THE PRES FUND I, L.P. — A REAL ESTATE INVESTMENT FUND —

CONFIDENTIAL PRIVATE OFFERING MEMORANDUM

PRIVATE PLACEMENT MEMO

RANDUM #102

INTRODUCTION

This memorandum is being furnished to prospective investors on a confidential basis to consider an investment in The PRES Fund I, L.P. (the “Fund”) and may not be used for any other purpose. This memorandum may not be reproduced or provided to others without the prior written consent of PRES Advisors LLC (the “General Partner”). By accepting delivery of this memorandum, each prospective investor agrees to the foregoing.

In making an investment decision, investors must rely on their own examination of the person or entity creating the securities and the terms of the offering, including the merits and risks involved. The securities offered hereby have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense. The limited partnership interests are offered subject to the right of the General Partner to reject any subscription in whole or in part. If the General Partner rejects a subscription, the prospective investor will be notified as soon as is practicable.

Offers and sales of limited partnership interests in the Fund will not be registered under the laws of any jurisdiction (including the United States Securities Act of 1933, as amended (the “Securities Act”), the laws of any state of the United States of America or the laws of any foreign jurisdiction) and may not be sold or transferred without compliance with applicable securities laws. Neither the United States Securities and Exchange Commission nor the securities commission or any other agency of any other jurisdiction has reviewed or passed upon the merits of this offering. The partnership agreement of the Fund (the “Partnership Agreement”) also has restrictions on transferability. Investors should be aware that they will be required to bear the financial risks of this investment for an indefinite period of time.

Investment in the limited partnership interests will involve significant risks due, among other things, to the nature of the Fund’s investments. Investors should have the financial ability and willingness to accept the risks and lack of liquidity that are characteristic of the investment described herein. There will be no public market for the limited partnership interests, and they will not be transferable without the consent of the General Partner.

Prospective investors should not construe the contents of this memorandum as legal, tax, investment or other advice. Each investor should make its own inquiries and consult its own advisors as to the Fund and this offering and as to legal, tax and related matters concerning this investment.

This memorandum is qualified in its entirety by reference to the Partnership Agreement and the subscription agreement (the “Subscription Agreement”) related thereto, copies of which will be made available upon request and should be reviewed prior to purchasing an interest in the Fund. No person has been authorized in connection with this offering to give any information or make any representations other than as contained in this memorandum. Statements in this memorandum are made as of the date of the initial distribution of this memorandum unless stated otherwise, and neither the delivery of this memorandum at any time, nor any sale hereunder, shall under any circumstances create an implication that the information contained herein is correct as of any other time subsequent to such date. Certain of the information contained herein represents or is based upon forward-looking statements or information, expectations of future Fund activity. The Fund and its affiliates believe that such statements and information are based upon reasonable estimates and assumptions. However, forward-looking statements and information are inherently uncertain and actual events or results may differ from those projected. Therefore, undue reliance should not be placed on such forward-looking statements and information. This memorandum does not constitute an offer or solicitation in any state or other jurisdiction in which such an offer or solicitation is unlawful. The General Partner and its affiliates reserve the right to modify any of the terms of the offering and the limited partnership interests described herein.

The Interests are being offered and sold by the Fund only to persons who are “accredited investors” within the meaning of Regulation D promulgated under the Securities Act and who are “qualified purchasers” under the Investment Company Act of 1940 (the “Investment Company Act”). An “accredited investor” as defined in Regulation D includes any natural person (i) whose individual net worth, or joint net worth with that person’s spouse, exceeds $1,000,000 or (ii) who had an individual

income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. A “qualified purchaser” as defined in the Investment Company Act includes any natural person who owns not less than $ 5,000,000 in investments. Please note that there are different rules for determining whether a trust or business entity is an “accredited investor” or a “qualified purchaser.”

Please refer to Section X of this memorandum for an index of defined terms used in this memorandum.

Prospective investors wishing to inquire about The PRES Fund I, L.P. are invited to contact the

following selected representatives of the Fund:

AARON A RIOS SENIOR VICE PRESIDENT, INVESTOR SERVICES

THE PRES COMPANIES (949) 261-7737, EXTENSION 224

BRADLEY W. SCHROTH PRESIDENT AND CEO

THE PRES COMPANIES (949) 261-7737, EXTENSION 223

JOHN W. FITZGIBBON, ESQ. GENERAL COUNSEL AND COO

THE PRES COMPANIES (949) 261-7737, EXTENSION 243

JIM WOOD, JR. SENIOR VICE PRESIDENT-ACQUISITIONS

THE PRES COMPANIES (949) 261-7737, EXTENSION 236

DOLF RENAUD, CPA DIRECTOR OF FINANCE THE PRES COMPANIES

(949) 261-7737, EXTENSION 231

THE PRES FUND I, L.P. C/O THE PRES COMPANIES

1201 DOVE STREET SUITE 100

NEWPORT BEACH, CALIFORNIA 92660 (949) 261-7737

FAX: (949) 442-1925

May 2003

TABLE OF CONTENTS

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I. EXECUTIVE SUMMARY...................................................................................... 1 Overview .............................................................................................................. 1 PRES ................................................................................................................... 1 The General Partner............................................................................................. 1 The Fund .............................................................................................................. 1 Investment Highlights ........................................................................................... 2 The Market Opportunity........................................................................................ 2 Management Team .............................................................................................. 2 Proprietary Deal Flow ........................................................................................... 2 Investment Track Record ..................................................................................... 2 Underwriting Parameters...................................................................................... 3 Principal Terms of the Fund.................................................................................. 4

II. THE OFFERING................................................................................................... 5 III. THE MARKET OPPORTUNITY............................................................................ 6 IV. MANAGEMENT TEAM......................................................................................... 8 V. PROPRIETARY DEAL FLOW; INVESTMENT TRACK RECORD; AND

PRES UNDERWRITING PARAMETERS........................................................... 10 Proprietary Deal Flow ......................................................................................... 10 Real Estate Business ......................................................................................... 10 Extensive Network of Real Estate Relationships ................................................ 11 Other Sources of Transactions ........................................................................... 11 Investment Track Record ................................................................................... 11 Underwriting Parameters.................................................................................... 13

VI. STRUCTURE AND MANAGEMENT OF THE FUND ......................................... 15 Fund Structure.................................................................................................... 15 Fund Management ............................................................................................. 15 Investment Process ............................................................................................ 15 Investment Committee........................................................................................ 15 Investor Advisory Committee.............................................................................. 15

VII. SUMMARY OF TERMS...................................................................................... 16

TABLE OF CONTENTS (continued)

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VIII. RISK FACTORS AND POTENTIAL CONFLICTS OF INTEREST...................... 25 Risk Factors........................................................................................................ 25 Potential Conflicts of Interest .............................................................................. 28

IX. CERTAIN TAX MATTERS.................................................................................. 30 U.S. Federal Income Tax Considerations........................................................... 30 Securities Law Matters ....................................................................................... 37 Investment Company Act of 1940....................................................................... 37 Investment Advisers Act of 1940 ........................................................................ 37 Non-United States Securities Law Matters ......................................................... 37

X. INDEX OF DEFINED TERMS ............................................................................ 38

I. EXECUTIVE SUMMARY

Overview

The Fund is a real estate investment fund being formed by The PRES Companies (“PRES”) to make direct equity investments in real estate, primarily consisting of existing office, industrial and other properties (which may include retail, commercial, storage, and parking facilities and multifamily housing properties) in California with an emphasis on Southern California. Although the Fund will be PRES’ initial real estate investment fund, PRES will continue its highly successful real estate investment activities. Bradley W. Schroth and John W. Fitzgibbon, who have worked together at PRES for seven (7) years and average 25 years of real estate experience, will direct the Fund. Under the leadership of Messrs. Schroth and Fitzgibbon, PRES, through various general and limited partnership interests, has directly invested over $3,300,000 in 14 real estate projects that are consistent with the Fund’s investment parameters.

The Fund is seeking total capital commitments up to $30 million. A capital commitment of $500,000 in cash will be made by PRES Advisors LLC, a California limited liability company, the General Partner of the Fund and a newly formed affiliate of PRES.

The Fund will seek to achieve a compounded annual return to its Limited Partners, net of all fees and Fund expenses, of 14% to 16%. The Fund will seek to achieve superior risk adjusted returns by identifying and creatively structuring investments responsive to the unique conditions of its targeted market. PRES’ real estate investment strategy, together with its proprietary deal flow, provides a unique framework to achieve the Fund’s investment objectives.

PRES

PRES, through its alliance with its affiliates, invests in commercial real estate on its own account and on the behalf of a select group of institutional and private individuals. PRES’ team of seasoned real estate professionals are experienced in the acquisition, financing, renovation, management, and leasing of commercial properties.

The General Partner

PRES Advisors LLC, a California limited liability company will be the General Partner of the Fund. The General Partner is a newly formed single purpose entity that is an affiliate of PRES. Its members are comprised of Bradley W. Schroth, John W. Fitzgibbon, Michael J. Massaro, Jim Wood and Dolf Renaud. It is expected that Messrs. Schroth, Fitzgibbon and Wood will devote a substantial portion of their time to the Fund.

The Fund

The General Partner expects the Fund to make investments in existing income producing real estate properties with target compounded annual returns to the Limited Partners of 14% to 16% in the aggregate, net of all fees and Fund expenses. The Fund’s investments will be made in the State of California with an emphasis on Southern California. Investment structures may include direct property ownership or joint ventures. The investment opportunity, form and structure of the investments and the nature of the property underlying each investment will vary depending on the real estate investment environment prevailing in the local markets and economies at the time. In most situations, the Fund will acquire properties directly and will utilize PRES’ multi-disciplinary staff to operate, market, lease or develop the properties entirely in-house.

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Investment Highlights

The General Partner believes that the Fund possesses all of the characteristics required to produce superior investment returns including: attractive investment opportunities, an experienced, highly skilled and stable management team, access to a high volume of proprietary deal flow and a successful investment track record.

The Market Opportunity

The Fund is focused on acquiring properties in the premier California office and industrial markets based on land scarcity, difficult barriers to entry, job growth prospects and a favorable quality of life environment. The Fund's primary markets will be Southern California including Orange County, Los Angeles, San Diego and the Inland Empire. The Northern California markets, including the Silicon Valley, East Bay and the Central Valley, will be considered on a deal by deal basis and monitored closely for signs of economic recovery.

PRES believes that although Southern California has experienced a micro version of the slow down in the national economy, the traditional office and industrial markets of Southern California are positioned to rebound once tenant demand is re-established during the next 24-36 months.

Northern California is still experiencing dramatic turmoil in its local economy and commercial real estate sector led by the implosion of the technology sector. Although the Bay Area markets are in transition as rental rates and values adjust downward to reflect today's economic environment, the Sacramento and Central Valley markets have remained stable over the past few years and continue to perform well in today's economy. PRES will be monitoring the Northern California market closely for opportunities. Management Team

The Fund will be managed by the General Partner and an experienced team of professionals with vast knowledge of the real estate business. The team will work as an integrated group to maximize investor return. The team has been selected based on their experience, knowledge, area of expertise and ability to work cohesively to provide a superior level of service. The team will be led by Bradley W. Schroth, the CEO - President of PRES. Mr. Schroth built his career in the brokerage business, having spent 15 years with Grubb & Ellis Company as the leading salesperson in their Newport Beach office. Mr. Schroth will have overall supervision of the team and be responsible for the delivery of high value services and investment strategies. John W. Fitzgibbon, Esq., the Chief Operating Officer and General Counsel for PRES, will oversee the investment strategies and the administration of the Fund.

Proprietary Deal Flow

PRES' real estate business generates a unique, proprietary and constant stream of real estate investment opportunities to which the Fund will have exclusive access as described in this Confidential Private Placement Memorandum. The proprietary nature of the deal flow stems from PRES’ contacts with its corporate accounts, direct relationships with owners, knowledge of the user markets and relationships with appraisers, attorneys, accountants and other professionals. The General Partner believes that the Fund's ability to access this deal flow for the transactions that offer the best risk-adjusted return opportunities will create a substantial competitive advantage for the Fund over other real estate investors. PRES often sees opportunities before they reach the open market.

Investment Track Record

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PRES has used its multi-disciplinary and experienced management team and abundant proprietary deal flow and creativity to build a growing investment portfolio. From 1998 through 2002, PRES has directly invested in cash over $3,300,000 of equity capital in 14 transactions that were consistent with the size and type of investment that the General Partner expects to be the focus of the Fund’s investment strategy.

Underwriting Parameters

The PRES acquisition team analyzes each investment opportunity individually to determine the unique characteristics of each property and the underlying investment strategy. The PRES team is consistently monitoring the general economy, macro market indicators and trends, along with tracking both investment and leasing transactions on a daily basis in these targeted markets and submarkets. The proforma created for each property will reflect the underlying business strategy PRES will deploy to create value and maximize investor return.

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PRINCIPAL TERMS OF THE FUND

THE FUND The PRES Fund I, L.P., a Delaware limited partnership

THE GENERAL PARTNER PRES Advisors LLC, a California limited liability company and an affiliate of PRES.

MANAGEMENT AND LEASING COMPANY PRES Property/Asset Management LLC, a California limited liability company which is affiliated with PRES, or any qualified independent third party property management, leasing and/or brokerage company that General Partner may select from time to time.

