2013 NAIOP Real Estate Challenge by Dave Knight

TELLARITE REAL ES TATE ADV ISORS

2013 REAL ESTATE CHALLENGE NAIOP | WASHINGTON STATE CHAPTER

REPORT MARCH 2013

TELLARITE REAL ES TATE ADV ISORS

“ O UR M EA SUR E O F SUC CE S S ”

Tellarite Real Estate Advisors has prepared this report at the request of Vulcan Real Estate regarding their interests in the Lakefront Blocks in Seattle’s South Lake Union Neighborhood. Specifically, our team is proposing a development strategy that will maximize value for Vulcan and the city by transforming what is currently Block 25 and Chandler’s Cove into Seattle’s Lakefront District, a vibrant neighborhood that is quite literally at the center of the city’s active, social, urban community.

MEET OU R TEAM DAVE KNIGHT JEFF BERNARD KELLY HOGG MARY FIALKO ALEX MARTINEZ ZACHARY CLEMENTS FRANCISCO TRAVERSO WANLU ZHU YINYAN CHEN JASON YAP

Tellarite Real Estate Advisors is a multidisciplinary team of 10 students from the University of Washington’s College of Built Environments. Team members have diverse expertise in architecture, landscape architecture, planning, environmental advisory, brownfield development, corporate retail and more. Together we specialize in urban visioning, market analysis and financial strategies for the Seattle Urban Area. Like our namesake, we Tellarites are committed to working with Vulcans to do great things for not only Seattle, but the world and our shared universe.

UNIV ERS ITY OF WA S HINGTON COLLEGE OF BUILT ENV IRONMENTS 424 GOULD HALL, BOX 355740 SEATTLE, WASHINGTON 98195-5740

To: Fr: Dt: 2

Runstad Center Advisory Board Stephen H. O’Connor, Ph.D. February 13, 2013

T (206) 616.5335 F (206) 685-9597

UNIVERSITY OF WASHINGTON

“We believe the stewardship of capital and assets should improve the physical landscape we live in, as well as the financial position of our partners. We do well by doing good. This approach puts us on a sustainable path that leads to positive outcomes for all—tenants, residents, clients, and investors.“ -Vulcan Real Estate

TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY

7.0 CONDOMINIUMS

2.0 ECONOMIC GROWTH

8.1 VISION 8.2 STRATEGIES 8.3 MARKET FORECAST

1.1 1.2 1.3 1.4

2.1 2.2 2.3 2.4

VISION LAKEFRONT PROMENADE SNAPSHOT LAKEFRONT EAST SNAPSHOT GOALS AND OBJECTIVES

REGION SOUTH LAKE UNION INVESTMENT PERSPECTIVE DEMOGRAPHIC DATA

3.0 LOCATIONAL ANALYSIS 3.1 TRANSFORMATION 3.2 LOCATIONAL ATTRIBUTES

4.0 LAKEFRONT PROMENADE 4.1 4.2 4.3 4.4

VISION DESIGN ELEMENTS DEVELOPMENT STRATEGIES MARKET SUPPORT

5.0 LAKEFRONT EAST 5.1 LAKEFRONT EAST VISION 5.2 PRODUCT POSITIONING

6.0 HOTEL

6.1 HOTEL VISION 6.2 HOTEL DESIGN STRATEGY 6.3 HOTEL MARKET SUPPORT

2013 NAIOP REAL ESTATE CHALLENGE

7.1 VISION 7.2 MARKET SUPPORT

8.0 HEALTH & FITNESS CLUB

9.0 AMENITY RETAIL 9.1 VISION 9.2 STRATEGY 9.3 MARKET SUPPORT

10.0 PHASING STRATEGY 10.1 OVERVIEW

11.0 11.1 11.2 11.3 11.4

FINANCIALS

COSTS INCOME RETURN ON INVESTMENT EXIT STRATEGY

12.0 CONCLUSION 13.0 ACKNOWLEDGEMENTS APPENDICES

A FINANCIAL PROFORMA

TELLARITE REAL ES TATE ADV ISORS

TOTAL PROJECT FINANCIAL SNAPSHOT Total Project Cost: NOI: Market Value: Profit: Profit Margin: Unleveraged IRR: Leveraged IRR:

$379,903,114 $11,815,882 $451,425,114 $71,522,000 19% 3.5% 16.9

UNIVERSITY OF WASHINGTON

THE

L A K E F R O N T

DISTRICT

2013 NAIOP REAL ESTATE CHALLENGE

EXECUTIVE SUMMARY

1.1 VISION South Lake Union (SLU) is one of the fastest growing and developing neighborhoods in the entire country. Not only is this area anchored by well-known technology and bio-tech industry leaders, it also has major geographical amenities such as Lake Union, proximity to vibrant neighborhoods, and a recent influx of cultural institutions. All of this has made this one of the greatest waterfront development opportunities in the nation. At the center of all the potential are Vulcan’s properties which are the focus of this document.

HOW CAN ALL THIS EXISTING VALUE BE CAPTURED IN A WAY TO MAXIMIZE RETURNS ON DEVELOPMENT?

The following proposal includes our vision for a vibrant Lakefront District that will become the central hub for active, social, urban living in Seattle. By leveraging existing assets and building on the unique locational attributes, Chandler’s Cove will transform into the Lakefront Promenade and Block 25 into Lakefront East. Each development will play an important role in creating a neighborhood that realizes Vulcan’s triple bottom line strategy of creating places that improve social, environmental and financial equity.

LAKEFRONT PROMENADE

LAKEFRONT EAST

UNIVERSITY OF WASHINGTON

1.2 LAKEFRONT PROMENADE

Through thoughtful design and programming strategies, Chandler’s Cove will be transformed into the Promenade, a civic amenity that will function as an extension of SLU Park as well as a retail destination. With a seamless connection along the waterfront, the Promenade’s sweeping walk will make the most of its neighborhood connections, lake access and expansive views to provide opportunities for public gathering, recreation, and a variety of unique entertainment and dining experiences. The new waterfront will feel similar to areas within Vancouver’s Coal Harbor, New York’s Battery Park City and Toronto’s Waterfront, but remain quintessentially Seattle by design.

SNAPSHOT Project Cost: NOI: Market Value: Profit: Profit Margin: Unleveraged IRR: Leveraged IRR:

2013 NAIOP REAL ESTATE CHALLENGE

$75,204,705 $6,567,426 $92,790,430 $17,585,725 23% 10.9% 16%

1.3 LAKEFRONT EAST

Block 25 will become Lakefront East, a premier, high density urban development that provides a synergistic mix of uses that further defines the Lakefront District as the Northwest’s most desirable location to live an active, healthy, social lifestyle. Lakefront East fills a void for an upper-end hotel and fitness concept, while taking advantage of the upzone in South Lake Union to add a condominium tower. This location is the right location for Seattle’s best residential address. Limited, smart retail will be added to activate the street level. Street front retail will be occupied by popular local businesses that are not yet represented in the nearby neighborhood. The vibrant waterfront, breathtaking views and well through out amenities will make this the most desirable address in the city. Lakefront East includes an open courtyard designed to provide a welcoming urban mixing zone that provides easy parking access as well as a space for residents and guests to mingle. The ground floor hotel restaurant will look through to the courtyard as well as Valley Street and the lake beyond. Another rooftop restaurant/bar will invite guests and locals alike to sit by the pool and look out over the amazing lake and city skylines.

SNAPSHOT Project Cost: NOI: Avg Condo ($1,045/sf): Market Value: Profit: Profit Margin: Unleveraged IRR: Leveraged IRR:

$244,497,749 $6,248,456 $1,185,866 $259,507,392 $15,009,643 6.1% -0.2% 26%

EXECUTIVE SUMMARY

HOW DO WE MAXIMIZE THE VALUE ON THIS SITE? ACTIVE, SOCIAL, HEALTHY LIFESTYLE

1.4 GOALS AND OBJECTIVES

Tellarite Real Estate Advisors and Vulcan share the same measures of success. Our main object is to create value for Vulcanâ&#x20AC;&#x2122;s owners through a smart, innovative and appropriate Seattle Waterfront District development plan. Our proposal tranforms one of the most spectacular waterfront sites in the world into the best place in Seattle to live, work and play.

All of these elements are designed to work together to maximize the potential of the neighborhood. Creating a place that delights visitors and residents will ensure that Vulcan is providing incredible value to our city and excellent returns on invested capital.

