State Universities Retirement System of Illinois - SURS 6- 4c Dune RE Partners... · State Universities Retirement System of Illinois ... State Universities Retirement System of

May 2013

The following investment evaluation is confidential and for the exclusive use of SURS. This evaluation may not be distributed to any other organization or individual. The following investment evaluation was compiled by Callan Associates Inc. from information provided by the candidate general partner and other sources believed to be reliable. Unless otherwise noted, performance figures reflect a commingled fund or discretionary accounts. All written comments in this report are objectively stated and are based on facts gathered in good faith.

State Universities Retirement System of Illinois

Dune Real Estate PartnersDune Real Estate Fund III, L.P.

Exhibit 6

Knowledge. Experience. Integrity.

Table of Contents

Dune Real Estate Fund III, L.P.

Executive Summary ___________________________________________________________________ 1

Evaluation Process ___________________________________________________________________ 3

Overview of Offering __________________________________________________________________ 3

Strategy ____________________________________________________________________________ 4

Sponsorship _________________________________________________________________________ 8

Investment and Portfolio Management Process ____________________________________________ 11

Summary of Terms and Conditions ______________________________________________________ 12

Historical Performance________________________________________________________________ 15

Fundraising Status ___________________________________________________________________ 23

Summary and Recommendation ________________________________________________________ 23

Appendix

Organizational Chart _________________________________________________________________ 26

Professional Biographies ______________________________________________________________ 27

Investment List ______________________________________________________________________ 34

Fund I Performance Snapshot __________________________________________________________ 35

Fund II Performance Snapshot _________________________________________________________ 36

Exhibit 6


Dune Real Estate Fund III, L.P.

Executive SummaryState Universities Retirement System of Illinois (“SURS”) requested that Callan Associates, Inc. (“Callan”) evaluate the opportunistic real estate investment capabilities of Dune Real Estate Partners, L.P. (“Dune Real Estate Partners”, “Dune”, the “Firm” or the “Team”) and the commingled fund offering Dune Real Estate Fund III, L.P. (“Dune Real Estate Fund III”, “Fund III” or the “Fund”).

SURS is considering Dune Real Estate Fund III as a follow-on investment with the Firm; SURS made a $40 million commitment to Dune Real Estate Fund II, L.P. (“Dune Real Estate Fund II”, “Fund II”) in November 2008. As of December 31, 2012, Dune had called $30 million of SURS investment, distributed $5.7 million, and the market value of SURS’ interest was $34.1million. Subsequently, Dune has called additional capital bringing the called amount of capital up to 82.93% ($33.17 million) of SURS’ capital commitment and Dune anticipates calling the remaining capital in 2013. There were additional distributions made subsequent to December 31 increasing the total amount distributed to $7.22 million (18% of the original $40 million commitment). Dune projects substantial additional distributions to SURS for the remainder of 2013 and for calendar year 2014 equal to 61% of called capital. Callan has reviewed Dune’s near term distribution projections for reasonableness and notes they are based on a combination of sales under contract, proceeds from operations at existing properties, and planned sales and loan payoffs. Since inception, Dune’s return has been 18.3%. Over the life of Fund II, the investment in Dune is projected to generate a 17.9% net internal rate of return and a 1.9x net equity multiple.

Callan recommends that SURS commit $100 million to Dune Real Estate Fund III. Our recommendation to invest in the Fund is based on the following factors:

Fund III will employ a demonstrated investment strategy; the Team has experience acquiring and managing assets across the investment themes targeted for the Fund.

Mr. Neidich and Ms. Buckley have significant experience building and leading real estate investment management organizations. Additionally, prior roles held by Mr. Neidich and Ms. Buckley have contributed to proprietary deal flow and off-market transactions.

Dune is solely owned by its investment professionals and the entire focus of the team is on its series of investment funds. Dune is making a $20 million investment in Fund III with capital from senior members of the Firm who receive direct, performance-based compensation to ensure a commitment to the Firm and the Fund.

Dune has a robust investment process that includes the involvement of all senior-level professionals.

Performance for Fund II has been strong from both an absolute and relative basis. Fund II’ssince inception return and projected performance is consistent with its stated return objective. In addition, Dune Real Estate Fund II has exhibited top-quartile since inception performance relative to its peer group. Finally, Fund II’s distributions have begun to increase markedly;

The distribution of investment returns in Fund I and Fund II exhibit a pattern of consistency, reflecting a focus on capital preservation. The distributions do not exhibit a barbell distribution

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where investment performance is concentrated in both highly outperforming investments and investments that generate losses of invested capital with little in between.

The Fund’s structure and terms are reasonable and include enhancements relative to Fund II. Callan has actively negotiated a number of these enhancements as detailed in the Summary of Terms and Conditions of this report, including stricter investment limitations and a reduced management fee of 1.25% for SURS’ $100 million commitment versus 1.50% as originallyproposed by Dune. SURS would be offered a seat on the Advisory Committee in connection with a commitment to Fund III; and

A follow-on commitment to the Fund is consistent with SURS’ real estate strategic plan and portfolio objectives as follows:

o The investment would move SURS toward a real estate allocation target of 10% of total plan assets;

o An investment in Fund III would increase private real estate exposure; o The investment is being made in the context of SURS’ broader real estate portfolio which

is well diversified via its REIT portfolio, the three positions in diversified core open end funds and three fund of funds; and

o The pacing model completed by Callan indicates $100 million in required non-core funding for FY 2013.

Callan’s full evaluation of Fund III follows this executive summary and includes an assessment of both the Strengths and Issues considered by Callan in making the above recommendation.

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Evaluation ProcessCallan’s evaluation and review process included the following:

On-going review of Dune Real Estate Partners, Fund II, and the Fund III offering prior to SURS’ request to formally review Fund III. This included meetings in Callan’s San Francisco office in March 2012 and January 2013 and onsite meetings in Dune’s New York City office in June 2012 and October 2012.

Review of Fund and Firm documents including the July 2012 Private Placement Memorandum (“PPM”) and PPM Supplement No. 1 dated February 2013, February 22, 2013 Limited Partnership Agreement, Subscription Booklet, May 13 Memorandum summarizing changes in terms from Fund II to Fund III, Form ADV, Valuation Policy, Firm Financial Statements, Fund Summary Reports, Annual Meeting Materials, Investment Professional Biographies, Fund III Presentation Materials and Dune’s response to Callan’s due diligence questionnaire and performance requests.

An onsite meeting in Dune’s New York City office on April 2, 2013 covering the Firm, the Fund’s investment strategy, investment process, track record, pipeline, and fund status. Callan met with the following Dune representatives:

Figure A: Dune Participants in Callan’s April 2, 2013 Onsite

Professional TitleYear Joined

FirmYears

ExperienceDaniel M. Neidich Chief Executive Officer, Partner 2004 38

Cia BuckleyChief Investment Officer, Partner, Managing Director 2007 24

Gregory Z. Rush Partner, Managing Director 2005 19David L. Oliner Partner, Managing Director 2009 26Russell L. Gimelstob Partner, Managing Director 2005 11Jonah A. Sonnenborn Managing Director 2005 11Shallene Cua Associate 2010 5Darren M. Berk, CPA Chief Financial Officer 2004 18

Michael D. ShermanGeneral Counsel, Chief Compliance Officer 2010 11

Attendance at Dune’s 2013 Investor Conference held in New York City on April 24, 2013. Various emails and calls to discuss Fund III terms and resolve outstanding questions. Review of this Evaluation by Callan’s Alternative Investment Review Committee on May 28, 2013.

Overview of OfferingDune Real Estate Partners is sponsoring Dune Real Estate Fund III, L.P., the third fund in its series and the third investment vehicle sponsored by Dune. Fund III will continue the opportunistic investment approach applied within the two predecessor funds to selectively acquire, manage and sell real estate assets that are mispriced or are underperforming. Investments in the United States will be emphasized; however, the Team may selectively make investments in the European Union. The Fund will employ debt

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financing, subject to a 75% leverage limitation and will target a net internal rate of return between 15% and 17%. The Fund is targeting $850 million in capital commitments with no specified cap. The Team will invest $20 million to the Fund, comprised of investments by certain Dune employees.

Dune executed a first close in February 2013 aggregating $237 million in capital commitments, including its own $20 million commitment and commitments from a corporate pension client ($100 million commitment), institutional high net-worth client ($50 million), public pension client ($25 million), endowment client ($20 million) and high net-worth investors ($22 million). First close investors received a 180-day fee break in connection with their commitments and second close investors will receive a 90-day fee break. A second closing is expected to occur in June or July 2013 with a final close tentatively scheduled for December 2013. No investments have been made on behalf of Fund III; however, the Team has an active pipeline of potential transactions for the Fund.

Strategy1

Using capital commitments raised through Dune Real Estate Fund III, the Team will seek to make opportunistic investments in real estate and real estate-related assets with a thematic focus on distressed situations, deep value-add opportunities and contrarian investments.

Distressed SituationsDune will seek to acquire, recapitalize and/or restructure sub-performing and non-performing commercial real estate mortgages and other real estate loans as a means to acquire ownership interests in underlying collateral real estate assets. This thematic focus targets the deleveraging of the capital markets and dislocation seen in the real estate markets.

