CWS CWS Capital Partners LLC...2006/01/06 · Montclair Parc Charlotte, NC Jul-97 Oct-04 5.29% Northcreek Durham, NC Jul-97 Oct-04 9.61% Castle Hills San Antonio, TX Jun-03 Mar-06

2 0 0 6 a n n u a l r e p o r t

Circulating Value CWS Capital Partners LLC

Learn how one real estate investment managementcompany is using one word to drive efforts for long-term value for its investors.

CWS

CWS Capital Partners LLC has evolved from a company that was founded in 1969. Its key principals and advisors,

CEO – Steve Sherwood, Bill Williams, and President – Gary Carmell, have a combined 75 years with the firm. If

we had to put a title on ourselves, it would be “a fully-integrated real estate investment management company.”

We search throughout America for real estate investment opportunities and negotiate the purchase and sale

of the properties. We access both debt and equity capital to finance both the purchase and development of

those properties. And finally, we manage them. Throughout each project, we correspond regularly with

our investment partners and coordinate all the necessary financial reporting and tax return generation.

Importantly, the CWS principals believe in these projects strongly enough to personally invest in every single one.

Circulation is life. Circulation of money and access to capital fuels economic growth

which, in turn, allows for the allocation of money to its highest and best use. With

very favorable financial and real estate markets, 2006 was a year of circulating value

at CWS. We refinanced eight properties and sold six resulting in the exchange

of over $10.5 million of equity into two new assets and the distribution of nearly

$10 million in sale proceeds to investors. Using institutional and private capital,

our portfolio expanded with the acquisition of ten new communities, half of which

are development or condo-conversion and two are in new markets (Atlanta and

Houston). Refinancing strengthens existing assets’ financial health, selling

provides new investment opportunities and the option to extract cash, and acquiring

assets in new ventures and new markets offers a fresh start from which to begin again

the bountiful process of circulating capital for creating value. CWS understands

the value of its resources — the discretionary dollars of our investment partners,

the much sought after capital supplied by institutions, the talent of our esteemed

employees. We treat these with our utmost respect and attention, adding value at every

opportunity and putting the financial health of our investors and CWS at the forefront

of our decisions to adapt to changing economic, social, and demographic trends.

P r o P e r t y L o c a t i o n D a t e a c q u i r e D S a L e D a t e L . P . i r r

Ashbury Parke Austin, TX Jul-93 Jun-96 21.51%

Marquis at Ladera Vista* Austin, TX Nov-94 Nov-96 16.39%

Barton’s Lodge** Austin, TX Dec-90 Mar-98 19.28%

Plaza Villa Montclair, CA Feb-95 Aug-98 24.26%

Marquis of Carmel Valley* Charlotte, NC Jan-97 May-99 29.35%

Marquis Apartments Austin, TX Nov-92 Jun-00 17.98%

Argonne Forest Austin, TX Dec-91 Aug-00 20.65%

Edge Creek Austin, TX Aug-93 Dec-00 23.34%

O’Connor Ridge Dallas, TX Nov-95 Feb-02 9.79%

Waterbury Place Arlington, TX Jun-90 Mar-02 11.04%

Laguna Terrace Dallas, TX Jul-96 Apr-03 9.89%

Montclair Parc Charlotte, NC Jul-97 Oct-04 5.29%

Northcreek Durham, NC Jul-97 Oct-04 9.61%

Castle Hills San Antonio, TX Jun-03 Mar-06 27.50%

Walkers Bluff Austin, TX Oct-98 Apr-06 8.11%

Swanson’s Crossing Austin, TX Jul-02 May-06 9.73%

Shoal Creek Bedford, TX Nov-97 Jun-06 9.02%

Huntington Cove Farmers Branch, TX Dec-89 Aug-06 7.34%

Average 15.56%

* These investments were recapitalized after the development was complete. These returns represent the IRRs produced for investors exiting after the development phase. ** A portion of the investment was set aside for investors completing a 1031 exchange. Because their capital was invested later their IRR is higher than the initial investors.

P r o P e r t ye q u i t y

e x c h a n g e D

D e f e r r e D g a i n

a S S o c i a t e D

w i t h t h e

e q u i t y

1985 $ 4,969,908 $ 7,496,092

1986 596,835 618,897

1989 1,238,238 1,871,750

1990 3,591,187 9,283,218

1991 1,267,266 575,893

1992 1,800,396 4,759,007

1993 4,219,577 4,546,184

1995 1,252,827 2,115,161

1996 5,578,435 10,424,092

1997 12,737,361 19,012,046

1998 30,945,816 43,385,626

1999 31,046,933 55,438,498

2000 31,828,056 37,942,895

2002 14,187,460 23,078,845

2003 1,305,981 4,334,016

2004 10,427,349 16,610,408

2006 12,345,388 15,532,451*

Total $ 169,339,013 $ 257,025,079

* Net of boot of $5,524,966

From January 1, to December 31,

a c t u a L B u D g e t V a r i a n c e P e r c e n t

Total Revenue $ 121,114,870 $ 119,601,465 $ 1,513,405 1.27%

Total Operating Expenses $ 57,463,295 $ 56,468,851 $ (994,444) (1.76%)

Net Operating Income/(Loss) $ 63,651,575 $ 63,132,614 $ 518,961 0.82%

Year

m o n t h

r e f i n a n c e D

The Marquis of Carmel Valley February

The Marquis at Deerfield March

The Marquis at DTC September

The Marquis at Ladera Vista March

The Marquis at Town Centre Loan Mod August

The Marquis at Waterview April

The Preserve at Ballantyne Commons August

West Village Lofts & Apartments May

Year

m o n t h S o L D

Huntington Cove Apartments August-06

Shoal Creek Apartments June-06

The Marquis at Castle Hills March-06

The Marquis at Frankford Springs June-06

The Marquis at Swanson’s Crossing May-06

The Marquis at Walkers Bluff April-06

Year

r e f i n a n c e S a L e L e n D e r g r o u P

Canada Manufactured Housing Communities 3

Fairmont at Willowcreek 3

Papillon Parc 3

Talavera/Legends* 3

The Marquis at Barton Creek 3

The Marquis at Carmel Commons 3

The Marquis at Crossroads 3

The Marquis at DTC (Deercreek) 3

The Marquis at Iron Rock 3

The Marquis at Quarry 3

The Marquis at Rogers Ranch 3

The Marquis at State Thomas 3

The Marquis at Town Centre 3

The Marquis at Willow Lake 3

The Marquis on McKinney 3

*In the event the property is not sold, then it will either be refinanced or re-capitalized with a Lender Group.

