The investment offers a combination of current cash flow and appreciation potential. Due to the short-term nature of residential leases (1 year and under), Management has the opportunity to increase rents, notably in this non-rent control market, for both renewals and new leases alike. A risk of this opportunity is the external impact from the general economic state and local employment trends. Also, multifamily properties successes are often more sensitive to evolving consumer and renter trends and demands. However, as compared to other commercial real estate asset classes, multifamily investment assets offer lower volatility of occupancy and a lower cost and faster turnaround time of vacated units SECURITIES LAW MATTERS PURCHASE OF THE MEMBERSHIP INTEREST INVOLVES MATERIAL RISKS AND IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL MEANS WHO HAVE NO NEED FOR LIQUIDITY IN THIS INVESTMENT AND WHO CAN AFFORD THE LOSS OF ITS ENTIRE INVESTMENT (SEE “RISK FACTORS”). THE MEMBERSHIP INTEREST WILL ONLY BE OFFERED FOR SALE TO PERSONS WHO THE MEMBERSHIP HAS REASONABLE GROUNDS TO BELIEVE ARE QUALIFIED LIMITED MEMBERS, AND PROSPECTIVE LIMITED MEMBERS MAY BE REQUESTED TO COMPLETE SUITABILITY QUESTIONNAIRES AND PROVIDE CERTAIN OTHER RELEVANT INFORMATION. THE MEMBERSHIP RETAINS THE RIGHT TO ACCEPT OR REJECT SUBSCRIPTIONS AND TO ASCERTAIN WHETHER OR NOT PROSPECTIVE LIMITED MEMBERS SATISFY THE CRITERIA DESCRIBED IN THIS MEMORANDUM. PRIOR TO THE CONSUMMATION OF THE OFFERING, EACH PROSPECTIVE INVESTOR OR HIS OR HER PURCHASER REPRESENTATIVE, OR BOTH, WILL HAVE AN OPPORTUNITY TO ASK QUESTIONS OF AND TO RECEIVE ANSWERS FROM THE MEMBERSHIP CONCERNING THE TERMS AND CONDITIONS OF THE OFFERING, AND AN OPPORTUNITY TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT THAT THE MEMBERSHIP POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED IN THIS MEMORANDUM. NO DEALER, SALESMAN, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM. ANY INFORMATION OR REPRESENTATIONS GIVEN OR MADE BY ANY PERSON THAT IS NOT CONTAINED IN THIS MEMORANDUM MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE MEMBERSHIP. THE TERMS AND CONDITIONS OF THIS OFFERING, THE RIGHTS, PREFERENCES, PRIVILEGES, AND RESTRICTIONS OF MEMBERSHIP INTEREST AND THE RIGHTS AND LIABILITIES OF THE MEMBERSHIP, THE MANAGING MEMBERS, AND THE LIMITED MEMBERS WILL BE GOVERNED BY THE LIMITED MEMBERSHIP AGREEMENT OF THE MEMBERSHIP AND THE SUBSCRIPTION AGREEMENT BETWEEN EACH LIMITED MEMBERS AND THE MEMBERSHIP, COPIES OF WHICH ARE ATTACHED AS APPENDICES TO THIS MEMORANDUM, AND THE DESCRIPTION OF ANY OF SUCH MATTERS IN THE TEXT OF THIS MEMORANDUM IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH APPENDICES. THIS MEMORANDUM AND ALL OF THE APPENDICES AND EXHIBITS TO THIS MEMORANDUM SHOULD BE REVIEWED CAREFULLY BY EACH OFFEREE AND EACH OFFEREE’S LEGAL, ACCOUNTING, AND TAX ADVISERS PRIOR TO MAKING ANY DECISION CONCERNING INVESTMENT IN MEMBERSHIP INTEREST. THE STATEMENTS IN THIS MEMORANDUM ARE MADE AS OF THE DATE OF THIS MEMORANDUM AND ARE SUBJECT TO CHANGE, COMPLETION, OR AMENDMENT WITHOUT NOTICE. NEITHER THE DELIVERY OF THIS MEMORANDUM AT A LATER DATE NOR ANY SUBSEQUENT SALE SHALL BE CONSTRUED TO IMPLY THAT THE INFORMATION CONTAINED IN THIS MEMORANDUM IS CORRECT AS OF SUCH A LATER DATE. MEMBERSHIP RISKS NEWLY-FORMED ENTITY. While the Managing Member of the Membership has significant experience in the acquisition and operation of real property (see “Sponsor Overview”), the membership will be a newly formed entity with no prior financial history. An investment in the membership is therefore speculative and involves a high degree of risk. FACTORS AFFECTING OPERATIONS. The ability of the membership to complete its operations profitably is subject to the risks inherent in the ownership of real estate projects. These risks include the supply of and demand for similar space in the vicinity of the Membership’s Property, the political and legal issues affecting property rights, the effects of the economy on business growth, increases in the carrying costs of the property (such as increased real estate taxes, insurance premiums, repair and maintenance expense and the costs of labor and service personnel), and other factors that are beyond the control of the Membership and its Management. MARKET VALUE OF PROPERTY. Although the Managing Member believes that the Purchase Price fairly corresponds to the market value of the property, there is no assurance that the membership will be able to sell the property for the projected amounts when it wishes to sell the property. CHANGES IN ECONOMIC CONDITIONS. While the real estate market is perceived as being stable, there can be no assurance that Property values or market rental rates will increase from current levels or that a new recession might not occur that would have an adverse effect on the property and