CONSTRUCTION MANAGEMENT COMPANY PRES Development & Construction Management Services, Inc., a California corporation which is affiliated with PRES, or any qualified independent third party construction management company that General Partner may select from time to time.

GEOGRAPHIC FOCUS California, with an emphasis on Southern California, a 75% cap in Orange County, California, and a 25% cap for each of the other counties in California.

PROPERTY TYPE FOCUS Existing office, industrial, and other properties, with a 75% cap in office properties, a 75% cap in industrial properties and a 15% cap in other properties (which may include retail, commercial, storage, multifamily housing and parking but which will expressly exclude properties used for salvage, heavy manufacturing, automotive repair, so called ‘brownfields’ properties, detached single family housing, hospitals, clinics, surgery centers and other similar medical uses, hotels, resorts and vacant land and other non-income producing uses).

TARGET GROSS INVESTMENT PER ACQUISITION $2 million - $20 million.

TARGET LEVERAGE Not more than 75% of the cost basis of the Fund investments.

TARGET FUND SIZE $30 million.

GENERAL PARTNER’S CAPITAL COMMITMENT $500,000.

MINIMUM SUBSCRIPTION $100,000, 5% payable with a signed Subscription Agreement, 20% payable on the Closing Date and the balance paid upon a ten (10) day capital call notice, primarily for specific investments. Additional partnership interests shall be sold in $100,000 increments. A Subscription will not be accepted without the 5% deposit.

FUND MANAGEMENT FEE 0.5% of aggregate Capital Commitments per annum, ratcheting down to 0.5% of the aggregate unreturned Capital Contributions after the Commitment Period, to be paid to General Partner on a quarterly basis contingent on Fund cash flow. Fee will be cumulative and non-interest bearing.

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ACQUISITION FEE/DISPOSITION FEE 0.75% of gross acquisition price for each property and 0.75% of gross disposition sales price for each property, to be paid to the General Partner payable at the consummation of each transaction.

PREFERRED RETURN 5% annual cumulative return of capital from the Closing Date until the Fund makes its first investment and 9% annual cumulative return of capital thereafter (the “Preferred Return”). These returns will be paid quarterly based on Fund cash flow and no Preferred Returns will be paid for the first 12 months from the Closing Date.

GENERAL PARTNER PROFITS INTEREST 20% of current cash income after all Partner loans, Fund operating expenses and preferred returns have been paid.

COMMITMENT PERIOD Two years from the Closing Date.

REINVESTMENT PERIOD Five years from the Closing Date.

TERM OF THE FUND December 31, 2011, with two one-year extensions at the option of the General Partner in its sole discretion.

See “Section VII— Summary of Terms” for further details on the terms of the Fund.

II. THE OFFERING

The General Partner seeks to raise up to $30 million in aggregate capital commitments (“Capital Commitments”) with a minimum aggregate offering amount of $10 million in aggregate Capital Commitments, including the General Partner’s Capital Commitment. No investor will be permitted to invest less than $100,000 without the prior approval of the General Partner. The General Partner will conduct only one closing (the “Closing”) at any time after receiving subscriptions for the minimum aggregate Capital Commitments. The offering will terminate on September 1, 2003, or sooner if fully subscribed. If the minimum aggregate subscriptions from qualified prospective investors are not received by the General Partner by such date, the General Partner may extend or withdraw the offering.

The Interests are being offered and sold by the Fund only to persons who are “accredited investors” within the meaning of Regulation D promulgated under the Securities Act and who are “qualified purchasers” under the Investment Company Act. The Interests are being offered without registration under the Securities Act pursuant to exemptions provided under Section 4(2) of the Securities Act and Regulation D. Thus, the Partnership will offer and sell the Interests only as described herein; will furnish such information to investors as may be required pursuant to Regulation D; will not offer or sell, nor authorize any person acting on its behalf to offer or sell, the Interests by any form of general solicitation or general advertising; and will exercise reasonable care to assure that the purchasers of the Interests will not be “underwriters” within the meaning of the Securities Act by limiting transfer of the Interests. In addition, the Fund will offer and sell the Interests on such terms and conditions as may be required to comply with the securities or other applicable laws of any pertinent states. The Fund will not be registered as an investment company under the Investment Company Act.

In order to invest in the Fund, an investor must deliver a fully completed and executed Subscription Agreement and an executed signature page to the Partnership Agreement to the General Partner, by no later than 5:00 pm, Pacific Standard Time, on September 1, 2003. Once executed and delivered by the investor to the General Partner, an investor’s offer to subscribe shall be irrevocable unless the minimum Capital Commitments are not subscribed for and delivered. The General Partner will

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have the right to accept or reject any subscription or may accept a subscription for a lesser amount of Interests than that subscribed for.

The Closing is expected to be held by September 30, 2003, but may be extended by the General Partner in its sole and absolute discretion (the “Closing Date”) (however, a potential investor will be released of any obligation to invest in the Fund if it is not closed by September 30, 2004). On the Closing Date, the subscribers whose subscriptions have been accepted will be admitted as Limited Partners of the Fund so long as such subscribers shall have made an initial capital contribution to the Partnership equal to 25% of their Capital Commitments on the Closing Date. No certificates or other evidence of such ownership need be issued by the Partnership to reflect the Interests of such subscribers. The General Partner, acting pursuant to the various Subscription Agreements, will provide three (3) Business Days’ advance notice of the Closing Date and the amount of capital that will be due from each Limited Partner on the Closing Date.

III. THE MARKET OPPORTUNITY

Target Markets

The Fund is focused on acquiring existing income producing properties in the premier California office and industrial markets based on land scarcity, difficult barriers to entry, job growth prospects and a favorable quality of life environment. The Fund’s primary markets will be Southern California, including Orange County, Los Angeles, San Diego and the Inland Empire. The Northern California markets, including the Silicon Valley, East Bay and the Central Valley, will be considered on a deal by deal basis and monitored closely for signs of economic recovery. Southern California

Southern California is experiencing a micro version of the slow down in the national economy. The meltdown of the technology sector, a volatile stock market and the impact of higher costs for security, energy and insurance premiums are being felt across the Southland. Low interest rates, moderate new construction and the abundance of new capital have maintained most property values during this recession. Rental rates are declining based on a supply and demand imbalance from an abundance of technology failures and the availability of sub-lease spaces adding to the supply side. Tenant demand is weak based on restructuring pressures from Wall Street and slow job growth in most sectors. Third quarter 2002 absorption figures reflect this decline in tenant demand placing downward pressure on rental rates.

PRES believes that the traditional office and industrial markets of Southern California are positioned to rebound once tenant demand is re-established in the next 24 to 36 months. The non-traditional tech spaces and difficult sub-lease spaces will lag the market recovery. PRES further believes that properties which are purchased during this time period, based on realistic pricing and market rental growth expectations, will be well positioned to realize gains in value as the national and local economy rebounds.

The following table highlights the Southern California market conditions as of first quarter 2003, published by CB Richard Ellis:

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Southern California Markets Source: CB Richard Ellis – Q1-2003 market reports Q1 - 2003 Square Feet of Under % of Avg. Ask Rate Market Market Base Vacancy Net Absorption Construction Base FSG$/SF/mo. Office Markets Orange County 90,572,092 16.4% (398,197) 844,551 0.9% $2.01 Los Angeles 183,861,821 14.4% (396,211) 1,520,558 0.8% $2.07 San Diego 47,891,028 11.7% 442,322 949,365 2.0% $1.84 Inland Empire 16,544,932 11.4% 112,256 366,299 2.2% $1.58 Source: CB Richard Ellis – Q1-2003 market reports Q1 – 2003 Square Feet of Under % of Avg. Ask Rate Market Market Base Vacancy Net Absorption Construction Base NNN$/SF/mo. Industrial Markets Orange County 243,037,981 4.8% (903,679) 818,321 0.3% $0.58 Los Angeles 946,639,667 3.0% 1,055,609 6,838,172 0.7% $0.51 San Diego 166,800,176 7.7% (700,857) 2,475,898 1.4% $0.93 Inland Empire 268,273,019 4.7% 4,386,332 3,284,395 1.2% $0.38 Northern California

Northern California is still experiencing dramatic turmoil in its local economy and commercial real estate sector led by the implosion of the technology sector. Bay Area markets benefited greatly during the 1998-2000 technology boom, spiking up both rental rates and property values. The decline in demand by technology-based tenants has forced significant amounts of sub-lease space on to the market and left speculative new construction un-leased. The Bay area markets are in transition as rental rates and values adjust downward to reflect today’s economic environment.

The Sacramento and Central Valley markets have remained stable over the past few years and continue to perform well in today’s economy. The availability of land for new construction hampers the upside to these markets as construction keeps pace with tenant demand not allowing for a sustained supply/demand imbalance to occur. The following table highlights the Northern California market conditions as of first quarter 2003, published by CB Richard Ellis:

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Northern California Markets Source: CB Richard Ellis – Q1-2003 market reports Q1 - 2003 Square Feet of Under % of Avg. Ask RateMarket Market Base Vacancy Net Absorption Construction Base FSG$/SF/mo.Office Markets San Francisco 80,776,800 18.7% (204,069) 232,700 0.3% $1.91 San Francisco Peninsula 41,142,292 26.5% (378,819) 400,960 1.0% $2.27 Silicon Valley 52,531,606 24.3% (90,844) 357,000 0.7% $2.20 Contra Costa 38,946,195 13.7% (389,853) 732,952 1.9% $2.01 East Bay 27,790,273 16.8% (197,278) 114,000 0.4% $1.94 Sacramento Area 41,798,842 10.8% 20,752 214,683 2.9% $1.66 Source: CB Richard Ellis – Q1-2003 market reports Q1 – 2003 Square Feet of Under % of Avg. Ask RateMarket Market Base Vacancy Net Absorption Construction Base NNN$/SF/mo.Industrial Markets San Francisco Peninsula 72,298,674 12.2% (13,539) 144,000 0.2% $0.65 Silicon Valley 286,631,855 15.6% (1,512,107) 0 0.0% $0.64 East Bay 186,203,900 10.8% (1,527,080) 618,145 0.3% $0.47 Sacramento Area 155,491,896 11.3% 1,055,058 524,600 0.3% $0.30 The Fund will monitor the Northern California markets and evaluate properties on a deal by deal basis.

IV. MANAGEMENT TEAM

The General Partner of the Fund is an affiliate of PRES. PRES was founded in 1995 as a full service real estate concern. The Fund will be managed by the General Partner and an experienced team of professionals with vast knowledge of the real estate business. The team will work as an integrated group to maximize investor return. The team has been selected based on their experience, knowledge, area of expertise and ability to work cohesively to provide a superior level of service. The team will be led by Bradley W. Schroth, the CEO – President of PRES. Mr. Schroth built his career in the brokerage business, having spent 15 years with Grubb & Ellis Company as the leading salesperson in their Newport Beach office, representing such clients as Ingram Micro Inc., Alcoa Inc., Boeing Realty Company, Federal Express and the RREEF Funds. Over the course of his real estate career, Mr. Schroth has engaged in over $1 billion in sales activity and established a vast network of contacts in the brokerage and financial communities. During the past several years, Mr. Schroth has focused on acquisitions and investments, utilizing his contacts to assemble a portfolio of investment properties. Mr. Schroth will have overall supervision of the team and be responsible for the execution of investment strategies and providing key services to maximize property values. Mr. Schroth holds a B.A. from Bowling Green State University and is a licensed real estate broker in the State of California. He was a finalist in 2001 in the Ernst & Young “Entrepreneur of the Year” award, and is active in many local and civic organizations.

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John W. Fitzgibbon, Esq., the Chief Operating Officer and General Counsel for PRES, will oversee the investment strategies and the administration of the Fund. In addition, Mr. Fitzgibbon will provide legal review and documentation on all investments. Mr. Fitzgibbon is well versed in real estate law, finance, acquisitions, commercial leasing and due diligence review. Over his career, Mr. Fitzgibbon has represented major lending institutions, developers and economic development authorities.

Mr. Fitzgibbon holds a B.A., cum laude, from Bucknell University, and a J.D. from Seton Hall

University School of Law. He is a member of the American Bar Association – Corporate and Real Estate Sections.

Jim Wood, Jr. is Senior Vice President, Acquisitions & Investments, for PRES. Mr. Wood will

have primary responsibility for identifying investment opportunities, and negotiating the economics of each transaction. Mr. Wood has extensive experience in contract negotiations, underwriting criteria, financial and market analysis. Prior to joining PRES, Mr. Wood was an executive with Spieker Properties, where he sourced over $500 million of acquisitions and developments over a 5-year period.

Mr. Wood received his B.S.B.A. from the University of the Pacific, a Masters in Real Estate

Development from the University of Southern California and is a licensed real estate broker in the State of California.

Michael J. Massaro is Senior Vice President, Brokerage Services, for PRES. Mr. Massaro will

perform the market analysis for each investment, and add his extensive knowledge of real estate transactions to the group. Mr. Massaro has an intimate knowledge of both the Orange County and Inland Empire markets, having handled over 2.1 million square feet of office or industrial buildings over the last 18 months.

Mr. Massaro holds a B.S. in Civil Engineering from Pennsylvania State University and is a

licensed real estate salesperson in the State of California. Gary J. Levinski is Senior Vice President, Development & Construction Management Services,

for PRES. Mr. Levinski will have responsibility for managing all construction matters including due diligence inspections, capital improvement budgets and tenant improvement costs. Mr. Levinski has been a licensed general contractor (B-1) in the State of California for 13 years and is well-versed in dealing with architects and engineers on cost control and value engineering, having been involved as a Project Manager in numerous commercial projects throughout his career.

