Sanctuary Advisors Distressed Fundx

SANCTUARY GROUP, LLC

Sanctuary Advisors, LLC
Multifamily Opportunity
Fund
Distressed Asset Ownership Fund
Jeffrey W. Adler and Jack G. Kern
3/22/2009

The Membership Interest presented in this document has not yet been registered under the United
States Securities and Exchange Act of 1933, as amended, or under any other applicable Federal or State
Securities Laws. Such interests may not be sold, assigned, pledged, or otherwise disposed of without
effective registration or an applicable exemption.

Contents
Executive Summary ................................................................................................................. 5

New Property Fund to Acquire Residential Apartments .................................................. 5

Experienced Investment team with a track record ............................................................. 5

Sanctuary Advisors, LLC Opportunistic Multi-family Investing ..................................... 6

Direction of Multi Family Valuations in Private and Public Markets.............................. 7

Entry Points for Acquiring Distressed Assets...................................................................... 7

Meaningful Time Horizon and Opportunity to Invest ...................................................... 8

25% to 30% IRR Target ............................................................................................................ 8

Introducing Sanctuary Advisors............................................................................................ 9

Business Philosophy: ............................................................................................................. 10

Competitive Strengths: .......................................................................................................... 11

The Five Major Differentiating Factors: .............................................................................. 11

Target Consumer Market ...................................................................................................... 13

Fund Returns & Expenses..................................................................................................... 19

Targeted Markets for Fund Acquisition ............................................................................. 20

Value Added Case Study #1 : Broadcast Center, West Los Angeles, CA ...................... 21

Value Added Case Study #2: The Crescent at West Hollywood .................................... 23

Projections and Statements ................................................................................................... 24

Appendix: The Multifamily Investment Market ............................................................... 30

Sanctuary Advisors, LLC – Confidential Business Plan [Version 5.0] 22 March 2009 Page 2

U.S. Multi-family Property Vacancy Rates......................................................................... 32

Demographic Changes in the Numbers of 20-34 year olds/households of 20-34 year
olds (actual and anticipated)] ............................................................................................... 32

Supply of Multifamily Becoming Constrained .................................................................. 33

Construction Starts and Originations for Multi-family Properties................................. 33

US Monthly Change in Employment (‘000 jobs) ............................................................... 34

IRR Expectations by Market ................................................................................................. 35


Sanctuary Advisors is part of the Sanctuary Group, LLC (after formation, 2009)

Plan Sponsor:
88 Inverness Circle East, Suite H104
Englewood, CO 80112
Office: 303.662.1080
Mobile: 303.618.9738

Synopsis: This is a private placement offering for a closed-end multifamily “distressed
opportunity” value added real estate fund that seeks to raise $200MM in committed
equity capital. Sanctuary Advisors, LLC is a start-up operation with a specific detailed
operational plan based upon the experience of its two principals, Jeff Adler, former
Chief Property Operations Officer at AIMCO (NYSE: AIV) and Jack Kern, former
Director of Research at Archstone-Smith (NYSE: ASN). Their experience and the plan
described below is the main reason why the sponsors believe they can deliver outsized
returns to the fund’s investors.

This is a confidential business development plan. Questions regarding this plan should
be directed to Jeff Adler, Chief Executive Office, Sanctuary Group, LLC either at the
phone numbers listed above or by email. The report contains copyrighted, proprietary
information from a wide variety of industry sources that cannot be shared beyond those
in possession of this plan. Please help us to preserve the rights of the copyright holders
by not distributing this document to anyone without the expressed written permission
of Sanctuary Group, LLC.

Jeff.Adler@sanctuarygroup.us.com Chief Executive Officer
Jack.Kern@sanctuarygroup.us.com Managing Director
www.sanctuarygroup.us.com


Executive Summary
New Property Fund to Acquire Residential Apartments

Sanctuary Advisors, LLC (the quot;Fundquot;) will be established in Denver, Colorado in 2009
and will act as advisor and sponsoring investor, for the acquisition of existing
multifamily rental properties. The Fund is being set up to invest in multifamily
residential rental properties across the United States, focusing on institutional
investment grade metropolitan areas, high growth submarkets and special situations.
The Fund is targeting a total equity capitalization of US$ 200,000,000 with appropriate
agency, non-recourse leverage to enhance returns.
Targeted IRR returns are 25%-30%, which assumes assets can be identified at an
effective asset value discount of 30% from current 1Q2009 prices levels (or a 250 basis
point cap rate discount), which equates to a 10.0% to 10.5% cap rate. We expect to raise
funds in 2009 and then deploy the funds sometime in the first half of 2010 when we
expect overleveraged borrowers who accessed the CMBS market in 2005-2007 to run
into trouble.
Experienced Investment team with a track record

