PATHFINDER PARTNERS OPPORTUNITY FUND VII, L.P.cityvest.blob.core.windows.net/sitedocs/image...real...

DOCS 114890-000156/3119016.8

PATHFINDER PARTNERS OPPORTUNITY FUND VII, L.P.

A Multifamily and Residential Fund

CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM

JANUARY 2018

4380 La Jolla Village Drive, Suite 250 San Diego, CA 92122 Tel. (858) 875-4400 Fax (858) 875-4655

www.pathfinderfunds.com [email protected]

PRIVATE PLACEMENT MEMORANDUM CONFIDENTIAL

PCOPY: ____

PATHFINDER PARTNERS OPPORTUNITY FUND VII, L.P. Limited Partner Interests

Pathfinder Partners Opportunity Fund VII, L.P., a Delaware limited partnership (the “Fund”), is targeting attractive multifamily investment opportunities and is seeking capital commitments from qualified investors to acquire limited partner interests in the Fund (the “Interests”). Pathfinder Partners Realty Ventures VII, LLC, a Delaware limited liability company (the “General Partner”), expects to hold the Fund’s initial closing as soon as reasonably practicable. There is no public market for the Interests and no such market is expected to develop following the offering.

THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THIS “MEMORANDUM”) HAS BEEN PREPARED AND IS BEING PROVIDED ON A CONFIDENTIAL BASIS SOLELY FOR PROSPECTIVE INVESTORS CONSIDERING THE PURCHASE OF THE INTERESTS IN THE FUND. ANY REPRODUCTION OR DISTRIBUTION OF THIS MEMORANDUM, IN WHOLE OR IN PART, OR THE DISCLOSURE OF ITS CONTENTS, WITHOUT THE PRIOR WRITTEN CONSENT OF THE GENERAL PARTNER, IS PROHIBITED. THIS MEMORANDUM MUST BE RETURNED TO THE GENERAL PARTNER UPON REQUEST. BY ACCEPTING THIS MEMORANDUM, EACH PROSPECTIVE INVESTOR AGREES TO THE FOREGOING.

ANY INVESTMENT IN THE FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. FOR A DESCRIPTION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE FUND, SEE SECTION V OF THIS MEMORANDUM, “CERTAIN RISK FACTORS.”

THE INTERESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE OR NON-U.S. SECURITIES LAWS. THE INTERESTS ARE OFFERED PURSUANT TO EXEMPTIONS PROVIDED BY SECTION 4(2) OF THE SECURITIES ACT, CERTAIN RULES AND REGULATIONS PROMULGATED PURSUANT THERETO, INCLUDING REGULATION D AND APPLICABLE STATE SECURITIES LAWS. THE INTERESTS MAY NOT BE TRANSFERRED IN THE UNITED STATES IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE FUND AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION, SUCH INTERESTS MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED, IN WHOLE OR IN PART, EXCEPT AS PROVIDED IN THE FUND’S LIMITED PARTNERSHIP AGREEMENT, AS IN EFFECT AT ANY GIVEN TIME (THE “PARTNERSHIP AGREEMENT”). THERE WILL BE NO PUBLIC MARKET FOR THE INTERESTS, AND THERE IS NO OBLIGATION ON THE PART OF ANY PERSON TO REGISTER THE INTERESTS UNDER THE SECURITIES ACT OR ANY STATE OR NON-U.S. SECURITIES LAWS. INVESTORS MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. FOR A DESCRIPTION OF CERTAIN RESTRICTIONS ON RESALE OR TRANSFER, SEE SECTION II OF THIS MEMORANDUM, “SUMMARY OF TERMS”.

PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS LEGAL, TAX, INVESTMENT OR OTHER ADVICE. EACH PROSPECTIVE INVESTOR SHOULD MAKE ITS OWN INQUIRIES AND CONSULT ITS OWN ADVISORS AS TO THE FUND AND THIS OFFERING AND AS TO LEGAL, TAX AND RELATED MATTERS CONCERNING AN INVESTMENT IN THE INTERESTS. CERTAIN ECONOMIC AND MARKET INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED FROM PUBLISHED SOURCES PREPARED BY OTHER PARTIES. WHILE SUCH SOURCES ARE BELIEVED TO BE RELIABLE,


NEITHER THE FUND, THE GENERAL PARTNER, NOR THEIR RESPECTIVE AFFILIATES ASSUME ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. NEITHER DELIVERY OF THIS MEMORANDUM NOR ANY STATEMENT HEREIN SHOULD BE TAKEN TO IMPLY THAT ANY INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. IN ADDITION, ALL INFORMATION CONTAINED HEREIN IS CURRENT AS OF THE DATE FIRST SPECIFIED ABOVE, UNLESS OTHERWISE SPECIFIED HEREIN, AND NEITHER THE GENERAL PARTNER NOR THE FUND HAS ANY OBLIGATION TO UPDATE SUCH INFORMATION. IN CONSIDERING THE PRIOR PERFORMANCE INFORMATION CONTAINED HEREIN, PROSPECTIVE INVESTORS SHOULD BEAR IN MIND THAT PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL ACHIEVE COMPARABLE RESULTS.

THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY OF THE INTERESTS BY ANY PERSONS IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. ANY PERSON RECEIVING THIS MEMORANDUM SHOULD NOT CONSTRUE THIS MEMORANDUM AS AN OFFER OR A SOLICITATION TO PURCHASE SECURITIES.

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE FUND AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE OR NON-U.S. REGULATORY AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. IT IS THE RESPONSIBILITY OF ANY INVESTOR PURCHASING THE INTERESTS OUTSIDE THE UNITED STATES TO SATISFY ITSELF AS TO FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY IN CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS AND OBSERVING ANY OTHER APPLICABLE REQUIREMENTS.

THIS MEMORANDUM DOES NOT PURPORT TO BE ALL INCLUSIVE OR TO CONTAIN ALL THE INFORMATION THAT A PROSPECTIVE INVESTOR MAY DESIRE IN INVESTIGATING THE FUND.

THIS MEMORANDUM HAS BEEN PREPARED IN CONNECTION WITH A PRIVATE OFFERING TO ACCREDITED INVESTORS AND QUALIFIED PURCHASERS OF INTERESTS. EACH INVESTOR WILL BE REQUIRED TO EXECUTE THE PARTNERSHIP AGREEMENT (THROUGH A LIMITED POWER OF ATTORNEY GRANTED TO THE GENERAL PARTNER) TO EFFECT THE INVESTMENT. IF ANY OF THE TERMS, CONDITIONS OR OTHER PROVISIONS OF THE PARTNERSHIP AGREEMENT IS INCONSISTENT WITH OR CONTRARY TO THE DESCRIPTIONS OR TERMS IN THIS MEMORANDUM, THE PARTNERSHIP AGREEMENT CONTROLS. THIS MEMORANDUM IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PARTNERSHIP AGREEMENT AND THE SUBSCRIPTION AGREEMENT RELATED THERETO. THE GENERAL PARTNER AND ITS AFFILIATES RESERVE THE RIGHT TO MODIFY ANY OF THE TERMS OF THE OFFERING AND THE INTERESTS DESCRIBED HEREIN.

PROSPECTIVE INVESTORS SHOULD INFORM THEMSELVES AS TO THE LEGAL REQUIREMENTS APPLICABLE TO THEM IN RESPECT OF THE ACQUISITION, HOLDING AND DISPOSITION OF INTERESTS AND AS TO THE INCOME AND OTHER TAX CONSEQUENCES TO THEM OF SUCH ACQUISITION, HOLDING AND DISPOSITION. INVESTORS SHOULD HAVE


THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT THE HIGH RISK AND LACK OF LIQUIDITY INHERENT IN AN INVESTMENT IN THE FUND.

THIS MEMORANDUM INCLUDES “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE SECURITIES ACT. ALL STATEMENTS REGARDING THE FUND’S EXPECTED FINANCIAL POSITION, BUSINESS AND FINANCING PLAN ARE FORWARD-LOOKING STATEMENTS. THE FUND CAN GIVE NO ASSURANCE THAT EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS (“CAUTIONARY STATEMENTS”) ARE DISCLOSED IN THIS MEMORANDUM, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS MEMORANDUM AND UNDER “CERTAIN RISK FACTORS”. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE FUND OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.

THIS MEMORANDUM HAS BEEN PREPARED SOLELY FOR USE BY THE PROSPECTIVE INVESTORS OF THE FUND. EACH RECIPIENT HEREOF ACKNOWLEDGES AND AGREES THAT THE CONTENTS OF THIS MEMORANDUM CONSTITUTE PROPRIETARY AND CONFIDENTIAL INFORMATION THAT THE GENERAL PARTNER, THE FUND, THEIR AFFILIATES, AND THEIR RESPECTIVE PORTFOLIO INVESTMENTS (THE “AFFECTED PARTIES”) DERIVE INDEPENDENT ECONOMIC VALUE FROM NOT BEING GENERALLY KNOWN AND ARE THE SUBJECT OF REASONABLE EFFORTS TO MAINTAIN THEIR SECRECY. THE RECIPIENT FURTHER AGREES THAT THE CONTENTS OF THIS MEMORANDUM ARE A TRADE SECRET, THE DISCLOSURE OF WHICH WILL CAUSE SUBSTANTIAL AND IRREPARABLE COMPETITIVE HARM TO THE AFFECTED PARTIES OR THEIR RESPECTIVE BUSINESSES. THE REPRODUCTION OR DISTRIBUTION OF THIS MEMORANDUM IN WHOLE OR IN PART, THE DIVULGENCE OF ANY OF ITS CONTENTS, OR THE USE OF THE CONTENTS HEREOF FOR ANY PURPOSE OTHER THAN THE EVALUATION OF AN INVESTMENT IN THE INTERESTS, WITHOUT THE PRIOR WRITTEN CONSENT OF THE GENERAL PARTNER, ARE PROHIBITED. NOTWITHSTANDING THE FOREGOING, A RECIPIENT MAY PROVIDE THIS MEMORANDUM TO ITS OWN LEGAL, TAX, ACCOUNTING AND OTHER PROFESSIONAL ADVISORS BOUND BY A DUTY OF CONFIDENTIALITY SOLELY FOR THE PURPOSE OF EVALUATING THE FUND. THE EXISTENCE AND NATURE OF ALL CONVERSATIONS REGARDING THE FUND AND THIS OFFERING MUST BE KEPT STRICTLY CONFIDENTIAL. BY ACCEPTING THIS MEMORANDUM, EACH RECIPIENT AGREES TO THE FOREGOING.

NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY STATEMENT CONCERNING THE FUND OR THE SALE OF INTERESTS DISCUSSED HEREIN OTHER THAN AS SET FORTH IN THIS MEMORANDUM, AND ANY SUCH STATEMENTS, IF MADE, MUST NOT BE RELIED UPON. PRIOR TO ANY INVESTMENT, THE GENERAL PARTNER WILL PROVIDE PROSPECTIVE INVESTORS THE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS AND ADDITIONAL INFORMATION FROM THE GENERAL PARTNER CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING AND OTHER RELEVANT MATTERS. PLEASE DIRECT ALL INQUIRIES TO BRENT RIVARD AT PATHFINDER PARTNERS REALTY VENTURES VII, LLC AT 858-875-4445 OR BY EMAIL AT [email protected].


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TABLE OF CONTENTS

PAGE

I. EXECUTIVE SUMMARY ................................................................................................... 1

II. SUMMARY OF TERMS .................................................................................................... 15

III. INVESTMENT OVERVIEW ............................................................................................. 24

IV. CERTAIN RISK FACTORS ............................................................................................... 38

V. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS .................................. 50

VI. REGULATORY CONSIDERATIONS .............................................................................. 59

VII. SUBSCRIPTION PROCEDURES ...................................................................................... 62


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I. EXECUTIVE SUMMARY

Pathfinder Partners Opportunity Fund VII, L.P., a Delaware limited partnership (the “Fund”), is a private real estate investment fund sponsored by Pathfinder Partners Realty Ventures VII, LLC, a Delaware limited liability company (the “General Partner”). The Fund, which is targeting superior risk-adjusted multifamily investment opportunities, is seeking up to $100,000,000 of equity Capital Commitments (subject to an increase of up to $150,000,000, at the discretion of the General Partner) from a select group of qualified investors. The General Partner or its affiliate will provide portfolio management and administrative services to the Fund under the direction of the General Partner’s managing directors, Lorne Polger, Mitch Siegler, Brent Rivard and Scot Eisendrath (collectively, the “Managing Directors”), and with strategic guidance from Pathfinder’s Advisory Council (see biographies on pages 10-14 of this Memorandum).

The Fund is the seventh in a series of opportunistic real estate investment funds sponsored by Pathfinder Partners, LLC or one of its affiliated entities (“Pathfinder”, “us” or “we”). These prior funds focused primarily on opportunistic and value-add multifamily and distressed residential (condominium, townhome and single-family) investment opportunities. In addition to these prior funds, Pathfinder has sponsored two related residential real estate funds, one focused on aggregating and renting single-family homes and the other focused on acquiring, renovating and selling luxury homes. Pathfinder has also sponsored several investment syndications focused on individual multifamily properties. Summary information on prior funds (“Prior Funds”) is shown on page 2 of this Memorandum. As of January 2018, Pathfinder has completed 107 acquisitions with 66 having gone “full-cycle” (acquisition to disposition) generating the following weighted average returns:

Gross Net

• Weighted Average Internal Rate of Return: 27% 21%

• Weighted Average Equity Multiple: 1.6x 1.5x

(see footnote on page 5 for Net Returns)

Pathfinder was formed in July 2006 to capitalize on the impending correction in the residential and commercial real estate markets. Since that time, Pathfinder has focused primarily on opportunistic and value-add multifamily property acquisitions in or near major metropolitan areas in the western U.S., such as Seattle, Portland, Denver, San Diego/southern California, Sacramento, Phoenix and Las Vegas (the “Target Markets”). Our strategy has been, and continues to be, to acquire under-managed properties which are below the radar of (too small for) the large real estate funds and too large for local investors and developers.

Pathfinder has distinguished itself as one of the leaders in the acquisition of smaller and middle-market, opportunistic and value-add multifamily properties in mid-tier markets in the western U.S. and currently has in excess of $530,000,000 in real estate assets under management. Pathfinder only acquires properties where we expect to add significant value. We take an “institutional” approach to each asset by repositioning undermanaged, undercapitalized properties with extensive renovation programs that materially alter a property’s profile, tenant appeal, marketability and value. In partnership with local developers, we also develop or redevelop existing properties, primarily focused on urban infill, residential parcels near population centers and transportation corridors.

The following is a profile of Pathfinder’s Prior Funds. In Prior Funds, Pathfinder has distributed net income to investors while reinvesting the original capital during a Prior Fund’s investment period and distributing capital following property dispositions after the expiration of such Prior Fund’s investment period.


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Prior Funds Fund Size Initial

Closing

Final Closing /Recap

Investment Period

Expiration

Distributions to Date

Pathfinder Partners Opportunity Fund I, LLC (“Fund I”)

$3,800,000 August 2007

January 2008

March 2010

134%

Pathfinder Partners Opportunity Fund II / II-A, L.P. (“Fund II”)

$21,851,000 May 2009

May 2010

May 2013

135%

Pathfinder Partners Opportunity Fund III, L.P. (“Fund III”)

$37,501,000 May 2011

May 2012

June 2014

124%

Pathfinder Partners Opportunity Fund IV, L.P. (“Fund IV”)

$49,365,000 November

2012 August 2013

August 2015

62%

Pathfinder Partners Opportunity Fund V / V-A, L.P. (“Fund V”)

$86,846,000 January 2015

December 2015

December 2017 0%

Pathfinder Partners 2017 Multifamily Opportunity Fund, L.P. (“2017 Fund”)

$44,554,000(1) January 2017

June 2017

December 2017

0%

Total – Opportunity Funds $243,917,000

Pathfinder Raintree Residential II, L.P. (“Raintree II”)

$10,000,000 June 2011

October 2012

N/A 169%

Pathfinder Raintree Residential II, L.P. (“Raintree II - Recap”)

$13,900,000 (post-recap)

May 2016

May 2016

N/A 7%

Pathfinder Partners Lux Home Fund I, L.P. (“Lux I”)

$11,790,000 May 2014

September 2014

September 2016

85%

Pathfinder Talavera Holdings, LLC (“Talavera”)

$7,775,000 October 2016

October 2016

N/A 0%

Other Syndications & Parallel Funds

$15,800,000 Various Dates

Various Dates

N/A 111%

Total – Other Funds/Investment Vehicles

$59,265,000

Grand Total $303,182,000

(1) Capital for the 2017 Fund includes additional syndicated capital invested in 2017 Fund portfolio investments.


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The Fund Will Build on Pathfinder’s Expertise and Well-Established Reputation in Investing in Western U.S. Markets and Multifamily/Residential Properties Where We Expect to Add Significant Value.

The Fund will focus primarily on acquiring Class-B apartments and other multifamily properties (condominiums and townhomes) where it is expected to add substantial value. Secondarily and limited to 20% of Fund Commitments, the Fund will invest in other residential real estate opportunities such as residential land entitlement, redevelopment of existing properties into a residential use and development of entry-level multifamily properties.

The Fund Benefits from a Chronic Housing Shortage, Particularly in the Target Markets.

Since 2004, the homeownership rate has decreased from more than 69% to 63% and millions of former homeowners are renting apartments. The General Partner believes that the homeownership rate is continuing to decline with a further acceleration likely if interest rates rise and following the passage of the 2017 Tax Cuts and Jobs Act as an estimated 23 million fewer U.S. homeowners will be incentivized to buy a home under the new rules, according to Zillow. The new supply of apartments in the Target Markets has primarily been luxury, Class-A properties in downtown areas that are unaffordable for many apartment renters, including tens of millions of millennials who are delaying starting families and buying a home. This is evidenced by the very high apartment occupancy rates in the Target Markets, which are all above 95%, which is considered fully occupancy.

The Fund Benefits from a Well Respected Institutional General Partner with a Strong Track Record in Investing in and Adding Value to Multifamily Properties in the Western U.S.

Limited Partners in the Fund will benefit from Pathfinder’s established reputation and brand, strong relationships, proprietary deal flow and established management systems and operational processes. Pathfinder currently has in excess of $530,000,000 in real estate assets under management.

The Fund’s General Partner is an affiliate of Pathfinder. Pathfinder has developed a strong reputation and excellent deal flow by virtue of its solid record of closing transactions and generating attractive returns for investors in Prior Funds. The General Partner believes that the Fund’s investors will benefit from Pathfinder’s robust due diligence and analytical processes, high quality asset management and property oversight systems and thorough and detailed investor reporting, which are at a sophisticated, institutional level not always found in managers of small and middle market real estate assets.

The Fund Benefits from Pathfinder’s Established Relationships and Proven Track Record in Acquiring Opportunistic and Value-Add Assets, Particularly Multifamily Properties

The Fund’s investment strategy is designed to leverage the real estate investment expertise of the General Partner. Since inception, Pathfinder and its affiliates have acquired, in 107 separate opportunistic transactions, value-add properties, defaulted loans and bank real estate-owned (“REO”) assets with estimated original invested capital (outstanding loan principal balance and invested equity, including those sold to date), exceeding $1 billion, of which 66 investments have already gone “full-cycle”. These properties include:

More than 4,900 multifamily (apartment, condominium and townhome) units;

In excess of 200 single-family homes;

Approximately 650 single-family and multifamily lots; and


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More than 650,000 square feet of commercial property.

Pathfinder has developed or is developing more than 400 new multifamily (apartment, condominium or townhome) units and has sold or holds for sale more than 580 condominium or townhome units.

Details of the 66 “full-cycle” investments are shown below:

FULL-CYCLE INVESTMENTS

# Property City StatePurchase

Date Sale Date Gross IRR (1) Net IRR(2)

Gross Equity

Multiple(1)

Net Equity

Multiple(2)

1) Mer Soleil Townhomes (4) Chula Vista CA Jun-08 May-10 31% 24% 1.8x 1.6x

2) Park West Residential Victorville CA Aug-09 Oct-10 58% 45% 1.4x 1.3x 3) Fontana Pacific Homes (4) Fontana CA Jul-09 May-11 64% 53% 2.0x 1.7x 4) Hunter's Chase Condominiums Parker CO Apr-11 Nov-11 129% 98% 1.4x 1.3x 5) Gardens at Thymes Square Townhomes Cloverdale CA Sep-09 Jan-12 59% 49% 1.9x 1.7x 6) Hawthorne 44 Condominiums (4) Portland OR Sep-10 Mar-12 33% 25% 2.1x 1.9x 7) Venture Commerce Center San Diego CA Dec-08 May-12 67% 59% 2.3x 2.0x 8) Barolo Condominiums Scottsdale AZ Sep-11 Jun-12 49% 37% 1.3x 1.2x 9) Vista Lago Apartments Austin TX Sep-11 Jul-12 21% 15% 1.2x 1.1x 10) Metro Lofts Condominiums Berkeley CA Dec-10 Jul-12 68% 54% 1.6x 1.5x 11) Colorado Residential Portfolio Denver CO Dec-09 Aug-12 54% 48% 1.7x 1.5x 12) Villa Las Brisas Apartments (4) Long Beach CA Oct-10 Aug-12 26% 19% 1.6x 1.5x 13) Sanctuary Townhomes Seattle WA Jun-11 Aug-12 35% 26% 1.3x 1.2x 14) Blairwood Townhomes Carmichael CA Dec-09 Nov-12 12% 8% 1.2x 1.1x 15) Dobson Springs Apartments Phoenix AZ Jul-11 Nov-12 21% 15% 1.3x 1.2x 16) Leucadia Shores Apartments San Diego CA Jul-10 Dec-12 18% 13% 1.5x 1.4x 17) Crimson Park Student Housing Norman OK Aug-10 Dec-12 50% 41% 2.5x 2.1x 18) Anaheim Crossroads Office Anaheim CA Apr-11 Dec-12 3% 1% 1.0x 1.0x 19) Hewitt St. Lofts Condominiums (4) Los Angeles CA Sep-10 Jan-13 17% 12% 1.4x 1.3x 20) Gramercy Court Residential (5) Houston TX May -07 Feb-13 N/A(5) N/A(5) 0.6x 0.6x 21) University Avenue Retail San Diego CA Sep-09 Feb-13 21% 16% 1.7x 1.5x 22) Blake 27 Townhomes Denver CO Jan-12 Mar-13 56% 43% 1.5x 1.4x 23) Brant Street Townhomes San Diego CA Dec-12 Jul-13 67% 50% 1.4x 1.3x 24) Broomfield Multifamily Parcel Broomfield CO Mar-12 Sept-13 47% 35% 1.7x 1.5x 25) Chelsea Court Condominiums (3)(4) Seattle WA Jan-12 Sept-13 45% 35% 2.3x 2.0x 26) Dorsey Place Condominiums Phoenix AZ Jul-11 Oct-13 24% 18% 1.6x 1.4x 27) Albion Townhomes Denver CO Aug-12 Oct-13 35% 26% 1.3x 1.3x 28) Riverside Office Riverside CA Dec-12 Mar-14 36% 29% 1.5x 1.4x 29) Santa Clara Mixed Use Santa Clara CA Sep-13 Apr-14 32% 23% 1.2x 1.1x 30) The Wellshire Apartments Denver CO May-12 May-14 35% 27% 1.8x 1.6x 31) Shorewood Apartments (4) Phoenix AZ Feb-12 Jun-14 21% 16% 1.7x 1.6x 32) Bixby Park Apartments (4) Long Beach CA Jun-12 Aug-14 28% 22% 1.9x 1.7x


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# Property City StatePurchase

Date Sale Date Gross IRR (1) Net IRR(2)

Gross Equity

Multiple(1)

Net Equity

Multiple(2)

33) Grant Street Office Denver CO Dec-11 Nov-14 15% 10% 1.5x 1.3x 34) Chester Place Lofts Phoenix AZ Nov-12 Feb-15 31% 24% 1.9x 1.7x 35) Palm Harbor Apartments (6) Palm Hbr. FL Feb-07 Apr-15 N/A(6) N/A(6) 0.8x 0.8x 36) Aura Apartments (4) Phoenix AZ Feb-12 May-15 21% 16% 1.9x 1.7x 37) Redondo Terrace Apartments Federal Way WA Mar-12 May-15 18% 13% 1.6x 1.4x 38) Zuma Apartments(4) Denver CO Nov-13 Jan-16 29% 21% 1.9x 1.7x 39) River Oaks Mixed Use Paso Robles CA June-12 Jan-16 5% 3% 1.2x 1.1x 40) The Anna Apartments Redmond WA Mar-13 Jan-16 17% 13% 1.4x 1.3x 41) Garrison Business Park (4) Lakewood CO De-12 Mar-16 32% 25% 2.5x 2.1x 42) Tuskawilla Park Condominiums Orlando FL Aug-10 Apr-16 13% 9% 2.0x 1.7x 43) Springwater Townhomes Portland OR Aug-13 May-16 25% 20% 1.9x 1.7x 44) Raintree Residential II (8) San Diego CA May-11 Apr-16 23% 17% 2.7x 2.2x 45) North Campus Crossing Student Housing (7) Greenville NC Aug-12 June-16 N/A

(7) N/A(7) 0.0x 0.0x

46) Bahia Vista Townhomes San Diego CA May-13 June-16 20% 15% 1.6x 1.4x 47) Tuscan Townhomes Riverside CA Aug-12 Jul-16 22% 17% 2.1x 1.9x 48) Calico Townhomes Portland OR Dec-13 Sep-16 30% 23% 2.1x 1.8x 49) Talavera Townhomes (8) Phoenix AZ May-13 Oct-16 17% 13% 1.8x 1.6x 50) Hanna Heights Apartments Tacoma WA Jul-14 Dec-16 28% 22% 1.8x 1.6x 51) Homewood Suites Hotel La Quinta CA Jan-14 Jan-17 23% 17% 1.8x 1.6x 52) McKinley Court Apartments Phoenix AZ Sep-12 Jun-17 31% 25% 3.6x 3.0x 53) Florera Condominiums Seattle WA Nov-13 Sep-17 16% 12% 1.8x 1.6x 54-66)

Luxury Homes (13 Dispositions) (9) Various CA Various Various 22% 16% 1.5x 1.3x

Weighted Average Returns 27% 21% 1.6x 1.5x

(1) Gross Equity Multiple and IRRs are on a project-level basis (i.e. before fund expenses and General Partner’s Carried Interest) as to the equity invested by the relevant Prior Fund.

