QUIRE FUND I, LP DISTRESSED REAL ESTATE INVESTMENT OVERVIEW

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1 QUIRE FUND I, LP DISTRESSED REAL ESTATE INVESTMENT OVERVIEW NOTE: This document is intended to provide only a basic overview of the Distressed Debt Strategy and is NOT intended to take the place of making an informed decision with your investment advisor or to disclose all of the risks associated with the Partners strategy. Please review the full Private Placement Memorandum ( PPM or Memorandum ) before making any investment decisions. 1

2 Fund Name: Quire Fund I, LP ( Fund ) Fund Target Size: $8,000, Minimum Fund Size: $1,000, Maximum Fund Size: $10,000, Minimum Investment: $250,000.00, unless otherwise agreed to in writing Target Returns: 15.0% annualized gross annual returns Fund Term: 1 year of investing and purchasing activities 3 years of investment liquidation Management Fee: 2% per annum Preferred Return: 10% (paid to investors prior to management taking any profits interest) GP Promote (Profits Interest): 30% after preferred return Subscription/Document Fee: 0% at time of closing Acquisition Fee: 1% of Property Purchase Price Co-Investing: The Fund may co-invest in identified investments with other Funds and entities. This leads to greater returns, reduction of risk, and greater access to financing and leverage. Background: Quire Capital, LLC has contracted with the investment advisory firm of Lorintine Capital and the Distressed Real Estate Firm of Morriss Company to provide an opportunity for investors to participate in the distressed real estate markets. Quire Capital is a full service platform that invests in the distressed real estate market, primarily through special servicer auctions. The Fund will invest in distressed small balance ($1m-$10m) commercial real estate properties, acquiring them at meaningful discounts to market value. The Fund may invest in these properties through the purchase of fee simple interests, by purchasing the mortgages directly, provided they are secured by the physical real estate, or through the provision of secured bridge financing. Opportunity: The Fund s goal is to generate equity like returns with greatly reduced risk to principal. The Fund s investment edge exists due to the minimal competition which exists in the small balance market. Institutional investors, such as JP Morgan and Goldman Sachs, ignore small balance properties as a one million dollar property or loan would have no material impact on a multi-billion dollar fund or strategy. Local or retail style investors typically avoid the special servicer auction markets due to their complex acquisition process and as they typically lack the liquidity to participate in such auctions. The auctions require cash payments in a very short period after winning a bid as well as requiring all due diligence to be completed prior to bidding. This upends the typical commercial real estate buying process wherein a soft contract is entered, due diligence is performed, bank financing is obtained, and then 2

3 closing occurs. Because of this, there are not a significant number of bidders in any given auction. The Fund is specifically structured to allow us to conduct all necessary due diligence and prepare for the bidding process. The Fund fully expects this edge to continue indefinitely as the inventory of distressed loans outweighs the demand for this product type. The market can be defined into two categories: Collateralized Mortgage Back Security ( CMBS ) loans or traditional commercial real estate loans held by banks or other financial institutions. The CMBS saw a large uptick in loan originations during the peak years of 2005 through These loans generally had a ten year term corresponding to 2015 to 2018 maturities. It is expected that $380 million worth of CMBS loans will mature over these years. In addition to the CMBS loans, banks are holding $4 trillion worth of commercial real estate on their balance sheets. Of the $4 trillion held by banks, it is estimated that 6% of these loans are classified as distressed. This equates to $240 billion in loans that are distressed being held by banks. The Fund s strategy is to fill the void where limited amount of capital occupies. The market participants in this space tend to target large transactions. The amount of debt capital in the small balance space is sharply constrained. Most market participants in this space tend to target portfolios or larger individual transactions (above $10 million in purchase price). The Fund s competitive advantage lies in our long standing relationships and maneuverability in the small markets. We have developed strong ties with both the seller (lender/special servicer) and with the current borrower (or borrower consultant) alike. Those relationships create unique deal flow and information that allow us to target transactions with precision giving us a higher rate of execution and success in the auction format than our competition while still obtaining outsized returns compared to the risk taken. Fund Discipline: The Fund will primarily target real estate and small balance loans that have a market value between $1 million and $10 million. The Fund expects to make anywhere from six to ten investments over its lifecycle. Target leverage is 60% or higher for performing, sub-performing and non-performing loans. The leverage is provided by regional and national banks as well as the Fund s co-investing partners. The Fund will remain highly diversified across geography and asset class. The commercial real estate types vary through multi-family, retail, office and industrial sectors. The Fund also will have highly diversified markets in the US. The markets include primary (New York City, Dallas, Los Angeles, Chicago, etc.), and secondary (Birmingham, Jacksonville, Charlotte, etc.), and tertiary (Mobile, McAllen, Dayton, Las Cruces, etc.). 3

