Highest and best use condominium tower and hotel by Adam Greenfader

DEVELOPMENT ANALYSIS HIGHEST AND BEST USE CONDOMINIUM TOWER

ADAM GREENFADER

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Table of Contents The Goal of this Study General Assumptions Market Research Sources 2007 Real estate Snap Shot Key Facts Puerto Rico Facts Census City Economy San Juan Condado Market Area Zoning Parking Unit Configuration SWOT ANALYSIS Highest & Best Use Floor Plans Design Recommendations – Research Design Recommendations – Unit Design Recommendations – The Building Parking Designs Green Building Energy Efficient Mortgages Housing Supply New Condominium Developments Non-Beach Front Beach Front Cond-Hotel Future Projects Projected Target Market Interest Rates Land Values Sensitivity Analysis Price Appreciation Avg. Price Point Apartment Size & Configuration Price Point Sales Price Housing Demand Housing Supply Absorption Rates Conclusion

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Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Goal Of Study: The goal of this study is to determine the most profitable sell out for the proposed project. In order to achieve this goal, the study’s core objective is to establish the highest and best use ,price point parameters and key design criteria for the product. The current competition, past sales, and future projects will also be identified.

A Brief History of the Condado Market Area Condado was named by Thomas O’Dally in 1776. In the mid 1800’s, San Juan was still a rural community. All horse circulation was directed via a single central road - today Ponce de Leon. The Benn brothers owned 148 acres in what today would be called Condado. The Benn brothers decided to develop their farm into a ―residential community park‖ for wealthy San Juan families. By the early 1900’s, the construction had produced over 150 homes, the ―Dos Hermanos‖ bridge, an electric train, a hotel, school, hospital and a large casino park with a movie theater. After World War II, Condado again saw a boom of development giving rise to many luxury hotels and condominiums. In the late 60’s, easy credit led to much speculation and scores of buildings were developed. This caused a glut of supply that lay empty for almost a decade. Today, Condado is formed mainly of medium and high-income single and multi-family residential developments, institutional and commercial uses. Commercial uses include office buildings, retail outlets, restaurants and service shops. This neighborhood is over 70 years old and over 90% built-up.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Condado photo of projects under construction and under development

In terms of access, major roads serving the subject’s neighborhood include the Muñoz Rivera, Ponce de León, and Fernández Juncos avenues running from east to west along the south section of the neighborhood as well as the Baldorioty de Castro Expressway (State Road No. 26) and the Loiza and Ashford Avenues at the north section. These are two and one-way corridors. The Muñoz Rivera Avenue runs from east to west (in both directions) and constitutes the southern boundary line of the defined neighborhood. The Ponce de León Avenue runs from east to west heading into the Old San Juan Isle at the south section of the neighborhood. The Fernández Juncos Avenue runs from west to east also at the neighborhood’s south section. These last two corridors have been the most important of the Santurce southern section defining its urban development and contour along the years. An important corridor is the Baldorioty de Castro Expressway running in both directions from east to west and dividing Santurce into its South and North sections. The North section’s main corridors include the Loiza and Ashford Avenues, both running in both directions from East to West. Other important avenues cross the neighborhood from North to South, some in both directions and others in one-way mode. Among them are the San Jorge, Del Parque, José De Diego, R.H. Todd and Condado Avenues. The subject property lies along Ashford Avenue at the mid section of the neighborhood.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

In terms of linkages, the Old San Juan Isle is less than half mile to the West. San Juan’s Central Business District (CBD) (i.e., Hato Rey Golden Mile) is approximately half a mile southeast of the subject neighborhood’s southern boundary. A number of the finest beachfront hotels in San Juan lie at the North section of Santurce along Ashford Avenue. Many of the area’s hotels are currently under renovation including the Condado Plaza Hotel, Normandie Hotel, Vanderbilt Hotel, La Concha Hotel, and Ambassador Hotel. The bulk of these renovations are to be completed by the end of 2008-10. The list of residential projects scheduled for completion, or about to begin construction, reflects Condado’s continuing allure as ―San Juan’s prime residential area,‖ in the words of architect Tom Marvel, who designed a zoning plan for the area in the 1980’s. ―Condado is an urban neighborhood and it’s going to be more and more urban as we go on,‖ said Marvel. Demand in Condado is being fueled by; a) the continuing desire of the well-heeled to live in the area; b) the influx of people from other parts of the island who like to have a pied-à-terre in the capital city; c) the gradual reduction in available land. One example of this conspicuous consumption in Condado is the Bristol on Ashford Avenue where the penthouse was sold to rapper Daddy Yankee for an alleged $7 million. Condado continues to boast some of the best health care and hospitals in the city. Just recently ―Sistema de Salud Metropolitano‖ (SSM) purchased three Pavía hospitals—in Condado, Mayagüez and Hato Rey. According to the company, Pavía will keep the San Jorge Children’s Hospital and is expected to announce an acquisition where it will install a long-term acute care center. The Government sector has also been very active in the last couple of years via the Transportation Department’s $23 million, four-and-a-half-year effort to build a permanent Dos Hermanos Bridge. Tomás Montalvo, the agency’s assistant executive director for infrastructure, said the bridge has been redesigned and all but one key permit, that of the U.S. Army Corps of Engineers, is missing. PRASA (Puerto Rico Water and Sewer Authority) also recently began a $17.4 million project to expand the capacity of the sewer system serving both Condado and the northern part of Miramar. In announcing the project, AAA Vice President Andrés García said, ―It was designed to end the problems of sanitary overflows in Condado and will substantially improve the flow of used waters from Condado and parts of Miramar to the treatment plant in Puerto Nuevo through a bigger pipeline.‖ The municipality of San Juan, is also about to embark on a $1.4 million project to rebuild the sidewalks along Ashford Avenue, starting from Dos Hermanos Bridge to Ashford Presbyterian Hospital.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Condo-Hotels In the U.S., sales of condo-hotels climbed 21.4% during 2004 to $7.87 billion, according to a study of the U.S. vacation ownership industry conducted by the American Economic Group. The study also found the number of owners increased by 16.2%, bringing the total number of U.S. owners to 3.87 million. Even after 9/11, this sector of the industry has been seeing consistent double-digit growth. Local real-estate industry leaders say the local growing trend toward purchasing recreational properties is a smaller-scale reflection of what has been happening on the U.S. mainland, where across the country, previously ignored communities are being transformed by a boom in secondhome purchases. In both, the surge has picked up speed in the past five years and is being fueled by both demographics and low-interest loans. The condo-hotel concept arrived in Puerto Rico as early as the 1970’s with Palmas del Mar. The Palmas del Mar condo-hotel project failed due to the severe economic downturn caused by the oil crisis. In the 1990’s, the condo-hotel model was resuscitated with Las Casitas at the El Conquistador Hotel. Las Casitas I and II have been very successful and now set the standard for time share in Puerto Rico. As a consequence of the Las Casitas success, there is a new surge in developments in the San Juan metropolitan area that have incorporated condo-hotels into their plans.

Paseo Caribe Condo-Hotel Project

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

The Caribe Hilton’s Paseo Caribe project launched a massive condo-hotel trend in San Juan with its 168-unit Condado Lagoon development. Once the Paseo Caribe development project is complete, Caribe Hilton Hotel will become the largest resort in San Juan with a total 812 rooms. The Paseo Caribe project will also include 185,000 SF retail /entertainment center. The area will have retail shops, restaurants, commercial establishments and a board walk. The project’s developer is Lema Developers & Associates S.A., whose president is Arturo Madero. FirstBank is providing the more than $150 million predevelopment and construction financing for Paseo Caribe and also will offer permanent financing. In addition to the Paseo Caribe project, the Condado Duo, that includes the La Concha and the Vanderbilt projects, will both respectively be adding significant condo-hotel units to their projects. In fact, the newly built condo-hotel components will contribute more overall rooms to the combined inventory than the non-condo renovated structures. While in the case of La Concha, 235 (52%) of its 483 rooms will be in its condo-hotel tower, 248 (72%) of the Vanderbilt’s 341 rooms will be condo-hotel units spread across two towers. According to the developer, without their respective condo-hotel components, neither the Vanderbilt nor La Concha would have available the necessary cash flow necessary to finance their remodeling and new construction Like in Paseo Caribe, sales of the condo-hotel units appear to be strong. Not due to be completed until mid-to-late 2008, some 140 units at La Concha Tower have already been sold. Soon thereafter, the Vanderbilt Hotel will open with its standard hotel rooms in its remodeled structure, which will be flanked by two condo-hotel towers. Puerto Rico Tourism Co. (PRTC), The Tourism Development Act The Tourism Development Act (TDA) was enacted in 1993 by the local Legislature to create incentives for the tourism industry. Figures from the Office of Economic Studies & Analysis of the Government Development Bank show the value of construction permits nearly tripled between 1993 and 2004, registering an increase of some 192%. During that time, visitor arrivals rose 31% and their expenditures almost doubled, increasing 99%, according to PRTC data. Through the TDA, condo-hotel unit owners receive a 90% tax exemption on revenue generated by the residence and a 90% tax exemption on property taxes and a 100% exemption on excise and municipal taxes. Unit owners are also eligible to receive an investment tax credit equal to of 10% of the purchase price of the unit (including furnishings) or one-half of the cash down payment of the unit whichever is the lesser. The owner of the unit agrees to make his/her unit available to a rental pool, which the hotel management rents out as a standard hotel room. In turn, revenue generated by the unit as a hotel room is shared between the owner of the unit and the hotel’s ownership.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

The Site Physical Characteristics According to the subject’s legal description, the subject site lies at the Condado Sector of the Santurce Ward of San Juan. Neighborhood boundaries are as follows: North: South: East: West:

Atlantic Ocean State Road No. 1 (Muñoz Rivera Expressway) Corozos Lagoon & Carolina Municipality Isla Grande Sector & Old San Juan Isle

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Arial photograph of site (top View)

Arial photograph of site (Top beach View)

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Zoning The proposed project has two zoning districts residential tourism (RT) and commercial (C). There are two applicable zoning laws that apply to the proposed development. 1) The Planning Board of Puerto Rico approved on the 7th of June 1986, a special zoning law for the Condado Ward known by its acronym as RZEC. 2) On March 13th 2003, the Municipality of San Juan adopted an increased density ordinance, subsection 1.06. The purpose of the zoning law is to increase height, density and total buildable area. The law, however, has been stifled by the recent land planning regulation (Plan de Ordenación Territorial) of the Planning Board of Puerto Rico which negates density increases.

