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Home My WebLink About2010 07 28 Regular 600 Cornerstone Patriot Fund PresentationDate: July 28, 2010 The following presentation was provided to the Board of Trustees on the July 28, 2010 Cornerstone Patriot Fund. 0 CORNERSTONE mz Cornerstone Patriot Fund Presented to: City of Winter Springs General Employees' Retirement Trust Fund July 2s, 20 1 0 Table of Contents Section Cornerstone Overview Section II Current Market Overview Section III Cornerstone Patriot Fund Summary Section IV Appendix L■ CORNERSTONE nnainaanp OUOISAauao' HNoisxHNNOD Cornerstone Overview Stable Cornerstone committed to maintain strong professional staff and to grow investment and lending services MassMutual provides added financial strength Strategic Research and experience combine to produce focused investment and lending decisions ■ Tested Experienced real estate professionals have managed through up and down cycles L■ CORNERSTONE Cornerstone Overview Broad real estate investment capabilities Open -end Fund Closed -end Fund Separately Managed Acct's L■ CORNERSTONE ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ Multifamily Office Retail Warehouse, R &D Hotels Affordable Housing Property Index Certificates (PICs) 4 Cornerstone Overview Distinctive Research Proprietary research model directs strategy, tactics, underwriting Regional Office Structure Enhances execution through local market knowledge; ability to respond quickly and strong local relationships Client Focus Proactive and flexible in meeting client needs Performance Record of exceeding industry benchmarks L■ CORNERSTONE Cornerstone Overview Cornerstone assets under management: $31 billion of private and public real estate interests as of March 31, 2010* MassMutual FINANCIAL GR0UP` Babson 1 Capital -f 11 ENT LL Absolute return & alternative strategies, structured products $129 billion AUM as of 3/31/10 I Baring Asset Management Global equity, fixed income & multi -asset investment management $46 billion AUM as of 3/31/10 OppenheimerFundS The Right Way to Invest Mutual fund management $173 billion AUM as of 3/31/10 LO CORNERSTONE Real estate investment management and financing $31 billion AUM as of 3/31/10' Cornerstone Real Estate Advisers Cornerstone Real Estate Advisers Europe LLP Cornerstone Real Estate Advisers Europe Securities B.V. Cornerstone Real Estate Advisers Europe Finance LLP Asia Limited (Amsterdam) (Hong Kong) *Cornerstone and its subsidiaries manage or service approximately $31 billion of real estate equity and debt in private and public markets. This total comprises assets of Cornerstone Real Estate Advisers ($29 billion) and its U.K. subsidiary Cornerstone Europe f /k /a Protege Real Estate Investors LLP ($2 billion). Cornerstone has additional capital committed to development projects in process (forward commitments) and holds an additional $.1 billion in foreclosed assets held- for -sale. Cornerstone Real Estate Advisers LLC is currently undergoing a corporate restructuring whereby Cornerstone will assume the personnel and assets of Babson Capital Management LLC's Real Estate Finance Group. Cornerstone acquired Cornerstone Europe during 1Q10. 'Assets include Babson Capital Management LLC and its subsidiaries Babson Capital Europe Limited and Cornerstone Real Estate Advisers, which became a subsidiary of Babson Capital Management LLC on February 8, 2010. 1 CORNERSTONE Cornerstone Overview Cornerstone Equity Real Estate Investment Committee Mark Higgins David Reilly Thomas Dudeck Robert Little Anthony Pierson Andrew Williams Steven Wallace Mike Zammitti John Kennedy Michael Gately Graham Bond Brian Murdy Robert Staley L■ CORNERSTONE Cornerz Chief Investment Officer - Equity 14 President & CEO 15 Chief of Investment Strategy 12 Chief Investment Officer - Finance 22 Managing Director - Portfolio Management 6 Executive Vice President - Hotel 16 Managing Director - Central Region 16 Managing Director - Eastern Region 15 Managing Director -Western Region 9 Managing Director - Research 16 Managing Director - Business Development 3 Portfolio Manager 11 Vice President - Business Development 11 31 37 28 23 28 26 31 22 20 26 38 25 31 7 Cornerstone Overview r� -�_ -� All! -- �� i-- - - -- ^-- ----- - -i - - -- - - - -� �-- �-- �- �� - --� -- L■ CO RNERSTONE s