Dune believes that considerable opportunities remain as the real estate markets continue to recover. Dune cited a Real Capital Analytics publication stating that approximately $160 billion of commercial real estate loans currently remain challenged or have been ceded to lenders.Further, the Team indicated that large distressed loans within the universe of commercial mortgage-backed securities continue to exhibit average loan-to-value ratios in excess of 100%;while considerable progress has been made to address challenged situations, segments of the commercial mortgage-backed securities (“CMBS”) market remain unresolved, including fixed-rate CMBS trusts and the underlying loans therein. The Team believes that fixed-rate loans, originated in 2006 and 2007, will require active workouts ahead of their maturities that are concentrated in 2016 and 2017.

Dune has made ten distressed investments across Fund I and Fund II. These investments represent $395.5 million of invested equity. In aggregate, Dune’s distressed investments are projected to generate a 3.0% gross, investment-level internal rate of return and a 1.36x gross, investment-level equity multiple. The distressed investment strategy in Fund II is more closely reflective of the one anticipated for Fund III;

1 Summarized and paraphrased from representative materials received from Dune Real Estate Partners.

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Fund I’s distressed investments were made in 2006 and involved the acquisition of an interest in the since-bankrupt Capmark Financial Group and an interest in Meadowlands Xanadu, a large-scale mixed-use development that ultimately stalled alongside the Lehman Brothers bankruptcy.Fund II made eight distressed debt investments representing $253.7 million. These investments are projected to generate a 25.2% gross, investment-level internal rate of return and a 2.19x gross multiple. Examples of distressed debt investments include, but are not limited to, The Mark Hotel and Residences, Red Roof Inn and Atlantic Yards. For further detail, Callan includes and discusses the attribution by investment theme as well as the attribution across a number of other factors in the Historical Performance section of this evaluation and the Appendix includes a Performance Snapshot for Fund I and Fund II.

Deep Value-Add OpportunitiesDune will seek equity or debt investment opportunities where the Team may reposition,restructure, develop or redevelop real estate or real estate-related assets. Deep value-add investments will target assets that exhibit clear reasons for temporary impairment of value alongside corresponding solutions to resolve those issues. Dune indicated that temporary value impairment may stem from a lack of capital available for development or redevelopment, a complex capital structure, a contentious or complicated ownership situation, significant vacancy or poor property management. Following acquisition, the Team will seek to actively manage the asset for repositioning and sale as an institutional-quality, core asset.

Dune has made eight deep value-add investments across Fund I and Fund II, representing $358.4 million of invested equity. In aggregate, the Firm’s deep value-add investments are projected to generate a 10.9% gross, investment-level internal rate of return and a 2.55x gross,investment-level equity multiple. Examples of distressed investments include, but are not limited to Malibu Village and Sam’s Club Portfolio.

Contrarian InvestmentsDune’s contrarian investment focus will target circumstances where oversold markets or investor behavior creates a mispricing that allows the Team to make debt or equity acquisitions at attractive investment bases. Contrarian investments may focus on a particular property, sector, geography or location, where an asset’s value is impacted by a lack of transparency, liquidity or other temporary condition. Dune believes that the re-pricing of risk, coupled with a loss of traditional sources of financing, makes contrarian investing a compelling investment theme for the Fund.

Dune has made eight contrarian investments, representing $347.0 million of invested equity. In aggregate, the Firm’s contrarian investments are projected to generate an 11.2% gross, investment-level internal rate of return and a 2.60x gross, investment-level equity multiple. Examples of contrarian investments include, but are not limited to, The Four Seasons Resort Orlando at Walt Disney World® Resort, the Forest Brooke and Wachovia Land Portfolios and the Dune/TDI Portfolio.

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As previously stated, Fund III is targeting $850 million in capital commitments. Dune anticipates that the Fund will be comprised of 15 to 25 investments with individual equity investments ranging from $25 million to $100 million and overall assets and portfolios ranging from $50 million to $300 million in size. The average equity investment for Fund I was $62.1 million, while the average projected equity investment for Fund II is $34.7 million.

Investments will primarily be located in the United States; however, Dune may selectively target opportunities in the European Union. The Team indicated that currency risk is a primary consideration when investing internationally and that only very compelling opportunities would be targeted if currency risk could be effectively hedged. Dune has made an investment in a portfolio of retail assets located in various Western European markets, representing $114.5 million in invested equity and projected invested equity. This investment is projected to generate a 15.6% gross, investment-level internal rate of return and a 1.92x gross, investment-level equity multiple.

Fund III is anticipated to be diversified by property type, including land investments; however, the Team indicated that it may meaningfully overweight property sectors that present compelling investment dynamics. An attribution of investment performance by property type is discussed in the Historical Performance section of this evaluation.

Dune may establish joint venture relationships in connection with the acquisition or development of an asset. Joint venture partners may be existing relationships of the Team, or may be existing borrowers of an over-financed asset that Dune seeks to recapitalize. In the latter case, Dune will only retain the existing borrower if their capabilities are perceived to be additive to the anticipated strategy for the investment. The Team indicated that partnership agreements typically prohibit joint venture partners from making investments within a certain distance of the acquired or developed asset, or from making investments within a certain area without Dune receiving a first look at the opportunity. Within the joint venture relationship, the Team manages structuring, restructuring, financing, recapitalization and sales processes. Dune’s joint venture agreements with partners do not include rights of first offer by the partner or rights of first refusal by the partner, or non-cancelable management agreements with the partner. This allows Dune complete flexibility to sell assets.

The Team will primarily seek to apply non-recourse, debt financing on a property by property basis. Aggregate leverage across all investments is limited to 75% of the cost of all investments. As of December 31, 2012, Dune reported that leverage for Fund I and Fund II was 44.1% and 51.4%, respectively. The peak leverage percentage for Fund I and Fund II was 46.8% and 64.4%, respectively. Finally, Dune may utilize a credit facility that will be $100 million to $150 million in size.

Fund III is subject to certain investment and financing restrictions. Based on Callan’s requests, certain of these limits will be changed in the final documents as noted below:

No more than 20% of aggregate commitments may be invested in a single investment;o Dune will add language to further require that the single investment limit of 20% may only

be reached where Dune has a plan to reduce the size of the investment to 15% of aggregate commitments within six months.

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No more than 30% of aggregate commitments may be invested in a single portfolio holding interests in multiple real estate assets or buildings;

o Similar to the single investment limit test, Dune has agreed to reduce the portfolio level test to no more than 25% in a portfolio investment provided that Dune has a plan to reduce the size of the investment to 20% of aggregate commitments within six months.

No investments may be located outside of North America and the European Union; No more than 30% of aggregate commitments may be invested in investments located in the

European Union; No more than 20% of aggregate commitments may be invested in unentitled, undeveloped land;

o Dune has agreed to reduce the limit to 10%. Leverage may not exceed 75% of the greater of cost or fair market value after the first year of the

investment period; o Dune has agreed to change the test to 75% of cost.

Recourse debt financing may not exceed 50% of the Fund’s net asset value plus unfundedcommitments. This limit includes the credit facility.

Until the Final Close, any test using aggregate commitment amounts will be based on an assumed level of aggregate commitments of $850 million (the targeted final size of the Fund) and after the Final Close, the tests will be based on actual commitments

o Dune has agreed that until the Final Close, the tests will be based on $500 million of commitments.

Strengths of Strategy Fund III will employ a demonstrated investment strategy; the Team has experience acquiring and

managing assets across the investment themes targeted by the Fund. The Team has experience sponsoring and investing real estate funds that compare to the

targeted size of Fund III. Dune retains the flexibility to evaluate a wide range of investment opportunities and may make

single asset or portfolio acquisitions in debt or equity assets. The Team has experience making a variety of investments and the flexibility allows the Firm to identify and pursue opportunities offering the best value.

The strategy capitalizes on the continued dislocation in the real estate markets which is expected to generate a wide opportunity set of deal flow for Fund III.

Issues Considered Fund III will employ a high-risk/high-return opportunistic investment strategy. Opportunistic

investments have a higher propensity to generate realized losses than core real estate investments. Fund III may target development and residential land investments. Both development and land investments exhibit distinct risk profiles relative to existing asset acquisitions.

Fund III does not have an investment-level leverage limitation; the Team indicated that non-recourse, investment-level debt financing on a property by property basis would be targeted. This is consistent with the practice in prior funds.

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Early distressed investments made in 2006 largely underperformed. The Team has since meaningfully invested in distressed situations, which have generated favorable returns to Fund II.

SponsorshipDune Real Estate Partners is registered as an investment advisor under the U.S. Investment Advisers Act of 1940. The Firm was originally founded as Dune Capital Management in 2004 by Mr. Daniel Neidich, Mr. Steven Mnuchin and Mr. Chip Seelig. The Firm was established shortly after Mr. Neidich left Goldman Sachs as a member of the firm’s Management Committee, co-head of the firm’s Merchant Banking Division, Chairman of the Whitehall Investment Committee and founder of the Real Estate Principal Investment Area, which was responsible for Whitehall, Goldman Sachs’ opportunistic real estate platform. Mr. Mnuchin and Mr. Seelig left Soros Fund Management as leaders of certain credit strategies within George Soros’ fund platform to co-found Dune.