The Tellarite team believes the key to unlocking the potential of the Waterfont District is a synergistic mix of retail, entertainment, lodging, condos and public space. 8

UNIVERSITY OF WASHINGTON

DESIGN THE WATERFRONT TO INVITE THE PUBLIC

USE RETAIL AND ENTERTAINMENT TO CONNECT AND ACTIVATE THE NEIGHBORHOOD

CREATE A SYNERGISTIC MIX OF 24-7 USES THAT PROVIDE A GREAT RETURN ON INVESTMENT

2013 NAIOP REAL ESTATE CHALLENGE

ECONOMIC CONTEXT

2.1 REGION

12.0% The Puget Sound Region is well-known as one of the 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%

Seattle is considered Northwest’s leading import/export center for international trade.

strongest markets in the entire U.S. While the region has not recovered to the pre-Recession performance, it is on Many high tech industries cluster in this region: software the way back with expectations for accelerated growth in development, Internet commerce, medical research, 2013. The average annual employment in the region has telecommunications, medical device manufacturing, and been growing at twice the national rate. Based on the aircraft design and production. These industries as well Puget Sound Regional Council “Economic Forecaster”, as leading educational institutions contribute to Seattle Puget Sound jobs will keep increasing at a rate above 2.0% being the most educated city per capita, according to through 2016. The predicts unemployment 2010 2011 2012PSRC 2013 2014 the 2015 2016 2017rate 2018 2019 2020 2010 census data. RATEpersonal PERSONAL will fall to 6.0% by theUNEMPLOYMENT end of 2020 and incomeINCOME GROWTH RATE will increase more than 5% annually. US POPULATION

PUGET SOUND REGIONAL FORECAST

12.0% 10.0%

UNEMPLOYMENT RATE

3.0%

PERSONAL INCOME GROWTH RATE

2.5% 2011

6.0%

12.0%

4.0%

10.0%

2.0%

8.0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 0.0% 2.0% 6.0% Sources: The Puget Sound Economic Forecaster, Sound RegionalRATE2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 UNEMPLOYMENT RATE PERSONALPuget INCOME GROWTH SOUTH LAKE UNION Growing Downtown Council Revised DRAFT 2012 Land Use Forecasts, WA State Employment Figure 2. Downtown UNEMPLOYMENT RATE1990 Among PERSONAL INCOME 4.0% Population Growth Since Peer Cities GROW 1.5% Security Dept., Dupre + Scott,toU.S. Census, REIS, DJC, In DPD, andSeattle Tellarite COMPETITIVE MARKET Seattle continues attract new residents. 1990, Source: The Nielsen Company, 2011; 2011 Peer City Review, DSA/MID, 2011 PEER CITY DOWNTOWN POPULATION GROWTH 2.0% Realthe Estate had approximately 516,200 residents. Over pastAdvisors 20 SINCE 1990 30,000 years, the city’s population has grown by 17 percent toPUGET more SOUND 0.0% 1.0% 2010 2011 2012 2013 2014 2015 2016 2017 20 25,000 than 608,600 residents. During this time period, Downtown, which represents 3 percent of Seattle’s landmass, UNEMPLOYMENT RATE PERSONAL I 20,000 0.5% accounted for nearly 25 percent of the growth. Downtown REGIONAL DRIVERS Seattle alone has grown by more than 72 percent since • BOEING EXPEDIA 1990. This represents • an increase of more than 22,000 new 0.0% residents.ii • MICROSOFT • STARBUCKS

2012

2013

2014

2015

2016

2017

• AMAZON.COM • NORDSTROM Since 1990, Seattle’s population growth has occurred primarily in Downtown,• Ballard and the Central and • COSTCO PACCAR University Districts (see Figure 3). However, Downtown’s • REI growth rate was nearly three times greater than the next 3.5% 3.0% 2.5% 2.0% 1.5% 2012

WESTERN MOVEMENT

8.0%

2013 1.0% 0.5% 0.0%

fastest growing neighborhood. Comprised 12 unique SOUTHofLAKE UNION neigborhoods, Downtown Seattle has been the primary area of population growth in Seattle over COMPETITIVE the past two decades. MARKET

15,000 10,000

5,000 3.0% -

2.5% 2.0%

3.0%

SOUTH LAKE UNIO 1.5% 2.5% Figure 3. Percent Change in Population (1990-2010)

COMPETITIVE MAR

In particular, Downtown Seattle’s Uptown and South Lake Source: Analysis of 1990 and 2010 U.S. Census data PUGET SOUND Union/Denny Triangle neighborhoods grew 103 and 305 PUGET SOUND 1.0% 2.0% percent, respectively (see Figure 3 inset). These neighborhoods have experienced increasing residentSOUTH LAKE UNION SOU Green Lake/Phinney populations, along with an increasingly diverse economic 0.5% 1.5% Ridge 12% COM base, additional residential development projects, resident COMPETITIVE MARKET friendly amenities (i.e. parks and restaurants) and the arrival Wedgewood/ Ballard 16% PUG 0.0% such as Amazon.com and the PUGET nearby SOUND Laurelhurst 1.0% 2014 of major 2015headquarters 2016 2017 14% Bill & Melinda Gates Foundation. Downtown Seattle’s Retail 2012 2013 2014 2015 2016 2017 Source: Core and Belltown neighborhoods have also experienced Fremont/ University Magnolia 11% 0.5% triple digit growth since 1990, showing the breadth of PSRC Wallingford District 18% 21% Downtown’s population gains.

POPULATION GROWTH

Downtown Seattle has not only experienced significant to other Seattle 2012 growth 2013in resident 2014 population 2015 compared 2016 2017 neighborhoods, but also relative to its peer U.S. downtowns (Boston, Charlotte, Denver, Minneapolis, Philadelphia,

3.5% 3.0%

0.0%

EMPLOYMENT GROWTH Queen

Anne 16% 2012 2013

2014

2015

2016

Eastlake/Madison Park 4%

2017

2.2 SOUTH LAKE UNION

As mentioned, South Lake Union is one of the fastest growing and most dynamic neighborhoods in the City, in the region, and in the entire country. Bordered by I-5 on the East, Westlake Avenue on the West, Lake Union to the North, and Denny to the South, South Lake Union is a compact and densifying urban neighborhood. It is becoming a world class neighborhood with museums, top employers, parks, great views, and ease of connectivity. The population and economy are rapidly growing, and opportunities for development are rapidly increasing.

COMPETITIVE MARKET AREA

Capitol Hill, Queen Anne and Denny Regrade are included in our competitive market analysis. These neighborhoods are seeing rising housing prices as the economic recovery gains momentum in 2013. Seattle ranked No. 1 Best City For Tech Jobs – Forbes, November 2011

STL

DENNY WAY

“. . . a wellspring of local brainpower drawn to the attractive Northwest gateway for high-paying tech jobs”

- ULI 2012 ET

I-

N LAKE UNION

“. . . ranked #1 as the most tech-friendly with the best internet access and top technology performance” –Scientific American, August 2011

SLU’S FUTURE IS BRIGHT

COMPETITIVE MARKET GROWTH STATS

2008-2012 2013-2017 5%

POPULATION GROWTH

5.3 M

ADDITIONAL OFFICE SF

12,250

NEW JOBS

2013 NAIOP REAL ESTATE CHALLENGE

14% 7M 33,000+ 11

ECONOMIC CONTEXT

2.3 INVESTMENT PERSPECTIVE In 2012 Seattle ranked third overall in real estate transactions, just behind San Francisco with New York taking the top spot. This is impressive considering Seattle is about half the size of San Francisco and a quarter the size of New York. Institutional investors see the region as a strong investment opportunity supported by a balance between tech, manufacturing and other industries. Seattle has become a diverse and stable market anchored by technology firms, research organizations, non-profits, universities and manufacturing.

is confident in their continued expansion. The newly leased buildings are expected to house another 2,600 employees. Amazon three towers would bring in another 17,000 employees.â&#x20AC;? (Source: Kidder Mathews; February 27th NAIOP Breakfast, Bruce Ganong, Senior Managing Director, Holliday Fenoglio Fowler, Debt and Equity Finance)

Current South Lake Union leased space occupied by Amazon is 2,760,000 sq ft. Based on an occupancy of 225 per sq ft, this indicates Amazon has over 12,170 employees in the area. Based on new net leased space during the last 2 years, Amazon has been responsible for 11% of the net job growth in King County for 2011 and 2012, and over 8% of the total net gain for the region. Their three new leases of unoccupied space, and the plans to build three office towers, shows the company

RAPIDLY RISING SOUTH LAKE UNION ECONOMY....