Mr. Levinski holds a B.A. from the University of California, Santa Barbara. Dolf Renaud, CPA is the Director of Finance for PRES and will have responsibility for overseeing

the financial aspects of the Fund’s investment transactions, including the placing of debt financing and negotiation of loan documentation. In addition, Mr. Renaud will monitor all financial reporting and compliance for the Fund and the investment properties. Mr. Renaud is experienced in underwriting equity and debt financings for the acquisition of office, retail and multi-family properties, auditing properties and financial modeling. Prior to joining PRES, Mr. Renaud was the controller of three syndicated funds, entailing both income property and raw land containing nearly 40 properties totaling over $100 million in assets for Edison Capital. Prior to Edison Capital, Mr. Renaud worked at various public accounting firms, most recently with Ernst & Young in their Kenneth Leventhal Real Estate Group in Newport Beach, California.

Mr. Renaud holds a B.S.B.A. (concentration in Accounting) and a Master of Science Degree in

Taxation, both earned at Colorado State University and is a licensed real estate salesperson in the State of California.

Chris J. Cramond is the Property Accounting Manager for PRES and will oversee the day-to-day

accounting and reporting requirements of the properties to be held within the Fund. Prior to joining PRES, Mr. Cramond was a Senior Auditor with the “Big 5” accounting firm of Ernst & Young in their Kenneth Leventhal Real Estate Group and later, a senior property accountant with Insignia ESG where he was directly responsible for the accounting and reporting for over 1 million square feet of office product.

Mr. Cramond holds a B.S.B.A. (concentration in Accounting) from California State University, Long Beach.

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Joseph M. Bernhard is Vice President, Property/Asset Management, for PRES, and will have day-to-day responsibility for the investment properties in the Fund. Mr. Bernhard is experienced in all facets of asset and property management, including lease negotiations, tenant retention, bid processing, construction management supervision, CAM reconciliations, financial reporting and preparation of operating budgets. During his career, which included time at PM Realty Group and Sares Regis Group, Mr. Bernhard has represented clients such as Bank of America, Chase, Citicorp, MetLife, Aetna, GE Capital, Copley and JP Morgan.

Mr. Bernhard is a licensed real estate salesperson in the state of California, and has served as a

Receiver for the Superior Court for nearly 1 million square feet of commercial development within five southern California counties.

Alison W. Sansone is Project Director, Property/Asset Management, for PRES, and a Certified

Property Manager. Ms. Sansone has extensive experience in all phases of property management and will oversee daily operations and the asset management primarily of the Orange County-based portfolio. Ms. Sansone is knowledgeable in operating and capital budget preparation, CAM reconciliations, financial reporting, lease administration and tenant retention. Prior to joining the PRES team, Ms. Sansone gained valuable experience in the asset and property management field with The Irvine Company, Trammell Crow, and most recently, with Pacific Medical Buildings, L.P. where she was the Vice President of Property Management.

Ms. Sansone holds a B.A. degree from the University of Arizona and is a licensed real estate

salesperson in the State of California.

Scott M. Flemer is Vice President of Marketing and Leasing for PRES. Mr. Flemer is a senior real estate professional with an extensive background in marketing, leasing and asset management for institutional and private investors. Mr. Flemer will monitor lease negotiation, due diligence, repositioning of assets to maximize value and will be involved in tenant representation services for the various assets to be held in the Fund.

Mr. Flemer holds a B.S. degree in Finance (emphasis in Real Estate) from San Diego State University and is a licensed real estate salesperson in the State of California.

V. PROPRIETARY DEAL FLOW; INVESTMENT TRACK RECORD;

AND PRES UNDERWRITING PARAMETERS Proprietary Deal Flow

PRES’ real estate business generates a unique, proprietary and constant stream of real estate investment opportunities to which the Fund will have exclusive access as described in this memorandum. The General Partner believes that the Fund’s ability to access this deal flow for the transactions that offer the best risk-adjusted return opportunities will create a substantial competitive advantage for the Fund over other real estate investors. PRES has used its multi-disciplinary and experienced management team, abundant proprietary deal flow and creativity to build a record of success in real estate investments. From 1998 through 2002, PRES has directly invested in cash over $3,300,000 of equity capital in 14 transactions that were consistent with the size and type of investment that the General Partner expects to be the focus of the Fund’s investment strategy. The following are key drivers of PRES’ real estate deal flow:

Real Estate Business

PRES is a full service real estate firm, staffed by knowledgeable and seasoned professionals. Under the PRES umbrella are five (5) business units working collaboratively to meet the demands and needs of its clients. These five (5) business units are (a) brokerage, (b) development and construction management, (c) corporate consulting/financial analysis, (d) acquisitions and investments, and (e) property and asset management.

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PRES’ foundation can be found in its brokerage business. The philosophy behind the brokerage business has been a focus on “relationship” building rather than a single “transaction.” PRES operates under a team approach, with no commissioned salespeople, thereby assuring the client’s best interests will be served throughout the entire real estate process. PRES brings to each transaction a team of specialists in disciplines directly related to the client’s objective.

PRES’ brokerage foundation has provided PRES with a natural entry into other services. Supported by up-to-date knowledge of local, regional and national markets, PRES is able to match the financial, operational and qualitative needs of the client with appropriate strategies and opportunities. In addition, given PRES’ presence in the market, along with the ability to provide a complete range of services, PRES has parlayed various opportunities into acquisitions and investments for its own portfolio.

PRES has aligned itself with a number of capital resources that enable it to act quickly on investment opportunities. Additionally, PRES’ transition from the brokerage business to acquisitions and investments has been made easier because of PRES’ strong relationship with the brokerage community and its knowledge of the market conditions. PRES’ extensive network of contacts enables PRES to source acquisition opportunities before the general public has knowledge of them.

Extensive Network of Real Estate Relationships

The Fund will have access to extensive and, in many cases, proprietary investment opportunities that will originate from PRES’ network of relationships. Bradley W. Schroth and John W. Fitzgibbon, who have been with PRES since its inception and have been in the real estate business for an average of 25 years, are engaged in all facets of PRES’ business. The General Partner believes that these professionals, along with Messrs. Wood, Massaro and Renaud, have developed extensive networks of relationships that will provide a competitive advantage in the market place for real estate deal flow.

PRES’ relationships have historically proved to be a valuable source of investment opportunities, and the General Partner expects the Fund to benefit from these existing and well-established relationships as a source of significant market insight and investment opportunities.

Other Sources of Transactions

The members of the General Partner and the senior professionals within PRES have developed a network of relationships with (i) professionals who have expertise in specialized aspects of real estate investment and operations with whom PRES has completed successful transactions, and (ii) advisors who participate in transactions, including individuals from major law firms and accounting firms, as well as real estate consulting, appraisal, brokerage and related firms. The General Partner expects the Fund to gain access to additional investment opportunities through these relationships.

Investment Track Record

PRES has used its multi-disciplinary and experienced management team and abundant proprietary deal flow and creativity to build a record of success in real estate investments. From 1998 through 2002, PRES invested over $3,300,000 of equity capital in 14 transactions (having an aggregate acquisition cost exceeding $80,000,000) that were consistent with the size and type of investment that the General Partner expects to be the focus of the Fund’s investment strategy. The table set forth on the following page provides a breakdown of PRES’ current real estate inventory, and the total cost of, the aforementioned projects.

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PRES INVESTMENTS LLC REAL ESTATE INVENTORY

PROJECT LOCATION Acquisition

Date Property

Type Property Size (SF)

Purchase Price

Total Acquisition

Equity PRES Equity

% PRESEquity STATUS

PRES-directed

1101 Dove Street Newport Beach, CA 6/02 Office 33,400 $ 4,300,000 $ 1,250,000 $1,000,000 80% Operating

6133 Bristol Parkway Culver City, CA 7/02 Office 51,300 6,050,000 1,610,500 310,500 19% Operating

4200 Von Karman Ave Newport Beach, CA 4/00 Office 1,500 275,000 275,000 275,000 100% Operating

315 South Beverly Beverly Hills, CA 4/02 Office 67,000 12,250,000 4,327,000 250,000 6% Operating

Gillette Ave Buildings Irvine, CA 3/00 Industrial Converted to Office 150,000 9,000,000 3,280,000 161,700 5%50K SF bldg sold

8/01, 100K SF bldg currently for sale

801 Parkcenter Santa Ana, CA 5/02 Office 33,000 3,235,000 895,000 8,950 1% Operating

Total PRES-directed 336,200 35,110,000 11,637,500 2,006,150 17%

Active Co-Investments

Sycamore Business Center Vista, CA 11/99 Industrial 135,700 5,200,000 785,000 500,000 64% 7 bldgs sold, 4 remaining for sale

4040 Calle Platino Oceanside, CA 10/99 Industrial 80,000 3,525,000 760,000 480,300 63% Operating

Warner Redhill Center Tustin, CA 9/99 Office 95,000 11,200,000 2,147,000 114,600 5%project listed for sale

HM Electronics San Diego, CA 3/01 Office 63,400 6,930,000 1,643,000 55,100 3% Operating

Glendora Courtyard Glendora, CA 5/99 Office 84,000 6,800,000 1,594,000 53,200 3%2 bldgs. sold; 1 bldg. for sale

Scripps Center San Diego, CA 11/99 Office/Industrial 63,400 7,500,000 1,320,000 44,000 3% Operating

Total Co-Investments 521,500 41,155,000 8,249,000 1,247,200 15%

GRAND TOTAL 857,700 $ 76,265,000 $19,886,500 $3,253,350 16% PRES-directed - Backlog

19772 & 19782 MacArthur Newport Beach, CA TBD Office 66,400 10,500,000 2,625,000 525,000 20% In Escrow, est close 7/03

TOTAL CURRENT BACKLOG 66,400 $ 10,500,000 $ 2,625,000 $ 525,000 20%

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While the past performance of PRES’ real estate investments cannot be taken as indicative of future performance of the Fund, some characteristics of these investments should be emphasized:

- Realized Returns: Successful, timely exits will be a critical element of PRES’ investment

strategy. Of the 14 investments, two have been sold.

- Consistency of Returns: The majority of investments are projected to achieve a gross Internal Rate of Return (“IRR”)1 of between 16% to 23%.

- Portfolio Diversity: The 14 investments are diversified by location, investment size and investment strategy.

PRES’ historical investment success in the real estate industry is due in great part to a consistent ability to identify and capitalize early on emerging trends in the market, and the ability to use creative structuring and to reposition assets to unlock value.

Underwriting Parameters

The PRES acquisition team analyzes each investment opportunity individually to determine the unique characteristics of each property and the underlying investment strategy. Each property is initially evaluated based on:

Location Access Amenities within surrounding area Divisibility Physical Appearance and Maintenance Management Intensity Tenant Mix and Credit Current Operations and Tenant Relations Leasing Program Stability of Current Cash Flow Review of Market Rents vs. In-Place Rents Expense Levels and Efficiencies On-going Capital Expenditures Price vs. Replacement Value Exit Strategy and Desirability

The PRES team is consistently monitoring the general economy, macro market indicators and trends, and tracks investment and leasing transactions on a daily basis for its core markets. The projections created for each property reflects the underlying property level strategy PRES will deploy. Set forth below is a summary of the underwriting assumptions and guidelines PRES has formulated and applied on recent acquisitions. These are based upon PRES’ recent experience in the markets where it has been active and are tailored appropriately for each transaction. PRES may make changes to these assumptions as it believes may be warranted either by a particular investment opportunity or by changing market conditions:

1 Gross IRR excludes General Partner Profits Interest, Fund Management Fees, Acquisition/Disposition Fees, Portfolio Reporting Fees, and other Fund Expenses. No expenses similar to the General Partner Profits Interest, Asset Management Fees, Acquisition/Disposition Fees, Portfolio Reporting Fees or Fund Expenses are being charged to the investments. Accordingly, if the Fund were to achieve identical investment returns, the net returns to Fund investors would be lower.

Market Rents: PRES establishes a “snap shot” based on the current market comparison and last deals completed in a project adjusted for any concessions.

Rent Increases: Determined by the economy and trends or by the

projected value created through repositioning an asset. In general, PRES has been projecting 2% to 4% rent growth, with a suite by suite review to evaluate the appropriate-ness of the projection.

Vacancy: In general, a minimum 5% vacancy and credit loss factor

is applied. In some cases, a greater vacancy factor may be applied, if applicable.

Vacancy Lease Up: Typically a 4 to 6 month downtime is factored for lease up

periods.

Renewal Probability: Typically in the 60% to 70% range for multi-tenant office space.

Expenses: Determined based on past operating history, experience and comparable operations with adjustments as PRES judges to be appropriate to fit its business plan. Taxes are grossed up to reflect the purchase price.

Expense Growth: Typically 2% per year.

Capital Reserves: $0.15 to $0.20 PSF per year depending on age and first

year capital expenditures.

Average Lease Term: 5 Years

Lease Commissions: Adjusted for market conditions, typically 5% to 6%

Capital Expenditures: Varies widely by property depending on the business plan. First year capital expenditures are capitalized into the basis.

Tenant Improvements: New Spaces: $8 to $10 psf

Renewals: $3 to $5 psf Shell Spaces: $30 to $35 psf

Property Management Fees: Adjusted for market and historical operations, typically 3%

to 4% of gross collections and, if applicable, reimburse-ment of on-site administration.