Dune Capital Management was formed to provide two distinct investment offerings: Dune Capital Funds was a hedge fund focused on corporate and non-real estate asset-based investments, while Dune Real Estate Funds targeted opportunistic real estate investments. While falling within a combined organization, each business line operated as a distinct entity. At the time, Mr. Mnuchin and Mr. Seelig sat on the Firm’s real estate investment committee. Additionally, the two are investors in Fund I and Fund II. Alternatively, Mr. Neidich sat on the investment committee of the hedge fund. Ahead of the Global Financial Crisis, the hedge fund saw increased redemptions, at which point Mr. Mnuchin and Mr. Seelig decided to wind down the hedge fund platform and pursue other related opportunities. Dune Capital Funds currently operates as a liquidating entity and remaining investment professionals share office space with Dune Real Estate Partners until full resolution. Subsequent to the change, Dune Capital Management effectively transformed into Dune Real Estate Partners with an exclusive focus on opportunistic real estate investing.

Mr. Neidich indicated that the departures of Mr. Mnuchin and Mr. Seelig were amicable and that Dune Real Estate Partners had no residual liability resulting from the winding down of Dune Capital Funds. Mr. Mnuchin and Mr. Seelig would participate in any carried interest earned by Fund I; however, the two retain no other residual interests in the Firm, Fund II or Fund III. In the transition of Dune Capital Management to Dune Real Estate Partners, Mr. Neidich became the sole owner of the standalone Firm.

In 2007, Ms. Cia Buckley joined the Firm from JER Partners, an affiliate of J.E. Robert Companies, where she served as Chief Financial Officer, Head of Asset Management and Head of Acquisitions, before ultimately serving as President of the U.S. Fund Business. In January 2013, a portion of the ownership interests of Dune was transferred to Ms. Buckley to address concerns of succession. Under the broadened ownership structure, Mr. Neidich controls voting rights of the Firm.

Mr. Neidich and Ms. Buckley serve as the leaders of the Firm and are principally responsible for all investments and dispositions. The team of 18 professionals has come together over time as detailed in Figure B.

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Figure B: Dune Real Estate Partners Professionals

Professional TitleYear Joined

FirmYears

ExperienceDaniel M. Neidich Chief Executive Officer, Partner 2004 38

Cia Buckley Chief Investment Officer, Partner, Managing Director 2007 24

Gregory Z. Rush Partner, Managing Director 2005 19David L. Oliner Partner, Managing Director 2009 26Russell L. Gimelstob Partner, Managing Director 2005 11Jonah A. Sonnenborn Managing Director 2005 11Eric Calder Vice President 2009 11Shallene Cua Associate 2010 5David W. Beznos Associate 2011 7Justin T. Leung Analyst 2011 3Darren M. Berk, CPA Chief Financial Officer 2004 18

Michael D. ShermanGeneral Counsel, Chief Compliance Officer 2010 11

Allie O. Sweeney Vice President, Investor Relations 2011 12Jason Goldberg Vice President, Tax 2007 10Matt Israel Fund Controller 2008 16Noah Levine Associate, Compliance 2013 2Alla Chertkova Assistant Controller 2010 10Kaitlin Siehs Accountant 2011 2

The Dune real estate team has experienced turnover as detailed in Figure C. Departures of Dune Capital Funds professionals are not included.

Figure C: Dune Real Estate Partners Departures

Professional TitleYear Left

Firm Reason For DepartureRalph Gaiss Fund Controller 2012 Pursue other opportunities.Ryan Comfort Associate 2011 Pursue other opportunities.Thomas Delezenski Real Estate Controller 2011 Pursue other opportunities.Jeremy Shell Vice President, Investments 2010 Joined family business.Chad Jones Associate, Investments 2010 Business school.Ryan Lally Senior Accounting Officer 2010 Personal reasons.

As the above list indicates no senior-level investment professionals have left the Firm. Dune plans to hire one Analyst focused on portfolio management, acquisitions and performance reporting.

The Team indicated that the Firm’s operating philosophy does not focus on management fee revenue and instead seeks to generate carried interest revenue alongside the performance of the funds; Dune

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recognized that revenues for opportunistic real estate investment managers may be concentrated in certain years and the Team indicated that reserves would be maintained to cover operating losses should they occur.

Dune professionals receive a base salary and a merit-based annual bonus. Partners and certain other professionals participate in the carried interest of the Funds. Carried interest participation is allocated annually over a five-year period based on employee performance and the allocations by professional may vary year to year. These interests vest one year after they are rewarded and Mr. Neidich has the option to buy out professionals’ interests at fair value if they were to leave the Firm. Carried interest is still being allocated for Fund II and has not yet been allocated for Fund III. Fund I is not expected to generate carried interest, while Fund II is projected to do so.

Dune will contribute $20 million to Fund III. Mr. Neidich will contribute $18.5 million and Ms. Buckley will contribute $1.5 million. All Partner-level professionals are expected to contribute directly to the Fund by the final close. These commitments will reduce Mr. Neidich’s initial contribution to the Fund. Dune contributed $50 million to Fund I and $30 million to Fund II; the decline in the sponsor commitment is attributable to the cumulative outstanding investment across the three funds.

Since its founding, Dune has been subject to two lawsuits. The first involved Dune’s acquisition of publicly-traded bonds for Capmark Financial Group. The Team indicated that another bondholder, with interests exceeding $1 billion, was sued in connection with their conversion of unsecured bonds to secured interests; given Dune’s investment in the same bond class, the Firm was pulled into the lawsuit.Dune reported that the costs of on-going litigation were substantial and, given the size of the other bondholder’s interests, a protracted legal battle was expected. As a result, Dune settled the suit. The second lawsuit involved an accidental death on the Hyatt San Francisco property. The Firm was named in the lawsuit; however, the case was resolved through insurance coverage at the property-level.

Strengths of Sponsorship Dune Real Estate Partners is an established investment management organization that is

exclusively focused on opportunistic real estate investing; Mr. Neidich and Ms. Buckley have significant experience building and leading real estate

investment management organizations. Further, the two are backed by a team with substantial real estate investment experience. The team that is anticipated to invest the capital commitments of Fund III is in place.

Senior members of the Firm contribute to the co-investment and receive direct, performance-based compensation to ensure a commitment to the Firm and the Fund.

The Firm has been, and is projected to be, profitable. The Team recognizes the volatility of revenues for opportunistic real estate investment management Firms and plans to maintainreserves to cover operating losses should they occur.

Issues Considered Dune has a smaller asset base relative to other institutional real estate investment management

organizations and exclusively offers opportunistic real estate investment vehicles. Smaller firms

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with less diversified product offerings exhibit increased business risk due to a reliance on fewer strategies; however, as noted above, Dune also has the benefit of focus.

The Firm and the Fund are significantly dependent on the expertise of a small number of professionals, and, on Mr. Neidich in particular. The dependence on Mr. Neidich is partially mitigated by the Fund’s key person provisions, the succession plan, and the experience of other senior level professionals beyond Mr. Neidich. In addition, Callan notes this is a risk in other real estate private equity funds and it is not uncommon, but a risk none the less.

In recent years Dune has been managing assets in excess of its estimated break-even point. Fund III will help provide a greater operating cushion which is a positive; however, the Team will be reliant on raising future funds to cover expenses.

Investment and Portfolio Management ProcessDune’s investment and portfolio management process is driven by senior-level professionals responsible for the life cycle of an investment; Partner- or Managing Director-level professionals actively source, evaluate, manage and sell their respective assets, while incorporating feedback and leveraging insights of the broader Team.

The Team has a demonstrated preference for acquiring assets on an off-market basis and has reported that 22 of the 30 investments made in the two predecessor funds were sourced through an existing network of relationships. Lenders, special servicers, real estate finance companies, hedge funds, opportunity funds, real estate owner/operators and private equity sponsors contribute to Dune’s investment pipeline. Further the Team explicitly noted that prior leadership and senior-level positions held by Mr. Neidich, Ms. Buckley and Mr. Oliner at other organizations have contributed to deal flow.

Investment opportunities are tracked continuously and screened weekly by the investment team to identify and select for further consideration those opportunities that are most appropriate for the Firm’s investment mandate. The evaluation of high-priority opportunities is led by at least one Partner, with the support of one or more Managing Directors, Vice Presidents, Associates or Analysts. The due diligence process incorporates a review of asset operating history, economic and market conditions, pro forma budgets, comparable properties, sources of investment return and return sensitivities, as well as relevant legal, tax and regulatory considerations. Multiple site visits are conducted during this stage of the investment process. All findings for an investment opportunity are memorialized in an investment committee memorandum; however, prior to distribution and presentation to the Investment Committee, the relevant investment team will have consulted with other members of the team for supplementary insights.