Unit Amount The zoning law states that the total amount of (3-bedroom) apartments or basic living units a project can build must be equivalent to each 100 meters of lot area and ½ of the corresponding street. The proposed development has a total of 84 apartments. This represents a 3.57% increase in unit density. This increase in unit density is negligible and will not affect the marketability of the development. Buildable Area The zoning law in Condado states that the total buildable area is 50% for residential developments and 85% for commercial properties. The proposed project is requesting a total of 4,521 SM or a variance of 1,297 M2. The buildable area variance is principally a result of the significant parking facility that is being developed in the project. The facility will provide ample parking spaces for the proposed development, adjacent hotel, commercial facilities and retail. More importantly, the parking structure will be available for public use and will help alleviate the spill-over parking problems currently plaguing the neighborhood. This increase in buildable area will not affect the marketability of the development.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Total Construction The total construction area for commercial (CT) zoning is 510% of the lot area and 350% for residential (R). This additional construction area is consistent with larger residential units currently in the Condado market area. The market in Condado is amongst the most expensive in all of Puerto Rico and consequently unit size expectations are high. The residential units in Condado are on average 28% larger than those of the surrounding communities of Isla Verde and Santurce. The proposed unit sizes are competitive with current market conditions and will not adversely affect market conditions. Building height Building height in the Condado Ward is determined by calculating interior and exterior heights in relation to the street width. The proposed project has been designed with large street setbacks. The building height is thus not perceived as intrusive from the ground level. The Federal Aviation Authority (FAA) has also stated that building heights in the Condado Ward do not negatively impact the flight patters of the airplanes. The additional building height will not have an adverse affect on the marketability of the project. Unit Configurations The proposed project will have a total of 84 apartments with 2 & 3 bedrooms. The majority of the units will be one story.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

View of Ashford Avenue in front of Site (looking west)

View of Ashford Avenue in front of Site (looking east)

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

View of beach at end of street (looking east)

View of Beach at end of street (looking west)

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Highest and Best Use The site is currently improved with a surface parking lot. The present improvements do not conform to the siteâ&#x20AC;&#x2122;s highest and best use. Furthermore, they do not contribute to the overall property value. The land value, based on its highest and best use, less the estimated demolition and clearing costs, is higher than the property value under the current use. The highest and best use of a property must meet four criteria: legally permissible, physically possible, financially feasible, and maximally productive. 1. Legally permissible: The subject site is located in a Residential (R) and Commercial Tourist (CT) district. Allowed uses include retail, office, tourist oriented uses and multi-family residential. Since there is a strong Real Estate market for high density multifamily residential properties, the ideal improvements at the site would conform to the maximum parameters allowed by the zoning district, the approved development permits, and market standards. Thus, any project that conforms to the following uses should have the legal attributes to obtain final government permits. 2. Physically Possible: The previously described physical characteristics of the proposed site including, size, shape, topography, flooding, access and soil conditions suits the development of the site for high density urban use. 3. Financially Feasible: Demand for high density residential uses within the Condado Ward is evidenced by the large development and absorption of multi-family residential complexes during the last several decades. Thus, it can be inferred that the development of the site for high density residential purposes is financially feasible. 4. Maximally productive: In terms of profitability, since high density residential development is the only legally permissible, physically possible, and financially feasible use, it must therefore bring the highest return to the land. The client intends to redevelop the site into a 30 story mixed use condominium including 8,363 SF of commercial use, 84 residential units, 255 residential parking, and 500 commercial parking spaces. The proposed improvements as describe earlier in this report are functional and consistent with the highest and best use of the site. The development of the site for high density residential use is concluded to be the highest and best use of the site.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Design Recommendations: Research In today’s economy, the need to differentiate one’s product cannot be over-emphasized. Product differentiation, through unique, forward- thinking design will allow the proposed project to become a vibrant condominium community and surpass market expectations. Below you will find our design recommendations. These design recommendations are the result of many years of investigation in both the local market and abroad. This analysis has been conducted through questionnaires, focus groups, buyer surveys, and field explorations. Even more important, the majority of data has been obtained by actual buyers who evaluate real market alternatives and have actually taken the decision to buy a new home. Good design recommendations are always based on a series of competing values; what is the maximum amount of benefits that a project can deliver to a consumer…without reducing the absorption rate due to increased costs. This conundrum is best resolved by providing the maximum amount of those elements that are perceived as most valuable while limiting investment in all other areas. Perhaps the greatest finding revealed is that high net worth individuals in Puerto Rico define luxury as “hassle free living.” Contrary to the status quo, the luxury consumer wants their luxury apartments ready to move-in! 90%

79%

80% 70% 60% 50% 40% 30% 16%

20% 10%

0% Shell Condition

Puerto Rico Standard

Ready to Move

In Puerto Rico however, most developers continue to deliver new product with a ―take it or leave it‖ attitude. This includes floor tiles, counter tops, and sanitary equipment. In the case of air

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

conditioning, many condominium projects don’t even include standard units. In today’s competitive market, the status quo needs to be re-evaluated. There is a clear trend towards increasing services or ―soft construction.‖ The luxury consumer is seeking a support system for his/her everyday needs that go beyond the brick and mortar. Below you will note a chart with top services desired in a resort community.

Concierge 8% Golf 7% Spa 17%

Apartment cleaning 18%

Resort Facililties 7%

Tennis memb 3% In room Dinning 21%

24/7 Security 8% Valet Parking 11%

It is interesting to note, that the majority of services requested are for personal support such as in-room dining, apartment cleaning, and spa. Personal support services can be divided into pay per use and those that come as a standard package paid each month with the HOA fees. The Puerto Rican consumer is also demanding increasingly superior finishings. This includes luxury kitchens cabinets, counters, floor tiles, and brands such as Viking, Kohler, and Moen.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Below you will find a chart with the key finishings a luxury consumer desires:

Granite 16%

Floor Tiles 18%

Security Windows 16% Interior wood 12%

Wall Tiles 4%

Kitchen Cabinets 20%

Bathroom equipment 14%

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Design Recommendations: Unit Following is a list of key design features and amenities: Sheer Windows Floor to ceiling sheer windows provide great luminosity and are standard in most new buildings. These windows are hurricane proof and often have double glazed UV coatings that reduce heat and energy loss.

Sheer Windows Photo

Higher Ceilings There is a clear trend in the design of luxury condominium units for higher ceilings heights. Ceiling heights today are a minimum of 9 feet and can average from 10-11 feet. The additional heights are of greatest perceived value when located in the master bedroom and the livingdinning room. Open Areas Popular interior design today can be characterized by large open areas. These open areas create view corridors. The view corridors are marketed as ―pass-throughs.‖ Ideally, a resident can see from one end of the apartment to another.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

In many of the units, the master bedroom opens directly to the living & dining room. The master bath in many projects is not divided by walls but rather glass. Please see the below illustration of this open space.

There is a trend to eliminate bedrooms in order to provide larger master rooms, baths, and living area. For example, many of the 1 bedroom (plus den) models today are 1,300 S.F., a size is normally relegated to a two bedroom unit. Additional Bathrooms In many of the more luxurious products the bathroom to bed ratio is increasing. For example, renowned architect Richard Meier in his Beach House project in Miami, Florida, designs a one bedroom unit with 2.5 baths.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Half bathroom with centralized location: It is important that a guest bathroom be convenient for guests to access. A half-bath can easily fit in the same space as a laundry area, pantry, or closet, and can add great value to the unit’s efficiency and livability. Multiple Entrances Although not required in by the Puerto Rican building code, multiple entrances add a significant amount of flexibility to an apartment. In the below noted floor plan, the den has its own entrance and bath. This room can be easily separated from the unit as a home office, service room, or room for the mother in law.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Downstairs Storage Closets Storage closets that are located outside the confines of the apartment are becoming increasingly popular. These closets provide storage for items such as bikes, beach paraphernalia, and other recreational objects. In some projects, storage rooms with air conditioning are provided, ideal for wine cellars, fine art rooms, and other personal items that require safe keeping. Walk-In Closets As people continue to collect more and more ―stuff‖, walk-in closets are becoming an increasingly important design feature. This is particularly true for the second/third bedrooms that are often are used as ―other master bedrooms.‖ 2nd Master Bedrooms Other master bedrooms, (whereby each partner sleeps alone) is becoming a trend. This bedroom is usually equal in size to the principal bedroom. Central Air Conditioning Various focus group studies conducted by AXYON in the past years in Puerto Rico have revealed that high net worth clients do not want to be bothered with the installation of air conditioning. As can be noted in the below graph taken from a sample of 65 clients for apartments of $1,500,000+ or more, only 5% wanted to install their own air conditioning units. Interestingly, in Puerto Rico, this is not a standard feature. Central air conditioning however, may be provided as an additional option.

