Acquisition of Windward Lakes by Bay Communities

Bay Pompano, LLC was formed in 2005 to finance the acquisition of the Windward Lakes Apartments (the “Property”), originally built in 1992. On June 20, 2005, the Property was acquired by Bay Communities, a Tampa, FL real estate developer and condominium converter (the “Developer”). Following its acquisition of the Property, the Developer proceeded to convert the property to condominiums and began marketing condos in 2005.

The Developer acquired the Property for $34,725,000. The purchase price was financed primarily by a $32,000,000 Promissory Note Secured by Mortgage (“Senior Loan”) issued by a group of approximately 400 investors (the “Lenders”). The Property was also pledged as collateral under a $17,500,000 Junior Mortgage, pursuant to a Junior Mortgage and Subordination Agreement.

The Senior Loan was syndicated by USA Commercial Mortgage (“USACM”), which filed for Chapter 11 bankruptcy on April 23, 2006. The Senior Loan was due and payable on June 30, 2006 and is currently classified as “Default Maturity”.

USACM has an agreement to provide mortgage servicing for the Property. The Lenders have not received principal or interest payments since August, 2006. The Mortgage provides for interest at the rate of 13% per annum from June 20, 2005 until maturity on June 20, 2006. As of October 31, 2006, the loan had a principal balance of $14,680,390 outstanding.

Condominium Sales to Date

The Developer sold condominiums steadily during 2005-early 2006 pursuant to a Partial Release of Mortgage Agreement with the Lenders. Condominium sales have declined markedly in recent months as a result of the considerable slowdown in the south Florida real estate market.

As of November, 2006, the Developer reported having sold 113 units, with an additional 34 units “under contract” or “reserved” for models or other purposes. The “units under contract” are somewhat questionable because prospective purchasers in south Florida have been canceling transactions at a dramatic rate in the past six months. Furthermore, USACM has refused to grant a Partial Release of Mortgage to the Developer because the loan is in Maturity Default.

Partial Release of Mortgage Provision
Section 27 of the Mortgage, Security and Assignment of Rents Agreement between the Lenders and the Developer provides that the Mortgagor pays a release price equal to 90% of net proceeds from the sale (“Release Price”) provided that net proceeds shall be based on the gross sales prices of the following minimum sales prices:

Exhibit “A”
Windward Lakes – Minimum Release Prices

Condominiums of similar construction and size in this area are being offered for sale at substantially lower prices than the minimum sales prices, above and the Developer’s current asking prices. We do not believe the minimum sales prices or the Developer’s current asking prices are realistic given the current highly competitive environment in south Florida.