Cornerstone Overview Cornerstone research difference Research drives Cornerstone's strategic and tactical decisions Investments Lending Public (REIT) and private real estate research integrated Cornerstone's granular analysis is more localized than typical Live access to data and forecasts throughout Cornerstone via the Research Analyst platform L■ CORNERSTONE Top Down W r21 ILA K- 01 Bottom Up Research Research defines two key investment strategies Barrier markets have historically performed best over time Physical, financial or regulatory barriers to new development tend to reduce risk of over - supply NCREIF returns confirm historical superior performance of barrier markets Research -based rotational investing provides opportunity to enhance returns Property types and local real estate markets are cyclical Rotating into and out of markets, property sectors, and asset lifecycles on a timely basis provides opportunity to enhance returns L■ CORNERSTONE Barrier Market Performance Barrier markets generate alpha Annual returns on barrier markets compared with NPI (all property sectors) 30% 20% 10% 0% -10% -20% 1500 1000 500 0 -500 -1000 rn c+ c+ rn rn rn rn rn rn rn c+ rn rn rn rn rn rn rn � rn rn rn o 0 0 0 0 0 0 0 0 0 Barrier Returns (L) D NP I Returns (L) Spread (R) - - - - Average S pread Source: NCREIF, Cornerstone 01 -31 -2010 Barrier Markets- markets with above - average physical, political or economic constraints on new development, when coupled with strong demand have historically generated above - average real rent growth. L■ CO RNERSTONE lff 222 basis points average spread over NCREIF z MOIAAanp la3iaew jua un� HNOIS- dHNNOD Property Prices are Likely Close to the Bottom Property Valuations and Prices Down Sharply from Peak But Improving 2.3 2.0 1.8 u N O O R 1.5 N c 1.3 IW 0.8 *Denotes equally weighted cash flow based NCREIF appreciation return component. Notes: NCREIF and TBI are quarterly indices through 1Q10. Moody's /REAL is a monthly index through May 2010. Sources: Cornerstone Research based on data from NCREIF, MIT Center for Real Estate and Moody's Investors Service. L CORNERSTONE Since peaking in 2007, the broad - based, monthly Commercial Property Price Index (CPPI) produced by Moody's and REAL Indices, and derived from Real Capital Analytics database covering transactions of $5m or greater, was down approximately 45% through October 2009. After 13 months of steady decline the CPPI increased for three consecutive months, rising more than 6% from November to January, before falling 2.6% in February and 0.5% in March. The index then rose 1.7% in April and 3.6% in May. Prices are up 8.6% from their Oct.'09 low and are now 38.9% below their Oct.'07 peak. The more narrowly focused TBI, derived from sales of properties from the NCREIF Property Index (NPI), indicates that institutional property prices fell back to early 2005 levels in 2Q09 and prices may have started the bottoming process in the second quarter, as the index moved up 4% in 3009. The index then fell 4.9% in 4009 and 2.4% in 1 Q10 suggesting a bouncing along the bottom. The downward movement of the capital component of appraisal -based NPI kept pace with the transaction -based indices in late 2008 and early 2009; appraisers wrote down property values rapidly, unlike in the early 1990s. The rate of value decline began to slow considerably in the second half of last year and continued to move towards positive territory in 1Q10. a] 2002 2003 2004 2005 2006 2007 2008 2009 2010 A Transition Year for Job Growth Forecast Employment Recovery in Selected Markets (annual % change, 2010 & 2011 forecasts) U.S. Orlando Raleigh Dallas Austin Denver Portland Orange County Riverside Minneapolis Chicago Los Angeles San Francisco Oakland Philadelphia Boston Sacramento Washington, DC Atlanta 132011 ❑ 2010 -0.8 %: 1.6% I I ' I -3 -2 -1 0 1 2 3 Source: Economy.com, Cornerstone Research 5 -11 -2010 L■ CORNERSTONE • U.S. employment is forecast to begin posting modest gains in 2010Q3, with steady improvement evident in 2011. • Tech markets Raleigh, Dallas, Denver and Portland will lead; Southern California should add jobs at a steady pace by 2011. • "Mature" Northeast economies Boston and Philadelphia are expected to grow above their long -term trend rates. • Bay Area markets may present upside risk to the