12. presentation by courtland partners and madison realty ......apr 13, 2011 · presentation by...

12. Presentation by Courtland Partners and Madison Realty Group on New Real Estate Investment Opportunity

12

Madison Realty Capital SULLIVAN DEBT OPPORTUNITY FUNDS

825 Third Avenue, 37th Floor New York, NY 10022

646.472.1900 www.madisonrealtycapital.com

Madison Realty Capital SULLIVAN DEBT OPPORTUNITY FUNDS


646.472.1900 www.madisonrealtycapital.com


646.442.4135www.madisonrealtycapital.com

Confidential

This document is intended to summarize information to be contained in the Confidential Private Placement Memorandums (collectively, the “Memorandums”) of Sullivan Debt Fund LP and Sullivan Debt Fund II, LP (collectively, the “Funds”), such investment vehicles to be formed by Sullivan Realty Capital, LLC (“Sullivan”) for the purpose of making the investments and executing the strategy described herein. This document is provided for informational purposes only and is intended solely for the person to whom it is delivered. This document is confidential and may not be reproduced or distributed without the express written consent of Sullivan. Sullivan is the sole sponsor of the offering of interest in the Funds. The Advisor will provide services to the Funds pursuant to the Management Agreement in exchange for a fee and is not a sponsor of the offering of Fund interest.

This document does not constitute an offer to sell or the solicitation of an offer to purchase any securities of the Funds. Any such offer or solicitation may only be made by means of delivery of the Memorandums which will contain material information (including substantial risk factors) not included herein and shall supersede, amend and supplement this document in its entirety. This document should not be construed as investment advice or a recommendation to purchase or sell any particular security. Information contained in this document is accurate only as of its date, regardless of the time of delivery or of any investment, and does not purport to be complete.

Investors should have the financial ability and willingness to accept the financial and risk characteristics of an investment in the Funds. An investor should review the Memorandums, conduct such investigations and evaluation as it deems necessary or appropriate and consult its own legal, accounting, tax and other advisors in order to make an independent determination of the suitability and consequences of an investment in the Funds. Performance of the Funds’ investments may be volatile, and the Funds investors may experience results that differ materially for those shown herein. There can be no assurance that estimated returns or projections set forth in this document can be realized or that actual returns or results will not be materially lower or inferior than those estimated herein. Investors may lose all or a substantial portion of their investment in the Funds. Management fees and other Funds expenses will reduce the Funds’ returns.

In considering the prior performance information contained in this document, investors should bear in mind that past performance is not necessarily indicative of future results, and there can be no assurance that the Funds will achieve comparable results. Any past performance contained herein represents the performance of Madison Realty Capital Advisors, LLC and affiliates (“Madison” or “MRC”) and not Sullivan or the Funds (all newly formed entities having no prior operating history). Such past performance of Madison is included because affiliates of Madison own and control Sullivan and Sullivan Capital Advisors, LLC, the Funds’ Advisor, and Madison and its officers will be providing services and facilities to the Funds through Sullivan and the Advisor pursuant to contractual arrangements. Past performance data are approximates prepared internally by Sullivan (and have not been audited or reviewed by accountants).

3.15.11

Important InformatIon regardIng the SullIvan debt fundS

Confidential

StriCtly Confidential MADISON REALTY CAPITAL | Sullivan debt funds

exeCutive Summary

HISTORY:• Co-founded in 2004 by Brian Shatz and Joshua Zegen, Madison has closed $780 MM in commercial real estate loans since inception, including approximately $91 MM in 2010/2011 (see page 14).

• Madison is a vertically integrated real estate investment firm focused on the sub-$30MM US commercial real estate loan market with in-house lending, operating and workout expertise. Madison provides institutional investors with superior risk adjusted returns with downside principal protection.

TRACK RECORD:• Madison Realty Capital, L.P. (“MRC LP”) and Madison Realty Capital II, Ltd. (“MRC Ltd”) (collectively the “Existing Funds”) have collectively averaged 6.3% annual net returns since inception through December 31, 2010 (see page 15). • The Existing Funds, which ceased new investments as of 12/31/08, raised $310 MM of institutional equity and originated 154 loans in 28 states throughout the United States and hold $284 MM in gross assets as of December 31, 2010 (page 14).

• 104 loans, totaling $354 MM, have paid-off since inception ($219 MM from 2008 through the end of 2010).

INFRASTRUCTURE:• Madison’s management team has significant lending, investment, asset management, legal, finance, research and operating experience in the real estate sector. Our team members were previously employed by institutions such as BlackRock, Apollo Real Estate, Crescent Heights, M&T Bank, Salomon Smith Barney, Merrill Lynch, Bear Stearns, Roseland Property Company and Atlantic Realty Development.

• MRC has 22 dedicated investment professionals on staff, including origination, underwriting, closing, servicing, legal, asset management, property management, capital markets and syndication.

• MRC currently sources transactions through its in-house origination staff and its management’s owner/operator, broker and banking relationships.

Madison Realty Capital advisors, llC and affiliates (“Madison” or “MRC”) track Record and established Reputation

StriCtly Confidential MADISON REALTY CAPITAL | Sullivan debt funds 1

exeCutive Summary

MADISON REALTY CAPITAL | Sullivan debt funds 2StriCtly Confidential

INvESTMENT COMMITTEE

Itai Amidor

vice PresidentClosing team

Andrew Smeltz

vice Presidentunderwriting

David Schwartz

managing directorasset management

Eli Wolfhagen

vice Presidentunderwriting

Greg Hersly

managing directorChief financial officer

Martin Nussbaum

Silverstone Property Group, llC

dedicated Property management team

Shoshana Carmel

vice Presidentoperations

Julie Breslin

managing directoroperations

Loan Originators

dedicated in-House

originators

Michael Stoler

managing director originations/ Syndications

Adam Tantleff

managing Principalinvestor relations

Michael Hoffenberg

vice President investor relations

organization Chart of the advisor

Josh ZegenManaging Principal

Brian Shatz Managing Principal

Co-founders

Alex Fenigstein

associateunderwriting

Property Managers

manaGement team of Sullivan and tHe adviSor


JOSH ZEGENmanaging Principal and Co-founder

• Thirteen years of real estate and finance experience

• Investment Committee since 2005• Originated and managed over $1.25 BN

of real estate transactions since 2001• Investment Banking Experience:

Merrill Lynch, Salomon Smith Barney

• BA, Brandeis University, Cum Laude

BRIAN SHATZmanaging Principal and Co-founder

• Twelve years of finance, private equity and fund management experience

• Investment Committee since 2005• Managed $780 MM of real estate

debt since 2005 • Investment Management Experience:

Blackrock Financial• BA, Brandeis University, Cum Laude

GREG HERSLYmanaging director andChief financial officer

• Eleven years of finance, private equity & investing experience

• Originated over $400 MM of real estate transactions since 2004

• Investment Banking Experience: Salomon Smith Barney

• Private Equity: Epic Partners• BS, Cornell University

ADAM TANTLEFFmanaging Principal - investor relations

• Twelve years of finance and fund management experience

• Raised over $300 MM in equity since 2005

• Former Partner of Suffolk Capital Management ($3.5 BN Assets under management)

• BBA, George Washington University

MICHAEL STOLERmanaging directororiginations and Syndication

• Thirty years of real estate, finance and management consulting experience

• Senior Principal, Apollo Real Estate Advisors, focusing on new acquisitions

• Consulting clients have included JP Morgan Chase, Signature, Leumi, U.S. Trust, Israel Discount, HSH Nordbank, Sterling National, and Republic National Bank

• Adjunct Professor at the NYU Real Estate Institute

• BA, Long Island University

DAvID SCHWARTZmanaging director – loan acquisitions

• Nine years of development and ownership experience

• Involved in the purchase and development of over $1.0 BN in real estate

• Development of over 2,000 apartments and hotel rooms throughout the country

• Real Estate Development Experience: Crescent Heights, Rush Brook Partners

• Investment Banking: JP Morgan• BS, Syracuse University

MARTIN NUSSBAUM Silverstone Property Group, llC

• Eleven years of real estate property management, asset management, construction services and investing experience

• Managed over 7,500 residential units, 3 million sq. feet of commer-cial property and development and construction of $250M in assets

• Real Estate Management & Con-struction Experience: Atlantic Realty Development Corp

• Investment Banking Experience: Wells Hill Partners

• BA, State University of Albany, New York

manaGement team of Sullivan and tHe adviSor

MADISON REALTY CAPITAL | Sullivan debt funds 4StriCtly Confidential

JULIE BRESLINmanaging director – operations

• Six years of portfolio management, accounting and loan servicing

• Serviced $780 MM of commercial real estate loans since 2005

• Wealth Management and Financial Planning: Elite Financial Services

• Alumni Relations and Admissions Officer Columbia University

• BA, Columbia University

ANDREW SMELTZvice President – underwriting

• Seven years of underwriting, valuation, and portfolio management.

• Has underwritten over $500 MM in commercial mortgages

• Bear Stearns CMBS Group /M&T Bank• MBA, Yale School of Management• BA, Cornell University

ITAI AMIDOR vice President – Closing team

• Three years of legal due diligence• MBA, University of Michigan• LL.B. Hebrew University Law School in

Jerusalem and has been a member of the Israel Bar Association since 2005

• 5 years at Intelligence Corps of the Israel Defense Forces

ELI WOLFHAGENvice President – underwriting

• Five years of underwriting, valuation and real estate market research

• Has transacted on over $500 MM in commercial mortgages

• Alpine Commercial Capital• MS, New York University• BA, Brandeis University

SHOSHANA CARMELvice President – operations

• Seven years of loan servicing and cash management experience

• Serviced $780 MM of commercial real estate loans since 2005

• Managed lines of credit with various banks• BS, Yeshiva University, Sy Syms School of

Business

MICHAEL HOFFENBERGvice President – investor relations

• Six years of investor relations, mortgage origination and loan structuring experience

• Real Estate Experience: GuardHill Financial Corp, Mid-America Real Estate Company

• Masters in Real Estate & Finance, New York University, Schack Institute of Real Estate

• BS, Indiana University, Kelley School of Business

tHe market oPPortunity

Madison believes a market opportunity exists for the Funds for the following reasons:

• Through March 14, 2011, 25 FDIC insured banking institutions ceased operations in addition to the 297 that ceased operations in 2009 and 2010, leaving approximately 7,650 FDIC insured institutions.1 As of 4Q 2010, there were 884 FDIC banking institutions on the FDIC watchlist.2

• Community savings banks continue to be pressed by the FDIC and other regulatory entities to repair battered balance sheets and replenish capital requirements.

• Of the approximately $3.2 trillion in outstanding commercial real estate debt, approximately 50% is on the balance sheet of federally insured banks, with over $1.0 trillion maturing before 2012.3

• Peak origination years of 2005-2008 will lead to banks seeking payoffs or pay downs on rolling commercial real estate debt in 2010-2015.3

• Traditional sources of commercial real estate loans are tightening underwriting standards and considering a much more limited pool of properties and borrowers.

• Agency financing (FNMA, Freddie, FHA) has seen a spike in demand for multi-family financings creating long backlogs and necessitating interim bridge first mortgage solutions.

• Commercial real estate lenders are “calling” loans at maturity, yet cautiously pursuing legal remedies. Many lenders are working to sell their loans to borrowers at a discounted payoff.

reduced valuations and tighter lending standards result in significantly lower first mortgage loan proceeds from traditional financing sources. the Sullivan debt funds will seek to originate first mortgages opportunistically. the Sullivan debt funds will seek to purchase non-performing commercial debt from federally insured banks and others.

1 FDIC, March 2011 2 FDIC, February 2011 3 Prudential, October 2010


fund inveStment StrateGy

The Funds intend to make investments valued at $5 MM to $30 MM and maturing one to five years from acquisition.

The Funds will endeavor to focus their investment activities primarily on:

• Providing senior secured loans for the acquisition and refinance of commercial real estate.

• Acquiring non-performing senior secured loans from lenders looking to clean up their balance sheets (i.e., regional savings banks, FDIC regulated community banks, special servicers, local thrifts, and Wall Street lenders).

• Funding the repositioning of real estate (i.e., capital expenditures, leasing, etc.).

• Funding time constrained transactions.

• Providing senior secured loans to operators seeking to acquire their own commercial real estate loans from banking institutions and private funds.

• Pursuing opportunities from government regulatory agencies set up to liquidate distressed commercial real estate notes (FDIC auctions).