South Lake Union

CBD LAKEFRONT DISTRICT

Lake Union 12

UNIVERSITY OF N WASHINGTON

SOUTH LAKE UNION GROWTH SNAPSHOT 55-64 55-64

2012

Another notable trend is the growing percentage of people 55-64 Another notable trend is the growing percentage of people 55-64 years old living in Downtown Seattle. Their share of Downtown’s years old living in Downtown Seattle. Their share of Downtown’s resident population has rebounded after a decline between 1990 and resident population has rebounded after a decline between 1990 and 2000. The past decade has seen a reversal of the trend with this 2000. The past decade has seen a reversal of the trend with this NEW JOBS share now increasing at a faster rate than most other population’s population’s share now increasing at a faster rate than most other groups. groups. Historically, this age demographic has concentrated in the Uptown and Historically, this age demographic has concentrated in the Uptown and South Lake Union neighborhoods, and in the Pioneer Square and South Lake Union neighborhoods, and in the Pioneer Square and International District. Figure 8 shows how the share of those between International District. Figure 8 shows how the share of those between APARTMENTS 55-64 years old has changed in Downtown neighborhoods over the 55-64 years old has changed in Downtown neighborhoods over the past two decades. Most notable is a resurgence in Uptown, South past two decades. Most notable is a resurgence in Uptown, South Lake Union, Belltown and the Retail Core/West Edge/Waterfront. Lake Union, Belltown and the Retail Core/West Edge/Waterfront.

2018- BEYOND

43,300

68,300 7,100

4,600

Children in Downtown

Children in Downtown HOTEL BEDS

Between 1990 and 2010, the number of children living Downtown Between 1990 and 2010, the number of children living Downtown grew significantly. In 1990, the total number of children (newborns to grew significantly. In 1990, the total number of children (newborns to 14 years old) living Downtown totaled 1,021. By 2010, this population 14 years old) living Downtown totaled 1,021. By 2010, this population totaled 1,732, a nearly 70 percent increase. While the growth of this totaled 1,732, a nearly 70 percent increase. While the growth of this population is similar to the overall rate of population growth for population is similar to the overall rate of population growth for Downtown, in absolute terms it is becoming a sizeable population and Downtown, in absolute terms it is becoming a sizeable population and with the significant increase of 25-34 year olds currently living with the significant increase of 25-34 year olds currently living COMPARISON OF continue. POPULATION BY AGE Downtown, the trend could Downtown, the trend could continue. (2017) Children, as they age, leave Downtown at a greater rate than all other Children, as they age, leave Downtown at a greater rate than all other 65-84+ Seattle neighborhoods. In 2000, there were 776 children under the Seattle neighborhoods. In 2000, there0-24 were 776 children under the age of 5 living in Downtown, ten years later there were only 12%however age of 5 living in Downtown, however ten years later there were only 394 children 10-14 years of age living 21% Downtown. This indicates that 394 children 10-14 years of age living Downtown. This indicates that when many children reach their fifth birthday, they leave Downtown when many children reach their fifth birthday, they leave Downtown 45-64 (Figures 9 an 10 on page 6 illustrate the change in the total population (Figures 9 an 10 on page 6 illustrate the change in the total population of children under five living in 2000 relative to children 10-14 years old 23% of children under five living in 2000 relative to children 10-14 years old living in Downtown in 2010). living in Downtown in 2010).

1,057

23-44 44% Figure 8: Share of Downtown 0-24 25-44 Figure 8: Share of Downtown Source: Analysis of US Census data Source: Analysis of US Census data

1,297 Photo: Christopher Nelson Photo: Christopher Nelson

Downtown has the highest attritionHOUSEHOLD rate for children underINCOME five of all COMPETITIVE AREA Seattle neighborhoods at 49 percent, however attrition of elementary Seattle neighborhoods at 49 percent, however attrition of elementary school-aged children in Seattle is not unique to Downtown. (AVG.Citywide, $86K) school-aged children in Seattle is not unique to Downtown. Citywide, Downtown has the highest attrition rate for children under five of all

the attrition rate (children moving out of the city) between 2000 and $200K+ the attrition rate (children moving out of the city) between 2000 and 2010 for children under the age of five was 14 percent and a number 2010 for children under the age of five was 14 percent and a number 9% of Seattle neighborhoods had attrition rates of more than 25 percent of Seattle neighborhoods had attrition rates of more than 25 percent during the same period. during the same period. <$49K While Downtown’s rate for elementary school-aged children $100attrition - $199K While Downtown’s attrition rate for elementary school-aged children $50K - $99K was high in the previous decade, it’s clear more families with children <$49K was high in the previous families with children 22%decade, it’s clear more $100K - $200K across all age demographics are choosing to live Downtown and across all age demographics are choosing to46% live Downtown and Downtown’s overall growth in the number of children is notable for a $200K + Downtown’s overall growth in the number of children is notable for a major urban center. major urban center.

$50 - $99K 23%

Population 55-64 (1990-2010) 45-64 65-84+ Population 55-64 (1990-2010)

DOWNTOWN POPULATION: AGES 55-84 18% 18% 16% 16% 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0%

Uptown Uptown

South Lake South Lake Union/Denny Triangle Union/Denny Triangle

Capitol Hill Capitol Hill

Belltown Belltown

2010 2010

2000 2000

Retail Core/West Edge/ Retail Core/West Edge/ Waterfront Waterfront

Pioneer Pioneer Square/Interational Square/Interational District District

1990 1990

2013 NAIOP REAL ESTATE CHALLENGE

5 5

First Hill First Hill

Metropolitan Improvement District’s Business Development & Market Research www.DowntownSeattle.com Metropolitan Improvement District’s Business Development & Market Research www.DowntownSeattle.com

Ballard

Ridge

-25%

Ridge Wedgewood/ Wedgewood/ Laurelhurst Laurelhurst

University District University District

-31%

Ballard ECO N O M Ballard IC CONTEXT

ive in 2000

Ballard

-2

-3

-49% -4 UniversityUniversity Each figure ( ) represents approximately 100 children living Downtown under the age of five in 2000, with darker figures representing the 10-14 year old Each figure ( ) represents approximately 100 children living DowntownDistrict under the age of five in 2000, with darker figures representing the 10-14 yea District population remaining in 2010. Black indicates an increase in the 10-14 yr old population in 2010. population remaining in 2010. Black indicatesFremont/ an increase in the 10-14 yr old population in 2010. Fremont/ Magnolia Magnolia DATA 2.4 DEMOGRAPHIC Wallingford Figure 5. PopulationWallingford & Density of 25-34 Year Olds by Neighborhood (2010) Figure 4. Downtown Age Demographics Downtown

Downtown Seattle experienced the steepest decline with only Downtown Seattle experienced the steepest decline with only half of the population under five in 2000 remaining in 2010. half of the population under five in 2000 remaining in 2010.

Downtown

% Change in Pop. Under Five (2000) to 10-14 (2010)

DOWNTOWN AGE SPREAD

PERCENT CHANGE IN POPULATION FOR DOWNTOWN NEIGHBORHOODS

55 to 64

45 to 54

25 to 30%

20 to 25% Figure 4. Downtown 15 to 20%

8% 7%

10%

13%

75 and over

Age Demographics 19%

Figure 5.

Central District

-30 to -20%

20 to 30% 10 to 20% 5 to 10% 0 to 5% -5 to 0% -10 to -5% -20 to -10% -30 to -20%

Source: Analysis of US Census d

School Attendance Area School Atten

Elementary S

Source: US CENSUS 2010, via Downtown Report Rainier Valley/Columbia City

Ballard

Population & Density of 25-34 Year Olds by Neighborhood (2010)

POPULATION AND OF AGES 25-34 Metropolitan Improvement District’s Business Development & MarketDENSITY Research www.DowntownSeattle.com Metropolitan Improvement District’s Business Development & Market Research www.DowntownSeattl Magnolia

West16% Seattle West Seattle Age Demographic Breakdown Green Lake/Phinney

Ridge

A demographic transformation has occurred along with the increase in Downtown’s Wedgewood/ Ballard show certain age groups live in Downtown resident population. Statistics at rates Laurelhurst significantly different than nearby neighborhoods. In particular, Downtown has seen large growth in the share of two age groups: 25-34 University and 55-64 years of age. There has Fremont/ Magnolia also been significant growth of those under 15 yearsDistrict old. Wallingford