forecast and outperform expectations. • Sacramento and Atlanta are particularly hard hit housing markets and have muted recovery expectations. • Washington D.C. is expected expand near its long term trend next year. 14 Supply Growth Drops to Historic Lows Lack of excess supply growth nationally- but some submarkets face supply challenges 10% 8% 6% 4% 2% 0% -2% 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Office Industrial Apartments Retail Hotels Source: Cornerstone, Dodge, CBRE -EA Summer 2070 Outlook ■ Supply growth was modest prior to the current recession, suggesting a quicker rebound in fundamentals once job growth recovers ■ The 1980's witnessed a "supply shock" with 3% to 10% annual growth in inventory among the various property sectors, well ahead of demand fundamentals • Supply growth crested near 3% in every property sector before the 2001 recession • The lack of construction financing is quickly closing the supply spigot, which has fallen to record low levels below 1% annual growth • Given the long lead times required for development, restricted financing, and tighter underwriting standards, supply activity is forecast to remain subdued for several years ■ Supply does however still pose local challenges i.e. office in Bellevue and Buckhead, South Florida condos, Manhattan hotels, Jacksonville warehouse L■ CORNERSTONE 1 15 Property Sector Outlook Early improvement in apartments and hotels, industrial stabilizing, office lags Multifamily: 6.0% vacancy in 2010Q2 (long run average 5 %) ♦ Vacancy declines 140bps in Q2, with concessions waning and rent gains in some barrier markets ♦ January -May improvement was stronger than expected, but improvement slowed in June ♦ Investor appetite for the sector remains high with aggressive pricing Office: 16.7% vacancy in 2010Q2 (long run average 14.6 %) ♦ Total vacancy up 10 bps from 2010Q1, tenth consecutive quarterly increase ♦ Vacancies are expected to rise at a slower pace through 2010 and crest nationally in 2011 ♦ Sublease space and continued office job losses challenge leasing environment Hotels: May year -to -date total hotel occupancy 54.7% versus 52.6% one year ago ♦ First quarter shows improving demand, but pricing power remains weak ♦ Upper Upscale sector y -t -d occupancy 66.5 %, up 4.7% from 2009 as business confidence improves ♦ National occupancy will show improvement in 2010 and rates should follow in 2011 Industrial: 14.1 %vacancy in 2010Q2 (long run average 9.7 %) ♦ Availability is peaking as negative absorption slows ♦ Supply pipeline is closed ♦ Market will stabilize later this year with recovery in manufacturing, consumer spending and trade flows Retail: Stabilizing but challenged ♦ Neighborhood /Community Center vacancy increases 10bps to 13.2% in 2010Q2 ♦ Neighborhood grocer- anchored holding up reasonably well, and investor appetite is high ♦ Big box and power centers face oversupply and will lag recovery as retail chains remain stressed ♦ Consumer spending slows in Q2 with slowerjob growth and volatile consumer sentiment IM CORNERSTONE I&I Cornerstone Patriot Fund Summary The information herein does not constitute an offer, or solicitation of an offer for the purchase or sale of any security, which can be made only in a formal Confidential Private Placement Memorandum. Investment in the Cornerstone Patriot Fund ( "Patriot Fund ") involves certain risks, including those associated with real estate investing generally, such as liquidity, diversification, taxation, leverage, and other risks as disclosed in the Confidential Private Placement Memorandum. The Confidential Private Offering Memorandum should be requested and carefully reviewed by persons interested in investing in the Patriot Fund as it is the sole document on which a potential investor is entitled to rely in evaluating such an investment. All security transactions involve risk of loss. The Patriot Fund is distributed by Babson Capital Securities Inc, an affiliated broker - dealer and member, FINRA. L CORNERSTONE Cornerstone Patriot Fund Summary r a 1 :^ i Properties from top left to right: The Atrium, Irvine, CA; Regatta Apartments, Norristown, PA; Hermitage Apartments, Fairfax, VA; Hamilton Crowne Plaza Hotel, Washington, DC; Renaissance Creek, Roseville, CA; Promenade at Town Center, Valencia, CA; The Ridge, Waltham, MA; Chevy