Sullivan debt funds


Sullivan deBt oPPortunity fundfund inveStment StrateGy – oriGinationS

MRC’S ExISTING RELATIONSHIPS

dedicated in-house origination as well as longstanding relationships with brokers, bankers and real estate operators • Direct in-house originations team

• Proprietary database of over 25,000 real estate professionals

• Mortgage bankers, brokers and investment sales professionals

• Established borrowers of the Existing Funds

• Wall Street lenders and commercial bank loan officers

• Developers and operators of commercial properties

• Attorneys, accountants and third-party consultants

• E-mail, postcards and outbound calls

ExHIBITING AT NATIONAL REAL ESTATE TRADE SHOWS

• International Council of Shopping Centers (ICSC)

• Mortgage Bankers Association (MBA-CREF)

• Symposiums for Real Estate Lenders Association (RELA)

• New York

• Boston

• Washington

• Chicago

• Los Angeles

StriCtly Confidential MADISON REALTY CAPITAL | Sullivan debt funds 7StriCtly Confidential

madiSon’S quarterly Banker dinner

amalGamated Bank

anGlo iriSH

BanCo PoPular

Bank leumi

Bank of ameriCa

Bank of ireland

Bank of SCotland

Brooklyn federal

Calyon

CaPital one

CiBC

Community national

Country Bank

deka Bank

deutSCHe Bk-BerkSHire mGt

dG HyP

dime of WilliamSBurG

emiGrant SavinGS

euroHyPo

fluSHinG SavinGS

HelaBa Bank

Herald Bank

HSBC

idB Bank

inG real eState

interveSt national

J.P. morGan

key Bank

lloydS Bank

m & t Bank

maratHon Bank

neW york Community Bank

nortHWeStern mutual

oritani SavinGS Bank

PB CaPital

PeoPleS united Bank

PnC

PrinCiPal inSuranCe

ProGreSSive Credit union

Prudential inSuranCe

rBS CitizenS

SiGnature Bank

SPenCer SavinGS

SterlinG national Bank

td Bank

tiaa-Cref

valley national Bank

WellS farGo/WaCHovia

Extraordinary relationships with local, regional and national banks fostered through Madison’s quarterly banker dinners, real estate symposiums and the longstanding relationships of Madison’s Management team provide the following for the Funds:

• Off-market deals from clients of relationship banks

• Pre-emptive offerings of loans for sale by banks

• B-piece offerings to provide higher proceeds to a borrower junior to the bank’s loan

• Capital markets syndication relationships

• Leverage for Sullivan’s loans

• Refinance sources for Sullivan’s loans

• Market intelligence relating to the availability of debt and underwriting standards

Sample Attendee List


investment Committee member sign off

term Sheet issued

Site inspection bymember of investment Committee and member of underwriting team

1

2

3

4

5

Submission from broker,financial institution, orreal estate operator

Prepare deal metrics

discuss with member of investment Committee

first pass decisionand deal viability

reviewed by in-house originator

Provide soft quote

Prepare preliminaryanalysis for investment Committee

6

7

8

9

10

term Sheet signed

Good-faith depositreceived

legal engaged

due diligence continues

Head of Credit,underwriter,director of operations, Servicing personnelengaged

Coordinate third-partyreports

appraisalCredit reportBackground checksenvironmental reportProperty condition report

11

12

13

14

Credit memo submittedto investment Committee

legal completed

Prepare for closing

final unanimous approvalby investment Committee

Closing date scheduled

Servicing and Head of

DocumentationInput all data to Loan Servicing

System

Asset Management and Reporting

fund inveStment StrateGy – ProCeSS

The advisor intends to adopt the following investment process:

Execution of Loan Documents – Funding Completed via Attorney / Title Company

Escrow Accounts –

MADISON REALTY CAPITAL | Sullivan debt funds 9StriCtly ConfidentialStriCtly Confidential

ConCluSion

The funds’ Strengths

Madison believes that the following are the funds’ key strengths:

• MRC’s established reputation as a vertically integrated real estate investment firm with lending, operational and workout expertise.

• MRC has yielded consistent and strong performance throughout its five years of operations. MRC has originated $780 MM in loans and successfully exited $354 MM.

• The Funds’ focus on the underserved sub-$30 MM debt market, which is generally “under the radar” of many “mega” funds.

• MRC’s successful real estate loan-workout experience and resolutions.

• 22 investment professionals including dedicated in-house originators.

• MRC’s management team’s access to conventional lenders for take-out and leverage financing.

• MRC’s proprietary industry relationships, repeat business and established platform.

• MRC’s management team’s extensive knowledge and expertise in underwriting and structuring investments to create equity-like returns with debt-like risk, while focusing on principal protection.

lenders are liquidating debt at discounts – the funds will seek to capitalize on the trend

absence of liquidity – madison believes that this provides a compelling opportunityfor private capital in today’s debt markets

financing gap – madison believes that this provides a new opportunity created by the tightening of senior lenders


40% - new york

texas - 17%

3% - arizona

rhode island - 2%

2% - michigan

14% - new Jersey

other - 6%9% - florida

4% - louisiana

3% - massachusetts

OTHER:

Ct, il, in, nC, nH, tn

mrC exiStinG fundS HoldinGS Summary

MRC existing funds Portfolio Statistics

TOTAL LOANS CLOSED ($ WEIGHTED)

Loans closed since inception (face)*Number of loans closed

Number of States

$688,585,10215428

loanS CloSed in: 2008200720062005total

$72,150,000$363,306,900$207,037,202$46,075,000

$688,585,102 * may 1, 2005

TOTAL CURRENT ASSETS ($ WEIGHTED)*

Gross Assets outstanding*Number of assets outstanding

Number of States

$283,615,229 5015

aSSetS Paid off in:

201020092008200720062005total

$40,900,000$65,482,702

$112,638,000 $116,949,500 $14,220,000 $4,050,000

$354,240,202* as of december 31, 2010

47% - new york

3% - arizona

texas - 11%Wisconsin - 2%

other - 15%

12% - florida2% - michigan

8% new Jersey

OTHER:

ar, Ca, Ct, Co, de, Ga, il,

in, ia, ky, la, md, ma, nH,

oH, ri, tn, ut, Wa, Wv, nC

MADISON REALTY CAPITAL | Sullivan debt funds 11StriCtly ConfidentialStriCtly Confidential

detailed termS of tHe fundS

Three years from final closing date (subject to extension by up to one year with Advisory Committee approvals)

Six years from final closing date, subject to two one-year extensions in the General Partner’s sole discretion for an orderly liquidation.

The Funds will target in excess of 16% net returns per annum.The Funds will seek to generate approximately 9.0% of this net return in annual cash distributions.

During the Investment Period 1.5% per annum of aggregate capital commitments; thereafter 1.5% per annum of aggregate invested capital in unrealized investments.

Any fees received by the Advisor which are directly related to a consummated Investment (including origination, acquisition and disposition fees) will directly offset and reduce Management Fees if retained by Sullivan.

General Partner will target debt to fair value ratio of 1.0:1.0, not to exceed 2.0:1.0

Distributions of Net Operating Cash Flow and Net Disposition Proceeds:A. First, 100% to the Partners, on a pro rata basis, until they have received an amount equal to a 9% cumulative

annual preferred return (compounded annually) on their Capital Contributions; B. Second, but only with respect to Net Distributable Cash consisting of proceeds from the sale or repayment of

any Investment, 100% to the Partners, on a pro rata basis, until they have received the return of their Capital Contributions;

C. Third, (i) 50% to the Partners, on a pro rata basis, and (ii) 50% to the General Partner until the General Partner has received, pursuant to this clause (c)(ii), an amount equal to 20% of all distributions, other than distributions representing a return of Capital Contributions; and

D. Fourth, (i) 80% to the Partners, on a pro rata basis, and (ii) 20% to the General Partner.

Comprised of investors having capital commitments of $25 million or more.

