This document summarizes the current state of the commercial real estate lending market and provides tips for assembling a successful loan package. Key points include: - Lenders are taking a more conservative and disciplined approach to underwriting with tighter standards for borrower experience, cash reserves, and property financials. - It is important to provide accurate and up-to-date property operating data and financial projections, and be prepared to justify assumptions to skeptical lenders. - Additional tools like debt coverage ratios and market studies are now often required to supplement traditional metrics like capitalization rates.

1. Assembling a Loan Package That Attracts Dollars and Approvals Presented by: Georgia Ragsdale, Watermark Financial January 26-29, 2009 The Venetian Resort Hotel Casino/ Sands Expo & Convention Center Las Vegas

2. Agenda Assessment of Market Conditions New Realities in Underwriting Basic Assumptions: APOD (Annual Property Operating Data) Modeling Investment Analysis Tools What is Coming Navigating Change

3. National Debt Since WWII

4. Soaring National Debt

5. Equity Real Estate Prospects: 2008 vs Early 1990s Source: NCREIF; Moody’s Economy.com; Heitman Research 1990 2008 Investor Expectations Double-digit returns, inflation hedge, low volatility Single-digit core returns, inflation hedge if markets in balance, moderate volatility Liquidity Deteriorating and no capital Deteriorating but capital available for some strategies Institutional Underwriting Undisciplined Debt side undisciplined Equity side disciplined Pricing Spread between NCREIF current value cap rate of 6.97% and 10-Year Treasury Yield of 8.68% = -171 Spread between NCREIF current value cap rate of 5.61% and 10-Year Treasury Yield of 4.26% = +135 Property Market Conditions No link between supply and demand Office vacancy downtown: 14.0% Office vacancy suburban: 21.2% Demand and supply linked Office vacancy downtown: 9.6% Office vacancy suburban: 14.2% Outcome Value decline: 32% Value Decline: 15%-20%

6. Showing Up in Huge Pull Back in Transactions Source: Real Capital Analytics; HeitmanResearch

7. Changes in Financing

10. Your Relationship to the Underwriter:

19. Putting Pressure on Cap Rates Source: Real Capital Analytics; Heitman Research

21. Cap Rate Effect on Value and Loan Amount

22. DCR

24. Accurate Property Operating Data Lenders are Scrutinizing and Questioning Every Detail, Often Opting for Most Conservative Numbers

25. Annual Property Operating Data (APOD)

26. APOD (part 2)

27. Average Occupancy Per Region

28. Occupancy Trends

33. How It Has Been in Self Storage: Pooch

34. How It Is Now: Coyote

35. Watermark Financial Georgia Ragsdale, CEO 11150 W. Olympic Blvd. #150 Los Angeles, CA 90046 [email_address] www.watermarkfinancialgroup.com Office: 310-479-1260