Chase Plaza, Washington, DC; Crossroads Distribution Center, Duluth, Georgia L■ CORNERSTONE 18 Cornerstone Patriot Fund at a Glance Open -end fund structured as Private REIT /Operating Partnership Seeded by MassMutual Goal is to reduce to 15% of NAV Research - driven strategy Core, barrier market focus Tactical value -added component Diversified by property type and geography Quarterly valuation of all Portfolio Assets and Liabilities Quarterly cash flow distributions, contributions and redemptions L■ CORNERSTONE Cornerstone Patriot Fund at a Glance June 30, 2010 Total Assets Net Assets Equity Available for Investment' Number of Investments Number of Markets Number of Investors Core Leased (excluding Hotel) Overall leased (including Hotel) Cash -to -Total Assets Leverage Ratio (mv debt /total assets) Exit Queue $1.0 billion $0.8 billion $55 million 28 16 9 91% 78% 2.8% 19.6% $0 'Excludes cash reserved for upcoming acquisition, and includes net investor contributions as of July 1, 2010 'Excludes restricted and cash reserved for payment obligations L■ CORNERSTONE 20 Cornerstone Patriot Fund Summary of Terms The Patriot Fund is managed with Cornerstone's belief that through the application of our research findings along with active asset management, a return premium can be achieved. The investment style incorporates targeting core investments primarily in "Barrier Markets', with investment in "Growth Markets" at certain times in the cycle. Commingled, open -end real estate fund structured as a Limited Partnership with a private REIT subsidiary • . - Achieve a long -term 5% real rate of return (gross of fees) and meet or exceed NFI -ODCE No stated maximum, with $1 million minimum that can be reduced at discretion of Manager .. . Target a diversified portfolio with: Apts (20 -40 %); Off (24 -45 %); Ret (15 -35 %); Ind (10 -25 %); Hotel (0 -15 %) .. .. Target a diversified portfolio with no MSA exceeding 25% based on gross assets .. Strategic value -added investments up to 20% of gross assets . - Maximum fund -level leverage of 30 of gross assets Up to 20% of gross assets Tiered fee structure based on net asset value (less excess cash) with 1.15% of first $15 million, 1.00% on next $10 million, 0.90% on next $50 million, and 0.80% above $75 million. Fee above $100 million negotiable - 0.15% on cash in excess of 5% of gross assets This information herein does not constitute the offer of or the solicitation of an offer for the purchase or sale of any security, which canon I y be made through a formal Confidential Private Offering Memorandum. The confidential Private Offering Memorandum contains information as to certain risks, and supersedes the information contained herein. Investors should consult the Private Offering Memorandum for a full discussion. L■ CORNERSTONE 21 Cornerstone Patriot Fund Investment Process Portfolio Manager and Cornerstone Research Define Strategy and Target Markets Regional Acquisition Teams Source and Negotiate Transactions Potential Investments Allocated Investment presented to Portfolio Manager & Investment Committee Bids made on Approved Investments Due Diligence Portfolio Manager & Investment Committee Conduct Final Review IM CORNERSTONE Valuation Policy All valuations, internal and external, reviewed quarterly by PricewaterhouseCoopers (PwC) and Chief Appraiser (an MAI) Quarterly valuation of all portfolio assets and liabilities (debt) Annual external property appraisals, staggered rotation Internal valuations on the off - quarters by our regional offices ■ PwC may prepare a restricted appraisal or engage an outside appraiser if internal appraisals can not be reconciled ■ Valuation Committee reviews appraisals quarterly ■ Chief Appraiser certifies final values IM CORNERSTONE Cornerstone Patriot Fund Portfolio Team L■ CORNERSTONE 24 Steve John Drew Michael Tyler Brown Mike Zammitti Wallace Kenned y Williams Jerry Speltz Gately CJ Karbowicz Chief Eastern Central Western Hotel portfolio Research Le al /Risk g Appraiser Region Region Region Group Engineering Group Management L■ CORNERSTONE 24 Cornerstone Patriot Fund Returns June 30, 2010 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% ■ Net ❑ Gross ■ NCREIF NFI -ODCE EQ WGT Preliminary' ■ NCREIF NFI -ODCE Preliminary' The NFI -ODCE is the National Council of Real