(2) Net Equity Multiple and IRRs are on a project-level basis as to the equity invested by the relevant Prior Fund, and reflect the actual capital contributions and actual cash distributions of operating cash flow, refinance and sale proceeds with respect to each of the investments sold, as adjusted to reflect the management fees and Carried Interest payments that would have been paid to Pathfinder had the subject properties been acquired by the Fund. The IRR calculations do not take into account the time value of money for the Fund or idle cash.

(3) Returns do not give effect to reserves or any remaining assets, a portion of which may be realized in the future.

(4) Project was initially closed on an all-cash basis; the Equity Multiple is calculated based on the equity remaining in the investment post recapitalization with a senior loan.

(5) Pathfinder Partners Opportunity Fund I, LLC sustained a $107,238 (38%) loss on its Gramercy investment.

(6) Pathfinder Partners Opportunity Fund I, LLC sustained a $15,000 (21%) loss on its Palm Harbor investment.

(7) Pathfinder Partners Opportunity Fund II, LP and Pathfinder Partners Opportunity Fund III, LP sustained a combined $2,200,000 (100%) loss on the North Campus Crossing investment.

(8) The Raintree II and Talavera Townhomes investments were recapitalized and remain in the Pathfinder portfolio.

(9) As of January 2018, Pathfinder has acquired 19 separate homes in the Los Angeles area of which 13 have been sold.


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The Fund Seeks Superior, Risk-Adjusted Rates of Return

The Fund will focus primarily on acquiring opportunistic and value-add real estate assets with a focus on income-producing, Class-B apartments and other multifamily properties (condominiums and townhomes) in the Target Markets. Secondarily and limited to 20% of Fund Commitments, the Fund may invest in other residential real estate opportunities such as residential land entitlement, redevelopment of existing properties into a residential use and development of entry-level multifamily properties. The Fund’s Target Markets, mid-tier cities or communities in the western U.S. where Pathfinder has substantial previous investment experience, market knowledge and relationships, are generally characterized by superior population and employment growth dynamics, an educated workforce, high-paying technology jobs, effective transportation corridors, and a variety of recreational and cultural activities.

The General Partner believes there remain numerous opportunities to acquire under-managed properties at discounts to their market value and replacement cost, and is confident that it can add value to projects by employing various, proven management and operational strategies. As a result, and based on the General Partner’s success with similar properties in Prior Funds, the General Partner believes the Fund should be able to earn gross internal rates of return (“IRRs”) of 16% to 18% per annum and net IRRs of approximately 12% to 14% per annum (net of the carried interest distributions and management fees and expenses). The General Partner will target 4% to 6% annual cash-on-cash returns, net of Fund expenses, from each income-producing property upon stabilization and the execution of each property’s business plan. Notwithstanding the foregoing, the Fund’s investment activities involve considerable risk; there is no assurance that these rates of return, or any return on or of capital, will be achieved. See Section IV of this Memorandum, “Certain Risk Factors”.

Investors Benefit from an Attractive Fund Structure

Limited Partners will benefit from a Fund structure that aligns the General Partner’s financial incentives strongly with those of investors, since the General Partner is committing $5,000,000 to the Fund and the vast majority of the General Partner’s compensation is expected to be derived from profit participation rather than fee income. Furthermore, the General Partner’s equity return based on performance and profits is rewarded only after the investors have had their capital returned along with the Preferred Return. Neither the Fund nor the General Partner charge Limited Partners debt placement, refinancing, development, or disposition fees. In addition, the General Partner does not have affiliated property management, construction, real estate brokerage, or insurance businesses that charge fees to the Fund, which can create potential conflicts of interest and even misalign incentives between a General Partner and the Limited Partners.

Investors Benefit from a Diversified Portfolio of Value-Add Multifamily Assets

Limited Partners will benefit from a multifamily portfolio that is diverse as to property geography, size and vintage. The General Partner will target a balanced and diversified portfolio concentrated in the Target Markets with a thoughtful allocation of capital to selected mid-tier cities in the western U.S. which the General Partner has previously analyzed extensively and invested in repeatedly; these Target Markets are characterized by superior population and employment growth dynamics, an educated workforce, high-paying technology jobs, effective transportation corridors and a variety of recreational and cultural activities. The Target Markets include Seattle, Portland, Denver, San Diego/southern California, Sacramento, Phoenix and Las Vegas.

As noted in the John Burns Real Estate Consulting (JBREC) report contained in a supplement to this Memorandum (the “Supplemental Private Placement Memorandum”), despite the new supply of luxury


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apartments in the Target Markets, there exists an imbalance between the supply and demand of housing, which has developed over many years, resulting in strong rent growth and occupancies in excess of historical averages during the past decade. In addition, the prices of homes, particularly those at entry-level price points, have risen strongly during the past several years, reflecting a shortage of supply. Strong population and employment growth are expected by JBREC and the General Partner to continue to propel demand for housing for the next several years. This, combined with continued restrictions on supply, should support continued strong occupancy and rent growth trends in the foreseeable future. (For a more complete summary of the underlying contributors to the supply/demand imbalance and the other trends supporting Pathfinder’s investment thesis about demand for apartments and entry-level housing, please see the JBREC report in the Supplemental Private Placement Memorandum and the “JBREC Executive Summary” in Section III of this Memorandum, “Investment Overview” below).

Fund Investors will also Receive the First Opportunity to Co-Invest Alongside the Fund in Certain Properties Requiring Larger Equity Amounts

The General Partner plans to target investments with equity requirements of $5,000,000 to $10,000,000 each. The Fund may also participate in investments requiring larger amounts of equity and, in these situations, the General Partner may syndicate the additional equity (up to 40% of the total equity for such acquisitions) in a co-investment structure (“Co-Investment”) when the equity requirement for a target investment is greater than $7,000,000.

Limited Partners with at least $1,000,000 in aggregate capital commitments to the Fund (“Major Investors”) will have “first look” at each Co-Investment. The General Partner will notify Major Investors of a Co-Investment opportunity, and each Major Investor will have five (5) business days to elect to participate in such Co-Investment. If Major Investors elect to participate in an aggregate amount that exceeds the total Co-Investment amount, then participation among such interested Major Investors may be reduced in any manner deemed by the General Partner to be appropriate. If Major Investors do not elect to participate in the entire amount of such Co-Investment opportunity, then the General Partner will notify all other Limited Partners of their opportunity to invest in such remaining amount, and all interested Limited Partners will have the ability to invest on a “first come first served” basis (although the General Partner may, in its discretion, adjust participation among interested Limited Partners in any manner deemed by the General Partner to be equitable).

The terms of these Co-Investments are expected to be substantially equivalent to (and, in any event, on terms no less favorable than) the terms for investors in the Fund related to such property. Investors will earn a preferred return on funds contributed to the Co-Investment vehicle and the General Partner (or an affiliate) will receive a carried interest distribution of 20% of the profits from the syndicated portion of the Co-Investment vehicle. Any Co-Investment will be outlined in separate private placement memoranda, offering circulars, subscription documents, operating agreements, partnership agreements, and similar documents. In no event will there be a “double promote” paid to the General Partner in these Co-Investment structures, meaning only investors directly invested in the Co-Investment will be charged a promote directly by the Co-Investment vehicle.

Opportunity

The General Partner believes that attractive opportunities exist to generate superior, risk-adjusted returns through a systematic investment program primarily focusing on under-managed and underperforming multifamily real estate assets. The Fund is entirely focused on opportunities in or near its Target Markets, select major urban and suburban markets in the western U.S., including Seattle, Portland, Denver, San Diego/southern California, Sacramento, Phoenix and Las Vegas. Investors in the Fund are expected to benefit from:


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The General Partner’s investment and value-add strategies, which target superior risk-adjusted rates of return. The Fund is targeting gross IRRs of 16% to 18% per annum and net IRRs of approximately 12% to 14% per annum (net of the carried interest distributions, management fees and expenses) with annual cash-on-cash distributions, net of Fund expenses, from each portfolio investment of 4% to 6% upon stabilization and execution of the business plan on each income-producing property.

The opportunity to receive an attractive preferred return on their capital. To the extent of available cash, investors will be entitled to receive an 8% per annum preferred return on their capital contributions (or 9% per annum preferred return for Early Investors and Major Investors, as defined below). The General Partner believes the preferred return provides Fund investors with considerable downside protection on their investment and strongly aligns the interests of the General Partner with those of the investors.

A relatively low fee structure and attractive profit share. The Fund will not charge its investors with asset disposition, debt placement, refinancing or development fees, which are common in other, similar funds. The Fund’s 1.5% annual management fee is charged only on Contributed Capital, not Committed Capital, which is commonly done in other, similar funds. To the extent of available cash, investors will receive 80% of total profits.

Pathfinder’s strong track record and excellent reputation, derived from its outstanding record of having acquired real estate assets with an original total capitalization of more than $1 billion (outstanding loan principal balance and equity) in 105 separate transactions during the past several years and managing six prior opportunistic investment funds. To date, 66 investments have gone “full-cycle” (acquisition to disposition), generating project-level, weighted average IRRs of 27% (gross) and 21% (net) and equity multiples of 1.6x (gross) and 1.5x (net). See Net IRR footnote on page 5.

The General Partner’s considerable relevant experience in fund management, investment, underwriting, deal structuring, negotiation and legal and financial strategies augmented by the General Partner’s $5,000,000 commitment to the Fund and the strategic guidance of Pathfinder’s Advisory Council.

Pathfinder’s decade of experience acquiring and managing opportunistic and value-add multifamily properties and extensive relationships with referral sources and influencers such as brokers, attorneys, financial institutions, loan servicers, receivers, accountants and bankruptcy/workout professionals.

Pathfinder’s intent to assemble a diversified portfolio comprised primarily of income- producing multifamily real estate in attractive markets in the western U.S.

The General Partner’s plan to purchase real estate with a value-add component at a discount to current value or cost of replacement. The Fund will target investments which provide opportunities to reposition undermanaged, undercapitalized properties with extensive renovation programs that materially alter a property’s profile, tenant appeal, marketability and value.

Pathfinder’s multifamily investment expertise, both adding value to existing, under-managed properties and capitalizing on attractive multifamily entitlement or development opportunities where the Fund can create significant value in the entitlement,


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development or redevelopment of land or adaptive reuse of existing properties primarily in San Diego and secondarily in the other Target Markets.

The General Partner’s disciplined, conservative and thoughtful use of financial leverage (debt) to enhance returns without significantly increasing the risk to Fund investors. Strategies include:

1. Utilizing a structure that eliminates the cross-collateralization of properties; 2. Matching the terms of each loan with the business plan for the property; 3. Utilizing primarily fixed-rate (rather than floating rate) financing; and 4. Employing conservative levels of leverage (generally 60% to 70% loan-to-costs)

for income-producing properties.

The Fund’s conservative underwriting methodologies. The General Partner will consult knowledgeable third-party market consultants and local property management firms and brokers on revenue and expense projections on properties targeted by the Fund. Both national and local research reports can provide updated trends and forecasts for revenue and vacancy projections, as well as supply and demand characteristics of particular markets. The General Partner uses conservative rent growth projections, lease-up/absorption periods, expense estimates and capital improvement budgets in its analyses. Both acquisition and exit pricing are compared to current replacement cost estimates. In Prior Funds, Pathfinder has demonstrated a conservative underwriting methodology and has frequently achieved returns which exceed original underwriting targets and/or dispositions in advance of original timetables.

The Fund’s institutional approach to due diligence. Prior to making an investment, Pathfinder engages a property condition consultant to evaluate and report on the physical condition of an asset. These detailed reports address building systems, building envelope, structural elements, interior elements, roofing, mechanical, plumbing and electrical systems. Pathfinder performs market assessments evaluating competing properties and a formal lease audit to determine the accuracy of tenant financial information, better understand the property’s tenant demographic and manage lease exposure. In addition, Pathfinder may engage a zoning consultant to prepare a report detailing a property’s jurisdiction, zoning ordinance, zoning designation, permitted uses, density, lot line setback and parking regulations. By analyzing a property at the granular level and not relying only on the lender-required physical and environmental reports, Pathfinder is able to better understand the economic drivers of an investment and how to best mitigate any deficiencies.

The General Partner’s numerous relationships with major financial institutions. Pathfinder has developed numerous relationships with government-sponsored entities (Fannie Mae and Freddie Mac) as well as community, regional and money center banks and other lenders who wish to provide debt financing for the Fund’s properties. These relationships may enable Pathfinder to close transactions with a higher level of confidence, more quickly and with more attractive financing terms than certain of our competitors. The interest rate environment remains favorable for borrowers and the General Partner believes that Fund investors will benefit during the Investment Period (defined in Section II below) by locking into historically low-cost debt for income-producing, value-add multifamily properties. The Fund anticipates property holding periods of approximately five to six years, although such periods may vary based on market and other conditions.


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Experienced Senior Executives and Advisory Council

The General Partner is led by a highly experienced executive team assisted by a skilled group of professionals. The General Partner’s senior executives have extensive fund management, investment, underwriting, deal structuring, legal and financial experience. Before joining Pathfinder, the members of the management team held positions at leading real estate brokerage firms, law firms, investment banking and venture capital firms, national accounting and wealth management firms. Additionally, our executive officers average approximately 25 years of real estate, investment management and/or corporate management experience, and other key employees average ten or more years of related experience.

The General Partner has established an investment committee (the “Investment Committee”) which evaluates potential Fund investments consisting of the four senior executives. The biographies of the management team and advisory council members are shown below. Lorne Polger, Mitch Siegler, Scot Eisendrath and Brent Rivard are members of the General Partner and comprise the Fund’s Investment Committee.

MANAGEMENT TEAM

Lorne Polger – Co-Founder and Senior Managing Director, focuses on acquisitions, dispositions, business and legal strategies. He practiced real estate law for more than 20 years and prior to co-founding Pathfinder in 2006, was the head of the Real Estate, Environmental and Land Use team at Procopio, San Diego’s largest law firm. Mr. Polger is recognized for his multifamily expertise, having directly participated in the acquisition, disposition, financing and development of apartment, condominium and condominium conversion transactions exceeding $7 billion in value. His law practice included acquisitions, dispositions, developments, financings, foreclosures, reorganizations and workouts, syndications, and leasing, along with residential, office and industrial condominium conversion and construction. Mr. Polger graduated with a B.A. in Political Science from Colorado College, Cum Laude, in 1984 and earned his law degree from UCLA in 1988. Mr. Polger was a 2015 finalist in Ernst & Young’s Entrepreneur of the Year Program in San Diego.

Mitch Siegler – Co-Founder and Senior Managing Director, focuses on sourcing prospective transactions, developing financial structures and business and financial strategies. Prior to co-founding Pathfinder, Mr. Siegler founded and served as CEO of several companies and was a partner in Lenser, Inc. a national management consulting firm. Earlier in his career, Mr. Siegler was a partner in Sorrento Associates, Inc., an investment banking firm, where he advised clients on more than 40 financings, mergers, acquisitions and financial restructurings involving both private and public companies and held FINRA Series 7 and 63 licenses, and Sorrento Ventures, a private equity firm, where he invested in scores of private financings totaling several hundred million dollars. He also spent five years as an executive with Anheuser-Busch, Inc. Mr. Siegler graduated with a B.S. in Business Administration, with honors, majoring in Finance and Economics from the University of Missouri, Columbia in 1982 and an M.B.A., with highest honors from the Graziadio School of Business and Management at Pepperdine University in 1986. Mr. Siegler was a 2015 finalist in Ernst & Young’s Entrepreneur of the Year Program in San Diego.


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Scot Eisendrath – Managing Director, Acquisitions and Investments, oversees Pathfinder’s investment analytics, underwriting and financial analysis. Scot was a commercial real estate executive for 17 years with Cassidy Turley San Diego (now Cushman & Wakefield), Burnham Real Estate (now Cushman & Wakefield) and CBRE, where he specialized in providing financial advisory and capital market services to investors, developers and lenders for primarily multifamily real estate as well as industrial, office, retail, hospitality and land projects. He has participated in the acquisition, disposition, development, asset management or financing of more than $8 billion of real estate assets, including 30,000 multifamily units and 20 million square feet of commercial space. Mr. Eisendrath graduated from the University of Wisconsin, Madison, with a B.B.A. in Real Estate and Urban Land Economics in 1993 and an M.B.A., with an emphasis in Finance, from San Diego State University in 1997.

Brent Rivard – Managing Director, Chief Financial Officer and Chief Operating Officer, is responsible for Pathfinder’s financial, administrative, investor relations, human resources and information technology functions. From 2009 to 2012, Mr. Rivard was the President of a national wealth management firm, where he led the launch of the firm’s broker dealer and proprietary ‘40 Act interval fund. Prior to that, Mr. Rivard was the Chief Financial Officer and Chief Operating Officer for the Grubb & Ellis commercial real estate brokerage affiliate in San Diego (now Cassidy Turley San Diego), one of southern California’s leading privately-held commercial real estate brokerage firms. He was previously Vice President, Finance and Operations at The MHA Group and Vice President, Accounting and Finance/Treasurer at NYSE-traded AMN Healthcare, where he was involved with the placement of more than $1 billion in debt and equity securities and led the company’s mergers and acquisitions practice. Prior to that, Mr. Rivard worked for Deloitte & Touche. Mr. Rivard is also a principal involved in several private equity investments of business to business service firms for mid-market companies. Mr. Rivard, a Certified Public Accountant, graduated cum laude from the University of California, Los Angeles with a B.A. in Business Economics.

Jennifer Barry – Outside General Counsel, began focusing on Pathfinder in 2012. She previously practiced real estate, securities and corporate law for 13 years with San Diego law firms Procopio, Cory, Hargreaves & Savitch LLP, and Hillyer & Irwin, and as a sole practitioner. Ms. Barry has represented buyers, sellers and owners through purchases, sales, refinancing and leasing of commercial and multifamily properties. Earlier in her career, she spent three years with a national law firm prosecuting federal and state securities litigation class action lawsuits. Ms. Barry graduated with a B.S. in Business Administration, cum laude, from Skidmore College and received her law degree from the University of Southern California.


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Matthew Quinn – Vice-President, joined Pathfinder in 2009 and is primarily responsible for the firm’s asset management activities. Mr. Quinn and the Asset Management team interface with the firm’s property management vendors as well as a variety of contractors, architects and designers on Pathfinder’s multifamily properties. Previously, he worked for Gateway Partners, Inc., a San Diego-based firm which consulted on mergers and acquisitions and with the Wealth Management division of Santa Barbara Bank & Trust. Mr. Quinn received a B.A. in Business and Economics from the University of California, Santa Barbara, where he was a four-year recipient of the Regents Scholarship, the University of California’s most prestigious scholarship award. He received an M.B.A. from the Rady School of Management at the University of California, San Diego, where he was a recipient of the Patricia and Christopher Weil Fellowship Award.

Jeff Wurtz – Vice President of Finance, began working with Pathfinder in 2010 and joined the firm full-time in 2012. Prior to joining Pathfinder, he worked as a CPA focused on real estate and technology clients. Previously, Mr. Wurtz was the Chief Financial Officer of Lymabean.com, a college-based internet company, and Controller for Best Rate Funding, a mortgage banking company. Mr. Wurtz has also been an adjunct college instructor for eight years teaching Accounting, Tax, Personal Finance and General Business courses. He began his career at Deloitte & Touche. He received both his Bachelor’s and Master’s degrees in Accounting from Brigham Young University.

ADVISORY COUNCIL

Pathfinder’s Advisory Council, formed in 2008, meets on a regular basis to provide the firm’s executive team with strategic advice and to discuss trends in real estate and financial markets and the commercial lending environment. All of the members of the Advisory Council will provide strategic advice to the General Partner’s Investment Committee.

