In December 2003, net effective rents did not show the normal cyclical improvement. We interpret this situation as very good news to our clients because it is very bad news for existing property owners, particularly those owners who were barely hanging on in 2003, writing checks to cover negative cash flow, and hoping that 2004 would end their pain of ownership. We feel that several owners will throw in the towel, will stop throwing good money after bad, and will decide to sell. They can not see any light at the end of the tunnel.

This is the perfect market condition for our clients.

Do not lose sight of the historical picture when considering the market in early 2004. The market is not showing signs of immediate recovery. However, the Phoenix market has a clear history of up and down cycles. Since 1929-1933 there have been 8 cycles in Phoenix, and the market quickly rebounded at the end of each cycle to a level higher than the beginning of the cycle, and property values shot up to levels higher than the last cycle.

We can not forecast precisely when the market will turn upward, but the market will turn. It has recovered 8 times in the past 70 years. We feel that the market is getting close to the bottom of this cycle. We estimate the window of opportunity to make the best buys on apartments will be over the next 6 to 24 months. Historically, investors who buy just prior to the up-tick in the market reap the greatest rewards. We are aware of several contrarian investors who were very successful in the last cycle (the early 1990's) who are now poised on the side lines ready to pounce again on depressed opportunities.

Our recommendation to our clients is to start looking for undervalued, underperforming properties now. If we are successful with a Letter of Intent in the first half of 2004, our underwriting of the property will, as usual, reflect the current market conditions for rent, vacancy and concessions, as well as our estimate of the length and strength of the market recovery. In other words, our underwriting will take into account current market conditions. Our clients will be protected because our underwriting will reflect a lower property value if there are not clear signs that the recovery is underway.