the rental income available to the membership. LEVERAGED INVESTMENT. A substantial portion of the total acquisition for the property will be paid with borrowed funds. The use of borrowed money to acquire real estate is referred to as leverage. Leveraging increases the funds available for investment or development purposes, on the one hand, but also increases the risk of loss on the other. If the membership were unable to pay the payments on the borrowed funds (called a “Default”), the lender might foreclose, and the membership could lose its investment in its property. PUBLIC LIABILITY. The ownership of real property exposes its owners to claims for personal injury or property loss or damage. While the membership will endeavor to maintain the property in a safe condition and will procure insurance against such claims, there can be no assurance that claims will not be asserted against the property not covered by the applicable insurance or that exceeds the limits of available insurance coverage. Any such claims, if successfully pursued to judgment, could have an adverse effect on the membership’s financial condition and its ability to make distributions to its Investors. ENVIRONMENTAL INDEMNITY. If losses arise from hazardous substance contamination that cannot be recovered from responsible parties, the financial viability for the property may be significantly and adversely affected, and the membership may be liable. Federal, state, and local law imposes liability on a landowner for releases or otherwise improper presence on the premises of hazardous materials. This liability is without regard to fault for, or knowledge of, the presence of such materials, subject to certain defenses. A landowner may be held liable for hazardous materials brought onto the property before it acquired title and for hazardous materials that are not discovered until after it sells the property. In addition, a landowner may be held liable for hazardous materials that migrate from the property onto or beneath adjacent sites, as well as hazardous materials from unknown or unidentified sources that may migrate from adjacent sites onto or beneath the property. Similar liability may occur under applicable state law. INVESTMENT RISKS ABSENCE OF CONTROL. The membership will be managed by the Managing Member. The Limited Members will have no right to participate in the Management of the Membership and will have only limited voting rights relating primarily to (a) the removal and replacement of the Managing Member and the election of an additional Managing Member,(b) calls for additional capital and the admission of new Limited Members, (c) a change in the nature of the membership’s business, or the acquisition of additional property by the membership (d) certain amendments to the Certificate of Limited Membership and the Limited Membership Agreement of the Membership, and (e) changes in the compensation payable to the Managing Member. Thus, the Limited Members will have only a limited ability to influence the policies of the membership and the conduct of its business operations. MANAGEMENT CONFLICT OF INTEREST. The Management and operation of the Membership, and the methods of realizing the maximum possible return from its properties, are within the sole discretion of the Managing Member. The Managing Member and its affiliates are involved in the ownership and management of numerous other real estate projects. The membership will therefore be competing with other investment entities for the time and attention of the Managing Member. Silver Star Real Estate, as a guarantor of the existing loans, has an economic interest in the membership’s performance of its loan obligations. In the event the existing loan was to become in default, it could be exposed to personal liability. LACK OF LIQUIDITY. Membership Interests in the Membership are not registered with any state or federal regulatory agencies. There is no public trading market presently existing or anticipated in the future which will provide an easy method for disposing of a Membership Interest, and the Limited Membership Agreement places significant restrictions on the transfer of Membership Interests. Thus, the Membership Interests cannot be easily liquidated, even in the event of an emergency, and Limited Members of the Membership may experience difficulty in using their Membership Interests as collateral for loans. NO ASSURANCE OF APPRECIATION OR PROFIT. Investments in real property are non-liquid. There is no assurance that there will be a ready market for the property at the time the Managing Member decides it should be sold or if a sale is necessary to pay mortgage indebtedness that has become due. The value of the property may fluctuate due to changes in the economic conditions or due to other risks to which commercial real estate is subject, many of