Sanctuary Advisors, LLC will function as the Property Fund Adviser. The two key
managing principals both have long, successful multifamily residential property track
records and have held senior level positions with publicly traded real estate investment
trusts, representing several hundred thousand units owned, operated, improved and
traded over their tenure.
• Jeff Adler, an industry veteran, was previously the Chief Property Operations
Officer at AIMCO, the largest multi-family owner/operator in the U.S. of both
stabilized properties (180,000 units) and repositioned properties (20,000 units)
with a production rate of 5,000 units per year. During his tenure (2002-2008) Jeff
turned around and revitalized the AIMCO operating and redevelopment
platforms around the twin pillars of a) forward looking data driven decision
making and b) a strong emphasis on customer experience. In addition to his
Operating role, Mr. Adler was also on the AIMCO Executive and Investment


Committees, presenting regularly to industry analysts, investors, bankers, and
the AIMCO Board of Directors. He has been featured in numerous industry
articles and events.
• Jack Kern who has 20 years of industry experience and was formerly director of
research with the third largest REIT in the US. Jack’s background is in
development and investment operations, having concluded 105 transactions.
Jack also serves as our Government Relations liaison. Based in Washington, DC,
Jack has extensive contacts with US Government Agencies and CMBS special
servicers. Jack is currently the Vice-Chair of the Research Committee of the
National Multi-Housing Council, Vice-Chair of Multi-housing World and is a
frequent speaker at industry events.
Sanctuary Advisors, LLC Opportunistic Multi-family Investing

The Fund’s core strategy will be to acquire properties at an effective 30% discount (or
2.5% cap rate discount) through a series of “entry points” that enable us access to these
distressed assets.
In screening potential acquisitions, we will first evaluate whether they exist in the city
markets and sub-markets that we would have desired to invest in if we had purchased
them at market level cap rates. We will then determine whether a value added
opportunity exists (increase in capital expenditures to increase rents). Assuming these
two screens have been met, we will then evaluate the ability to purchase the asset at a
discount to currently prevailing valuations as a result of a special situation.
Once we acquire the assets, the operational plan will be exactly the same as if we had
acquired it at market level cap rate, which presumes a value added redevelopment and
a 5 year average hold period.
Given that the CMBS market was very loose from 2005-2007, we expect that the
investment window will be 2010-2011 as a result of two factors: (1) the downturn in
apartment NOIs caused by the recession and (2) the inability to refinance the debt at a
70% Loan to Value ratio as result in the decline in apartment values of 30% (Cap rate
increase of 250 basis points- from 5.5% to 8.0%), which has already occurred from 1Q
2007 to 1Q 2009.


Direction of Multi Family Valuations in Private and Public Markets

Publicly traded Apartment REITs are currently (March 2009) trading at implicit cap
rates of 9%-11%. They are active sellers into the private real estate market, where cap
rates are trading at much lower levels. Private Market cap rates are transacting at 7.5%-
8.0%, although the number of transactions are about 30% of the level as in 2007. Private
market buyers currently are comprised of smaller, family owned enterprises, who can
take advantage of real estate tax depreciation to shelter earned income, with
institutional/private equity players awaiting a dramatic correction in multifamily asset
prices. We do not think private market cap rates will revert to 10% overall, as long as
the GSE’s continue to profitably make 65% LTV, 6% interest, 10 yr term debt at 1.25
Debt Service Coverage ratios.
With solvent buyers/sellers freely transacting at 7.5%-8.0% cap rates, and no impetus to
force cap rates higher, the only opportunities to achieve 25%-30% IRR returns will be to
access overleveraged owners and distressed situations that will give rise to price
discounts of 30%

Entry Points for Acquiring Distressed Assets

1) Data Driven Acquisition Targets- through relationships with rental survey and
financial database providers, we have accessed data that provides us with a list
of multifamily properties that are both operationally underperforming and
financially overleveraged. We have sorted this list by geography, and will use it
to proactively target acquisition candidates and their lenders.
2) Governmental Agencies- through Jack’s relationships with governmental
agencies, we will be in a position to access problem assets of the commercial
banking system.
3) CMBS Special Servicers- we expect the CMBS market to be the epicentre of
distressed assets in multifamily. We have established relationships with the
special servicers to assist them in stabilizing the assets when it goes into default,
which will provide access for assessing value and executing transactions
4) Consultants- through Jeff’s network of relationships with owner operators and
consultants to major US Banks, we expect to be able to be in the middle of the
deal flow when the number of distressed situations increase.