Exit Cap Rate: Typically falls with 100 basis points of purchase cap rate

either way depending on business plan and market conditions. In general, exit cap rates are in the 8.5% to 9.5% range. A test for PSF exit pricing is also reviewed.

Closing Fees: In general, a 3.75% adjustment for commissions and costs

is applied against the purchase price.

Financing: Based on recent market quotes, as of March 2003, PRES underwrites a non-recourse loan at a 70%-75% LTV,

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6.5%-7.0% interest rate, 1%-2% origination fee and 25-year amortization.

These underwriting assumptions create a 5-year projected cash flow. Reviewing projected cash on cash returns, a projected 5-year IRR and annual trending of a return on capital determine pricing for each asset. The members of the PRES acquisition team and the Investment Committee consistently challenge the proforma assumptions. There can be no assurance that the Partnership will succeed in locating properties that meet the above underwriting criteria. See “Section VIII – Rise Factors and Permitted Conflicts of Interest.”

VI. STRUCTURE AND MANAGEMENT OF THE FUND

Fund Structure

The Fund is a limited partnership formed under the laws of the State of Delaware. It will be managed by the General Partner, PRES Advisors LLC, a California limited liability company, which is an affiliate of PRES. The General Partner will commit $500,000 in cash of the Fund’s Capital Commitments.

Fund Management

The day-to-day operations of the Fund will be managed by the General Partner, which is staffed by a team of dedicated professionals led by Bradley W. Schroth and John W. Fitzgibbon. See “Section IV — Management Team” for biographical information on Messrs. Schroth and Fitzgibbon and the other members of the Team.

Investment Process

Prospective investments will be subject to an established approval and oversight acquisition process that encompasses the critical evaluation and underwriting of each investment individually and as part of the Fund’s overall investment strategy by the members of the General Partner, which includes the following individuals: Bradley W. Schroth and John W. Fitzgibbon (the “Real Estate Principals”). This oversight includes the initial analysis, structuring and negotiation of each potential investment. The Investment Committee is responsible for the final oversight and approval of all of the Fund’s investments. See “Section IV — Management Team” for biographical information on the PRES members of the Investment Committee.

Investment Committee

The Partnership Agreement provides for the establishment of an Investment Committee comprised of the membership of the General Partner (the “Investment Committee”). With limited exceptions, the Investment Committee will review and approve all acquisitions and dispositions of Fund assets. These decisions will bind the actions of the Fund and be binding upon the General Partner and the Partnership.

Investor Advisory Committee

The Partnership Agreement provides for the establishment of an Investor Advisory Committee consisting of three (3) limited partners (the “Investor Advisory Committee”). The three (3) Investors Advisory Committee seats shall be filled by the three (3) largest individual Investors who agree to serve on said Committee. With limited exceptions, the Investor Advisory Committee will be strictly advisory and the Investor Advisory Committee’s recommendations will not be binding upon General Partner or the Partnership. Generally, the Investor Advisory

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Committee will be used to solicit feedback and input from a representative group of Limited Partners. In addition, the Investor Advisory Committee shall (a) if requested by the General Partner, advise the General Partner with respect to potential conflicts of interest and, if the Investor Advisory Committee so determines, waive conflicts on behalf of the Partnership, (b) take certain actions to the extent General Partner is in default under the Partnership Agreement, and (c) consult with the General Partner on such matters as the General Partner presents to the Investor Advisory Committee and to perform various additional duties set forth in the Partnership Agreement. No fees will be paid to the members of the Investor Advisory Committee, although the Fund will pay all expenses associated with the Investor Advisory Committee’s meetings.

VII. SUMMARY OF TERMS

The following information is presented as a summary of principal terms only and is qualified in its entirety by reference to the Partnership Agreement, a copy of which will be provided to each prospective investor upon request. The Partnership Agreement should be reviewed carefully. In the event that the terms described herein are inconsistent with or contrary to the terms of the Partnership Agreement, the Partnership Agreement shall control. An index of defined terms is included at the end of this memorandum. See “Section X — Index of Defined Terms.”

THE FUND The PRES Fund I, L.P., a Delaware limited partnership organized

to invest in California real estate properties, with an emphasis on Southern California. Limited Partners in the Fund are referred to as the “Limited Partners”; the Limited Partners and the General Partner of the Fund are referred to collectively as the “Partners.”

GENERAL PARTNER PRES Advisors LLC, a California limited liability company and an affiliate of PRES. The General Partner is responsible for the management and administration of the Fund’s affairs.

INVESTMENT OBJECTIVE The Fund’s investment objective is to achieve substantial capital appreciation and provide its investors with superior risk adjusted returns through equity and equity-related investments in office, industrial, and other properties (which may include retail, commercial, storage, and parking facilities and multifamily housing properties), subject to certain restrictions on product and geographic diversification set forth below. The Fund also may make investments in joint ventures and companies with interests in real estate that meet the Fund’s investment profile. The Fund will not invest in properties used for salvage, automotive repair, so called ‘brownfields’ properties and similar uses, single family housing, hospitals, clinics, surgery centers and similar medical uses, hotels, resorts, vacant land and non-income producing uses; provided that an investment may be made in properties where no more than 25% of the Acquisition Cost (as defined in the Partnership Agreement) is attributable to undeveloped land that could be parcelized and sold separately from the remainder of the investment. The Fund will invest solely in California real estate; however, it is expected that the Fund will focus primarily on investment opportunities in Southern California.

OFFERING SIZE The General Partner seeks to raise up to $30 million in aggregate Capital Commitments for the Fund, including the capital commitment by the General Partner as described below. The General Partner may accept a greater or lesser amount of

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Capital Commitments in its sole discretion but not less than $10 million, including the General Partners’ Capital Commitment.

MINIMUM CAPITAL COMMITMENT

$100,000 per Limited Partner. The General Partner may accept smaller Capital Commitments in its sole discretion.

GENERAL PARTNER’S CAPITAL COMMITMENT

General Partner will invest $500,000 in cash.

CLOSING; ADDITIONAL INVESTORS

The General Partner will conduct the Closing at any time after receiving a minimum of $10 million in Capital Commitments, including the General Partner’s Capital Commitments. The General Partner will not permit existing Limited Partners to increase their Capital Commitments and will not admit any new Limited Partners after the Closing Date, except in connection with transfers permitted under the Partnership Agreement.

COMMITMENT PERIOD The “Commitment Period” will begin on the Closing Date and end on the second anniversary of the Closing Date. After the Commitment Period, all Limited Partners will be released from their obligations with respect to their unfunded Capital Commitments, except to the extent necessary to: (i) complete investments which are in process at the end of the Commitment Period, (ii) cover the expenses of the Fund, (iii) cover any liabilities of the Fund, and (iv) make follow-up investments in existing Fund assets. The Commitment Period may be terminated earlier, at the discretion of the General Partner, at any time after (a) the Partners’ aggregate Capital Commitments are at least 75% invested, or (b) changes in applicable law or regulations or in business conditions make such termination necessary or advisable.

DRAWDOWNS All Partners will be required to fund 5% of their Capital Commitment upon subscribing to the Fund and another 20% on the Closing Date, all of which may be used to cover Organizational Expenses, Operating Expenses, Fund Management Fees, Acquisition and Disposition Fees, and Portfolio Reporting Fees incurred and/or payable by the Fund from time to time. Thereafter, Capital Commitments will be drawn down pro rata (each a “Capital Contribution”), on an as-needed basis, for specific investments (including the funding of operating cash flow deficits, if any) and to cover Fund Management Fees, Acquisition/Disposition Fees, Portfolio Reporting Fees, Organizational Expenses, Operating Expenses, and any amounts owing, or which may become due, under any existing borrowings or other extensions of credit, with a minimum of ten (10) days’ prior notice to the Limited Partners.

TERM The Fund will terminate at the earlier of: (i) December 31, 2011, or (ii) the liquidation of all the Fund’s investments, after termination of the Commitment Period and the Reinvestment Period. The General Partner may in its sole discretion extend the term for up to two additional one-year periods to allow for orderly liquidation.

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INVESTMENT LIMITATIONS Investments will be limited by the following diversification criteria: (i) the total equity investment in any one investment may not exceed 25% of the Capital Commitments; (ii) the total equity investment in assets in Orange County, California may not exceed 75% of the Capital Commitments; (iii) the total equity investment in assets in any other California county may not exceed 25% of the Capital Commitments; (iv) the total equity investment in office property may not exceed 75% of the Capital Commitments; (v) the total equity investment in industrial property may not exceed 75% of the Capital Commitments; and (vi) the total equity investment in other property (which may include retail, commercial, storage, and parking facilities and multifamily housing properties) may not exceed 15% of the Capital Commitments. These limitations, in whole or in part, may be waived by a majority in interest of the Limited Partners or the Investor Advisory Committee.

REINVESTMENT The “Reinvestment Period” will begin on the Closing Date and will end on the fifth anniversary of the Closing Date. During the Reinvestment Period, proceeds distributable (or previously distributed) to the Partners that constitute return of Capital Contributions may be reinvested (or recalled for reinvestment) by the General Partner. Accordingly, a Partner may be required to fund an aggregate amount in excess of its Capital Commitment, but at no time will a Partner have aggregate capital at risk in excess of its original Capital Commitment.

DISTRIBUTIONS After the Closing Date, net proceeds from the operation, disposition and refinancing of each investment or portion thereof will be distributed among all Partners in the following order of priority:

Operating Distributions

After the Closing Date, current cash income from each investment shall be distributed among the Partners in the following order of priority on a quarterly basis, or more frequently at the discretion of General Partner:

First, 100% to the Partners in accordance with their respective Capital Contributions until the Partners have received the Preferred Return on such Partners’ Capital Contributions as of the date of such distribution; and

Second, (A) 80% to the Partners in accordance with their respective Capital Contributions, and (B) 20% to General Partner.

Capital Distributions

After the Closing Date, disposition proceeds shall be distributed among the Partners in the following order of priority:

First, 100% to the Partners in accordance with their respective Capital Contributions until the cumulative amounts distributed to

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each Partner equals the aggregate of Capital Contributions made by such Partner so that each Partner’s Unreturned Capital Contribution Account (as defined in the Partnership Agreement) is equal to zero;

Second, 100% to the Partners in accordance with their respective Capital Contributions until the Partners have received the Preferred Return on such Partners’ Capital Contributions as of the date of such distribution; and

Third, (A) 80% to the Partners in accordance with their respective Percentage Interests, and (B) 20% to General Partner.

The General Partner may withhold from any distributions amounts necessary for operating or funding the Fund’s investments and to create, in its discretion, appropriate reserves for Fund obligations and activities as well as for any required tax withholdings. Taxes paid or withheld that are allocable to one or more Partners or investments will be deemed to have been distributed to such Partners for the purposes of applying the above calculations.

Distributions relating to the partial disposition of investments will be made under the above formula, with that portion of the investment disposed of treated as a separate investment from the portion retained by the Fund, and prior distributions with respect thereto shall be divided between such investments on a pro rata basis.

Notwithstanding the foregoing, to the extent of available cash, the General Partner may cause the Fund to make distributions from time to time to the General Partner in amounts sufficient to permit the payment of the tax obligation of the General Partner in respect to allocations of income. Any such distributions shall be taken into account in making subsequent distributions to the Partners.

GENERAL PARTNER NEGATIVE CAPITAL ACCOUNT

Upon liquidation of the Fund, the General Partner will contribute to the Fund for distribution to the Limited Partners an amount equal to its negative capital account balance, if any.

FUND MANAGEMENT FEE The General Partner shall be entitled to an annual fund management fee (the “Fund Management Fee”) that will be payable quarterly in arrears, equal to 0.5% of the aggregate Capital Commitments of all Partners. After the Commitment Period, the Fund Management Fee will be based on the aggregate amounts in the Unreturned Capital Contributions Account for all Partners. The Fund Management Fee will commence as of the Closing Date.

ACQUISITION AND DISPOSITION FEES

The General Partner shall be entitled to an acquisition fee equal to 0.75% of the gross purchase price of each underlying investment (including any indebtedness assumed or taken subject to) upon acquisition thereof and a disposition fee equal to 0.75% of the sales price or contribution value of each underlying investment upon disposition thereof (hereinafter referred to as

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“Acquisition/Disposition Fees”).

ORGANIZATIONAL EXPENSES

The Limited Partners will bear legal and other organizational and marketing expenses, including the out-of-pocket expenses of the General Partner incurred in the formation of the Fund (collectively, “Organizational Expenses”) up to an aggregate amount for all Limited Partners of 7.5% of the Capital Commitments, allocated pro rata based on Capital Commitments. Organizational expenses in excess of this amount, if any, will be borne by the General Partner.

OPERATING EXPENSES Except as provided below, the Fund will pay all expenses relating to the activities of the Fund, including: (i) expenses related to the operation of the Fund (including, without, limitation, appraisal fees, photocopying and printing expenses, postage and delivery charges, office supplies, the fees and expenses of accountants, lawyers and other professionals incurred in connection with the Fund’s annual audit, financial reporting, legal opinions and tax return preparation); (ii) all fees, costs and expenses related to the acquisition, holding, financing, refinancing and sale or other disposition of investments and the evaluation of potential investments regardless of whether the potential investments are consummated; (iii) any expenses related to making temporary investments and any interest expenses; (iv) Acquisition/ Disposition Fees and other fees paid to the General Partner; and (v) any extraordinary administrative or operating fees or expenses (e.g., litigation or indemnification expenses). The foregoing expenses are referred to herein as “Operating Expenses.” Operating Expenses will be allocated among the Partners, pro rata based on Capital Commitments until the Fund makes its first investment, and thereafter, based upon Capital Contributions.

