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[http://adlerkawa.com/newsletters/2014-1-Adler_Kawa_Letter.pdf] Quarterly Letter May 2014

Dear Friends and Clients,

Adler Kawa has had an active start to 2014. On January 6th we had our final closing of Fund II, which has total capital commitments of $56 million. In February, we closed the acquisition of the Business Center at Park 10 (Park 10). Fund II to date has deployed $22.75 million of capital. The properties in our portfolio continue to perform, and we are seeing improving economic conditions in all of the markets where we have operations.

Investment Opportunities: Park 10 is an institutional quality, three building light industrial park located in the Energy Corridor, one of the strongest submarkets in Houston. Park 10 has tenants such as Lloyds Register Drilling, Petroleum Geo-Services and Reel Group. The property was acquired at 92% occupancy and was purchased at a cap rate in excess of 8%. Since acquisition, occupancy has increased to 100%. We procured attractive debt and the spread between cap rate and interest rate is high, thereby generating strong cash flow from inception.

In previous letters we have discussed the dislocation of capital and the wide spread between core and non-core assets. In the early stages of 2014, we have begun to see capital widen and have experienced slightly increased competition in our strategy. In 2013, we were often the only bidder with discretionary capital competing for management intensive business parks between $5 and $15 million of equity. So far this year we have experienced a few examples of increased competition particularly in some of our stronger performing target markets, such as Dallas, Austin and San Antonio. We remain enthusiastic about these markets but recognize success will require us to identify niche opportunities. In markets that are operationally lagging such as Charlotte and Jacksonville, we are seeing less competition and more opportunities for deeply discounted assets. Our pipeline remains very strong and we currently have six letters of intent submitted to sellers. We anticipate having news of our next acquisition in the near future.

Market Conditions: Adler Kawa is a highly focused, niche real estate investor and the foundation of our acquisition strategy is based in our operating expertise. This strategy continues to be effective for many reasons not the least of which is our team's extensive operational experience and that of our affiliate Adler Reality Services (ARS). We utilize this expertise throughout the life cycle of a transaction, from acquisition through disposition and most importantly day-to-day management.

As an investor, we consistently have the operational realities of managing multi tenant business parks top of mind. As an example, we often look at value add transactions where the opportunity is focused on significantly below market in-place rents. Although existing tenants may have rents below market, which create an inherent opportunity for financial gain, we recognize the operational challenges of raising rents as their leases expire. Balancing the potential value of increasing rents with the significant costs of re-tenanting is critical since the strategy only works if you can maintain a reasonable renewal ratio. If a high percentage of existing tenants were to leave due to the increased rents, potential gains will be wiped out by the vacancy and re-tenanting expense. When underwriting an asset we look very closely at the tenant expiration schedule to make sure we feel comfortable that rental rate increases on existing tenants are manageable; we do not grow rents in a vacuum. Comfort is achieved through individual tenant interviews, research on competitive properties, as well as market knowledge, allowing us to make judgments informed through years of experience. By way of comparison, a purely financial investor who lacks operational expertise may not understand the operational realities associated with their underwriting assumptions, which may lead to poor investment decisions.

Our operational expertise helps to inform our investment decisions in several ways. Specifically, our operating affiliate, ARS, who brings 40 years of experience managing and leasing multi tenant office and industrial real estate, provides valuable insight and resources. ARS has property management and leasing personnel in nearly every market we pursue properties, thereby helping us to better understand individual sub markets and providing us local intelligence. Additionally, when buying a property we utilize ARS's facilities management department to help determine the potential capital expenses associated with the business plan. We believe the collaboration of our investment and operating teams leads to optimal due diligence and acquisitions and is a key differentiator for our Fund.

On the property management side, we believe our targeted asset type, business parks, to be a management intensive asset class due to relatively small tenant spaces and short-term leases. We don't believe these are properties that an investor without operating expertise will be successful with in the long run. Conversely, if proactive, a strong operator of these properties can outperform the market. ARS is an extremely strong operator and collectively we deploy numerous strategies to add value to properties. An example of proactive operations is our program of speculatively building out small suites, which makes them available for immediate occupancy. Years of experience have shown that this results in shorter sales cycles and more tenant prospect traffic than competing parks. Small tenants rarely have the time or the desire to wait for a custom build-out. Additionally, we have a significant bias to onsite property management. ARS's on site presence and proactive approach is also extremely effective in maintaining a high renewal ratio, which is a key success factor at any individual property. Keeping a customer is always cheaper than finding a new one and we have found that this proactive approach leads to happy tenants who are more likely to remain in occupancy.

We believe that capital will continue to broaden beyond core real estate and competition to invest will increase. Due to the management intensive nature of our asset class and the mid-market transaction size we are targeting, we still anticipate seeing years of significant opportunity. That being said, in this environment, it is imperative to have a specific strategy and expertise to add value to real estate. Adler Kawa believes that our operating expertise is a crucial differentiating factor that will ultimately enable us to achieve attractive risk adjusted returns.

Summary: Our pipeline for future transactions remains strong. Looking forward, we plan to continue to focus on asset management, devise strategies to add value to the existing portfolio and increase cash flow. We anticipate securing more acquisitions that fit our investment strategy and believe we will have news on our next acquisition in the near future. We thank you for your time and attention and should you have any questions, comments or concerns please don't hesitate to contact us.

Sincerely,

Matthew L. Adler

President & C.E.O.

Recent Fund II Acquisitions Property Details Project Returns Investment Thesis

Business Center at Park Ten

Houston, TX Price: $12,150,000 ($105.47 psf) 115,200 square feet 92% occupied 8.03% Acquisition cap rate

Average Cash on Cash:10.2%

IRR:17.19%

Equity Multiple:1.9x

Well leased property in strong submarket with little near term rollover and a strong, diverse tenant base.

Wide spread between cap rate and interest rate generates strong cash flow with the opportunity to further increase NOI.

Fund II refers to Adler Kawa Real Estate Fund II together with the off-shore parallel vehicle Adler Kawa U.S. Property Partners Ltd.

Past performance is not indicative of future results. This is not an offer to sell or distribute any product or service. This letter is made only for informational purpose, and the information contained in this summary is fully set forth in the Confidential Explanatory Memorandum and Subscription Agreement, which will be made available upon expression of interest by an accredited investor. In the case of any inconsistency between the descriptions or terms in this summary and the Confidential Explanatory Memorandum, the Confidential Explanatory Memorandum shall control. Admission as a shareholder in the fund is not open to the general public, and any investment or consideration should be first made in consultation with your financial advisor. This Letter is the property of Adler Kawa Real Estate Advisors and may only be used by parties approved by Adler Kawa Real Estate Advisors. This Letter and its contents are of a confidential nature and shall be treated as confidential and proprietary to Adler Kawa Real Estate Advisors. No portion of this Letter may be copied, reproduced or otherwise disclosed to any party without the prior written consent of Adler Kawa Real Estate Advisors.

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