The Fund has established partnerships with a limited number of property mgmt
companies who will co-invest and employ Mr. Adler’s operating strategy. This
includes a limited number of highly specialized owners and developers with a strong
geographic track record in the targeted markets.

Meaningful Time Horizon and Opportunity to Invest

Fundamentals:
The underlying demand for rental housing has been, and is anticipated to keep,
increasing while new supply is expected to fall in the short term. Demographically, the
core 25-35 age group will continue to grow until 2015 (this age group has a high
propensity to rent, which will buttress demand), in addition to the 1.3 million new
households being formed each year in the U.S. Demand is further enhanced by a
reduction in households leaving the rental pool and buying homes, as a result of tighter
mortgage underwriting criteria (credit scores and down payment, cash closing costs) ,
and the expectation that homes will not appreciate in value for some time. Reductions
in employment levels in 2009 and 2010 will mask these positive trends.
The supply of property has been impacted by recent market trends, with new
construction of both single family and multi-family properties seeing a decline of at
least 30% [to date] in 2008. Sanctuary Advisors believe that these positive supply and
demand dynamics should underpin average rent inflation of three to four per cent per
year or more, and ensure that vacancies remain at moderately low levels, over the five
to ten year anticipated investment horizon

25% to 30% IRR Target

It is expected that the winding up of the Fund will take place in stages, beginning five
years after the First Closing Date, (with a maximum lifespan for the Fund of ten years).
The Fund is targeting a pre-tax IRR of 25% to 30% after fees over an assumed five year
lifespan. The fund’s IRR assumes flat overall market rental growth, entry cap rate at an
average 10.5% and an exit cap rate of 8%. If the entry level cap rates are not attained, we


will give investors the opportunity to convert to a 15%-18% IRR value added fund, or
return of capital.
Introducing Sanctuary Advisors

Mission Statement: Apply the two founding partner’s proprietary skills in U.S.
Multifamily rental property acquisition, redevelopment, research and management to
create value for investors, team-members, and community members by managing
extraordinary consumer experiences in the local multifamily markets within which we
operate, and by doing so, promote sustainability, environmentally sensitive practices
and make the renter’s world a better place.

Goals and Objectives:

We are founded on three major pillars:

1) Strong financial results- we intend to generate quality earnings and deliver a
strong brand promise so that the financial results will reflect our commitment to
providing our investors and partners with substantive returns, both financially
and in providing quality living environments for members (residents).

2) Significant Social and Customer Impact- we believe that improving the quality of
life of our community members, in ways relevant to them, will be rewarded with
lower costs, higher retentions, and higher sustainable revenues. This belief is
based on many years of experience along with evidence from our proprietary
consumer research. We leverage the extensive knowledge we have about
resident goals, needs and desires, and continue to listen, so that we deliver those
products, services, and experiences that they value the most. By being stewards
of environmentally sustainable, well managed communities, we contribute to the
stability of the cities and regions in which we operate.

3) Environmentally Responsible- we believe that reducing energy consumption and
reducing the environmental footprint of our properties, while involving
community members as active participants in this journey, will create both a
competitive cost advantage as well as bringing our community members
together with an added sense of shared purpose. Residents consider their
apartments “home” and our emphasis on socially conscious management builds
on the value proposition in place when they’re selecting a primary residence.


The initial Fund objective is to raise $200MM in initial equity capital at a 70%-75%
leverage using agency non-recourse debt, at a minimum 1.25 DSCR. This would
provide an enterprise value of around $800MM. At approximately $70,000 per unit in
value, this would indicate a total enterprise size of approximately 11,000 units. By way
of comparison Mr. Adler led an organization (AIMCO) of 160,000 units, of which 20,000
were under active re-development.

Exit Strategy: We anticipate that the liquidity event for the funds investors will be:

a) Sell the property subject to continuing property management agreement, to
ensure the longevity and endurance of the customer experience

b) Sell the interest in properties to other investors who will invest in the next level
of value added repositioning.

c) Take the company public

d) Sell the portfolio

We fully expect, as the organization gains in maturity, to be a sponsor of multiple funds
to provide expansion capital.