27% 30%

65 to 74

Share of Total Neighborhood Population Queen Residents age 25-34 are a key demographic in any neighborhood. This population tends Anne More than 30% Eastlake/Madison to have higher disposable income and fewer financial obligations than other age groups. Park 25 to 30% Downtown Share of TotalSeattle has the highest share of 25-34 year olds in Seattle. Downtown Neighborhood Population neighborhoods with the highest densities of 25-34 year olds are Capitol Hill, Uptown, 20 to 25% than 30% Capitol 6 and 7 on page 4). This SouthMore Lake Union/Denny Triangle and First Hill (see Figures 15 to 20% Hill 25 to 30% Downtown age group comprises 21 percent of Seattle’s total population, yet makes up more than 32 20 to 25% 10 to 15% percent Downtown’s total population, more than any other age demographic (see 15 toof 20% Central 0 to 10% to 15% Figure104). District

25-34

11% 8%

55 to 64

0 to 10%

10% 6%

7% 6%

More than 30

Figure 5. More Population & De than -30% More than -3

Source: Analysis of US Census data

12%

10%

13% 10% 20% 30% 40% 13% 1990 2000 2010

45 to 54 0%

Source: US CENSUS 2010

10%

Circle size Neighborhoods appeal to different age demographics due to a host of factors, from represents Circle size represents neighborhoods’ neighborhoods’ share to an active nightlife, to the proximity of quality elementary affordable housing, schools. share of Seattle’s 25-34 year of Seattle’s 25-34 year Additional Seattle neighborhoods with a highSoDo density of this age group include Ballard, old population old population Green Lake, Eastlake, and Fremont, all of which are neighborhoods with a large amount Source: US CENSUS 2010 of restaurants, bars and nightlife. West Seattle

10%

45 to 54

13%

Rainier Valley/Columbia City

13% 18%

Metropolitan Improvement District’s Business Development & Market Research www.DowntownSeattle.com

35 to 44

Hill

-10 to -5% -20 to -10%

Elementary School

10%

5% 13%

-5 to 0%

SoDo Bailey Gatzert ES Bailey Gatzert ES West Seattle

13%

Downtown

Age Demographics

Circle size represents neighborhoods’ share of Seattle’s 25-34 year old population

32%

Under 20

0 to 5%

10 to 15% Source: Analysis of US Census data 0 to 10%

10%

25 to 34

55 to 64

5 to 10%

Eastlake/Madison Lowell ES Lowell ES Park Share of Total Capitol Hill Capitol Hill Neighborhood Population Downtown Downtown More than 30% Capitol

20 to 24

10 to 20%

Queen Anne

More than 30% 20 to 30%

University Fremont/ District Wallingford

John Hay ESJohn Hay ES

10%

65 to 74

Wedgewood/ Laurelhurst

Ballard

Magnolia

Source: Analysis of US Census data 18%

75 and over

Green Lake/Phinney Ridge

Queen Anne

Figure 4. Downtown

35 to 44

Source: Analysis of US Census data

Queen Anne

10%

Source: Analysis of US Census and Seattle Scjool Distrct data

Figure 10.

Source: Analysis of US Census and Seattle Scjool Distrct data

65 to 74

Figure 10.

75 and over

% Change in Pop. Under Five (2000) to 10-14 (2010)

Source: Analysis of US Census data

19%

UNIVERSITY OF WASHINGTON

West Se

USER PROFILES The following are snapshots of the people who will be enjoying the Lakefront District in the near future.

JUDY AND RICK Judy and Rickâ&#x20AC;&#x2122;s daughter moved to Seattle to work for Amazon a few months ago. They are looking to buy a condo in SLU because it is a safe, fun neighborhood with easy access to entertainment, dining, and most importantly their daughter who is expecting a baby boy this summer.

SIMON

Simon is a McKenzie consultant from San Francisco who travels to Seattle every other week to work at the Gates Foundation. His schedule is packed but the convenience of his accommodations at the Lakefront Hotel allows him to easily fit in workouts and enjoy entertainment and dining.

SARAH AND RACHEL Sarah is a young mom who lives in the Westlake neighborhood along Dexter Avenue. She works part-time from home while taking care of her daughter, Rachel. In her free time she enjoys attending pilates classes at the Lakefront Health Club and spending time at the Promenade Cafe.

MIN-JUN

Min-jun is a doctor and lead researcher at Group Health. His wife is a top executive at a downtown investment firm. They enjoy their Lakefront East luxury condo with their daughter because the neighborhood is so safe and convenient with access to health clubs, parks, and downtown.

MICHELLE Michelle enjoys meeting her book club for monthly dinners at the Promenade wine bar. The central location is a great spot for the women who are coming from Ballard, Capital Hill, West Seattle, and Belltown.

JESSICA Jessica is trying to find a hotel that meets her needs in the area. A frequent traveler to South Lake Union as a consultant for Fred Hutchinson Center for Cancer Research, she is looking for convenience, and a place where she can unwind and have a glass of wine with colleagues. 2013 NAIOP REAL ESTATE CHALLENGE

LOCATIONAL ANALYSIS

3.1 TRANSFORMATION

Transformation is underway in Seattle’s fastest growing neighborhood. Vulcan, Touchstone, and other developers are working with the City of Seattle to make the area a vibrant, successful urban neighborhood. The recently completed streetcar, new bus lines, rapid urban redevelopment, and the relocation of cultural institutions is shaping the neighborhood, creating draws, and forging new economic opportunities and flexible lifestyles for the ever-changing tech industry. The neighborhood is unrecognizable from the South Lake Union of 1996. The new developments and landscaping are stitching the urban fabric together and make the Lakefront District more accessible and pedestrian friendly. Blocks 25, 26 and 27, along with Chandler’s Cove will be part of the last few parcels to be developed. Arguably, this is becoming Seattle’s greatest downtown urban neighborhood with expectations that South Lake Union will rival similar neighborhoods in Portland, San Francisco and Vancouver B.C.

3.2 LOCATIONAL ATTRIBUTES

Lake Union has long been a working lake - it is home to an airport, the shipping industry, and was at one point the center of a vital local economy which included the local Ford Factory, Bill Boeing’s first airplane factory, ship building warehouses and more. The location on the lake was critical to these types of industries, allowing access to the Puget Sound and the Pacific Ocean. It provided a sheltered harbor for manufacturing and its proximity to the growing city of Seattle created a thriving industrial district. This tie to Seattle’s industrial roots is something Tellarite Real Estate Advisors holds in high esteem. As previously mentioned, South Lake Union is a highly desirable area anchored by well-known technology, life science, and biotechnology industry leaders. The completion of South Lake Union Park in 2010, as well as the Center for Wooden Boats and recent opening of the MOHAI in 2012, have added culture and layers that have made this one of the greatest waterfront development opportunities in the nation.

HISTORY

INDUSTRY

LOCATION

UNIVERSITY OF WASHINGTON

TRANSIT CONNECTIVITY

STREETS, SIDEWALK, PUBLIC SPACE

The four main streets impacting this development are Valley Street, Boren Avenue, Fairview Avenue, and Mercer Avenue. Valley Street is going to function as a lakefront boulevard- catering to the streetcar, cycling paths, and wide pedestrian sidewalks. With landscaping, retail priority, and waterfront views, Valley will be a welcoming gateway to the new promenade. South Lake Union Park, the most expensive park per SF of any in Seattle, is an extraordinary asset to the neighborhood. However, the area is not yet the pedestrian-oriented vibrant urban neighborhood that we believe it can be.

VEHICULAR CONNECTIVITY

flickr.com

TRAFFIC

This site has great visibility from I-5, from downtown, and from all sides of Lake Union. However, the site is adjacent to an important east-west traffic connection in the city. The Mercer connection adjacent to the site has been completed, funneling high traffic volumes through a highly engineered road. 60,000 vehicles pass this route daily. It will eventually extend to the highway 99 tunnel. Over 60,000 plus vehicles pass by each day. While there are improvements in the new urban streetscape, commuters are taking an extra 15-20 minutes during rush hour to get through South Lake Union on Mercer. Alternative methods of transit are increasingly necessary, although residents hope that congestion will ease when construction is done.