2 3

CWS Capital Partners LLC

2006 Annual Repor t

6


2006 Annual Repor t

7

was in the checkout line in Barnes

& Noble and I noticed the discount

book bin as I was waiting. The first book to

catch my eye was about reflexology, a special

type of hand and foot massage. To pass the

time I picked up the book and started leaf-

ing through it. The first thing I saw when I

opened it up was a quote that said, “Circu-

lation is life.” It was such a simple statement

yet so profound in that it goes way beyond its

obvious application to health, and it caused

me to immediately think about it in the con-

text of investing and CWS.

What I’ve learned over the years in our

business is we always have to keep moving

forward and circulate our capital in ways

that ensure we are aligning our manage-

ment capabilities with the best opportu-

nities available. This does not necessarily

mean we always have to be buying and sell-

ing. On the contrary, it may mean sticking

with investments that we believe offer an

outstanding risk/reward relationship for a

long period of time. To ensure that we extract

the maximum value from the investment we

must make sure that we are circulating our

talent, capital, and residents so that we are

attracting the best customer base capable of

paying what we hope will be growing rents.

Since change is the one constant we can

rely on as a result of the shifting winds of eco-

nomic conditions, demographic forces, and

the risk appetite of investors, standing still is

not a viable option. These forces may require

us to make more significant changes by alter-

ing geographic emphasis or even the types of

properties we purchase or develop.

The history of CWS is one of a company

that has been nimble and flexible in making

significant strategic moves over the last 30-

plus years to make certain that we are cap-

turing the opportunities that we believe

offer the best risk/reward relationship.

The very first investment that CWS made

was an apartment building in Huntington

Beach and after that we gravitated to manu-

factured housing communities which were

known as mobile home parks back then.

We grew the mobile home park business

fairly aggressively over a 20-year period as

evidenced by CWS becoming one of the larg-

est owners and operators of mobile home

parks in the country. At our peak, we oper-

ated in nine states, including both coasts,

and in Canada.

As our sophistication grew and capa-

bilities strengthened, we shifted to more

value-added opportunities by developing,

expanding, and redeveloping communities

as well as turning around problem proper-

ties brought about by unprecedented eco-

nomic turmoil experienced in Texas after

the price of oil collapsed and large numbers

of S&Ls failed.

We realized that at the same time that we

were dealing with challenges in our mobile

home park portfolio, there were tremendous

opportunities developing in the tumultuous

apartment industry with the creation of the

Resolution Trust Corporation, or the RTC,

as it was better known.

We put together a team of focused peo-

ple to exploit the innumerable opportunities

to buy foreclosed properties from insurance

companies, the RTC, and banks because we

thought that the risk/reward was extraordi-

nary. To capitalize these opportunities, we

started recirculating money from our Cali-

fornia mobile home parks in the late 1980’s

because we saw that conditions in California

were top dead center in the sense that prices

were extremely high and the fundamentals

going forward were very much at risk as de-

fense spending was contracting and a large

number of high paying jobs were going to be

lost. When this was combined with California’s

high cost of living and relatively anti-business

climate, we were quite bearish on California

real estate, particularly housing prices.

We moved capital from mobile home

parks that we sold in California and reinvested

this money in depressed assets in Texas and

did quite well on our investments there.

In addition, once we saw that the apart-

ment industry was starting to gain traction

and many of the markets that we were in

were stopping new development because

money was not available, vacancy rates were

too high, and rents were too low to support

new construction, we realized that over time

there would be an opportunity to create

new apartment communities that would be in

high demand.

In the early 1990’s, we started developing

some of the modern class A apartment com-

munities which had far more amenities and

Name Title


2006 Annual Repor t

8


2006 Annual Repor t

9

were better designed than the apartments

that were built in the 1980’s. We were able

to produce attractive rates of return as these

proved to be in high demand among renters

willing to pay greater than projected rents.

As that market started to mature, we

gravitated towards older communities that

could be repositioned with some interior

upgrades and exterior improvements to

allow us to attract a higher paying resident

clientele. These also proved to be successful.

From repositioning properties, we shift-

ed to buying very high quality properties

in markets that we felt would grow at faster

rates than the average cities or economies

in the United States. These included Austin,

Dallas/Fort Worth, Charlotte, Raleigh, and

Denver. These were younger cities with a

tech-oriented workforce and a high degree

of education and the land and pro-business

environment to enable growth to occur at a

fairly rapid pace.

However, this strategy was not as suc-

cessful as we would have liked as we didn’t

count on the tech meltdown having such a

devastating economic impact. For the first

couple of years when we owned these as-

sets they performed well. But then, market

conditions changed greatly as the technol-

ogy downturn hit the US economy with

dramatic fashion. The NASDAQ dropped

80%, venture capital funding dried up, and

companies that were hiring were now laying

workers off and heavily focused on restruc-

turing and cutting costs.