Business Philosophy:

Globally, the apartment industry is viewed not as a consumer service, but a financial
capital intensive commodity where value is derived from location analysis, capital
features, and financial leverage. While these factors play a major role and have been the
primary way multifamily real estate has been run, a missing value driver has been that
the apartment sector is also a consumer service business. This differentiates apartments
from other real estate sectors, and creates an opportunity to create value which has been
largely overlooked.

We therefore believe that apartment home investment, redevelopment, and
management is both a calling and a career- only those people who see their purpose as
imbued with both a mission and set of financial objectives will be a part of this
organization.


The consumer nature of the apartment business allows for competition to occur on two
planes: the rational and the emotional. On the rational side are such elements as
location, common area and apartment amenities, and maintenance service execution. In
this arena, the sponsor has leveraged tools from his experience in other industries and
real estate partnerships to improve investment selection and operating performance.

On the emotional side is the opportunity to create an resident environment that meets
the emotional needs of different customer segments, create metrics that optimize
performance for each of the segments, as well as a team of people that through
structured programs can evoke the emotions by which different groups of consumers
will either stay longer or pay more. Over the course of 2007/2008 the sponsor
conducted and concluded research which will provide the venture with a highly
proprietary and competitive advantage.

In each area, the sponsor has developed proprietary information which will allow the
sponsor to generate higher, more sustainable, less risky returns than competitors.

Competitive Strengths:

Many ventures investing in market rate value added multifamily communities bring
financial skills to the table. This venture not only does that but brings deep operational
experience, expertise based upon founding partner Jeffrey Adler’s, leadership skills and
personal experience in the Acquisition, Operations, and Redevelopment of multi-family
communities. Mr. Adler’s experience in turning around and leading AIMCO, the largest
multifamily owner/operator in the U.S. of both stabilized properties (200,000 units) and
repositioned properties (20,000 units with a production rate of 5,000 units per year)
gives the venture the depth to handle 8,000-10,000 units easily. The venture also has, as
its partner and investment research director, Jack Kern, who has 20 years of experience
in real estate and performed a similar function at Archstone-Smith from 2001-2007, and
the renowned Charles E. Smith companies prior to that.

The Five Major Differentiating Factors:

1) Investment Thesis- our investment philosophy is predicated on the U.S.
demographic and societal trends that favor multifamily housing in the next 5-7
years and beyond.


a) Demographics- the age cohort 20-35 will be growing dramatically over the
next 7 years increasing the number of prime age renter households. At the
other end of the spectrum, the Baby Boom generation has begun retiring, and
their active lifestyles will draw them to major coastal, educational, and
cultural centers

b) Mortgage Credit - The mortgage credit losses in the single family sector will
mean that single family ownership will be delayed as the required down-
payment will rise. Additionally, consumer confidence in homeownership has
never been so low, as prospective home purchasers wait to see when home
price appreciation will return in a measurable way. While single family
renting will be an outlet for some families, it will not replace the desire to
own.

c) Economic Growth - The increased accumulation of economic growth in the
top 10 major U.S. metroplexes - most new economic growth is driven by and
surrounds the major global urban regions. In Who’s Your City?, economist
Richard Florida lays out the thesis to demonstrate that major global cities are
the engines of economic growth, and further, real estate prices and rents will
increase faster there than the national and global averages. The central issue
is not to overpay for that growth (which did occur in the most recent run-up
in multifamily values).

d) Transportation, Oil and Energy - The current level of oil/gas pricing and
production- by all accounts, indicates that the marginal cost of oil production
is about $49 per barrel, meaning gasoline prices at the pump of around
$1.75/gallon as of this plan date. Over the medium term, we can expect prices
to rise back to higher exploration and production costs, sufficient to bring
forth alternative energy sources. The anticipated gains to $65 per barrel and
$3.00/gallon pump prices are more likely than lower energy costs for any
appreciable period. As a result, suburban infill and urban locations that do
not require as much of a commitment to transportation expense will be more
desirable, and enable a greater share of disposable income to be devoted to
housing rather than transportation. This implies that people engaged in
support services such as the medical, educational, public sector, and private
sector front line managerial/administrative fields will increasingly be wedged
between higher cost of housing driven by high knowledge “creative” workers

in major metro areas and increasingly expensive automobile transportation
costs—driving a need for increased public transportation—the best form
being light rail projects.

e) Regional Planning- horizontal growth or “sprawl” is based upon low fuel
prices, and public infrastructure/zoning to support it. This includes roads,
public utilities, schools, shopping, and eventually government and
commercial office space. Given the extreme distress in the capital markets and
the dislocation of capital sources for shopping, office, and industrial sectors,
and the long run movement of energy prices, we can expect that for the next
5-7 years the capital to fuel further sprawl will be less available, and that
more suburban infill and mixed use projects will be preferred.