The General Partner will bear its own “overhead” associated with the Fund’s activities (e.g., office space and employee personnel costs) (hereinafter referred to as “Administrative Expenses”).

FEES PAYABLE TO THIRD PARTIES AND CERTAIN PRES AFFILIATES

If General Partner engages unaffiliated third parties to perform property management or leasing agent services, the General Partner will be permitted to pay such parties management fees and reimbursable expenses equal to the prevailing market fees and commissions payable in the market where the investment is located. In the event any improvement is undertaken on any investment and an unaffiliated third party serves as construction manager, such construction manager will receive as compensation for such services a fee equal to the prevailing market rate in the area where the investment is located. In the event an unaffiliated third party serves as general contractor for the construction of such improvements, such general contractor will receive as compensation for its services a fee not in excess of the prevailing market rate in the market where the investment is located. If an unaffiliated third party serves as general contractor with respect to such improvements but the General Partner determines that it is in the Fund's best interests that there also be a construction manager performing the sole function of overseeing such improvements, then the construction

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management fee payable to the overseeing party shall not be in excess of the market rate prevailing in the area for such oversight service. In lieu of retaining unaffiliated third parties to provide the foregoing services, the General Partner shall be entitled to engage (in General Partner's sole and absolute discretion) the following affiliated entities, subject to the enumerated limitations:

(a) PRES Property/Asset Management LLC. General Partner shall be entitled to engage PRES Property/Asset Management LLC for property management services and leasing services in accordance with, and subject to, the provisions of a Management Agreement in the form attached to the Partnership Agreement. The property management fees and/or leasing fees payable to PRES Property/Asset Management LLC shall not exceed four percent (4%) of the aggregate rent and other income collected for the property covered by such agreement for the applicable period.

(b) PRES Development & Construction Management Services, Inc. General Partner shall be entitled to engage PRES Development & Construction Management Services, Inc. for construction management services in accordance with, and subject to, the provisions of a Construction Management Agreement in the form attached to the Partnership Agreement. The construction management fees payable to PRES Development & Construction Management Services, Inc. shall not exceed five percent (5%) of construction costs.

BORROWINGS The Fund will utilize leverage in the acquisition, operation and ownership of its investments and will refinance its investments, if desirable. Debt may take the form of mortgage or seller financing at the property or Fund level. PRES may provide the debt, be a lender to the Fund or act as an intermediary or underwriter of the debt with the approval of the Investor Advisory Committee (see “Section VIII — Risk Factors and Potential Conflicts of Interest”). The General Partner may also arrange a revolving credit facility that will be secured by deeds of trust or mortgages on Fund investments. As further described in the Partnership Agreement, the General Partner expects the Fund leverage not to exceed 75% of the cost basis of the Fund investments. However, the amount of debt against any asset of the Fund may be greater or less than the target or limit. The General Partner will provide any guarantees as may be required by selected lenders.

CREDIT FACILITY The General Partner may arrange for a revolving credit facility to pay expenses and fees, make deposits and acquire assets through borrowings in lieu of, or in advance of, Capital Contributions. The credit facility may be secured by deeds of trust or mortgages on Fund investments.

EXCLUSIVITY During the Commitment Period, neither PRES, the General Partner nor its members will manage or serve as the primary source of transactions for another newly formed (after the Closing Date) pooled investment vehicle that in PRES’, the General Partner or its members good faith judgment has, as its

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primary investment objective, privately negotiated equity investments that are substantially similar to the types of investments to be made by the Fund (a “Competing Entity”), until the later of (i) the end of the Commitment Period or (ii) such time as at least 75% of the aggregate Capital Commitments to the Fund are committed to investments. If a Competing Entity is organized after such time, investment opportunities will be allocated between the Competing Entity and the Fund by the General Partner on a basis that the General Partner believes to be fair and reasonable.

Notwithstanding the above, PRES, the General Partner and its members and any funds organized by PRES, et. al. in the future, will not be restricted from making certain investments, including, but not limited to: (i) investments in real estate properties and companies whose gross acquisition cost, in each instance, exceeds $7.5 million or is less than $2 million, (ii) investments in debt instruments or debt securities; (iii) equity investments that are made as a form of compensation; (iv) strategic investments (including acquisitions) made in connection with the operation or conduct of PRES’ non-private equity businesses, including without limitation new lines of business; (v) investments that the Fund is restricted from making or that do not meet or are not within the investment criteria of the Fund; (vi) investments made pursuant to any commitment of PRES or its affiliates prior to the Closing; (vii) investments in portfolios that do not consist substantially of assets meeting the Fund’s investment criteria; (viii) investments that the Fund cannot participate in because of conflicts of interest (e.g., investments acquiring assets from Limited Partners or entities in which any Limited Partner has an interest); and (ix) investments pursuant to an offer made on an unsolicited basis specifically to PRES for investment only by PRES or its affiliates (other than the Fund).

CO-INVESTMENTS The General Partner may in its discretion give certain persons, including PRES, its affiliates, Limited Partners or third parties, an opportunity to co-invest alongside the Fund. The terms of any such co-investment will be set by the General Partner on a basis the General Partner believes to be fair and reasonable to the Fund.

TRANSACTIONS WITH PRES

The Fund may not engage in transactions with its affiliates by purchasing investments from or through PRES or co-investing with PRES and its affiliates in investments. In addition, the Fund may not invest in entities in which PRES or its affiliates hold a material interest.

Notwithstanding the foregoing, with the prior approval of the Investor Advisory Committee, the Fund shall be entitled to take an assignment from PRES (and any affiliate of PRES) of its interest in any purchase agreement for the acquisition of an investment to the extent that the Fund would have been entitled to enter into such purchase agreement with the prospective seller directly.

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TRANSFER OF INTERESTS Except in certain limited circumstances, such as transfers to affiliates or successor trustees or state agencies, a Limited Partner may not sell, assign or transfer any interest in the Fund without the prior written consent of the General Partner, which the General Partner may withhold in its sole and absolute discretion. Such sale, transfer or assignment shall be subject to a right of first refusal, on the same economic terms, by the Fund or, if the Fund declines, by the General Partner.

WITHDRAWAL No Limited Partner will be permitted to withdraw from the Fund or to withdraw any portion of its capital account.

DEFAULT PROVISIONS Upon failure of a Partner to pay any portion of its Capital Commitment on the due date called for by the General Partner, such Partner will be in default (a “Defaulting Partner”).

Any Defaulting Partner shall (i) effectively forego future income or gains (and distributions in respect thereof) on investments made prior to its default, but continue to be subject to losses or reduction in value on such investments; (ii) be assessed a 25% reduction in its capital account balance, which reduction will accrue one-third to the General Partner and two-thirds to the non-defaulting Partners on a pro rata basis; (iii) lose any right to vote its limited partnership interest; (iv) lose any right to be a member of the Investor Advisory Committee; and (v) lose the right to make Capital Contributions and participate in future investments. The General Partner in its sole and absolute discretion may waive any of the foregoing remedies other than items (iii) and (iv).

The General Partner may require a pro rata increase in Capital Contributions of other non-defaulting Limited Partners of the Fund on any investment, but no Limited Partner will be required to fund amounts in excess of its unfunded Capital Commitment.

The Defaulting Partner will be liable to the Fund for any damages incurred as a result of the failure of such Defaulting Partner to make its Capital Contribution as and when required hereunder; the General Partner is authorized to offset against any distributions otherwise payable to such Defaulting Partner, the amount of such defaulted Capital Contribution, with interest until fully paid and any damages incurred by the Fund as a result of such defaulted Capital Contribution.

As security for the prompt and complete payment of each Partner’s obligation to make Capital Contributions, each Partner will grant a security interest in and continuing lien on all of such Partner’s right, title and interest in the Fund. The Fund shall be entitled to enforce this security interest in order to collect any unpaid Capital Contributions.

INVESTOR ADVISORY COMMITTEE

The Partnership Agreement provides for the establishment of an Investor Advisory Committee consisting of three (3) limited partners (the “Investor Advisory Committee”). With limited exceptions, the Investor Advisory Committee will be strictly advisory and the Investor Advisory Committee’s recommendations will not be binding upon General Partner or the

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Partnership. Generally, the Investor Advisory Committee will be used to solicit feedback and input from a representative group of Limited Partners. In addition, the Investor Advisory Committee shall (a) at the request of the General Partner, advise the General Partner with respect to potential conflicts of interest, (b) take certain actions to the extent General Partner is in default under the Partnership Agreement, and (c) consult with the General Partner on such matters as the General Partner presents to the Investor Advisory Committee and to perform various additional duties set forth in the Partnership Agreement. No fees will be paid to the members of the Investor Advisory Committee, although the Fund will pay all expenses associated with the Investor Advisory Committee’s meetings.

INDEMNIFICATION The Fund will indemnify and hold harmless the General Partner and its affiliates and their respective directors, officers, members and employees and members of the Investor Advisory Committee (each an “Indemnitee”) from and against liabilities arising in connection with the Fund; provided that the Fund’s obligations shall not apply to the Indemnitee’s willful misconduct, fraud, gross negligence or bad faith. Indemnitees will have the benefit of certain provisions that limit their liability to the Fund which parallel the foregoing indemnification provisions.

REPORTS The General Partner will use reasonable efforts to send all Partners within sixty (60) days after the end of each calendar year an audit report including a balance sheet and statements of income, changes in Partners’ equity and changes in cash flows, prepared in accordance with accounting principles used to prepare the Fund’s federal income tax return, plus a schedule and summary description of the investments owned by the Fund at year-end and a statement for each Partner of its capital account and tax information necessary for completion of its tax returns (subject to the Fund receiving information needed to prepare such tax information from entities in which it holds a direct or indirect interest). The General Partner also will send the Partners unaudited financial statements on a quarterly basis and a schedule and summary description of the investments made by the Fund during such quarter.

AMENDMENTS The Partnership Agreement may be amended in accordance with the terms and provisions of the Partnership Agreement.

PARTNER MEETINGS The Fund will hold an annual meeting with its Partners.

TAX CONSIDERATIONS Certain U.S. Federal income tax considerations applicable to this offering are summarized under Section IX — “Certain Tax Matters.” Each prospective investor should consult with its own tax advisor regarding all Federal, state, local and foreign tax considerations regarding its own tax situation applicable to an investment in the Fund.

RISK FACTORS AND CONFLICTS OF INTEREST

This offering involves significant risks. Prospective investors should carefully review the matters discussed under “Section VIII — Risk Factors and Potential Conflicts of Interest.”

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LEGAL COUNSEL The General Partner has been represented by Mayer, Brown, Rowe & Maw (“MBR&M”) in connection with the formation of the Fund, the drafting of this Confidential Private Offering Memorandum, the drafting of the Partnership Agreement and the drafting of the Subscription Agreement. The potential conflict of interest that may arise from such representation is set forth in “Section VIII – Risk Factors and Potential Conflicts of Interest”.

AUDITOR Grant Thorton LLP

SUBSCRIPTION MATTERS Persons interested in investing in the Fund are required to complete and return to the General Partner the subscription documents for the Fund, a copy of which will be made available to each prospective investor. Subscriptions may be rejected in whole or in part in the General Partner’s sole discretion. All persons interested in investing in the Fund must attest that they are qualified purchasers under the Investment Company Act, as amended, and accredited investors under the Securities Act.

VIII. RISK FACTORS AND POTENTIAL CONFLICTS OF INTEREST

Prospective investors should carefully consider, among other factors, the matters described below, each of which could have an adverse effect on the value of the interests in the Fund. As a result of these factors, as well as other risks inherent in any investment or set forth elsewhere in this Memorandum (see, for example, “Section IX — Certain Tax Matters”), there can be no assurance that the Fund will meet its investment objectives or otherwise be able to successfully carry out its investment program. The Fund’s returns will be unpredictable. An investor should only invest in the Fund as part of an overall investment strategy and only if the investor is able to withstand a total loss of its investment. Investors should not construe the performance of earlier investments by PRES as providing any assurances regarding the future performance of the Fund.

Risk Factors

General Real Estate Considerations. Real property investments are subject to varying degrees of risk. Real estate values are affected by a number of factors, including (i) changes in the general economic climate, (ii) local conditions (such as an oversupply of space or a reduction in demand for space), (iii) the quality and philosophy of management, (iv) competition based on rental rates, (v) attractiveness and location of the properties, (vi) financial condition of tenants, buyers and sellers of properties, (vii) quality of maintenance, insurance and management services, and (viii) changes in operating costs. Real estate values also are affected by such factors as government regulations (including those governing usage, improvements, zoning and taxes), interest rate levels, the availability of financing and potential liability under changing environmental and other laws.

Risks Associated with Unspecified Transactions. As of the date of this memorandum, the Fund’s investments have not been identified. Investors will be relying on the ability of the General Partner to identify and evaluate the investments to be made by the Fund. Because such investments may occur over a substantial period of time, the Fund faces the risks of changes in long-term interest rates and adverse changes in the real estate markets. Even if the investments of the Fund are successful, the returns may not be realized by the Partners for a period of several years.