Findings of the due diligence process are reported to the Investment Committee (Figure D), where results of the underwriting, deal structuring and financing structuring are discussed. Material changes to the transaction are highlighted and an ultimate investment decision is made with a majority vote and the approval of at least one of Mr. Neidich and Ms. Buckley. Beyond initial investment decisions, Investment Committee approval is also required for key actions, including making non-refundable deposits, negotiating material contracts, financings, major leases, significant capital expenditures and dispositions.

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Figure D: Investment Committee MembersProfessional Voting Member / ObserverDaniel M. Neidich Voting MemberCia Buckley Voting Member

Gregory Z. Rush Voting Member

David L. Oliner Voting Member

Russell L. Gimelstob Voting Member

Jonah A. Sonnenborn Voting Member

Darren M. Berk, CPA Investment Committee Observer

Michael D. Sherman Investment Committee Observer

Allie O. Sweeney Investment Committee Observer

Following the acquisition of an asset, Dune seeks to actively execute its asset management plan. Dune reported that, as a part of the asset management process, it seeks to rectify issues with the asset that may impair value, including, but not limited to: (i) applying the most efficient investment structure; (ii) simplifying encumbered ownership or capital structures; (iii) recapitalizing over-financed assets; (iv) restructuring, repositioning, developing or redeveloping the properties; (v) leasing vacant space; and/or (vi) improving property management staff. Bi-weekly meetings are held to review asset management progress relative to the business plan and to monitor significant asset milestones. Investments are re-underwritten on a quarterly basis alongside a review of the asset’s business plan. The quarterly review process is monitored by the Investment Committee.

The Team typically underwrites an average hold period for an asset of five years; however sales opportunities are evaluated on an on-going basis. Dune seeks to de-risk assets that are acquired for ultimate sale to core-oriented institutional buyers. In its evaluation of sales opportunities, Dune will consider single-asset sales, portfolio sales, recapitalizations, equity and debt securitizations, mergers, negotiated private placements and public offerings.

Dune reported that certain fund- and investment-level functions are outsourced to third-party service providers. These services may include property management, environmental, structural legal, tax and accounting services, as well as investment banking and brokerage services. A third-party fund administrator will provide certain fund administrative and financial reporting services.

Strengths of Investment and Portfolio Management Process Dune has a robust investment process that includes the involvement of all senior-level

professionals. The senior team’s prior experiences contribute to proprietary deal flow and off-market

transactions.

Summary of Terms and ConditionsFigure E provides a summary of principal terms of Dune Real Estate Fund III, L.P. Callan’s comments and negotiated changes to the Fund Terms are noted in italics. Callan has negotiated certain other

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changes to fund terms not shown on this summary and these changes have been discussed with SURS staff.

Figure E: Summary of TermsTarget Fund Size $850 million.Target Return Gross: 18% to 22%;

Net: 15% to 17%.Sponsor Commitment $20 million.Investment Limitations No more than 20% of aggregate commitments may be invested in a

single investment;Dune will add language to further require that the single investment test of 20% may only be used where Dune has a plan to reduce the size of the investment to 15% of aggregate commitments within six months.

No more than 30% of aggregate commitments may be invested in a single portfolio holding interests in multiple real estate assets or buildings; Similar to the single investment limit test, Dune has agreed to reduce the portfolio level test to no more than 25% in a portfolio investments provided that Dune has a plan to reduce the size of the investment to 20% of aggregate commitments within six months.

No investments may be located outside of North America and the European Union;No more than 30% of aggregate commitments may be invested in investments located in the European Union;No more than 20% of aggregate commitments may be invested in unentitled, undeveloped land; andDune has agreed to reduce this limit to no more than 10%. Leverage may not exceed 75% of the greater of cost or fair market value after the first year of the investment period.Dune has agreed to amend the leverage test to no more than 75% of cost.

Minimum Commitment $5 million.Commitment Period Four years from Final Closing. Final Close must occur 18 months from

the First Close. Dune has agreed to a Commitment Period of four years from Feb. 2014

Term Eight years from final closing; two, one-year extensions at the General Partners’ discretion, with consent of the Advisory Committee.Dune has agreed to include a fee proposal in any request for an extension of the Fund Term.

General Partner Replacement

With Cause: 51% Limited Partner vote, in interests;Without Cause: 75% Limited Partner vote, in interests.

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Figure E: Summary of TermsRe-investment Provisions The original capital contributions used to acquire assets that are realized

during the investment period will be added to unfunded commitments.Management Fees 1.5% per annum charged on Commitments during the Investment Period

and on Invested Capital thereafter. First Close Investors receive a 180 day fee break; Second close investors receive a 90 day fee break.Dune has agreed to a 1.25% fee for SURS’ $100 million commitment and for all other investors committing at least $100 million to Fund III.

Distributions Calculated at the investment-level:First, return of capital, including cumulative write-downs and unreturned capital from previously liquidated investments; Next, 9% preferred return;Next, 40% Limited Partner / 60% General Partner split until General Partner receives 20% of total distributions;Next, 80% Limited Partner / 20% General Partner split.

Clawback Yes; Dune will be required to restore capital to meet any shortfall to Limited Partners resulting from the overpayment of carried interest. Dune will reserve 30% of carried interest distributions in a segregated reserve account that will be used for clawback amounts. In addition, each person receiving carry will be required to guaranty its repayment obligation for the clawback. Dune has agreed to increase the amount in the segregated reserve to 35%.

Organizational Expenses $1.5 million.Key Person Provisions Mr. Neidich and Ms. Buckley are the named Key Persons and have

certain time requirements related to the Funds, the GP, and Investment Manager. A breach by either Mr. Neidich or Ms. Buckley during the Commitment Period is a Key Person event with remedies available to investors.

Strengths of Terms and Conditions The terms of the fund include protections for investors including general partner replacement and

key person provisions. In addition, Dune has agreed to tighten certain investment limitations and reduce the management fee.

SURS would be offered a seat on the Advisory Committee in connection with a commitment to Fund III.

Employees of Dune will make a meaningful investment in Fund III, offering a greater alignment of interest with Limited Partners.

Issues Considered Fund III has a relatively long investment period.

14

Exhibit 6


Fund III does not have an investment-level leverage limitation; the Team indicated that non-recourse, investment-level debt financing on a property by property basis would be targeted. This is consistent with the practice in prior funds.

Distributions of profits (carried interest) will be made at the investment level and the team may collect carried interest earlier than if a full portfolio level distribution scheme was in place. This is partially mitigated because the Fund III distribution mechanics account for write-downs,unreturned capital for liquidated investments, and they include a segregated reserve account and personal guarantees that backstop a clawback in the event the general partner receives excess distributions.

Historical PerformanceDune Real Estate Partners has managed two investment funds in the Dune Real Estate Funds series since the founding of the Firm in 2004. In aggregate, Dune has made 30 investments, representing $1.36 billion of invested capital or capital committed for investment. Eight investments have been realized to date and the remaining portfolio represents a net asset value of $1.11 billion, as of December 31, 2012.

Figure F below provides a summary of Dune Real Estate Fund I and Dune Real Estate Fund II. Data for Figure F and all following performance figures is as of December 31, 2012.

Figure F: Fund Summary (in $mm, where applicable)Dune Real

Estate Fund IDune Real

Estate Fund IIVintage Year 2005 2008

# Investments 10 20

# Realized Investments 3 5

Capital Commitments $727.1 $793.9

Called Capital $677.8 $579.4

Distributions $112.0 $112.1

Net Asset Value $472.9 $638.1

Gross Return Objective 18% - 22% 18% - 22%

Net Return Objective 15% - 17% 15% - 17%

Current Leverage 44.1% 51.3%

Peak Leverage 46.8% 64.4%

As the above table indicates, Fund I and Fund II were similar in size and generally fall in line with the anticipated size of Fund III. Fund I was invested ahead of the Global Financial Crisis and the execution of business plans of underlying investments has been protracted. As a result there has been substantial movement in the portfolio’s net asset value and a slower pace of distributions than originally envisioned. Relative to Fund I, Fund II has exhibited an increased pace of realizations, primarily from distressed debt transactions.

15

Exhibit 6


Figure G below provides a breakout of various performance metrics for the two funds.

Figure G: Investment PerformanceDune Real


Estate Fund IIGross, Realized -11.1% / 0.61x 39.7% / 1.53x

Gross, Unrealized 2.6% / 1.12x 31.8% / 1.52x

Gross, Since-Inception -0.5% / 0.98x 32.8% / 1.53x

Net, Since-Inception -3.4% / 0.86x 19.1% / 1.32x

Gross, Projected 4.9% / 1.34x 25.3% / 2.27x

Net, Projected 2.4% / 1.20x 17.9% / 1.90x

While realized and since inception performance has been negative for Fund I, the Team anticipates that relatively strong performance from The Standard Hotel, 56 Leonard Street, The Ace Hotel and McArthurGlen Europe investments will primarily contribute to an overall positive return.

Certain distressed debt investments in Fund II saw quick realizations and exhibit a high internal rate of return and relatively lower investment multiple profile. All remaining investments are expected to approach or exceed the 18% to 22% gross internal rate of return objective of the fund.