60% 50%

53% 42%

40% 30% 20% 5%

10% 0%

Split Cantral My Own units all A/C room

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Large Medicine Cabinets Large medicine cabinets in the bathroom allow a resident to store a myriad of hygienic products available today. As people get older, they often have more need to store vitamins, medicines and other health related goods. Some of the more modern cabinets measure 5’ by 3’. Note: A unique feature observed commonly requested is a heater in the cabinet mirror that stops the mirror from ―fogging-up‖ after-shower. Also, self closing kitchen cabinets have generated strong appeal. Multiple accesses to balconies: Multiple accesses to the balcony allow greater convenience and circulation throughout the apartment. Balconies usually fall into three distinct categories: 1. Old San Juan – decorative only with a width of approximately 6‖-18‖ 2. Chair Only – used for chairs facing outward only with a width of 2.5’-5.5’ 3. Sitting & Table – used for tables that can sit 4 people with a width of 6.5’ to 9’. Apartments should have balconies that can accommodate both a table and multiple chairs. This creates a usable exterior area. The proposed balconies are more than adequate. Under cabinet lighting Kitchen cabinets should include lighting. The lighting should be both under the cabinets for cooking efficiency and inside glass doors for aesthetic beauty. This is an inexpensive feature that adds much value to a key sales area. Front Door: The entrance to each unit is another very important feature that affects the buyer’s perceived value. The front door is the threshold to ones living space and speaks to what should be expected of the interior. The use of double doors provides a more elegant entranceway, at a relatively low cost in the development process. Also, doors with beveled/molded features, elegant door-handles, knockers, or windows provide added value to this very important element of the unit’s exterior.

Window placement in rooms: The ideal window placement involves: a) positioning for views, ventilation, and light for each room and b) positioning for furniture. It is very important to position the windows in a manner so as to take advantage of views, cross-ventilation, and lighting. However, window placement must also offer the most options for furniture arrangement. Space Distribution: The three (3) major issues regarding interior distribution of space are:

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

1) Area of the master bedroom 2) Area of the living room/dining room space 3) Area of the kitchen (and family room space)

MINIMUM SQUARE FOOTAGE Master bedroom: 16’ x 13’ Living room/dining room: 21’ x 12’ Kitchen: 11’ x 12’ Balcony/ terrace: 10’ x 6’ IDEAL/ RECOMMENDED SQUARE FOOTAGE Master bedroom: 18’ x 13’ Living room/dining room: 24’ x 14’ Kitchen: 12’ x 15’ Balcony/ terrace: 14’ x 7’ Living Areas Table

Intelligent Technology Home Systems: The up-scale home market is currently using the ―Intelli-home‖ system. These smart buildings have technological advances, from security to entertainment. Some of these advances include fingerprint key systems, 24 hour video, all access home entertainment, automatic lighting systems, etc. One company in particular, Cimex, has an integrated computer system that allows the homeowner to control all electrical, A/C, and appliances functions via the internet. The music and camera component seems to be the most widely used feature and should be preinstalled in apartments.

Ceramic tiles: The typical floor covering in apartments for many years was 12’ x 12’ ceramic Italian tile. However, in luxury products there is a trend toward larger (16’ x 16’ +) marble or equivalent tiles. The use of large tiles increases both the real and perceived value of the development. Laundry location: There seems to be a split between laundry locations—either close to the kitchen or in its own room adjacent to the bedroom space of the unit. While either location is satisfactory, it should not compromise the kitchen size. _____________________________________________________________________ 23 Axyon Advanced Solutions For Real Estate Development All Rights Reserved ®

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Storage: Storage, storage, and more storage is the hot button for today’s consumer. Today’s buyer needs a place to put their stuff. Today, ―COSTCO Incorporated‖ has revolutionized the way people shop. Food quantities have become industrial in size. Consequently, apartments must also have super sized storage area, particularly in the kitchen. The storage should be ample both inside the apartment and outside. Many projects in Condado such as Bahia Plaza offer residents secure storage areas for bikes, recreational equipment, beach furniture, etc. Plaza Stella offers large air conditioned storage units that are perfect for fine art, wine, and other delicate items.

Docking Station Closets Modern homes have cellular phones, computers, i-pods, digital cameras, etc. All require daily charging. Many new homes are including a docking station closet. This special closet has several small compartments 6‖ x 6‖ each with its own electrical plug. The closet can be closed to hide unsightly cables and devices.

Design Recommendations: The Building Front Entrance: “Curb Appeal” The front entrance or ―curb appeal‖ of any building is incredibly important to its marketability. The proposed project should invest a considerable amount in the development of this frontage.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

This area will also act as a buffer between the proposed development and the busy Ashford Avenue. Concierge The concierge service is of primary importance in a condominium projects. This service provides residents with 24 hours of support. This includes, but is not limited to, dry cleaning pick-up, ticket reservations, catering, and child care. Recreational facilities The decision to build elaborate recreational facilities must be counter-balanced with the cost of maintaining the facilities during the sales period and after delivery. Prospective buyers will typically be enthralled with a project’s amenities during the option period only to find later that the cost of said facilities is prohibitively expensive. It is thus best to specifically target the recreational facilities to a specific market (do not attempt to be all things to all people). The proposed project’s target market will most likely consist of baby boomers. Baby boomers are generally active and health conscious. They tend to limit their participation in high impact sports. The recreational facilities can therefore be more focused on passive recreation such as yoga, meditation, leisure swimming, and spa. It is important to remember that Condado is one of the few pedestrian friendly locations in Puerto Rico; with an array of vast recreational resources all within walking distance. The recreational facilities should include (space permitting) a uniquely designed swimming pool integrated with a Jacuzzi and ―kiddy pool‖, gazebos, children’s play areas, and some form of exercise path for walking/jogging. In addition to these standard recreational amenities, we suggest the construction of a ―community center‖/multi-purpose facility that could be used as a meeting place, conference center, day care facility, and screening room. The screening room should be large enough to accommodate 20-30 first class sofa chairs for viewing sporting events and movies. The community recreational facilities should have multiple access points and be centrally clustered. Ideally, the facilities should be located in an area that will not disturb the residents in the units above and offer plenty of security for its users.

Security: Security continues to be the #1 concern of clients seeking a new home or apartment. The market standard is to use controlled access gates and a manned guard station. Our recommendation is to use 24 hour security personnel, keyed elevators, car parking sensors with digital imprints, cameras in all public areas, and retina scans.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Color-scheme The use of different colors to accent building features or to differentiate floors has key sales benefits. By varying the colors of the building façade, one can cultivate a specific identity to each zone. This color variation can have a dramatic effect on a person’s mood, orientation, and sense of well being. Today, many projects are employing spa consultants to help establish relaxing color schemes. Scent The smell of a building can have a dramatic impact on a person’s perception of the space. Today, there are several companies that have developed scent machines that emit pleasant odors throughout a building’s common area. Also, particular attention should be paid to using local plants and flowers from the Caribbean such as Gardenias and ―Azuzenas.‖

Parking Designs The ownership of designated parking spaces is the industry standard in Puerto Rico. The spaces are identified in the sales deed of each apartment. The parking spaces are usually covered, in a fixed location, and have no secure storage. The parkings can either be side-by-side or double loaded. The parking to bedroom ratio is usually two (2) parking spaces for three (3) bedrooms. For luxury condominiums, the standard is three (3) parking spaces for three (3) bedrooms. Parking Hot Buttons: There are several parking hot buttons; easy access to elevator, security for car and person, identifiable parking spot, easy vehicular circulation from entrance to parking space, ample space between vehicles, no columns to impede door opening, adequate ceiling height for SUV’s, ample guest parking, separation of parking between residential and commercial uses. Parking Objections: Various studies have revealed that not having adequate parking, trouble finding a parking space, having other building resident’s park in your space, infringement from other uses (commercial/retail), infringement by guests parking, and security to vehicle and person are the principal objections. Parking Sales: Today, there is a trend of flexible parking sales. Parking spaces are being sold independent from the residential unit. Average price of parking spaces can range from $18,000-$30,000 in the Condado area. Some homeowners associations have created a legal infrastructure to manage a rental parking pool for seasonal use.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Green Parking Innovations: Some Green buildings in the U.S. Mainland lease cars for residents as part of the amenities of the building. This can be either in the form of a ride share program, independent rental, or private limousine service. Perhaps some type of strategic alliance can be formed with the neighboring Hertz for the benefit of the future residents. Parking Technology: In addition to the valet, many buildings are starting to use digital technology; a) the use of digital footprints allows for identification of residentsâ&#x20AC;&#x2122; vehicles at the ingress/egress. This eliminates the need for costly security guards, beepers and cards. Similarly, digit systems are being used to identify the location of available parking spaces upon entering a parking facility. As a car enters a parking facility, an exact floor and parking number is digitally presented to the driver. Valet parking: Valet parking is uncommon in older buildings in Puerto Rico. However, valet is increasing in popularity in new construction. Some buildings are offering valet parking during peak hours. This creates a luxury amenity and facilitates other desired services such as cleaning and minor maintenance. Below is a recent study of parking preferences based on high net worth individuals in Puerto Rico.*