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Speculative Nature of Investments. The investments to be made by the Fund are speculative in nature and the possibility of partial or total loss of capital will exist. Investors should not subscribe to or invest in the Fund unless they can readily bear the consequences of such loss.

Leverage. The Fund will typically leverage its investments with debt financing. Leverage also may be present at the property or operating company level. Although the use of leverage may enhance returns and increase the number of investments that can be made, it also may substantially increase the risk of loss of principal.

Possible Lack of Diversification. While diversification is an objective of the Fund, there is no assurance as to the degree of diversification that will actually be achieved in the Fund’s investments, either by geographic region or asset type. If the Fund makes an investment in a single transaction with the intent of refinancing or selling a portion of the investment, there is a risk that the Fund will be unable to successfully complete such a financing or sale. This could lead to increased risk as a result of the Fund having an unintended long-term investment and reduced diversification.

Lack of Liquidity of Investments. The investments to be made by the Fund are likely to be illiquid. Illiquidity may result from the absence of an established market for the investments, as well as legal, contractual or other restrictions on their resale by the Fund. Dispositions of investments may be subject to contractual and other limitations on transfer or other restrictions that would interfere with subsequent sales of such investments or adversely affect the terms that could be obtained upon any disposition thereof.

Taxation in Foreign Jurisdictions. The Fund or the Partners may be subject to income taxes or other taxes in jurisdictions outside of the United States. In addition, withholding taxes or other taxes may be imposed on earnings of the Fund from investments in such jurisdictions. Local taxes incurred in foreign jurisdictions by the Fund or entities through which it invests may not be creditable to or deductible by the Partners. See “U.S. Federal Income Tax Considerations — Foreign Taxes.”

Development Risks. The Fund may acquire equity interests in properties that require rehabilitation or renovation. To the extent that the Fund invests in such properties, it will be subject to the risks normally associated with such activities. Such risks include, without limitation, risks relating to the availability and timely receipt of zoning and other regulatory approvals, the cost and timely completion of construction (including risks beyond the control of the Fund, such as weather or labor conditions or material shortages) and the availability of both construction and permanent financing on favorable terms. These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have an adverse effect on the investment and on the amount of funds available for distribution to the Partners.

Potential Environmental Liability. Under various federal, state and local laws, ordinances and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. Such laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances. The cost of any required remediation and the owner’s liability therefore as to any property are generally not limited under such laws and could exceed the value of the property and/or the aggregate assets of the owner. The presence of such substances, or the failure to properly remediate contamination from such substances, may adversely affect the owner’s ability to sell the real estate or to borrow funds using such property as collateral, which could have an adverse effect on the Fund’s return from such investment.

Investment in Distressed Assets. The Fund may make investments in under performing or other distressed assets utilizing leveraged capital structures. By their nature, these investments will involve a high degree of financial risk, and there can be no assurance that the Fund’s rate of 26

return objectives will be realized or that there will be any return of capital. Furthermore, investments in properties operating in workout modes or under Chapter 11 of the United States Bankruptcy Code are, in certain circumstances, subject to certain additional potential liabilities that may exceed the value of the Fund’s original investment. In addition, under certain circumstances, payments to the Fund and distributions by the Fund to the Partners may be reclaimed if such payments or distributions are later determined to have been fraudulent conveyances or preferential payments. Numerous other risks also arise in the workout and bankruptcy contexts.

Third-Party Involvement. The Fund may co-invest with third parties through joint ventures or other entities. Such investments may involve risks not present in investments where a third party is not involved, including the possibility that a co-venturer or partner of the Fund may at any time have economic or business interests or goals that are inconsistent with those of the Fund, or may be in a position to take action contrary to the Fund’s investment objectives. As a result, the Fund may be unable to fully realize its expected return on any such investment. In addition, in certain circumstances the Fund may be liable for actions of its co-venturer or partners.

Lack of Limited Partner Control over Fund Policies. The management, financing, leasing and disposition policies of the Fund and its policies with respect to certain other activities, including its distributions and operating policies, are determined by the General Partner. To the extent permitted by the Partnership Agreement, these policies may be changed from time to time at the discretion of the General Partner without a vote of the Partners of the Fund, although the General Partner has no present intention to make any such changes. Any such changes could be detrimental to the Limited Partners’ interests in the Fund.

Absence of Recourse to General Partner. The Partnership Agreement includes exculpation and indemnification provisions that will limit the circumstances under which the General Partner can be held liable to the Fund. As a result, Partners may have a more limited right of action in certain cases than they would in the absence of such limitations.

Dependence on Key Personnel. The General Partner’s ability to successfully manage the Fund’s affairs currently depends on the Real Estate Principals. The General Partner will be relying extensively on the experience, relationships and expertise of the Real Estate Principals. There can be no assurance that these individuals will remain in the employ of the General Partner, or otherwise continue to be able to carry on their current duties throughout the term of the Fund, or that any replacements for them will perform as well. The Real Estate Principals may have substantial responsibilities outside the management of the Fund. However, they intend to devote a significant portion of their professional time to the Fund, and, in any event, they will devote at least as much time as is reasonably necessary to carry on the business and affairs of the Fund.

No Market for Interests in the Fund. Interests in the Fund will not be registered under the Securities Act or any other securities law and ordinarily will not be transferable. In addition, interests may not be sold, transferred (except to certain affiliates) or assigned without the prior written consent of the General Partner in its sole discretion. Such a sale, transfer or assignment also shall be subject to a right of first refusal, on the same economic terms, by the Fund or, if the Fund declines, by the General Partner. There is no market for interests in the Fund and none is expected to develop. Therefore, each prospective investor must consider its investment to be illiquid.

Projections; Opinions. Statements contained in this memorandum that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of the General Partner. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No assurance can be given that returns from the Fund will be equal or similar to those achieved or expected to be achieved by prior investments of PRES or by the Real Estate Principals, and no assurances can be given that actual results will achieve the Fund’s stated objectives.

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Diverse Limited Partners. The Limited Partners of the Fund may include persons, who may have conflicting investment, tax and other interests with respect to their investments in the Fund. The conflicting interests of individual Limited Partners may relate to or arise from, among other things, the nature of investments made by the Fund, the structuring of the acquisition of Fund investments and the timing of disposition of investments. Such structuring of Fund investments may result in different returns being realized by different Limited Partners. As a consequence, conflicts of interest may arise in connection with decisions to be made by the General Partner, including with respect to the nature or structuring of investments, that may be more beneficial for one investor than for another investor, especially with respect to investors’ individual tax situations. In selecting and structuring investments appropriate for the Fund, the General Partner will consider the investment and tax objectives of the Fund as a whole, not the investment, tax or other objectives of any Limited Partner individually.

Potential Conflicts of Interest

Client Relationships. PRES and its affiliates have existing and potential relationships with a significant number of corporations, institutions and individuals. In providing services to its clients and the Fund, PRES may face conflicts of interest with respect to activities recommended to or performed for such clients, on the one hand, and the Fund, the Limited Partners of the Fund or the entities in which the Fund invests, on the other hand. PRES also may face conflicts of interest in connection with any purchase or sale transactions (involving an investment by the Fund) with a PRES client, including with respect to the consideration offered by, and the obligations of, such PRES client. In determining whether to pursue a particular transaction on behalf of the Fund, these relationships could be considered by PRES, and there may be certain potential transactions which will not be pursued on behalf of the Fund in view of such relationships. As a result, there can be no assurance that all potentially suitable investment opportunities which come to the attention of PRES will be made available to the Fund. In addition, the Fund may co-invest with clients of PRES in particular investment opportunities and the relationship with such clients may influence the decisions made by the General Partner with respect to such investments.

Real Estate Activities. PRES often represents potential purchasers and sellers in real estate transactions. PRES will continue to accept such assignments after establishment of the Fund. In these cases, PRES’ client may seek to prohibit PRES and its affiliates (including the Fund) from making certain real estate investments. Accordingly, no assurances can be given that all potentially suitable investment opportunities will be made available to the Fund.

Material, Non-Public Information. As a result of the advisory activities of PRES, as well as investments made by PRES and its affiliates for their own accounts, PRES frequently comes into possession of confidential or material, non-public information. Disclosure of such information within PRES is on a need-to-know basis only. Therefore, the Fund may not have access to material, non-public information in the possession of PRES which might be relevant to an investment decision to be made by the Fund, and the Fund may initiate a transaction or sell an investment which, if such information had been known to it, may not have been undertaken.

In the event any material, non-public information is disclosed to any of the Real Estate Principals (including in their capacity as a member of a company’s board of directors), any member of the Investment Committee or any other person responsible for the affairs of the Fund, the Fund may be prohibited by applicable securities laws and PRES’ internal policies from acting upon any such information. Due to these restrictions, the Fund may not be able to make an investment that it otherwise might have made or sell an investment that it otherwise might have sold.

Fees for Services. From time to time, companies in which PRES owns an equity interest may be retained to provide services to the Fund or entities in which the Fund invests. In that event, PRES may indirectly receive financial benefits from such retention. Any such company will be

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retained only on the terms disclosed under the “Fees Payable to Third Parties” section in “Section VII – Summary of Terms.”

Transactions with Affiliates. Except as disclosed below, the Fund is prohibited from engaging in transactions with its affiliates including the purchase of investments from PRES or its affiliates, or involving the sale or disposition of investments to PRES or its affiliates, but may, subject to certain restrictions, co-invest with PRES and its affiliates. Except as otherwise disclosed below, any such transaction will be made only on terms, including the consideration to be paid, that are approved by the Investor Advisory Committee. Notwithstanding the foregoing, (a) the Fund may retain affiliates to provide services for the Fund upon the terms disclosed under the “Fees Payable to Third Parties” section on “Section VII – Summary of Terms”, and (b) with the approval of the Investor Advisory Committee, the Fund shall be entitled to take an assignment from PRES (and any affiliate of PRES) of its interest in any purchase agreement for the acquisition of any investment that the Fund would have been entitled to enter into a purchase agreement with the prospective seller thereunder directly.

From time to time PRES may provide financing or other forms of credit to a company or property in which the Fund invests. In such circumstances it is possible that PRES’ interests as a lender could be in conflict with those of the Fund as an equity holder of such company or property. In addition, the Fund may enter into transactions in which PRES or one of its affiliates serves as the counterparty or principal. The General Partner will approve such transactions only on terms that are approved by the Investor Advisory Committee.

The Fund may make a real estate investment in conjunction with an investment made by other PRES affiliates. When making such investments, the General Partner and the other PRES affiliates may have conflicting interests. For example, conflicts could arise where the Fund invests in debt instruments while an affiliate invests in equity securities. In addition, conflicts may arise in determining the amount of an investment, if any, to be allocated among potential investors and the respective terms thereof. There can be no assurance that the return on the Fund’s investment will be equivalent to or better than the returns obtained by the other affiliates participating in the transaction.

Further conflicts could arise once the Fund and other affiliates have made their respective investments. For example, if a company is unable to meet its payment obligations or comply with covenants relating to investments held by the Fund, such other affiliates may have an interest that conflicts with the interests of the Fund. If additional financing is necessary as a result of financial or other difficulties, it may not be in the best interests of the Fund to provide such additional financing. If the other affiliates were to lose their respective investments as a result of such difficulties, the ability of the General Partner to recommend actions in the best interests of the Fund might be impaired. The General Partner also may face conflicts of interest in connection with any purchase or sale transactions with affiliates, including with respect to the consideration offered and the obligations of such affiliates.

Finally, in the event the General Partner and/or management retains another real estate development, management, leasing or service company in which PRES owns an equity stake, PRES may indirectly receive financial benefits from such retention. The General Partner will retain any such third-party developer, leasing and/or manager only on terms believed by the General Partner to be fair and reasonable to the Fund.

Investments by PRES and Other PRES Partnerships. The Partnership Agreement is expected to provide that PRES may not make certain real estate related privately negotiated equity investments that are substantially similar to the types of investments to be made by the Fund outside of the Fund except in certain specified cases set forth in the Partnership Agreement. See “Section VII — Summary of Terms.” Conflicts may arise in determining whether these exceptions are applicable in particular circumstances.

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General Partner Profit Interest. Although the General Partner’s significant Capital Commitment is intended to minimize any such incentive, the existence of the General Partner’s participation in the Fund’s profit could create an incentive for the General Partner to make more speculative investments on behalf of the Fund than it would otherwise make in the absence of such performance-based compensation. In addition, the method of calculating the General Partner’s participation in the Fund’s profit may result in conflicts of interest between the General Partner and the Limited Partners with respect to the management and disposition of investments and the determination of the timing and amount of distributions by the Fund.

Management of the Fund. It is expected that the officers and employees of the General Partner will devote themselves to the Fund. However, the Real Estate Principals also may work on various projects for PRES or its affiliates, and conflicts of interest may arise in allocating time, services or functions of these officers and employees.

Determination of Reserves. The amount of net cash flow available for distribution to the Partners is subject to, among other things, the determination by the General Partner, in its sole and absolute discretion, of reserves for the Funds liabilities. Because these reserves may be applied to satisfy Fund obligations including, without limitation, fees and/or reimbursements to the General Partner and/or affiliates of the General Partner, the General Partner may elect to maintain higher reserves (as opposed to distributing net cash flow to the Partners) in order to ensure that the foregoing obligations will be satisfied. Any such increased reserves will reduce or defer any cash flow distributions that would otherwise be made to the Partners.