Figure H compares certain performance metrics detailed above with comparable funds tracked by the NCREIF Fund Indices.

Figure H: Vintage Year Performance Quartile RankDune Real


Estate Fund IIGross, Since-Inception IRR 3rd 1st

Net, Since-Inception IRR 3rd 1st

Net, Since-Inception Multiple 3rd 1st

Percent Complete 3rd 3rd

Fund I exhibits below median since-inception performance; however, many assets, with specific emphasis on those mentioned that will contribute to overall fund performance, are being stabilized for near-term sales. One exception is Fund I’s investment in 56 Leonard Street, a high-rise luxury condominium development. The Team is currently pre-selling condominium units and proceeds to Fund I are anticipated in 2015 and 2016 as the units are delivered.

Fund II has performed well relative to the peer group on internal rate of return and multiple bases. While Fund II saw quick realizations on select investments, many other opportunistic funds meaningfully acquired unsecured debt from real estate investment trusts and commercial mortgage-backed securities assets that were quickly liquidated. Consequently, Fund II has experienced relatively less asset turnover, accounting for the low percent completion rank. The Team reaffirmed its focus on balancing internal rate of return performance and equity multiple generation.

16

Exhibit 6


Figure I details the marginal internal rate of return projected for Fund I and Fund II using the December 31, 2012 net asset value as an initial investment outflow and projected investment-level cash flows. The purpose of this analysis is to determine whether the anticipated cash flows of the remaining portfolio justify retaining the assets versus selling the assets.

Figure I: Marginal Internal Rate of ReturnDune Real


Estate Fund IIMarginal Internal Rate of Return 17.6% 26.0%

In both cases, retention of the current portfolio is accretive to the performance of Fund I and Fund II and generally falls in line with the original return objectives of the funds.

Figure J and Figure K provide decompositions of gross projected investment-level multiple by type for Fund I and Fund II.

The above charts illustrate that, beyond a return of capital, the majority of projected investment returns for Fund I and Fund II will be derived from residual value growth of the underlying assets. Residual value growth can be highly volatile and may be meaningfully impacted by prevailing real estate, capital markets and economic environments. Non-core funds typically derive a significant portion of their returns from residual value growth.

1.00x 0.08x0.18x 0.07x 0.00x

1.34x

0.00x

0.50x

1.00x

1.50x

Net Contributions OperatingIncome

Value Growth Financing Events Other Total

Figure J: Decomposition of Fund I Investment Multiple

1.00x 0.22x

1.00x 0.04x 0.01x2.27x

0.00x0.50x1.00x1.50x2.00x2.50x

Net Contributions OperatingIncome

Value Growth Financing Events Other Total

Figure K: Decomposition of Fund II Investment Multiple

17

Exhibit 6


Figure L provides an attribution of investment returns by year of investment.

Figure L: Attribution by Investment Year

#Invested

Equity ($mm) IRR MultipleDune Real Estate Fund I2005 2 $86.6 17.7% 2.45x

2006 3 $264.1 -1.8% 0.88x

2007 5 $320.4 5.8% 1.41xDune Real Estate Fund II 2008 1 $57.5 15.9% 1.91x

2009 1 $16.0 37.2% 2.34x

2010 4 $51.9 24.2% 1.45x

2011 11 $459.0 27.5% 2.68x

2012 3 $108.9 22.9% 2.51x

As the above chart illustrates, many of the pre-Global Financial Crisis investments fell below original return objectives, with the exception of Trump Waikiki, an investment made in 2005. The Firm’s other 2005 investment in the development of The Standard Hotel is projected to achieve a 13.8% gross internal rate of return and a 2.16x gross multiple. Fund II’s investments were made during a cyclical downturn and are anticipated to perform in line with objectives.

Figure M below provides an attribution by investment status for the two funds.

Figure M: Attribution by Investment Status

#Invested

Equity ($mm) IRR MultipleDune Real Estate Fund IRealized 3 $168.5 -11.1% 0.61x

Unrealized 7 $502.6 7.8% 1.60xDune Real Estate Fund IIRealized 5 $73.3 39.7% 1.53x

Unrealized 15 $619.9 24.4% 2.60x

Realized performance in Fund I has been impacted by a full loss of investment on Meadowlands Xanadu and a significant loss on an investment in Capmark Financial Group. Trump Waikiki, a $26.7 million investment, represents a positive realized outcome as the investment generated a 25.2% gross internal rate of return and a 3.09x equity multiple. The Standard Hotel, The Ace Hotel, 56 Leonard Street and McArthurGlen Europe largely drive the projected unrealized performance for Fund I.

As discussed previously, early realizations in Fund II exhibit high internal rate of return, low multiple return profiles on a relative basis. All unrealized investments are approaching or exceed the original return objectives of Fund II.

18

Exhibit 6


Figure N details investment performance by senior investment professional. Dune assigns two senior-level professionals to each investment. Accordingly, the following attribution table individually assigns each investment to both professionals and the totals reflect that each investment is double-counted.

Figure N: Attribution by Senior Investment Professional

#Invested

Equity ($mm) IRR MultipleDune Real Estate Fund INeidich 7 $536.4 2.9% 1.21x

Buckley -- -- -- --

Rush 6 $325.2 7.8% 1.50x

Oliner -- -- -- --

Gimelstob 3 $134.7 12.4% 1.87x

Sonnenborn 1 $122.3 9.4% 1.74xDune Real Estate Fund IINeidich 13 $487.9 25.7% 2.57x

Buckley 7 $251.9 26.4% 2.76x

Rush 4 $183.9 21.6% 2.18x

Oliner 7 $203.1 35.1% 2.48x

Gimelstob 9 $259.6 20.8% 2.34x

Sonnenborn -- -- -- --

As detailed in the above table, investment performance from Fund I to Fund II has become more evenly distributed such that in Fund II transactions are relatively evenly spread among the senior-level investment professionals with Mr. Neidich continuing to have an overweight.

Figure O below provides an attribution by investment strategy, as characterized by Dune.

Figure O: Attribution by Investment Strategy

#Invested

Equity ($mm) IRR MultipleDune Real Estate Fund IContrarian Investing 1 $57.0 15.2% 1.75x

Deep Value-Add 3 $208.9 15.1% 2.07x

Distressed 2 $141.8 -38.6% 0.16x

Underperf./Underval. 4 $263.4 4.2% 1.31xDune Real Estate Fund II Contrarian Investing 7 $290.0 23.4% 2.74x

Deep Value-Add 5 $149.6 30.7% 2.61x

Distressed Debt 8 $253.7 25.2% 2.19x

19

Exhibit 6


Distressed investments in Fund I include Meadowlands Xanadu, a repeatedly stalled retail development, and Capmark Financial Group, an operating company formed spun-off from GMAC. Dune will not pursue investments in operating companies such as Capmark Financial Group without a path towards underlying asset ownership. Meadowlands Xanadu resulting in a complete loss of invested equity as Lehman Brothers, a senior construction lender, ceased to fund construction costs ahead of its bankruptcy filing.Dune and other lenders and investors of Meadowlands Xanadu may seek remedies from the Lehman estate for failure to fund construction costs.

Figure P below provides an attribution by region.

Figure P: Attribution by Region

#Invested

Equity ($mm) IRR MultipleDune Real Estate Fund IUnited States 9 $614.1 4.1% 1.29x

Europe (Multiple Countries) 1 $57.0 15.2% 1.75xDune Real Estate Fund IIUnited States 19 $635.7 27.0% 2.79x

Europe (Multiple Countries) 1 $57.5 15.9% 1.91x

Finally, Figure Q provides an attribution by property type.

Figure Q: Attribution by Property Type

#Invested

Equity ($mm) IRR MultipleDune Real Estate Fund ICondo-Hotel 1 $26.7 25.2% 3.09x

For-Sale Residential 1 $122.3 9.4% 1.74x

Hotel 3 $167.9 10.3% 1.80x

Operating Company 3 $223.7 -1.9% 0.87x

Retail 2 $130.5 -3.2% 0.86xDune Real Estate Fund IIHotel 2 $132.9 27.0% 2.83x

Industrial 2 $37.4 30.1% 2.30x

Mixed-Use 3 $115.1 27.6% 2.13x

Multifamily 4 $157.0 20.7% 2.10x

Office 3 $56.8 17.8% 1.50x

Retail 3 $115.5 25.6% 2.50x

Single-Family Residential 3 $78.5 27.7% 3.05x

Dune has performed particularly well in its Condo-Hotel, Hotel and Residential investments across both funds. Alternatively, operating company investments have lagged; the Team indicated that prior operating company investments were minority stakes in franchise or other platforms where Dune lacked

20

Exhibit 6


control. The Team reported a clear aversion for such investments moving forward and stated that operating company investments would only be pursued as a conduit towards the ownership of an asset or a portfolio of assets.

Figures R and S detail the distribution of realized and unrealized returns across both prior funds by number of investments and invested equity, respectively.

As the above figures illustrate, two investments, representing $141.8 million, have generated realized losses to the funds and no unrealized portfolio investments are projected to return less than original invested equity.