60%

53%

50% 40% 26%

30% 21% 20% 10% 0% Self Parking

Combination

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Housing Supply Housing supply can be defined as the sum of all units currently on the market for sale. For the purposes of this study, we have defined supply as those new units that are currently under construction with similar characteristics as location, unit quantity, building type and price. The supply of those units that are under construction can provide a very good basis of comparison for the proposed project in such areas as price offering, amenities, finishings, and quantity of units. The analysis of housing supply of units under construction, however, has some limitations. The principal limitation is that usually there is a large span of time from when a project is in the entitlement process to the time it will actually close. In this time span, most of the inventory that is currently on the market should have cycled through its natural sales course and be depleted. Hence, when the proposed project comes on-line, there will be a new set of competitors with different housing supply characteristics. Thus, for the purposes of reviewing housing supply, it is also important to investigate those future projects that might come on the market. The housing supply of future projects however, is difficult to gauge; many developments will never obtain construction permits, developers are notoriously secretive about divulging product information, data is spurious, and changes in plans are common due to unforeseen development issues. Thus, while data of future projects is important to evaluate, it is often incomplete and subject to change. Nonetheless, we have investigated projects with similar characteristics, location, and unit configurations that are projected to come on line in the next 18-36 months. For the purposes of this study, we have employed a hybrid of the sales comparison approach used by appraisers to evaluate the housing supply. The sales comparison approach is based on a set of procedures in which value is derived by comparing the proposed project with similar properties. The properties are analyzed in terms of location, square footage, amenities, and other items that a prospective client deems valuable. While there is no exact science to determine which item will have more ―perceived‖ value for the consumer, a project’s location will overwhelmingly carry more weight in the analysis. For example, a beach front unit in Condado, although smaller in size, will usually be deemed more valuable than an apartment with no beach views, all things being equal.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Three Competing Choices Once a consumer has decided to purchase a new apartment, the final decision will be based on the best of three competing choices; to purchase a previously owned condominium, build a new condominium, or acquire a new condominium. 1. Previously-owned condominiums: A typical condominium buyer will investigate the previously owned condominiums as part of his/her purchasing decision. The Condado market offers a vast array previously owned condominiums. The condominiums vary greatly in age and size. These units can offer many benefits for the consumer such as price discounts, ample supply, large room dimensions, beach front locations, etc. Also, previously owned condominiums often include appliances, air conditioning units, and other items that are not typically found in new projects. From 2002-2007, the prices of previously owned condominiums (average age 22 years) in Condado ranged from $175,000 to over $2,000,000. The average luxury unit (2,000 SF +) had an average price of approximately $786,000. The average unit size was 3 bedrooms, 2.8 baths and 2 parkings. For more information on previously owned condominiums please refer to the enclosed addendum named Previously Owned Condominiums.‖ 2. Owner-Built Homes: A new homeowner may opt to build his/her own home instead of purchasing a home from a developer. Owner-built condominiums, however, require special expertise and financing. It is not economically feasible for a home buyer to undertake such a large venture. Thus, in the Condado market, the owner built condominium is not a competitor. 3. New Condominium Developments: Many consumers are not willing to sacrifice the peace of mind that comes from owning something new. Owning a new condominium can often take precedence over better locations, large unit size, or price. One of the principal reasons that a consumer chooses a new home product is because of the construction warrantees. In Puerto Rico, New condominiums have construction warrantees. The construction warrantees are regulated by the Consumer Affairs Department (D.A.C.O acronym in Spanish). The construction warrantees provide up to 2 years of protection. This includes but not limited to windows, floors, kitchen cabinets, etc. The construction warrantees also provide the buyer long term security (10 years) if the building or home is found to be in ―demolition condition‖.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

New Condominium Development There is currently a surge of new condominium developments in Condado. Today, the supply of new products is ample and the amount of new construction activity is significant. The new condominium development supply in the Condado market area can be divided into three main categories: Non-Beach Front, Beach Front, and Condo-Hotel. I. Non-Beach Front Condominiums: Non-Beach front does not have direct access to the beach, even though the project may have some views of the ocean. There are currently 6 projects that can be classified as non-beach front condominiums in our market area. The average price of non-beach front condominium units is approximately $1,300,000. The price per square foot is approximately $476. The typical non-beach front apartment has three (3) bedrooms and three (3) bathrooms and 2,750 square feet. II. Beach Front Condominiums: A Beach Front Condominium can access the beach directly from the project and has unobstructed views of the ocean. There are currently 4 projects that can be classified as beach front condominiums in our market area. The average price of a beach front condominium projects is approximately $1,700,000. The price per square foot is approximately $580. The typical beach front condominium has two point five (2.5) bedrooms and three (3) bath rooms and 2,875 square feet. III. Cond-Hotel Condominiums: A Condo-Hotel project is associated with a hotel rental program and enjoys special tax incentives. There are currently 3 projects that can be classified as Condo-Hotel Condominiums in our market area. The average price of a beach front condominium projects is approximately $550,000. The price per square foot is approximately $820. The typical beach front condominium has one point five (1.5) bedrooms and two (2) bath rooms and 627 square feet.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

There are a total of 13 new condominium projects in the Condado Market place. The average price of the condominiums is $1,100,000. The average price per square foot is approximately $626 with 2,084 square feet. Below you can see a chart with the projects sales price.

New Construction: Condominiums Sales Price

Gallery Plaza

$2,500,000

Luchetti 1212 Portal Del Condado

$2,000,000

Venetian Tower Cosmopolitan

$1,500,000

Oceanica

$1,000,000

Laguna Plaza Aquamarina

$500,000

La Concha Tower Caribe Tower

Sales Price

Bahia Plaza Vanderbilt Towers

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

When viewing the same 13 condominium projects in the Condado Market by price per S.F., one can notice a significantly higher price in the beach front condominiums and the condo-hotel products. The average price of the condominiums is approximately $576. Below you can see a chart with the sales price per S.F.

New Construction: Condominiums Price Per SF

$900

Gallery Plaza

$800

Luchetti 1212

$700

Portal Del Condado

$600

Venetian Tower Cosmopolitan

$500

Oceanica

$400

Laguna Plaza

$300

Aquamarina

$200

La Concha Tower

$100

Caribe Tower Bahia Plaza

$0 Price Per SF

Vanderbilt Towers

Below you will find a map with the new projects. Also included are future projects. The future projects will be discussed later in this report.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Non–Beach Front Gallery Plaza (Condado), De Diego. Ave., Mixed Use Condominium, $595,000, 2-3 Bedrooms, 2 baths, 2 parkings, 1,458 S.F., $408 S.F., 218 units, 175 Sold, Firstbank, Delivery 2007, Swiss Chalets Inc. Gallery Plaza is located on De Diego Avenue and Loiza Street in Condado. It is approximately 5 minutes from the proposed site and several blocks from the beach. Gallery Plaza consists of two residential towers, retail and restaurant space. The residential towers consist of 218 apartments, offices, and 650 parking spaces. The buildings will have lofts, one bedroom and two bedroom units. Gallery Plaza’s primary target market is ―empty nesters‖ that seek small unit configurations and lots of services. The recreational amenities will be divided into private and public spaces. The private spaces include a butterfly-shaped pool on the fifth floor, a large pool deck, Jacuzzi, vast lobby areas with entertainment rooms, library, and billiards, etc.

Drawing of Gallery Plaza

The public space will include a 15,000 S.F. day spa and gym. The day spa and gym will be leased to a franchise health company and will offer world class amenities. The residents of Gallery Plaza will be able to use the day spa with a discounted membership. On the ground floor, there will be five restaurants. The restaurants will offer meal services to the residents’ apartments. Gallery Plaza will have valet parking as well as concierge service.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

In addition to the residential towers at Gallery Plaza, Swiss Chalet Inc., the parent company of Hotel Pierre and Gallery Plaza is planning to invest more than $300 million to renovate the entire city block between De Diego Avenue and Wilson Street. Plans call for a more upscale Pueblo supermarket to be a main retail tenant at a new tower planned for the plot of land where the supermarket now stands.

Gallery Plaza Building façade (September 2007)

Gallery Plaza View from Penthouse (September 2007)

Similarly, the Hotel Pierre is undergoing a complete remodeling and re-flagging by the end of 2007. The combined projects of Swiss Chalet and Pueblo also include demolishing the old Bell, Book & Candle bookstore all the way to the former key shop on De Diego Avenue. Gallery Plaza’s location is inferior to the proposed project and will not be competition.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Luchetti 1212(Condado), Luchetti Ave, Condominium, $965,000, 2-3 Bedrooms, 2.5 baths, 3 parkings, 2,429 S.F., $397 S.F., 19 units, 6 Sold, Banco Popular, Delivery 2007, Starlight Development Group. Luchetti 1212 is located in Condado on Luchetti Street. The project is located within 5 minutes of the proposed project. Luchetti consists of 19 apartments. The apartments have two and three (2/3) bedrooms with two and a half (2.5) bathrooms. They have an average size of 2,429 SF. The construction activity is in final stages and deliveries are projected for 2007. Sales have been reported to be at 30%. Luchetti 1212’s location is inferior to the proposed site and will not be competition.

Luchetti 1212 Building Façade

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Portal de Condado (Condado), Wilson St., Condominium, $899,000, 3 Bedrooms, 2.5 baths, 2 parkings, 2,029 S.F., $443 S.F., 14 units, 3 Sold, WesternBank, Delivery 2007, FJ Construction. Portal de Condado is located in Condado on Wilson Street. The project is located within 5 minutes of the proposed project. Portal de Condado consists of 14 apartments. The apartments have three (3) bedrooms with two and a half (2.5) bathrooms. They have an average size of 2,029 SF. The construction activity is in final stages and deliveries are projected for 2007. Portal de Condado’s location is inferior to the proposed site and will not be competition.

