Morgan Stanley Real Estate Advisor Inc

Fees and Compensation
Certain fees described herein are subject to negotiation with investors.
Under the current investment management fee arrangement as set forth in the applicable Amended
and Restated Limited Partnership Agreement of the Fund, as amended (the “Limited Partnership
Agreement”), the Fund pays a management fee comprised of two separate components: (i) the base
management fee (the “Base Fee”) and (ii) the incentive management fee (the “Incentive Fee”). The
Base Fee is determined quarterly and paid in arrears. The effective annual Base Fee ranges from
64 to 84 basis points per annum based on the net asset value (“NAV”) attributable to such Limited
Partner(s). . The Incentive Fee is earned on the basis of the NAV of the Fund and growth of the
net operating income of the investments held by the Fund and ranges between 0 and 25 basis points
of the Fund's average monthly NAV over a calendar year. The Incentive Fee is payable at or
promptly after the end of each calendar year and is equal to the aggregate amount of the Incentive
Fee (including any negative amounts) accrued for each month of the calendar year.
The Adviser will bear its own costs of compensation of officers and employees and related
overhead expenses, except that certain legal, accounting, insurance and other professional costs
and expenses of the Adviser and its affiliates that would be normally provided by outside
professionals may be reimbursed by the Fund.
Furthermore, the Fund may also bear certain out-of-pocket expenses incurred by the Adviser
and/or its affiliates in connection with the services provided to the Fund. The payment of such
expenses by the Fund does not represent a source of profit for the Adviser, but rather is a
reimbursement of actual costs initially paid by the Adviser (or its affiliates) and subsequently
passed through to the Fund. These expenses include but are not limited to (i) certain expenses
(including travel, meals and accommodations), incurred by Morgan Stanley employees in
connection with identifying, negotiating, executing, researching, financing, managing, developing,
disposing or leasing potential or actual investment opportunities for the Fund, (ii) compensation
paid to the independent board of directors, (iii) costs and expenses incurred in connection with
board, the advisory committee or investor meetings; (iv) cost and expenses related to engagement
of third-party consultants, advisers and service providers, (v) costs and expenses related to
insurance policies, (vi) brokerage and other transactions costs including but not limited to custody
fees, (vii) any costs and expenses related to indemnities, contributions, taxes or litigation imposed
on or due by the Fund or its subsidiaries, (viii) costs and expenses related to leasing equity capital;
and (ix) costs and expenses related to Fund administration, accounting and IT services.
In addition, the Adviser may retain Morgan Stanley to provide various investment banking or other
advisory services for the Fund and its portfolio companies and cause the Fund and the portfolio
companies to pay Morgan Stanley customary fees for these services.
Fees and expenses may be deducted from the Fund’s assets as set forth in the Limited Partnership
Agreement.

The Adviser and its affiliates may provide the Fund with certain data processing, legal or insurance
purchasing or administrative services (but excluding accounting services) which would otherwise
be performed for the Fund by third parties and, in such event, the Adviser and its affiliates may be
reimbursed by the Fund at the lesser of (i) the cost of providing such services (including reasonable
employment costs and related overhead allocable thereto) and (ii) the amount that would be
payable by the Fund if services of equal quality were provided by third parties on an arm’s-length
basis, except that such reimbursements will not be permitted with respect to appraisal or valuation
services.
Placement Fees
With respect to the Fund, broker-dealer affiliates of the Adviser act as placement agents in
connection with the placement of the Fund’s interests. In connection with such placements, the
Adviser pays the placement agent certain ongoing fees and the applicable investor may be subject
to certain upfront placement fees.
See also Item 12 relating to certain transaction fees and expenses which may arise from the
brokerage practices of the Fund. Item 12 further describes the factors that the Adviser considers in
selecting or recommending broker-dealers for client transactions and determining the
reasonableness of their compensation (e.g., commissions).
Referral Fees
On rare occasions, affiliates of the Adviser may refer or introduce a counterparty to the Fund in
respect of certain transactions. Such affiliates may receive compensation (e.g., finder’s fee) from
the Fund not from the counterparty. To the extent any compensation is received, such
compensation does not offset or reduce the management fees payable by the Fund and is not
otherwise shared with the Fund unless required by the Governing Documents (as defined below).
Co-Investments
While the Adviser does not currently provide investment advisory services to co-investment
clients, it retains the discretion to do so. The terms of a co-investment applicable to one co-investor
may be different than the terms applicable to another co-investor, including that certain co-
investors may be required to pay management fees while other co-investors (including affiliates
of Morgan Stanley) may not be required to pay such amounts. The Adviser may or may not charge
management fees, administration fees and/or one time funding fees in respect of co-investments,
subject to the terms of any applicable agreements with investors. In addition, Morgan Stanley may,
in certain circumstances, be incentivized to offer certain potential co-investors (including, by way
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– Types of Clients
The Adviser provides portfolio management services to pooled investment vehicles. These pooled
investment vehicles are not subject to registration under the Investment Company Act of 1940, as
amended (the “Investment Company Act”). Generally, the Fund investors are required to invest a
minimum of $10 million, unless otherwise approved by the Adviser.
Membership interests in the Fund can be purchased only by certain eligible investors who are
“accredited investors” as defined in Regulation D under the Securities Act of 1933, as amended,
and “qualified clients” for purposes of Rule 205-3(d)(1) under the Advisers Act, as amended.

       –Methods of Analysis, Investment Strategies and Risk of Loss
Investment Strategies
The investments made by the Adviser on behalf of the Fund are typically in core real estate
opportunities located within the United States, including, among other things, investments in direct
wholly-owned real estate, publicly traded or privately held real estate operating companies,
programmatic joint ventures, real estate and real estate loans (and, subject to certain limitations,
non-real estate loans), multifamily and office developments and real estate-related debt
instruments. The Adviser also causes the Fund to invest cash held by the Fund in temporary
investments (“Temporary Investments”) on a short-term basis pending investment in long-term
equity investments, or payments of indebtedness, or expenses or other obligations of the Fund.
Temporary Investments will principally take the form of U.S. government and U.S. Agency
obligations, bank and bank holding company deposits and certificates of deposits.
The Adviser’s main source of information and investment opportunities are contacts with
employees of Morgan Stanley, a public company listed on the New York Stock Exchange (of
which the Adviser is a wholly-owned subsidiary), contacts with employees of portfolio companies
owned by the Fund, industry executives and established business relationships. Regional
investment teams are responsible for performing due diligence on potential investments. Such
analysis includes underwriting the potential returns and risks for such investments (including legal,
tax, accounting and environmental issues), as well as regularly monitoring the value of such
investments. The regional investment teams assess the impact of various macro and
microeconomic shifts on potential investments and the quality of the underlying real estate-related
investments. Special attention is given to the capacity of said real estate to provide current rental
income, and the ability of the real estate’s surrounding market to sustain growing property values.
Investments recommended by the Adviser in the area of real estate (including real estate-related
securities) will generally be for long-term purchase, with the majority of the returns derived from
income production and an important part of the return on such investments attained through capital
appreciation over the holding periods which may extend in some instances for several years.