General Partner’s carried interest distributions (i.e., C(ii) and D(ii) distributions) will be subject to clawback on liquidation to pay unreturned capital contributions and unpaid Preferred Return thereon.

INvESTMENT PERIOD:

TERM:

PERFORMANCE GOALS*:

MANAGEMENT FEES:

MANAGEMENT FEE OFFSET:

LEvERAGE:

DISTRIBUTION WATERFALL AND CARRIED INTEREST

ADvISORY COMMITTEE :

CLAWBACK:

* There is no assurance that these targets will be achieved. Sullivan believes there is a sound basis for establishing such targets.


LOS ANGELES DEPARTMENT OF WATER AND POWER

EMPLOYEES’ RETIREMENT PLAN

EVALUATION OF PROPOSED $25 MILLION COMMINGLED FUND INVESTMENT

WITH

MADISON REALTY CAPITAL SULLIVAN DEBT FUND

APRIL 13, 2011

COURTLAND PARTNERS, LTD.

200 Public Square, Suite 2530 10866 Wilshire Blvd., Suite 830 Cleveland, OH 44114 Los Angeles, CA 90024

216.522.0330 310.474.3040

WPERP MADISON REALTY CAPITAL

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LOS ANGELES DEPARTMENT OF WATER AND POWER EMPLOYEES’ RETIREMENT PLAN

MADISON REALTY CAPITAL SULLIVAN DEBT FUND

APRIL 13, 2011 ________________________________________________________________________

TABLE OF CONTENTS

I. EXECUTIVE SUMMARY .................................................................................................................. 2

II. ADVANTAGES AND RISKS/CONCERNS SUMMARY .................................................................... 3

III. COURTLAND DUE DILIGENCE ACTIVITIES ............................................................................... 6

IV. FIRM OVERVIEW ............................................................................................................................ 6

V. INVESTMENT STRATEGY ............................................................................................................. 10

VI. TRACK RECORD ........................................................................................................................... 14

VII. FEES ............................................................................................................................................... 15

VIII. REFERENCES ................................................................................................................................ 17

IX. COURTLAND RECOMMENDATION ............................................................................................ 17


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I. EXECUTIVE SUMMARY

Courtland Partners, Ltd (“Courtland”) prepared the following evaluation of Madison Realty Capital (“Madison” or the “Firm”) for the Los Angeles Department of Water and Power Employees’ Retirement Plan (“WPERP”). This proposed $25 million investment would be allocated as follows: $20 million for Employees Retirement Plan and $5 million for the Retirees Health Care portfolio. This proposed investment would fit within the WPERP real estate portfolio as a first mortgage and distressed debt investment within the opportunistic component of the real estate allocation. Provided below is a brief summary of the proposed terms of the Madison Realty Capital Sullivan Debt Fund (the “Fund”).

SUMMARY OF SULLIVAN DEBT FUND INVESTMENT TERMS

Investment: General Partner: Fund Size: GP Co-Investment: Leverage: Control: Investment Strategy:

Sullivan Debt Fund, LP. Sullivan Debt Fund GP, LLC. $300 million (equity portion) with $500 million hard cap. Minimum of 1% of total capital commitments to the Fund, up to $3 million. Target leverage is 1.0x but may be as high as 2.0x. WPERP would be a limited partner (“LP”) with defined control rights. The Fund will be primarily focused in New York City and the Mid-Atlantic to New England regions. The Fund will seek to invest in and dispose of investments originated and underwritten by third parties consisting of senior secured mortgages, junior interests in first mortgage loans (B-notes), and distressed and defaulted senior-secured loans. Additionally, the Fund will issue short-term bridge loan senior mortgages.

Investment Period:

Three years from final closing date.

Investment Term:

Six years from final closing date, subject to two one-year extensions at the discretion of the GP.

Investment Risk/Return: Value-added (first mortgage); Opportunistic (distressed).

Expected Return:

18% net-of-fees to investors.

Management Fees: 0.5% on un-invested capital commitments; 1.5% on invested capital; most favored nation status on fees.

Preferred Return: Promoted Interest:

9% compounded annually. After preferred return and return of 100% of capital to LPs, distributions split 50/50 until GP has received 20% of distributions, net of return of capital to LPs. Thereafter 80/20 to LPs/GP.


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COURTLAND RECOMMENDATION SUMMARY Courtland recommends that WPERP consider Madison Realty Capital for a $25 million allocation ($20 million for Employees Retirement Plan and $5 million for the Retirees Health Care portfolio). This recommendation is subject to satisfactory legal review of all Fund documents. Courtland’s recommendation is based on the following:

1. Madison’s transactions are in the senior position in capital structure; 2. Relatively simple, straightforward transactions compared to other distressed funds; 3. Strong underwriting capabilities/firm professionals; 4. Excellent past track record, particularly given vintage year of last fund; 5. Diversification/mix of originated bridge loans and distressed loans purchased; 6. Small size of the Fund and transaction sizes; 7. Mitigated interest rate risk with the Fund; and 8. Madison’s deal sourcing pipeline/relationship with local banks.

III. SULLIVAN DEBT FUND ADVANTAGES AND RISKS/CONCERNS SUMMARY

ADVANTAGES RISKS/CONCERNS

Strong track record, particularly given vintage year exposure of first fund. The GP’s first fund, Madison Realty Capital LP, began in 2005 and made its last investment at the end of 2008. Clearly, this has been a challenging environment for the majority of funds which made investments over this time frame. As of September 30, 2010, the first fund an annualized net return of 7.0%. This ranks Madison as a top-quartile performer over this market cycle. Relatively transparent deals. The transactions that the Fund will focus on are relatively straightforward. These are primarily extensions of maturing first mortgages or first mortgages purchased directly from banks at a discount to face value. Many “distressed” debt funds currently in the marketplace are focusing on very complex financial engineering to determine whether a note deep in the capital stack has any potential value. Because Madison is focusing on senior secured positions, the complexity of transactions is arguably less than with other funds that Courtland has evaluated. Real estate approach to underwriting transactions. To further expand on the above topic, Madison has a team of real estate professionals and people who have had experience financing and lending to real estate-related borrowers. Many firms