John Frager, Chairman, has been a commercial real estate executive for more than 25 years. In 2010, he rejoined CBRE Group, Inc. (CBRE) as head of its Office Services Group for the Americas, where he oversaw more than 1,500 professionals and support staff. He currently oversees all CBRE real estate services and professionals in San Diego and Baja Norte, Mexico. Previously, Mr. Frager was President and CEO of Cassidy Turley San Diego (formerly Grubb & Ellis BRE Commercial), which he grew from the fourth largest to the largest commercial real estate firm in San Diego in just five years. Under his leadership, CBRE launched several new divisions, including Financial Advisory Services, Debt Placement and Capital Markets, and acquired several businesses. Mr. Frager spent the first 16 years of his real estate career at CBRE, in various executive management positions. Previously, he served for six years as an aviator with the U.S. Navy and did tours in Japan, the Philippines, Guam and Saudi Arabia. Mr. Frager received a B.S. in Business Administration from the University of San Diego.


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Joseph Cohen is a founding partner of HoyleCohen, a leading San Diego based wealth advisory firm. He has been a wealth advisor for 27 years. Mr. Cohen is a distinguished graduate of the United States Naval Academy and received his M.B.A. from the Massachusetts Institute of Technology (M.I.T.). Mr. Cohen holds the Certified Financial Planner (CFP) designation, is an active supporter of Technion University, the M.I.T. of Israel, and has been involved with the San Diego Jewish Film Festival for over ten years. Mr. Cohen serves as a trustee on the Boards of the Jewish Community Foundation (San Diego), the Orcas Island Community Foundation (Washington) and The Reuben H. Fleet Space and Science Center (San Diego).

Carl Eibl was previously the Managing Partner at Enterprise Partners, a San Diego-based venture capital firm which at its height had $1 billion under management. Prior to joining Enterprise in 2003, Mr. Eibl was the CEO of several high-profile technology and life science companies, including publicly-traded Maxwell Technologies (MXWL, NASDAQ), President of Stratagene Corporation (STGN), then a privately-held biotechnology company and CEO of Mycogen Corporation, a publicly-held agricultural, biotechnology company, acquired by Dow Chemical Company for $1.1 billion. Mr. Eibl holds a J.D. from Boston University School of Law and a B.A. from Cornell University.

Damon Gascon is a 25-year veteran of the homebuilding industry with substantial experience in strategic planning, land development and development of master planned communities. He is currently Regional Vice President of Lewis Homes, a leading developer of master planned communities and builders and owners of rental communities, shopping centers, office buildings and industrial parks. He was previously President of Gascon Companies, Inc., a residential real estate advisory, asset management and construction services firm providing services to homebuilders, developers and lenders. Previously, Mr. Gascon served as Inland Empire Area President for K. Hovnanian Homes (KHOV, NYSE), a publicly-traded, national homebuilder. Earlier in his career, Mr. Gascon co-founded Pacific Century Homes, a leading homebuilder in the Inland Empire of southern California before Lennar Homes acquired the company in 2002. Mr. Gascon graduated with a B.S. in Business Administration with an emphasis in Finance from San Diego State University.

Norm Miller, Ph.D. is the Hahn Chair of Real Estate Finance at the University of San Diego (USD) and affiliated with USD’s Burnham-Moores Center for Real Estate. He works with the FDIC, DOJ and Collateral Analytics developing real estate analytic products and tools to support financial institutions, institutional and investors. He was Vice President of Analytics for the CoStar Group, a leading commercial real estate data and market analysis company. Prior to joining USD, he was Academic Director and the founder of the real estate program at the University of Cincinnati. He received his Ph.D. from the Ohio State University. Norm has published numerous academic articles, books and articles in trade market publications on housing, brokerage, mortgage risk, valuation, sustainable real estate and many other topics. His most


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recent book “Commercial Real Estate Analysis and Investment” with David Geltner at M.I.T., is in its third edition and is the world’s leading graduate level real estate textbook. He has lectured around the world from France to Singapore, Thailand, New Zealand and Russia. He has worked extensively with various trade associations and became one of the first “Distinguished Fellows” of the National Association of Industrial and Office Properties (NAIOP). He is currently a Homer Hoyt Land Use Institute Faculty and Board member.

Jerry Turk is a former CEO of several hospitality companies. He oversaw the development, construction and management of many casino hotels, including the Pala Casino Spa and Resort in San Diego County and together with a former partner, the Empress Casino, near Chicago. These facilities soon became among the most successful casinos in their markets. Mr. Turk serves as executive chairman of Tribal Financial Advisors, Inc., which provides financial advisory services to American Indian Tribes. Mr. Turk was previously a partner and managing director with the investment banking firm of Oppenheimer & Co. where he specialized in challenging financings. He also served as chief operating officer of a large, privately-held women’s footwear company, chief financial officer of an American Stock Exchange-listed company, and a special assistant to the New York City Controller, where he led the team that uncovered poor accounting practices and other issues within the Controller’s office. Mr. Turk was trained as both an attorney and a certified public accountant. Mr. Turk served as the first president and a co-founder of the Las Vegas office of the Anti-Defamation League, president of the Ronald McDonald House of Las Vegas, chairman of the redevelopment committee of the Las Vegas Downtown Progress Association, director and member of the executive committee of the Las Vegas Chamber of Commerce, director of the United Way of Southern Nevada, director and a founder of the Fremont Street Experience in Las Vegas, director and member of the executive committee of the Jewish Federation of Las Vegas, director and member of the executive committee of Seacrest Village Retirement Communities of San Diego and director and member of the executive committee of the Jewish Community Foundation of San Diego.


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II. SUMMARY OF TERMS

The following summary is qualified in its entirety by reference to the Fund Limited Partnership Agreement (the “Partnership Agreement”) and the Subscription Agreements relating to purchase of such limited partner interests (“Interests”), both of which are available upon request and should be reviewed carefully prior to making an investment decision.

Fund: Pathfinder Partners Opportunity Fund VII, L.P., a Delaware limited partnership (the “Fund”). The Fund will focus on multifamily investments in the seven Target Markets in the western U.S. where Pathfinder has substantial prior investment experience. Investors in the Fund will be admitted as limited partners (“Limited Partners”, and together with the General Partner sometimes called “Partners”).

Purpose and Investment Strategy:

The Fund intends to invest primarily in well-located, high-quality, multifamily properties in selected mid-tier cities and/or near major metropolitan markets in the western U.S. (the “Target Markets”). The Target Markets are major metro areas in the western U.S., including Seattle, Portland, Denver, San Diego/southern California, Sacramento, Phoenix and Las Vegas.

The Fund intends to invest at least 80% of its capital in value-add multifamily properties, generally Class-B apartments and other multifamily residential (condominiums and townhomes). The Fund may invest up to 20% of its capital in other residential real estate opportunities such as residential land entitlement, redevelopment of existing properties into a residential use and development of entry-level multifamily properties, with a primary focus on San Diego County and a secondary focus on the other Target Markets.

The Fund will invest only in the Target Markets. At the discretion of the General Partner, may co-invest with operating partners with substantial experience operating real estate (each, an “Operating Partner”) and/or with other capital partners with substantial experience in making opportunistic or value-add real estate investments (each, a “Financial Partner”). In addition, the Partnership Agreement permits the Fund to purchase or sell portfolio investments from or to, or to contribute portfolio investments to a joint venture with, affiliates of the General Partner, including Prior Funds, all at prevailing market prices (as confirmed by an independent appraisal) and on prevailing market terms as determined by the General Partner.

The General Partner expects the Fund to invest approximately $5,000,000 to $10,000,000 of equity in each portfolio investment and may invest lower amounts in the other residential real estate/development opportunities.

The General Partner believes that there will continue to be opportunities during the Investment Period to make attractive investments in smaller and middle-market value-add multifamily properties acquired from sellers who have under-managed or under-invested in the properties for a number of years. In addition, the General Partner believes there will continue to be significant opportunities to enhance values on such properties through strategies including renovations and property repositioning, superior management or marketing, correcting deferred maintenance and other impairments. Finally, the General Partner believes that there are and will continue to


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be attractive, risk-adjusted investment opportunities related to the acquisition of land for re-entitlement, development and holding of multifamily properties until stabilized.

The Fund also intends to earn returns by (i) using reasonable leverage to enhance return on equity, (ii) creating value through improved asset management, and (iii) selling properties when they are stabilized (after a holding period of approximately five to six years) or when they can be sold profitably after being held for investment purposes, at the discretion of the General Partner.

Co-Investments / Syndications:

The General Partner intends to create a diversified investment portfolio comprised of ten to 20 properties with the Fund investing approximately $5,000,000 to $10,000,000 of equity in each property; the Fund may invest lower amounts in the other residential real estate/development opportunities. To the extent that a property may require an equity investment greater than $7,000,000, the General Partner may, at its discretion make available Co-Investment opportunities to one or more of the Fund’s Limited Partners, Operating Partners or Financial Partners for up to 40% of the equity requirement in such a portfolio investment. The terms of these Co-Investments are expected to be substantially equivalent to (and, in any event, on terms no less favorable than) the terms for investors in the Fund related to such property, including the right of investors to earn a preferred return on funds contributed to the Co-Investment vehicle and the right of the General Partner (or an affiliate) to receive carried interest distributions on 20% of the profits of such Co-Investment vehicle (without double-counting any carried interest distributions on the profits of the Fund).

Major Investors in the Fund will have “first look” at any Co-Investment opportunity with the Fund. The General Partner will notify Major Investors of a Co-Investment opportunity, and each Major Investor will have five (5) business days to elect to participate in such Co-Investment. If Major Investors elect to participate in an aggregate amount that exceeds the total Co-Investment amount, then participation among such interested Major Investors may be reduced in any manner deemed by the General Partner to be equitable. If Major Investors do not elect to participate in the entire amount of such Co-Investment opportunity, then the General Partner will notify all other Limited Partners of their opportunity to invest in such remaining amount, and all interested Limited Partners will have the ability to invest on a “first come first served” basis (although the General Partner may, in its discretion, adjust participation among interested Limited Partners in any manner deemed by the General Partner to be equitable).

General Partner: Pathfinder Partners Realty Ventures VII, LLC, a Delaware limited liability company, serves as the sole general partner of the Fund (the “General Partner”) and is owned by Pathfinder. The General Partner makes all of the Fund’s investment determinations. The General Partner’s “Investment Committee” consists of Lorne Polger, Mitch Siegler, Scot Eisendrath and Brent Rivard. The five eligible members of Pathfinder’s Advisory Council also are members of the General Partner.

The General Partner is affiliated with Pathfinder, which has over $530,000,000 in assets under management (see Schedule A). Pathfinder will make all recommendations regarding the purchase and sale of investments to the General Partner, as well as provide certain management and administrative services on behalf of the Fund and the General Partner.


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Manager: In consideration of the payment of Management Fees by the Fund, an affiliate of the General Partner, Pathfinder Management and Operations Company, LLC, a Delaware limited liability company (“Pathfinder Management”), provides asset and fund management services to the Fund.

Target Capitalization:

The Fund is targeting aggregate capital commitments (“Capital Commitments”) from accredited and other qualified investors of up to $100,000,000. The aggregate Capital Commitments may be increased to $150,000,000 at the discretion of the General Partner.

Minimum Capital Commitment:

Each Limited Partner in the Fund will make a Capital Commitment of at least $100,000 to the Fund; however, the General Partner reserves the right to accept Capital Commitments of lesser amounts. Any Limited Partner with a Capital Commitment of $1,000,000 or more will be considered a “Major Investor”.

General Partner’s Commitment:

The General Partner will make aggregate Capital Commitments of $5,000,000 to the Fund. The General Partner’s Capital Commitment will be contributed by a combination of cash and management fee offset (the “Deferred Capital Contribution”).

Closings; Early Investors:

The Fund plans to conduct its initial closing during the first quarter of 2018 (the “Initial Closing”). Limited Partners admitted at the Initial Closing and through March 31, 2018 will be deemed “Early Investors” for purposes of the higher Preferred Return described below. Early Investors also have the right, though not the obligation, to contribute up to 100% of their Capital Commitments in the Initial Closing; Early Investors who make this election would benefit from the accrual of the Preferred Return on such capital contributions. The Fund may admit additional Limited Partners, or accept increased Capital Commitments from existing Partners, at one or more additional closings held prior to the Final Closing. Interests acquired after the Initial Closing will be subject to a 0.5% per month (6.0% annual rate) interest charge on Contributed Capital, payable to prior-admitted Partners (payment of such interest charge does not give rise to capital contribution or capital account credit).

Final Closing: The Fund’s final closing (the “Final Closing”) shall occur on or before, but no later than, December 31, 2018.

Capital Calls: Capital Commitments will be drawn down by the Fund pro rata from the Partners as needed upon at least 30 days’ prior written notice, to make investments and to pay Fund liabilities and expenses. The General Partner may set the draw-down percentage for Early Investors at a rate that is different than that from the other Partners. A Partner that is admitted to the Fund, or who increases its Capital Commitment after the Initial Closing, may be required to immediately contribute that portion of its entire Capital Commitment that it would have been required to contribute if such entire Capital Commitment had been made at the Fund’s Initial Closing, and any subsequent intervening closings, including the interest charge noted above.

Term: The term of the Fund will be six (6) years from the date of the Final Closing, subject to two (2) additional one-year extensions at the General Partner’s discretion.

Investment Period:

The Fund may draw down Capital Commitments from the Partners to make investments at any time until December 31, 2019 (such period, the “Investment Period”). After the end of the Investment Period, the Partners will be released from


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any further obligation with respect to their unfunded Capital Commitments, except to the extent necessary to (i) satisfy Fund liabilities and expenses, (ii) complete Fund investments that are in process as of the end of the Investment Period, and (iii) make follow-on investments in existing Fund investments.

Preferred Return:

The Partners will earn a preferred return on their capital contributions to the Fund equal to 8% per annum (or 9% per annum for Early Investors and Major Investors) (the “Preferred Return”). The Preferred Return is non-compounded, and will be calculated from the date of each Limited Partner’s contribution of its Capital Commitment.

Distributions: Generally, net proceeds from the Fund will be distributed (to the extent not previously distributed) as follows:

(i) Return of Capital Contributions: First, to all Partners in proportion to their respective Capital Contributions until cumulative distributions to such Partners equal the aggregate capital contributed to the Fund by such Partners;

(ii) Preferred Return: Second, to all Partners pro rata until they receive aggregate distributions equal to the Preferred Return (i.e., 9% for Early Investors and Major Investors, or 8% for all other Limited Partners) on the amount described in clause (i) above;

(iii) Catch-Up: Third, (A) 50% to the General Partner and (B) 50% to the Partners pro rata until the General Partner has received an amount equal to 20% of the cumulative distributions made to each Partner pursuant to clause (ii) above and this clause (iii)(A); and

(iv) Profit Split: Thereafter, 80% to the Partners, in proportion to their respective Capital Contributions, and 20% to the General Partner.

The distributions made solely to the General Partner under the Catch-Up and Profit Split sections above (i.e., clauses (iii) and (iv) above) are sometimes called the “Carried Interest”.

Tax distributions may be made to the Partners with respect to items of gain and other income from the Fund’s portfolio investments in accordance with the manner in which such items are allocated among the Partners.

Distributions prior to the dissolution of the Fund will be made in cash. Upon dissolution of the Fund, distributions by the Fund may also include property or other assets for which the General Partner will generally seek an independent valuation.

Claw-back. Upon termination of the Fund, the General Partner will return to the Fund distributions of Carried Interest previously received by the General Partner, if and to the extent that such amounts exceed the amounts otherwise distributable to the General Partner pursuant to the above distribution provisions applied on an aggregate basis covering all transactions of the Fund (“Excess Distributions”). The General Partner is not required, however, to return more than the cumulative Excess Distributions


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received by the General Partner, net of taxes paid or payable thereon (calculated based on a combined federal and state income tax rate of 50%).

Allocations: All items of income, gain, loss and deduction will be allocated to the Partners in a manner that causes Partner capital accounts to conform to their cumulative rights to distributions over the life of the Fund.

Organizational and Fund-Raising Expenses:

The Fund will bear all legal and other expenses incurred in the formation of the Fund and the offering of Interests (including the costs and expenses of any placement agent or finder retained to facilitate the sale of a portion of the Interests) in an amount not to exceed two percent (2.0%) of the aggregate amount of Capital Commitments (the “Expense Cap”). Organizational and fundraising expenses in excess of the Expense Cap will be borne by Pathfinder Management through a 100% offset against the Management Fee (as defined below).

Fees: A fund management fee (the “Management Fee”) will be paid quarterly to Pathfinder Management at an annual rate equal to one-and-one-half percent (1.5%) of the Fund’s aggregate capital contributions as of the date of determination during the Investment Period, and after the Investment Period, the lesser of one and one-half percent (1.5%) of the Fund’s aggregate capital contributions, and one-and-one-half percent (1.5%) of the Fund’s Net Asset Value (“NAV”). If any amounts are contributed during a quarter, a proportionate amount shall be applied to payment of this Management Fee based on the number of days remaining in that quarter.

Pathfinder Management directs key operating activities for each Property. Pathfinder Management intends to add value to Properties and will be responsible for creating and executing the business plan for each Property. Among other duties, Pathfinder Management or its Affiliates will be responsible for the following tasks, as appropriate: (i) selecting and overseeing architects, designers, general contractors, marketing consultants, investment brokers (relating to the disposition of assets) and third-party property management companies; (ii) negotiating leases; (iii) overseeing land entitlement and construction of ground-up development projects; (v) reporting the financial performance of the Fund; and (vi) negotiating and overseeing the disposition of each Property.

The Management Fee is subject to reduction to the extent of (a) organizational and fundraising expenses incurred in the formation of the Fund and the offering of Interests that exceed the Expense Cap, (b) directors’ or officers’ fees paid by a portfolio investment to the General Partner, Pathfinder Management or any affiliate thereof, (c) any Deferred Capital Contribution on the part of the General Partner then due and payable, and (d) any waiver that Pathfinder Management elects to provide to Partners that have engaged a registered investment adviser, broker-dealer or other wealth manager for investment management and related services in connection with that Partner’s investment in the Fund.

There will be no debt placement, asset management, asset disposition or development fees charged to the Fund by the General Partner. The General Partner will receive an acquisition fee from the Fund equal to one percent (1.0%) of the acquisition cost of the underlying asset allocated to the Fund pro rata based on the Fund’s ownership interest in such asset. The acquisition fee will be waived for Major Investors. Third parties, Financial Partners and Operating Partners may be entitled to


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receive certain market rate fees for performing services in connection with the Fund’s investments. These may include but are not limited to equity and debt placement, brokerage, asset/property management, development and construction management fees (“Additional Fees”). In addition, Operating Partners may be entitled to receive a profit participation and/or promote from the Fund’s special purpose entities that hold the Fund’s investments.

Other Expenses: The General Partner or Pathfinder Management will provide administrative services to the Fund and will pay all normal operating expenses incidental to the provision of the day-to-day administrative services to the Fund, including its own overhead (which is not a Fund expense). As appropriate, other costs (including the allocation of time of professional service providers who are employees or contractors of the General Partner) will be charged to the Fund or the Fund’s portfolio properties, including legal and accounting fees. The Fund will pay all costs, expenses and liabilities in connection with its operations, including fees, costs and expenses related to the purchase, holding and sale of portfolio investments (to the extent not reimbursed), taxes, fees and expenses of accountants and counsel, costs and expenses of annual meetings; Management Fees; travel expenses, litigation expenses and other extraordinary expenses. To the extent that the General Partner retains independent contractors affiliated with it or hires employees to perform legal or accounting services, property management or other services for the Fund or its portfolio investments instead of utilizing third-party firms, the Fund, or the special-purpose entities which own those portfolio investments, shall pay directly, or reimburse the General Partner for, such charges, provided the fees are market rate, based on the reasonable judgment of the General Partner. The Fund will also bear third-party expenses incurred in connection with transactions not consummated.

Investment Limitations:

Except as otherwise approved by a majority in interest of the Partners, the Fund will not invest any amount in excess of (i) 25% of the Fund’s aggregate Capital Commitments as of the Final Closing in a single investment, (ii) 30% of the Fund’s aggregate Capital Commitments as of the Final Closing in a single portfolio of investments (excepting therefrom a portfolio of diverse investments from a single seller), and (iii) 20% of Committed Capital in other residential real estate opportunities such as residential land entitlement, redevelopment of existing properties into a residential use and development of entry-level multifamily properties, primarily in San Diego County.

Exclusion from Certain Investments:

Partners will not be required to contribute capital toward any investment if, in the opinion of counsel satisfactory to the General Partner, participating in such investment would be illegal or is otherwise prohibited by statute or regulation for such Partner, and in certain other limited circumstances. In addition, Partners may be excluded from an investment if the General Partner determines that participation in such investment would be illegal or would impose a material tax, regulatory or other burden on the Fund, and in certain other limited circumstances.

Borrowing and Guarantees:

The Fund may incur indebtedness and guarantee obligations with respect to investments and Fund expenses and, in connection therewith, may enter into one or more credit facilities or guarantees that may be secured by an assignment of the Partners’ unfunded Capital Commitments and/or the Fund’s assets. Partners may be required to acknowledge their obligation to pay their share of such indebtedness up to the amount of their unfunded Capital Commitments and may be limited in their ability


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to use their Interests as collateral for other indebtedness or their ability to transfer their Interests.

In general, the General Partner expects that indebtedness incurred across the Fund’s portfolio of stabilized assets after the first anniversary of the Final Closing will not exceed seventy percent (70%) of the greater of (i) the total cost of such portfolio or (ii) the fair market value of the overall portfolio.

Transfers and Withdrawals:

In general, a Limited Partner may not withdraw from the Fund or sell, transfer or pledge its Interests except with the consent of the General Partner.

Default: A Partner that defaults on its obligation to make capital contributions to the Fund will be subject to the default provisions set forth in the Partnership Agreement.

Subsequent Offerings:

The General Partner may not close on capital commitments for a competing fund (that is, a fund with investment parameters similar to the Fund’s investment strategy in the Target Markets) until at least fifty percent (50%) of the Fund’s aggregate Capital Commitments have been initially invested, committed or reserved for investment in portfolio holdings, for working capital or expenses, or any combination thereof. Notwithstanding the foregoing, the General Partner and its affiliates may at any time separately invest, alone or together with other investors, directly or indirectly, in property or properties so long as the aggregate equity investment in each property does not exceed $3 million. In addition, the General Partner and its affiliates may at any time separately invest in, alone or together with other investors, directly or indirectly, or act as the manager or general partner of, a joint venture or syndication involving an asset held by a Prior Fund (whether or not the value of such asset exceeds $3 million).

Roll Up: At the election of the General Partner, the Fund may transfer its assets (including its goodwill) to an entity (the “Roll-Up Entity”) formed by the General Partner or its affiliates for the purposes of holding other properties similar to those held directly or indirectly by the Fund, which Roll-Up Entity may include a real estate investment trust. In the event of such a roll-up transaction, the Partners will receive an ownership interest in the “Roll-Up Entity” based on the proportion of the Roll-Up Entity’s value that the Fund represents, as reasonably determined by the General Partner.