4 Investment Segments: The Fund targets three different investment segments: 1. REO Fee Simple Real Estate. The Fund acquires distressed, foreclosed, real estate with positive current cash flow. The Fund typically will not purchase properties that are not at least sixty five percent occupied. The Fund s strategy is not a typical commercial improvement project wherein an under occupied building is purchased, improved, leased, and sold. Rather the Fund anticipates making its returns as the building current exists, without improvements based on the arbitrage opportunities that exist due to limited competition in the auctions. If the Fund manages to improve the buildings value, that will only increase returns. 2. Commercial Loans. The Fund can acquire the mortgage which exists on a piece of real estate instead of the property itself, provided that such loan is secured by the physical real estate. When purchasing sub-performing and non-performing debt at a discount to their par value, there is often significant room to work out the loan with the borrower. If a workout cannot be obtained, the loan can be exited through DPO, refinancing, or foreclosure. As a simple example, a borrower may not be able to pay a $3m loan, but if the Fund acquires such loan for $2.5m, that loan may be easily refinanced on the borrower s behalf. 3. Bridge Financing. The Fund can also provide White Knight financing for borrowers that cannot access traditional financing sources. Situations arise where the property at issue is cash flowing positive and low risk, but the borrower has had difficulties refinancing. Maybe the borrower is already in default and cannot refinance, despite having the available cash flow. Perhaps the balloon payment is due and underwriting on the property has changed. There could be a purchaser in the wings, but the sale has been delayed, leading to technical defaults. There are any number of situations where, after proper due diligence, the Fund can step in and assist a borrower for a short period of time in return for well adjusted returns. The Fund likely will invest most of its resources in the Fee Simple Markets but will look at opportunities across all of the above investment segments. Risk Management: The largest risk that Fund faces is catastrophic devaluation of demographic or collateral type. This could be caused by geographic overexposure or collateral type over exposure, as well as systemic risk. Mitigation of this risk is accomplished through constant evaluation of the portfolio, as well as diversifying across geographic regions and through different commercial property types. Added protection is gained by only purchasing properties that are currently cash flow positive. If there are temporary market downturns in valuations, the Fund can continue to hold these properties, profiting off of the cash flow, while waiting for markets to turn around. The primary risk is tail risk where the hold period will be extended due to lack of liquidity in the market. While tail risk does bring down the overall return of the Fund, the risk of principal is minor. The collateral value of the commercial real estate is still viable; the only risk is the lack of capital to realize the investment. Thus the time to realize the return is extended. This is mitigated by continuous market surveillance. Before the investment is made, the Fund will use multiple sources to examine the amount of capital in the market and any duration risks associated with the investment. In the ideal transaction the proposed sales value of the property is determined prior to the purchase of the property. 4

5 Targeted returns: The Fund is targeting a net levered annual return of 15.0%. An investment in distressed real estate is inherently less risky than investing in equities, particularly when paired with the current income stream generated by some of the Fund s investments. This is due to the value of the hard asset that is security for the loan. In general terms, property and loans are purchased for a discount to the property or collateral value. Typically the discount to collateral value is in the 50%-80% range, however for higher yielding more secure investments, the Fund may buy at smaller discounts to collateral value. This is an arbitrage opportunity that exists because of the Fund s unique size and positioning. By purchasing real estate and/or debt at a discount to the collateral value, investors decrease risk over directly purchasing equity in real estate investments. Industry returns in this market segment have exceeded fifteen percent (15%) for the past several years and current trends indicate that such returns should continue. Contact: However results cannot be guaranteed. Quire Fund I, LLC Attn: Christopher Welsh 4925 Greenville Ave., Suite 200 Dallas, TX P: (214) F: (214) E: cwelsh@lorintinecapital.com 5