which are beyond the control of the Membership and its Management. There can therefore be no assurance that the membership’s investment in property will be recovered or that the property will increase in value. Under adverse circumstances, the membership could, in fact, suffer substantial losses. EXONERATION AND INDEMNIFICATION OF MANAGING MEMBERS. Under the Limited Membership Agreement, the Managing Member is not liable to the membership or to its Limited Members for errors in judgment or negligent actions taken in good faith. The Limited Membership Agreement also provides that the membership will indemnify the Managing Member from claims and liabilities, including attorneys’ fees and other costs of defense, arising as a result of the actions taken by the Managing Member on behalf of the membership, other than liabilities resulting from intentional misconduct, actions taken out of self-interest without appropriate regard for such Person’s obligations to the Membership or its Limited Members, or intentional conduct taken in reckless disregard of a duty owed to the Membership, its Limited Members or to a third party. These provisions may confer upon the Managing Member greater rights and protections than would be available to them under Colorado law in the absence of such provisions. MANAGEMENT COMPENSATION. The Limited Membership Agreement calls for the payment of compensation and distributions to the Managing Member without regard to the Managing Member’s cash investment in the membership. It also provides for the payment of acquisition and potential brokerage commissions to the Managing Member or its Affiliates and authorizes the Managing Member to employ affiliates to provide other professional services to the membership. While the Managing Member believes that the compensation payable to themselves and their affiliates is reasonable and competitive, the amounts of such compensation have not been arrived at through arms-length negotiations. ABSENCE OF INDEPENDENT COUNSEL. The Limited Membership Agreement has been prepared by counsel for the Managing Member, and the membership has not engaged independent counsel to represent itself or its Limited Members. The provisions of the Limited Membership Agreement are not the result of arms’-length negotiations and may be more favorable to the Managing Member than would be the case if the membership had engaged independent counsel to represent its interests or the interests of its Limited Members. ARBITRARY OFFERING PRICE. The offering price for the Membership Interest has been arbitrarily determined by the membership-based primarily on the anticipated capital requirements for the property, without regard to the value of the Membership Interests or the assets of the membership. No assurance is or can be given that any Membership Interest, if transferable, could be sold for the offering price or for any other amount. ADDITIONAL CAPITAL CONTRIBUTIONS. Pursuant to the Membership’s Limited Membership Agreement, there is no personal liability for capital call. TAX RISKS Prospective investors should make its investment decision based on economic factors rather than on tax considerations. The membership is not intended to operate as a tax shelter, and the membership does not expect to generate losses that can be used to reduce taxes on income from other sources TAX AUDIT AND ADJUSTMENTS. The Internal Revenue Service, IRS, often audits entities investing in real estate. Any such audit might also result in adjustments to the tax returns of the Limited Members; an examination of other items in such returns which are unrelated to the membership; or an examination of Limited Members’ tax returns from prior years. If the IRS audits a tax return of a Limited Member, then the tax returns of other Limited Members may be subject to an audit as well. There may be limitations on the ability of an individual Limited Member to resolve tax disputes with the IRS involving the membership, and Limited Members could incur substantial legal and accounting costs in opposing any adjustments or penalties proposed by the IRS, regardless of the outcome. TAX SHELTER REGISTRATION AND INVESTOR LISTS. Certain provisions of the Internal Revenue Code (“Code”) require tax shelters to be registered with the IRS and require tax shelter promoters to maintain investor lists, which are available for inspection by the IRS. The membership will not be registered as a tax shelter with the IRS because the membership’s accountants have determined that such registration is not required. The IRS has not reviewed, examined, or approved the Limited Membership or any tax benefits that investors might claim. POSSIBLE DISALLOWANCE OF DEDUCTIONS. The membership will claim deductions for a portion of its organization and start-up costs, and will claim depreciation deductions based on its