Exculpation and Indemnification:

Neither the General Partner, nor its respective affiliates, nor the directors, officers, partners, members, employees, or agents of each of them (each, a “Covered Person”) will be liable to the Fund or the Partners for any good faith act or omission of such person relating to the Fund, except for any such act or omission constituting gross negligence, fraud, willful malfeasance or reckless disregard of duties by such Covered Person. The Fund will indemnify each Covered Person against all claims, damages, liabilities, costs, and expenses, including legal fees, to which they may be or become subject to by reason of their activities on behalf of the Fund, or otherwise relating to the Partnership Agreement, except to the extent that such claims, damages, liabilities, costs or expenses are determined to have resulted from such person’s own gross negligence, fraud, willful malfeasance or reckless disregard of duties. To the extent the General Partner or individual members or affiliates of the General Partner guarantees loans for the benefit of the Fund, special-purpose entities owned by the Fund or similar Fund-affiliated entities, the Fund shall indemnify those guarantors for any losses sustained by virtue of such guarantees, including any defense or other costs.


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Reports / Annual Meeting:

Annual audited financial statements of the Fund, prepared by a qualified certified public accounting firm, and quarterly progress reports on the investment portfolio of the Fund, prepared by the General Partner, will be provided to each Partner. U.S. federal income tax information will be provided annually. The Fund will hold an annual meeting to provide Partners with the opportunity to review and discuss with the General Partner the Fund’s investment activities and portfolio.

ERISA Considerations:

Investment in the Fund is generally open to institutions, including pension plans that are subject to the Employee Retirement Income Security Act (“ERISA”), and other suitable investors. The Fund will use reasonable best efforts to operate the Fund either as a “real estate operating company” or “venture capital operating company” (each term within the meaning of Department of Labor regulations) so that the assets of the Fund will not be considered “plan assets” under ERISA. Each prospective investor subject to ERISA is urged to consult its own advisors as to the provisions of ERISA applicable to an investment in the Fund.

Special Tax Parallel Funds:

The General Partner may establish one or more entities to accommodate the investment requirements of certain investors, including an entity for institutional investors (each such entity, a “Special Tax Parallel Fund”). Each Special Tax Parallel Fund generally will invest side-by-side with the Fund proportionally on the basis of available committed capital, will contain terms and conditions substantially similar (but not identical) to those of the Fund and will be managed by the General Partner or an affiliate thereof. Any Special Tax Parallel Fund will be responsible for its pro rata share of expenses. Interests in any investments made by the Fund and all Special Tax Parallel Funds will be allocated and transferred among such funds according to their ratable share of aggregate capital commitments for all of those Funds. The term “Fund” as used herein includes any Special Tax Parallel Funds, as the context requires.

Tax Considerations:

As a partnership, the Fund generally will not be subject to U.S. federal income tax, and each Partner subject to U.S. tax will be required to include in computing its U.S. federal income tax liability its allocable share of the items of income, gain, loss and deduction of the Fund, regardless of whether and to what extent distributions are made by the Fund to such Partner. The taxation of partners and partnerships is extremely complex. Each prospective investor is urged to consult with its own tax advisor as to the tax consequences of an investment in the Fund.

Prospective tax-exempt investors should be aware that the Fund is expected to generate income treated as “unrelated business taxable income” (“UBTI”) for U.S. federal income tax purposes due to the nature of its investments and the use of leverage in the acquisition of investments. Prospective foreign investors should be aware that proceeds from the disposition of Fund properties will be subject to U.S. tax withholding, and U.S. tax filing and tax payment obligations for foreign partners and other Fund income will generally be subject to U.S. tax withholding.

Risk Factors: An investment in the Fund involves significant risks and potential conflicts of interest as described in the Section IV of this Memorandum, “Certain Risk Factors”. Each prospective investor should carefully consider and evaluate such risks and conflicts prior to investing in the Fund.

Legal Counsel: No independent counsel has been retained to represent the investors in the Fund. Each investor should retain its own counsel and other appropriate advisers as to legal, and


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regulatory issues to assess the investment in the Fund and its suitability for such investor.

Auditors to Fund: RSM (formerly McGladrey, LLP), a national firm of certified public accountants, will represent the Fund in providing audited financial statements in accordance with generally accepted accounting standards.


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III. INVESTMENT OVERVIEW

Pathfinder, headquartered in San Diego, California, is a private real estate investment firm specializing in “opportunistic,” and “value-add” real estate investments, with a particular focus on multifamily properties. The Fund is offering up to $100,000,000 (which may be increased to up to $150,000,000, if so determined by the General Partner) in Interests for the purpose of making investments in a diversified portfolio of multifamily properties, comprised primarily of well-located, Class-B apartments and other multifamily properties (condominiums and townhomes) where it can add substantial value. The Fund may also invest up to 20% of Committed Capital in other residential real estate opportunities such as residential land entitlement, redevelopment of existing properties into a residential use and development of entry-level multifamily properties, primarily in San Diego County.

The General Partner currently intends for the Fund to make ten to 20 investments, most ranging in size from approximately $5,000,000 to $10,000,000 in equity (lower for multifamily development investments) based on the Fund’s target capitalization of $100,000,000. There would be a corresponding increase in the number of investments and/or the average size of investment if the Fund’s total commitments were increased to $150,000,000 and a corresponding decrease if the Fund’s capitalization was less than $100,000,000.


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Pathfinder Acquires Assets Opportunistically and Invests When It Can Add Value to Properties

The Fund’s strategy is to invest exclusively in (i) opportunistic real estate acquisitions and (ii) value-add properties often acquired at discounts to market value and/or replacement cost. Attractive assets may be acquired from a variety of sellers including liquidating private equity funds (selling because they are nearing the end of their fund term or because of financial distress), long-term private owners with a catalyst for sale (such as a divorce, estate sale or partnership dispute) or from financially distressed owners at prices below replacement cost of the property. The Fund seeks to enhance value as the properties are improved and stabilized.

The Fund will invest only in properties which the General Partner determines provide opportunities for adding significant value through strategic, hands-on asset management and property oversight and/or through significant property improvement, supporting meaningful increases in income. The General Partner’s value-add strategy includes investing in properties that have not been renovated, or which have been only partially renovated, and can be repositioned through the correction of deferred maintenance and enhancements to the property’s common areas, interior unit finishes and amenities.

The General Partner’s common area renovations are aimed at materially altering a property’s profile, tenant appeal, marketability and value. The renovation strategy may include constructing a new, modern clubhouse, gym and/or leasing area, upgrading the pool areas to create a resort feel and adding amenities specifically targeted at the needs of residents in a particular submarket. For example, at a property near the beach in San Diego, we incorporated outdoor resident/pet showers, bicycle racks and a car and dog wash/vacuum station. At a property in Boulder, Colorado we are providing a bike repair station and a yoga room.

The General Partner believes amenities can also promote greater social interaction within a community, which increases the propensity of residents to make friends and form relationships in the community, which

ultimately leads to longer tenant tenures and greater retention, both of which reduce marketing and leasing expenses and turnover costs. Examples of community-building amenities include parks, community gardens and game areas (bocce ball courts, corn hole fields, etc.).

The General Partner’s interior renovation strategy is to remodel the apartments to a level that is comparable or superior to that of competitive properties nearby. This includes replacing carpet with high-quality, vinyl plank flooring, upgrading cabinets, replacing tile or Formica counters with granite or quartz countertops, adding a contemporary kitchen backsplash, incorporating two or three-tone paint schemes (including an

Example of Newly Constructed Leasing Office Example of Newly Constructed Dog Park


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accent wall), installing new slate or stainless-steel appliances and upgrading to contemporary kitchen and bathroom fixtures. The General Partner also adds value by improving onsite property management and has extensive relationships with third-party management companies in each of the Fund’s Target Markets. After acquiring an asset, the General Partner will typically transition to a local, best-in-class property management company and implement best practices aimed at increasing rental income and reducing operating expenses. Often, the target properties lack highly professional management (or are owner-managed) creating an opportunity to implement institutional management techniques, including introducing resident utility bill-backs (“RUBS”), maximizing ancillary income (pet fees, parking, etc.) and incorporating improved technology (wireless community internet, key fob security systems, package delivery centers, etc.).

The Fund also intends to earn returns through employing reasonable leverage to enhance return on equity, and selling properties when they are stabilized or when they can be sold opportunistically, at the General Partner’s discretion, in each case after being held for long-term investment. The General Partner will also target properties that, upon stabilization and execution of the value-add business plan, will produce cash distributions to investors. The General Partner believes that value-add opportunities to acquire multifamily properties at attractive prices will remain through the Investment Period because there are large numbers of 20 to 40-year-old multifamily properties in the Target Markets which have not been renovated in decades or at all, because new supply of apartments has been quite limited during the past decade and the vast majority of new supply has been concentrated in Class-A, luxury apartments, unaffordable by many. The Fund should also continue to benefit from a historically low interest rate environment, which the General Partner believes is likely to continue during the Investment Period. These factors, combined with high demand for rental apartments, which is expected to translate into continued high occupancy rates and rent growth should allow the General Partner to enhance investor returns while maintaining a lower-risk investment and debt strategy, as discussed below.

With capital appreciation and preservation of capital as primary considerations, and with income distributions upon portfolio stabilization as an important secondary consideration, the Fund offers qualified investors the opportunity to earn attractive, risk-adjusted returns (through a combination of meaningful ongoing cash flow and gain on ultimate sale) while providing investors with a margin of safety. The General Partner has extensive experience with real estate investment and management, corporate and real estate finance, capital and fund management, deal structuring, underwriting and financial restructuring.

Example Apartment Kitchen – Pre-Renovation Example Apartment Kitchen – Post-Renovation


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Pathfinder Has Several Powerful Competitive Advantages

Pathfinder has developed a niche in small to mid-sized transactions that are “below the radar” of major, institutional investors. The majority of Pathfinder’s investments have been acquisitions with total capitalization of under $25,000,000; notably, transactions below $30,000,000 to $40,000,000 remain too small for many institutional investors.

The General Partner anticipates that the Fund will continue to focus on “below the radar” transactions (e.g., those with total capitalization below $30,000,000) but may, from time to time, co-invest with Financial Partners on larger transactions, as the Prior Funds have done. Generally, these Financial Partners are major financial institutions and capital partners with hundreds of millions or billions of dollars of institutional capital under management and specializing in a particular type of transaction (e.g., financial restructurings, distressed real estate investments, note acquisitions, etc.) and/or real estate asset class (multifamily, for-sale condominiums, development, etc.). In addition, Pathfinder’s broad relationship network has resulted in a number of investments being sourced “off-market.”

The General Partner believes that the Fund represents an attractive investment opportunity for investors as the Fund will:

1) Target multifamily properties which provide substantial potential for the Fund to increase value by employing various management and operational strategies. The Fund seeks multifamily properties where rents are substantially below newer, Class-A projects that have become unaffordable for many renters;

2) Focus on smaller and middle-market multifamily properties which are “below the radar” of many institutional investors, providing a less competitive acquisition environment;

3) Benefit investors through relatively low fee structures and an attractive profit participation arrangement;

4) Build on Pathfinder’s strong reputation and market position, developed by virtue of Pathfinder’s management of the Prior Funds;

5) Achieve portfolio diversification by creating a portfolio of different multifamily properties spread throughout a diverse geography in the Fund’s Target Markets, where the General Partners has substantial previous experience; and

6) Create additional investment opportunities for Limited Partners through the syndication of selected multifamily portfolio investments providing Limited Partners the ability to invest additional funds directly into a single asset.

Investment Strategy: Benefit from an Established Deal Flow Network to Acquire Assets at Discounts to Market Value

Since its founding in 2006, Pathfinder has evaluated thousands of opportunities to purchase attractive real estate assets. As a result of its focus on opportunistic, value-add and distressed multifamily assets, and its significant track record in closing transactions, Pathfinder has developed considerable relationships with financial institutions, other sellers and hundreds of referral sources and generated substantial, high quality, proprietary “deal flow”. Pathfinder has also established strong credibility with investors by virtue of having realized attractive returns from 66 fully-cycled investments. Pathfinder has developed a national reputation as a firm with high integrity that delivers on its commitments and closes transactions.


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Pathfinder has a Track Record of Successful Investing and Earning Attractive Profits for its Investors

Since inception in 2006, Pathfinder made 107 different investments in distressed and value-add real estate assets, of which 66 investments have gone full cycle (acquisition to disposition) and have generated a project-level weighted-average, project-level IRR and equity multiple of 27% and 1.6x, respectively, in excess of pro forma for many. The Supplemental Private Placement Memorandum includes case studies and detail on several investments, including the strategies Pathfinder employed and the results achieved.

2018-2019 Expected to Continue to be an Attractive Time for Value-Add Multifamily Investing

The General Partner believes that 2018-2019, the Investment Period of the Fund, will present attractive Multifamily investment opportunities. For support, the General Partner commissioned a research report in December 2017 from John Burns Real Estate Consulting, LLC, or JBREC. Founded in 2001, JBREC is an independent research provider and consulting firm focused on the housing industry and provides advisory services to leading homebuilders and private equity investment funds, including Pathfinder, on certain residential and multifamily investments. (See the Supplemental Private Placement Memorandum for the complete research report, detailed information on selected Pathfinder Target Markets and important disclosures related to the JBREC Executive Summary, below.)

JBREC Executive Summary

JBREC believes the U.S. rental housing market has highly favorable fundamentals, a strong growth profile through 2020 and the strongest income growth profile of any real estate asset class. The attractive dynamics associated with rental housing are due in large part to an acute supply/demand imbalance in U.S. housing in


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general, and a structural societal shift towards renting that JBREC believes will persist, and drive additional demand through 2025. The homeownership rate, which was 69.3% in 2004, has declined steadily to 62.5% in 2017. JBREC forecasts that the homeownership rate will continue to decline, to an estimated 61% in 2025. In many of Pathfinder’s Target Markets in the western U.S. where housing costs are substantially above the national average, the homeownership rates in 2017 are substantially below 60%. National Housing Market: JBREC believes the outlook for the rental housing market is quite favorable as a result of several factors, including the following:

Job growth is currently strong and has been robust for several years. As of October 2017, year-over-year employment gains totaled 2.0 million. JBREC forecasts 2.3 million jobs being created in 2017, 1.7 million in 2018 and 1.0 million in 2019. These forecasts do not give effect to positive impacts resulting from The 2017 Tax Cuts and Jobs Act, which economists and analysts believe will stimulate further job growth.

Homeownership has been declining and continues to decline. JBREC expects the U.S. homeownership rate to fall from 62.5% to 61% by 2025 as more households choose to rent rather than purchase a home. By way of perspective, the U.S. homeownership rate was 69.3% in 2004. Millions of people who previously owned homes now rent, driving occupancy rates higher and propelling strong rent growth. This dynamic is even more acute in Pathfinder’s Target Markets, which have home prices well above the national average, creating a substantial need for more affordable rental apartments. The General Partner believes that the homeownership rate is continuing to decline with a further acceleration likely if interest rates rise and following the passage of The 2017 Tax Cuts and Jobs Act, which favors renting (by virtue of the doubling of the standard deduction) at the expense of owning (because of further limitations on the deductibility of mortgage interest and property taxes).

Housing supply must increase just to keep pace with population growth. The U.S. is

currently in a housing supply/demand imbalance, with more renters than rental units and more home buyers than sellers. The U.S. population has increased each year for the past 55 years and is expected to continue to increase. The supply of housing in the U.S. will need to increase simply to maintain the current imbalanced condition. Because much of the population growth in Pathfinder’s Target Markets is driven by demographic groups, like Hispanics, which have a higher propensity to rent rather than own homes, this is likely to exacerbate the demand for rental housing.

High land prices and escalating construction costs make it increasingly difficult for

builders to deliver entry-level homes that would typically compete with apartments. Home prices are growing faster than rents in many markets. Single-family home construction still lags historical norms in most markets, leading to high home prices. As a result, renters who would otherwise have purchased homes are forced to continue to rent.

Existing for-sale home supply has been low for several years. Resale inventory is well below

the historical average based on months of supply and there are not enough new single-family homes being built relative to demand according to the National Association of Realtors (“NAR”) and the Census Bureau. As a result, the supply fundamentals remain promising for rental rate increases and occupancy (and home price appreciation) through 2020.


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New housing supply is constrained, especially for more affordable apartments. Minimal residential land entitlement processing and development occurred during the prolonged housing downturn (2007-2012), and the supply of finished, or even approved, lots remains relatively limited in many markets. This creates price pressure on single-family homes, exacerbating the shift of homeowners to renters. JBREC’s outlook for future rent growth is strong for affordable rental apartments. Due to the high cost of land and labor, most of the new construction has been for more expensive Class-A apartments, concentrated in urban areas and not more affordable rental apartments, often located in suburban areas.

There will be 6.2 million more renters from 2018-2025. There are 45.7 million rental

households in the U.S. today. Because of population growth and new household formation, JBREC forecasts that there will be approximately 51.9 million rental households in 2025, a cumulative growth rate of 12.7% and a compound annual growth rate of 1.5% over the eight-year period.

Rental occupancy rates and home sales trends are favorable. According to data published by the Census Bureau and the U.S. Bureau of Labor Statistics (BLS), the number of adults finding employment is exceeding planned new home construction (employment-to-permit or E/P ratio) by a ratio of 1.8 to 1. A balanced E/P ratio in a stable market is 1.1 to 1.5 jobs created for every homebuilding permit issued. In many of Pathfinder’s Target Markets, E/P ratios are substantially higher (2.2 in San Diego and 1.8 in both Seattle and Portland).

Home affordability is weakening, which will likely propel more owners and potential owners to rent. The 30-year fixed mortgage rate is currently 3.9% according to Freddie Mac, significantly lower than historical averages. If mortgage rates and home prices rise as expected, JBREC believes mortgage payments could increase 36% through 2020. The impact to rising homeownership costs will likely push millions of potential home buyers to remain renters and even cause some existing homeowners to become renters, further exacerbating the already substantial supply-demand imbalance of rental housing.

Tax Reform Should Continue to Drive Decreases in Home Ownership and Increased Rental Demand

The General Partner believes that Pathfinder’s apartment-focused investment strategy is likely to benefit from numerous provisions in The 2017 Tax Cuts and Jobs Act, signed by the President on December 21, 2017. The increase in the standard deduction from $12,700 to $24,000 benefits taxpayers who do not itemize, the majority of whom are renters. Meanwhile, the elimination or reduction in various tax deductions that favored homeownership (including the reduction in the limitation on home mortgage debt as to which interest deductions may be claimed, from $1,000,000 to $750,000, and a new $10,000 aggregate cap on property and state income tax deductions) further disadvantages homeownership and favors renting. According to Zillow, 23 million fewer U.S. homeowners will be incentivized to buy a home under the new rules. Attractive Investment Opportunities in Well-Located, Value-Add Multifamily Properties

The General Partner believes it will continue to find attractive investment opportunities in well-located, value-add and opportunistic multifamily properties where rents are substantially below newer, Class-A projects that have become unaffordable for many renters. The General Partner believes the Fund will focus on acquiring assets from sellers who have a catalyst for sale and that properties targeted by the Fund will provide value-add opportunities enabling Investors to achieve superior risk-adjusted returns. The Fund intends to acquire properties that can be better managed and can command higher rents following renovations or market repositioning, strategies Pathfinder has extensive experience implementing. Repositioning of such properties typically includes targeted, strategic capital improvement programs, renovation and repositioning


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programs, aggressive leasing programs and improved property management, which will enhance cash flow and long-term value. Pathfinder observes many examples of properties that have not received the necessary care, attention or capital investment since the 2007-2009 financial downturn. In some cases, property owners were overleveraged, had challenges with their lenders or had difficulty obtaining financing. In other cases, owners redirected funds from one property to prop up another. As a result, many properties have been starved of capital or seen necessary capital investments and even routine maintenance deferred. Overall, the General Partner believes that the wake of the financial downturn has created an environment where a well-capitalized buyer like Pathfinder can find attractive opportunities to add value to properties largely ignored by the prior owners.

The Fund’s primary Target Markets for investments are major metro areas in the western U.S. including Seattle, Portland, Denver, San Diego/southern California, Sacramento, Phoenix and Las Vegas. These areas are characterized by superior, historical population and employment growth, and are projected to continue to enjoy growth rates in excess of national averages during the next several years. These communities are typically characterized by highly-educated workforces, high-paying technology employers, strong transportation corridors and a variety of outdoor, recreational and cultural activities which make them particularly desirable for millennials, a major renter group.

Investment and Business Philosophy

The General Partner’s investment philosophy is based on the following principles:

The interests of investors are best achieved when the interests of the General Partner are properly aligned with those of the investors. The Fund is structured so that the General Partner is rewarded primarily through the performance of investments made on behalf of investors, not by excessive fees. The General Partner believes in being mindful of the economic cycle, maintaining a prudent level of financial leverage (debt) and transparent communication with Limited Partners.

The interests of investors and the General Partner are further aligned when the General Partner personally invests in the Fund. The General Partner will make a Capital Commitment of $5,000,000 to the Fund.

Treat sellers, buyers and intermediaries with respect. By working in a transparent fashion that enhances credibility and reputation over the long term, Pathfinder believes it will earn the opportunity for repeat business with important sellers, buyers and influencers.

The General Partner believes there are several keys to successful investing (discussed in further detail below), including:

1. Identifying unique opportunities/not running with the herd; 2. Buying at a sensible price; 3. Understanding future drivers of value; 4. Taking an institutional approach; 5. Managing in a disciplined and creative fashion; and 6. Taking prompt and aggressive action to resolve problems.

1. Identifying unique opportunities means not running with the herd. This might include looking for unique investment opportunities (e.g., not being one of many institutional investors bidding on a property offered by a major real estate brokerage firm) and identifying catalysts for value creation. By way of example:


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Pathfinder began researching opportunities in 2008 to acquire single-family homes from financial institutions. In 2010, Pathfinder began acquiring single-family homes to rent and hold for income and appreciation. In 2011, Pathfinder raised a separate, dedicated fund to further exploit this opportunity. This portfolio continues to generate attractive cash-on-cash returns and was recapitalized in 2016 at a value significantly higher than cost basis.

Pathfinder began investing aggressively in Phoenix, Arizona in the spring of 2011 after monitoring the market for several years. Values in Phoenix have been steadily increasing for the past several years and Pathfinder has now gone full-cycle on eight of its Phoenix investments, generating attractive returns with each investment.

Pathfinder made several successful investments in southern California’s “Inland Empire” (Riverside and San Bernardino counties) in 2009 after determining that this highly distressed real estate market was at an inflection point.

Pathfinder began investing in Las Vegas, Nevada in the fall of 2015, after monitoring the market for several years. Values in Las Vegas have been steadily increasing for the past several years and the city has begun diversifying the economy into areas other than hospitality and gaming. In 2017, Las Vegas attracted national sports franchises in football (Las Vegas Raiders NFL franchise) and hockey (Vegas Golden Nights NHL franchise) and saw several major hotel developments underway.

