CREDIT COMMITTEE MEMORANDUM Property: Marriott Houston West Loop Location: 1750 West Loop South Houston, Texas 77027 Underwriters: [Intentionally Omitted] Reviewed By: [Intentionally Omitted] Loan Program Group: Capital Markets Date Submitted: December 1, 2007 Loan Number: 12345 Page of 10 TABLE OF CONTENTS I Executive Summary Loan Purpose Loan Structure Reserves/Escrows Sources & Uses II Strengths & Weaknesses Strengths Risks & Mitigants III Property Description & Location Description Immediate area Year Built / Renovated IV Market Analysis Location/Neighborhood/Adjacent Use Subject Hotel Market Penetration Competitive Set Comparison Sales Comparables V Sponsorship & Borrower Principals & Guarantors Experience (ownership & operational) Borrower Structure VI Financial Analysis Summary Underwriting Assumptions Model V Third Party Review [Intentionally Omitted] Environmental & Engineering Summary of Appraised Value Page of 10 I EXECUTIVE SUMMARY Overview / Purpose The following is a $27,300,000 ($90,397/key) floating rate acquisition loan request to finance the acquisition of a 320-room full service hotel known as Mariott Houston West Loop located in Houston, Texas (the “Property”) The Property is under contract for $43,158,663 ($142,909/room) The sponsor will be required to implement a $1.5 million property improvement program in connect with a new franchise agreement After closing costs, fees and reserves, the Borrower will have $18,208,663 (40% of total costs) cash equity in the transaction The loan will mature in 10 years, carry a 25 year amortization schedule, and a fixed rate coupon of 150 BPS over the 10 year treasury with an interest rate floor of 5.5% The loan underwrites to a 1.30x DSCR, 75% LTV, 60% LTC Sources Initial Funding: Borrower Equity: Total Sources $27,300,00 $18,208,66 Uses 62.00 Purchase Price: % 38.00 Closing Costs/Fees: % Reserves: $45,508,6 63 100.0 Total Uses 0% $43,158,66 $850,000 $1,500,000 $45,508,6 63 II Strengths & Weaknesses Strengths Significant Cash Equity in Deal: After closing costs, fees and reserves, the Borrower will have $16,721,836cash equity in the Property representing 38% of the total capitalization Strong Sponsorship/Redevelopment Experience: The key sponsors are both high net worth individuals, who have extensive experience in repositioning hotel properties Through various investment companies, Mr Crowe and Mr Matthews currently own over 41 properties with a current market value in excess of $900 million Over the past 20 years, RM Crowe and its principals have acquired, developed and/or managed over $600 million of real estate – including over 2,000 apartment units, in excess of 7.3 million square feet of office space, 670,000 square feet of retail space, 62,000 square feet of medical office space, and 2,000 hotel rooms Repeat Borrower: Lend Co closed a separate $36,000,000 loan approximately 12 months ago for another property owned by the Sponsors in January 2006, which the Borrower has paid as agreed with no late payments There are a few vacant units that management is working to get rented, but occupancy has hovered in a range from 92% to 95% Other properties in the area usually run at 8% to 10% year round Excellent Franchise and Management: Marriott Hotels is among the largest full service and limited service hotel franchises in the nation RM Crowe was founded in 1987 in Dallas, Texas Page of 10 Over the past 20 years, RM Crowe and its principals have acquired, developed and/or managed over $600 million of real estate including 10 hotels Good Accessibility: The The Property directly fronts the highly trafficked West Loop Freeway in Houston’s Galleria/Uptown area providing excellent accessibility to Houston’s central inner loop as well as to Houston’s outer loop and interstate thoroughfares Additionally, the subject property is under miles away from the UH-Downtown METRORail station and within walking distance of the 35, 33, and 49 bus routes The Property is located just over five miles southwest of Downtown Houston and just blocks from the Uptown Post Oak/ Galleria shopping area The Property has easy access to and from major freeways, the business districts, major area attractions, and a multitude of restaurants Proximity to Uptown Post Oak/ Galleria: Uptown Post Oak/ Galleria is Houston’s premier shopping destination and one of the top tourist attractions Owned by Simon Malls, this WorldClass shopping center is located just blocks from the hotel and features renowned stores such as Louis Vuitton, Neiman Marcus, Coach, Tiffany’s, Tourneau, Valentino, Burberry, Brooks Brothers, Abercrombie & Fitch, Fendi, Gucci, and Saks Fifth Avenue Beyond shopping, the district is well-known as a dynamic cultural and entertainment center with close proximity to Texas’ top colleges as well The Uptown Post Oak/ Galleria neighborhood is comprised of exclusive historic residences, high rise office buildings, upscale condominiums and town homes, parks, trails, and top ranked golf and tennis centers The Property is under miles from Rice University, 15 minutes from the University of Houston, 15 minutes from the Houston Astrodome, the Toyota Center (Home of the Rockets), and Minute Maid Park (home of the Astros) The centrally located property is only minutes from Reliant Park & Stadium, the museum and theater districts, Texas Medical Center, and NASA The hotel sits conveniently nestled between Houston’s two principal airports, George Bush