Additionally, at the same time this hap-

pened, we were saddled with high-cost debt

that could not be repaid prior to maturity

given the extraordinary prepayment penal-

ties we would incur because interest rates

had dropped significantly. Lenders do not

like getting back their money early in a lower

interest rate environment and charge bor-

rowers penalties to compensate for their lost

yield. These penalties were astronomical as

borrowing rates dropped from 7%-8% to

3%-5%.

While we would have liked to have re-

circulated capital from those investments,

we really couldn’t so we had to focus on im-

proving our operations by re-circulating our

talent. This required us to be much more

focused on operational excellence and more

defensive in terms of working with lenders

and our investors to recapitalize many of our

properties. We also had to make sure we had

the strongest players on the field to ensure

our properties would not lose their com-

petitive edge. Fortunately, we have worked

through many of those issues.

We are very happy with the portfolio

we have in place. And now, we have circu-

lated some of our money and talent to more

of an urban focus. As commuting times in-

crease and people become more interested

in the cultural aspects of city life — the fine

dining, the lifestyle, and the ability to walk

or take public transportation to these places,

there is more of a premium put on urban

assets among consumers and investors. We

entered this arena somewhat early with the

development of The Marquis at McKinney

in Dallas in 2001 and then followed up with

the purchase of The Marquis at Turtle Creek

and other urban assets in Denver and Austin.

We now have a very good urban foot-

print that has allowed us to capitalize nicely

on the resurgence of urban living and the

demand among institutional investors for

urban assets. We also have strong manage-

ment and the acquisition capabilities to

evaluate new investment opportunities, in-

tegrate them into our portfolio, and run

them effectively.

Today, we are focused on taking advan-

tage of the combination of improving fun-

damentals in the apartment market and the

increasing costs of construction. We have

seen an opportunity to improve well-located

assets with nice amenities and good floor

plans that lack the modern interiors of new

construction properties. We see a terrific

opportunity to upgrade these communities

and interiors and to position these proper-

ties to offer a competitive alternative to the

higher priced new construction properties

but at lower rents.

The point of all this is that one really

can never remain complacent or stand still

because so many variables are always chang-

ing, particularly in the capital markets.

Certain types of assets that were the dar-

lings of investors become out of favor and

vice versa; those that are out of favor become

much more in demand. And right now, every-

thing seems to be in demand, quite frankly,

because there is an enormous supply of capi-

tal and a voracious appetite among investors

worldwide to capture yield that is available

from real estate investments.

It’s hard to believe that what I have

written was inspired by a book about foot

massage. Yet, it really is true that “circula-

tion is life”. Our blood needs to be flowing,

our people growing, and our capital consis-

tently monitored and optimized to ensure

that it is invested in opportunities offering

the best risk/reward relationship. We look

forward to doing our best in the years ahead

to ensure that much of this capital circula-

tion is flowing back to you in the form of

increased dividends, refinance distribu-

tions, and sale proceeds from value that has

been created over the last few years.

The reality in investing is we only have the vagu-

est idea how the stock, bond, and real estate

markets will fare in the years ahead. Layered

on top of that is a heap of personal uncertainty,

including what will happen with our jobs or

businesses, what surprise expenses we might

face and how long we each might live. Make

no mistake: managing risk — in all of its many

facets — is critical to managing money. So it

is important to follow time tested investment

principles and focus on key issues like diversi-

fying broadly, saving regularly, limiting taxes,

and clamping down on investment costs. Your

investment portfolio is driven by how you divide

or diversify your money. With CWS this means

owning several different properties in several

different markets.

Most CWS investors begin investing in real

estate beyond their homes between the ages of

40 and 50 and are convinced that it gives them

four major long-term benefits:

1. Appreciation due to inflation driving up

the value of real estate over 5 to 7 years.

2. Cash flow on an annual basis that is par-

tially sheltered from taxes by deprecia-

tion accounting.

3. Exchange options that allow an investor

to keep improving by trading a real

estate position for a better one without

paying tax at the time of the exchange.

4. The security of dealing with a well

known organization like CWS that has a

good long-term track record.

The USA is now the world’s largest debtor na-

tion at approximately $40 trillion dollars and

we are adding to our debt at the rate of $500

billion per year. To pay off this debt we could

slowdown our economy, raise taxes, and start

paying down the debt — which is a very unpop-

ular move that the American public would vote

down. The alternative is to inflate our way out,

i.e. reduce the value of the US dollar through

inflation. Inflation at the rate of 3.5% per year

would reduce the purchasing power of the US

dollar to approximately zero in 20 years.

Because of the potential for inflation to re-

duce the purchasing power of your savings, a

hedge against inflation is very important and

real estate is one of the best because rents can

be adjusted to maintain income growth to ex-

ceed inflation. Investors need a “real” return of

4.5% — that means to cover inflation of 3.5%

plus an added 4.5% real return for an overall

return of 8.0% every year. This is commonly

called an 8% IRR (internal rate of return).

The CWS goal for 2007 is an overall cash dis-

tribution of 5% on our apartment portfolio. In

addition we should see inflation moving up the

value of our real estate portfolio in the range of

3.5% or more due to the influx of money from

around the world that is continuing to push

up apartment prices. With sub-prime lenders

backing away from zero-down, interest-only

loans, there will be many more apartment rent-

ers. We are seeing improved occupancy levels

in 2007 and indications that it will be a good

year for CWS investors. The management team

at CWS invests in every property along with you

and we are driven to maximize the return on all

investments. We are off to a good start in 2007.

It has been 30 years since I had the good for-

tune of joining Bill Williams and Jim Clayton

to become the “S” in CWS. I began investing

in CWS projects at the same time, when we

purchased only Texas mobile home parks.

I have learned a lot in these 30 years and

would like to share some of my thoughts with

you. But before I do, I would like to make it

clear that the reason that CWS has been so

successful is because of our group of inves-

tor partners whom we have also enjoyed as

friends. CWS made it through the mid-eight-

ies and then the 2001 “tech-wreck” without

losing any investor capital. This is largely be-

cause of the staying power provided by our

loyal investors. I would like to take this op-

portunity to thank all of you one more time.