PEDESTRIAN CONNECTIVITY

PEDESTRIAN ACCESS

Lake Union has long been a working lake- it is home to an airport, shipping industry, and was at one point at the center of a vital local economy. The local Ford Factory, Bill Boeingâ&#x20AC;&#x2122;s first airplane factory, ship building warehouses and more. The location on the lake was critical to these types of industries- access out to the sound and the Pacific Ocean, with a sheltered place for testing, and proximity to a growing city created a thriving industrial district. This tie to Seattleâ&#x20AC;&#x2122;s industrial roots is something Tellarite Real Estate Advisors holds in high esteem. As previously mentioned, it is a highly desirable area anchored by well-known technology, life science, and biotechnology industry leaders. The completion of South Lake Union Park in 2010, as well as the Center for Wooden boats and recent opening of the MOHAI 2012, have added culture and layers that have made this one of the greatest waterfront development opportunities in the nation. 2013 NAIOP REAL ESTATE CHALLENGE

VIEWS

LAKEFRONT PROMENADE

4.1 LAKEFRONT PROMENADE VISION

UNIVERSITY OF WASHINGTON

The primary goal of this design is to create a more welcoming place that is irresistible for the public to visit and enjoy any time of day in any season. The Promenade will be the perfect setting for waterfront outdoor movies, concerts and special events. The following are the key design principles and features of the Promenade:

EMBRACE THE LAKE Lake Union is one of the City’s greatest assets. In its current state, Chandler’s Cove does little to capitalize on this asset by making it a central feature that maximizes benefits to visitors and businesses. Future designs should make the lake a focal point that is visible and accessible from nearly anywhere in the area.

MAKE IT VISIBLE

The existing lack of visibility caused by docked yachts and a poor arrangement of buildings prevents many potential visitors from walking through the space. As a result, there is significant loss of public benefit and potential clientele for private businesses. By reorganizing many of the site elements and features, site lines to the variety of amenities at the water’s edge will be opened to encourage passersby from all directions to stop and enjoy all the Promenade will have to offer.

REMOVE PHYSICAL AND PSYCHOLOGICAL BARRIERS Abrupt elevation changes, expansive parking areas, and an ineffective cluster of buildings, create both real and perceived barriers between the public and private realm. Taking away abrupt grade changes, putting parking underground, creating lanes of walking space between South Lake Union Park and the Promenade will help create a magnetic destination that will draw patrons in to activate and enjoy the businesses and restaurant.

ENGAGE AND EXPAND CULTURAL RESOURCES The Center for Wooden Boats, Seattle Public Parks and the MOHAI are valuable cultural resources for Seattle and have laid the foundation for making the Lakefront District a unique attraction within the City. In January 2013 alone, MOHAI drew more than 45,000 visitors. Providing attractions and making design decisions that are a draw for those visitors is an enormous opportunity. Maintaining a vernacular that compliments the surrounding resources will strengthen the entire waterfront identity and help make the whole greater than the sum of its parts. 2013 NAIOP REAL ESTATE CHALLENGE

LAKEFRONT PROMENADE

4.2 DESIGN ELEMENTS

10.

1. COVE 3. ToTHEresolve

11.

WEST PIER 4. Greatly reduced from its current size and

EAST PIER Many of the boats previously moored at the West Pier will be relocated to the the East Pier. While the maritime industry is an important appeal to the Lakefront, this area will become the designated yacht sales portion of the Promenade, consolidating dealers to make the core of the Promenade more welcoming and open to the general public.

2. RESTAURANT STROLL

Meandering through the upland portion of the Lakefront Promenade is the Restaurant Stroll. This is a series of spaces defined by the variety of restaurants and small amenity shops that draws in passersby from the park and streetfront. The stroll will offer an experience that is different, yet complimentary to the existing park and future Promenade Boardwalk by providing a more intimate sequence of interesting eddies of activity while maintaining framed views to the lake. 20

the issues of lake visibility and accessibility and create a magnetic feature that will draw visitors to the site, the waterfront will be improved to create the Cove. By relocating most of the larger yachts from the inner bay to the north pier, the waterfront will become more open and inviting, creating opportunities for improved public access from both land and water.

mooring capacity, the West Pier will become an amenity to the Promenade where short-term, active mooring occurs. This transformation will greatly improve views, accessibility and the overall character of the Lakefront as a place for everyone to enjoy.

PARKING 5. Parking is critical

to the success of the lakefront promenade. One of the biggest issues with the current area is the parking breaks up the flow of the area and hides the Promenade. Below ground parking at the current lowest level, will allow the promenade to be one big open space that flows from Valley down to the promenade. While transit, valet parking and foot traffic will bring many customers to the waterfront, we realize the majority of visitors still travel by car. The new development will exceed 2.3 parking spaces per 1,000 square feet of retail. The majority of this parking will be underground at the current parking lowest parking grade. Entry into the parking will be from the two existing culdesacs. UNIVERSITY OF WASHINGTON

PARK BRIDGE 6. The Lakefront District is the nexus of three neighborhoods: Westlake, Eastlake, and South Lake Union. The footbridge connection from Westlake to SLU Park located at the end of Aloha Street is a great draw for residents and daytime employees located along the west side of the lake. The connection, however, dead ends in front of MOHAI at the Center for Wooden Boats. By extending a bridge across the Center for Wooden Boats an irresistible, direct connection will be established, drawing thousands of additional patrons to the Promenade. PROMENADE BOARDWALK 7. The Promenade Boardwalk will

be the central gathering feature of the Lakefront that will draw visitors and patrons to the site to sit, stroll and interact at the waterâ&#x20AC;&#x2122;s edge. Drawing on the neighboring cultural resources, design elements that interpret the areaâ&#x20AC;&#x2122;s industrious past and evolving future will be included throughout the site design.

LAKEFRONT ACTIVITY CAFE 8. Acting as a multi-purpose gathering node, the Lakefront Cafe is hub for not only sipping coffee and grabbing a quick bite, but for renting kayaks, electric boats, paddle boards or scheduling a variety of other lake activities. The evening and daytime views from the restaurants will be a draw for customers who will want to walk the promenade before or after a meal, happy hour or movie. With heated covered outdoor spaces and a cozy indoor fireplace, the Cafe is a year-round draw for enjoying the lakefront. CENTRAL STAGE 9. Throughout the year, scheduled performances such as concerts and outdoor movies will take place along the Promenade. The Central Stage will be the focus of those big events providing a flexible space that supports a variety of civic events and activities. EVENT HOUSE 10.Located at the far point of the Promenade, the Event House will be THE spot in Seattle to host an event throughout the year. With an indooroutdoor flow created by floor to ceiling roll up doors, this space will be flexible to make the most of the amazing views. POCKET BEACHES 11.The pocket beaches will provide public access to the lake and improve ecological function along the shoreline. There will be a variety of typologies ranging from more natural beaches that recall the historic shoreline to more structured reveals within the Promenade Boardwalk. Each of the beaches, however, will provide opportunities for public recreation, ecological function, and mitigation to offset any potential shoreline impacts that may arise through the project. 2013 NAIOP REAL ESTATE CHALLENGE

LAKEFRONT PROMENADE

HOW DO WE INCREASE DESTINATION VALUE? • VIEWS AND ENTERTAINMENT • DESIGN • RETAIL CENTER • PARKING AND TRANSIT

Rentable Area of High Performing - Low 10s Rentable Area of Poor Performing Retail - 40+

90,000

20,000

50,000 20,000 Now

4.3 DEVELOPMENT STRATEGIES

2016

TENANT STRATEGY

KEEP EXISTING BUILDINGS

Joey’s and Daniels Broiler are successful business Current tenant lease rates vary greatly. Our brokerage contributing the majority of revenue from the advisors estimate first floor tenant rents range between waterfront. The top floors of theseTHE buildings are the $10-$25/square foot, while the upper end restaurants KEEPING THE INCOME ANCHORS LAKEFRONT most productive. These buildings will be kept DISTRICT in place range between $40-$50/square foot. One building is with some remodeling to fit into the new surroundings mostly vacant. Joey’s, Daniel’s Broiler and Chandler’s Upper End Retail Rents, Crabhouse are the only bright spots in rent roll. This will Estimated Annual Rent Above $50 NNN change through redevelopment of the area. The reconfiguration of the waterfront retail will lock in a solid mix of income producing tenants. Current Gross Income is estimated to be $3,000. Future Income is expected to be $10,000,000. Some of the new businesses, like the cafe, gelato stand, kayak rentals and boat brokers, will be expected to pay rents close to $20/square foot. The greater majority of restaurants and entertainment tenants will be in the $40-$60/sq ft range. Both current and future leases will be triple net with the majority of expenses, including common area maintenance, being passed on to the tenants. Due to the large amount of common areas needing to be maintained we expect a large per month for non-reimbursable expenses covered by Vulcan and not passed through to tenants. Replacement reserves are included in the expense budget to keep up with needed repairs and maintenance.