Compensation to the General Partner. The General Partner will receive substantial fees for services rendered to the Fund and the General Partner will also be entitled to be reimbursed for out-of-pocket expenses incurred in connection with the business or affairs of the Fund. These fees were not the result of arm’s length negotiations. Further, there is a conflict of interest with respect to the payment of the foregoing fees since the General Partner may be motivated to establish higher reserves than necessary in order to ensure that the foregoing fees will be paid. In addition, the General Partner may have incentives to cause the Fund to pay the foregoing fees to the General Partner to the detriment of other third-party creditors of the Fund. Any of the foregoing decisions may be detrimental to the Limited Partners and may reduce the return of or any return on the investments made by the Limited Partners pursuant to the offering.

Lack of Separate Representation. The General Partner and its affiliates (including, without limitation, PRES) have been represented by MBR&M in connection with the formation of the Fund, the drafting of the Partnership Agreement, the Subscription Agreement and this Confidential Private Offering Memorandum and other aspects of this transaction (the “Transaction”). Neither the Fund nor the Limited Partners have been (or will be) represented by MBR&M in connection with any aspect of the Transaction. It is also contemplated that MBR&M and other attorneys, accountants and consultants who have previously performed services for General Partner (and/or its affiliates) may in the future perform services for the Fund, the General Partner and/or their respective affiliates that are unrelated to this Confidential Private Offering Memorandum.

IX. CERTAIN TAX MATTERS

U.S. Federal Income Tax Considerations

General. The following description is a summary of certain U.S. federal income tax considerations of an investment in the Fund and does not address every potential tax consequence that may be applicable to investors subject to special rules, including tax-exempt investors. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable Treasury regulations, Internal Revenue Service (the “Service”) rulings and judicial decisions, as of the date of this memorandum. No assurance can be given that future

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legislative, regulatory or administrative changes or court decisions will not significantly modify the statements made herein. Any such changes or decisions may be retroactive and thereby be applied to transactions entered into prior to the date of their enactment or release. No assurance can be given that the Service will not challenge any of the positions taken by the Fund and that such challenge, if any, will not be successful.

Prospective investors that are exempt from federal income taxation (collectively, “Tax-Exempt Entities”) and other types of investors should consult with their own tax advisors regarding other U.S. federal, state and local tax effects of investing in the Fund. In particular, this memorandum does not address any alternative minimum tax effects of investing in the Fund or the limitations imposed by the Code on the ability of Partners to deduct net losses, if any, incurred by the Fund. Because the specific investments that may be made by the Fund have not yet been determined, no representation is made as to any tax benefits, including deductions or credits, being available as a result of an investment in the Fund. It is not expected that an investment in the Fund will reduce the cumulative tax liability of an investor with respect to any year. The Fund’s primary objective is to realize capital appreciation through the direct investment in real estate or through investments in real estate operating companies and partnerships, not to reduce the tax liabilities of the Partners.

Partnership Status of the Fund. The Fund has not sought a ruling from the Service that it will be treated for federal income tax purposes as a partnership rather than as an association taxable as a corporation. However, Section 7704 of the Code provides that a “publicly traded partnership” shall be treated as a corporation for federal income tax purposes unless such partnership has met and continues to meet certain requirements regarding the types of gross income received by such partnership. Section 7704 defines “publicly traded partnership” as any partnership if interests in such partnership are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof (any such partnership is referred to as a “Publicly Traded Partnership”). The General Partner has represented that it will not admit as a substitute Limited Partner any person whose admittance would cause the Fund to be treated as a publicly traded partnership.

If the Fund were classified as an association (or a publicly traded partnership) taxable as a corporation, the Fund would pay federal income tax at corporate rates on its net income, and distributions to the Partners in general would be dividends to the extent of the earnings and profits of the Fund, with distributions in excess thereof being treated first as a return of capital and thereafter as capital gain. Such tax would result in a reduction in the amount of cash available for distribution to Partners.

Taxation of Partners on Income of the Fund. Generally, partnerships are not subject to federal income tax. Instead, each partner includes such partner’s allocable share of the partnership’s items of taxable income, gains, losses, deductions and credits in determining its taxable income, whether or not cash is actually distributed to such partner. Consequently, a Partner may be allocated income from the Fund although he has not received a cash distribution from the Fund. The tax information returns filed by the Fund may be audited by the Service. Adjustments, if any, resulting from such an audit may require each Limited Partner to file an amended tax return and may possibly result in an audit of such return. Any audit of a Partner’s return could result in adjustments of non-Fund as well as Fund items.

Under Code Section 704(b), a partnership’s tax allocations generally will be respected for federal income tax purposes if they have “substantial economic effect” or they are in accordance with the partners’ interests in the partnership. If a partnership’s allocations do not comply with Code Section 704(b), the Service may reallocate partnership tax items in accordance with the interests of the partners in the partnership.

A Partner must treat Fund items in a manner consistent with the Fund’s treatment of those items, unless the Partner notifies the Service of the inconsistent treatment. Information necessary

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for the Partners to prepare their annual tax returns will be furnished by the Fund after the close of the Fund’s taxable year.

In addition, in the case of taxable Limited Partners that are individuals or certain types of corporations, the ability to utilize any tax losses generated by the Fund may be limited under the “at risk” limitations in Code Section 465, the passive activity loss limitations in Code Section 469 and other provisions of the Code. Furthermore, in the case of Limited Partners that are individuals, the ability to utilize certain specific items of deduction attributable to the investment activities of the Fund (as opposed to its activities that represent a trade or business for federal income tax purposes) may be limited, among other things, under the investment interest limitation in Code Section 163(d), and the 2% floor on miscellaneous itemized deductions (including investment expenses) in Code Section 67. The extent to which any of the foregoing provisions of the Code will be applicable will depend upon the nature of the Fund’s future operations and the tax situations of each of the taxable Limited Partners.

Fees to the General Partner and its Affiliates. As described elsewhere in this memorandum, the Fund will pay certain fees and expense reimbursements to the General Partner and its affiliates. The General Partner intends to cause the Fund to treat any fees, expense reimbursements and other items payable to the General Partner or its affiliates in the same manner as if such amounts were payable to unrelated parties. Such treatment may include currently deducting such amounts, or capitalizing and amortizing or depreciating such amounts.

There can be no assurance that the Service will not challenge the tax treatment of these items, possibly asserting that (a) all or a portion of certain fees and expenses are in fact compensation for other services, (b) such fees are not reasonable in amount or (c) such fees and expenses must be recovered, if at all, over a longer period of time. If such a challenge were successful, it could result in either (i) the deferral or disallowance of the deduction of the fees and expenses or (ii) the recharacterization of such fees and expenses as a nondeductible and unamortizable item, such as a syndication expense which must be capitalized. In such event, the net income (or net loss) allocated to the Limited Partners would be increased (or reduced).

Sale or Transfer of Limited Partner Interests. Upon a sale of a partner’s Fund interest, a Limited Partner will recognize gain or loss equal to the difference between (a) the proceeds of such sale plus such partner’s share of the Fund’s non-recourse liabilities and (b) such partner’s tax basis in such partner’s Fund interest. Such gain or loss recognized on a sale of a Fund interest by a Limited Partner, who does not hold such Fund interest as a “dealer” and who has held such Fund interest for more than 12 months will generally be long-term capital gain or loss, as the case may be, except that the portion of the selling Partner’s gain allocable to (or amount realized, in excess of basis, attributable to) “inventory items” and “unrealized receivables” of the Fund as defined in Code Section 751 will be treated as ordinary income.

Liquidation of the Fund. Upon liquidation of the Fund, its property will be distributed in kind or sold and any gain or loss on any such sales will be allocated in accordance with the Partnership Agreement.

In the event of the liquidation of the Fund, each taxable Limited Partner will recognize gain to the extent that the cash and marketable securities received in the liquidation exceed his adjusted basis for his Interest. See “Sale or Transfer of Limited Partner Interests” above.

Upon liquidation, a loss would be recognized only in the event the Limited Partner receives only cash, unrealized receivables (within the meaning of Section 751(c) of the Code) or inventory items (within the meaning of Section 751(d)(2) of the Code) and then only if (and to the extent that) the Limited Partner’s adjusted basis for his Interest exceeds the sum of money distributed and his share of the adjusted basis for unrealized receivables and inventory items. During the year of liquidation, each Limited Partner may be allocated income from the operations of the Fund.

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Investment by Non-U.S. Persons. The Fund has reserved the right to sell interests to non-U.S. corporations, trusts and estates and individuals who are neither citizens nor residents of the United States (“Foreign Investors”). In addition to the federal income tax consequences discussed below, Foreign Investors may also be required to file returns with and pay taxes to state or local taxing jurisdictions in connection with the holding or disposing of interests in the Fund. Each Foreign Investor is advised to consult its tax advisors regarding the U.S. tax effects of an investment in the Fund, including information return and reporting requirements, the possible applicability of tax treaties and other matters. A Foreign Investor should also consult its tax advisors regarding the non-U.S. consequences of investing in the Fund.

Taxation of Effectively Connected Income. The Fund generally will be treated for U.S. tax purposes as being engaged in the conduct of a U.S. trade or business. Foreign Investors will therefore generally be treated as being engaged in the conduct of a U.S. trade or business. Thus, each such Foreign Investor will be subject to U.S. federal income taxation, at graduated rates, on its distributive share of the Fund’s income, gain or loss (whether ordinary or capital) that is effectively connected with the conduct of the Fund’s U.S. trade or business (“ECI”).

In addition to the regular income tax that must be paid by a foreign corporation on its ECI, the Code provides for a 30 percent “branch profits” tax. This tax is imposed on the deemed distributed earnings and profits of a foreign corporation that is attributable to ECI, modified for increases or decreases in the U.S. net equity of the foreign corporation. A Foreign Investor that is a foreign corporation would be subject to the branch profits tax, to the extent that such Foreign Investor’s distributive share of the Fund’s income or gain is taken into account under applicable Treasury regulations in computing such Foreign Investor’s effectively connected earnings and profits. Certain income tax treaties may reduce or eliminate the branch profits tax; however, under certain circumstances, the branch profits tax may override income tax treaty benefits.

Withholding on ECI. ECI earned by the Fund is subject to withholding under Code Sections 1445 and 1446. Any amounts properly withheld under Code Section 1445 or 1446 generally can be applied as a credit against the U.S. federal income tax liability of a Foreign Investor and can be recovered as a refund in the event of overpayment.

Under Code Section 1445, 35 percent (or, to the extent provided in Treasury regulations, 20 percent) of the gain recognized from the disposition by the Fund of a United States real property interest and allocable to a Foreign Investor must be withheld and remitted to the IRS. Alternatively, the Fund may elect under certain circumstances to withhold the tax from the cash distributions made to Foreign Investors subsequent to such a disposition.

Under Code Section 1446, the Fund is required to make periodic installment payments to the IRS of withholding tax based on the amount of its Foreign Investors’ allocable share of ECI. The applicable rate for calculating such withholding tax is the highest corporate or individual rate, whichever is applicable. Withholding is not required under Code Section 1445 to the extent the Fund withholds as required under Code Section 1446.

Taxation of Non-ECI. If the Fund earns certain types of periodic income from United States sources (e.g., dividends or interest) which are not ECI, each Foreign Investor will be subject to a flat 30 percent withholding tax on its allocable share of the gross amount of such income. This 30 percent tax is sometimes reduced or eliminated by income tax treaty, provided that proper certification is supplied when necessary. This tax is collected through withholding by the Fund. To secure exemption from 30 percent withholding on gross income that is ECI, each Foreign Investor must properly complete and file in duplicate with the Fund IRS Form 4224 (“Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a U.S. Trade or Business”) or IRS Form W-8ECI. These forms should be filed by each Foreign Investor at the time such Foreign Investor acquires an interest in the Fund, and annually thereafter. Under applicable Treasury regulations, Foreign Investors generally have to provide the IRS Form W-8ECI in lieu of Form 4224 beginning January 1, 2000, and every three years thereafter unless the

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information on the form changes before that date. A Form 4224 existing on January 1, 2000, will continue to be effective until December 31, 2000. The United States will not tax Foreign Investors on foreign source income that is not ECI.

Filing and Reporting Requirements. A Foreign Investor will be required to file federal income tax returns with respect to its ECI, even if the Fund withholds taxes under Sections 1445 and 1446. A Foreign Investor will not be required to file a return showing amounts of non-ECI subject to the 30 percent withholding tax. In addition to filing an annual income tax return, Foreign Investors may be required to comply with certain reporting requirements under applicable Treasury regulations.

Disposition of Partnership Interests. A Foreign Investor that disposes of its interest in the Fund, by sale or otherwise, may be subject to U.S. federal income taxation on such disposition. A transferee of an interest in the Fund may be required to deduct and withhold a tax equal to 10 percent of the gross amount realized on such disposition. Any amount so withheld can be applied as a credit against the U.S. federal income tax liability of the Foreign Investor and can be recovered as a refund in the event of overpayment.

