StoneBridge Real Estate Development & Investments

O’Connor & Associates Industrial Forecast Event

September 23, 2009

Houston’s Industrial Market Vacancy

What’s going on?

New industrial development has stopped Only build-to-suits are being built and those

are rare Second generation space is active due to

cheaper rents New building rents are too high for many

tenants Tenants are looking for deals Tenant’s credit ratings are declining

What does this mean?

The development cycle is over Lenders will continue to work with

good customers to extend the terms of their loans

Banks want to make sure the mortgage is paid every month

Banks do not want to take back properties, what will they do with them?

What will happen?

Downward pressure on rental rates will continue

Loans are/will be underwater Non-recourse borrowers will start to give

properties back to lenders Banks will foreclose on other borrowers

Market Opportunities

Lower rents, higher vacancies, lack of credit from lenders = Distressed Properties

Landlords will reduce ask prices to sell their properties, especially if there is a personal guarantee

Too many properties are over-leveraged, just ask the California buyer from a few years ago who was paying 6%-7% cap rates

Too much debt is coming due and bankers will not extend all of the loans. Especially, if the asset’s loan balance is underwater

Note sales and foreclosures are increasing

Cash is King

Real Estate Funds are springing up in anticipation of the Distressed Property Sales

The FDIC will need to establish another “RTC” to flush all of the problem real estate loans out of the system

Cash buyers will be able to seize the opportunities

What is StoneBridge to Do?

Acquisitions of distressed real estate Purchase assets from $3.0-$10.0

million range of multi-tenant industrial, office and retail

Goal is to purchase $50.0 million per year

Buy in cash to reduce risk exposure Buy in the greater Houston area