As we enter 2007, the apartment market,

as well as office, retail, and industrial mar-

kets are all at a place they have not been be-

fore. All of the real estate products are be-

ing sold at record low cap rates; which means

higher prices. These prices are based on the

net operating income (NOI) being pro-

duced by the property at the time of closing.

The price 5 years ago was 12 to 14 times the

NOI. It is now 20 times the NOI! This has

been extremely beneficial to all of us, as the

properties we own have appreciated dramat-

ically without growth in NOI. We are now ex-

periencing a significant upward movement

in rents that is translating into growing NOI

and therefore, values. It is a very good time

to be an apartment owner.

Looking into the future, we do not see

the cap rates going up significantly in the

near term. CWS is currently buying exist-

ing apartment communities at lower prices

than it would cost to build a similar commu-

nity. As the scheduled rent increases con-

tinue during 2007, the values should in-

crease to a level approaching replacement

cost. As this occurs, it will be interesting to

see if the cap rates move up during the next

couple of years. I believe that the cap rates

will not expand as rapidly as the NOI, which

should result in still higher prices in most of

our markets.

The demand should continue to shift

away from home ownership to renting, as a

result of the higher prices and the tighten-

ing of credit, especially for first-time buyers.

The level of new apartment construction is

such that 2007 and 2008 should be very good

years for apartment owners.

The future of well-located apartment com-

munities looks quite good; therefore, the fu-

ture looks good for CWS. We have been lis-

tening to our investors and have heard that

our investors are happy to pass along a large

estate to their kids, but want to have cash

flow to spend on themselves until then. Our

goal is to have the average distribution from

our portfolio at or above five percent. We are

seeing things in the markets that allow us to

feel good about accomplishing this goal. I

look forward to celebrating this accomplish-

ment together.


2006 Annual Repor t

11


2006 Annual Repor t

10

Name Title

Name TitleS

te

v e S h e r wo

od b

i l l w i l l i a mS

13

Our 2006 focus continues to be directed to-

wards adding value to your investments through

revenue increases and income generation. To

make this happen requires focused people and

making value-added capital improvements to

our properties.

People We made key personnel and orga-

nizational changes in 2006 that have greatly

increased our ability to add value to your assets.

In July, we reorganized our operations, promot-

ing Marcellus Mosley to Director of Operations,

a role in which he will supervise our Regional

Managers and strongly focus on training and

developing our on-site employees. We also ex-

panded the number of Regional Managers from

five to seven in order to reduce the portfolio

size each one oversees and allow more intense

focus on property operations, enhancing asset

value, and increasing revenue, which should

increase net income and get us closer to our

goal of an overall portfolio cash distribution

of 5%. The average portfolio size under each

Regional Manager decreased approximately

33% from nine properties to six greatly increas-

ing management guidance and supervision of

each asset. Of these new Regional Managers,

four are graduates of the CWS Executive Intern

Program. The result is that Regional Managers

are spending more time on site training employ-

ees to attract and retain our target residents

while also pricing our product to capture the

highest rents.

Former Dallas Regional Manager, Shellie

McDaniel, has been promoted to fill the newly

created role of Director of Training and

Marketing. The newly restructured

training department will deliver

exemplary new hire orientations and employees

to our properties with optimum job skills, keen

sales training and excellent customer service

skills. At the company, regional, and site levels,

the training department will provide marketing

expertise and programs designed to fill the

communities with desirable residents willing to

pay the highest market rents.

Promoting outstanding employees who can

in turn develop other employees to serve our

residents well, grow the value of our assets

through rent growth and disciplined expense

management, and maintain highly desirable

communities, are all critical to achieving pro-

forma distributions and commanding target

sale prices to hit our projected internal rates

of return.

Capital Improvements We see great potential

to enhance asset value at certain CWS commu-

nities through interior improvements such as

countertop, fixture, and flooring replacements,

cabinetry upgrades, and paint in order to raise

rents that might otherwise be stagnant due to

age or newly constructed competitors. In 2007,

investors should expect to see Lender Group

opportunities on currently owned assets with

targeted returns in excess of 20%. This repre-

sents a very real circulation of value as we not

only offer targeted returns on newly invested

dollars in current assets but we also increase

the overall value of originally invested dollars

through increased revenues.

Again, I thank you for the opportunity to

serve your investment needs. The operations

team remains committed to achieving

your proforma distributions on both

new and existing assets.

Name Title

Name Title


2006 Annual Repor t


2006 Annual Repor t

12

Be consoled if you are having a hard time finding

adequate yields on your cash; investors around

the world are similarly frustrated. Capital is

chasing cash flow, and the macro global demo-

graphic drivers of this situation show no signs of

changing any time soon. What are the implica-

tions of this condition for CWS and its investors?

1. There is strong demand in the marketplace for

low cash flow or even non-cash flow producing as-

sets. CWS is in the process of selling a number of

assets in various markets. The demand for each

of these assets has been strong at historically

high asset values, and CWS is working hard to

come up with the highest possible price for each.

While the quest for the very best price sometimes

lengthens the sale process, we believe that this

additional time and effort is in the investor’s best

interest and will result in a satisfactory outcome.

2. The margin for error in purchasing is very

slim, and above average revenue growth will be

well rewarded. Most assets purchased in this era

will have minimal initial yields. From an invest-

ment perspective, these purchases can work out

well to the extent that solid revenue growth can

soon grow the cash flow. However, should the rev-

enue growth not occur, or even decline, these as-

sets will quickly be in trouble. The counter to this

scenario is that even a small amount of growth

will quickly be rewarded in terms of monetiza-

tion of those cash flows into asset value.