Estate Fiduciaries NCREIF Fund Index — Open -End Diversified Core Equity. The NFI -ODCE (NFI) is a gross, fund -level capitalization weighted, time - weighted return index (16 funds currently) and includes property investments at ownership share, cash balances and leverage. All returns are annualized. There can be no assurance that this objective will be achieved. The NFI -ODCE Equal Weight (NFI- EQWGT) time weighted return index does not differentiate by amount of capital invested. Return objectives are based on Core strategy. Investors should consult the Confidential Private Offering Memorandum for full discussion. L■ CORNERSTONE 25 1 Year 3 -Year 5 -Year Since Inception (July 1, 2004) Cornerstone Patriot Fund Cash Flow Distributions June 30, 2010 $50 $45 $40 $35 $30 $25 millORS $15 $10 $5 $0 4.3% 4Q Ending Incept. /Avg. 2Q10 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Amount --m—Return Past performance is not indicative of future results. There can be no assurance that a portfolio managed by Cornerstone Real Estate Advisers will achieve comparable results to any of the prior performance information contained herein or that targeted distributions will be met. Actual distributions will depend on, among other factors, future operating results of portfolio assets, changes in capital market pricing, unforeseen events affecting the broader equity market and demand for IM commercial and residential real estate, all ofwhich may differ from the assumptions and circumstances under which the prior performance was achieved. CORNERSTONE 2004(6 2005 2006 2007 2008 2009 mths) Cornerstone Patriot Fund Comparison NFI -ODCE Universe 5 - Year Returns as of March 31, 2010 Pr Percent Rank Measure Value 1 (13 Funds) Rank Return % 1.84% 92% 1 St Quartile Standard Deviation 10.91% 75% 2 n1 Quartile Sharpe Ratio -0.03 92% 1St Quartile Beta 0.89 83% 1 St Quartile Jensen Alpha 0.02 92% 1 St Quartile Source: National Council of Real Estate Fiduciaries The NF -ODCE is the National Council of Real Estate Fiduciaries NCREIF Fund Index— Open -End Diversified Core Equity. The NFI -ODCE (NFI) is a gross, fund - level capitalization weighted, time - weighted return index and includes property investments at ownership share, cash balances and leverage. All returns are annualized. Investors should consult Confidential Private Offering Memorandum for full discussion. L■ CORNERSTONE 27 Cornerstone Patriot Fund Diversification June 30, 2010 Property Type i 2 Offii r)o �5 Land 0.63% L■ CO RNERSTONE A, rtinent )8% Hotel 9.52% istrial _It ao/ Pacific 47.18% Strategy Value -Add 6.63% Core 93.37% Geography Northeast 15.00% Mideast 20.70% -ast North Central 6.92% �rth al �o Percentages based on a total Gross Market (property) Value of $1.0 billion 28 2.05% 1.71% Cornerstone Patriot Fund Metropolitan Area Diversification June 30, 2010 0 ° Portland 1.7% Sacramento 5.8% Oakland 3.1 San Francisco 13.0% Los Angeles 13.5% Orange County 6.7% Q o Q, Minneapolis 3.9% Denver 2.6% Chicago 6.9 Riverside 3.4% Dallas 2.1% Boston 7.1% adelphia 7 Washington 19.4% Raleigh 1.3% Atlanta 1.7% L CORNERSTONE Percentages based on a total Cross Market (property) Value of $0.9 billion Cornerstone Patriot Fund Guidelines June 30, 2010 06/30/10 Current Actual % Target% NFI -0DC1 Apartments 21.1% 25 -30% 20 -40% 18.8% Office 29.4% 30 -35% 25 -45% 37.3% Retail 24.0% 20 -25% 15 -35% 20.1% Hotel 9.5% 5 -10% 0 -15% 2.8% Industrial 15.3% 10 -15% 10 -25% 18.6% Land /Other 0.6% <11% —411 N/A 2.4% 1 NCREIF Fund Index — Open -End Diversified Core Equity as of March 31, 2010 Note: Diversification ranges will be continually evaluated in light ofcurrent market conditions and maybe subject to change. L■ CORNERSTONE Cornerstone Patriot Fund Strategy General Maintain Fund's high - quality and barrier market focus Maintain strong core portfolio occupancy Improve leasing on value -added portfolio Focus on early lease renewals Continually evaluate portfolio in light of current dynamic environment L■ CORNERSTONE Cornerstone Patriot Fund Strategy Financing June 30, 2010 Property As Regatta Apts. 4.72% Renaissance Creek LIBOR +210 Promenade at 7.20% Town Center Chevy Chase Plaza 5.44% The Ridge 5.78% Pureland VI 6.02% Total /Average 5.35% Jan. 2011 $35,000,000 75% 1.8 Nov. 2011 $25,995,000 51% 3.4 Jul. 2012 $34,143,252 55% 1.4 Feb. 2016 $35,000,000 63% 2.2 Mar. 2017 $45,000,000 73% 1.4 Aug. 2018 $13,951,895 61% 1.8 $189,090,147 63% 1.8 Balanced loan maturity schedule All properties supporting debt service Credit line of up to $125 million for acquisitions and short -term needs Matures July 2011, with one 1 -year extensions, at Cornerstone's option Funded spread of 55 basis points over LIBOR Unused fee of 8 basis points L■ CORNERSTONE Cornerstone Patriot Fund Strategy Second Quarter 2010 Valuation Assumptions' [Ai Apartments Industrial Hotel Office Retail 6.1% 6.9% 8.3% 6.3% 7.8% 7.8% 9.1% 7.4% 6.1% 8.5% 10.8% 8.1% 7.0% 7.1% 8.6% 5.7% 7.6% 7.7% 8.9% 7.4% 'Weighted Averages on core investments L■ CORNERSTONE 33 Sources /Uses of Capital Acquisitions /Dispositions Actively evaluating acquisition opportunities Purchase of NJ apartment property Sale of Lakes of Schaumburg- Chicago Targeted for second half 2010 Current Value $42.5 million Pay -off loan on Renaissance Creek - $26 million $55 million equity for acquisitions as of July 1 Prospects of additional sales and acquisitions dependent upon capital markets L■ CORNERSTONE Major Revenue Growth Initiatives Focus on tenant retention Early renewal of tenants Improve timing of apartment lease maturities Focus on solid credit for commercial tenants Maintain /enhance property advertising Increase frequency of tenant contact Lease -up of three value -added properties L■ CORNERSTONE Lease Expiration Schedule June 30, 2010 Office 1,248,132 Retail 816,146 Industrial 2,413,922 Total Commercial 4,478,200 *Net rentable area in square feet L■ CORNERSTONE 4% 4% 28% 6% 9% 2% 3% 17% 7% 4% 1 % 2% 11% 27% 12% 2% 3% 17% 18% 10% 36 Expense Management Maintain strong focus on property operating costs • Asset Manager's emphasis on appropriate expense levels • Make appropriate changes in response to economic conditions ♦ Re -bid all contracts Continued emphasis on Cornerstone's Green Initiative Continue to protest property tax valuation assessments Potential savings due to overall market decline L■ CORNERSTONE Cornerstone Green Initiative Enhance Performance in an Environmentally Sensitive Manner Developed the following strategic tools: Cornerstone's Energy Star Portfolio Manager User Guidelines Cornerstone Energy Savings Checklist Cornerstone Lighting Survey Report Cornerstone Energy Improvement Reporting System Cornerstone Energy Improvement Database (used to track the properties energy consumption, Energy Star ratings, energy saving opportunities, and completed projects overtime) Energy Star Partner since 2007 Cornerstone Patriot Fund office portfolio Average Energy Star rating of 70% Received Energy Star label of 50% of its benchmarked portfolios L■ CORNERSTONE Cornerstone Patriot Fund Advantages Favorable Characteristics of Core, Open -End Funds Patriot Fund Attributes Qualities Strong Financial Sponsorship V Stable and Growing Firm V Upper Quartile Track Record V Experienced Portfolio Management Team V Cash Distributions Quarterly since Inception V High Core Occupancy V Limited Near -term Lease Rollover V Low Leverage & Favorable Line Financing V Cash Available for Investment V Fund Size Leads to More Active Portfolio Management V Focused on Core without Style Drift V No Queue V L■ CORNERSTONE Appendix Profiles: Patriot Fund Portfolio Managers L■ CORNERSTONE 40 Cornerstone Patriot Fund Portfolio Managers Brian T. Murdy, Portfolio Manager Mr. Murdy is Portfolio Manager of the Patriot Fund and two separate accounts. Mr. Murdy also oversees Cornerstone's financing activities. Mr. Murdy is also a member of Cornerstone's Equity Investment Committee. Mr. Murdy joined Cornerstone in 1999, and was the Portfolio Manager of the $600 million Cornerstone Apartment Fund I and the $450 million Cornerstone Apartment Venture I from their respective inceptions through March 2005. Prior to joining Cornerstone, Mr. Murdy worked at Henderson Global Investors (formerly Phoenix Realty Advisors) in several positions over twelve years. For the last seven years he served as a portfolio manager responsible for various institutional portfolios, including Henderson's apartment portfolio and the $900 million Phoenix Home Life separate account. Prior to Henderson, Mr. Murdy worked at the public accounting firms of DiSanto Bertoline & Co. and KPMG. Mr. Murdy received his BS in Accounting from