allocation of the cost of the properties among the land, depreciable improvements, if any, and personal property. In doing so, the membership may adopt an interpretation of the Internal Revenue Code and the related Regulations that is more favorable to the Membership and its Limited Members than to the government. The membership will not obtain an opinion or ruling from the IRS regarding the deductibility of items that the Managing Member intends to treat as deductible. It is possible that the IRS will attempt to disallow all or some part of the deductions claimed by the membership. ALLOCATIONS TO LIMITED MEMBERS. The membership has not received and will not seek an opinion or ruling from the IRS that the methods it will utilize to allocate various items of income, gain, loss, deduction, and a credit will be given effect for tax purposes. If the IRS were to take the position that the membership’s allocations do not satisfy the necessary tax rules and should not be recognized, then the tax consequences to Limited Members could differ from the tax consequences intended by the provisions of the Limited Membership Agreement. However, the Managing Member believes that the membership’s allocations satisfy the requirements of the Internal Revenue Code and will be recognized. TAX LIABILITY EXCEEDING CASH DISTRIBUTION. Under some circumstances, the tax liability of a Limited Member for taxable income derived from the membership might exceed the cash distributed to the Limited Member. Such a situation would arise, for example, if the membership were to terminate at a time when a Limited Member’s share of the principal amount of the membership’s debt exceeded that Limited Member’s adjusted basis in his or her Membership Interest, or if the basis allocation rules required that the membership’s debt to be reallocated among the limited Members in a manner which reduced a Limited Member’s share of that debt. In any such event, the amount by which the Limited Member’s tax liability exceeded the Limited Member’s share of the membership’s distributable cash would represent an out-of-pocket expense for the Limited Member. ALTERNATIVE MINIMUM TAX (AMT). All taxpayers may be subject to the Federal AMT, in addition to the regular federal income tax. To determine whether the AMT applies, each Limited Member must recalculate his or her income by taking into account the adjustments and “Tax Preference” items described in the AMT rules. The effect of the AMT rules may be to increase the amount of federal taxes payable by a Limited Member. However, the AMT rules are extremely complex, and its effects vary depending on each taxpayer’s individual tax situation. Each Limited Member should therefore consult with his or her individual tax adviser regarding the effect of the AMT rules on a proposed investment in the membership. STATE AND LOCAL TAXES. Prospective investors should consider the impact of state and local tax rules on an investment in the membership. A Limited Member’s allocable share of the membership’s income or loss Managinglywill be required to be included in the amount of taxable income or loss reported for state and local income tax purposes, and income from the membership will be subject to the income tax laws of the state of Colorado and California. The tax treatment of particular items under state or local tax rules may vary materially from the federal income tax treatment of such items. Investors should consult their own tax advisors with respect to these matters. CHANGES IN LAW. Many of the federal tax rules pertaining to an investment in the membership are complex and uncertain, due in part to the absence of judicial and administrative interpretations of many new provisions included in the Code and conflicting interpretations of earlier revenue laws that remain a part of the Code. The applicable law, and judicial and administrative interpretations of the law, may change from time to time, and some of those changes may have retroactive effects. Thus, it is possible that the tax rules that affect an investment in the membership will change during the period of any Limited Member’s participation in the membership. Any such change might have a material adverse effect on the tax consequences of an investment in the membership. YOU ARE STRONGLY ENCOURAGED TO SEEK THE ADVICE OF YOUR TAX, FINANCIAL, LEGAL, AND OTHER ADVISORS IN DECIDING WHETHER TO PURCHASE MEMBERSHIP INTEREST AND BECOME A MEMBER OF THE MEMBERSHIP. U.S. TREASURY CIRCULAR 230 requires that we advise you that (i) the tax risk summary above is not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code, (ii) the tax risk summary above was written to support the promotion or marketing of the matters addressed in this Memorandum, and (iii) you should seek tax advice based upon your particular circumstances from an independent tax advisor.