3. Focus on the fundamentals of loca-

tion, supply, demand, and replace-

ment cost are essential in this cycle. Returns for

real estate investments initiated since 2002 have

been strong. Most CWS investments initiated in

that time period have not yet been sold, so CWS

investors have not yet tangibly seen the strong

results. Rising commodity prices resulting in

higher replacement costs and lower interest rates

translating to lower cap rates have helped pro-

vide attractive returns to numerous real estate

investors in this most recent cycle. These high

returns have opened the capital spigots to ad-

ditional real estate investment, and as a result

a number of marginal investments are being

made. This time, there is no certainty that falling

cap rates or rising replacement cost will bail out

these investments. For these reasons, it is more

imperative than ever to focus on the fundamen-

tals and to act accordingly.

4. Selectively utilize value-add techniques such

as rehabs and change of use from rental to for-

sale product. CWS has purchased older assets in

outstanding locations and is upgrading the in-

teriors to provide residents with the modern fin-

ish out they desire in exchange for significantly

higher rent. Additionally, there continues to be

a strong desire in select markets for residents to

own rather than rent. As such, some rental resi-

dential and even office buildings have a higher

and better use as for-sale residential product in

the form of condominiums. CWS will continue

to look for opportunities similar to the ones

it has seized in Austin and Dallas to find

value in underutilized assets through

a change of use.

mi k e e n g e l S

j a c k S i p e S


2006 Annual Repor t

16

01t o t a L u n i t S : 1,803

Austin Region Property Total: 8

P r o P e r t y n a m e L o c a t i o n u n i t S

The Marquis at Barton Creek Austin 250

The Marquis at Caprock Canyon Austin 336

The Marquis at Iron Rock Ranch Austin 300

The Marquis at Ladera Vista Austin 224

Northwest Hills Apartments Austin 314

Riverside Place Austin 145

Riverside Square Austin 100

Windsor at Barton Creek Austin 134

S o u r c e S :

CNNMoney.com, Money Magazine Online Editionwww.austin-chamber.org

The Austin-San Marcos, TX MSA economy experienced expansion during 2006 as job growth

averaged 2.77%. Apartment demand was slightly elevated from last year, resulting in modest

rent growth. Austin was ranked #2 in “Best Big Cities”, Money Magazine, July 2006. Austin’s high

quality of living, highly educated work force and availability of office space resulted in corporate

relocations and expansion of Austin area companies. The long-term fundamentals look favorable

for Austin as employment is projected to grow by approximately 25% through 2015.


2006 Annual Repor t

19

t o t a L u n i t S : 5,534

Dallas / Ft. Worth Region Property Total: 20

The Dallas - Fort Worth, TX MSA (“D/FW”) has one of the most diverse economies in the nation.

The Fort Worth area has one of the lowest downtown office vacancy rates in the nation at 6%, as

evidenced by downtown redevelopment such as Sundance Square which boasts two Class A office

towers consisting of 1.5 million square feet of office space and the conversion of former Bank

One towers to apartments. The growth of the high-tech industries in the Dallas area suggests

that many jobs will be created by area tech companies as they expand. Companies flock to the

Dallas/Fort Worth area because of the region’s transportation infrastructure, cost of living, and

tax advantages. Multi-family permits remained steady at slightly over 4,000 units. We anticipate

the apartment market will continue to experience modest rent growth between 3%-4% and falling

vacancy rates in 2007.

S o u r c e S : Federal Reserve Bank of Dallas Online, Dallas Business Journal and Real Estate Center, Dallas-Fort Worth-Arlington: Multifamily Market News

02


Brooks on Preston Plano 342

The Estates of Highland Park Highland Park 55

The Marquis at Bellaire Ranch Fort Worth 316

The Marquis on Cedar Springs Dallas 165

The Marquis on Gaston Dallas 480

The Marquis at Lantana Flower Mound 248

The Marquis on McKinney Dallas 144

The Marquis at Park Central Dallas 308

The Marquis at Riverchase Coppell 360

The Marquis at Silver Oaks Grapevine 480

The Park on Spring Creek Plano 278

The Marquis at Stonebriar Frisco 347

The Marquis at Stonegate Fort Worth 308

The Marquis at Turtle Creek Dallas 98

The Marquis at Waterview Richardson 528

The Marquis at West Village Dallas 179

The Marquis at Willow Lake Fort Worth 138

Papillon Parc Fort Worth 76

The Park at Fox Trails Plano 286

Townlake of Coppell Coppell 398


2006 Annual Repor t

20

t o t a L u n i t S : 1,452

San Antonio Region Property Total: 503

The San Antonio, TX MSA experienced quality expansion during 2006 with job growth remaining

strong at 2 percent with the creation of 15,600 jobs. The opening of the Toyota Motors plant in

November 2006 was a major economic event in San Antonio, and will create more than 4,000 jobs in

the area. Other major employers in San Antonio include AT&T (formerly SBC Communications),

H.E.B. Food Stores, United Services Automobile Association, and Baptist Health system and

the United States Military. San Antonio’s low cost of living, quality work force, and government

incentives make it very appealing for corporate expansion. Multi-family permits were down 6% for

the first three quarters of 2006, resulting in a tighter supply of apartment homes. We anticipate the

record creation of jobs in the metro area will help to stabilize the weakness the apartment sector

has been experiencing as a result of a large number of new communities being built.