2. Buying at a sensible price means acquiring properties at a significant discount to replacement cost and to stabilized value (the future value when occupancy levels have been increased, operating expenses have been reduced and necessary improvements have been made).

3. Understanding future drivers of value means correctly identifying up and coming markets through a proper understanding of population and employment growth dynamics. For example, trends in population and job growth have been decidedly favorable in Denver, San Diego, Seattle, Portland and Phoenix, where Pathfinder has made substantial investments.

4. Taking an institutional approach on smaller assets drives higher returns. In the equity markets, investors have long earned superior returns on “mid cap” stocks as compared with those on “large cap” stocks because smaller companies are not as widely owned and are followed less by research analysts, and because capital flows in companies of this size are smaller – less competition often is consistent with higher returns. The same principle holds true with smaller real estate assets, those “below the radar” of large, institutional investors. Pathfinder specializes in this space and adds value by virtue of its established reputation, strong closing record and ability to move quickly and close transactions on an all cash basis. Pathfinder also identifies opportunities to infuse capital and add value to these properties and brings a systematic, institutional approach to its property and market analyses and to managing and operating the properties. There is less competition in this space and returns can be higher.

Prior to making an investment, Pathfinder engages a property condition consultant to evaluate and report on the physical condition of an asset. These detailed reports address building systems, building envelope, structural elements, interior elements, roofing, mechanical, plumbing and electrical systems. Pathfinder performs a market assessment to properly understand the competitive environment in the submarket and to quantify opportunities to increase rental income and a formal lease audit to determine the accuracy of tenant financial information, better understand the property’s


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tenant demographic and manage lease exposure. In addition, Pathfinder may engage a zoning consultant to prepare a report detailing a property’s jurisdiction, zoning ordinance, zoning designation, permitted uses, density, lot line setback and parking regulations. By analyzing a property at the granular level and not relying only on standard physical and environmental reports, Pathfinder is able to better understand the economic drivers of an investment and how to best mitigate any deficiencies.

5. Managing in a disciplined and creative fashion means maintaining tight control over expenses, managing construction/rehabilitation projects on budget and on schedule, and seeking opportunities to differentiate properties with features (e.g., adding washers/dryers to apartment units) or common area amenities (like fitness centers, dog parks and communal gathering areas).

6. Taking prompt and aggressive action to resolve problems means monitoring data on an ongoing basis and adjusting rents and promotional programs quickly, as warranted by the market. This can be done most effectively when properties are not overleveraged with debt.

The General Partner Will Utilize Conservative, Hands-On Underwriting Methodologies

The General Partner’s valuation analysis is influenced by the belief that property economics may not meaningfully improve in the near term, and that interest rates are near historic lows and are more likely to increase than to remain stable (or decrease further). These beliefs lead the General Partner to a more conservative underwriting approach which may include anticipating conservative future market rent growth, stable or increasing capitalization (“cap”) rates and longer stabilization or holding periods. This philosophy is generally aligned with Pathfinder’s approach to obtaining debt financing.

The General Partner takes a hands-on approach to underwriting, making site visits to prospective investments, interviewing local property management firms and other experts, carefully researching sub- markets and assessing competitive environments, population growth rates, employment characteristics and economic strengths and weaknesses. The General Partner is focused on areas with attractive market dynamics, including strong population and employment growth rates, supply constraints and barriers to entry and proximity to transit centers, which are frequently correlated with higher rents and lower vacancy rates. Pathfinder has forged and will continue to develop relationships with local real estate brokers and property management companies to supplement the General Partner’s underwriting. The General Partner’s strategy is to outsource many property management and operating functions to local specialists, to closely monitor their progress and to push for changes in strategies (and, in some cases, changes to the service provider) when required.

The Fund Seeks to Provide Investors with an 8% Preferred Return (9% Preferred Return for Early Investors and Major Investors), Attractive Profit Splits and a Low Fee Structure

Net Distributable Proceeds will be calculated on an aggregate basis, subject to the 8% per annum Preferred Return to investors (or 9% per annum Preferred Return for Early Investors and Major Investors). “Net Distributable Proceeds” means cash proceeds available for distribution from all sources (including operations, sales and re-financings), after (i) payment of all Fund expenses, including Management Fees and (ii) additions to cash reserves as determined in the General Partner’s discretion.

Net Distributable Proceeds will be determined by the General Partner. The Partners are entitled to receive 100% of Net Distributable Proceeds until they have recovered all their capital contributions to the Fund plus the Preferred Return on capital contributions, before the General Partner is entitled to receive any Carried Interest distributions. For returns in excess of the Preferred Return, the General Partner will receive a “catch-up” distribution as described in Section II, “Summary of Terms.” If the Fund’s investments achieve an


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aggregate net return to the Fund in excess of the Preferred Return plus the General Partner’s “catch-up” distribution, the General Partner has provided for an attractive profit split (80%) to the Limited Partners.

An affiliate of the General Partner, Pathfinder Management, will assess a quarterly management fee at an annual rate equal to one-and-one-half percent (1.5%) of the Investor’s contributed capital as of any particular date of determination (the “Management Fee”) during the Investment Period and, after the Investment Period, the lower of one and one-half (1.5%) of the Investor’s contributed capital, and one-and-one-half percent (1.5%) of the Fund’s Net Asset Value (“NAV”) not to exceed the aggregate Capital Commitments. The General Partner believes that the Management Fee is reasonable, given the size of the Fund.

The Management Fee is intended to cover the cost of day-to-day operations of the Fund, including but not limited to such items as office rent, utilities, telephone, Internet service, general administration, support staff’s salary and benefits and postage. The Management Fee is not intended to pay for internal legal and accounting expenses and due diligence expenses associated with particular investments; these costs will be paid separately by the Fund or its special purpose entities, as applicable. The Management Fee will be paid in advance on a quarterly basis. There will also be an adjustment, at the end of each quarter, to provide for a prorated Management Fee for any additional capital contributed to the Fund during that quarter.

The Fund will also reimburse Pathfinder Management for out-of-pocket expenses directly associated with underwriting the Fund’s prospective investments, including but not limited to direct third-party expenses, travel, lodging and meals and legal and accounting fees. The Management Fee is subject to reduction to the extent of (a) organization and fund raising expenses incurred in the formation of the Fund and the offering of Interests that exceed the Expense Cap, (b) directors’ or officers’ fees paid by a portfolio investment to the General Partner, Pathfinder Management or an affiliate thereof, (c) any Deferred Capital Contribution on the part of the General Partner then due and payable and (d) any waiver by Pathfinder Management that it elects to provide the Partners that have engaged a registered investment adviser, broker-dealer or other wealth manager for investment management and related services in connection with that Partner’s investment in the Fund.

The General Partner will not charge financing, asset management, asset disposition or development fees to the Fund. The General Partner will receive an acquisition fee from the Fund equal to one percent (1.0%) of the acquisition cost of the underlying asset allocated to the Fund pro rata based on the Fund’s ownership interest in such asset, which will be waived for Major Investors. Third parties, Financial Partners and Operating Partners may be entitled to receive certain market rate fees for performing services in connection with the Fund’s investments. These may include but are not limited to equity and debt placement, brokerage, asset/property management, development and construction management fees. These fees will be solely for the benefit of such third parties and will not benefit the Fund or the General Partner. In the event affiliates of the Fund or General Partner are selected to perform property management, equity or debt placement, construction, development, sales, leasing or other such functions related to a Fund investment, these selections will be made on the basis of such affiliated service provider’s qualifications, and these fees will be equivalent to the fees customarily charged by other, similarly qualified service providers.

Value Enhancement Strategy

The Fund’s investment strategy will emphasize value creation designed to optimize returns and reduce investment risk and volatility. In general, the Fund will seek properties that are strategically located within Target Markets.

This investment strategy should allow the Fund to produce substantially higher returns than those available to retail buyers or smaller operators who do not have the expertise, operating infrastructure and financial capabilities of the General Partner and its Financial Partners and Operating Partners. In addition to


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controlling the volatility of returns over time, the General Partner believes this value enhancement approach will tend to reduce risk from potential market declines and enhance returns.

Strategy Focused Exclusively on Multifamily Investing in Selected Markets in Western U.S. Where Pathfinder has Substantial Prior Investment Experience

Based on its experience in the Target Markets (Seattle, Portland, Denver, San Diego/southern California, Sacramento, Phoenix and Las Vegas), the General Partner anticipates that the Fund will seek investments in cities and neighborhoods that exhibit several of the following characteristics: (i) favorable regional economic trends; (ii) positive regional demographic trends, including population and employment growth; (iii) supply constraints and high barriers to entry; (iv) proximity to transportation corridors and/or shopping and recreational activities, (v) superior market liquidity and exit opportunities and (vi) strong local universities and educational environment.

The General Partner believes that the Target Markets will continue to exhibit excellent risk-adjusted returns and afford significant opportunities for its value enhancement approach over the long term. In a number of these markets, the renter population includes both those who can afford to buy a home, but instead opt to rent a home, apartment or condominium, as well as those who cannot afford homes due to high prices, limited availability of financing, high levels of personal debt or the inability to accumulate sufficient savings for a down payment.

Additionally, the supply of multifamily units in many of the Target Markets has been and continues to be constrained due to the limited availability of development financing, developable land, zoning and entitlement restrictions, high construction costs and other heightened barriers to entry. The General Partner anticipates that the Target Markets will continue to experience superior growth driven, in part, by Millennials who choose to live in these cities to take advantage of job opportunities and for recreational options and quality of life. The General Partner continually looks for new markets that it believes will demonstrate favorable market, employment and investment dynamics.

Why Invest in Real Estate?

The General Partner believes that there are several advantages of allocating a portion of an investment portfolio to real estate, including:

Diversification Benefits – Asset diversification is critical to the stability and growth of an investment portfolio. An investment portfolio including real estate investments often increases overall returns and decreases long-term risk and volatility.

Inflation Hedge – In the long run, rents, property values and the replacement cost of real estate have historically risen along with overall inflation and increased economic activity. Inflation in the cost of building materials and land has increased the cost of new construction. Both events will postpone new supply until higher rental rates justify the cost of new construction. The General Partner believes the relatively constrained supply will tend to increase rental rates and thus the value of existing properties. The General Partner concurs with the view of many leading economists and securities analysts who believe that the recent government bailouts of financial institutions have led to a substantial increase in the money supply which could generate considerably higher inflation during the next several years. The General Partner believes that well-located, high-quality real estate, acquired at attractive valuations, would likely benefit from higher inflation.


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Inefficient Markets – The real estate market is relatively inefficient compared with the equity and bond markets because there are fewer participants and pricing is less precise. This is particularly the case with “value-add” properties, particularly smaller and mid-size properties, because the pool of buyers with the expertise necessary to conclude the financial restructurings and reposition such properties is relatively small. As a result, there is less competition for acquisitions and better investment opportunities. The General Partner believes that financial restructuring, management-oriented and “value-add” investors like the Fund can achieve attractive returns regardless of the economic cycle or level of interest rates because of the inefficiencies inherent in these segments of the real estate market.

Tax Benefits – Real estate investments may offer certain tax benefits. Gains from capital appreciation are typically taxed at currently favorable federal long-term capital gains rates. The Fund will endeavor to hold income-producing investment assets for a sufficient term in order to qualify for long-term capital gains tax treatment. Additionally, and subject to potential changes in the tax laws, real estate investments often result in interest payments and non-cash depreciation charges which may generate passive losses that may offset an investor’s unrelated passive income. Each investor’s tax situation is unique and tax rates and other tax laws are subject to frequent legislative changes, which could reduce or eliminate potential tax benefits from investing in real estate. Please consult your tax advisor for further information and see Section V, “Certain U.S. Tax Considerations”.

The Fund Compared to Other Real Estate Funds

The Fund has several points of differentiation as compared with other real estate investment funds. These include:

Alignment of Interests – The Fund is structured to closely align the interests of Limited Partners and the General Partner, motivating the General Partner to maximize returns to Limited Partners. The General Partner does not receive any Carried Interest distributions for a Fund investment unless and until the Limited Partners have received distributions equal to the capital that they have contributed in respect of such investment and the Preferred Return on such capital (related to such investment).

Highly Selective – In contrast to most institutional real estate investment funds that raise large amounts of capital from institutional investors and invest through local real estate operators, the Fund is smaller and can be much more selective in its investment decisions. With less pressure to invest, the General Partner can invest in more promising opportunities, thereby generating higher overall returns for investors.

Micro Focus – By focusing on smaller, value-add multifamily and residential transactions which are “below the radar” of larger funds, the Fund is able to find opportunities that aren’t available to many other investors. In addition, the market for smaller, “below-the-radar” properties is less liquid and not as efficient as for larger properties, allowing for more attractive entry points.

Relatively Short Investment Period – The Fund has a relatively short investment period. The General Partner believes the Fund will often be able to buy, add value and sell properties within five to six years, thereby generating investment returns and providing liquidity within a shorter time frame.


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Diversification – Because the Fund anticipates targeting small to medium-sized assets, it can offer better diversification than most real estate funds. Fund II has made 38 separate investments, Fund III made 41 separate investments, Fund IV has made 33 separate investments, and Fund V has made 18 separate investments primarily in the Fund’s Target Markets. The General Partner believes that with the ability to syndicate up to 40% of the invested capital in each portfolio investment, the Fund should be able to achieve appropriate portfolio diversification.

Vertically Integrated Fund/Operator – The General Partner and its affiliate, Pathfinder Management, will provide both capital management and real estate operations expertise, including ready access to high quality property management and construction resources through Pathfinder relationships.

Co-Investments and Operating Partners

The General Partner anticipates that it will purchase portfolio investments with Fund capital and then, at the sole discretion of the General Partner for portfolio investments that require equity greater than $7,000,000, may syndicate up to 40% of the equity capital in certain of these investments to investors in a Co-Investment vehicle. Major Investors in the Fund will have “first look” at any Co-Investment opportunity with the Fund. The General Partner will notify Major Investors of a Co-Investment opportunity, and each Major Investor will have five (5) business days to elect to participate in such Co-Investment. If Major Investors elect to participate in an aggregate amount that exceeds the total Co-Investment amount, then participation among such interested Major Investors may be reduced in any manner deemed by the General Partner to be equitable. If Major Investors do not elect to participate in the entire amount of such Co-Investment opportunity, then the General Partner will notify all other Limited Partners of their opportunity to invest in such remaining amount, and all interested Limited Partners will have the ability to on a “first come first served” basis (although the General Partner may, in its discretion, adjust participation among interested Limited Partners in any manner deemed by the General Partner to be equitable).

The terms of these Co-Investments are expected to be substantially equivalent to (and, in any event, on terms no less favorable than) the terms for investors in the Fund related to such property. Investors will earn a preferred return on funds contributed to the Co-Investment vehicle and the General Partner (or an affiliate) will receive a carried interest distribution on 20% of the profits from the syndicated portion of the Co-Investment vehicle. Any Co-Investment will be outlined in separate private placement memoranda, offering circulars, subscription documents, operating agreements, partnership agreements, and similar documents. In no event will there be a “double promote” paid to the General Partner in these Co-Investment structures, meaning only investors directly invested in the Co-Investment will be charged a promote directly by the Co-Investment vehicle.

The General Partner anticipates that a portion of the Fund’s investments may be made with various operating partners that will provide operating expertise within the applicable asset sector or geographic region (each, an “Operating Partner”). In addition to, or in conjunction with, investments described in the prior sentence or following paragraph, the Fund may own its assets on its own or together with one or more major financial institutions or capital partners with substantial experience in making opportunistic or value-add real estate investments (each, a “Financial Partner”).


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IV. CERTAIN RISK FACTORS

An investment in the Fund involves a high degree of risk and, therefore, should be undertaken only by qualified investors whose financial and other resources are sufficient to enable them to assume these risks and to bear the potential loss of all or part of their investment. The following risk factors (together with other factors set forth in this Memorandum and its appendices) should be considered carefully, but are not meant to be an exhaustive listing of all potential risks associated with an investment in the Fund. Investors should consult with their own financial, legal and tax advisors prior to investing in the Fund.

REAL ESTATE OWNERSHIP. The Fund’s investments will be subject to the risks generally incident to the ownership of real property and loans, including: uncertainty of cash flow to meet fixed and other obligations; uncertainty in capital markets as it relates to both procurements of equity and debt; adverse changes in local market conditions, population trends, neighborhood values, community conditions, general economic conditions, local employment conditions, interest rates, and real estate tax rates; changes in fiscal policies; changes in applicable laws and regulations (including tax laws); uninsured losses (including without limitation construction defects, flooding and earthquakes); delays in foreclosure; borrower bankruptcy and related legal expenses; changes in capitalization rates used by buyers and sellers of real estate; and other risks that are beyond the control of the General Partner. There can be no assurance of profitable operations because the cost of owning the properties may exceed the income produced, particularly since certain expenses related to real estate and its ownership, such as property taxes, utility costs, maintenance costs and insurance, tend to increase over time and are largely beyond the control of the owner. Moreover, although insurance is expected to be obtained to cover most casualty losses and general liability arising from the properties, no insurance will be available to cover cash deficits from ongoing operations.

INVESTMENTS IN MULTIFAMILY ASSETS. The Fund intends to invest primarily in multifamily assets, such as apartment buildings, townhomes and condominiums. Investment in multifamily involves certain special risks. Apartments are particularly vulnerable to the risks that the population levels, economic conditions or employment conditions may decline in the surrounding geographic area. Any of these developments likely would have an adverse impact on the size or affluence of the tenant population in the area and a negative impact on the occupancy rates, rent levels and property values. Unlike many other types of real estate investments, multifamily properties do not have tenants occupying large portions of the property whose lease payments provide reliable sources of income for extended lease terms. Instead, such properties will typically have individual residential tenants with very limited net worth and with lease terms that are typically one year or less. In particular, apartment complexes generally experience frequent tenant turnover due to factors such as transient populations, new competition in the area, and changes in the tenants’ economic status. In addition to continuously needing to replace vacating tenants, tenant turnover in multifamily properties causes the property owner to incur significant rehabilitation and maintenance costs in order to prepare units for new tenants.

HIGHER RISKS ASSOCIATED WITH PROPERTIES IN NEED OF “VALUE-ADD”. The under-performing and value-add properties the Fund is targeting may experience unanticipated delays in, or increases in the cost of, improving or repositioning such properties that are beyond the control of the General Partner. The improvement, renovation or rehabilitating of real estate assets is subject to timing, budgeting and other risks that may adversely affect the Fund’s operating results. There is no assurance the General Partner will be successful in improving and rehabilitating its properties (or that rental income will increase based on such improvements), as this depends in significant part on a number of factors beyond the General Partner’s control, including general or local economic conditions, local market demand, or an inability to obtain, or delays in obtaining, necessary governmental permit authorizations. In addition, acts of God such as earthquakes, hurricanes, floods or fires could adversely impact a project. If any of the above occurs, the ability of the Fund to make distributions to its Partners could be adversely affected. In addition, improvement and repositioning activities, regardless of whether they are ultimately successful, may require a substantial


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portion of management’s time and attention. Thus, these types of properties may pose greater investment risk than non-value-add properties.

CO-INVESTMENT AND SYNDICATION OPPORTUNITIES. Part of the Fund’s investment strategy is to syndicate up to 40% of the equity requirement of certain investments. There is no guaranty or assurance that the General Partner will find investors who are prepared to co-invest in such syndication opportunities and who are acceptable to the General Partner. The General Partner is not obligated or required to accept any co-investment or syndication investors who are not acceptable to the General Partner in its sole discretion. The terms of these Co-Investments are expected to be substantially equivalent to (and, in any event, no less favorable than) the terms for investors in the Fund related to such portfolio investment, including the right of investors to earn a preferred return on funds contributed to the Co-Investment vehicle and the right of the General Partner (or an affiliate) to receive carried interest distributions of 20% of the profits of such Co-Investment vehicle (without double counting any carried interest distributions on the profits of the Fund). Major Investors in the Fund will have “first look” at any Co-Investment opportunity with the Fund. The General Partner will notify Major Investors of a Co-Investment opportunity, and each Major Investor will have five (5) business days to elect to participate in such Co-Investment. If Major Investors elect to participate in an aggregate amount that exceeds the total Co-Investment amount, then participation among such interested Major Investors may be reduced in any manner deemed by the General Partner to be equitable. If Major Investors do not elect to participate in the entire amount of such Co-Investment opportunity, then the General Partner will notify all other Limited Partners of their opportunity to invest in such remaining amount, and all interested Limited Partners will have the ability to invest on a “first come first served” basis (although the General Partner may, in its discretion, adjust participation among interested Limited Partners in any manner deemed by the General Partner to be equitable). No assurances can be made that the General Partner will be successful in achieving a certain level of co-investment equity in these syndications, that such co-investments will be advantageous to the Fund, or that the terms of any co-investment will be on substantially similar terms as those offered by the Fund.

ENVIRONMENTAL REGULATION OF REAL PROPERTY. Under various U.S. federal, state and local environmental laws and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or wastes, or petroleum products or other pollutants or regulated materials, or threatened releases of such materials, at such property or migrating onto such property (collectively, the “Contamination”) and may be held liable to a government entity or to third parties for property damage and for investigation, clean up and monitoring (collectively “Response”) costs incurred by such parties in connection with the Contamination. Such laws typically impose clean up responsibility and liability without regard to fault, or whether or not the owner knew of or caused the presence of the Contamination. The liability under such laws may be joint and several for the full amount of the Response costs incurred or to be incurred or Response actions to be undertaken, although a party held jointly and severally liable may be able to obtain contributions from other identified, solvent, responsible parties for their fair share towards these costs. The Response costs may be substantial and can exceed the value of the property. In connection with its ownership and operation of the properties, the Fund may be liable for such costs. The presence of Contamination, or the failure to properly remediate Contamination, on such property may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. Federal regulations require building owners and those exercising control over a building’s management to identify and warn, via signs and labels, of potential hazards posed by workplace exposure to installed asbestos-containing materials (“ACM”) and presumed asbestos-containing materials (“PACM”) in their buildings. The regulations also set forth employee training, record keeping and due diligence requirements pertaining to ACM and PACM. Significant fines can be assessed for violation of these regulations. Building owners and those exercising control over a building’s management may be subject to an increased risk of personal injury lawsuits by workers and others exposed to ACM as a result of the regulations. The regulations or the presence of ACM or PACM may affect the value of a building in which the Fund has invested. Certain federal, state and local laws and regulations also govern the removal,


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encapsulation, disturbance, handling and/or disposal of ACM when such materials are in poor condition or in the event of remodeling, renovation, construction or demolition of a building containing these materials. Such laws provide for liability for improper handling or a release to the environment of ACM and for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper exposure or notices associated with ACM.

In addition, recent studies have linked radon, a naturally-occurring substance, to an increased risk of lung cancer. While there are currently no state or Federal requirements regarding the monitoring for, presence of, or exposure to, radon in indoor air, the United States Environmental Protection Agency (“EPA”) and the Surgeon General recommend testing residential and other buildings for the presence of radon in indoor air, and the EPA further recommends that concentrations of radon in indoor air be limited to less than 4 picocuries per liter of air (the “Recommended Action Level”). The presence of radon in concentrations equal to or greater than the Recommended Action Level in a property may adversely affect the owner’s ability to lease such property and the market value of such property.