Experience of key personnel/Departure of key personnel. The key professionals at Madison have had relatively short careers to this point. While they are well versed in their respective areas of expertise, the level of experience could potentially be problematic, given that many team members have only been through one complete market cycle. Additionally, in 2010, two key principals at the Firm have left. Gideon Gil left to work for a family office consultant and John Sorel left to work for Deutsche Bank. The Firm is bringing in professionals with long service records at reputable institutions. Additionally, while a number of the key personnel are relatively young, they have had in-depth experience at some of the best firms in the real estate finance area prior to forming/joining Madison. Short track record. The Firm has only been in existence since 2005. Over this time, Madison has one fund that has drawn its full capital commitment. Though it is a short performance record and Madison has only been through a single market cycle, performance has been impressive, as described in the advantages of this section of this report. Many firms have funds with vintage years similar to the first Madison fund, and regardless of the experience of key personnel or the number of prior funds, performance for these GPs in vintage year 2005 funds has primarily been poor. Limited geographic focus. The Fund will likely invest half of its proceeds in New York and the other half will be predominantly focused on the East Coast outside of New York, though investments can be made anywhere in the U.S. The geographic


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utilize financial engineering experts who may not be seasoned real estate professionals. Note that a copy of a credit memo written by Madison for purposes of underwriting a transaction is accompanying this Courtland write-up as an example of the detailed due diligence undertaken by Madison. Ability to do loan-to-own on transactions. All transactions are entered into analyzing the “what if” scenario of needing to foreclose and take ownership/control of a property. Given the various scenarios and exit strategies are planned for, it is highly unlikely that the Fund will be forced to take substantial write-downs on any single asset. Ability to use leverage in a transaction. With this strategy, Madison may write a first mortgages to a property owner at a double-digit rate. Then, Madison may sell an “A” piece of the mortgage to a local bank that wishes to participate in the transaction for a considerably lower yield than the rate at which the mortgage was originally written to the borrower. Madison maintains the remaining portion of the mortgage, collecting an arbitrage spread on the mortgage piece sold off. This effectively leverages the Fund’s investors’ capital, providing a higher rate of return for called capital, without substantively adding to the risk profile of the Fund. Floating rate transactions. The Fund will originate bridge loan mortgages and purchase mortgages at a discount from financial institutions. The bridge loans originated are floating rate notes with a floor. The distressed mortgages purchased may have initially been fixed rate, but once the note

concentration causes some concern. By spreading the investments out across the United States in select, diversified markets, the overall risk of the fund may be lessened. Madison is based in New York. To underwrite the types of transactions that the Firm will underwrite, it does require that the GP have a very good understanding of the markets that it invests in. It is an advantage that the underwriters are a short distance away geographically from the assets being underwritten. Additionally, in Madison’s first fund, assets were underwritten in 28 states, so Madison does have the capability to enter into transactions outside of its core geographic focus. Staff size. The Firm has 22 investment professionals and support staff. Given that Madison will conduct preliminary screening on perhaps 100 transactions per investment funded, and given that there will be approximately 60 Fund investments, this equates to 6,000 due diligence projects that need to be started, which may be stretching resources thin for Madison. Fortunately, Madison is able to determine in fairly short order whether or not a transaction should be pursued further. It will come down to bidding on several hundred transactions to complete the capital commitments of the Fund, which should be a manageable task, given the three-year investment period. Quality of properties. Largely, the underlying properties in Madison’s portfolio are not class-A trophy projects. These are smaller projects that are mid-tier class-B properties. As valuations become more difficult to determine with certainty, there may be less transparency in the market and less ability to accurately determine the value of the underlying collateral. This may be a positive vs. a negative. Large, class-A properties have numerous bidders and oftentimes little chance for large profits due to the competition to secure the asset. The properties the Fund will be lending on are less shopped than a “mega deal” and Madison has a higher likelihood of making a profit compared to aggressive bids which may be needed to win the financing on a class-A Manhattan trophy property, for example. Market Uncertainty. The U.S. commercial and residential markets have uncertainty related to the value of real estate assets. There have been many occurrences in which the supposedly impossible seven-standard-deviation-event happened with more frequency than the statistics would otherwise state is


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goes into default, the default provisions create a variable rate note. This hedges the majority of interest rate risk to which the portfolio could be subject. Deal flow pipeline. Madison sources an average of 150-200 deals per week through its in-house origination staff and its relationships with brokers, bankers, and other facilitators. Given the large pipeline, Madison is able to be selective with the deals it bids on. Additionally, due to the large number of transactions that Madison sees in the pipeline, the Firm’s professionals are able to determine trends in the marketplace which may be either advantageous or deleterious to future opportunities for the Fund. Diversification from large number of deals. The Fund is targeting $300 million of equity and $300 million of debt. With a total investment base of $600 million, and an average deal size of $15 million, the Fund will have approximately 40 investments. Additionally, during the 3-year investment period, there will be deal turnover. The capital from any deals paid off during the investment period may be reinvested. Therefore, the total number of investments may be between 50 and 60. With such a large number of transactions, risk is reduced substantially compared to having large amounts of capital invested in a small number of transactions.

expected to occur. While the markets have corrected substantially from their peaks in 2006-2007, there is still uncertainty as to when both the real estate (physical asset) and security-related markets will hit bottom. The market dislocation creates “once in a generation” opportunities. That is the reason why Courtland is evaluating Madison and other firms: to take advantage of market inefficiencies and potentially earn a return for which the current environment is ideally suited. While there is indeed risk with such a strategy, a competent manager that understands the capital structure can position an investment to get the most upside while minimizing the potential for principal loss. Nonetheless, there is risk that further devaluation takes place and that even secured positions become worthless. Legal issues/bankruptcy risks associated with distressed investment. Part of Madison’s objective is to invest in distressed mortgages or mortgages which may end up in some form of workout. In such cases, bankruptcy courts could affect the outcome for all creditors. Madison is very cognizant of the difficulties that arise when a bankruptcy court becomes involved. Collateral is secured. The investments will not be deep in the capital structure. These are first mortgages with direct claim on the collateral, which mitigates much of the risk of a bankruptcy filing. First time buying distressed loans. Madison’s experience to-date has been writing bridge loans. This is the first foray into purchasing distressed loans. Up to 50% of the Fund is targeted to be comprised of distressed loans purchased from other banks balance sheets. This is a natural progression for Madison. The types of loans it is focusing on are loans which Madison would have underwritten for its own book. These are first mortgage transactions at the most secured position of the capital structure, which mitigates much of the risk of this new strategy.


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IV. COURTLAND DUE DILIGENCE ACTIVITIES

Courtland has completed the following due diligence activities for the evaluation of the Fund:

Courtland professionals performed two site visits to Madison’s headquarters in New York, NY. Courtland met with the senior members of the investment team and the founding principals of the Firm.

Courtland had multiple follow-up conference calls with Madison.