MOVE BOAT BROKERS AND SOME MOORAGE The boat brokers will be moved to the eastern bay in a less public bay. Here they will a function direct connection between their offices and inventory. All attempts will be made to better utilize the eastern bay to put in more boats and moorage, but the income from marine uses is not the main driver for the success of the redevelopment. The key to this development is maximizing the higher paying restaurant and entertainment while still supporting marine uses in a more compact, efficient and less public area. UNIVERSITY OF WASHINGTON

NEW DEVELOPMENT STRATEGY

FAMILY RESTAURANT WITH ENTERTAINMENT Fronting Valley Street, next to the park and trolley stop, will be a great location for a family friendly restaurant and entertainment concept. Similar to the Garage on Capitol Hill or Elemental Pizza in the U VIllage, this would be a higher volume restaurant that provides a great place for families to meet and refuel after spending time at the Waterfront Promenande. Von Trappâ&#x20AC;&#x2122;s on capital hill is another example of a restaurant/entertainment concept filling a void in Seattle. In talking to the business owners of Elemental Pizza, they are very interested in this building and feel this is a great loaction.

2013 NAIOP REAL ESTATE CHALLENGE

BIG PICTURE OR CINERAMA A smaller 200 seat, two theater movie would be another great addition. We cannot compete with the larger multiscreen corporate theaters, but we can offer a unique experience where you can eat and drink while watching. You can also rent out one of the movie theaters for

LAKEFRONT PROMENADE

BREWERY Between Joey’s existing and the new Chandler’s Crab House, is a great place for a brewery. The Brave Horse is doing extremely well, indicating the growing market can easily support another neighborhood brewery. Adding the destination traffic will further guarantee success.

SPECIAL EVENTS New Location for Chandler’s Crabhouse The new building along Fariview Avenue, will have tremendous views of the promenade and lake. This reposition allows for the central stage, cove promenade and central cafe to be constructed. Chandler’s Crabhouse will have better visibility to traffic along Fairview, increasing their business. During warmer months, or with the aid of heat lamps, they will be able to provide outside seating along the restaurant stroll.

ACTIVITY CENTER The key to this center is creating a café, electric boat rental and other activity rental center that pull customers into the center 12 months of the year. Indoor/outdoor space on the water can be active all year round. EVENT SPACE WITH COVERED INDOOR/ OUTDOOR SPACE The space at the end of the Promenade has amazing 270 degree views of SouthLake Union and the Seattle Skyline. The view at night, with the well lit MOHAI building in the foreground, is spectacular. The restaurant and event space will be perfect for company parties, wedding anniversaries and weddings. The Palace Kitchen or the Garage on Capital Hill are concepts that do well here.

UNIVERSITY OF WASHINGTON

The synergy of strategies and market segments bring out the potential of the area. The waterfront is a Seattle treasure that can be improved into a vibrant active area that provides Vulcan with a reasonable payback on their investment. The improvements in the area and resulting value created are motivation enough to proceed with the development. The waterfront has an added advantage of being a key art of making South Lake Union a great urban neighborhood where office tenants, apartment dwellers and condo owners will be motivated to stay in the area. Overall the success of retailers depend on the overall success of South Lake Union.

THE NEW CENTER OF THE UNIVERSE! (apologies to fremont) -Seattle Magazine, March 2013

4.4 MARKET SUPPORT STRONG DESTINATION RETAIL MARKET

Joey’s, Chandler’s Crab House and Daniel’s are the three main revenue drivers. The majority of business income for these restaurants is considered destination retail, supported by customers visiting from throughout the greater Seattle area. For date nights, happy hour, business lunches, brunch and other special occasions, many customers choose to drive to the these three restaurants. The Museum of History and Industry (MOHAI), South Lake Union Park and the Center for Wooden Boats are bringing in customers from outside the neighborhood as well. Considering the potential for this area to become more of a draw, any development should focus on building on the existing destination retail customer base. Customers are mainly from the Seattle MSA, however tourists from outside the city and country present another untapped customer base (see Hotel Market Analysis for more information). Figure 1 (right) shows the strength of the Seattle MSA and some other solid demand indicators. Estimated retail supply and demand is challenging in Seattle. Successful retail is concentrated in a few key spots. Overall levels of retail sales and space provide some relevant data. However, our advisors see the success of this area coming from stealing market share from competing areas. There are roughly ten areas in Seattle that support successful high rent paying restaurants and entertainment retail. Retailers will pay double, triple or more to be in the right area. A successful retail development will be more attractive to customers and provide a better experience. 2013 NAIOP REAL ESTATE CHALLENGE

Over the last few months we have talked to a variety of potential customers from many demographics. Even with our limited sample size of 30, there is a general consensus of where customers go to eat, drink, be entertained. Figure 2 (right) shows their list of best destination spots for dining and entertainment in Seattle.

WATERFRONT SITE STATISTICS Existing Retail Existing Retail not Moving New Retail Total Retail Site Coverage Today Future Site Coverage Parking Ratio Current Marina Linear Footage Future Marina Linear Footage

80,000 SF 30,000 SF 110,000 SF 140,000 SF 22% 25% 2.3 4,200 LIN. FT 2,384 LIN. FT

DATA SUPPORTING DESTINATION RETAIL 3,733,996 2017 Seattle MSA Population 248,024 2017 Population within 20 minute drivetime 233,000 Seattle MSA households with total household income over $75,000 50% Household Income over $75,000 7,000 Visiters to MOHAI on opening day [1] 45,000 Visitors to MOHAI last month [1] /www.visitseattle.org/News-Room/Welcome.aspx 25

LAKEFRONT EAST

5.1 LAKEFRONT EAST VISION

The building is organized and scaled appropriately to strengthen the public realm and provide maximum benefits to the various on-site uses. The hotel is u-shaped a double loaded corridor with primary frontage along Valley Street. This organization captures views to the lake and provides a direct relationship to the entertainment district. The condo tower tower is located on the southwest corner to provide ease of access for residents along Boren and maximize south, west and north views to the city and lake. Taking full advantage of the high visibility from I-5, the health club and urban market anchor the southwest corner on Fairview and Mercer.

5.2 LAKEFRONT EAST DESIGN

UNIVERSITY OF WASHINGTON

ALLEY VACATION The construction on Lakefront East requires an alley vacation to make the most of the development potential. This process takes about a year through the City of Seattleâ&#x20AC;&#x2122;s Design Commission. The alley vacation allows the purchase of public right of way, and must be repaid through a public amenity and urban design program. This project proposes the allocation of public land on the Lakefront Promenade to be the public benefit of Lakefront East.

PARKING

The design for the site includes parking for the condos, hotel, retail, fitness center, and retail, and spillover parking for the Lakefront promenade across the street. Parking is critical to ensuring that the site is accessible and functional for the many users on the site. Overall, 467 parking spots have been created including two levels of below grade with 397 stalls and four levels of above grade parking with 90 stalls.

SYNERGISTIC MIX OF USES The high- denstiy zoning on the site allows for mixed use. To maximize the site as well as the promenade, night time uses were seen as a way to keep the neighborhood active around the clock. Hotel and residential pieces were proposed, with Olive 8 as a comparative. Other uses on the site emphasize the healthy, active, and flexible lifestyle that professionals and aging boomers value so highly: fitness center, amenity retail, and complimentary uses.

CREATE AN ACTIVE GROUND FLOOR The first floor of Lakefront east is filled with lobbies, parking access, and amenity retail uses that compliment the upper floor uses. A bar and restaurant on the ground floor cater to the hotel as well as creating a meeting spot for residents of the condo tower, and a place for visitors to drop in for some luxury. The varied uses combined with the courtyard create a butling ground level, secon only to the promenade.

2013 NAIOP REAL ESTATE CHALLENGE

LAKEFRONT EAST

5.2 PRODUCT POSITIONING

Lakefront East will be a premier, mixed-use, high density urban development that will establish the Lakefront District as the Northwest’s most desirable location to live an active, healthy, social lifestyle. The four main components include an upscale hotel, luxury high-rise condos, a fitness club, and ground floor retail. These uses provide opportunities for shared operation efficiencies and amenities such as access to the premier fitness center, spa services, valet parking and food services. The synergies of Lakefront East’s uses and proximity to surrounding amenities such as the Lakefront Promenade fit a modern, active, urban lifestyle where convenience and flexibility are vital.

CONDOMINIUMS

HOTEL GROUND FLOOR RETAIL

HEALTH & FITNESS

Condominiums Health & Fitness Hotel Retail Below Grade Parking Above Grade Parking

RETAIL

144 Units 60,000 SF 225 Rooms 14,500 SF 397 Stalls 90 Stalls

Ground floor retail is mandatory in Seattle’s Mixed-Use Zone, however the retail on Lakefront east is designed for maximum transparency, visibility, and flexibility. It is separated into two separate ground level blocks. Each can be broken into smaller spaces to The retail on Lakefront East is partially run by the hotel, an elegant and relaxing restaurant and bar cater events, and serve individual rooms. The rest of the retail is programmed and rented to entrepreneurs to fill needs of the new residents and guests. A local and fresh grab-and-go grocery can serve the needs of residents and the workforce in South Lake Union. A flower shop, bank, café, dry cleaner, or clothing store would also contribute to the active and busy ground floor that the vision of the site hinges on.