Portal de Condado Photograph

Venetian Tower (Condado), Rodriguez Serra St., Condominium, $1,700,000, 3 Bedrooms, 3.5 baths, 3 parkings, 3,324 S.F., $511 S.F., 10 units, 8 Sold, RG Premier Bank, Delivery 2008, Prime Properties.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Venetian Tower is located in Condado on Rodriguez Serra St. The project is located within 5 minutes of the proposed project. Venetian Tower consists of 10 apartments. The apartments have three (3) bedrooms with three and a half (3.5) bathrooms. They have an average size of 3,324 SF. The construction activity is in final stages and deliveries are projected for the 1Q of 2008. Venetian Tower’s location is equivalent to the proposed site and is competition with the proposed project.

Venetian Tower Photograph

Cosmopolitan (Miramar), Ave. Ponce de Leon, Condominium, $1,600,000, 3 Bedrooms, 3.5 baths, 3 parkings, 3,066 S.F., $522 S.F., 63 units, 32 Sold, Banco Popular, Delivery 2009, Interlink.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Cosmopolitan is located in Miramar on Ponce De Leon Ave. The project is located within 10 minutes of the proposed project. Miramar, while not in the Condado Ward, has many similar demographic and physical characteristics. The Cosmopolitan project in particular is being developed by Interlink. The Interlink Development Group is one of the island’s most reputable development firms. The Cosmopolitan is exemplary of the group’s dedication to high quality projects. It consists of 63 apartments. The apartments have three (3) bedrooms with three and a half (3.5) bathrooms with an average size of 3,066 SF. The construction activity is just commencing and deliveries are projected for the 3rd Quarter of 2009. Venetian Tower’s location is inferior to the proposed site because of the lack of pedestrian friendly amenities and will not be competition with the proposed project.

Cosmopolitan Rendering Facade

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Beach Front Condominiums Oceanica (Condado), Naim St., Condominium, $2,400,000, 2-4 Bedrooms, 3 baths, 3 parkings, 3,900 S.F. & 4,200 S.F., $571 S.F., 13 units, 9 Sold, Doral Bank, Delivery 2007, Ivan Tort Development. Oceanica is located at the end of Naim St. in Condado. It is approximately one minute from the proposed project. Oceanica is located on the beach and is walking distance to St. John’s school. Oceanica was designed by Lucas Cambó Architects. The building will have high end finishings as well as concierge, high speed elevators, an electrical generator and water cistern. Oceanica consists of 13 apartments. The apartments have two and three (2 & 3) bedrooms with three (3) bathrooms and an average size of 4,000 SF. The construction activity is in its final stages and deliveries are projected for the 4th quarter of 2007. According to the developer, the project is 69% sold. Oceanica’s location is superior to the proposed project and is competition.

Oceanica Building

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Oceanica Kitchen Detail

Oceanica Master Bathroom Detail

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Caribe Plaza (Condado), Caribe Hilton, Condo-Hotel, $2,100,000, 4 Bedrooms, 3.5 baths, 3 parkings, 3,800 S.F., $553 S.F., 46 units, 46 Sold, Firstbank, Delivery 2007, Lema Development. Caribe Plaza is a 46 –unit condominium residential tower at Paseo Caribe residential complex. The project is currently delivering units. According to the developer Caribe Plaza has closed 15 units and has another 20 optioned. Project amenities include controlled access, private lobbies, gym with sauna, and swimming pool with whirlpool, restrooms, and storage area. Additional amenities include closed circuit TV intercom and key controlled elevators.

Caribe Plaza Lobby

The typical units have construction areas ranging from 3,748 to 3,985 SF, and an interior layout that includes four (4) bedrooms and four and a half (4.5) bathrooms. The penthouse units have a GLA’s ranging from 6,291 to 7,945 SF and five (5) bedrooms. Construction quality and finishings are excellent. Each typical unit will have three (3) covered parking spaces.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

The following table summarizes the current sales data from the above noted project.

Typical units

Penthouse

Price $1,535,000 $1,898,000

SF 3,748 3,985

Price / SF $409 $476

$3,005,000 $3,660,000

6,291 7,945

$477 $460

View of Caribe Plaza from Street

Caribe Plaza Rendering

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Laguna Plaza (Condado), Caribe Hilton, Condominium, $1,566,000, 3 Bedrooms, 2.5 baths, 2 parkings, 2,700 S.F., $550 S.F., 33 units, 17 Sold, Firstbank, Delivery 2008, Lema Development.

Laguna Plaza is a 34 unit condominium residential tower at the Paseo Caribe residential complex. The project is currently under construction and sales have been reported as very strong. Project amenities include controlled access, private lobbies, gym with sauna, and swimming pool with whirlpool, restrooms, and storage area. Additional amenities include closed circuit TV intercom and key controlled elevators.

Laguna Plaza Site

The typical units have construction areas ranging from 2,747 to 3,718 SF, and an interior layout that includes three (3) bedrooms and two and a half (2.5) bathrooms. The penthouse units range from 3,324 to 4,055 SF with three/four (3 & 4) bedrooms. Construction quality and finishings are excellent. Each typical unit will have three (3) covered parking spaces.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

The following table summarizes the current sales data of units optioned from the above noted project.

Typical units

Penthouse

Price $1,421,000 $1,519,000

SF 2,747 2,768

Price / SF $517 $548

$1,977,000 $2,749,000

3,454 4,225

$572 $650

The following table summarizes the current asking prices as of October 15, 2007, from the above noted project.

Unit Unit A Unit B Unit C

Price $2,253,000 $2,390,000 $2,338,000

SF 2,747 2,747 2,757

Price / SF $820 $870 $848

Laguna Plaza View From Street

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Laguna Plaza as seen from Caribe Plaza

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Laguna Plaza Floor Plan

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Aquamarine (Condado), 1315 Ashford Ave., Condominium, $1,755,000, 2-4 Bedrooms, 2-4 baths, 2 parkings, 1,400-2,700 S.F., $650 S.F., 47 units, 41 Sold, Scotiabank, Delivery 2007, Aquamarina Development Corp. Aqua Marina is a 14 story residential condominium in Condado at 1315 Ashford Avenue. The project is adjacent to the Marriott Hotel and approximately 1 minute from the proposed project. Aqua Marina is beach front and is walking distance to the Presbyterian Hospital, major restaurants, schools, and other retail facilities. The project should come on line by the beginning of 2008. The typical units have construction areas ranging from 1,450 to 5,828 SF, and an interior layout that includes three (3) and four (4) bedrooms and two and a half (2.5) bathrooms. The penthouse units range from 3,764 to 6,541 SF and four/five (4 & 5) bedrooms. Construction quality and finishings are excellent. Each typical unit will have three (3) covered parking spaces. The following table summarizes the current sales data from the above noted project. Units Typical units

Price

$746,000 $2,600,000

Penthouse

$2,920,000 $3,850,000

1,438 3,764

$518 $690

5,828 6,541

Aquamarina Construction October 2007

Price / SF

$501 $588

Aquamarina Rendering

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Aquamarina Floor plan

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Bahia Plaza (Condado), Caribe Hilton, $1,334,000, 2-3 Bedrooms, 2 baths, 2 parkings, 2,300 S.F., $580 S.F., 34 units, 17 Sold, Firstbank, Delivery 2008, Lema Development. Bahia Plaza is a 34 unit condominium residential tower at the Paseo Caribe residential complex. The project is currently in beginning construction. According to the developer Bahia Plaza is 50% pre-sold. Project amenities include controlled access, private lobbies, gym with sauna, and swimming pool with whirlpool, restrooms, and storage area. Additional amenities include closed circuit TV intercom and key controlled elevators.

Bahia Plaza Site View

There are a total of 9 different unit models. The units have construction areas ranging from 2,300 to 2,900 SF, and an interior layout that includes two (2) and three (3) bedrooms with two bathrooms. The floor plans are typified by very large great rooms that range from 400650 SF. Construction quality and finishings are excellent. Each typical unit will have three (2) covered parking spaces.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Construction of Bahia Plaza October 2007

The following table summarizes the current asking prices from the above noted project.

Model Model 3 Model 4 Model 6 Model 9

Floor Price 8th 7th 8th 8th

$1,672,000 $1,800,750 $1,834,000 $2,100,000

SF 2,389 2,626 2,513 2,600

Price / SF $699 $685 $729 $807

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Bahia Plaza Building Foot Print

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Bahia Plaza Floor Plan

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Condo-Hotel Condominiums Condado Lagoon Villas (Condado), Caribe Hilton 1/1; 1/2; 2/2, 461 to 1,069 SQFT, $456,200 - $726,800.

The Condado Lagoon Villas project is located on the edge of Condado, approximately 10 minutes from the proposed site. The project is part of the Caribe Hilton Hotel. The Condado Lagoon Villas project launched a massive condo-hotel trend in San Juan with its 168-unit Condado Lagoon development. The project includes commercial, retail and residential units. The units range from studios to two bedroom units.