Target Consumer Market

We will target two segments with different product/service offerings using
different brand positioning, as a result of the investment analysis performed
below:

Workforce Housing (incomes $35K-$60K) in suburban infill markets near
public transportation (rail lines) as the primary targets

Urban professionals and Empty Nesters (incomes >$100K) who desire a safe
urbanized living experience, as a secondary target

Therefore the investment thesis will initially drive to pick locations with the following
characteristics:

1) Top 10 US cities with high percentages of high-end service industries (list
attached in Appendix A

2) Along transit lines, major highways or suburban office, research and
development centers, major healthcare and medical research, and educational
concentrations

3) Emphasis on older, suburban infill or urban communities that can be
affordably repositioned up one asset grade


4) Properties where capital investment can be applied to reduce energy
consumption and reduce the environmental footprint of the community

5) Locations that can be tailored to meet the needs of service support workers
and first line managers (in suburban neighborhoods) or recent graduates,
young professionals and empty nesters (in urbanized neighborhoods)

We have added additional refinements to each of these criteria in later sections of this
plan.

2) Deep Operational Experience- the venture is based upon applying the
investment thesis to the deep successful operational experience the sponsor
developed while Chief Property Operations Officer at AIMCO, and creating a
culture that will enable the fulfillment of its full value creation. That culture
combines a passion for people delivering a one-of-a-kind customer experiences
with a quantitative, data driven orientation.

In that capacity, the sponsor developed a number of management disciplines to
enable value realization:

a) Customer Driven- based on a solid foundation of proprietary consumer research,
a focus upon the entire customer experience, which is measured with customer
feedback direct to the site teams and visible to the leadership that enables higher
retention, lower move in defect rates, and creates a competitive price premium.
In that light, we do not refer to our customers as residents or tenants, but as
“members”, much like an athletic or recreational clubs. We believe that the
achievement of the fund’s financial goals will be the result of serving our
members better than our competition. We will therefore establish annual
customer experience performance goals based on customer experience surveys,
and all team-members must meet these goals before variable compensation on
financial performance will be paid. Based on the sponsor’s prior experience, a
Net Promoter Score of 40% for rational and emotional factors will be a company
goal.

b) Forward Looking and Data Driven- every process step is analyzed and
measured to enable detailed management of the four business pipelines: 1)
revenue, 2) expense, 3) people, 4) capital spending


c) Scale- in the context of the new venture, an acknowledgement that true scale
exists not at the operator level, but at the vendor/supplier level. Consequently,
the venture will focus on partnering with vendors that can provide operational
scale.

In the context of the new venture, we have begun to explore opportunities to
partner with organizations that can reduce the cost of operating and supporting
multifamily properties while supporting the customer experience mission.
Examples of these are outsourcing of the facilities maintenance function,
partnerships with construction management organizations that perform unit
upgrades, and the supporting functions of media placement, internet
advertising, search engine optimization, revenue management, and property
accounting. Given the sponsors’ deep industry contacts and knowledge, many
opportunities have already been identified.

d) People Driven- the culture of the team on-site and the organization that supports
it is one of the critical differentiators in a consumer service business. The
selection, hiring, on-boarding, training and development, and succession
planning is in itself a series of processes that have been perfected, and the ability
to recreate and apply it has been preserved.

In the context of the new venture, we refer the on-site team not as employees but
as “membership coordinators”, “business managers”, “community mayors”, or
“facilities managers”. We elevate the team, because we elevate the community
members. The sponsor has been approached by a major regional property
management organization that is aspiring to a national presence. We have
selected this organization to provide property management services, and in
return, they have agreed to take direction from the sponsor in their management
practices and processes and to go into other major metropolitan areas outside the
Western US.

