The Partnership’s performance is dependent on key personnel of the Sponsor and the loss of one or more of those key personnel ma y materially and adversely affect the Partnership’s performance. The Partnership’s success depends to a significant degree upo n the contributions of the Principals of the General Partner and Sponsor, The General Partner cannot guarantee that all or any of these individuals will remain affiliated with the Partnership or the Sponsor or that the Sponsor will be successful in attracting replacements for any such persons if necessary. If any of the key personnel were to cease their affiliation with the Sponsor, the Partnership’s operating results could suffer. Further, the General Partner will not maintain key person life insurance that would provide the Partnership with proceeds in the event of death or disability of any key personnel. If the Sponsor loses or is unable to obtain the services of key personnel, the Partnership’s ability to implement its investment strategies could be delayed or hindered, which could adversely affect the ability to make distributions and/or return capital contributions. The Sponsor expects the Partnership to partner with certain third-party partners (e.g., local property management companies). Such relationships may involve risks not present in investments where a third party is not involved, including the possibility that a third party partner may at any time have economic or business interests or goals which are inconsistent with those of the Partnership, or may be in a position to take action contrary to the Partnership’s investment objectives and strategy. In addition, the Partnership may in certain circumstances be liable for actions of its third-party partners. Prospective investors should not rely on the past performance or success of the Sponsor or its Affiliates. Any prior transactions sponsored by the Principals of the Sponsor or their Affiliates should not be relied upon by prospective investors to anticipate the success of this offering or the Company or the Partnership. Not only are such generalizations difficult to make in the case of similar programs, but in the case of the prior transactions discussed in this Memorandum, the described transactions do not, in most cases, have consistent structures or investment objectives or strategies to the transactions described in this Memorandum. Prospective investors should not, therefore, rely on such prior transaction discussions to anticipate the success of this offering. Real Estate Risks Many factors beyond the General Partner’s control will affect the value of the Property. The economic success of an investment in the Company will depend entirely upon the results of operations of the Partnership and its Property, which will be subject to those risks typically associated with investments in real estate that produce income based on tenant occupancy and rental revenues. Fluctuations in vacancy rates, rent schedules and operating expenses can adversely affect operating results or render the sale or refinancing of the Property difficult or unattractive. No assurance can be given that certain assumptions as to the future levels of occupancy of the Property, future rental appreciation, future cost of capital improvements or future cost of operating the Property will be accurate since such matters will depend on events and factors beyond the control of the Partnership. Such factors include continued validity and enforceability of the leases, vacancy rates for properties similar to the Properties, financial resources of tenants, rent levels near the properties, adverse changes in local population trends, market conditions, neighborhood values, local economic and social conditions, supply and demand for similar properties, competition from similar properties, interest rates and real estate tax rates, governmental rules, regulations, fiscal policies, the enactment of unfavorable real estate, rent control, environmental, zoning or hazardous material laws, uninsured losses, effects of inflation and other risks. Real estate is a long-term illiquid investment that may be difficult to sell in response to changing economic conditions. Real estate is generally a long-term investment that cannot be quickly converted to cash. Therefore, the ability to liquidate the Property promptly in response to economic or other conditions will be limited, which will affect the Partnership’s ability to realize a return on its investment. Real estate investments are also subject to adverse changes in general economic conditions or local conditions that may reduce the demand for multifamily properties. The Property will be subject to additional risks that may adversely impact the operating results and the success of the Partnership and the Company. The Company, directly or indirectly, will generate income from residential leases on the Property. The residential leases will generally be for terms of no more than one or two years. In any event, there are vacancy and re-letting risks associated with income producing residential and retail properties. In addition, any economic downturn, including increased unemployment rates, may cause the residential industry to experience a significant decline in business due to a reduction in renters. Low residential mortgage interest rates could accompany and encourage potential renters to purchase residences rather than lease them. These and other factors could have a material adverse effect on the performance of the Properties and the Company’s investment. If current tenants for the properties do not renew or extend their leases or if current tenants terminate their leases, the operating results of the Property could be substantially and adversely affected by the loss of revenue and possible increase in operating expenses not reimbursed by the tenants. There can be no assurance that any unoccupied space in the Property will be leased, levels of occupancy will be maintained or the Property will be substantially occupied. In addition, lease-up of unoccupied space may be achievable only at decreased rental rates or with the provision of substantial rental concessions, both of which would adversely affect operating cash flow of the Partnership. To the extent that tenants of the properties do not renew their leases, or renew at lower than current market rates, the financial viability of the Property may be adversely affected. In addition, tenants and lease guarantors, if any, may be unable to make their lease payments. Defaults by a significant number of tenants could, depending on the number of leases affected and the ability to successfully find substitute tenants, have a material adverse effect on the financial performance of the Property, thus reducing cash flow to the Company from the Partnership. Adverse economic conditions may adversely affect financing availability. Recently, domestic and international financial markets, including real estate debt markets, have experienced unusual volatility and uncertainty as a result of factors including the tightening of underwriting standards by lenders and credit rating agencies. Credit spreads for major sources of capital have widened significantly as investors have demanded a higher risk premium. This is resulting in lenders increasing the cost for debt financing and equity requirements. Should the overall cost of borrowings increase, either by increases in the index rates or by increases in lender spreads, the Property may generate lower economic returns. In addition, the state of the debt markets could have an impact on the overall amount of capital investing in real estate, which may result in price or value decreases of real estate assets. Consequently, there is greater uncertainty regarding the Partnership’s ability to access credit markets in order to attract financing on reasonable terms. The Property will be subject to foreclosure following a default under a mortgage loan. Each, if any, mortgage loan secured by any Property will contain various default provisions, including payment defaults, operating restrictions, reporting defaults, transfer restrictions and capital improvement obligations. Upon an uncured default under a loan, the lender may declare the entire amount of the loan, including principal, interest, prepayment premiums and other charges, to be immediately due and payable. If a senior mortgage lender declares a loan to be immediately due and payable, the borrower will have the obligation to immediately repay the loan in full. If repayment does not occur, the lender may invoke its remedies under the loan documents, including proceeding with a foreclosure sale that is likely to result in the loss of the investment relating to the relevant Property, which would have a material, negative affect on the Company’s investment in the Partnership.
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