Condado Lagoon Villas

Once the Paseo Caribe development project is complete, Caribe Hilton Hotel will become the largest resorts in San Juan with a total of 812 rooms.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Construction view of 1st phase Condado Lagoon Villas

The Paseo Caribe project will also include 185,000 SF of retail including an entertainment center. The area will have retail shops, restaurants, commercial establishments and a board walk.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

La Concha Tower (Condado), Ashford Ave., Condo-Hotel, $450,000, 1 Bedrooms, 1 baths, valet parking, 680 S.F., $662 S.F., 235 units, 143 Sold, Scotiabank, Delivery 2009, Hugh Andrews Development. The Concha Hotel is located in the heart of Condado, approximately 3 minutes from the proposed site. The location of the hotels is AAA. The project is beach front. The development has been mired in controversy (and delays) since the onset. Closed in 1997, La Concha has been under renovation since January 2004. The Condo tower, which will have 235 suites, will not be ready until the end of 2009. It will reopen under Marriott International’s Renaissance brand. The Marriott International reservation system will start taking reservations soon, according to Hugh Andrews, president of International Hospitality Enterprises Inc. (IHE). Setting an official date for the reopening of La Concha is contingent on completing the three stories that make up the base of its adjoining condo-tower, which will hold the casino on the first floor and parking for the hotel. The Concha Hotel is part of a larger hotel complex IHE is developing: It includes the renovation of the neighboring Condado Vanderbilt Hotel and two luxury all-suite wings. In all, the $300 million project will contribute an additional 788 guest rooms and suites to San Juan’s hotel room inventory.

La Concha illustration

According to Hugh Andrews, La Concha’s condo-hotel units have sold for $750 per square foot, with unit prices ranging from $450,000 to $800,000. La Concha’s condo hotel units must enter into a compulsory 36-month revenue-sharing agreement with the hotel, which is renewable.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Hugh Andrews has the units are being marketed exclusively to the Puerto Rican market because of the unique tax incentives island residents receive thanks to the 1993 Tourism Development Act.

La Concha Construction October 2007

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Below you will find a table with the investment analysis for the condo-hotel. According to the developer occupancy is projected at 85%. The Marketing fees at 25% and FF & E expenses at 4%. The revenue splits are 45% for the Hotel and 55% for the owner of the unit.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Vanderbilt Tower (Condado), Ashford Ave., Condo-Hotel, $600,000, 1 Bedrooms, 1 baths, valet , 741-1014 S.F., $810 S.F., 212 units, 75 Sold, RG Premier Bank, Delivery 2010, Hugh Andrews Development. The Vanderbilt Hotel is located in the heart of Condado, approximately 3 minutes from the proposed site. In 1919 Fredrick William Vanderbilt built The Vanderbuilt Hotel as an icon to luxury and society life. The location of the Vanderbilt is prime Condado. The project is both beach front and walking distance to the best restaurants, retail, and other commercial establishments in neighborhood. Today the hotel and adjoining towers are being designed by renowned architect, Tom Marvel. The Vanderbilt Hotel will have 93 guest rooms, two restaurants, 428 parking, and meeting rooms. The Condado Vanderbilt Towers will consist of approximately 100 studio units and 112 onebedroom suites with ocean and city views.

Vanderbilt Hotel October 2007

Vanderbilt Hotel Illustration

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Below you will find a table with the investment analysis for the condo-hotel. According to the developer occupancy is projected at 65%. The Marketing fees at 10% and FF & E expenses at 4%. The revenue splits are 45% for the Hotel and 55% for the owner of the unit.

Future Projects

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

In addition to current supply, there are approximately thirty (30) condominium projects in Condado or 522 units that that are in the process of starting construction in the next 12-36 months. These projects are all at different stages of the entitlement process. As noted previously, the housing supply of future projects is difficult to gauge; many developments will never obtain construction permits, developers are notoriously secretive about divulging product information, data is spurious, and changes in plans are common due to unforeseen development issues. Thus, while data of future projects is important to evaluate, it is often incomplete and subject to change.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Below you will find a map with the projects that are under construction and some of those that are potential future supply. _____________________________________________________________________ 64 Axyon Advanced Solutions For Real Estate Development All Rights Reserved ÂŽ

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Regency Condado Center & Laguna Del Mar Plaza (Condado), Ashford Ave., Mixed Use Condominium, 65 units, Delivery 2010. The largest project slated for Condado is the $215 million Regency Condado Center and Laguna Del Mar Plaza. The project is being developed by the Cacho Group. The Cacho Group expects to start working on the project by the summer of 2008. According to Roberto Cacho, construction will probably take one year to complete the Regency and two years for the Laguna Plaza. Together, the mixed-use development will contribute 1,500 parking spots to the area plus 133 luxury apartments. The Regency hotel will be redone into a luxury, all-suite boutique condo-hotel. Plans are to turn the shuttered property’s 130 guest rooms into 75 condo suites. Laguna del Mar, to be built on the two-acre parking lot next door to the Ajili Mójili Restaurant on Ashford Avenue, will have 8,400 square feet of retail space, 65 residential apartments (1,600 SF - 2,100 SF) and seven (7) stories of parking.

Parking Lot of the Regency Hotel (Looking West)

According to Cacho, the retail space will be divided among two restaurants and two luxury retail stores. Cacho indicated WesternBank is providing financing for both projects, while an unspecified, New York-based venture capital firm has signed on as a minority investor. Laguna Del Mar’s location is better than the proposed project and will be competition.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Britannia (Condado), Magdalena. Ave., Mixed Use Condominium, $1,850,000, 3 Bedrooms, 3.5 baths, 3 parkings, 3,200 S.F., $408 S.F., 34 units, Delivery 2010. Britannia is located on Magdalena Ave. It is approximately one minute from the proposed project. Britannia’s location is not beach front and some of the higher level apartments should have ocean views. The project has not commenced construction and recently began its pre-sales. Britannia was designed by LRA Architects as a high end luxury product. The building will have high end finishings as well as concierge, valet parking, high speed elevators, and self storage units (5’ x 5’ and 10’ x 10’). The building will have a total of 150 parking spaces, an electrical generator, and a 47,000 gallon water cistern. Each residence is approximately 3,200 SF - 3 bedrooms and 3.5 bath rooms. Each apartment will have central air conditioning in the master bedroom and in the living/dining room. The units will also have a Smart Home System. Although strong in construction finishings, Britannia’s location is inferior to the proposed project. However, if Britannia is able to obtain financing, it will be competition for the proposed project.

Britannia Site (looking at Marriot Parking Lot) October 2007

The Majestic (Condado), Ashford Ave. & Earle St. Mixed Use Condominium, 34 units.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

In December of 2007, an ―Anteproyecto‖ building approval was granted for a site located on Earl Street and Ashford Ave. It is rumored that Raul Betancourt has optioned the land to a 3 rd party and that title still has not been transferred. The site is approximately 3,000 m2 or 30,000 square feet. The building approval is for 34 residential units, 16,000 SQFT of retail space and 248 parking spaces. The site is approximately 2 minutes from the proposed project. The Majestic site is beach front. It is better than the proposed project. The site in the center of Condado and within easy walking distance to most major hotels, restaurants, retail stores, etc. The majestic will be competition for the proposed project.

The Majestic Site (Top View of Abandoned Yellow Building)

Montilla-López Project (Condado), De Diego Ave & Loiza Street Mixed Use Condominium, 50 units.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Across from Galley Plaza, Montilla-López is planning to build a 30-story tower. The tower will be built on the northeast corner of Loiza Street and De Diego Avenue. The project will include 50 residential units of approximately 2,800 square feet each. The tower will also include approximately 500 parking spaces and about 20,000 square feet of retail and commercial area. The 1,214-square-meter parcel of land on which this project will be located was sold in June 2005 for $4,870,480 at a price of $4,010 per square meter.

Montilla-López Project Site View From Gallery Plaza

1112 Magdalena (Condado), Magdalena St. Condominium, 13 units.

1112 Magdalena Site

1112 Magdalena will be built on a plot adjacent to the restaurant José José, which is currently being used as a parking lot. The 13-story building will feature one 2,700 square-foot apartment per floor and will average $1.2 million per unit.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Luchetti Park Condominiums ( Condado), Luchetti St.

Luchetti Park Site

Luchetti Park is located approximately 2 minutes from the proposed project. The project is not beach front. No construction activity is evident. The location is inferior to the proposed site. Ronni Jarabo Parcel #1 (Ocean Park), Pacific Street.

Ronnie Jarabo Site

According to government records, Mr. Ronnie Jarabo owns two beach front parcels in Ocean Park. The first is located on Pacific Street. The site is approximately 5 minutes from the proposed project. The site has approximately 1,500 M2. It is currently being used as a construction storage area. The site is equal or better than the proposed project.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Ronni Jarabo Parcel #2 (Ocean Park), Yardley Place.

Ronnie Jarabo Site

The second parcel is located on Yardley Place St in Ocean Park. It is located in front of the beach as is approximately 5 minutes from the proposed project. The building is located in RT3- residential tourist zoning, which does not permit more than 9 meters (approx. 27 feet) of maximum building height. Developer: Patricia Villamil (Ocean Park), Atlantic Place

Patricia Villamil in 1999 acquired 3 contiguous beach properties for 3.5 million dollars. The project is beach front, between Atlantic St. and Yale Place St. The properties were joined in 2001, and presented to the Puerto Rico Planning board as an 8 story condominium building. The residents of ocean Park objected to the development and the developer had to withdraw the project. Today, the project is being re-designed Today the above pictured house has been demolished.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Case # 2002-18-0751-JPU, (ARPE # 03xj2-cet00-05829)-(Puntas Las Marias), Street Condominium, 116 Apartments.

