Real Estate Finance

860 LEXINGTON AVENUE - PROPOSAL

REAL ESTATE FINANCE I

THURSDAYS 5:50-7:50PM

December 15, 2005

Presented by:

Table of Contents

Executive Letter ............................................................. 2

Proposed Action ............................................................. 3

Static Attributes ............................................................. 4

Physical Attributes ............................................................. 5

Locational Attributes ............................................................. 6

Comparative Evaluation ............................................................. 7

Economic Base ............................................................. 8

SWOT Analysis ............................................................. 9

Lease Structure ............................................................. 10

Investment Analysis ............................................................. 11

Appendix ............................................................. 13

Section 1 - Executive Letter

The purpose of this report is to present Mr. Bb Uu and Mr. Ss RR with a recommendation on their proposal to purchase the five-story building with 3 apartment units and 4 retail spaces located at 860 Lexington Avenue. Their intent is to purchase the building as is and if necessary, make only the necessary minimum maintenance and repairs to the apartment units and retail spaces, while retaining the current tenants.

Mr. Uu and Mr. RR are relative newcomers to the real estate investment market. They are seeking to form a partnership to eventually acquire a substantial income producing portfolio. 860 Lexington Avenue is the first property that would be potentially part of their portfolio. They are looking to acquire the property for tax shelter, equity and investment income purposes and are seeking a minimum of after tax yearly returns of 6.0%. The investors are taking a passive role with this property, outsourcing a management company to oversee the maintenance of the building.

In providing a recommendation, a multi-step analysis of the property and its attributes was performed. The process included an overview of the building's static, physical, and locational attributes. A comparative analysis of its attributes was then made to similar properties within a 10-mile radius. Current market and economic conditions were also reviewed to determine short and long-term prospects for the building as an investment. The building's strengths, weaknesses, opportunities and threats were summarized succinctly in a table and financial investment analysis was conducted to determine if the investment is viable in helping the young investors meet their objectives.

Following this process, we are comfortable advising Mr. Uu and Mr. RR against proceeding with the acquisition of such a property. Our investment analysis has suggested that the proposed transaction cost of $5.9M is overvalued. 860 Lexington Avenue is an investment incapable of achieving the investment objectives and required returns of the partnership and should not be considered a candidate for their portfolio.

Section 2 - Proposed Action

Mr. BB Uu and Mr. SS RR have recently contacted WW for her advisory services. They proposed the idea of forming an LLC partnership interested in purchasing a property for investment purposes. They have asked Joanne to evaluate whether the property in question, 860 Lexington Avenue, would be a sound investment and to provide a report detailing her analysis.

The acquisition of 860 Lexington Avenue will be Mr. Uu's and Mr. RR's first foray into commercial real estate. Both investors are in their mid 30's, own their own apartments, and have well diversified personal portfolios. Their reasons for purchasing the piece of commercial real estate are three fold: to build equity, to produce income, and to create tax benefits to offset their substantial yearly incomes.

The partnership has established the following minimum criteria for the property:

- 6% yearly return on down payment

- 20% Return on Equity upon sale of property (15 year holding period)

- Maximum tax savings possible

Investor Snapshot BB Uu SS RR

Yearly Income $250,000 $225,000

Net Worth $1,500,000 $1,500,000

Current Debt 300,000 (Mortgage) $200,000 (Mortgage)

Portfolio Allocation 70% Stock / 30% Cash 80% Stock / 20% Cash

Alternative Investments None 401K

The above investment criteria were determined to fall in line with the investors' profile.

- Risk Tolerance: Minimal

- Holding period: 15 years

- Management Style: Outsourced to a management company

- The investors are looking for a stable, long-term investment to complement their high growth portfolio.

The investors do not intend to make any major renovations to the building or its apartment and retail spaces. Renovations to the apartments will be evaluated if a tenant decides to terminate their current lease. If renovations are made, apartments will be rented out at rates adjusted for upgrades. However, at this time, the investors wish to retain the current tenants due to their strong tenant records. Investors intend to make minor maintenance repairs to the building's exterior and interior upon acquisition. An area of focus for repair is the broiler,