Federal law requires owners and landlords of residential housing constructed prior to 1978 to disclose to potential tenants or purchasers, and to real estate brokers, any known presence of lead paint and lead paint hazards and allows for treble damages, fines and attorneys’ fees for failure to so notify. In addition, the Fund could be held liable under state laws for any injuries caused by ingestion of lead-based paint, or of exposure to dust or particles from lead-based paint, by tenants, children or others living at or using the properties. Under some state laws, the liability is without regard to fault, and may also require the Fund to remediate soil and groundwater contaminated with lead in and around the subject property. These remedial actions may be difficult and expensive, and there may be inadequate insurance protections related to such risks.

Mold is a fungus that may grow within buildings if sufficient moisture is present, for instance as a result of leaking roofs or pipes, flooding or poor insulation in bathrooms. Certain molds are allergenic to certain tenants and capable of producing toxins which can be harmful. Mold can injure other living things and damage property. It is customary practice to promptly remediate water damage, which can result in mold, and any damage from mold growth, to prevent personal injury and property damage, and unsafe living conditions. If mold grows in a property that the Fund owns or operates, the Fund may be liable for any personal injury and property damage that results. Under state or local laws pertaining to health, housing, building standards and consumer protection, the Fund may be required to remediate mold and may be fined due to the presence of mold in a building, its tenants may be evicted, it may be liable for rent during the period when mold was present in the building and the building may be condemned and/or razed. Mold remediation may be difficult and expensive. It is difficult and expensive to obtain insurance to protect against liability, remediation costs or other damages pertaining to mold, and there may be no insurance coverage under existing policies. State and federal legislation pertaining to mold, including its remediation and disclosure, may be enacted in the next few years, and it is unknown what economic impact such legislation could have on building owners and operators.

If appropriate, prior to closing any property acquisition, environmental assessments may be obtained in order to attempt to identify potential environmental concerns at such properties. Except as otherwise may be appropriate, these assessments generally will be carried out in accordance with accepted industry practices and may include a physical site inspection, a review of relevant U.S. federal, state and local and non-U.S. environmental and health agency database records, one or more interviews with appropriate site- related personnel, and review of other appropriate documentation. Limited subsurface investigations and tests for radon, asbestos and lead-based paint may be obtained where the results of the first phase of the environmental assessment or other information indicate possible contamination or where such procedures are recommended by consultants.


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ADA COMPLIANCE. The Fund’s assets will be required to comply with Title III of the Americans with Disabilities Act (the “ADA”) to the extent that its properties are “public accommodations” and/or “commercial facilities” as defined by the ADA and its equivalents. In connection with any project (and most often the case, with retail projects), compliance with the ADA requirements could require removal of structural barriers to handicapped access in certain public or common areas of properties. To the extent that portions of residential properties such as a leasing office, lobby or common area are open to the public, compliance with the ADA is required in those portions. Non-compliance could result in imposition of fines or an award of damages to private litigants.

In addition, multifamily communities are often subject to various laws, ordinances and regulations, including regulations relating to recreational facilities such as swimming pools, activity centers and other common areas. Recreational facilities may be subject to many ADA requirements and to regulations relating to the use and disposal of pesticides, herbicides, fertilizers and petroleum products.

FAIR HOUSING COMPLIANCE. The Fair Housing Amendments Act of 1988 (the “FHAA”) requires apartment communities first occupied after March 13, 1990, to be accessible to the handicapped. Noncompliance with the FHAA could result in the imposition of fines or an award of damages to private litigants.

LOCAL REGULATION. The General Partner’s ability to acquire, enhance, operate and sell property is highly dependent upon various governmental agencies. Any shift in the political landscape (such as the election of local representatives who support strict rent control policies) may significantly impact the value of the Fund’s investment properties, Fund’s investment timing, and its ability to realize its investment objectives. Agencies, city governments or legal challenges by civic or community groups may retroactively change zoning or development conditions that must be satisfied. Changes in local, state or federal tax, real estate and zoning laws may reduce the returns attributable to the Fund’s investments. In addition, any property or a portion of property owned by the Fund could become subject to eminent domain or inverse condemnation action. Such an action could have a material adverse effect on the marketability of the property and the Fund’s return on investment.

CONCENTRATION OF INVESTMENTS. As the Fund expects to invest primarily in Target Markets, the Fund may be unable to achieve optimal diversification to properly hedge the Fund’s risk exposure to the asset class. If one or more of these markets experiences an economic downturn or suffers from a catastrophic natural disaster, such as a hurricane, tornado, earthquake, tidal wave, tropical storm, flood, mudslide or severe erosion or accretion, the value of the Fund’s assets may decrease rapidly. Declines in the real estate markets in any of the Target Markets may reduce the returns on investment.

USE OF LEVERAGE. The acquisition, re-habilitation, renovation and development of the Fund’s assets may be financed in substantial part by borrowing, which will increase the Fund’s exposure to loss. The use of leverage involves a high degree of financial risk and may increase the exposure of the Fund or its investments to factors such as rising interest rates, downturns in the economy or deterioration in the condition of the collateral underlying such investments. The use of leverage will increase the amount of funds available to the Fund for investment but will also increase the risk of loss. The investments may be unsecured and subordinated to substantial amounts of senior indebtedness. The investments may not be protected by financial covenants or limitations upon additional indebtedness. Market fluctuations may significantly decrease the availability of and increase the cost of leverage.

Many commercial loans in the present market require variable as opposed to fixed interest rates. In a variable rate loan the debt service can increase substantially, if interest rates rise. The General Partner has no control over interest rates and there can be no assurance that a substantial rise in interest rates will not occur. A rise in interest rates and/or a rise in “cap” rates may adversely affect the market value of the property in the Fund


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and the ability of prospective purchasers to finance any acquisition of the Fund’s assets or the ultimate profits realized by the Fund. The General Partner can provide no assurance that lenders with which it has historically had relationships will provide financing for the Fund’s projects at all, or at rates and terms comparable to those which the General Partner or its affiliates have obtained previously.

Under certain loans, principal and interest payments on indebtedness will have to be made regardless of the sufficiency of cash flow from the Fund’s assets. Mortgages requiring “balloon” payments may involve greater risks than mortgages where the principal amount is fully amortized over the term of the loan since the ability to repay the outstanding principal amount of a “balloon” loan may be dependent upon the ability to obtain adequate replacement financing, which will, in turn, be dependent upon interest rates and lenders’ policies at the time of refinancing, economic conditions in general and the value of the underlying assets in particular. There is no assurance that replacement financing will be available to make “balloon” payments or that any replacement financing available will be on favorable terms. Lenders or other holders of senior positions would be entitled to a preferred cash flow prior to the Fund receiving a return.

The Fund may engage in portfolio-level financing, and as a result, several of the Fund’s investments may be cross-collateralized and subject to increased risk of loss. In addition, recourse debt may be incurred and may subject the assets of the Fund to additional risk of loss. The Fund’s investments may be impaired by a smaller decline in the value of the Fund’s assets than is the case where the assets are owned with a proportionately smaller amount of debt. Depending on the level of leverage and decline in value, if mortgage payments are not made when due, one or more of the Fund’s assets may be lost (and the Fund’s investment therein rendered valueless) as a result of foreclosure by mortgagees. A foreclosure may also have substantial adverse tax consequences for certain investors in the Fund.

The projected returns on the Fund’s investments are dependent, in part, on the availability of debt financing at the rates and on the terms modeled by the General Partner. To the extent that such financing is not available on such rates and terms, or is not available at all, then such events could have a significant negative effect on the Fund’s investment returns.

COMPETITION FOR MULTIFAMILY REAL ESTATE ACQUISITIONS. The Fund may encounter intense competition in the marketplace. Given the rapid growth in the demand for, and limited supply of, multifamily housing throughout the Target Markets, there is increasing competition for the acquisition of Multifamily real property. Such competition may have the effect of increasing the Fund’s cost of investments, thereby reducing the Fund’s returns.

ILLIQUIDITY OF REAL ESTATE ASSETS. It is expected that the entire portfolio of the Fund will consist of assets that are illiquid or for which a secondary market is not readily available. Liquidity refers to the ability of an asset to readily be converted into cash. Unlike publicly traded stocks and other liquid investments, it takes considerable time and effort to market and sell investment properties. This illiquidity increases the Fund’s risk that an investment will not be converted into cash within an acceptable period of time.

CONTROL OVER PROJECTS. The Fund may co-invest with third parties, including the owners of the properties it acquires or their affiliates, through partnerships, joint ventures or other entities. Although the Fund generally intends to seek a controlling interest in these types of portfolio investments, it may acquire non-controlling interests in certain investments. Such investments may involve risks not present in investments where a third party is not involved, including the possibility that a third party partner or co- venturer may have financial difficulties resulting in a negative impact on such investment, may have economic or business interests or goals which are inconsistent with the Fund’s, or may be in a position to take action contrary to the Fund’s investment objectives. In addition, the Fund may in certain circumstances


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be liable for actions of third party partners or co-venturers. A partner or co-venturer may be able to block a sale of the Fund’s interest in any such joint venture or partnership.

RISKS ASSOCIATED WITH CONSTRUCTION. The Fund may complete the development of partially completed properties or initial development of land as opportunities arise from time to time. The development and construction of real estate assets is subject to timing, budgeting and other risks that may adversely affect the Fund’s operating results. The Fund may abandon development activities after expending resources to determine their feasibility; occupancy rates and rents at a newly-completed property may not be sufficient to make the property profitable; financing may not be available on favorable terms for development of a property; and the construction and lease up of a property may not be completed on schedule (resulting in increased debt service and construction costs). Development activities are also subject to risks relating to an inability to obtain, or delays in obtaining, necessary entitlements, zoning, land-use, building occupancy and other required governmental permit authorizations. Acts of God such as earthquakes, hurricanes, floods or fires could adversely impact a project; ability to raise capital; and governmental restrictions on the nature or size of a project. Other significant risks include management of the architect and general contractor (including development of a time line for construction), procurement of all necessary equipment and inventory, and sufficient and capable staffing related thereto. If any of the above occurs, or fails to occur, as the case may be, the ability of the Fund to make distributions to its Partners could be adversely affected. In addition, development activities, regardless of whether they are ultimately successful, may require a substantial portion of management’s time and attention.

LIMITED REPRESENTATIONS AND WARRANTIES. The Fund may acquire properties with only limited or in some cases, no representations and warranties from the sellers regarding the condition of the properties, the presence of building defects, natural hazards, nuisances or hazardous substances, or other matters affecting the use or ownership of the properties. As a result, if defects in a property or other matters adversely affecting the property are discovered, the Fund may not be able to pursue a claim for damages against the original sellers of the property. The extent of damages that the Fund may incur as a result of such matters cannot be predicted, but potentially could result in a significant adverse effect on the value of the Fund’s assets.

EFFECT OF MARKET CONDITIONS ON HOLDING PERIODS. The determination of when a particular property should be sold will be made by the General Partner in its sole discretion upon consideration of relevant factors, including existing economic conditions, real estate and capital market conditions. While the General Partner expects that the Fund will sell its properties for cash, market conditions may require the Fund to carry back financing or other indebtedness in lieu of immediate total cash payment on the sale price of a property. Depending on market conditions at the time when a property is liquidated, the terms of repayment of any such debt could be disadvantageous to the Fund. No assurance can be given that the Fund’s properties will increase in value during the period they are owned and operated by the Fund, that there will be a market for the Fund’s properties at the time they are offered for sale, or that the Fund’s properties can be sold at certain times, if at all.

TENANT CREDIT RISK. Tenant leases will generate revenue for the Fund’s properties. As a result, the profitability of the Fund is subject to the credit risk of the tenants that occupy its properties. In particular, local economic conditions and factor affecting the industries in which such tenants operate may affect the tenant’s ability to make lease payments. In the event that any such tenants default on their leases and fail to make rental payments when due, there could be a significant decrease in a property’s revenues. This loss of revenues could adversely affect the Fund’s profitability and its ability to meet its financial obligations. In addition, the Fund may be unable to locate replacement tenants in a timely manner or on comparable or better terms if tenants default on their leases.


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DELAYS. Any delays encountered by the Fund in the selection, acquisition, renovation and enhancement of properties could adversely affect investor returns. The Fund may not be able to obtain permits, complete the work or obtain third party or governmental approvals necessary to realize desired returns on portfolio investments.

TERRORISM. The impact on economic conditions of terrorist attacks or the outbreak or escalation of armed conflict involving the United States may reduce the value of property, and have an adverse impact on interest rates, the availability of financing, raw materials, oil, gas, electricity, water, energy or other factors. These events could reduce the value of the Fund’s assets.

LIMITED FINANCIAL RESOURCES. The General Partner and Pathfinder Management have limited financial resources, and their business is subject to significant risks and competition. Because competitors may have greater resources, the Fund could be at a disadvantage in achieving the financial projections set forth in this Memorandum. The Fund’s profitability may be diminished if the General Partner or Pathfinder Management incurs significant operating losses or become subject to significant liabilities which impede their operational efficiency.

LACK OF INSURANCE. The General Partner may not be able to obtain or maintain adequate insurance with respect to the Fund’s assets, or may not be able to obtain or maintain insurance on reasonable terms. Failure to obtain insurance or the excessive costs of insurance may expose the Fund to additional risk of loss or additional expenses to which it would not otherwise be subject. In this regard, the Fund currently does not intend to purchase earthquake insurance on any of its properties.

HEDGING RISKS. In connection with the financing of certain portfolio investments, the Fund’s performance may be affected adversely if the Fund fails to limit the effects of changes in interest rates on its operations by employing an effective hedging strategy, including engaging in interest rate swaps, caps, floors or other interest rate contracts, or buying and selling interest rate futures or options on such futures. The Fund will be entitled to employ hedging techniques designed to protect the Fund against adverse movements in interest rates or other limited risks. While such hedging transactions may reduce certain risks, such transactions may themselves expose the Fund to additional risks, including losses on a hedged position, additional costs, transaction and breakage fees related to such hedging transactions, which will reduce the Fund’s earnings and funds available for distribution to the Partners. There is no perfect hedge for any investment, and a hedge may not perform its intended purpose of offsetting losses on an investment, and, in certain circumstances, could increase such losses. Thus, while the Fund may benefit from the use of these hedging mechanisms, unanticipated changes in interest rates, securities prices, or exchange rates may result in poorer overall performance for the Fund than if it had not entered into such hedging transactions.

LACK OF OPERATING HISTORY. The Fund has no previous operating history. Except as expressly set forth herein, the assets to be purchased by the Fund have not been identified or selected. Investors will not be able to evaluate the merits of the Fund’s investment portfolio prior to their investment in the Fund.

UNCERTAINTY OF SYNDICATING PROPERTIES, SECURING AND RETAINING, FINANCIAL PARTNERS AND OPERATING PARTNERS. Although Pathfinder has entered into a number of transactions to date with institutional Financial Partners and Operating Partners for other entities, there is no assurance that any particular Financial Partner, Operating Partner or syndication investors will invest (or co-invest) with the Fund, or that Financial Partners or syndication investors will be amenable to co-investing. Since the Fund may require Financial Partners, Operating Partners and/or syndication investors to meet its business objectives, the lack of such relationships would be extremely detrimental to the Fund.

RESERVES. During the term of the Fund, a portion of the Fund’s gross income may be held as working capital reserves to meet the Fund’s expenses. Such expenses include those related to the operation of the


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investments, Fund management and the preparation of income tax information and other reports provided to the Partners. To the extent that such reserves prove inadequate to defray Fund costs and expenses or unanticipated costs and expenses, it could be necessary for the Fund to attempt to borrow additional funds. In the event such financing is not available on acceptable terms, the General Partner may, although is not required to, advance such sums, or the Fund could be required to liquidate one or more of its investments, which might not be on terms favorable to the Fund.

POTENTIAL LOSSES ON DISSOLUTION AND TERMINATION OF THE FUND. In the event of a dissolution or termination of the Fund, the proceeds realized from the liquidation of the assets of the Fund will be distributed among the Partners, but only after the satisfaction of the claims of third-party creditors, including claims by any lenders and certain fees owed to the General Partner or its affiliates. The ability of a Partner to recover all or any portion of such Partner’s investment under such circumstances will, accordingly, depend upon the amount of net proceeds realized from such liquidation and the amount of claims to be satisfied. The Fund cannot assure that it will recognize gains on such liquidation.

LACK OF PUBLIC MARKET FOR INTERESTS. The General Partner does not anticipate that a public trading market will ever develop for the Interests. In fact, the Partnership Agreement restricts the Fund’s ability to participate in a public trading market or anything substantially equivalent to one by providing that any transfer which may cause the Fund to be classified as a “publicly traded partnership” as defined in Section 7704 of the Code shall be deemed void and shall not be recognized by the General Partner. Prospective investors should consider their investment in the Fund as a long-term, illiquid investment of indefinite duration. The Interests are not transferable by investors, except as allowed in limited circumstances, as set forth in the Partnership Agreement. Accordingly, investors may not be able to liquidate their investments prior to the end of the Fund’s term. In addition, the suitability standards applied to investors upon the purchase of their Interests may also be applied to persons to whom an investor wishes to transfer its Interests. An investor may not be able to sell its Interests in the event of an emergency and its Interests may not be pledged as collateral for a loan without the consent of the General Partner, which it may withhold in its discretion.

DEPENDENCE ON INVESTMENT COMMITTEE. The Fund will be dependent upon the efforts of certain members of the General Partner, serving in their capacity as the Investment Committee. The loss of any of their services or limits on their availability could have an adverse effect on the Fund’s performance as their experience would be difficult to replicate.

ALTERATION OF INVESTMENT STRATEGY. The General Partner will not be required to adhere to the investment strategy of the Fund as described in this Memorandum and may determine that it is in the Fund’s interest to alter such strategy due to adverse economic conditions, market changes, regulatory changes, including tax law changes, or other reasons. Investors should be aware that the General Partner may do so in the future and that in such circumstances, the Fund would be exposed to different levels of risk, and the Fund’s performance may be different, than if the General Partner followed the investment strategy described in this Memorandum.

LACK OF INVESTOR CONTROL OVER FUND POLICIES. The management, investment, financing, leasing and divestiture policies of the Fund and its policies with respect to certain other activities, including its distributions and operating policies, will largely be determined by the General Partner, and investors will have no control over such policies. No assurance can be given that the General Partner will be successful in implementing such policies or that the Fund will achieve historical returns. The success of the Fund depends in substantial part of the ability of the General Partner to manage effectively the business related to the Fund and its assets. The business and operations of the Fund are governed by the Partnership Agreement. Under the Partnership Agreement, the General Partner has complete control over all issues with respect to the Fund. Limited Partners will have very limited rights or control regarding the Fund. Accordingly, no person should


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purchase any of the Interests unless he or she is willing to entrust all aspects of the management of the Fund to the General Partner.

POTENTIAL CONCENTRATION OF VOTING POWER. Limited Partners will be able to vote on or approve matters concerning the Fund only in a very limited set of circumstances, such as approving certain transactions between the Fund and the General Partner or an affiliate not otherwise contemplated by the Partnership Agreement. The General Partner will control most decisions, including all decisions relating to the day-to-day operations of the Fund. Even in situations where the Limited Partners vote on Fund matters, a small group of Limited Partners with relatively large Capital Commitments could have the requisite percentage of votes to determine the outcome of such decisions (although the exact concentration of voting power will not be known until the Fund conducts its Final Closing). Such a concentration of voting power, if it occurs, could have the effect of limiting the ability of Limited Partners with relatively smaller Capital Commitments to have a meaningful vote on matters requiring a vote of Partners.

REMOVAL OF GENERAL PARTNER. Investors will not have any ability to remove the General Partner from such role. As a result, investors may have less control over the General Partner’s investment strategies than they may have with other investments.

RIGHTS OF MEMBERS GOVERNED BY PARTNERSHIP AGREEMENT. Investors are urged to read the Partnership Agreement in its entirety, to consult with their independent counsel and financial advisors regarding the Interests in the Fund, to ask the General Partner any questions with respect to the Partnership Agreement, and to take all necessary action to receive satisfactory answers to such questions. Upon purchasing the Interests, investors will be Limited Partners in the Fund, the rights of which are governed by the Partnership Agreement. The General Partner strongly encourages all potential investors to engage legal counsel and tax advisors to assist them in reviewing this Memorandum, the Subscription Agreement, the Partnership Agreement, and other documents and information relating to a proposed investment in the Fund, and to represent their interests in connection with their evaluation of the merits and risks of an investment in the Fund. The attorneys for the General Partner who have assisted in structuring this investment do not represent the interests of the investors. For these reasons, the General Partner strongly recommends that all potential investor engage separate legal counsel to adequately protect their interests in connection with their consideration of and investment in, the Fund.

EXCULPATION AND INDEMNIFICATION. The Partnership Agreement sets forth the circumstances under which the General Partner, its affiliates and their directors, officers, partners, members, employees or agents are excused from liability to the Fund and its investors for damages or losses that the Fund or such investors may incur by virtue of any such person’s performance or services for the Fund. As a result, the Fund and its investors may have limited rights against these persons. In the event that a claim is made against the General Partner, its affiliates or their directors, officers, partners, members, employees or agents, such persons may be entitled to be indemnified by the Fund, in which case the assets of the Fund could be used to indemnify such persons for amounts incurred in connection with such claim. In certain cases, previous distributions to the Fund’s investors may be recalled to cover such indemnification obligations of the Fund.

VALUATIONS AND APPRAISALS. Although the Fund will be audited on an annual basis (until such time as it no longer owns any properties), there is no requirement in the Partnership Agreement for the General Partner to have a third party valuation or appraisal of any of the Fund’s assets. Accordingly, the General Partner’s determination of the value of the Fund’s assets may be a subjective analysis which provides no more than the General Partner’s estimate of value. Valuations and appraisals may result in adjustments of the Fund’s gross and net asset values. Accordingly, there can be no assurance that the Fund’s gross or net asset values, as calculated based upon such valuations and appraisals, will be accurate on any given date, nor can there be any assurance that the sale of any property owned by the Fund would be at a price equivalent to the last estimated or appraised value of such property.


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DIFFERENTIAL TAXES FOR INVESTORS. The Fund’s investors are expected to include tax-exempt entities and may also include taxable investors such as high net worth individuals and persons or entities organized in various jurisdictions. Certain conflicts of interest may arise in connection with decisions made by the General Partner that may be more beneficial for one type of investor than for another type. In making decisions on behalf of, and selecting investments appropriate for, the Fund, the General Partner will consider the investment objectives of the Fund as a whole, and will not be required to consider the investment objectives or tax consequences to any specific investor.