Jupiter

Jupiter Street Site

The proposed project’s name is Lebron Developers Point View Development. The land is zoned RT4/CT1 and consists of 1.39 Cds. (5,474 m2). The proposed project will consist of 19 floors and 116 apts. The units will have 3/2 bath – 1,500 SQFT. There will be 1commercial floor (12,105 SQFT), 2 office floors (40,000 SQFT), and 5 floors of Parking (32,646 SQFT per floor), for a total of 500 parking spaces. The project’s total investment is estimated at 19.5 million. “Princesa Del Mar”(Puntas Las Marias), Villa Internacional Street

Princesa Del Mar Site

The project formerly known as Princesa Del Mar consists of 3.9 Acres. The development was under construction and was stopped in the late 1990’s by residents claiming the project impeded the Maritime limit (―Linea Maritima‖). Today the project is still in litigation and awaiting status as to its construction permits.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Developer: Joel Katz (Isla Verde), Isla Verde Ave.

Joel Katz Site

Developer Joel Katz acquired two properties in Isla Verde Ave. for $700,000. He is planning to develop the lots into luxury condominiums. 58 units were submitted to the planning board. Construction should commence in January 2008.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Price Appreciation Below you will find a price appreciation graph. The graph was created using from data obtained by Luis Abreu Sales Reports 2002-2007.*

$900,000 $800,000 $700,000 $600,000

New Condominiums

$500,000 $400,000 $300,000

Previously Owned Condominiums

$200,000 $100,000 $0 2002

2003

2004

2005

2006

2007

Price Appreciation Graph

From 2002 to 2005 we can notice a steady appreciation of new condominiums and previously owned condominiums. New Condominiums appreciated an average of 8.7%, while previously owned condominiums averaged 7% per year. In 2006 new condominiums registered a slight increase of only 2% while previously owned condominiums also registered a slight increase of 1%. For the year 2007, the data is still inconclusive but appreciation levels should be equal to the previous year or less.

* The Luis Abreu Sales Reports 2002-2007 compiles its data from many of the leading financial institutions. However, not all financial institutions are listed in the report. Thus, while the information is accurate as to pricing and the dates of closings, it does not capture total market volume.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Average Price Point There is a clear price break between beach front and non beach front properties. Beach front properties have an average sale price of approximately $1,688,750 or $583 a S.F. of living area. Non beach front properties have an average sale price of approximately $1,151,800 or $456 S.F. of living area.

$600 $500

$400

Beach Front

$300 Non Beach Front

$200 $100 $0 $ per SQFT

Although there is a difference between the two categories, most condominiums employ similar pricing strategies. The pricing of units is generally based on two elements 1) The total square feet of the unit and 2) The apartment floor height. Generally speaking, the higher the apartment the more expensive it is per square foot. Other value added pricing elements can include special ―vistas‖ to the ocean, bay, or other natural amenity. There will also be a clear distinction between living area and balcony. Balcony area is normally priced at a lower rate per S.F.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Apartment Size and Configurations Based on the market comparables, the ideal condominium should have an open configuration. The ideal product mix would consist of four (4) different model plans. By having a diverse model mix, the project would be able to best mitigate the risk of the current weak market conditions. Specifically, the proposed development has a cluster of units that do not have ocean views or any other particularly appealing scenery. These units are less attractive to the consumer and thus will have less demand. Rather than lowering the price per square foot on said units, the project can maintain the price point by make the units smaller. The overall price per square foot would remain the same or even be higher but the net price to the consumer would be significantly reduced. This smaller unit will be very attractive to a larger base of consumers who seek a small ―pied a terre‖ in a prime location. By increasing the consumer base, the proposed project will also increase its absorption rate. Please find below the ideal unit mix configuration:

A one bedroom unit that ranges in size from 900 S.F. to 1,100 S.F.

A two bedroom unit that range in size from 1,800 S.F. to 2,500 S.F.

A two bedroom deluxe unit (that can be converted into 3 bedrooms) that range in size from 2,200 S.F. to 2,800 S.F.

Penthouse units that have three or four bedrooms and range in size from 4,400 S.F. to 5,600 S.F.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Price Point Today, there are twelve (13) condominium products in the Condado Market area. The prices range from $397-$810 a square foot. The average price for Non-Beach Front condominiums is $456. Based on the strengths of the proposed project, the price point today should be at the top of the scale for its project class. The proposed project’s location is comparable or better than all of the non beach front projects. Thus, the price point for the proposed project would be approximately $522 SF. Future Value Projections Below, are three different scenarios for price point projections: Aggressive 9%, Conservative 5%, and Stagnant 2%. The price point projections assume that the project will commence construction in 2008 and take approximately 24 months to complete. The price appreciation scenarios are based on past trends.*

$750

$620

$676

$568

$600 $548

$522

$553 $543

$532

$450

$604

$575

2 % Growth 5 % Growth

$300

9 % Growth

$150 $0 2007

2008

2009

2010

* Past trends are not indicative of future performance.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Sales Price Assuming a conservative price point scenario of 5% per year, (adjusted for 2 years), the above proposed project should have an average price per square foot of $604 and the following pricing mix:

A one bedroom unit that ranges in size from 900 S.F. to 1,100 S.F should be priced at $427,715 to $719,000.

A two bedroom unit that range in size from 1,800 S.F. to 2,500 S.F should be priced at $1,177,200 to $1,635,000.

A two bedroom deluxe unit (that can be converted into 3 bedrooms) that ranges in size from 2,200 S.F. to 2,800 S.F. should be priced at $1,438.800 to $1,831,200.

Penthouse units that have three or four bedrooms and range in size from 4,400 S.F. to 5,600 S.F. should be priced at $2,657,000-$3,382,000.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Housing Demand The study Demand for Housing in Puerto Rico 2005-2009, prepared by the firm Estudios TĂŠcnicos, Inc. for the Puerto Rico Bankers Association forecasts the demand for new housing units during the 2005-2009 period. The study projects the demand for housing by price bracket for each island municipality. The study also prepares an aggregate by region and for the whole of Puerto Rico. The primary elements in the forecasting model are projections of household formation and household income by municipality. The effective demand is then divided into two categories: regular market demand (that which can be met by private developers) and assisted demand (that which needs some form of government assistance.)

Total Annual Demand

11,022 53%

Market Demand

9,618 47%

Subsidy

Housing Demand: San Juan Region For the entire island of Puerto Rico, the total housing demand for the five year period (20052009) is 99,800 units. In the regular market category, effective demand is projected to be at 9,618 units annually or 47.5%. For the San Juan Region which includes Condado, the total demand projection is 15,631 for the five year period or 3,126 units per year.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Housing Demand By Product In the Construction & Sales Activity Report, Estudios Técnicos, Inc. surveyed sales activity data by housing unit type. During the second quarter of 2006, a total of 3,620 housing units sold in Puerto Rico. Single family units accounted for 71% of the total units sold, walk-ups units represented 10.1%, high-rise condominium units 11.5% and other types of housing (townhouses, villas, mixed) 7.3%.

Housing Demand By Product

Single Family

7% 12%

Walk-Ups

10% 71%

Condominiums other

Housing Demand By Product San Juan Region Notwithstanding the natural spatial limitations of the island, single family homes remain the preferred housing type dominating all regions except for San Juan and Guaynabo. In San Juan and Guaynabo, multi-family units (Walk-Ups, Mid-Rise, Condominiums), are the leader in the market consisting of approximately 80% of all units sold. Using the weighted average from the sale activity in the San Juan Region, it can be inferred that the market demand of multi-family housing (Walk-Ups, Mid-Rise, and Condominiums), units in the $300,000 and over price is in a ratio of approximately 22% of the total units absorbed. Based on the annual total market demand estimated for the 2005-2009 period, 3126 units per year, it can be inferred that the San Juan Region could demand 687 multi-family units per year in the $300,000 and over price range (3126 * 22%). This would translate into a potential market demand of 3,435 units (5 year period).

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Housing Supply According to our findings, there is currently a supply of 2,615 units in the San Juan Region. This supply can be noted in the below Supply of High Rise Residential Units table.*

* The units accounted in the supply chain are only those units available as of the 3rdd quarter of 2007.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Residual Demand The new units needed minus the total available and planned supply results in the residual demand (See table below).

Residual Demand Table

Based on the inferred demand estimate there is a projected unattended Multi-Family housing demand in the San Juan Region of 322 units over the 2005-2009 period or approximately 64 units per year for properties in the $300,000 and over price range.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Absorption Rate The absorption period can be defined as “The amount of time it might take to sell an interest in real property at its estimated market value during the period immediately after the effective date of construction; including the anticipated time required to expose the property to a pool of prospective purchasers and to allow appropriate time for negotiation, the exercise of due diligence, and the consummation of a sale at a price supportable by current market conditions.”

1) This market analysis assumes that the project will be finished in the winter of 2010, or approximately twenty-four months after the effective date of this report. 2) The available supply of 3113 units should be absorbed in just over four and a half years. (3,113 available units / 687 units per year = 4.5 years). 3) As of the estimated project completion date 1,739 of the available and planned supply will still remain in the market (3,113 available units – {687 x 2}). 4) Based on the market demand of 687 units per year, it was assumed that new units will be developed to cater to this market. 5) Assuming 500 unaccounted units enter this market along with the subject project, a total of 2,323 units will cater to the $300,000 and over price range as of the proposed completion date (the proposed project 84 units plus the assumed 500 new units and 1,739 of existing inventory).