UNIVERSITY OF WASHINGTON

4 STAR HOTEL

The hotel is designed for luxury and views. In a funky, tech-centric, growing neighborhood, the hotel will stand out. It is a place for events, for weddings, unique small conferences, or travelers simply looking for a special place to stay. The hotel highly benefits from the views of the lake and accessibility to the lakefront promenade. Because of this, the hotel is oriented along Valley Street as much as possible. The hotel ultimately makes a U-shape which is dictated by the optimal 65' wide double-loaded corridor size. This shape creates an an interior courtyard that holds Rooms face both in and out, with major suites on the northeast and northwest corners of the block. The hotel entrance is in the center of the block on Valley Street, under a long overhang. Once inside the lobby, bellhops, a concierge, and a front desk are ready to serve.

LUXURY CONDOMINIUMS

The Luxury Condominiums are designed to maximize views. At 240' tall, and only 10,500 SF per floor, the condos are one of the economic drivers of the project. Eight condos a floor create luxury floorplans, excellent views on multiple sides, and a surprising efficient circulation. The tower is served exclusively by two elevators accessed from a ground floor lobby located off Mercer Avenue. The 5th floor has a residential lounge with a caterer's kitchen, a media room, an outdoor balcony, and flexible space can be reserved for events. The condos take advantage of a premier site, with exclusive views of Lake Union. These are the towers people have been waiting for, the prestige of the site, combined with the great neighborhood and convenience will create a high value.

PREMIER HEALTH AND FITNESS

The fitness center faces the southeast, with access in from the courtyard, and up from parking. The fitness center maximizes value through a square-ish floorplate, more so than the other uses on Lakefront east. Visibility from Mercer Avenue and Fairview Avenue will help with interest and accessibility. The floorplate of this component will maximize flexibility for various uses such as squash courts, a pool, classrooms, and a spa center.

2013 NAIOP REAL ESTATE CHALLENGE

LAKEFRONT EAST HOTEL

6.1 HOTEL VISION

Fronting a newly improved Valley Street, this four-star hotel will have outstanding lake and city views as well as excellent accessibility to the Lakefront Promenade entertainment district as well as the heart of South Lake Union and downtown business district. The hotel will have 225 well-appointed rooms. The shell of the building will wrap the block in a ‘U’ shape, creating an interior courtyard. The double-loaded corridor layout maximizes light and views by providing each room with either an outward lake, city or courtyard view. The design and image of the hotel will be similar to other boutique concepts, such as Inn at the Market and Hotel 1000, all of which are doing well in the current market. The low, six story hotel is fitting for the scale of the Lakefront District and compliments the pedestrianoriented nature of the neighborhood.

OVERVIEW • 135,000 GSF • 225 Upscale Rooms • $240 Average Daily Rate • $320 Construction/ GSF

6.2 HOTEL DESIGN STRATEGY

The views and the unique amenities of South Lake Union will make this hotel stand out among its competition. Key hotel design details that will make this hotel successful include: 1) VIEW ROOMS This hotel will have tremendous views of Lake Union and the Space Needle. Repeat customers paying the corporate rate of ~$225 will be rewarded by upgrades to lakefront view. 2) ROOFTOP POOL & BAR A rooftop bar containing splash pool, will be a magnet for the after-work and weekend crowds. This bar would be a hotspot for nightlife in SLU. 3) HEALTH & FITNESS FACILITY Guests have access to a full service 60,000sf fitness center. 4) RANGE OF ROOM AMENITIES AND PRICING Similar to the Pan Pacific Hotel, rooms will range from low $200s to well above $1,000. Top floor, corner suites will have incredible views and with well designed luxury interiors catering to visiting diplomats and CEO’s.

• Occupancy Rate 80% • Management Fee 3.5% Total Revenue • Franchise/Sales & Marketing 5% Total Revenue

UNIVERSITY OF WASHINGTON

6.3 HOTEL MARKET SUPPORT

Our advisors believe this location, combined with the market void present a great opportunity for a 4 star hotel.

SUBMARKET COMPETITION

We have undertaken a market analysis of all the hotel properties within 5 miles of the site to determine the competitive landscape. Our analysis shows that South Lake Union is currently undersupplied in terms of hotels; SLU has a total of 1057 rooms in 5 hotels or 8% of the total rooms compared to the downtown market. In comparison, the Seattle downtown area has 13,000 rooms in over 50 hotels.

EXPECTED GUESTS • 40% business, 20% group, 40% leisure • Director and above business travelers working at nearby businesses • Luxury leisure travelers visiting Seattle • Wedding, convention and special event group bookings • Romantic weekend getaways

Little direct competition for SLU exists in the 4 star space, and there are a low number of 3 star hotels in the area, these are: • Marriott Residence Inn (234 rooms) - 3 star • Silver Cloud Inn (184 rooms) - 3 star • Courtyard by Marriot (248 rooms) - 3 star • 2 Holiday Inns near the Seattle Center - total of 390 rooms. • The next notable competitor is the Pan Pacific - a 4 star property with 160 rooms within the 2200 Westlake development, the next closest hotels are located close to the Seattle Cente and within the Denny Triangle.

HOTEL

2013 NAIOP REAL ESTATE CHALLENGE

LAKEFRONT EAST HOTEL

STRONG CURRENT & FUTURE DEMAND

Hotels typically segment their demand into business, leisure and group. We believe our demand will be driven by 40-50% business, 40% leisure and 10-20% group bookings. This is based on a rationale of consulting with hotel experts what is achievable for our site, based on what exists in the market. In the nearby Central Business District, demand for boutique hotels (Hotel 1000, Inn at the Market, Hotel Vintage Park, Hotel Monaco) in the downtown submarket area are booked at a split of 40% business, 20% group booking, 40% leisure. In our hotel, we believe the 40% of business customers would be a split of weekday, corporate business travelers â&#x20AC;&#x201C; director level and above - visiting the Gates Foundation, Fred Hutchinson, Amazon, and the host of other world class companies located in South Lake Union. The technology and biotech industries in SLU are rapidly expanding; within the next five years approximately 23,000 new jobs are forecast this massive explosion by over 50% new jobs will underlie the growing business traveler demand. The 10-20% of group travelers would be visitors to conferences/conventions and wedding groups using the Waterfront events center/restaurants. Leisure travellers typically make up 40-50% of demand (including group bookings leisure groups). We expect these travelers to be visiting local attractions such as Lake Union, the MOHAI and Seattle Center. Additionally, with an influx of restaurants and nightlife through opening of our Lakefront Promenade in 2017 and increased accessibility with the finished trolley, we expect to

create even more of a draw for tourists. Underlying this is the strong growth in Incoming passenger numbers at Seatac Airport; an increase of 5% in passenger levels was reported from 2010-2012 (with per annum growth of 1-7%).

UNDERSUPPLY AND STRONG PROJECTIONS

The undersupply of hotels is reflected in the rates and occupancy of the hotels in the area. Currently Kidder Matthews has figures for 2012 in SLU at: 76.0% occupancy and $141 ADR. Similarly, In 2012, the Residence Inn located right next to the site posted an ADR of $170+ and 85% occupancy. These figures are indicative of an area experiencing underaccomodated and latent demand. By 2018 the South Lake Union area is forecast to reach an ADR at $190 (2016) and Occupancy rates of 77% (2016) - these figures are indicative of a strong future market. Given a total number of beds at 1057 for the area (at present), the current 76% occupancy represents 803 beds occupied on average year round. However, we believe the market can in the future support at least 1200 beds occupied - based on 70% occupancy â&#x20AC;&#x201C; this is approx 1700 beds. This is approximately a 60% increase in market size. After accounting for the incoming hotels with 420 rooms between them - we count 1 new hotel in SLU - 283 bed rooms on Amazons Block 101 and a proposed 133 room Hilton Garden Inn by Touchstone; we believe there is sufficient justification for another 280 rooms.

UNIVERSITY OF WASHINGTON

HOTEL DESIGN - PREMIUM OR 3 STAR?

Our choice of a 4 star offering is based on a competitive analysis of the market. Market experts whom we consulted for this project believe there is insufficient demand for a 5 star property on the site. At the same time, 3 star properties are in oversupply and we believe whilst profitable they do not maximise the locational characteristics of the site - e.g. the lakeviews, excellent access/transit to/from the area. Finally: the fact that there is no 4 star product until the Denny triangle area speaks to a gap in luxury accommodations of the 4 star quality.