Central Connecticut State University. He is a Certified Public Accountant and a FINRA Registered Securities Principal and is a member of each of the Pension Real Estate Association, National Multi - Housing Council, American Institute of Certified Public Accountants, and the Connecticut Society of Certified Public Accountants. . Denise Rowe Stake, Portfolio Manager Denise Rowe Stake joined Cornerstone as a Portfolio Manager in 2007. Prior to rejoining Cornerstone, Ms. Stake served as the Director of Research for the National Council of Real Estate Investment Fiduciaries (NCREIF). Ms. Stake's previous experience at Cornerstone included serving as a Vice President in the Research department, supporting the Cornerstone fund strategies and market analysis, as well as providing micro and macro research and writing research publications. Prior to her employment at Cornerstone, Ms. Stake was employed at UBS Realty Investors,' most recently as a Director responsible for managing the U.S. research team in developing portfolio strategy and market research. Ms. Stake also worked as a Real Estate Research and Acquisition Analyst and a Commercial Real Estate Appraiser earlier in her career. Ms. Stake earned her BS in Business Administration with a concentration in Real Estate and Urban Economics and an MA in Economics from the University of Connecticut. Ms. Stake has served as an adjunct faculty member at the University of Connecticut in Storrs, teaching in the Finance Department. She is a FINRA General Securities Registered Representative, on the Board of the Hartford Chapter of the Real Estate Finance Association, serves as the chair of the Data Products Council and Portfolio Management Subcommittees of NCREIF, and as co -chair of the Green Affinity Group at PREA. L■ CORNERSTONE 41 Risk Disclosure - Cornerstone Patriot Fund Real estate investments are subject to various risks, many of which are beyond the control of the Cornerstone Patriot Fund and Cornerstone, such as adverse changes in international, national or local economic and demographic conditions; adverse changes in financial conditions of buyers and sellers of properties; reduction or change in sources of debt or equity financing, including changes in interest rates; increases in real estate taxes and operating expenses, including energy prices; changes in law, regulations and governmental policies, including environmental laws, zoning laws and governmental fiscal policies; changes in the relative popularity of properties; risks due to dependence on cash flow; risks and operating problems arising out of the presence of certain construction materials; natural and unnatural disasters; acts of terrorism; uninsurable losses; condemnations; and others. As a result, the Cornerstone Patriot Fund may be subject to claims and expenses in respect of an asset in excess of the Fund's investment in such asset that could significantly impact the cost of operations, cash flow and results of operations, thereby leading to losses. No assurance exists that the Fund can achieve its return objectives. For further information concerning the risks of real estate investment generally and other risks, including those related to investment terms and tax matters, please see the Confidential Private Offering Memorandum. L■ CORNERSTONE 42 Cornerstone Organization Chart Bob Mahoney CJ Karbowicz CFO General Counsel Mortgage Loan Compliance Accounting Equity Accounting rporate Financial Operations Risk Management Rob Little Tom Dudeck CIO - Finance ChiefofStrategy Mort a e Loan Legal High Yield Research Services Debt Mortgage Loan Servicing Valuation (debt) L■ CORNERSTONE Client Service & Reporting Global REIT Securities Valuation (eq u ity) Mark Higgins lain Reid CIO - Equity CEO — Cornerstone Europe Lisa Howat Chief Technology Officer g g Origination (5 Offices) Equity Origination Portfolio Management Capital Markets Business 14 CMBS /REIT Debt/ Development & Residential Client Relations Legal High Yield Research Services Debt Mortgage Loan Servicing Valuation (debt) L■ CORNERSTONE Client Service & Reporting Global REIT Securities Valuation (eq u ity) Mark Higgins lain Reid CIO - Equity CEO — Cornerstone Europe Lisa Howat Chief Technology Officer Equity Origination (3 Offices) Equity Asset Management Engineering Services Hotel Group 43