more stable than the stock market. (12) Structural changes in U.S. Economy will mitigate severity of recessions in the future: Rise in the "service" economy, manufacturing not as important as it was. Inventories are not allowed to build up due to improved information flow. (13) Worldwide markets are slowing: Asia, Europe. 2001/2002 saw the most significant slowdown in world GDP since 1981/1982. (14) US Recovery will be powered by recent Fed cutting, fiscal stimulus such as tax cuts, new employment, strong housing prices- except for a few markets. (Silicon Valley, San Francisco, Seattle, Boston, New York)

California/Los Angeles Outlook
(1) Los Angeles has done better than the U.S. during this recession period, reflecting an increasingly broad based economy. Local manufacturing suffered less due to more diversity, not as dependent on aerospace as early 90's; (2) Entertainment has replaced aerospace as dominant industry. Bad news: L.A. has lost 12,000 motion picture jobs since April 2001 due to "runaway production"- Canada, Australia, etc. The situation needs to be watched closely. (3) Service/Tourism dependent businesses are already bouncing back after 9/11. (4) Import/Export market starting to look up. L.A. logistics and transportation infrastructure businesses thrive on heavy import demand even though it contributes to nations negative trade balance. (5) Unemployment has increased less than it has for the U.S. as a whole- a dramatic narrowing of the "unemployment gap". (6) Los Angeles housing market remains very strong.

Real Estate
(1) Markets with biggest jumps in office vacancy from 4th quarter 2000 to 4 quarter 2001: San Francisco (2.1% to 16.1%), San Jose (4.5% to 14.5%), then Columbus (OH), Seattle, Boston, New Jersey (Northern and Central), Atlanta, Detroit, Indianapolis. (2) Construction business has declined in California. (3) Los Angeles is faring much better than Northern California in vacancy, construction, etc. Los Angeles office vacancy is actually below the U.S. average in 4th Quarter 2001 for the first time since before 1992. LA Suburban and Downtown vacancy rates have converged at approximately 12.5%, after downtown occupancy trailed for several years. (4) Mr. Devol closed with a state by state "New Economy Index" that measures academic R & D, industrial R & D, human capital capacity, occupational skill set, rate of entrepreneurship, ability to attract venture capital, etc. California comes out 2nd to Massachusetts on a per capita basis. However, California's economy is much larger and thus well positioned for future growth.