CONFLICTS OF INTEREST. It is not anticipated that the Fund will make new real estate investments following the Investment Period (except those to which it is under an obligation to invest prior to the end of the Investment Period). The Fund will remain actively engaged in the operation, maintenance and disposition of its existing real estate investments until such time as such portfolio is liquidated, including, without limitation, the renovation, repair, repositioning, management, leasing, re-financing, recapitalization, marketing and sale of such existing investments, and entering into, amending or revising joint ventures with respect thereto. As of the date of this Memorandum, the investment periods for all Prior Funds have expired. Although the General Partner and the Prior Funds are not expected to compete with the Fund for available investment opportunities during the Investment Period, conflicts of interest may arise between the General Partner, the Prior Funds and the Fund in connection with the operation, maintenance and disposition of the General Partner’s or its affiliates’ existing real estate investments, including, without limitation: if the Fund, the Prior Funds and the General Partner or its affiliate(s) are seeking to sell or otherwise dispose of similar real estate investments within the same submarket; if the General Partner engages in transactions or enters into arrangements with third parties or affiliates in respect of the management, leasing, re-financing, recapitalization, marketing, renovation, repair, repositioning or sale of its existing real estate investments, which transactions or arrangements may restrict the ability of the Fund to enter into similar transactions or arrangements with such parties, or adversely affect the terms upon which the Fund may enter into any such similar transaction or arrangement in such submarket or otherwise; and if the Fund, the Prior Funds and the General Partner compete for construction labor and material for any renovation, repair, or repositioning project occurring contemporaneously in the same submarket. The General Partner or its affiliates will be permitted to close on additional funds that invest in similar parameters in the Target Markets after at least 50% of the Capital Commitments in the Fund is invested. In addition, the General Partner may cause the Fund to purchase or sell portfolio investments from or to, or to contribute portfolio investments to a joint venture with, affiliates of the General Partner, including Prior Funds. Although the Partnership Agreement requires any such transaction to be at prevailing market prices (as confirmed by an independent appraisal) and on prevailing market terms as determined by the General Partner, there is no guaranty that such prices and terms as determined by the General Partner will be at least as favorable to the Fund as would be obtained pursuant to a transaction entered into on an arms’-length basis with an unaffiliated party.

Because some of the members of the General Partner and their affiliates have interests in other real estate ventures and business activities, they may have conflicts of interest in allocating their time and resources between the Fund and their other business activities. The Partnership Agreement specifies that the members of the General Partner will be permitted to devote a portion of their time and attention to charitable or business endeavors other than the General Partner and the Fund. Moreover, the Partnership Agreement also specifies that the General Partner or its affiliates will be permitted to devote a portion of their time, attention and management capabilities to new real estate investment opportunities which may ultimately become suitable investment opportunities for the Fund.

While the General Partner will not charge any disposition or financing fees in connection with the Fund’s investments, the General Partner will charge an acquisition fee and a management fee, and the General Partner or affiliates may charge certain other market rate fees, including property management fees, asset management fees, construction fees and debt/equity placement fees as set forth in the Partnership Agreement. As a result, a conflict of interest could arise between the investors and the General Partner as to the timing


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of the sale of a portfolio investment. For example, it may be in the General Partner’s interest to defer such a sale in order to continue to collect certain fees or to ensure that its Carried Interest would receive long term capital gain treatment (which may require a three year holding period (instead of one year) under recent changes to be made to the Code). As to any services provided by Pathfinder or its affiliates to the Fund or its actual or prospective portfolio projects, neither the General Partner nor the Fund guarantee that these services will be performed in a manner which provides the Fund with maximum benefits.

See also Section 2.3 (Conflicts of Interest) of the Partnership Agreement.

GENERAL PARTNER’S CARRIED INTEREST. The possibility of Carried Interest distributions may create an incentive for the General Partner to make riskier or more speculative investments on behalf of the Fund than would be the case in the absence of this arrangement.

LIABILITY FOR RETURN OF DISTRIBUTIONS. If the Fund is otherwise unable to meet its obligations, the investors may under applicable law be obligated to return, with interest, cash distributions previously received by them to the extent such distributions are deemed to constitute a return of their capital contributions or are deemed to have been wrongfully paid to them. In addition, an investor may be liable under applicable federal and state bankruptcy laws to return a distribution made during the Fund’s insolvency or within a certain time period prior thereto.

DEFAULTS; FUND SIZE. If one or more investors fail to make a capital contribution following receipt of a capital call notice, the Fund’s ability to complete its investment program or otherwise continue operations may be substantially impaired. To the extent that the Fund’s aggregate Capital Commitments are less than the target amount or a significant number of investors default on their Capital Commitment obligations, the opportunity for diversification of the Fund’s real property investments will be decreased and the returns on those properties when sold will be reduced as a result of allocating Fund expenses among fewer properties.

UNRELATED BUSINESS TAXABLE INCOME. The Fund may engage in activities, including the direct or indirect use of leverage, that would ordinarily generate UBTI for a tax-exempt entity. Although the General Partner has discretion to structure investments by the Fund in an effort to minimize UBTI to any tax-exempt Partner, no assurance can be provided that the General Partner will exercise its discretion or that its efforts will succeed in minimizing UBTI for all tax-exempt Partners under all circumstances. Prospective tax-exempt investors should consult their own tax counsel regarding the effect of any UBTI.

U.S. TAX EXPOSURE FOR FOREIGN INVESTORS. The Fund may engage in activities that constitute a United States trade or business, and the Fund expects to recognize gains from the sale of interests in U.S. real property. Accordingly, a foreign investor in the Fund generally will be subject to U.S. withholding taxes, U.S. tax filing and payment obligations, and in certain cases a U.S. “branch profits” as a result of such investor’s investment in the Fund (or even related to a potential sale of its interest in the Fund). Prospective foreign investors should consult their own tax counsel regarding the U.S. tax implications of investing in the Fund.

UNCERTAINTY REGARDING DISTRIBUTIONS. The General Partner cannot assure investors that the Fund will make sufficient cash distributions to permit investors to pay income taxes due on their allocable share of the Fund’s taxable income.

PAST PERFORMANCE. The investment track record of Pathfinder is based on investments made at different times, under different economic circumstances, and in different assets, than any of the investments to be completed by the Fund. Past performance of Pathfinder should not be relied upon to predict the Fund’s performance. The profitability of the Fund depends significantly on correctly assessing the future course of


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the real estate market in the Target Markets. There can be no assurance that the General Partner will be able to accurately predict such market patterns.

ADDITIONAL RISKS. In addition to the above risks, business are often subject to risks not foreseen or fully appreciated by management and, as a result, the foregoing list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an investment in the Fund. In reviewing this Memorandum and the Partnership Agreement, investors should consult their own counsel and advisors before deciding whether to the purchase the Interests.


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V. CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

General. The following is a summary of certain aspects of the U.S. federal income taxation of the Fund and the Partners which should be considered by a prospective investor. The Fund has not sought a ruling from the United States Internal Revenue Service (the “IRS”) or any other U.S. federal, state or local agency with respect to any of the tax issues affecting the Fund, nor has it obtained an opinion of counsel with respect to any U.S. federal tax issues.

The following discussion is limited to U.S. federal income tax matters. This summary of certain aspects of the U.S. federal income tax treatment of the Fund and its Partners is based upon the Code, judicial decisions, Treasury Regulations (the “Regulations”) and rulings in existence on the date hereof, all of which are subject to change. This summary also does not discuss all of the tax consequences that may be relevant to a particular Partner (such as Partners subject to alternative minimum tax) or to certain Partners subject to special treatment under the U.S. federal income tax laws, such as tax-exempt investors, insurance companies, Subchapter S corporations, non-U.S. individuals and foreign corporations, certain financial institutions, dealers or traders in securities, those who hold Interests as part of a hedge, straddle or conversion transaction, or investors who have a functional currency other than the U.S. dollar. This discussion assumes that a Partner holds Interests as a capital asset within the meaning of Section 1221 of the Code.

The following discussion generally is limited to the consequences to a Partner who or that is a U.S. Person. For purposes of this discussion, a “U.S. Person” generally is any individual citizen or resident of the United States; any corporation or other entity created or organized in or under the laws of the United States or any political subdivision thereof; any estate the income of which is subject to U.S. federal income taxation regardless of its source; and any trust that either is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons with regard to all substantial decisions of the trust or that has a valid election in effect under applicable Regulations to be treated as a U.S. person. If an entity treated as a partnership for U.S. federal income tax purposes is a Partner, the tax treatment of such entity will generally depend upon the status and the activities of such entity. Entities that are treated as partnerships for U.S. federal income tax purposes should consult their own tax advisors concerning the consequences to them and their partners of an investment in the Fund.

EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR IN ORDER TO UNDERSTAND THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND.

In addition to the particular matters set forth in this section, tax-exempt organizations should review carefully those sections of this Memorandum regarding liquidity and other financial matters to ascertain whether the investment objectives of the Fund are consistent with their overall investment plans. Each prospective tax-exempt Partner is urged to consult its own counsel regarding the acquisition of Interests.

Classification of the Fund. The U.S. federal income tax consequences discussed herein will apply to the Fund and Partners only if the Fund is recognized and treated for U.S. federal income tax purposes as a partnership and not as an association taxable as a corporation. The Fund, as a Delaware limited partnership, will be treated as a partnership, and each Partner will be treated as a partner in a partnership for U.S. federal income tax purposes unless the Fund elects otherwise (which it does not intend to do) or unless the Fund is taxable as a corporation under the “publicly traded partnership” rules. The Fund does not expect to be treated as a publicly traded partnership and the General Partner is authorized to refuse to recognize transfers of Interests which could cause the Fund to be treated as a publicly traded partnership. The remaining summary of U.S. federal income tax consequences in this section assumes that the Fund will be classified as a partnership for U.S. federal income tax purposes.


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As a partnership, the Fund itself generally is not subject to U.S. federal income tax. The Fund will file annual partnership information returns with the IRS which report the results of operations. Each Partner is required to report separately on its U.S. federal income tax return its distributive share of the Fund’s net long-term capital gain or loss, net short-term capital gain or loss and all other items of income or loss. Each Partner is taxed on its allocated share of the Fund’s taxable income and gain regardless of whether it has received or will receive a distribution from the Fund.

Taxable income of the Fund reported to Partners could exceed cash distributions, if any, made to Partners, in which case Partners may have to satisfy tax liabilities arising from an investment in the Fund from other sources. In this regard, the Fund may be required to repay loans prior to making distributions to Partners. No assurance can be given that the Fund will not borrow in a manner that could cause income or gains to be allocable to Partners by the Fund without a corresponding distribution of cash.

In addition, the General Partner, on behalf of the Fund, will make certain elections for tax reporting purposes which elections will be binding upon Partners with respect to their allocations of taxable income and loss from the Fund.

Partnership Audit Procedures. Generally, the Code requires each partner in a partnership to treat partnership items in a partner’s return consistently with the treatment given such items by the partnership. In the case of any proposed adjustment of a partnership item by the IRS, the proper tax treatment generally will be determined at the partnership level in a unified partnership proceeding conducted by the Fund “partnership representative” and “designated individual”, rather than in separate proceedings with the partners. The General Partner is the Fund’s partnership representative and Brent Rivard is the designated individual.

In general, the IRS treats a partnership’s representative as having sole power to bind the partnership and its partners. The General Partner, as partnership representative, and Brent Rivard, as the designated individual, will exercise control over the conduct and outcome of any audit proceeding involving the Fund. The expenses of any such audit proceeding, including a judicial proceeding, will be borne by the Fund. These expenses could be substantial, regardless of the outcome of the proceeding. Further, the Fund’s information tax returns may be audited by the IRS and may result in adjustments which could require Partners to file amended returns and pay additional taxes.

Pursuant to the Bipartisan Budget Act of 2015, prior partnership audit and tax adjustment rules have been replaced starting January 1, 2018, with a new regime applicable to all partnerships. Generally speaking, under the new regime, IRS audits of items of income, gain, loss, deduction or credit of a partnership will be handled at the partnership level, and importantly, the IRS will assess and collect any taxes, interest or penalties relating to an adjustment at the partnership level (meaning partners themselves will not be directly assessed). Under default rules, the new regime puts the economic burden of unpaid tax for a prior year on those who are partners in the year of assessment. An elective alternative mechanism that shifts burdens to the prior year’s partners is available. The Partnership Agreement includes indemnification provisions to assure that each Partner or former Partner is responsible for their share of any taxes, penalties and interest paid by the Fund.

There are substantial uncertainties related to the application of the new rules, which are in many respects vague and unclear. The General Partner intends to make available elections under the new rules to minimize, to the greatest extent possible, any Partner being responsible for tax adjustments in respect of a taxable year greater than their ownership share of the Fund for that year.

Profit and Loss Allocations. The Partnership Agreement provides that items of income, deduction, gain, loss or credit actually recognized by the Fund for each fiscal year generally are to be allocated for income


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tax purposes among the Partners in a manner that reflects their rights to distributions and their risk of loss for each investment, and their sharing of expenses over the life of the Fund, subject to certain exceptions for taxable income and loss from contributed property. The Fund’s allocations of taxable income, gain, loss and deduction are intended to comply with the requirements of the federal income tax laws governing partnership allocations. The specific rules governing allocations of profit and loss are complex and highly technical. Partners should consult their tax advisors concerning the application of these rules to their investment in the Fund.

Distributions and Tax Basis. As discussed above, a Partner will be taxed on the Partner’s share of the taxable income of the Fund, whether or not any income or capital is distributed to it. A cash distribution of Fund profits normally should not result in further taxable income to a Partner, unless the distribution exceeds the Partner’s adjusted tax basis in its Interest.

Generally, the initial basis of a Partner’s Interest for U.S. federal income tax purposes will be the Partner’s cash investment in the Fund. Following acquisition of an Interest, the Partner’s basis in its Interest will be increased by the Partner’s share of Fund income and by any additional cash contributions made by the Partner to the Fund and will be reduced (but not below zero) by the Partner’s share of Fund cash distributions and losses. A Partner may deduct, subject to certain limitations including the “passive activity loss” and “at-risk” limitations discussed below, the Partner’s share of Fund losses only to the extent that such losses do not exceed the tax basis in the Partner’s Interest. Losses in excess of tax basis may be carried forward until such tax basis is increased above zero. Tax basis also includes a Partner’s share of Fund liabilities as determined under the Code and Regulations. However, no assurance can be given that a Partner will be allocated any share of Fund liabilities for this purpose.

Any cash distributed in excess of a Partner’s adjusted tax basis in its Interest generally will be taxed as capital gain, and long-term capital gain if the Partner has held its Interest for more than one year at the time of distribution. See “U.S. Federal Income Tax Rates; Capital Gains and Losses” below.

Unless a Partner receives cash from the Fund in excess of the Partner’s tax basis in its Interest, the Partner generally will not recognize gain or loss on receipt of cash or property from the Fund. Under Section 751(b) of the Code, however, if a Partner does not receive its proportionate share of the Fund’s “Section 751 property” in exchange for all or a portion of its Interest, the Partner (or other Partners) may be taxed on the exchange in an otherwise tax-free transaction, recognizing both ordinary income and a capital loss in the exchange. There are two types of Section 751 property: “unrealized receivables” and “inventory items”, both of which are specially defined for such purposes. Unrealized receivables include, among other things, the portion of property subject to depreciation recapture. Inventory items may include any property that will generate ordinary income or loss upon its disposition, such as “dealer property” described below. No assurance can be given that Section 751(b) of the Code will not apply to a distribution in exchange for all or a portion of a Partner’s Interests.

Restrictions on Deductibility of Fund Expenses and Losses. Expenses of the Fund, such as the Management Fees, that relate to its investment activities (as opposed to its trade or business activities) will be considered investment expenses rather than trade or business expenses, and may not be deducted by any individual, trust or estate that is a Partner (directly or through a partnership or other pass-through entity). The application of these limitations will depend on the circumstances of each Partner and the nature of the Fund’s operations, which cannot be predicted. Accordingly, certain Partners may not be able to enjoy the full tax benefit of such Partner’s expenses of producing income. Prospective investors should also be aware that certain of the Fund’s organizational expenses will not be deductible against the income of the Fund. Such nondeductible expenses generally relate to the offering of interests in the Fund. In addition, certain other organizational expenses will be amortized for federal income tax purposes over a period generally of 15 years following the organization of the Fund.


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Other limitations may also apply to affect the timing of or reduce a Partner’s ability to utilize any losses sustained by the Fund, including the “passive loss” rules, the “at risk” rules, and the limitation of losses to the amount of a Partner’s tax basis in his, her or its Interest in the Fund. The passive loss rules and at-risk rules apply to non-corporate and certain corporate taxpayers (including closely-held, personal service and S corporations). Under the passive activity loss rules, losses, credits and deductions from passive activities are generally limited to offsetting the income from passive activities, and may not be used to offset business income, salary income, and portfolio income (interest, dividends, capital gains from portfolio investments, royalties, etc.). Generally, a passive activity is a trade or business in which the taxpayer does not materially participate. It is anticipated that the Fund will acquire real property and may invest in portfolio companies that are partnerships, limited liability companies or REITs that constitute passive activities. The distributive share of income or loss of the Fund from such real property or portfolio companies, as well as the portion of the management fee and other expenses allocable to the investment of the Fund in such real properties and portfolio companies, to the extent otherwise deductible, generally will be treated as passive activity income or loss. The deductibility of expenses may be further limited by operation of the “at-risk” rules, which generally provide that non-corporate and certain corporate taxpayers may deduct losses from a business activity only to the extent that (i) they contribute money to an activity, (ii) are personally liable for amounts borrowed with respect to the activity or (iii) the losses relate to qualified nonrecourse financing acquired in connection with the activity of holding real property and that is secured by real property used in such activity. Further, a non-corporate taxpayer is not permitted to deduct “investment interest” in excess of “net investment income.” “Net investment income” generally includes all gross income of the taxpayer from property held for investment and, if an election is made, net gain attributable to the disposition of property held for investment. This limitation could apply to limit the deductibility of interest paid by a non-corporate investor (directly or through a partnership or other pass-through entity) on indebtedness incurred to finance its investment in the Fund. In addition, the deductibility by an investor on its share of “business interest” (if any) generally speaking is capped under new tax law provisions. Those limitations are calculated at the Fund level, and generally limit annual business interest deductions to the sum of the Fund’s business interest income and 30% of its overall business income (calculated before taking into account interest, taxes, depreciation and amortization). Prospective investors should consult their own advisors concerning the application of these rules.

Moreover, certain Fund expenses will be capitalized into the cost of purchase of a property, such as any acquisition or finance fees, and such expenses shall only be recoverable upon disposition of the property.

Sales of Portfolio Properties. Upon the sale of a property, the Fund will recognize gain or loss to the extent that the amount realized from such sale is more or less than the adjusted basis of the property sold. The amount deemed realized for income tax purposes upon the sale of a property will generally be equal to the sum of the cash received plus the amount of indebtedness encumbering the property, if any, assumed by the purchaser or to which the property remains subject upon the transfer of the property to the purchaser. The adjusted basis of the partnership property will in general be equal to the original cost of the property less depreciation and cost recovery allowances allowed with respect to such property.

Assuming that the Fund is not deemed to be a dealer with respect to the Fund’s properties (see “Property Held Primarily for Sale” below), gain or loss realized on a sale of the Fund’s properties generally will be taxable as capital gain, and long-term capital gain if the Fund has held a sold property for greater than one year at the time of disposition. A Partner should be aware that the amount of taxable gain allocated to a Partner with respect to the sale of a partnership property may exceed the cash proceeds received by a Partner with respect to such sale because the amount realized includes any debt which is assumed or taken subject to by the purchaser. (See “Classification of the Fund”, above.)

Property Held Primarily for Sale. The Fund has been organized to generate long term capital appreciation for its investors by investing in assets. However, if the Fund is at any time deemed for tax purposes to be a


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“dealer” in real property owned directly or indirectly by the Fund, defined as one who holds real estate primarily for sale to customers in the ordinary course of business, any gain recognized upon a sale of such real property (commonly referred to as “dealer property”) will be taxable as ordinary income, rather than as capital gain, and will constitute “unrelated business taxable income” (“UBTI”) to investors which are tax-exempt entities, discussed below. Furthermore, the Fund’s property could be treated as “inventory” for purposes of Section 751 of the Code, discussed above and below, under such circumstances.

Under existing law, whether property is held primarily for sale to customers in the ordinary course of business must be determined from all the facts and circumstances surrounding the particular property and sale in question. When making this determination, the courts look to a number of factors, including, but not limited to: (i) number, extent, continuity and substantiality of sales; (ii) improvements to the property; (iii) solicitation and advertising efforts; and (iv) marketing activities.

The Fund intends to acquire real estate or interests in real estate for investment and long term capital appreciation and to add value to such real estate and engage in the business of owning such real estate. The Fund will sell such property only if, in the opinion of the General Partner, the sale would be consistent with its investment objectives. Nonetheless, the Fund may be treated as a dealer with respect to certain, if not all, of its properties. The General Partner also may determine that the Fund must treat itself as a dealer for such purposes. Even if the Fund takes the position that it is not a dealer with respect to all or any of its properties, there is no assurance that such position will not be challenged by the IRS or will be sustained by a court if so challenged. Because the issue is dependent upon facts which will not be known until the time a property is sold or held for sale, and due to the lack of directly applicable judicial authority in this area, neither the General Partner nor the Fund’s tax advisors are able determine whether the Fund will be considered to hold any or all of its properties primarily for sale to customers in the ordinary course of business and thus be considered a dealer as to those properties.

Sales and Transfers of Interests. A Partner may be unable to sell any Interest in the Partnership because of restrictions in the Partnership Agreement and/or there is no active trading market for such Interest. In the event that an Interest is sold, however, a Partner will realize gain or loss equal to the difference between the amount realized from such sale and the Partner’s adjusted tax basis in the Interest. Assuming that a Partner has held the Interest for more than 12 months, any gain or loss will be long-term capital gain or loss, except for that portion of any gain attributable to the Partner’s share of the Fund’s Section 751 property, which portion would be taxable as ordinary income. (See “Distributions and Tax Basis”, above.) Partners should note in this regard that the Code requires the Fund to report any sale of Interests to the IRS if any portion of the gain realized upon such sale is attributable to the transferor’s share of the Fund’s Section 751 property.

Code Section 754 Elections and Mandatory Tax Basis Adjustments. Pursuant to Section 754 of the Code, a partnership may make an election to adjust the basis of its assets in the event of a sale by a partner of its interest or certain other events. Depending upon the particular facts at the time of any such event, such an election could increase or decrease the value of the Interest to the transferee, because the election would increase or decrease the basis of the Fund’s assets for the purpose of computing the transferee’s distributive share of the Fund’s income, gains, deductions and losses. The Partnership Agreement authorizes the General Partner to make such an election in the General Partner’s discretion. However, because the election, once made, cannot be revoked without obtaining the consent of the Commissioner of Internal Revenue, and because of the accounting complexities that can result from having such an election in effect, there can be no assurance that the General Partner will cause the Fund to make this election.