S o u r c e S :

San Antonio Business Journal and Toyota Motors


The Marquis at Deerfield San Antonio 340

The Marquis at Legends San Antonio 306

The Marquis at Quarry San Antonio 224

The Marquis at Rogers Ranch San Antonio 246

Talavera San Antonio 336


2006 Annual Repor t

23

t o t a L u n i t S : 104

Atlanta Region Property Total: 1

The metro Atlanta, GA MSA economy experienced tremendous expansion during 2006 as 69,000

net new jobs were added, making it fifth in the nation for job creation. Each year for the last ten

years, metro Atlanta has led the nation in new housing permits, indicating high demand for all

types of housing. Atlanta’s quality of life, highly educated work force and availability of office space

resulted in corporate relocations and internal growth of Atlanta area companies, as evidenced by

its #3 ranking in Expansion Management Magazine’s “America’s 50 Hottest Cities for Business

Expansion and Relocation”. We should continue to experience great apartment supply/demand

fundamentals as employment growth is anticipated to grow 18.8% in the next 10 years.

S o u r c e S :

Metro Atlanta Chamber of Commerce - Economic Development: Vital Statistics

04


The Marquis at Briarcliff Atlanta 104

*CWS Developments

m u L t i - f a m i L ya P a r t m e n t S c o m m u n i t i e S

y e a rB u i L t

y e a ra c q u i r e D P r o P e r t y n a m e c i t y

S t a t e a n Dc o u n t r y

u n i t S

P o t e n t i a LB u i L D o u t

t o t a L P o t e n t i a L

u n i t S

California 2001 2002 Fairmont at Willow Creek* Folsom California 260 0 260

Colorado 1998 1999 The Marquis at DTC Denver Colorado 238 0 238

1983 2005 Marquis at the Parkway Denver Colorado 460 0 460

2000 2000 The Marquis at Town Centre Broomfield Colorado 283 0 283

Georgia 1995 2006 The Marquis at Briarcliff Atlanta Georgia 104 0 104

North Carolina 2001 1999 The Marquis at Carmel Commons* Charlotte North Carolina 312 0 312

1998 1997 The Marquis of Carmel Valley* Charlotte North Carolina 424 0 424

1998 2006 The Marquis on Cary Parkway Raleigh North Carolina 388 0 388

2000 2000 The Marquis at Crossroads Raleigh North Carolina 296 0 296

1996 2006 The Marquis on Edwards Mill Raleigh North Carolina 352 0 352

1996 2006 The Marquis at Northcross Huntersville North Carolina 312 0 312

1996 2000 The Marquis at Preston Cary North Carolina 292 0 292

1996 2005 The Marquis at Silverton Cary North Carolina 216 0 216

1998 1999 The Preserve at Ballantyne Commons Charlotte North Carolina 270 0 270

Texas 1998 1998 Brooks on Preston Plano Texas 342 0 342

2001 2007 The Estates of Highland Park Highland Park Texas 55 0 55

2000 2000 The Marquis at Barton Creek Austin Texas 250 0 250

1990 2006 The Marquis at Bellaire Houston Texas 581 0 581

1997 2003 The Marquis at Bellaire Ranch Fort Worth Texas 316 0 316

1994 2000 The Marquis at Caprock Canyon Austin Texas 336 0 336

1996 1996 The Marquis at Deerfield* San Antonio Texas 340 0 340

2002 2004 The Marquis at Iron Rock Ranch Austin Texas 300 0 300

1996 1996 The Marquis at Ladera Vista* Austin Texas 224 0 224

2000 2006 The Marquis at Lantana Flower Mound Texas 248 0 248

1998 1998 The Marquis at Legends San Antonio Texas 306 0 306

1999 2005 The Marquis at Park Central Dallas Texas 308 0 308

1994 2004 The Marquis at Quarry San Antonio Texas 224 0 224

1999 2006 The Marquis at Riverchase Coppell Texas 360 0 360

2001 1999 The Marquis at Rogers Ranch* San Antonio Texas 246 0 246

2002 2005 The Marquis at Silver Oaks Grapevine Texas 480 0 480

1998 2006 The Marquis at Stonebriar Frisco Texas 347 0 347

1996 2002 The Marquis at Stonegate Fort Worth Texas 308 0 308

1998 2002 The Marquis at Turtle Creek Dallas Texas 98 0 98

1998 1999 The Marquis at Waterview Richardson Texas 528 0 528

2002 2004 The Marquis at West Village Dallas Texas 179 0 179

1996 2002 The Marquis at Willow Lake Fort Worth Texas 138 0 138

2002 2006 The Marquis on Cedar Springs Dallas Texas 165 0 165

1996 2005 The Marquis on Gaston Dallas Texas 480 0 480

2002 2003 The Marquis on McKinney* Dallas Texas 144 0 144

1978/79 2005 Northwest Hills Apartments Austin Texas 314 0 314

1985 1990 Papillon Parc Fort Worth Texas 76 0 76

1981 2006 The Park at Fox Trails Plano Texas 286 0 286

1984 2006 The Park on Spring Creek Plano Texas 278 0 278

1969 2006 Riverside Place Austin Texas 145 0 145

1973 2006 Riverside Square Austin Texas 100 0 100

1996 1998 Talavera San Antonio Texas 336 0 336

1985/86 2004 Townlake of Coppell Coppell Texas 398 0 398

1978 2005 Windsor at Barton Creek Austin Texas 134 0 134

Apartment Totals 13,577 0 13,577

Current Developments The Marquis at State Thomas Dallas Texas 0 127 127

The Marquis Uptown Dallas Texas 0 300 300

The Block on Campus Phase I Austin Texas 0 330 330

The Block on Campus Phase II Austin Texas 0 360 360

Downtown Austin Condos Austin Texas 0 80 80

Development Totals 0 1,197 1,197

Manufactured Housing Communities 2005 Chateau at Onion Creek Austin Texas 350 0 350

1988 Canadian Properties Surrey British Columbia, Canada 664 0 664

Manufactured Housing Communities Totals 1,014 0 1,014

CWS Portfolio Totals 14,591 1,197 15,788

24 25

L o c a t i o n u n i t S P e r c .