While working with an established property management organization may
appear to dilute the proprietary advantage of the venture, it also enables the
venture to be operational with very little fixed cost and a sharpened focus on the
drivers of value.


e) Product Driven- the physical component of the apartment community exterior
and the interior of the home is an area that still has opportunities for
optimization.

a. Apartment home interiors product features - the sponsor completed
research using decision choice modeling to have consumers in different
segments create the set of features that resulted in the highest rent levels.
This is the same kind of research that is used to design new hotel concepts
and other consumer goods. The resulting outcomes provide a clear
proprietary roadmap for including just those features (and associated
price points) that create value for consumers and can be captured in
higher rent levels.

b. Environmental/Energy Conservation - sponsor has deployed
environmental/energy conservation programs and has developed
relationships with energy conservation program consultants to reduce
energy consumption, providing real operating cost advantages for both
the property and community members. We will leverage all public policy
incentives associated with energy conservation. We will also make a point
to communicate our commitment to sustainability to our members when
they join and renew their memberships.

c. Cycle Times - the sponsor developed cycle time performance metrics for
unit turn production (redeveloped and stabilized) as well as quality
standards. We expect a total cycle time of no more than 15 days to turn a
lease an apartment home, whether the home has been redeveloped or is in
a stabilized mode.

d. Continuing Curb Appeal/Exterior Product Standards - the sponsor
managed 5-7 years capital maintenance programs as well as seasonal
maintenance to enhance performance.

3) Redevelopment Experience - the sponsor has led over 60 multifamily
repositioning projects (20,000 units at a production rate of 5,000 units/yr) and
developed skills in the selection, design, production, leasing, and operation of
redeveloped market rate communities.


Those experiences have generated additional acquisition criteria for successful
repositioning projects:

i. Asset Quality Review- a thorough capital needs assessment must
be performed, with an emphasis on the major building systems
(roofs, siding, plumbing, HVAC, and electrical). Based upon the
quality of the “bones”, an estimation of total unlevered returns can
be determined, with projects with good physical plants providing
18% unlevered returns and projects with major physical plant
problems more likely yielding 7% returns.

Experience has also shown that garden apartments and mid-rise
mixed use projects are the lowest risk construction projects. The
venture will avoid any high-rise redevelopment. The sponsor has
relationships with quality providers of physical needs assessments.

ii. Resident Quality Review- when performing a value added
repositioning of an apartment home community, the financial
stability of the resident base is a critical, if often overlooked,
element. Through use of First American’s Registry property
evaluation product, a clear picture of the financial health of the
community resident base can be obtained. The review can also
determine to the extent the rent roll has been “stuffed” to boost
reported occupancy and revenue. To the extent the resident base is
stable it can reduce the risk associated with a repositioning. Where
the resident base is risky, this information can be used to
appropriately price the risk.

4) Proprietary Knowledge

The sponsor has developed proprietary knowledge in the following areas:

a) The inclusion of using resident quality underwriting in the
acquisition process

b) The use of quantitative forward looking metrics to improve
property performance, including an e-mail based customer
surveying system.

c) The use of decision modeling to assemble the highest revenue
maximizing package of physical features and benefits by
customer segment

d) The use of advanced research methodologies to identify
maximum opportunity markets and submarkets for property
acquisition, disposition and redevelopment targeting

e) The research to understand the drivers of apartment demand by
customer segment and the ways to create a superior customer
experience that maximizes profitability using revenue and cost
drivers

f) The leveraging of capital improvements to reduce energy
consumption and environmental impact

g) The leveraging of vendors to reduce unit turn costs and cycle
times, importing directly from China to reduce upgrade costs,
partnering on a major portion of facilities maintenance, and
partnering with existing vendors many of the off-site property
management functions such as media and revenue/pricing
management.

h) The selection and hiring of site members using behavioral
screening to ensure that the team is consistent with the
customer experience we will deliver.

i) Long time industry participation to enable selection of the
appropriate partners, suppliers and prospective joint ventures,
along with internal contacts databases with histories.

5) Investor Credibility

The sponsor has developed extensive credibility with the
investment community by communicating his strategy and
delivering on his commitments when a leader of AIMCO. Included
were banks, rating agencies, sell side analysts, fund managers, real
estate private equity managers, industry analysts, industry


associations and publications. Since departing AIMCO, the sponsor
has also developed contacts through consulting engagements on
REIT valuations in the hedge fund and investment management
community.

This credibility provides the venture with opportunities to meet
with other investors to add to the fund size, or develop dedicated
accounts for initial investors wanting the benefit of a larger
organization.