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Supply Graph of New Units

If we assume that the proposed project can capture an equal market share to its percentage of the total supply it should command a capture rate of 3.6% (84 units of the proposed project / 1,739 assumed total available units + 500 new units + 84 units). However, based on the fact that the proposed project is located in Condado – a top tier market and that the project’s location specifically is in the best part of said market, it is presumed that the proposed project will be able to capture more than its mathematical market share. For the purposes of this analysis we are assuming that the proposed project will have an additional 20% capture rate or a total of 4.3%. Based on the estimated market capture rate and the annual market demand of 687 units per year for the $300,000 and over market, the proposed project’s absorption rate should approximate 29 units per year (4.3% x 687). The above noted absorption rate would conclude total project sell out by approximately 2.8 years.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Conclusion The proposed project is located in the Condado Sector of the Santurce Ward of San Juan, Puerto Rico. There are a total of 13 new condominium projects in the Condado Market place – and an additional 30 projects in the planning phase. This is an historic amount of construction activity for the Condado Market Area. The average price of new condominiums in Condado is $1,100,000. There is a clear price break between beach front and non beach front properties. Beach front properties have an average sale price of approximately $1,688,750 or $583 a S.F. of living area. Non beach front properties have an average sale price of approximately $1,151,800 or $456 S.F. of living area. Based on the strengths of the proposed project, its price point should be at the top of its project class. The proposed project’s location is comparable or better than all of the nonbeach front projects. Thus, the price point for the proposed project would be approximately $522 SF. Assuming a conservative price increase of 5% per year, (adjusted for 2 years), the proposed project should have an average price per square foot of $604 in 24 months. Based on our market analysis, the proposed project should seek a product mix of four (4) different model plans with units ranging in size from 1,100—2,800 S.F. By having a diverse model mix, the project will be able to best mitigate the risk of a very competitive market and provide for a new growing market niche of empty nesters. Using the weighted average from the sale activity in the San Juan Region, it can be inferred that there is a potential market demand of 3,435 condominium units priced over $300,000 from 20052009. As of the estimated project completion date there will be a supply of 1,739 units. Assuming 500 unaccounted units enter this market along with the subject project, a total of 2,323 units will be direct competition of the proposed completion date. Assuming the proposed project can command 20% more than its an equal market share to percentage of the total supply, the proposed project should have a capture rate of nearly 4.3%. Based on the estimated market capture rate and the annual market demand of 687 units per year, the proposed project’s absorption rate should approximate 27 units per year. The above noted absorption rate would conclude the total project sell out in approximately 2.9 years.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Addendum I: Luis Abreu Report Past Sales The Luis Abreu Sales Report is compiled from actual closings as reported from local financial institutions. The financial institutions do not report all their closings. Moreover, not all financial institutions participate in said study. Thus, the data reported is not representative of absolute closings â&#x20AC;&#x201C; total sales. Nonetheless, the Luis Abreu Sales Report does accurately reflect sales prices and closing dates. The attached data represents a sampling of actual new condominium sales from 2002 to 2007. The new units average 2.6 bedrooms with 3 bath rooms and are approximately 2,624 S.F. The units have 2.26 parking spaces. The average sales price was $959,578 or $370 per S.F. It is interesting to note that new units sold on average for $82,223 less than the appraisal price or 7.8%.

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Bristol The Bristol is a 15 story residential condominium building located at Ashford Avenue in the center of the Condado. The project is located directly across from the Ventanas al Mar Park. While it has uninhibited beach views it does not have direct beach access. The project has a total of 31 units. The building construction finished during the fourth quarter of 2005. Sales commenced shortly thereafter in 2006. Original unit prices ranged from $1,300,000 to $2,000,000. Today the Bristol is completely sold. The building enjoyed an absorption rate of approximately 2 units per month. Re-sales have reached prices over $3,000,000. The typical units have construction areas ranging from 2,763 to 5,538, SF, and an interior layout that includes either two (2) or four (4) bedrooms and three (3) or four and a half (4.5) bathrooms. Construction quality and finishings are top of the line. Each typical unit will have two (2) to four (4) covered parking spaces. The penthouse units have a GLA’s of 8,313 SF with four (4) bedrooms and four and a half (4.5) bathrooms. Construction quality and finishings are excellent. Each typical unit will have four (4) covered parking spaces.

The following table summarizes recent recorded sales from the above noted project. Unit 14-B 10-B 7C 13 B PH 18 15-A

Price

Price / SF

Closed

$2,725,775 $1,313,900 1,750,000 2,805,075 $3,745,171 $3,019,200

4,522 2,923 3,397 4,521 8,313 4,438

$602 $450 $515 $620 $451 $680

2006 2006 2007 2007 2007 2007

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

ADDENDUM II Previously Owned Apartments Millennium:(Miramar/Condado): Asking Price $1,400,000; SQFT 3,017; 3 room and 4 bath; two level; 2 parking spaces. The Millennium project was delivered in 2004. It is located near the Caribe Hilton. The project is not beach front. The Millennium has a gym, club house, electric plant, water tank, and concierge system.

Plaza Stella (Condado): Asking Price $950,000; SQFT 3,000; 3 rooms and 3 ½ bath; 4 elevators, 4 parking spaces. Plaza Stella was delivered in 2004. It is located in the heart of Condado. It is not beach front. It has 4 elevators, water tank, swimming pool, clubhouse and gym.

16 Carrion Court (Ocean Park): Asking Price $1,600,000; SQFT 2,500; 4/2. 16 Carrion Court is located ½ a block from the beach in Ocean Park- Condado. The unit that is for sale is a Penthouse. It has two levels, and was recently remodeled.

Candina Sea Tower (Condado) Asking Price $900,000; SQFT 2, 200; 3/3.

Candina Sea Tower is not Ocean Front. The apartment is fully equipped and has marble floors. The building has only one apartment per floor, gym with sauna, and two parkings. Previously Owned Apartments cont.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Paseo Don Juan (Condado): Asking Price $1,050,000 2,000 SQFT, 3/3

Paseo Don Juan is located on Paseo Street in Condado. It is approximately 15 minutes from the propose site. The apartment has marble floors, granite kitchen counter top and modern cabinets. The Apartment is on the 8th floor with ocean view. Saint Mary’s (Condado): Asking Price $750,000 1,400 SQFT, 2/2 Saint Mary’s is located on McLeary Avenue in Condado. The apartment has beach access. The building includes a swimming pool, water tank, electrical generator, and 2 assigned parking spaces.

Playa Serena (Isla Verde): Asking Price $1,000,000; 2,800 SQFT, 3/ 4 Playa Serena is located approximately 5 minutes from the proposed site. It is located next to Marriot Hotel in Isla Verde. The condominium has beach access. The building includes a water tank and electrical generator.

Mar Bella del Caribe (Isla Verde): $620,000, 1,580 SQFT, 3 / 2

Mar Bella del Caribe is located approximately 5 minutes from the proposed site. The project is located in front of the beach. Mar Bella del Caribe includes a swimming pool, gym, electrical generator and water tank.

Previously Owned Apartments (Cont.)

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Surf Side (Isla Verde): Asking Price $950,050 2,000 SQFT, 4 /3

Surf Side is located on Isla Verde Avenue, approximately 5 minutes from the proposed project in front of the beach.

La Regata (Condado): Asking Price $1,275,000; 2410 SQFT; 3 Parking, 3/ 2 ½

La Regata is located approximately 15 minutes from the proposed site. There is one apartment per floor. Each apartment has 3 covered parkings. The project is walking distance from the beach.

Carrion Court (Condado-Ocean Park): Asking Price $1,200,000; 2,016 SQFT; 3/ 3.5; 2 parking spaces

Carrion Court was delivered in late 2003. It is located in front of the beach. The apartment for sale is the penthouse. The unit includes marble floors.

Previously Owned Apartments ( Cont.):

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Punta las Marias (Punta las Marias): Asking Price $1,300,000; 2,300 SQFT; 3/ 3.5 The Punta Las Marias unit is located in a low-rise structure. It is located in front of the water. The unit has 3 levels and a roof terrace, elevator, and 2 parking spaces.

Punta las Marias Condominium (Punta las Marias): Asking Price $1,295,000; 2,400 SQFT; 3/ 3

Punta las Marias Condominium is located in front of the beach. The unit has marble floors and 2 parking spaces.

Carrion Court Apartment (Ocean Park): 10 units, 2,600 -3,200 SQFT, $825,000$2,000,000, Santander Carrion Court Apartment is located in Ocean Park on Mcleary Ave. It is approximately1 5 minutes from the proposed site. The project is not beach front and location is worse than the proposed project.

Madeira townhouses (Ocean Park), 6 units, $1,800,000 3,800 SQFT; 300M2, elevator.

Development Analysis – October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Figure 4 - Madeira

Madeira is located in Ocean Park, in front of the beach. The project is approximately 5 minutes from the proposed site. Each of the 6 units includes marble floors, an elevator, a double garage, ―intelli-system‖, and roof deck. Madeira’s location is beach front but farther away from the center of Condado. Astralis (Isla Verde) 2/2.5, 1,736 SQFT, $420,000, 210 units.

Figure 7 - Astralis

Astralis is located in Isla Verde. It is approximately 5 minutes from the proposed project. Astralis is within walking distance to the Pueblo Supermarket and is adjacent to the freeway. The project is not beach front. The projects key sales position is concierge service. Astralis advertises a 24 hour concierge that will facilitate purchases, activity coordination, etc. Sales in Astralis were slow. _____________________________________________________________________ 93 Axyon Advanced Solutions For Real Estate Development All Rights Reserved ®

Development Analysis â&#x20AC;&#x201C; October 15, 2007

Condominium Development - Condado, Puerto Rico Meister Developers & Caribbean Property Group

Mcleary 1800 (Ocean Park), 3/2.5, 2,183 SQFT, $600,000 , 10 units. RG Mortgage

McLeary 1800 is located on Mcleary Ave. in Ocean Park. The project is located within 5 minutes of the proposed project. McLeary 1800 consists of 10 apartments. The apartments are not beach front. They range in size from 2,000-5,000 SQFT.