DFW 5534 40.7%Austin 1803 13.3%San Antonio 1452 10.7%Raleigh 1544 11.4%Charlotte 1318 9.7%Denver 981 7.2%Houston 581 4.3%Sacramento 260 1.9%Atlanta 104 0.8%


2006 Annual Repor t

28

t o t a L u n i t S : 1,318

Charlotte Region Property Total: 4

S o u r c e S :

UNC Public Relations & Marketing News Releaseand the Red Capital Group Market Overview

05

Charlotte, NC experienced strong employment growth during 2006 as the construction, financial,

and government sectors continued to expand, resulting in new job growth of approximately 2%.

Multi-family permits have declined from their annualized high in 2001 and are expected to keep

declining throughout 2007. The combination of lower multi-family supply and accelerated job

growth resulted in improved apartment market fundamentals in 2006. This was evidenced by

physical vacancy rates falling to its lowest rate of 7.6%, since 2001. With higher interest rates, strong

job growth, and limited new supply, we project the apartment market will continue to improve

resulting in even lower vacancy rates and stronger rent growth.


The Marquis at Carmel Commons Charlotte 312

The Marquis of Carmel Valley Charlotte 424

The Marquis of Northcross Charlotte 312

The Preserve at Ballantyne Commons Charlotte 270


2006 Annual Repor t

31

t o t a L u n i t S : 1,544

Raleigh Region Property Total: 5

S o u r c e S : Headway Corporation, Red Capital Group Market Overview, Raleigh/Durham BizSpace and the Triangle Business Journal

06

The Raleigh, NC MSA has a diverse employment base consisting primarily of technology, govern-

ment, biotechnology, and education. Raleigh’s economy has gradually improved during the past

three years and is currently experiencing improving 3.8% job growth as of 3Q06. The Raleigh area

is consistently ranked among the nation’s best places to live, work and earn a world class education.

Headway Corporate Resources Inc., a human capital management company, is planning to move its

corporate headquarters and central offices from New York City to Raleigh, North Carolina, creating

new full-time jobs in the state of North Carolina over the next five years. Raleigh was ranked #4 “Best

Places to Live” by Money Magazine, July 2006. Multi-family permits have decreased by thirty percent

when compared to 2005, with only 374 permits issued in 2006, compared to 535 permits issued in

2005. With steady job growth and a very low supply of new apartments, Raleigh’s apartment market

should experience improvement and falling vacancy rates during 2007.


The Marquis on Cary Parkway Morrisville 388

The Marquis at Crossroads Commons Raleigh 296

The Marquis on Edwards Mill Raleigh 352

The Marquis at Preston Cary 292

The Marquis at Silverton Cary 216


2006 Annual Repor t

32


Denver Region Property Total: 3

S o u r c e S :

Metro Denver Economic Development Corporation

07

Denver is an attractive investment market and is viewed as one of the best places to live and to do

business in America. This is evidenced by the fact that eight of the Fortune Top 1000 companies are

located in Denver. Multi-family permits decreased from a September high of 1,314 to 944, the lowest

monthly level since 1992. Denver recently reported positive job growth of 1.6% as of January 2007.

Due to strong absorption and the lack of new construction, apartment vacancy rates have decreased

from 6.9% to 6.7%, the lowest level since 2001. Average monthly apartment rents have also increased

from the second to third quarter of 2006, ending with an average rent of $875. We believe the Denver

market has seen its worst days, and should see a return to robust rental growth rates.


The Marquis at DTC Denver 238

Marquis at the Parkway Denver 460

The Marquis at Town Centre Broomfield 283


2006 Annual Repor t

35

The economic trends in Surrey and the White Rock area of British Columbia, B.C. continue to

show positive growth. The British Columbia gross domestic product (GDP) is forecasted to grow

3.5% during 2007 with employment growth of 2.3%. Prices for Fraser Valley Homes increased on

average 19.3% for single-family, 17% for townhouses, and 9.6% for condominiums over last year.

Demand for housing in the area should remain high by historical standards and occupancy rates at

the communities should remain stable in 2007. The property management team will continue new

home sales efforts and will seek to acquire desirable for-sale homes in the communities to preserve

curb appeal. A 3.9% rent increase is being implemented in 2007.


Canada Region Property Total: 3

S o u r c e S :

Canadian National and British Columbia, BC Stats

08


Breakaway Bays British Columbia 345

Crestway Bays British Columbia 119

Crispen Bays British Columbia 192


2006 Annual Repor t

38


2006 Annual Repor t

39

BRIDGE is a CWS Capital Partners LLC program designed to encourage individuals to provide community service and volunteer work, as well as, provide a company sponsored pool of money for various community needs.

Corporate Officers

irving Police assoc. golf classic Oct. 25, 2006

CWS participated in the Irving Police Associa-

tion benefit golf classic, benefiting the Make

A Wish foundation. CWS volunteers were sta-

tioned at designated holes raffling tickets for

give a ways and handing out goodies to all the

golfers. We successfully helped Make A Wish

collect enough money to send another child on

their wish. Make A Wish is a wonderful organi-

zation that grants children wishes from the ages

of 2-18 living with a life threatening illness. It is

wonderful feeling knowing that we are helping

raise money for a child to get their wish granted

and for them to forget for awhile about all the

fear and pain of the illness they live with.

Surrey food Bank Drive Oct. 27, 2006

Once a month, the Surrey Food Bank in Brit-

ish Columbia opens its warehouse after hours

for CWS volunteers to come in for two hours

to organize food donations. The CWS group

consists of both CWS employees and Crestway

Bays residents. We help the organization by

carefully sorting all of the items received into

specific categories such as baby food, diapers,

pet food, vegetables, instant foods, etc… to

make it easier for the food bank to assemble

boxes to meet the specific needs of recipients.

