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