Real estate projects may suffer losses that are not covered by insurance. Material losses to real estate properties may occur in excess of insurance proceeds with respect to the Property as insurance proceeds may not provide sufficient resources to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, earthquakes, floods, hurricanes, pollution, environmental matters, mold or terrorism, which are either uninsurable, not economically insurable or insurable subject to limitations, such as large deductibles or co-payments. If an uninsured loss or a loss in excess of insured limits occurs on the Property, the Partnership could lose its anticipated future revenues from the Property. Competitive Properties could adversely impact the operating results of the Property. Real estate that is competitive with the Property may increase vacancy rates, reduce rental rates and reduce demand for the leasable space within the Property. It is possible that tenants from the Property will move to existing or new projects in the surrounding area, which could adversely affect the financial performance of the Property. Competition from nearby properties could make it more difficult to attract new tenants. In addition, the availability of possible sites for future construction may also affect vacancy and rental rates if competing properties are, in the future, developed within competitive spaces. Other properties and real estate investments may be more attractive than the Property. Environmental liabilities could significantly decrease the value Property. Federal, state and local laws impose liability on a landowner for releases or the otherwise improper presence on the premises of hazardous substances. This liability is without regard to fault for, or knowledge of, the presence of such substances. A landowner may be held liable for hazardous materials brought onto a Property before it acquired title and for hazardous materials that are not discovered until after it sells he Property. If any hazardous materials are found within the Property in violation of law at any time, the Partnership may be liable for all cleanup costs, fines, penalties and other costs. If losses arise from hazardous substance contamination that cannot be recovered from a responsible party, the financial viability of a Property may be substantially affected. In extreme cases, the Property could be rendered worthless, or worse, the Partnership could be obligated to pay cleanup costs in excess of the value of the Property. Hazardous substance contamination could adversely affect the Property and, in tum, the Partnership’s (and Company’s) investment therein. It is also possible that the existence of any environmental issues affecting the Property may make it more difficult, and perhaps impossible, to obtain financing or refinancing for the Property. In light of the material risks and potential liability associated with the discovery of an environmental hazard at the Property, investors should be certain that they understand, and can accept, the risks associated with any unknown hazardous substances affecting the Property. The Property could become subject to an eminent domain, condemnation, or other legal or regulatory action. Such an action could have a material adverse effect on the marketability of the Property and any returns therefrom. Future changes in land use and environmental laws and regulations, whether federal, state or local, may impose new restrictions on the development, construction or sale of the Property. The Partnership’s ability to sell or operate the Property as intended may be adversely affected by such regulations, which could affect returns therefrom. Any person who supplies services or materials to the Property may have a lien against the Property securing any amounts owed to such person under state law. Therefore, even if a contractor is paid its contract fees, if that contractor fails to pay its subcontractors or the materials supplier, then the subcontractor and materials supplier who were not paid will have mechanic’s lien rights against the Property. If a mechanic’s lien does appear against the Property, its release must be obtained or the person holding such lien will have the right to foreclose on the Property. A lien at sale of the Property could negatively affect returns therefrom. The Partnership will be subject to those general risks relating to ownership, development and construction of real estate. Certain expenditures associated with the Property will be fixed (principally mortgage payments, if any, real estate taxes and maintenance costs) and will not necessarily decrease due to events adversely affecting the Partnership’s income from the Property. No assurance can be given that certain assumptions as to the future profits from the Property will be accurate since such matters will depend on events and factors beyond the Partnership’s control. These factors include, among others: • adverse changes in local and national economic conditions; • changes in the financial condition of renters, buyers and sellers of similar properties; • changes in the availability of debt financing and refinancing; • changes in the relative popularity of the Properties and in real estate as an investment class; • changes in interest rates, real estate taxes, and operating and other expenses; • changes in market capitalization rates; • changes in and to the application and interpretation of environmental laws and regulations, zoning laws and regulations, other governmental laws, regulations and changes in fiscal policies;
• changes in utility rates; • changes in market rates; • development and improvement of competitive properties; • ongoing development, capital improvement, and repair requirements; • risks and operating problems arising out of the presence of certain construction materials; • environmental claims arising in respect of real estate acquired with undisclosed or unknown environmental problems or as to which adequate reserves had not been established; • physical destruction and depreciation of equipment and property; • damage to and destruction of a real estate property, including uninsurable losses (such as damage from wind storms, earthquakes, hurricanes or acts of terrorism); • acts of God; • changes in availability and cost of insurance; • unexpected permitting/development/construction costs or delays; • increases in the costs of labor and materials; • material shortages; and • labor strikes.
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