In addition to our monthly volunteer hours,

Surrey Food Bank executive Marilyn Hermann

was delighted, to receive a $1,240 check from

CWS. The food bank really appreciates our do-

nation of time and money and the Canadian

group of volunteers has a great time helping

out the organization.

operation christmas child Dec. 5, 2006

CWS Apartment Homes corporate emloyees

along with CWS Corporate Housing employees

assembled and collected 30 shoe boxes filled

with goodies and toys to be shipped overseas

as part of Operation Christmas Child. This is

the 4th consecutive year that both companies

have participated.

the caring Place Dec. 11, 2006

On Tuesday, December 11th the Women In

Leadership Group volunteered at The Caring

Place in Georgetown Texas. The group invento-

ried, sorted and stocked food in the warehouse.

B.R.I.D.G.E. 2006 Events (partial list)

Steve Sherwood

Founding Partner, CEO, & Chairman of the BoardJoined CWS in 1977Newport Beach, California

Bill williams

Advisory Board MemberFounding Partner 1969Newport Beach, California

tracy hayes

President, CWS Corporate HousingJoined CWS in 1994Austin, Texas

Joe Sherwood

Senior Vice President, Manufactured HousingJoined CWS in 1986Longwood, Florida

Brian rose

Chief Financial OfficerJoined CWS in 1997Austin, Texas

Sue mills

Vice President, Human ResourcesJoined CWS in 1991Austin, Texas

Shellie mcDaniel

Director of Training& MarketingJoined CWS in 2001Dallas, Texas

gary carmell

Partner & PresidentJoined CWS in 1987Newport Beach, California

Lauretta anderson

Vice President, Investor RelationsJoined CWS in 1986Newport Beach, California

Sunnie Juarez-mills

Manager, Investor Services Joined CWS in 1997Newport Beach, California

marcus Lam

Investor Relations,Development AssociateJoined CWS in 2005Newport Beach, California

Jeriann Price

Investor Relations SpecialistJoined CWS in 2007Newport Beach, California

Jill carlisle

Vice PresidentJoined CWS in 1996Newport Beach, California

mike engels

Partner &Chief Investment OfficerJoined CWS in 1998Austin, Texas

greg miller

Vice President, DevelopmentJoined CWS in 1994Austin, Texas

Daniel ebner

Vice President, InvestmentsJoined CWS in 2004Dallas, Texas

Brad Brakhage

Vice President of ConstructionJoined CWS in 2006Austin, Texas

rich fagan

Director of Due DiligenceJoined CWS in 2001 Dallas, Texas

gina roberts

Region ManagerAustin, TexasJoined CWS in 1997Austin, Texas

cali wood

Region ManagerSan Antonio, HoustonJoined CWS in 2002Austin, Texas

Jack Sipes

Partner & Chief Operating OfficerJoined CWS in 1996Austin, Texas

marcellus mosley

Director of OperationsJoined CWS in 2002Austin, Texas

amber cox

Region Manager, Fort WorthJoined CWS in 1998Fort Worth, Texas

charlotte eaker

Region Manager, North CarolinaJoined CWS in 1998Charlotte, North Carolina

tori hill

Region Manager, Colorado/CaliforniaJoined CWS in 2004Denver, Colorado

Brett mcDaniel

Region Manager, DallasJoined CWS in 2001Dallas, Texas

2006 Annual Report

ethics in america honoree

CWS Capital Partners LLC was selected in 2005 to

receive this award because of its success by excep-

tional commitment to ethical excellence. CWS is

proud to share this distinguished recognition with

the National Honoree Guest Speaker, Coach John R.

Wooden, a man who has long been associated with

outstanding character and leadership. We are espe-

cially proud of all of our employees and we thank

them for continuing to stand by our stated values. In

addition, we thank all of our investors, vendors and

associates for their continued business and support.

additional information

For additional information on CWS and its affiliated

companies, please see the following websites:

cwscapital.com, cwsapartments.com,

cwshousing.com, or cwsbridge.com.

investor information

Limited partners, financial advisors, investment

advisors, or CPAs seeking additional information

about CWS Investments or 1031 Exchange

candidate investments should contact:

Marcus Lam, Investor Relations,

Development Associate, (800) 466-0020, ext. 297

or via email to [email protected].

Clayton Williams & Sherwood Investments is a member of the NASD and SIPC.

Corporate Information


2006 Annual Repor t

40

winner of ceL’s year 2004

& 2005 real estate award

CWS was honored for the second year in a row with CEL’s

prestigious award for achieving the highest level of cus-

tomer service excellence out of any multi-family operator

managing 30-50 communities. CEL & Associates, Inc.

is the nation’s largest surveyor of resident satisfaction

within the multi-family industry. Go to

www.celassociates.com for more information.

congratulations to cwS’ year 2006

Community Director of the Year, Grace Phelps-Verkler

Community of the Year, Marquis at Bellaire Ranch

Maintenance Director of the Year, Mark Moore

Best Renewal Probability, Marquis at Deerfield

Best Response Rate, Preserve at Ballantyne Commons

Best Leasing Property, Marquis at Iron Rock Ranch

Best Leasing Individual, Jennifer Vasquez

Best Property NOI Growth, Marquis at Iron Rock Ranch

Best Property Delinquency, Marquis at Barton Creek

Best Customer Service

Office Team, Marquis at Stonegate

Property Team, Marquis at Iron Rock Ranch

Maintenance Team, Marquis at Bellaire Ranch

appendix

Sources may be found in the Appendix on the accompany-

ing Supplemental Report Disk included with this report

c w s c a p i ta l.co m

TEL8004660020

CWS Capital Partners LLC800 Newport Center Drive, Suite 400

Newport Beach, CA 92660

Documents

CWS CWS Capital Partners LLC...2006/01/06 · Montclair Parc Charlotte, NC Jul-97 Oct-04 5.29% Northcreek Durham, NC Jul-97 Oct-04 9.61% Castle Hills San Antonio, TX Jun-03 Mar-06