Sanctuary Advisors, an LLC is the sponsoring organization. The fund will be formed as
a Limited Partnership.

Fund Returns & Expenses

The fund will charge an annual asset mgmt fee equal to 1.5% of committed capital, plus
promoted returns to the sponsor based on the following schedule:

IRR up to 25% -100% to equity investors

IRR of 25.0-27.5% -80% to equity investors, 20% to sponsor

IRR of 27.5%- 30% -70% to equity investors, 30% to sponsor

IRR>30% -60% to equity investors, 40% to sponsor

This compensation structure aligns the interests of the investors and the sponsor- we
have geared our return schedule assuming no proprietary knowledge with which to
generate outsized returns, while we believe that we have such a capability. The flat
asset mgmt fee provides a stable income stream to run the sponsor organization, while
encouraging transaction activity that is solely in the interest of the fund’s investors. We
estimate that the fund must reach a minimum size of $50MM to provide a viable asset
mgmt revenue base for the sponsor organization.


Targeted Markets for Fund Acquisition

These markets are under consideration for acquisition and ownership:

Boston
New York Metro/NJ/Long Island
Philadelphia
Washington DC Metro
South Florida
Chicago
Denver
Los Angeles
San Diego
San Francisco
Seattle


Value Added Case Study #1 : Broadcast Center, West Los Angeles, CA

Broadcast Center

7

www.broadcastcenterapts.com
Units: 280
Location: Down the block from The Grove (outdoor upscale mall), across from CBS
Television studio
Property Description: mid-rise 1980’s construction, 20% Low Income Units

Scope:
Exterior Renovations: Stucco repainted, new clubhouse, new leasing office, new pool
deck, renovated hallways
Interiors: New kitchens and bathrooms (cabinetry, granite counters, wine cooler,
stainless appliances, hardwood flooring). Washer/Dryer not included in scope; handled
with fluff/fold service

Return on Capital: 12% unlevered


Broadcast Center

8

Typical Interiors

Broadcast Center

9


Value Added Case Study #2: The Crescent at West Hollywood

The Crescent

10

www.thecrescentapts.com
Units: 130
Location: Sunset Blvd, near Fairfax
Property Description: 1980’s construction, near extremely fashion forward
neighborhood

Exteriors: Stucco repainting, new lobby, clubhouse, fitness center, theatre, resurfaced
pool and pool furniture/cabanas

Interiors: luxury kitchen and baths (granite counters, stainless appliances, cherry wood
cabinets, in-unit washer/dryer combination unit, Kardean flooring, granite fireplace
surrounds, wine chiller, 42” Plasma TVs

Return on Capital: 12% Unlevered


The Crescent

11

Projections and Statements

Please see our projections, assumptions and statements, beginning on the next page.


Appendix: The Multifamily Investment Market

The following chart below demonstrates the consequences of lax - loan underwriting
standards in the CMBS market in the 2005-2007 period, which are now resulting in
increased delinquencies. At the same time loans underwritten through the agencies
(Fannie Mae and Freddie Mac) are not showing this kind of delinquency increase. The
leverage assumptions we are making are consistent with agency underwriting
standards (which now account for >90% of all Multi-family loans in 2H08), so that we
can take advantage of the forthcoming distress.


U.S. Multi-family Property Vacancy Rates

.

Demographic Changes in the Numbers of 20-34 year olds/households of 20-34
year olds (actual and anticipated)]

10
8
6
4
2 20-24
0 25-29
%?
1990-95 1995-00 2000-05 2005-10 2010-15 30-34
-2
-4
-6
-8
-10

Source: U.S. Census Bureau and Economy.com estimates


Supply of Multifamily Becoming Constrained

Reduced availability of finance, rising construction costs and the increasing scarcity of
development sites have caused the construction of new multifamily communities to
slow. The change in “construction starts” shows that in the last two years construction
growth has turned sharply negative for the first time since the early 1990’s.

Construction Starts and Originations for Multi-family Properties


US Monthly Change in Employment (‘000 jobs)

Commercial Banking
8.0%
4.0% 42.0%
7.0%
CMBS, CDO and other ABS
issues
7.0%
Life Insurance Companies

Savings Institutions
9.0%
Government Sponsored
23.0%
Agency and GSE Backed

Source: REIS Capital Market Briefing


IRR Expectations by Market


Sanctuary Advisors Distressed Fundx

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