CURRENT ENVIRONMENT

To understand the current environment, it is helpful to understand the historical context. AmveStar believes that the credit crisis turmoil in the overall financial markets, dismal performance of the housing sector over the last several years, and general decline in the broader economy has created a unique buying opportunity. The seriousness of the troubles within the financial markets can be evidenced by unprecedented measures taken by the Federal Reserve Bank over the last couple of years. These measures include substantial interest rate drops, allowing financial institutions the right to swap/trade Treasury Securities for Mortgage Backed Securities, and orchestrating the bail out of Bear Stearns, the fifth largest investment bank in the country, and AIG, one of the largest companies in the world.

The current real estate investment environment has been compared by many experts to the late 1980’s and early 1990’s. At that time, the Resolution Trust Corporation (RTC) was established and took over hundreds of failed Savings and Loans Institutions, resulting in the sell-off of billions of dollars of real estate assets for pennies on the dollar. Today, we are seeing real estate sell at late 1980’s and early 1990’s pricing.

AmveStar has observed that a significant number of real estate assets acquired during the past 6 years, were purchased at artificially low capitalization rates, using aggressive underwriting assumptions and employing excessive financial leverage. This is consistent with the findings of a number of experts, who report that many of the most highly leveraged and poorly underwritten loans were those made at or near the peak of the cycle, in late 2005 and in 2006. AmveStar's valuation analysis is based on the belief that property operating fundamentals may continue to deteriorate in the near term, return requirements will continue to rise over the mid-term and debt financing will continue to be difficult to obtain.