Partnership. Performance.

Ground Sale, Leasehold Financing & Structured Capital Program

Avison Young | 1166 Avenue of the Americas | New York | 10036 | 212.716.7140

Avison Young represents an Institution (The “Institution”) seeking opportunities to create and purchase ground leases on cash-flowing commercial real estate in primary and strong secondary markets. The Institution will purchase the land under most asset types, with a minimum investment of $10 million and no maximum. Additionally, Avison Young can assist the seller in obtaining competitive leasehold financing consist ing of a senior mortgage and potential ly mezzanine/preferred equity f inancing.

GENERAL BENEFITS:

1. In a refinance/recapitalization scenario, the seller/leaseholder repays existing debt and repatriates equity while continuing to benefit from the future upside of the operating asset

2. In an acquisition scenario, the seller/leaseholder achieves higher “all-in” leverage utilizing a ground lease/leasehold financing combo at a lower blended cost than a senior/mezzanine loan option

3. Unlike a traditional senior/mezzanine stack where all debt usually expires conterminously, a ground lease provides low cost permanent capital with no immediate balloon risk

4. Tax advantaged execution allows the seller/leaseholder to depreciate 100% of the leasehold improvements and deduct 100% of the ground lease rent

STRUCTURE AND TERMS:

1. The Institution buys the ground – taking an unsubordinated fee position. The property is then bifurcated into:

• Leased Fee ownership of the ground (owned by the Institution)

• Leasehold ownership of the improvements (owned by the Seller)

2. Purchase price of leased fee position –is approximately 30% - 40% of the property value

3. The ground rent – is fixed at a significant discount to the cap rate of the overall asset with fixed annual increases of approximately 2% - 3%

4. Buy-back options – deals can be structured with imbedded options at very favorable terms

6 Leasehold financing – Avison Young can assist the Seller in securing senior secured leasehold financing (up to 75% LTV)

7. Structured capital may be available – Avison Young may arrange or the Institution may fund additional capital over the senior secured leasehold financing allowing Seller to achieve as much as 95% leverage on the asset

CASE STUDY: GROUND LEASE VS. TRADITIONAL FINANCE

• The Property – A $100 million asset, valued at a 6% cap rate, with a $6 million NOI.

• Fee Simple Financing – 70% LTV, 10 year term, 30 year amortization at 4.25% interest.

• The Ground Lease – A $40 million ground sale and the creation of a 99-year lease. Ground rent is fixed at 4.75%, with 3% annual escalations.

• Leasehold Financing – 70% LTV, 10 year term, 30 year amortization at 4.3% interest.

• Leasehold & Mezzanine Financing – 90%LTV, 10 year I/O Mezzanine at 12% interest.

The results over a 6-year hold:

DEAL SPECIFIC BENEFITS:

1. As a result of the positive arbitrage of the ground sale, on the day of closing the value of the leasehold at $65.6M is $3.4M more than the allocated cost ($62.2M).

2. The going in cap rate has improved by 72 bps and the exit year cap rate has improved 84 bps. The exit year rate would improve 94 bps if held until year 10.

3. 1st year cash-on-cash is increased by 294 bps and the average cash-on-cash over a six-year period has improved by 358 bps. The average cash-on-cash would improve 415 bps if held until year 10.

4. At disposition in year 6, the IRR has gone from 13.2% to 20.8% and the equity multiple has gone from 1.95x to 2.71x. This is further increased with the addition of mezzanine debt, if desired.

Property Value 102,215,509$ @ 6.00% Cap 65,600,000$ @ 6.25% Cap 65,600,000$ @ 6.25% CapProperty Acquisition Cost 102,215,509$ 62,215,509$ 62,215,509$ Senior Debt Financing 71,550,856$ @ 4.25% 47,406,848$ @ 4.30% 47,406,848$ @ 4.30% Ground Lease 40,000,000$ 40,000,000$ Mezzanine Financing 8,542,159$ @ 12.00% Equity 30,664,653$ 14,717,221$ 6,231,080$

NOI Amount Cap Rate Amount Cap Rate Amount Cap RateYear 1 6,000,000$ 5.87% 4,100,000$ 6.59% 4,100,000$ 6.59%Year 6 6,955,644$ 6.80% 4,753,024$ 7.64% 4,753,024$ 7.64%

If Held Until Year 10 7,828,639$ 7.66% 5,349,570$ 8.60% 5,349,570$ 8.60%NCF (LEVERAGED) Amount C-on-C Yield Amount C-on-C Yield Amount C-on-C Yield

Year 1 1,776,154$ 5.79% 1,284,765$ 8.73% 245,469$ 3.94%Year 6 2,731,798$ 8.91% 1,937,788$ 13.17% 895,645$ 14.37%

Year 6 Average 2,244,563$ 7.32% 1,604,845$ 10.90% 564,599$ 9.06%If Held Until Year 10 Average 2,654,481$ 8.66% 1,884,955$ 12.81% 844,805$ 13.56%

Total Leverage 71,550,856$ 70.00% 87,406,848$ 85.59% 95,949,007$ 93.90%Total Cash Flow (Holding Period) 13,467,381$ 9,629,068$ 3,387,597$ Residual Equity 46,450,330$ @ 6.50% Cap 30,233,762$ @ 6.75% Cap 21,560,893$ @ 6.75% CapIRR 13.2% 20.8% 27.9%Equity Multiple 1.95x 2.71x 4.00x

FEE SIMPLE LEASEHOLD LEASEHOLD & MEZZ

CONTACT David Eyzenberg Principal - Real Estate Capital Markets

Debt, Joint Venture & Structured Capital D 212.729.4329 M 917.701.2814 David.Eyzenberg@avisonyoung.com