Partnerships are generally required to adjust the basis of their assets in connection with a transfer of an interest in the partnership if the partnership has a substantial built-in loss immediately after the transfer. A substantial built-in loss exists if either the partnership’s adjusted basis in its property exceeds the fair market value of the property by more than $250,000, or the transferee would be allocated a loss of more than


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$250,000 upon a hypothetical disposition of all of the partnership’s property at fair market value immediately following the transfer. If such basis adjustments are required in connection with the transfer of an Interest, they could impose significant accounting costs and complexities on the Fund. The Fund would not be required to make such basis adjustments if it is an “electing investment partnership.” In that event, a transferee Partner’s distributive share of losses would not be allowed except to the extent that such losses exceed the loss (if any) recognized by the transferor (or, in some cases, a prior transferor) on the transfer of the Interest. The General Partner has not determined whether the Fund will be eligible to, or will, make the election to be treated as an “electing investment partnership”. Moreover, the Fund intends to prohibit any transfer of Interests that could trigger such a downward adjustment in the tax basis in its assets unless the Fund has a Code Section 754 election in effect or intends to make such an election that would require such downward adjustment in any event. In addition, the General Partner will be entitled to require that each Partner, and any transferee of a Partner’s Interest, provide the General Partner with any information necessary to allow the Fund to comply with its obligations under the rules described in this paragraph.

U.S. Federal Income Tax Rates; Capital Gains and Losses. Under current U.S. federal income tax law as of the date of this Memorandum, the maximum individual U.S. federal income tax rate applicable to (i) ordinary income generally is 37%; and (ii) net capital gain generally is 20%. The maximum corporate U.S. federal income tax rate applicable to ordinary income and net capital gain is 21%, subject to certain exceptions. Marginal tax rates may be higher for some Partners to reduce or eliminate the benefit of lower marginal income tax rates. Naturally, the amount of tax payable by any Partner will be affected by a combination of tax laws covering, for example, deductions, credits, deferrals, exemptions, sources of income and other matters. In addition, investment income and capital gains of certain high income taxpayers is subject to an additional tax of 3.8%. Starting in 2018, generally speaking and subject to various limitations, investors will be entitled to deduct 20% of their share of the qualified business income from the Fund in determining taxable income. Generally speaking, the net effect of the deduction is to reduce the maximum individual federal income tax rate from 37% to approximately 30%.

Individuals are allowed to use capital losses to offset in full capital gains. If capital losses exceed capital gains in a taxable year, individuals are also allowed to deduct such excess capital losses against a maximum, currently, of $3,000 of ordinary income. Any capital losses not used in a taxable year may be carried forward indefinitely by individuals. Corporations are allowed to use capital losses to offset in full capital gains but are not allowed to offset ordinary income. Corporations generally can carry capital losses back three years and forward five years.

Carried Interest Taxation. Subject to certain limitations, the General Partner is entitled to amend the Partnership Agreement in the event of a change in the tax law applicable to its carried interest so as to ensure that the General Partner and its beneficial owners are in an after-tax position which is as close as possible to the after-tax position that would have obtained in the absence of such change, provided, however, that any such amendment shall not have any adverse economic effect on the Limited Partners.

Sale or Other Disposition of Partnership Property and Recapture of Cost Recovery (Depreciation). It is anticipated that gains realized from the sale or disposition of real estate held by the Fund generally will be treated as capital gains (unless such disposition takes the form of a like kind exchange or other tax-free transaction, in which case all or a part of such realized gains would not be recognized). However, Partners will be subject to tax at applicable ordinary income tax rates to the extent of depreciation recapture attributable to the disposition of certain personal and real property by the Fund. Any remaining gains will be subject to taxation at the applicable capital gain tax rates, including, with regard to a Partner who is an individual, the 25% rate (or less in some cases) applicable to such Partner’s share of the “unrecaptured Section 1250 gain” (i.e., previously claimed depreciation deductions with respect to depreciable real property that would not otherwise be recaptured as ordinary income pursuant to Section 1250 of the Code) of the Fund and to the portion of any REIT capital gain dividends attributable to unrecaptured Section 1250 gain. An


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exception to capital gains treatment exists for gains realized from the sale or other disposition of dealer property unless such property qualifies as “Section 1231 property”. Generally, Section 1231 of the Code provides that “Section 1231 property” includes real property and depreciable assets used in a trade or business that have been held for more than one year, but does not include inventory or other property held primarily for sale to customers in the ordinary course of a trade or business.

Unrelated Business Taxable Income. Interests may be acquired by tax-exempt entities that generally are exempt from U.S. federal income tax under the Code. A tax-exempt entity that is a Partner will be required to report as taxable income its pro rata share of any portion of the Fund’s income that is UBTI to the tax-exempt entity. UBTI generally is defined as the gross income from any trade or business unrelated to the tax-exempt business of the entity, and includes gain on the sale of dealer property, as discussed above. If and to the extent that the UBTI from all sources of a Partner that is a tax-exempt entity, less its allocable share of deductions directly connected with carrying on any such trade or business, exceeds $1,000 in any year, such Partner would incur tax liability with respect to the excess as UBTI at tax rates that would be applicable if such organization were not otherwise exempt from taxation.

UBTI also includes income derived from “debt financed property”. In general, debt financed property includes any property, such as real property, acquired in whole or in part with “acquisition indebtedness”.

If a tax-exempt entity uses borrowed funds to acquire an Interest or if the Fund uses leverage and does not cause the Fund to be operated in a manner so that a tax-exempt entity investing in the Fund will not be subject to UBTI, all or a portion of a tax-exempt entity’s income from the Fund could be treated as UBTI under certain circumstances. The General Partner may, but is not required to minimize UBTI from debt-financed investments to certain tax-exempt entities by causing the Fund’s allocations to comply with the “fractions rule” in order to alleviate “acquisition indebtedness” issues for certain of such entities (however, no such change to the allocation provisions is currently contemplated to be made by the General Partner).

In addition, an excise tax is imposed on certain tax-exempt private colleges and institutions equal to 1.4% of their net investment income.

Tax-exempt entities are urged to consult with their own tax advisors as to the potential impact to them of the UBTI rules as applied to their investment in the Fund.

Taxation of Non-U.S. Holders. The U.S. federal income tax treatment applicable to entities that are not U.S. Persons (“Non-U.S. Holders”) investing in a Fund is highly complex and will vary depending on the particular circumstances of such investor and the effect of any applicable income tax treaties. In general, Non-U.S. Holders will be subject to U.S. tax withholding on proceeds from the disposition of the Fund’s assets (or in some cases, from a disposition of an Interest in the Fund) under the Code (including Section 897), and generally will be required to file a U.S. tax return. Additionally, Non-U.S. Holders that are corporations (under U.S. tax classification rules) would also be subject to an additional 30% (or possible lower rate under an applicable tax treaty) branch profits tax on such gains. In addition, Non-U.S. Holders would also be subject to U.S. tax on any other income of the Fund if the Fund were considered to be engaged in a trade or business. No assurances can be given that the Fund would not be considered to be engaged in a trade or business. Even if the Fund is not engaged in a trade or business, certain other income such as rents and certain interests would be subject to U.S. withholding when allocated to a Non-U.S. Holder. Under certain circumstances, the General Partner may form a Special Tax Parallel Fund that will structure its operations and activities to allow Non-U.S. Holders to invest in a manner that does not subject them to direct U.S. taxation, however the formation of Special Tax Parallel Fund(s) is currently not contemplated.

Each Non-U.S. Holder should consult his, her or its own tax advisor as to the advisability and tax consequence associated with investing in the Fund and the effect of any tax treaties.


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Special Tax Parallel Fund Structure. The General Partner may form one or more Special Tax Parallel Funds to permit tax-exempt entities and Non-U.S. Holders to make investments side-by-side with the Fund as investors in such fund. It is anticipated that such a Special Tax Parallel Fund will be classified as a partnership for U.S. federal income tax purposes. Such a Special Tax Parallel Fund generally will structure its investments in an effort to avoid the allocation of UBTI to tax-exempt Partners and the realization of income derived from any business activities effectively connected with a U.S. trade or business (“ECI”) by Non-U.S. Holders under certain circumstances.

Although a Special Tax Parallel Fund structure would be designed to reduce or eliminate the recognition of UBTI and ECI by tax-exempt Partners and Non-U.S. Holders, respectively, no assurances can be provided in that regard. In particular, no assurance can be provided that the IRS will not successfully challenge allocations of tax items made to Partners. In addition, the IRS may assert that tax-exempt Partners or Non-U.S. Holders realize UBTI or ECI, as applicable, from any reductions in Management Fees in respect of fees received by Pathfinder or its affiliates.

If a Special Tax Parallel Fund utilizes a blocker REIT or corporate blocker, the Special Tax Parallel Fund may hold and dispose of certain investments in a different manner than the Fund holds and disposes of such investments, and may be subject to different tax burdens and costs than other investments. Accordingly, the investment return of any Partner of a Special Tax Parallel Fund may be lower or higher than the return that such Partner would have realized had such Partner invested in the Fund rather than such Special Tax Parallel Fund.

Each prospective Partner is urged to consult its own tax advisor as to the tax consequences of an investment in a Special Tax Parallel Fund.

Withholding Taxes. The Fund may be subject to withholding taxes, and may be required to withhold on distributions or allocations of Fund income and gains to Partners. In addition, pursuant to the Partnership Agreement, each Partner must indemnify the Fund and the other Partners for any liability they may incur for a failure of proper tax withholding in respect of such Partner and acknowledge that neither the Fund nor any other Partner shall be liable for any excess taxes withheld in respect of such Partner’s Interest. In the event of over-withholding, a Partner’s sole recourse shall be to apply for a refund from the appropriate governmental authority.

Reportable Transactions Regulation. Regulations impose special reporting rules for “reportable transactions”. A reportable transaction includes, among other things, a transaction in which an advisor limits the disclosure of the tax treatment or tax structure of the transaction and receives a fee in excess of certain thresholds. The General Partner intends to take the position that an investment in the Fund does not constitute a reportable transaction. If it were determined that an investment in the Fund does constitute a reportable transaction, each Partner would be required to complete and file IRS Form 8886 with such Partner’s tax return for the tax year that includes the date that such Partner acquired its Interest. The General Partner reserves the right to disclose certain information about the Partners and the Fund to the IRS on Form 8886, including the Partners’ Capital Commitments, tax identification numbers (if any), and dates of admission to the Fund, to facilitate compliance with the reportable transaction rules if necessary. In addition, the Fund may engage in certain transactions which themselves constitute reportable transactions and with respect to which both the Fund and certain Partners may be required to file Form 8886. Certain states have similar reporting requirements and may impose penalties for failure to report. Partners should consult their tax advisors for advice concerning compliance with the reportable transaction regulations.

A U.S. withholding tax at a 30% rate will be imposed on dividends, interest, capital gains and other withholdable amounts allocable to or received by certain non-United States persons if certain disclosure requirements related to non-United States accounts or ownership are not satisfied. If payment of withholding


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taxes is required, non-United States persons that are otherwise eligible for an exemption from, or reduction of, United States withholding taxes with respect to such amounts will be required to seek a refund from the IRS to obtain the benefit of such exemption or reduction. Partners will not be reimbursed for any such withholding taxes. Additionally, certain states have withholding taxes arising from income attributable to such states. The Partnership will be entitled to reduce a Partner’s share of Partnership distributions or take other action to make the Partnership whole for any withholding taxes that the Partnership is required to pay with respect to such Partner.

State and Local Taxes. Prospective investors should also consider the state, local and foreign tax consequences of an investment in the Fund. State and local laws often differ from U.S. federal income tax laws with respect to the treatment, calculation and timing of recognition of specific tax items. The Fund will own property in a number of states. Partners may (and likely will) be required to file state income tax returns and pay tax in each of those states. This Memorandum makes no attempt to summarize the state and local tax consequences to a Partner in those states in which the Fund may own properties or carry on activities. The Fund urges prospective investors to consult their own tax advisor on all matters relating to state and local taxation, including the following:

whether the state in which the prospective investor resides will impose a tax upon its share of the Fund’s taxable income;

whether an income tax or other return must also be filed in those states where the Fund will own properties;

whether the prospective investor will be subject to state income tax withholding in states where the Fund will own properties; and

whether states where the Fund will own properties will impose other taxes on the Fund.

Because the Fund expects to conduct activities and own properties in different taxing jurisdictions, an investment in the Fund may impose upon a Partner the obligation to file annual tax returns in a number of different states or localities, as well as the obligation to pay taxes to a number of different states or localities. Additional costs incurred in having to prepare various state and local tax returns, as well as the additional state and local tax which may be payable, should be considered by prospective investors in deciding whether to make an investment in the Fund. Further, many states have implemented or are in the process of implementing programs to require partnerships to withhold and pay state income taxes owed by non-resident partners relating to income producing properties located in their states.

Prospective investors should consult with their own personal tax advisors with respect to the impact of applicable state and local taxes on a proposed investment in the Fund.


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VI. REGULATORY CONSIDERATIONS

The Investment Company Act. The Fund and the sale of interests in the Fund will be structured so as not to subject the Fund to the registration requirements of the Investment Company Act of 1940, as amended (the “Company Act”).

The Investment Advisers Act. Neither the General Partner, the Manager nor any of their affiliates are registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Consequently, neither Pathfinder, the General Partner nor the Manager intend for the Fund to acquire securities or for Pathfinder, the General Partners, or the Manager to provide investment advice with respect to securities.

The Securities Act. The Interests are being offered without registration under the Securities Act by reason of the exemption from the registration requirements set forth in Section 4(2) of the Securities Act and Regulation D promulgated under the Securities Act. The Fund will obtain representations and undertakings from prospective investors demonstrating their status as “accredited investors” within the meaning of Rule 501(a) under the Securities Act. The Interests are “restricted securities” under the Securities Act, and as such the Interests cannot be resold in the United States except as permitted under the Securities Act, pursuant to registration thereunder or exemption therefrom. In addition, certain restrictions set forth in the Partnership Agreement preclude the Partners from reselling the Interests without the General Partner’s consent.

Anti -Money Laundering Controls. To the extent that the Fund is responsible for the prevention of money laundering, the General Partner and its affiliates may require a detailed verification of a prospective investor’s identity, any beneficial owner thereof, and the source of the capital contributed to the Fund. The General Partner reserves the right to request such information as is necessary to verify the identity of a prospective investor in the Fund and any beneficial owner thereof. In the event of delay or failure by a prospective investor or Partner to produce any information required for verification purposes, the General Partner may refuse to accept a subscription or may cause such Partner to withdraw from the Fund. The General Partner, by written notice to any Partner, may suspend the right of a Partner to receive distributions from the Fund if the General Partner reasonably deems it necessary to do so to comply with anti-money laundering regulations applicable to the Fund, the General Partner or any Partner or affiliate thereof. Each prospective investor and Partner is required to make such representations to the Fund as it and the General Partner require in connection with such anti-money laundering programs.

ERISA Considerations. The following is intended to be a summary only and is not a substitute for careful planning with a professional. Employee benefit plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or Section 4975 of the Code, considering purchasing Interests should consult with their own counsel regarding the application of ERISA and the Code to their purchase.

It is anticipated that employee benefit plans subject to ERISA or Section 4975 of the Code (collectively, “Plans”) may invest in the Fund. In considering an investment in the Fund, fiduciaries of Plans should consider their basic fiduciary duty under ERISA, which requires them to discharge their investment duties prudently and solely in the interest of Plan participants and beneficiaries. In making such a determination, a Plan fiduciary should be sure that the investment is in accordance with the governing instruments and the overall policies of the Plan, and that the investment will comply with the diversification and prudence requirements of ERISA. Plan fiduciaries should consider the role that an investment in the Fund would play in the Plan’s overall investment portfolio. Plan fiduciaries should also consider the tax aspects of an investment in the Fund discussed, above, under “Certain U.S. Federal Income Tax Considerations”.

In addition, provisions of ERISA and the Code prohibit transactions involving the assets of a Plan and persons who have specified relationships with a Plan, unless an exemption is available for such transaction.


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A Plan fiduciary should be sure that an investment in the Fund will not constitute or give rise to a direct or indirect non-exempt prohibited transaction. In particular, Plan investors which have a pre-existing relationship with the Company must make an independent investment decision with respect to their participation in the Fund and must not rely upon the Company for investment advice regarding such participation.

Fiduciaries of any Plans should understand the illiquid nature of an investment in the Fund and that it is not expected that there will be any public market for the Interests. Accordingly, such fiduciaries should review both anticipated and unanticipated liquidity needs for their respective Plans, particularly those for a participant’s termination or employment, retirement, death or disability, or plan termination. Such fiduciaries should be aware that distributions to certain participants are required to commence in the year after the participant attains age 70½.

A fiduciary of certain types of Plans is required to determine annually the fair market value of the assets of the Plan as of the close of the Plan’s fiscal year. Because it is not expected that there will be any public market for the Interests, it may not be possible to assign a precise fair market value to the Interests from year to year.

Whether the Fund’s assets shall be deemed to constitute “plan assets” is addressed in the U.S. Department of Labor Final Regulation Relating to the Definition of Plan Assets, 29 CFR 2510, published November 13, 1986 (the “DOL Regulation”). Under the DOL Regulation, the assets of an investment fund such as the Fund which has one or more ERISA plan investors will be considered to be “plan assets” unless:

(a) the interest in the investment fund acquired by the ERISA plan investor was acquired in a public offering;

(b) the investment fund is registered under the Company Act;

(c) the investment fund qualifies as a “real estate operating company” (“REOC”) or “venture capital operating company” (“VCOC”); or

(d) less than 25% of the total equity interests of the investment fund are held by Plans and entities deemed to hold “plan assets”.

If at least 25% of the Fund’s Partnership interests will be held by Plans and entities deemed to hold “plan assets”, the General Partner would intend to operate the Fund so that it qualifies as either a REOC or VCOC under the DOL Regulation and the underlying assets of the Fund are not considered “plan assets”.

To qualify as a REOC, the Fund must invest primarily in real estate properties that are being managed or developed, have a direct right to participate in the management and development of such properties and during each year, in the ordinary course of its business, engage directly in real estate management or development activities. In other words, an entity is a REOC if: (i) on its “initial valuation date and on at least one day within each annual valuation period”, at least 50% of the entity’s assets, valued at cost (other than short-term investments pending long-term commitment or distribution to investors), are invested in real estate which is managed or developed and with respect to which such entity has the right to substantially participate directly in the management and development activities and (ii) during each year, such entity in the ordinary course of its business is engaged directly in real estate management or development. The term “initial valuation date” is the date on which an entity first makes an investment that is not a short-term investment of funds pending long-term commitment. An entity’s “annual valuation period” is a pre-established period not exceeding 90 days in duration, which begins no later than the first anniversary of the entity’s initial valuation date.


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To qualify as a VCOC, the Fund must primarily invest in operating companies, have contractual rights to substantially participate in their management and must actually exercise such rights on an annual basis with respect to at least one operating company. In other words, an entity is a VCOC if: (i) on its “initial valuation date and on at least one day within each annual valuation period”, at least 50% of the entity’s assets, valued at cost (other than short-term investments pending long-term commitment or distribution to investors), are invested in operating companies in which such entity has contractual rights to substantially participate in or to influence the conduct of management; and (ii) during each year, such entity in the ordinary course of its business actually exercises management rights in at least one of the operating companies.

If the General Partner operates the Fund as a REOC or VCOC so that the assets of the Fund do not constitute plan assets for purposes of ERISA, the Fund may be precluded from purchasing or disposing of certain investments at various times during its term.

Certain prospective Plans and IRAs, Keogh Plans which cover only self-employed persons and their spouses and other employee benefit plans which cover only the owners of a business and which are not subject to ERISA (each, an “Individual Retirement Fund”) may currently maintain relationships with the General Partner or other entities which are affiliated with the General Partner. Each of such entities may be deemed to be a party in interest to or a fiduciary of any Plan or Individual Retirement Fund to which any of the General Partner or its affiliates provides investment management, investment advisory or other services. ERISA prohibits Plan assets to be used for the benefit of a party in interest and also prohibits a Plan fiduciary from using its position to cause the Plan to make an investment from which it or certain third parties in which such fiduciary has an interest would receive a fee or other consideration. Similar provisions are imposed by the Code with respect to Individual Retirement Funds. Plan and Individual Retirement Fund investors should consult with counsel to determine if participation in the Fund is a transaction which is prohibited by ERISA or the Code.

ERISA and its accompanying regulations are complex and, to a great extent, have not yet been interpreted by the courts or the administrative agencies. This discussion does not purport to constitute a thorough analysis of ERISA. EACH INVESTOR SUBJECT TO ERISA SHOULD CONSULT WITH ITS OWN LEGAL COUNSEL CONCERNING THE IMPLICATIONS UNDER ERISA OF AN INVESTMENT IN THE FUND.


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VII. SUBSCRIPTION PROCEDURES

Persons desiring to subscribe for an Interest may do so by completing and executing a Subscription Agreement, a copy of which accompanies this Memorandum, and returning it to:

Pathfinder Partners Opportunity Fund VII, L.P. 4380 La Jolla Village Drive, Suite 250

San Diego, CA 92122 Attention: Brent Rivard

Acceptance of Subscriptions

The General Partner has the right, to be exercised in its sole discretion, to accept or reject any subscription in whole or in part for a period of 30 days after receipt of the subscription. A subscriber will not be admitted as a Partner unless and until its subscription is accepted by the General Partner. Any subscription not accepted within 30 days of receipt will be deemed rejected, and funds for such subscription will be returned within ten days of such rejection without deduction of any fees or expenses and without any accrued interest.

Schedule A

SCHEDULE A – LIST OF PRIOR FUNDS – as of January 2018

Fund Name Final Closing Amount Raised

Pathfinder Partners Opportunity Fund I, LLC December 2007 $3,800,000

Pathfinder Partners Opportunity Fund II, L.P. (a) May 2010 21,851,000

Pathfinder Partners Opportunity Fund III, L.P. May 2012 37,501,000

Pathfinder Partners Opportunity Fund IV, L.P. August 2013 49,365,000

Pathfinder Partners Opportunity Fund V, L.P. (b) December 2015 86,846,000

Pathfinder Raintree Residential II, L.P. October 2012 / May 2016 23,900,000 (c)

Pathfinder Partners Lux Home Fund I, L.P. ® September 2014 11,790,000

Pathfinder Talavera Holdings, LLC October 2016 7,775,000

Pathfinder Partners 2017 Multifamily Opportunity Fund, L.P. (e)

June 2017 44,554,000

Various Special Tax Parallel Funds and Sidecar Funds (d)

Jun 2009 – July 2013 15,800,000

Total Prior Fund Equity 303,182,000

Third-Party Equity Managed by Pathfinder 81,045,000

Grand Total Equity Raised and Managed $374,227,000

(a) Pathfinder Partners Opportunity Fund II consists of two special tax parallel funds:

Pathfinder Partners Opportunity Fund II, L.P. and Pathfinder Partners Opportunity Fund II-A, L.P.

(b) Pathfinder Partners Opportunity Fund V consists of two special tax parallel funds: Pathfinder Partners Opportunity Fund V, L.P. and Pathfinder Partners Opportunity Fund V-A, L.P.

(c) Reflects amount raised post-recapitalization.

(d) Capital for the 2017 Fund includes additional syndicated capital invested in 2017 Fund portfolio investments.

(e) Special Tax Parallel Funds and Sidecar Funds consist of 13 separate funds.

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