Courtland interviewed various industry references that have worked in the past with Madison.

Courtland reviewed select internal investment committee documents of Madison to assess the underwriting methodology/quality of the Firm.

Courtland reviewed more than a dozen other managers with similar distressed debt strategies to gauge the business strategy of Madison vs. other best-in-class firms in the marketplace.

IV. FIRM OVERVIEW

ORGANIZATIONAL BACKGROUND Madison Realty Capital was founded in 2004 by Joshua Zegen and Brian Shatz. The Firm is currently 85% owned by three principals. The remaining 15% is targeted to be allocated to other professionals at the vice president and managing director level. Since the Firm was founded, it originated in excess of $737 million in loans and has exited over $333 million of transactions to date throughout the United States in its fund-level investments. Additionally, the Firm completed nearly $69 million on one-off transactions in 2010 outside of a fund structure. The firm specializes in purchasing performing and non-performing real estate loans. Additionally, the Firm specializes in creating “bridge loans” on first mortgage financings. The Firm has one office located in New York, NY. The Firm has no business activities outside of real estate-related distressed debt investing and first mortgage bridge loan financing. Madison is a fully integrated real estate financing organization, with the creation of Silverstone Property Group. This is an in-house property management group which focuses on: property maintenance; preventative maintenance; sales, leasing, and marketing; collection, accounting, and reporting; management consulting and project supervision; compliance monitoring; cost assessment; capital expenditures; and energy management. FIRM PERSONNEL Madison has 22 dedicated investment professionals and support staff, including: origination, underwriting, closing, servicing, legal, asset management, capital markets, syndication, and administrative functions.

Location Number of Personnel

New York, New York 22

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ASSETS UNDER MANAGEMENT Madison currently manages one fund, Madison Realty Capital, L.P. (“Fund I”). Fund I does have an off-shore version, Madison Realty Partners II, L.P. (collectively referred to as the “Existing Funds”). Fund I has invested in 154 commercial real estate loans totaling in excess of $688 million (face amount) in a well diversified debt portfolio throughout the United States. Since inception, the Existing Funds have returned an average net internal rate of return (after costs and expenses, including management fees and incentive payments) of 7.0%. As of September 30, 2010 the Existing Funds hold $238 million in assets outstanding. The Existing Funds have exhibited consistent low volatile risk adjusted returns since inception, while providing downside principal protection during the recent market turmoil. The Existing Funds were focused solely on originating senior secured commercial debt with a maturity up to three years. As of December 31, 2008, the Existing Funds have ceased making new investments and are currently in the process of returning capital to investors In Fund I, there have been more than 100 investments which have closed and are no longer within Fund I. Of these 100+ investments, only three transactions resulted in a loss of investor capital. Additionally, there are 52 investments which are currently open in Fund I. Of these 52 investments, two are expected to generate a negative rate of return. The below table outlines Madison’s total raised investment capital (total capital raised):

Strategy ($MM)

Structured/Distressed Debt

MRC Fund I (on-shore) $16

MRC Fund II (off-shore) $223

Total Assets $239



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KEY PERSONNEL/BIOGRAPHIES Virtually all of Madison’s senior investment professionals have backgrounds working on Wall Street and/or other real-estate related finance positions. The following table includes biographies of Madison’s senior management:

Josh Zegen Managing Principal

Mr. Zegen is a co-founder of the Fund and a Managing Principal of Madison. He is responsible for deal originations and the structuring of all investments for the Fund. Since Madison’s inception in 2004, Mr. Zegen has been a member of Madison’s investment committee and has closed over 154 discrete loan transactions, comprised of $688 million in assets. Prior to co-founding Madison, Mr. Zegen founded and was president of Alpine Commercial Capital, a mortgage advisory firm that has successfully closed over $1 billion in real estate financings. Prior to forming Alpine, Mr. Zegen was an investment banker in Salomon Smith Barney’s financial sponsors/private equity group where he focused on leveraged buyouts, equity and debt financings, mergers and acquisitions and private placement transactions. He began his career as an analyst in Merrill Lynch’s debt capital markets division where he executed both mortgage backed and asset backed debt offerings. Mr. Zegen is president and co-founder of the Brandeis Entrepreneurs Network, as well as a co-founder and board member of The New York Private Equity Network. He graduated cum laude from Brandeis University with a Bachelor of Arts degree in economics in 1997.

Brian Shatz Managing Principal

Mr. Shatz is a co-founder of the Fund and a Managing Principal of Madison. He is responsible for raising institutional capital, risk management, overseeing the debt portfolio and asset management of the Fund. Since MRC’s inception in 2004, Mr. Shatz has been a member of Madison’s investment committee and has closed over 154 discrete loan transactions, comprised of $688 million in assets. Prior to co-founding Madison, he established Bluegrass Growth Fund Partners, LLC, a private investment fund which focused on investing in structured equity and debt investments for U.S. public companies. Mr. Shatz began his career at BlackRock where he worked closely with fixed income portfolio managers and developed institutional client relationships with some of the country’s largest pension funds. He graduated cum laude from Brandeis University with a Bachelor of Arts degree in economics in 1998.

Michael Stoler Managing Director, Originations

Mr. Stoler is a Managing Director of Madison. He is responsible for transaction originations, financial institution syndications and relationship management. Prior to joining Madison as a Manager Director in January 2009, he served as a senior principal at Apollo Real Estate Advisors from 2006 through 2008, where he focused on originations for acquisitions, development and lending across all of Apollo’s funds (AREA). Mr. Stoler was a senior vice president at First American Title Insurance Company of New York and founded Princeton Commercial Corporation, a management consulting and financing firm. He is the creator and host of “The Stoler Report-Real Estate Trends” and “Building New York,” New York’s only television broadcasts featuring real estate and business. Mr. Stoler serves as a columnist and web contributor for The Real Deal Magazine. He is currently an adjunct professor at the NYU Real Estate Institute and co-chairs the annual capital markets symposium. Stoler received a Bachelor of Arts degree from Long Island University in 1969.


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Below is the organization chart for Madison.