The distribution of returns reflect a focus on capital preservation with many investments with returns in the stated return target range for the funds. The distribution of investment returns by number of investments and invested equity does not exhibit a barbell profile as seen with other opportunistic firms. In certain cases, opportunistic real estate managers have made highly successful investments while others generated losses to their funds. Consistency in investment performance, as exhibited in the Dune investment profile, is preferable relative to a wider variability of performance outcomes. The charts also highlight the Firm’s significantly unrealized track record; however, a number of investments are currently being marketed for sale or will be marketed for sale in 2013.

0

2

4

6

8

10

< 0% 0% - 10% 11% - 20% 21% - 30% 31% - 40% 41% - 50% > 50%

Figure R: Distribution of Investment Returns (By # of Investments)

Realized Unrealized

$0.0

$100.0

$200.0

$300.0

$400.0

$500.0

< 0% 0% - 10% 11% - 20% 21% - 30% 31% - 40% 41% - 50% > 50%

Figure S: Distribution of Investment Returns(By Invested Equity, $mm)

Realized Unrealized

21

Exhibit 6


Figure T presents the loss ratio of realized investments and unrealized investments. The loss ratio analysis illustrates the Team’s ability for capital recovery in the event an asset declines in value.

Figure T: Loss Ratio AnalysisFund I Fund II

Unrealized Investments Held Below

Cost

# Investments 2 1Invested Capital ($mm) $159.1 $13.0% of Investments (by #) 20.0% 5.0%% of Investments (by Invested Capital) 25.6% 2.2%Current and Distributed Value ($mm) $74.7 $12.9%Recovery on Current Net Asset Value (%) 46.9% 99.1%

Realized Losses

# Investments 2 --Invested Capital ($mm) $141.8 --

% of Investments (by #) 20.0% --

% of Investments (by Invested Capital) 22.8% --

Distributed Capital ($mm) $17.4 --

Recovery (%) 12.3% --

The two realized losses in Fund I exhibit a low level of recovery and one investment, Meadowlands Xanadu, generated a total loss of invested equity. Two investments in Fund I are currently held below cost; however, both are expected to exceed a return of capital. One investment, 56 Leonard Street, is currently under construction. Fund II has one investment held below cost. The investment, 2600 Michelson, represents a substantially-vacant office building that is in the midst of a capital improvement program. The investment is projected to generate a 16.01% gross, investment-level internal rate of return and a 2.01x gross, investment-level equity multiple.

Strengths of Historical Performance Dune has a demonstrated track record of making opportunistic real estate investments with a

strategy similar to that anticipated for Fund III. Fund II has exhibited top-quartile since inception performance relative to its peer group. The Team’s Condo-Hotel, Hotel and Residential investments have outperformed and have

meaningfully contributed to Fund I and Fund II performance. Based on current net asset value, the projected performance of the remaining investments is

accretive and justifies continued business plan execution. The distribution of investment returns exhibit a pattern of consistency, reflecting a focus on capital

preservation. The distributions do not exhibit a barbell distribution where investment performance is concentrated in both highly outperforming investments and investments that generate losses of invested capital with little in between.

Issues Considered The Team has a limited realized track record; only eight investments have been realized to-date.

Dune reported that a number of investments are being marketed for sale, have received unsolicited offers for sale or will be marketed for sale later this year.

22

Exhibit 6


Since-inception Fund I performance falls in the third quartile of its peer group. Several assets are in the midst of business plan execution and the Team anticipates that Fund I will generate a 2.4% net internal rate of return and a 1.20x net equity multiple.

The Team’s prior operating company investments have lagged. In discussing these investments Dune reported a clear aversion for such investments moving forward and stated that operating company investments would only be pursued as a conduit towards the ownership of an asset or a portfolio of assets. Prior investments were passive, minority stakes in companies with no path to underlying asset ownership.

The Team’s investments to date have been concentrated in the U.S. with one shared investment made by both Fund I and Fund II in Europe. Fund III allows for investment in North America and Europe. The Team has expertise in Europe prior to forming/joining Dune.

Fundraising StatusDune has executed one close to-date with approximately $240 million in capital commitments. A second close is tentatively scheduled for June/July 2013 where another $30 million in already-approved commitments is expected to close. There are another $120 million in soft commitments which may be approved by the second close date and, potentially, SURS’ $100 million commitment. Dune will provide a 90-day fee break for second close participants. No investments have been made on behalf of Fund III; however, the Team has a pipeline of transactions that are actively being considered for the Fund. Dune anticipates starting to make investments subsequent to the second close when it has more capital and certainty around the ultimate Fund size.

Summary and RecommendationCallan recommends that SURS commit $100 million to Dune Real Estate Fund III. Our recommendation to invest in the Fund is based on the following factors:

Fund III will employ a demonstrated investment strategy; the Team has experience acquiring and managing assets across the investment themes targeted for the Fund.

Mr. Neidich and Ms. Buckley have significant experience building and leading real estate investment management organizations. Additionally, prior roles held by Mr. Neidich and Ms. Buckley have contributed to proprietary deal flow and off-market transactions.

Dune is solely owned by its investment professionals and the entire focus of the team is on its series of investment funds. Dune is making a $20 million investment in Fund III with capital from senior members of the Firm who receive direct, performance-based compensation to ensure a commitment to the Firm and the Fund.

Dune has a robust investment process that includes the involvement of all senior-level professionals.

Performance for Fund II has been strong from both an absolute and relative basis. Fund II’s since inception return and projected performance is consistent with its stated return objective. In addition, Dune Real Estate Fund II has exhibited top-quartile since inception performance relative to its peer group. Finally, Fund II’s distributions have begun to increase markedly;

The distribution of investment returns in Fund I and Fund II exhibit a pattern of consistency, reflecting a focus on capital preservation. The distributions do not exhibit a barbell distribution

23

Exhibit 6


where investment performance is concentrated in both highly outperforming investments and investments that generate losses of invested capital with little in between.

The Fund’s structure and terms are reasonable and include enhancements relative to Fund II. Callan has actively negotiated a number of these enhancements as detailed in the Summary of Terms and Conditions of this report, including stricter investment limitations and a reduced management fee of 1.25% for SURS’ $100 million commitment versus 1.50% as originally proposed by Dune. SURS would be offered a seat on the Advisory Committee in connection with a commitment to Fund III; and

A follow-on commitment to the Fund is consistent with SURS’ real estate strategic plan and portfolio objectives as follows:

o The investment would move SURS toward a real estate allocation target of 10% of total plan assets;

o An investment in Fund III would increase private real estate exposure; o The investment is being made in the context of SURS’ broader real estate portfolio which

is well diversified via its REIT portfolio, the three positions in diversified core open end funds and three fund of funds; and

o The pacing model completed by Callan indicates $100 million in required non-core funding for FY 2013.

24

Exhibit 6

Appendix

25

Exhibit 6

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26

Exhibit 6

Nayak

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Professional Biographies Daniel M. Neidich Chief Executive Officer, Partner and Member of the Investment Committee

Prior to founding Dune in 2004, Mr. Neidich was at Goldman Sachs where he was a member of the firm’s Management Committee, co-head of the Merchant Banking Division and Chairman of the Whitehall Investment Committee. Mr. Neidich joined Goldman Sachs in 1978 in the Real Estate Banking Department, where he worked on a broad range of investment banking activities for Goldman Sachs’ corporate and real estate clients. In 1984, Mr. Neidich became a partner of Goldman Sachs and in 1990 he became head of Goldman Sachs’ Real Estate Department. In 1992, Mr. Neidich formed the Real Estate Principal Investment Area, in 1998 he became co-head of the Merchant Banking Division and in 1999 he joined the firm’s Management Committee. In 1991, under Mr. Neidich’s direction, Goldman Sachs raised the first Whitehall fund to invest in real estate opportunities. Under his leadership, the Whitehall Funds raised over $12 billion of total equity and purchased over $50 billion of real estate interests worldwide. In addition to his responsibilities for running Whitehall during his time at Goldman Sachs, Mr. Neidich acted as the senior deal leader for a number of Whitehall’s ground-breaking transactions, including the $1 billion acquisition of CenterMark Properties, the $1.2 billion acquisition of Rockefeller Center Properties and the $5 billion restructuring of Cadillac Fairview Corp. Mr. Neidich is Immediate Past Chairman of the Real Estate Roundtable, former Chairman and current member of the International Advisory Board of the Real Estate Academic Initiative at Harvard University and a member of Columbia Business School’s MBA Real Estate Program Advisory Board. He is a Trustee of the Urban Land Institute and a past Trustee of the International Council of Shopping Centers, as well as a former member of the Board of Governors of the Real Estate Board of New York. Mr. Neidich is a member of the Board of Directors of General American Investors Company, Inc. He is the former Chairman of the Board of Cadillac Fairview Corp. and a former board member of Rockefeller Center Properties Trust, Strategic Hotel Capital, Thomas Property Group and Capmark Financial Group, Inc. Mr. Neidich serves on the boards of Prep for Prep, The Child Mind Institute and is a former member of the Board of Governors of The Nature Conservancy and the Museum of Modern Art. Mr. Neidich received an M.B.A. from Stanford University Graduate School of Business in 1974 and a B.A. from Yale University in 1972.