Intercontinental/Houston Airport and the Houston/William P Hobby Airport Competitive Full Service Amenity Package: The Property offers an indoor atrium swimming pool, a heated spa, fitness center, 18 meeting rooms, 17,000 sq ft of total meeting space, valet and self parking, free guest shuttle to Galleria Mall and other neighborhood attractions, concierge levels, Video Review Billing, Video Checkout Express Check-in and Check-out, luxurious down bedding, Cable/satellite TV with video and pay-per-view on demand, full-service business center, wired and wireless high-speed internet in guest rooms and common areas, Alexander Restaurant, and the Fairways Lounge Strong Market Conditions: According to market reports, the Houston hotel market and the Uptown Post Oak/ Galleria submarket has and is expected to outpace most national cities in both room rental rates and occupancy rates over the coming near term The Galleria hotel submarket is the most successful hospitality area in Houston, boasting the highest concentration of retail space in the entire metropolitan area and six of the city’s top 10 hotels rated as AAA Limited New Supply - No new competitive construction completions are anticipated in the Houston’s Galleria/Uptown area, where the collateral is located, in the foreseeable future Given that the asset currently enjoys a competitive market position within the existing stock, it is expected that such competitive advantages help the new sponsors outperform its competitive set Risks & Mitigants Page of 10 • Risk: Property Age: The Property was built in 1975 and only last rehabbed in 1999 making the subject inferior to its competitive set in quality which could negatively effect performance during the loan term Mitigant: A new $1.5 million property improvement program will take place within 12 months of closing as required by Marriott in connection with a new 10 year franchise agreement The upgrade to the asset combined with new ownership and Marriott management should allow the subject to perform near or at the top of its competitive set • Declining Performance: over the last three years The Property has had negative RevPar and NOI growth Mitigant: Poor recent performance has been a result of management’s unwillingness to invest capital into the subject combined with their lack of attention to operational detail A new $1.5 million property improvement program will take place within 12 months of closing as required by Marriott and Marriott will implement a new business plan with a focus on marketing and cost cutting III Property Description & Location Property Description & Location The Marriott Houston West Loop is a 13-story, 302-room full-service hotel directly fronting the highly trafficked West Loop in Houston’s Galleria/Uptown area The property features a fivestory “Glass Palace” atrium, 17,000 square feet of meeting and function space, a full-service restaurant with a separate lounge, and an indoor swimming pool with a hot tub and a sauna The guest rooms are equipped with Marriott's New Luxury Bedding, work station, high-speed Internet access and premium movie channels The full service hotel has a multitude of on-site amenities including indoor atrium pool, expanded fitness center, Alexander restaurant and Fairways lounge The Houston Marriott West Loop by The Galleria is located just blocks from the Uptown Post Oak/ Galleria shopping area and has easy access to and from major freeways, the business district, attractions, and restaurants The Houston Galleria hotel offers complimentary shuttle service to the Nation's fourth largest Mall (boasting over 400 stores) making it a destination hotel for business and leisure travelers The Property is located near Memorial Park, 5.5 miles from Rice University and 35 miles from NASA increasing its user base further Page of 10 Standard Guest Room Lobby Suite Guest Room Indoor Pool Alexander Restaurant Fairway’s Bar & Grille Page of 10 Glass Palace Reception Room Grand Marquis Ballroom IV Market Analysis Location / Neighborhood / Adjacent Use The Property is located at 1750 West Loop South Houston, Texas 77027, just off West Loop Freeway, conveniently nestled between the areas two principal airports; only 30 minutes from George Bush Intercontinental/Houston Airport and only 25 minutes from Houston/William P Hobby Airport The Property directly fronts the highly trafficked West Loop Freeway in Houston’s Galleria/Uptown area providing excellent visibility in addition to unparalleled accessibility to Houston’s central inner loop as well as to Houston’s outer loop and interstate thoroughfares Additionally, the subject property is under miles away from the UH-Downtown METRORail station and within walking distance of the 35, 33, and 49 bus routes providing close proximity to various points of interest The Property is located just over five miles southwest of Downtown Houston and just blocks from the Uptown Post Oak/ Galleria shopping area The Property has easy access to and from major freeways, the business districts, major area attractions, and a multitude of restaurants Uptown Post Oak/ Galleria is Houston’s premier shopping destination and one of the top tourist attractions Owned by Simon Malls, this World-Class shopping center is located just blocks from the hotel and features renowned stores such as Louis Vuitton, Neiman Marcus, Coach, Tiffany’s, Tourneau, Valentino, Burberry, Brooks Brothers, Abercrombie & Fitch, Fendi, Gucci, and Saks Fifth Avenue