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V. INVESTMENT STRATEGY

MADISON REALTY CAPITAL INVESTMENT STRATEGY The composition of the Fund’s portfolio will be dependent upon market opportunities and conditions. The Fund will focus its investment activity primarily on acquiring as well as financing the acquisition of performing and non-performing senior secured loans from lenders looking to rid their balance sheets of such assets. The Fund will also provide senior secured loans for the acquisition and refinance of commercial real estate as well as the repositioning of real estate. The Fund will finance note purchases from operators seeking to acquire commercial real estate loans from banking institutions. Finally, the Fund will pursue opportunities from government regulatory agencies set up to liquidate distressed commercial real estate loans. It is anticipated that approximately 50% of the Fund will be allocated to new mortgage originations in the form of bridge loans and the other 50% of the Fund will be allocated to buying distressed securities from financial institutions at a discount to the face value. These loans will be backed by commercial real estate located throughout the United States. The Fund intends to make investment valued between $5 million and $30 million and with maturities from one to five years from the acquisition/funding period. Investments generally must be cash flow positive at the time of funding. Each prospective investment will be evaluated, structured and priced in consideration of the specific attributes of the opportunity. The Fund’s focused investment strategy will minimize the uncertainty associated with timing market trends and enhance returns to the Fund on a risk-adjusted basis. The Fund will be committed to the execution of an investment strategy which adheres to Madison’s underwriting standards, fundamentally strong asset and borrower selection, thorough due diligence and accurate, timely execution of the investment process. Through the use of extensive credit, market and property level analysis, Madison expects to thoroughly assess risk, structure investments opportunistically and defensively, and price transactions appropriately. The Fund seeks to build a diversified investment portfolio of senior secured debt and intends to target a relevant portfolio allocation based on geography, sector type, loan type, borrower characteristics and maturity schedule. It intends to originate and purchase distressed and defaulted senior secured commercial real estate loans that present near-term opportunities at the property level. The investment strategy incorporate three phases into the decision making process. The phases and a description of select action steps within each phase are listed as follows:

Collateral Review: analyze property valuation, complete appraisal, stress test pro forma NOI, determine exit strategy;

Market Review: focus on markets with attractive supply/demand dynamics, analyze market demographics and trends, evaluate collateral diversification; and

Credit Review: credit and background checks performed on borrowers/guarantors, evaluate financial statements, analyze liquidity, limit exposure to any one borrower.


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A schematic of Madison’s investment process is profiled on the following page.

The Fund will rely on local commercial savings banks (currently over approximately 8,000 nationwide), insurance companies, government-sponsored agencies and private lenders to exit its investments. Given the increased liquidity in the sub-$30 million marketplace, the Fund expects that certain portfolio investments will also be disposed of through the borrower’s sale of the underlying real property. The Fund’s team of professionals has deep experience working through non-performing and defaulted real estate debt including foreclosure proceedings, bankruptcy, third-party note sales and resale of the collateral acquired in lieu of repayment of indebtedness. Madison believes that the ability to navigate the workout process with borrowers is critical to principal protection and may provide additional upside potential for the Fund.



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INVESTMENT OPPORTUNITY The capital market events since mid 2007, together with broad declines in real estate valuations across property types, have presented various opportunities within the commercial real estate debt markets. Changing dynamics and an increased conservatism in the conventional lending arena have made available a wide array of specialty lending opportunities throughout the commercial real estate sector. Further, these same traditional lenders are seeking to strengthen balance sheets through the disposition of both sub-performing and distressed commercial real estate debt. Madison believes that there will be an unparalleled opportunity for refinancing and recapitalization of existing commercial real estate debt that was originated during the 2004-2008 period. Distressed and non-performing investment opportunities emerge throughout economic and real estate cycles and are particularly prevalent in the current market environment. These opportunities are typically the result of dislocations at the property or local market level, embedded within the capital structure, or arising through inefficiencies of ownership and/or management of a given property or platform. Madison’s intent is to source and fund the recapitalization of value-added real estate collateral directly affected by the freeze in the overall capital markets as well as purchase loans either at par or at a discount where underlying real estate fundamentals present near-term challenges but longer-term opportunities. Madison has indicated in conversations with Courtland that virtually all real estate notes acquired from lending institutions will be at sizeable discounts, whether the note is cash flow impaired or is current with its payments. There has been an across-the-board lack of liquidity (both debt financing and equity capital) and there are continued downward pressures on real estate assets (with the exception of fully-leased “trophy” assets in key geographic markets). The access to capital problem and the slow economic climate have created major problems. For example, the high unemployment rate has caused decreased need for office space. The lack of demand for space has lowered property-level net operating income. Significant changes in available financing terms and declines in values have resulted in many outstanding loans to not be able to be refinanced. In other cases, borrowers have been required to put additional equity into investments in order to get refinancing completed; in many cases, the borrower does not have additional capital to pay down the existing debt. Lenders are facing significant maturities over the next several years. From 2010 through 2014, approximately $2.5 trillion of commercial real estate will expire, as profiled in the below chart.

Maturing Commercial Real Estate Debt: 2010-2018

Source: Mortgage Bankers Association, Trepp, Federal Reserve Flow of Funds and KBW Research


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Community savings banks continue to be pressed by the FDIC and other regulatory entities to repair battered balance sheets and replenish capital requirements. During the year 2010, 157 FDIC-insured banking institutions were shut down, leaving approximately 8,000 FDIC insured institutions. Thus far in the year 2011, 23 institutions have been closed through the end of February. Of the approximately $3.4 trillion in outstanding commercial real estate debt, approximately 50% is on the balance sheet of federally insured banks, with over $1.0 trillion maturing before 2012. Peak origination years of 2005-2007 will lead to federally insured banks seeking payoffs and/or pay downs on rolling commercial real estate debt in 2011-2012 and beyond. Madison believes the “new” real estate capital structure within the real estate debt market has resulted from increased debt service coverage ratios, stricter underwriting of real estate and hard caps on loan-to-value ratios. Traditional sources of commercial real estate loans are considering a much more limited pool of properties and borrowers. Madison believes that the macroeconomic trends in the broader U.S. economy (i.e. job losses and increased savings) are challenging operating performance at the property level, providing lower loan proceeds and decreased asset valuations. Additionally, it is Madison’s view that properties encumbered by short-term debt or maturing floating-rate loans are facing more complicated refinance options. Madison expects that: (i) commercial real estate fundamentals (rents and vacancy rates) will continue to deteriorate, in some cases for several years; (ii) defaults on commercial real estate debt will continue to climb over the next year or more, reaching historically high levels; and (iii) the commercial real estate sector is likely to face a severe “refinancing crisis” over the next several years, even with commercial real estate fundamentals improving. DEAL FLOW PIPELINE Madison’s management team brings numerous commercial real estate relationships (including owners, commercial banks, niche operators, mortgage brokers, investment bankers, attorneys and independent bankruptcy advisors) and a history of successfully closing transactions in excess of $2 billion within the real estate community. Madison’s team of originators and management team currently source an average of 150 to 200 deals per week through these various channels. Generally speaking, the vast majority of these transactions can be “weeded out” in very short order for a variety of reasons (deal size, property type, lack of cash flow, etc.). Industry contacts and relationships are tracked through a customized software program which allows targeted direct marketing campaigns based on geographic location, market size, and property types. The Fund will draw upon the infrastructure of Madison Realty Capital, which has developed a national advertising/marketing campaign targeting mortgage brokers and owners throughout the US and has devoted considerable resources into creating and expanding its brand name within the lending community.