FIRPTA. The Foreign Investment in Real Property Tax Act of 1980, as amended (“FIRPTA”), imposes a tax on gain realized on disposition by a foreign person of a “United States real property interest” (“USRPI”) by treating such gain as ECI, generally giving rise to the tax consequences described above. A USRPI generally includes both a direct investment in real estate and an investment in a real estate operating company if such corporation is a “United States real property holding company” (“USRPHC”). A USRPHC generally includes any domestic corporation in which the fair market value of its USRPI represents one-half or more of the aggregate fair market value of its business assets and real property assets at any time during the preceding five years (or shorter period during which the Fund has held an interest in the corporation). A USRPI held by a partnership is deemed to be owned proportionately by its partners. A partnership interest in certain circumstances can itself be deemed a USRPI for purposes of computing the withholding of proceeds from a sale of such interest.

Special FIRPTA rules apply to any Fund investment in a REIT. Specifically, (i) a distribution by a REIT attributable to gain from the disposition of a USRPI will be treated under FIRPTA as ECI (giving rise to the consequences described above for ECI); (ii) any other dividend distribution by a REIT will be subject to withholding in the manner described above applicable to dividends generally; and (iii) a Foreign Investor will not be taxable on any gain from the disposition of a Fund investment in a REIT, provided that the REIT is “domestically controlled,” i.e., less than 50% of its stock is held (directly or indirectly) by foreign shareholders. Foreign Investors should be aware, however, that there is no assurance that the Fund will be able to dispose of an investment in a domestically controlled REIT by selling its stock of such REIT (as opposed to causing the REIT to sell its assets).

Debt Investments. With respect to any investments in indebtedness that do not constitute inventory property and are not otherwise considered to produce ECI, withholding tax will be imposed on a Foreign Investor’s allocable share of interest income at the statutory rate of 30%, subject to reduction or elimination pursuant to any applicable income tax treaty, and subject also to the “portfolio interest” exemption under the Code. In order to avoid the imposition of withholding tax upon interest income otherwise qualifying for the “portfolio interest” exemption under the Code, a Foreign Investor will have to comply with applicable requirements as to certification of its foreign status.

FOREIGN INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP.

Foreign Taxes. The Fund may be subject to foreign income tax with respect to its business and operations. In addition, dividends, interest and other income received by the Fund 34

from sources within foreign countries may be subject to withholding taxes or other taxes imposed by such countries. Tax treaties may reduce or eliminate the amount of such taxes. It is impossible to predict the rate of foreign tax the Fund will pay because the precise amount of the Fund’s assets to be invested in various countries is not yet known. In some cases it is possible that Partners could have to file tax returns reporting income earned in a particular country or may have to file a refund claim if taxes are withheld by a country. However, the Fund will attempt to structure its business and operations in a manner that minimizes the tax burden with respect to its investment in a particular country, to the extent reasonably practicable.

Any foreign taxes paid or withheld on a U.S. Partner’s allocable share of the Fund’s income may, subject to various conditions and limitations, be eligible for deduction or credit against the U.S. Partner’s U.S. federal income tax liability. U.S. Partners will be informed by the Fund as to their proportionate share of the foreign taxes paid by the Fund. Because of these limitations, U.S. Partners may be unable to claim a credit for the full amount of their proportionate share of the foreign taxes paid by the Fund. If a U.S. Partner elects to credit foreign taxes, the amount of credit that may be claimed in any year may not exceed the amount of U.S. federal income taxes that the U.S. Partner would otherwise pay with respect to its taxable income from foreign sources. This limitation is applied separately to certain categories of income (called “baskets”), including passive, high withholding tax interest and financial services, among others, and the related foreign taxes that are attributable to the income falling within such income baskets. The characterization of income into a specific basket depends on the nature of the activities to which such income is attributable and the identity of the U.S. taxpayer. Thus, each U.S. Partner should consult its tax advisor with respect to the application of the foreign tax credit to its allocable share of the Fund’s income. A U.S. Partner that is tax-exempt will not ordinarily benefit from such credit or deduction unless such credit or deduction is generated from income subject to unrelated business income taxation for U.S. federal income tax purposes.

Tax Treatment of U.S. Partners with respect to Foreign Corporations

Controlled Foreign Corporations. If a United States Person, including the Fund, owns actually or constructively at least 10% of the voting stock of a foreign corporation, such United States Person is considered a “United States Shareholder” with respect to the foreign corporation. For the purposes of this discussion, a “United States Person” is a United States citizen, resident of the United States, a corporation, partnership or other entity created or organized in the United States or under the law of the United States or any political subdivision thereof, an estate the income of which is subject to U.S. federal income taxation regardless of its source or a trust (i) which is subject to the supervision of a court within the United States and the control of one or more United States persons as described in Section 7701(a)(30) of the Code or (ii) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. If United States Shareholders in the aggregate own more than 50% of the voting power or value of the stock of such corporation, the foreign corporation will be classified as a “controlled foreign corporation” (a “CFC”). If the corporation qualified as a CFC for an uninterrupted period of 30 days or more during the taxable year, the United States Shareholders of the CFC would generally be subject to current United States tax on certain types of income of the foreign corporation (e.g., dividends, interest, certain rents and royalties, gain from the sale of property producing such income, certain income from sales and services) and, in certain circumstances, on earnings of the CFC that are invested in United States property, regardless of cash distributions from the company. In addition, gain on the sale of the CFC’s stock by a United States Shareholder (during the period that the corporation is a CFC and thereafter for a five-year period) would be classified in whole or in part as ordinary income.

Foreign Personal Holding Companies. If five or fewer of United States individuals own, or are treated as owning under certain attribution rules, in the aggregate more than 50% of the voting power or value of the stock of a foreign corporation and at least 60% (50% in certain circumstances) of the “gross income” of such corporation is made up of certain passive type income (e.g., dividends, interest, certain rents and royalties and gain from the sale of stock or

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securities) for a taxable year, then such corporation will be treated as a “foreign personal holding company” (an “FPHC”). Foreign corporations owned by the Fund may meet the stock ownership portion of the FPHC test. If a foreign corporation qualifies as an FPHC, all United States Persons that own shares in the FPHC (regardless of the size of their shareholding and regardless of whether they are individuals) would generally be subject to current United States tax on their share of the FPHC’s undistributed foreign personal holding company income (“FPHCI”) for the taxable year or part thereof. FPHCI is, broadly, taxable income with certain adjustments. In addition, United States Persons that are required under these rules to include undistributed taxable income for a taxable year and that own at least 5% of the value of the FPHC’s shares are required to comply with certain reporting requirements under the Code. It is possible that a company in which the Fund invests will be treated as an FPHC.

Passive Foreign Investment Companies: United States tax law contains special provisions dealing with “passive foreign investment companies” (“PFICs”). A PFIC is defined as any foreign corporation in which either (i) 75% or more of its gross income for the taxable year is “passive income” or (ii) 50% or more of its assets (by value) produce “passive income.” There are no minimum stock ownership requirements for PFICs. Once a corporation qualifies as a PFIC with respect to a United States shareholder, it is, subject to certain exceptions, always treated as a PFIC with respect to such shareholder, regardless of whether it satisfies either of the qualification tests in subsequent years. If the Fund were to invest in a PFIC, any gain on disposition of stock of the PFIC as well as income realized on certain “excess distributions” by the PFIC, would be treated as though realized ratably over the shorter of a Limited Partner’s holding period of its partnership interest or the Fund’s holding period for the PFIC. Such gain or income would be taxed as ordinary income. In addition, an interest charge would be imposed on the Partner based on the tax deferred from prior years. If the Fund were to invest in a PFIC and the Fund elected to treat its interest in the PFIC as a “qualified electing fund” (a “QEF”) under the Code, in lieu of the foregoing treatment, such partner would be required to include in income each year a portion of the ordinary earnings and net capital gains of the qualified fund, even if not distributed to the Fund or the Partners. In order to make such election, among other things, the Service would have to be supplied with an information statement provided by the PFIC. Alternatively, an election may be made in the case of certain “marketable stock” to “mark to market” the stock of a PFIC on an annual basis. Pursuant to such an election, a United States Partner would include in each year as ordinary income the excess, if any, of the fair market value of such stock over its adjusted basis at the end of the taxable year. There can be no assurance that a company in which the Fund invests will not qualify as a PFIC or that a PFIC in which the Fund does invest will provide the information necessary for a QEF election to be made.

Possible Legislative or Other Actions Affecting Tax Aspects. Prospective investors should recognize that the present federal income tax treatment of investment in the Fund may be modified by legislative, judicial or administrative action at any time and that any such action may affect investments and commitments previously made. The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the Service and the Treasury Department, resulting in revisions of regulations and revised interpretations of established concepts as well as statutory changes. Revisions in federal tax laws and interpretations thereof could adversely affect the tax aspects of investment in the Fund.

State and Local Tax Consequences. Prospective investors should consider the state and local tax consequences of an investment in the Fund. The Fund or the Limited Partners, or both, may be subject to state and local taxes or filing requirements in various jurisdictions, including not only the states in which they are deemed to reside, but also the states in which the Fund may be deemed to be doing business and/or in which the properties underlying the Fund’s investments are situated. Such taxes may include (but are not limited to) real property and income taxes. In light of the foregoing, each investor is urged to consult with its own tax advisors regarding the state and local tax consequences of an investment in the Fund.

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Securities Law Matters

The limited partnership interests described herein are not registered under the Securities Act, in reliance upon the exemption for transactions not involving a public offering. Investors will be required to make certain representations to the Fund, including that they are “accredited investors” (as defined in Regulation D under the Securities Act) and are acquiring an interest in the Fund for their own account, for investment purposes only and not with a view to its distribution.

Investment Company Act of 1940

The Fund will not be subject to regulation under the Investment Company Act, because the outstanding securities of the Fund will be beneficially owned either by not more than 100 persons or exclusively by persons who are “qualified purchasers” (as defined by the Investment Company Act). All investors will be required to make certain representations as to their status as “qualified purchasers” under the Investment Company Act.

Investment Advisers Act of 1940

The General Partner is not expected to register as an investment advisor under the Investment Advisers Act of 1940, as amended. If the General Partner does so register, it may in its discretion seek the approval of the Investor Advisory Committee or the Limited Partners in connection with approvals required under the Investment Advisers Act of 1940, as amended, including Section 206(3) thereunder, or otherwise. The approval of Limited Partners may be sought from Limited Partners having a majority of the aggregate Limited Partner commitments, or from those having a majority of the capital invested in a particular investment. Any such approval of the Investor Advisory Committee or the Limited Partners will be binding upon the Fund and each Limited Partner.

Non-United States Securities Law Matters

Offers and sales of limited partnership interests in the Fund will not be registered under the laws of any jurisdiction. Neither the securities commission of any non-United States jurisdiction nor any other agency has reviewed or passed upon the merits of this offering.

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X. INDEX OF DEFINED TERMS

Term Page

Acquisition/Disposition Fees.....................................................................................19-20 Administrative Expenses ............................................................................................... 20 Capital Commitments ...................................................................................................... 5 Capital Contribution ....................................................................................................... 17 CFC ............................................................................................................................... 35 Closing ............................................................................................................................ 5 Closing Date.................................................................................................................... 6 Code.............................................................................................................................. 30 Commitment Period.......................................................................................................17 Competing Entity ........................................................................................................... 22 Defaulting Partner.......................................................................................................... 23 ECI ................................................................................................................................ 33 FIRPTA.......................................................................................................................... 34 Foreign Investors........................................................................................................... 33 FPHC............................................................................................................................. 36 FPHCI............................................................................................................................ 36 Fund ............................................................................................................... Introduction Fund Management Fee ................................................................................................. 19 General Partner .............................................................................................. Introduction Indemnitee.....................................................................................................................24 Investment Committee................................................................................................... 15 Investment Company Act ............................................................................... Introduction Investor Advisory Committee......................................................................................... 15 IRR ................................................................................................................................ 13 Limited Partners ............................................................................................................ 16 MBR&M ......................................................................................................................... 25 Operating Expenses ...................................................................................................... 20 Organizational Expenses............................................................................................... 20 Partners......................................................................................................................... 16 Partnership Agreement................................................................................... Introduction PFICs ............................................................................................................................ 36 Preferred Return.............................................................................................................. 5 PRES............................................................................................................................... 1 Publicly Traded Partnership........................................................................................... 31 QEF ............................................................................................................................... 36 Real Estate Principals ................................................................................................... 15 Reinvestment Period ..................................................................................................... 18 Securities Act.................................................................................................. Introduction Service .......................................................................................................................... 30 Tax-Exempt Entities ...................................................................................................... 31 Transaction....................................................................................................................30

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United States Person..................................................................................................... 35 United States Shareholder ............................................................................................ 35 USRPHC ....................................................................................................................... 34 USRPI ........................................................................................................................... 34

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ADDITIONAL INFORMATION

This memorandum is intended to present a general outline of the policies and structure of the Fund and the General Partner. The Partnership Agreement and the Subscription Agreement, which specify the rights and obligations of the Partners, should be reviewed thoroughly by each prospective Limited Partner. The section hereof entitled “Summary of Terms,” which contains a summary of certain provisions of the Partnership Agreement, is necessarily incomplete and is qualified by reference to the Partnership Agreement. Copies of the Subscription Agreement and the Partnership Agreement will be made available upon request and should be reviewed prior to purchasing an interest in the Fund. The General Partner will be available to answer questions regarding the terms and conditions of this offering and to provide additional information that may be requested by prospective investors.

AARON A RIOS SENIOR VICE PRESIDENT, INVESTOR SERVICES

THE PRES COMPANIES 1201 DOVE STREET, SUITE 100

NEWPORT BEACH, CALIFORNIA 92660

(949) 261-7737, EXTENSION 224 FAX: (949) 442-1925