"Why Will Distressed Properties be Profitable in the Next Recovery Period?"

Properties are entering 2004 with lower net effective rents than existed in early 2003. Therefore, those owners who were barely holding on to their properties in late 2003 may decide to sell, or may be forced to sell, by mid-2004 rather than continue to endure the pain of ownership.

With this in mind, the question becomes, "Why can our client improve the performance of properties which are in such distress with the current owners?" There are four reasons for our position:

1) Our client can invest new equity into the property to pay down the existing debt and refinance at a lower debt level and interest rate. In most cases the existing owner has no additional equity at his disposal. He is tapped out.

2) Our client can invest equity to renovate and improve the property so it is re-positioned to maximize its potential. The existing owner has no additional equity, and may have let the property deteriorate when it began to experience lower or negative cash flow. The existing owner dug himself a deeper hole. The property lost its curb appeal when times got tough.

3) An existing lender may look at our client as a new friend rather than an old enemy and grant him accommodations he would not offer to his existing borrower.

4) Many existing owners are so distraught over the 2003 and 2004 market that they can not imagine the market ever recovering the way we expect it will begin to recover in 2004. This will be a classic example of an owner selling at the bottom of the cycle because fear and lack of financial resources prevent him from holding on to the property through the recovery phase of the cycle.

Our strategy is simply to put our clients in the position to buy distressed properties at the bottom of the market, reposition them, ride the recovery, and resell at a significant profit.