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As a comparison for the performance of real estate investment funds, below is a table of the Courtland Partners Index returns distributed by vintage year. Madison’s Fund I (and off-shore equivalent) has a return of approximately 7.0% as of September 30, 2010. This return is well above the median return of -9.5% for all funds from 2005 vintage year and considerably higher than the median fund returns of -8.5% and -17.2% for the value-add and opportunistic sectors, respectively .

2010 Q3 Net Total Returns Since Inception

Value-Add

Year # of Funds High 1st Median 3rd Low

2005 22 13.6% 4.7% -8.5% -25.1% -54.2%

Opportunistic

2005 21 21.1% -8.5% -17.2% -25.3% -51.4%

Total

2005 54 21.5% 0.7% -9.5% -21.3% -54.2%

Madison Realty Capital 7.0%

Value-Add Quartile 1st

Opportunistic Quartile 1st

Total Quartile 1st

Note: The CPI is comprised of $448 billion of gross assets ($158 billion of net assets), including core, value, and opportunistic investments, which are both U.S. and non-U.S. investments in direct assets and pooled funds. The CPI is comprised of 368 direct and pooled fund investments.


VI. TRACK RECORD


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WPERP has a reduced fee on committed but un-invested capital. The fee on un-invested capital is 0.5% per annum. The management fee on invested capital is 1.5%. WPERP is also being granted a most favored nation status. The GP promote is as follows:

100% to the LPs until the LPs receive a 9% cumulative IRR; then

100% to the LPs until the LPs have received a return of their capital commitments; then

50% to the LPs, 50% to GP until GP has received 20% of all distributions, net of distributions of LP original capital invested; thereafter

80% to the LPs, 20% to GP. Based on the fee structure of other funds in the marketplace, and the 9% preferred return of the Fund, Courtland believes that the fees of the Madison Realty Capital Sullivan Debt Fund are reasonable, albeit slightly on the high side when compared to the other funds Courtland has evaluated.

FUND SIZE MANAGEMENT FEES/PROMOTED INTERESTS TARGET RETURN

Cornerstone Core Mortgage Fund I, L.P.

$1.25 b

Management Fee: 0.48% on invested capital

Incentive Fee: 7% preferred return hurdle, 15% to the GP thereafter

8%-9%, gross

GE Capital Real Estate Debt Fund, L.P.

$2.00 b

Management Fee: 1.0% on committed capital during the investment period; 1.0% of invested equity thereafter


10%-13%, gross

Heitman Strategic Finance Partners, L.P.

$0.25 b

Management Fee: 0.75% on committed capital

Origination Fee: 0.75% on the total cost of fund investments


12%-15%, net

Invesco Mortgage Recovery Fund, L.P.

$2.00 b

Management Fee: 1.0% on invested capital

Incentive Fee: 8.0% preferred return hurdle, 20% to the GP thereafter

20%, gross

LoanCore Capital Fund II, L.P.

$0.50 b

Management Fee: 1.0% on committed capital during the investment period, 1.0% on invested capital thereafter

Origination Fee: Up to 0.50% on any origination fees generated.


15%, gross

LoneStar Fund VII, L.P. &

LoneStar Real Estate Fund II, L.P.

$5.00 b

Management Fee: 1.2% on committed capital during the investment period, 0.45% on invested capital thereafter (for investments less than $200mm)

Incentive Fee: 8% preferred return hurdle, 50% to the GP until LPs receive a 13% return 20% to the GP thereafter

25%, gross

VII. FEES


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Madison Realty Capital Sullivan Debt Fund,

L.P. $0.30 b

Management Fee: 0.5% of committed capital during the investment period and 1.5% of invested capital thereafter

Incentive Fee: 9% preferred return hurdle, 50% to the GP until the GP receives 20% of total distributions, 20% to the GP thereafter

18%, net

Mesa West Real Estate Income Fund II, L.P.

$0.50 b

Management Fee: 1.5% on committed capital during the investment period, 1.5% on invested equity thereafter

Incentive Fee: 8% preferred return hurdle, 20% to the GP until the LPs receive a 12% return, 50% to the GP thereafter

14%-16%, gross

Oaktree PPIF Private Fund, L.P.

$1.10 b

Management Fee: 0.65% of invested capital during the investment period, 0.65% on the lower of investment cost and net asset value thereafter

Incentive Fee: 8% preferred return hurdle, The GP shall receive distributions equal to the internal rate of return of the Fund, net of management fees and expenses, but gross of carried interest (“Adjusted IRR”). If the Adjusted IRR is less than 8.0%, the incentive percentage will be zero. In no event may the incentive percentage exceed 25%.

15%-20% gross

PCCP First Mortgage II, L.P.

$0.50 b

Management Fee: 0.25% on committed capital and 0.50% in invested capital during the investment period, 0.75% on invested capital thereafter


7%-8%, net

Principal CMBS Separate Account

TBD

Management Fee: 0.40% to 1.0% based on size and risk profile of the proposed separate account

Incentive Fee: TBD

8%-10%, net

Rialto Real Estate Opportunity Fund, L.P.

$0.75 b

Management Fee: 1.5% on committed capital during the investment period, 1.5% on invested capital thereafter

Incentive Fee: 10% preferred return hurdle, 20% to the GP until LPs receive a 14% return 50% to the GP until GP receives 20% of total distributions, 20% to the GP thereafter

20%, net



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VII. REFERENCES

Courtland spoke with three references for Madison. The first was a large, national consulting firm. The second reference was from a bank that purchases “A” notes from Madison. The third reference was from a UK-based investor. All three references were very positive as to the working relationship with Madison, the quality of the work performed by Madison, and the thoroughness of Madison’s underwriting. All reference indicated high integrity of the senior team at Madison and stated a preference for continuing their relationships going forward.

IX. COURTLAND RECOMMENDATION

Courtland recommends that WPERP consider Madison Realty Capital for a $25 million allocation ($20 million for Employees Retirement Plan and $5 million for the Retirees Health Care portfolio). This recommendation is subject to satisfactory legal review of all Fund documents. Courtland’s recommendation is based on the following:

1. Madison’s transactions are in the senior position in capital structure; 2. Relatively simple, straightforward transactions compared to other distressed funds; 3. Strong underwriting capabilities/firm professionals; 4. Excellent past track record, particularly given vintage year of last fund; 5. Diversification/mix of originated bridge loans and distressed loans purchased; 6. Small size of the Fund and transaction sizes; 7. Mitigated interest rate risk with the Fund; and 8. Madison’s deal sourcing pipeline/relationship with local banks.

COURTLAND PARTNERS, LTD.