27

Exhibit 6


Cia Buckley Chief Investment Officer, Partner, Managing Director and Member of the Investment Committee

Prior to joining Dune in 2007, Ms. Buckley was the President of the U.S. Fund Business for JER Partners, an affiliate of the J.E. Robert Companies. Ms. Buckley joined JER in 1997 and held a variety of positions there, including Chief Financial Officer, Head of Asset Management, Head of Acquisitions and most recently, President of the U.S. Fund Business. During her tenure at JER, Ms. Buckley also served on the JER Global Investment Committee, the European Investment Committee, and the JRT Investment Committee. From 1997 to her departure in 2007, Ms. Buckley had management responsibility for the acquisition and asset management of over $6 billion of U.S. investments, including REO assets, development transactions, complex portfolios and real estate operating companies. Before joining JER, Ms. Buckley spent over nine years in the Real Estate Investment Banking Group of Bankers Trust, where she successfully managed acquisitions of over $2 billion in assets, including distressed mortgage portfolios, operating company investments and structured debt investments. Ms. Buckley is a Trustee and member of the Investment Committee of the Urban Land Institute and a member of its Women’s Leadership Initiative. She is a member of the Pension Real Estate Association and also serves as a member of Columbia Business School’s MBA Real Estate Program Advisory Board. Ms. Buckley is a member of Women Executives in Real Estate (“WX”) and was honored as the WX Woman of the Year in 2011. She was also selected by PERE as one of the Top Ten Women in Real Estate Private Equity. Ms. Buckley received an M.B.A. from Columbia University in 1993 and a B.A. from Lafayette College in 1988.

Russell L. Gimelstob Partner, Managing Director and Member of the Investment Committee

Prior to joining Dune in 2005, Mr. Gimelstob was an Analyst in Goldman Sachs’ Real Estate Investment Banking Division from 2003 to 2005, where he focused on commercial real estate lending. Prior to that, Mr. Gimelstob traded commercial mortgage-backed securities in Goldman Sachs’ Fixed Income, Currencies, and Commodities Division from 2002 to 2003. Mr. Gimelstob’s experience includes commercial mortgage-backed securities trading as well as first mortgage and mezzanine debt origination. Mr. Gimelstob received an M.P.A. in 2002 and a B.A. (with Distinction) in 2001 from Cornell University.

28

Exhibit 6


David L. Oliner Partner, Managing Director and Member of the Investment Committee

Prior to joining Dune in 2009, Mr. Oliner was a Managing Director at Morgan Stanley, where he was a senior manager and principal trader in the commercial mortgage trading group. Mr. Oliner joined Morgan Stanley’s Securitized Products group in 1998 as the trader for all principal commercial real estate large loan products. During his 11 years at Morgan Stanley, his management responsibilities included structuring, originating, acquiring, pricing and trading all forms of commercial real estate debt, including commercial mortgage-backed securities. In addition, his responsibilities included all aspects of subordinate debt trading, including deal structuring, sizing and pricing. Total transaction volume for his group during his tenure exceeded $85 billion, including in excess of $9 billion of subordinate debt trading. Before joining Morgan Stanley, Mr. Oliner was at Bankers Trust where he was a senior trader from 1993 to 1998 and business/desk manager from 1996 to 1998 in the sub-performing commercial real estate debt trading business and the floating rate lending/securitization business. His responsibilities at Bankers Trust included managing acquisitions teams, pricing, asset management and portfolio finance. While at Bankers Trust, Mr. Oliner’s team acquired approximately $2 billion in performing/sub-performing loans from federal agencies, U.S. and foreign banks, life insurance companies and other entities. Mr. Oliner received an M.B.A. from the Wharton Business School at the University of Pennsylvania in 1990 and a B.A. from the University of California at Santa Barbara in 1985.

Gregory Z. Rush Partner, Managing Director and Member of the Investment Committee

Prior to joining Dune in 2005, Mr. Rush was an Executive Director in Morgan Stanley’s Real Estate Investment Banking Group, which he joined in 2000. Prior to Morgan Stanley, Mr. Rush spent three years in the Real Estate Investment Banking department of Merrill Lynch. Mr. Rush’s experience includes advising on mergers, acquisitions and restructurings and raising public and private capital for companies in various sectors of the real estate industry including hospitality, retail, office, multifamily, land development and restaurant finance. From 1993 to 1995, Mr. Rush was a financial analyst with Vornado Realty Trust. Mr. Rush has been involved in structuring and executing over $45 billion of real estate and real estate-related advisory and capital markets transactions. Mr. Rush is a Full Member of the Urban Land Institute and the Fisher Center Policy Advisory Board at the University of California Berkeley’s Haas School of Business. Mr. Rush received an M.B.A. (with Distinction) from the Leonard Stern School of Business at New York University in 1997 and a B.A. from the University of Pennsylvania in 1992.

29

Exhibit 6


Jonah A. Sonnenborn Managing Director and Member of the Investment Committee

Prior to joining Dune in 2005, Mr. Sonnenborn was an Analyst in the Technology Group of Goldman Sachs’ Investment Banking Division from 2000 to 2001. Prior to joining Goldman Sachs, Mr. Sonnenborn began as an Analyst in Morgan Stanley’s Real Estate Mergers & Acquisitions Group from 1999 to 2000. Mr. Sonnenborn’s experience includes investment banking and financial and merger advisory services to clients in both the real estate and the technology sectors. Mr. Sonnenborn is a Full Member of the Urban Land Institute, a member of the Real Estate Academic Initiative at Harvard University and a Director of the New York Private Equity Network Real Estate Group. Mr. Sonnenborn received an M.B.A. (Dean’s List) from Columbia University’s Graduate School of Business and a J.D. from Columbia University’s Law School in 2005 where he served as an editor of the Columbia Law Review. He received a B.A. (Magna Cum Laude and Phi Beta Kappa) from Dartmouth College in 1999.

Darren M. Berk Chief Financial Officer and Non-Voting Member of the Investment Committee

Prior to joining Dune in 2004, Mr. Berk was Controller at SFM Capital Management LP, an affiliate of Soros Fund Management LLC. Prior to joining SFM, Mr. Berk was the co-manager of the Fund Accounting Group at Ivy Asset Management Corp., a $14 billion fund of hedge funds investment manager. Before joining Ivy, Mr. Berk worked for Goldman Sachs from 1996 to 2003, where he most recently was manager of the Principal Investment Area Fund Accounting Department, which provided fund accounting support and administration for Goldman Sachs’ Merchant Banking business. Before moving into that position, Mr. Berk was responsible for the accounting and administration of Goldman Sachs’ AAA-rated Derivative Product Company. Mr. Berk transitioned into that role after having been the initial member of the Investment Accounting department responsible for supporting the Asia Special Situations Group distressed fixed income funds, where he was responsible for building an infrastructure that could provide Fund Accounting support for the new group of funds with an investment focus exclusively in Asia. Prior to his employment at Goldman Sachs, Mr. Berk was an auditor with KPMG LLP from 1994 to 1996. Mr. Berk received a B.B.A. (with Distinction) from the University of Michigan in 1994 and is a Certified Public Accountant in the State of New York.

30

Exhibit 6


Michael D. Sherman General Counsel, Chief Compliance Officer and Non-Voting Member of the Investment Committee

Prior to joining Dune in 2010, Mr. Sherman was an Associate at Willkie Farr & Gallagher LLP in the Real Estate Department from 2005 to 2010 and in the Corporate Department from 2003 to 2005, where he advised various clients on joint ventures, restructurings, acquisitions, dispositions, financings and development transactions worldwide across all property sectors. From 1999 to 2000, Mr. Sherman was a Paralegal at Simpson Thacher & Bartlett LLP in the Corporate Department. Mr. Sherman received a J.D. from the University of Pennsylvania Law School in 2003 and a B.S. from Cornell University in 1999.

Allie O. Sweeney Vice President – Investor Relations and Non-Voting Member of the Investment Committee

Prior to joining Dune in 2011, Ms. Sweeney was most recently a Vice President at Goldman Sachs in the Real Estate Principal Investment Area where she focused on acquisitions for the Whitehall family of real estate funds from 1999 to 2008. During her tenure, Ms. Sweeney evaluated, structured and executed acquisitions across real estate sectors, including privatizations, asset portfolios, restructurings, single assets and non-performing loans. Ms. Sweeney was based in New York from 1999 to 2000 and 2004 to 2008, and London from 2000 to 2004. Ms. Sweeney is a member of the Pension Real Estate Association. Ms. Sweeney received a B.Com. (Honours) from Queen’s University in Kingston, Canada in 1999.

Eric Calder Vice President

Prior to joining Dune in 2010, Mr. Calder was a member of Goldman Sachs’ Real Estate Investment Banking Group from 2008 to 2010 where he focused on underwriting and originating commercial real estate loans. From 2002-2006, Mr. Calder was a Principal of Sigma Capital Partners where he was responsible for franchise sales, site selection and lease negotiations. Mr. Calder received an M.B.A. from Columbia University in 2008 and a B.S. from Cornell University in 2000.