Beyond shopping, the district is well-known as a dynamic cultural and entertainment center with close proximity to Texas’ top colleges as well The Uptown Post Oak/ Galleria neighborhood is comprised of exclusive historic residences, high rise office buildings, upscale condominiums and town homes, parks, trails, and top ranked golf and tennis centers The Property is under miles from Rice University, 15 minutes from the University of Houston, 15 minutes from the Houston Astrodome, the Toyota Center (Home of the Rockets), and Minute Maid Park (home of the Astros) The centrally located property is only minutes from Reliant Park & Stadium, the museum and theater districts, Texas Medical Center, and NASA The Houston Galleria hotel proximity to downtown Houston and the Galleria Mall makes it the hotel of choice for both business and leisure travelers Moreover, the Property’s proximity to various golf and tennis courts, universities, sports complexes, and other points of interest makes it an ideal choice for anyone visiting the area as its central location offers unparalleled access to a wide variety of local points of interest Neighborhood Map Page of 10 Market ADR, Occupancy, RevPar and Penetration Analysis Local Map The subject has seen its RevPar decline over the last two years as the subject has failed to keep pace with its competive set Occupancy has been maintained historically, but the property’s declining condition has not allowed current management to raise ADR commensurate with the market Subject Hotel Market Penetration Year Occupancy 2004 110.9% 2005 112.2% 2006 108.1% 2007 98.9% ADR 107.9% 107.1% 108.1% 105.0% Page of 10 RevPAR 102.9% 104.80% 99.90% 94.13% Submarket Competitive Set Historical Performance Year 2004 2005 Occupancy Comp Set 62.2% 64.8% Occupancy Subject 69.0% 72.7% ADR Comp Set $113.26 $120.53 ADR Subject $105.00 $112.57 RevPAR Comp Set $70.45 $78.10 RevPAR Subject $72.45 $81.84 2006 64.5% 69.7% $137.74 $127.41 $88.84 $88.80 2007 71.3% 70.5% $138.96 $132.29 $99.08 $93.26 Sales Comparables The appraiser’s $36.4 million ($113,750 / key) value is in line with recent sales ranging from $117,000-221,000 per key The two most notable sales in Houston, which the subject is most directly comparable, were both significantly higher in value than the subject on a per key basis Property Location Renaissance Austin Hotel ICON Hilton Houston Doubletree Crowne Plaza Hilton Suites Courtyard by Marriott Hilton Arlington Austin, TX Houston, TX Houston, TX Houston, TX San Antonio, TX Dallas, TX Fort Worth, TX Arlington, TX No Rooms 478 135 278 335 410 258 203 308 Sales Price $105,700,000 $26,000,000 $50,500,000 $60,000,000 $73,000,000 $40,000,000 $25,940,000 $36,300,000 Price / Room $221,129.71 $192,592.59 $181,654.68 $179,104.48 $178,048.78 $155,038.76 $127,783.25 $117,857.14 Date Closed 11/1/2006 10/1/2006 1/1/2007 6/1/2006 n/a 9/1/2006 8/1/2006 10/1/2006 V Sponsorship & Borrower The Borrower, RMC National Interests, is an affiliate of RM Crowe RM Crowe was founded in 1987 in Dallas, Texas Over the past 20 years, RM Crowe and its principals have acquired, developed and/or managed over $600 million of real estate – including over 2,000 apartment units, in excess of 7.3 million square feet of office space, 670,000 square feet of retail space, 62,000 square feet of medical office space, and 2,000 hotel rooms Today, RM Crowe is a full-service real estate firm possessing extensive experience in acquiring, developing, managing and disposing of a broad array of commercial properties including multifamily, office, industrial and retail RM Crowe currently leases and manages 5.4 million square Page of 10 feet of office and retail space Twenty percent of these assets they lease and manage are for other real estate owners Houston Marriott LLC, is a to be formed SPE (limited liability company) that is being formed exclusively for the purpose of owning and operating the Property The ownership interest of the borrowing entity consists of the primary principals (20%) and of funds raised by the parent, RMC Crowe (80%) Lender closed a $36,000,000 loan for another project owned by the Sponsors in January 2006 The LTV based on the Initial Funding is 63% based on the underwritten “As Is” market value of $43,160,000 It is performing as agreed VI Financial Analysis Underwriting Assumptions Category ADR Occpancy RevPar Revenues Operating Expenses Taxes Insurance FF&E • Underwriting Trailing 12 months Trailing 12 months Trailing 12 months Trailing 12 months Trailing 12 months Trailing 12 months Trailing 12 months Trailing 12 months Full underwriting model attached Page 10 of 10 Comments Current market Current market Current market Current market Current market Current market Current market Current market u/w u/w u/w u/w u/w u/w u/w u/w standards standards standards standards standards standards standards standards ... Checkout Express Check-in and Check-out, luxurious down bedding, Cable/satellite TV with video and pay-per-view on demand, full-service business center, wired and wireless high-speed internet in... Renaissance Austin Hotel ICON Hilton Houston Doubletree Crowne Plaza Hilton Suites Courtyard by Marriott Hilton Arlington Austin, TX Houston, TX Houston, TX Houston, TX San Antonio, TX Dallas,... the acquisition of a 320-room full service hotel known as Mariott Houston West Loop located in Houston, Texas (the “Property”) The Property is under contract for $43 ,158 ,663 ($142,909/room) The