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Dear Limited Partner:

As you may be aware by now, CMG Partners, LLC (“CMG”) initiated an unsolicited mini-tender offer (the “Mini-Tender Offer”) to buy up to 250,000, or approximately 1.4%, of the outstanding units of limited partnership interest (the “Units”) of United Development Funding III, L.P., a Delaware limited partnership (the “Fund”), for a price of $12.00 per Unit less any distributions paid by the Fund on or after September 26, 2011. Our general partner first became aware of the offer by CMG on October 3, 2011.  You should be aware that the Fund is not in any way affiliated with CMG, and we believe this offer is not in the best interests of our limited partners.  As a limited partner of the Fund, CMG is entitled to a list of limited partners and has used that list to contact you directly.

Our general partner has carefully evaluated the terms of CMG’s offer and recommends that you reject CMG’s offer and not tender your Units.  We acknowledge that each limited partner must evaluate whether to tender his, her or its Units to CMG pursuant to the Mini-Tender Offer and that an individual limited partner may determine to tender based on, among other things, its individual liquidity needs.

Mini-tender offers are third-party offers to purchase less than 5% of an entity’s outstanding securities, thereby avoiding many of the filing, disclosure and procedural requirements established by the U.S. Securities and Exchange Commission (the “SEC”) to protect investors from certain abuses that may occur in a tender offer. The SEC has warned that mini-tender offers “have been increasingly used to catch investors off guard.”1  In this instance, CMG’s Mini-Tender Offer is significantly below the Fund’s most recent estimated valuation of $20.00 per Unit,2 which is also the price at which these Units were initially offered and that most limited partners initially paid to acquire their Units.  As CMG states in its letter, CMG “believe[s] the Units are worth more than [its] offer price, and [it is] purchasing them with the expectation of a future profit.”  Indeed, CMG points out in its letter that the Fund “has done a good job of managing a challenging business in a very difficult environment” and notes the Fund’s “strength” through its investments in the State of Texas, “which has been resilient vs. the national housing environment.”

Furthermore, we note that CMG’s Mini-Tender Offer is open only until December 15, 2011, Units will be purchased on a “firstcome, first-buy” basis and decisions by limited partners to tender their Units may not be withdrawn after 10 days, all of which may cause limited partners to make hasty decisions without taking adequate time to consider all of the facts relating to the Mini-Tender Offer. Limited partners are urged to consult with their own financial advisor or broker, and to exercise caution with respect to mini-tender offers. Additional information regarding the SEC’s regulatory concerns about mini-tender offers is available at the SEC’s website at

Furthermore, some of the reasons why we strongly believe the Mini-Tender Offer is not in the best interests of the Fund’s limited partners are as follows:

•  Our general partner believes that the offer price is less than the current and potential long-term value of the Units;

•  The Fund believes that the Mini-Tender Offer represents an opportunistic attempt to purchase at a low price and make a profit and, as a result, deprive the limited partners who tender Units in the Mini-Tender Offer of the

potential opportunity to realize the full long-term value of their investment in the Fund;

1 U.S. Securities and Exchange Commission, “Mini-Tender Offers: Tips for Investors,” (modified 01/31/2008).

2 For further information regarding the Funds’ per Unit estimated valuation as of October 22, 2010, pleasee rad the Fund’s Form 8-K filed on October 22, 2010 at