Shallene Cua Associate

Prior to joining Dune in 2010, Ms. Cua was with Walton Street Capital from 2006 to 2008, where she was both an Analyst and an Associate. Ms. Cua’s experience includes the acquisition and financing of opportunistic investments for both single-asset and portfolio transactions. Ms. Cua received an M.B.A. from Stanford University Graduate School of Business in 2010 and a B.A. (with Distinction and Phi Beta Kappa) from Stanford University in 2006.

31

Exhibit 6


David W. Beznos Associate

Prior to joining Dune in 2011, Mr. Beznos was a Summer Associate at Dune from May 2010 to August 2010, and prior to that, Mr. Beznos assisted in the founding of the American Land Fund, where he served as a Senior Associate focused on acquisitions and project management from 2005 to 2009. Mr. Beznos’ experience included evaluating potential investments, managing due diligence processes and serving as post-closing project manager for acquired assets. From 2004 to 2005, Mr. Beznos was an Analyst with Lehman Brothers’ Investment Banking Division in the Global Power M&A Group. Mr. Beznos received an M.B.A. from the Wharton Business School at the University of Pennsylvania in 2011 and was a Palmer’s Scholar. Mr. Beznos received a B.S. (Summa Cum Laude) from the Wharton Business School at the University of Pennsylvania in 2004.

Justin T. Leung Analyst

Prior to joining Dune in 2011, Mr. Leung was an Analyst in Morgan Stanley’s Real Estate Division from 2010 to 2011 where he executed financial analysis and due diligence for potential real estate acquisitions. Prior to that, Mr. Leung managed short-term funding and liquidity needs in Morgan Stanley’s Fixed Income Division from 2009 to 2010. Mr. Leung received a B.A. from Columbia University in 2009.

Jason L. Goldberg Vice President – Tax

Prior to joining Dune in 2007, Mr. Goldberg worked at PricewaterhouseCoopers LLP from 2006 to 2007 in the Investment Management Real Estate tax practice as a Tax Manager where he provided tax consulting and compliance services to asset management clients. Prior to joining PricewaterhouseCoopers LLP, Mr. Goldberg worked as a Tax Senior in the Financial Services tax practice at Ernst and Young LLP from 2003 to 2005. Mr. Goldberg received a M.A. in 2002 and a B.A. in 2001 from New Mexico State University.

Matthew J. Israel Fund Controller

Prior to joining Dune in 2008, Mr. Israel was the Director of Investor Reporting at Grove Fund Management from 2007 to 2008 and was responsible for financial valuations, performance reporting and investor reporting. From 2003 to 2007, Mr. Israel served as both Fund Accounting Manager and Finance Associate at AREA Property Partners and was responsible for fund and deal financing. Mr. Israel received a B.B.A (with Distinction) from Baruch College’s Zicklin School of Business in 1996.

32

Exhibit 6


Alla Chertkova Assistant Controller

Prior to joining Dune in 2010, Ms. Chertkova was a Senior Associate at State Street from 2009 to 2010 and was responsible for financial reporting and accounting for private equity real estate funds. From 2006 to 2009, Ms. Chertkova served as a Senior Accountant at Fortress Investment Group LLC where she performed accounting for private equity funds with investments in German real estate. Ms. Chertkova received a B.B.A. from Baruch College of Bernard, CUNY in 2001.

Kaitlin Siehs Staff Accountant

Ms. Siehs joined Dune in a temporary employment role in 2011 and provided cash management and accounting support. Ms. Siehs joined Dune in a permanent role in December 2012 as a member of the Finance Department. Ms. Siehs received a B.A. from Skidmore College in 2010.

Noah J. Levine Compliance Associate

Prior to joining Dune in 2013, Mr. Levine was a Legal Assistant in the Litigation Department at Sullivan and Cromwell LLP from 2006 to 2008, where he assisted with various corporate and securities related legal and regulatory actions. Mr. Levine received a J.D., cum laude from Brooklyn Law School in 2011, and a B.A. from Adelphi University in 2005.

33

Exhibit 6

Fund

Inve

stm

ent

Cou

ntry

/R

egio

nPr

oper

ty T

ype

Cur

rent

Le

vera

ge

Cur

rent

In

vest

ed

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ty

Proj

ecte

d In

vest

ed

Equi

ty

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rent

&

Proj

ecte

d D

istr

ibut

ions

Net

Ass

et

Valu

e

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e In

cept

ion

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ss IR

R

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e In

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ion

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ss

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tiple

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ecte

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ross

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ecte

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ross

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ultip

le

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ump

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kiki

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do-H

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%3.

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----

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eado

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adu

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ail

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nd I

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k Fi

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ial G

roup

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nd I

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ndar

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nard

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tial

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an F

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rs E

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pany

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The

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age

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ta M

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ta F

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Una

vaila

ble

for p

rese

ntat

ion

34

Exhibit 6

Dun

e R

eal E

stat

e Fu

nd I,

L.P

. Per

form

ance

Sna

psho

t (as

of D

ecem

ber 3

1, 2

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m, w

here

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licab

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($40

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00

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Con

tribu

tions

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tribu

tions

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35

Exhibit 6

Dun

e R

eal E

stat

e Fu

nd II

, L.P

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form

ance

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psho

t (as

of D

ecem

ber 3

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et P

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et P

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cted

Mul

tiple

($50

0)$0

$500

$1,0

00

$1,5

00

$2,0

00

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Con

tribu

tions

Dis

tribu

tions

1.00

x0.

22x

1.00

x0.

04x

0.01

x2.

27x

0.00

x

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x

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Net

Con

tribu

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Ope

ratin

g In

com

eV

alue

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wth

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ncin

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vent

sO

ther

Tota

l

36

Exhibit 6

Not

es to

Dun

e R

eal E

stat

e Fu

nd I,

L.P

. and

Dun

e R

eal E

stat

e Fu

nd II

, L.P

. Per

form

ance

Sna

psho

ts

C"V

inta

ge Y

ear P

erfo

rman

ce R

ank"

com

pare

s fu

nd p

erfo

rman

ce re

lativ

e to

sim

ilar-

vint

age

oppo

rtuni

stic

fund

s tra

cked

with

in th

e N

CR

EIF

Fun

d In

dice

s.DP

rope

rty T

ype

and

Geo

grap

hic

Div

ersi

ficat

ion

refle

cts

inve

sted

cap

ital a

nd c

apita

l com

mitt

ed fo

r inv

estm

ent.

F Attr

ibut

ion

by In

vest

men

t Pro

fess

iona

l inc

lude

s cu

rren

t inv

estm

ent p

rofe

ssio

nals

onl

y.

ATh

e hi

stor

ical

and

pro

ject

ed c

ash

flow

s an

d co

rres

pond

ing

perfo

rman

ce m

etric

s re

flect

gro

ss-o

f-fee

s, le

vera

ged,

mon

thly

, inv

estm

ent-l

evel

con

tribu

tions

and

dis

tribu

tions

. Th

e pe

rform

ance

fig

ures

pro

vide

d do

not

inco

rpor

ate

fund

-leve

l exp

ense

s.B"M

argi

nal I

nter

nal R

ate

of R

etur

n" d

escr

ibes

the

proj

ecte

d pe

rform

ance

of D

une

Rea

l Est

ate

Fund

I, L

.P. u

sing

the

12/3

1/20

12 re

porte

d N

et A

sset

Val

ue a

s an

initi

al o

utflo

w fo

llow

ed b

y pr

ojec

ted

inve

stm

ent-l

evel

con

tribu

tions

and

dis

tribu

tions

unt

il fu

ll Fu

nd I

liqui

datio

n. T

he fi

gure

ser

ves

as a

"re-

buy"

ana

lysi

s an

d se

eks

to e

valu

ate

the

appr

opria

tene

ss o

f hol

ding

an

asse

t/por

tfolio

ver

sus

a sa

le o

f the

ass

et/p

ortfo

lio.

ED

une

utili

zes

a te

am-o

rient

ed a

ppro

ach

and

indi

cate

d th

at tw

o se

nior

pro

fess

iona

ls w

ere

resp

onsi

ble

for t

he a

cqui

sitio

n, m

anag

emen

t and

sal

e of

eac

h in

vest

men

t. T

he "A

ttrib

utio

n by

In

vest

men

t Pro

fess

iona

l" tra

cks

inve

stm

ent p

erfo

rman

ce b

y ea

ch in

divi

dual

, irr

espe

ctiv

e of

the

othe

r inv

estm

ent p

rofe

ssio

nal s

ervi

ng a

s co

-lead

of t

he in

vest

men

t. T

here

fore

the

"Attr

ibut

ion

by

Inve

stm

ent P

rofe

ssio

nal"

doub

le-c

ount

s th

e in

vest

men

ts m

ade

on b

ehal

f of t

he fu

nd.

37

Exhibit 6

Documents

State Universities Retirement System of Illinois - SURS 6- 4c Dune RE Partners... · State Universities Retirement System of Illinois ... State Universities Retirement System of