FLAG

We believe the choice of flag will be based on what is currently not present in the market and not tied to any interests. We believe the hotel would benefit from having an experienced operator; an unbranded hotel would suffer in terms of establishing presence in the market by not having the same marketing channels. Thus it would start with lower ADR and occupancy than if it were â&#x20AC;&#x2DC;brandedâ&#x20AC;&#x2122;.

NUMBER OF ROOMS

Using the analytical approach above, and after consulting with local hotel experts at CBRE and Kidder Matthews, we determined that an achievable range for the number of rooms is from the high 100s to the low 200s. A hotel of 300 rooms or more would be too much for the area - impacting yields whilst below 150 rooms there is insufficient economies of scale. Given the planning parameters of the site, and need for other uses on Block 25, we have allowed for a maximum size of 135,000 gsf located within the northern podium. To get to the final number of rooms we factored in standard 4 star hotel hotel room sizes (based on Kimptons and the Pan Pacific), and common/circulation spaces such as meeting rooms, lobby and corridors, and prepared preliminary floor plans to ensure our sizing reflected industry practice. The standard allowance for a boutique standard of 4 star hotel, is between 325 - 600 sf per room (net). This allowed us 600 gsf gross per room, and resulted in sufficient space for a 225 room hotel.

Market sources have advised us that existing sole franchisor rights exist for Hyatt, Hilton and Westin properties - hence the hotel cannot have any of these flags. However we are aware that Omni, Kimpton and Joie De Vivre are hotel operators currently looking at opening more properties in Seattle, and have expressed interest in our site when we discussed the proposal with them.

2013 NAIOP REAL ESTATE CHALLENGE

CONDOMINIUMS

7.1 CONDOMINUIM VISION

Given the prime waterfront location with its unobstructed views, easy access to downtown, entertainment, recreation and shopping, Lakefront East is ideal for luxury condos. This is the place that so many potential condo owners have been looking for as they consider downsizing from their single family home, or holding out until financial markets gain some strength and momentum - as they are beginning to now. No other neighborhood in Seattle can deliver the dynamics and amenities that the Lakefront District will offer, and it our strategy to capitalize on the unique opportunity to create the most desirable living in the Northwest.

Given the prime waterfront location with its With the lenders and the industry so focused on apartments in recent years, the demand for condos has finally caught up and passed by available supply. There are strong indicators that the condo market is turning around and support a successful sell out from preconstruction to the 12 months after completion of the project.

CURRENT MARKET INDICATORS

FEW VACANCIES IN COMPETING PROJECTS Olive8 and 1521 Second Ave, both downtown luxury condo towers that came to market in 2008 are now approaching full occupancy (93% and 97% respectively). FEW UNITS FOR SALE IN URBAN SEATTLE In 2008 Seattle had 2,500 condos for sale. Today there are only 120, a historical low. Source: Realogic Sotheby’s International Realty

OVERVIEW • 190,000 GSF • 150 Units • 1,135 NSF / Unit (Avg.) • $325 Construction / GSF • $1,040 / SF (Avg. Sale Price) • $1.2M / Unit (Avg. Sale Price) • 1 Parking Stall per Unit

CONDOMINIUMS

7.2 MARKET SUPPORT

RISING PRICES IN DOWNTOWN SEATTLE Downtown home prices have reached pre-recession prices of $500,000 Source: Daily Journal of Commerce, March 04, 2013 NO EXPECTED INVENTORY UNTIL 2015 (Bosa’s project = 640 units) Source: Realogic Sotheby’s International Realty As available inventory continues to go down prices are risings indicating that the Seattle market is once again poised for new condos.

UNIVERSITY OF WASHINGTON

FUTURE FORECAST

The target condominium buyers include: Wealthy individuals and families wanting to live near work; Migrating vice president and higher levels moving to Seattle from areas like New York and San Francisco; Empty Nesters looking to move back into the city for a more active livfestyle; Parents looking for second homes near their children. This target market is relatively small.

LOCATIONS AND VIEWS

Active brokers believe the view from Lakefront East will drive demand and increase value by $200,000 to $300,000 per unit compared to condos without quality views. The primary benefit here is that these views looking North toward Lake Union will be completely unobstructed forever. In addition, with the City and Vulcan allocating significant investment to the surrounding amenities (including the waterfront) as well as the South Lake Union Trolley (with planned expansion of service), these condos will be in high demand.

FEATURES AND AMENITIES • · Expansive Lake Union and City views • · 1,135 average square feet per unit • · Community lounge with outdoor terrace and caterer’s kitchen • · Separate entrance lobby • · Concierge • · Parking Stall • · Dog run • · Storage • · Direct access to premier fitness facility, restaurants, entertainment, and recreation

2013 NAIOP REAL ESTATE CHALLENGE

HEALTH AND FITNESS CLUB

8.1 VISION

Contributing to the appeal of Lakefront East as an active, healthy place to live and play is a premier health and fitness facility. Located on the southeast corner of the block, this 60,000 square foot facility will include a range of services, exercise areas, and amenity offerings. The addition of a premier health club will fill a void in the market area and create an 18 hour flow of users to the Lakefront District that will complement the entertainment activities at the Promenade as well as the Lakefront East hotel, condos, and retail uses.

DEVELOPMENT SUMMARY • 60,000 GSF • CONST: $180 / GSF (+ TIs $71/GSF) • Lease: $31/ GSF (NNN) • PKG: 191 Stalls (3.33 per 1000 SF)

8.2 STRATEGIES

MARKET DIFFERENTIATION The competitive market is currently missing a full-service

urban athletic club of the size, quality and character proposed here. The closest competitors in Seattle include the Washington Athletic Club and Seattle Athletic Club. These facilities, however, have failed to keep up with evolving health and fitness trends, lack the visibility, accessibility and amenities of our prime lakefront location, and are located outside of the South Lake Union neighborhood. The variety of uses that will further differential this operation include: • fitness and group areas • studio spaces (yoga, pilates, spinning) • racquetball and squash • spa • top-floor pool with views to the lake • childcare • spacious locker room facilities

8.3 MARKET FORECAST

Membership projects considered existing and future demographic data of professionals aged between 25 and 60 years earning over $75k annually within South Lake Union’s greater competitive area. Overall market penetration for health clubs includes capture rates of 22% for residents and 15% for daytime population. Current memberships for existing health clubs and gyms are estimated at 40,700 within the competitive market area. With the increase in residents and daytime population over the next four years as well as the draw from enhanced offerings of the new facility at such a desirable location, our projections show a membership potential of over 4,800 members by Lakefront East opening in 2018.

HEALTH & FITNESS 36

Based on our market analysis and application of industry standard operation models, we project that a 60,000 square foot facility with the quality and quantity of facilities proposed will garner monthly dues of $125 per month from (conservatively) 3,500 members. At triple net rent of $31 per square feet and additional operating expenses of 40% of gross revenue, a fitness facility will yield a 25% profit margin of $1.25 million annually in this location. UNIVERSITY OF WASHINGTON

Through our market research, we identified one market player that would be the ideal tenant for Lakefront East. PRO Sports club currently operates a 30,000 sf facility in the Cascade neighborhood of South Lake Union with a membership base of approximately 3,000. The organization has a strong corporate membership relationship with Microsoft and various other companies that are increasing their presence in South Lake Union. During our conversations with PRO, interest has been expressed in expanding their Seattle facilities to better complement and serve members commuting from their Bellevue location (a 500,000 square feet facility and over 40,000 members). The advantages of relocating PRO (or similar) to Lakefront East include instant market recognition and membership activation that will spillover to surrounding businesses.

2013 NAIOP REAL ESTATE CHALLENGE

DEMOGRAPHIC SUMMARY • Tech/ Health & Science Professional • Age 25-60 • $75k+ Income • Dues: $125/Mo

HEALTH CLUB MEMBERSHIP FORECAST

AMENITY RETAIL

9.1 VISION

9.2 STRATEGIES Market Differentiation

There is also a great opportunity along Mercer Street. We believe an electric car dealership on Mercer would benefit from large volumes of traffics every day. There are many levers Vulcan can pull to capitalize on both types of retail customers. Including: • • • • • •

Discovery SLU Website tools Promotions for residents Sponsorship of waterfront events Press releases and active marketing campaign Shared promotions with retailers Partnerships with wooden boat center, MOHAI, City of Seattle and other who have aligned interest in making this development a success. • Percentage rent to help local retail get started with profit sharing potential as business explodes.

9.3 MARKET SUPPORT

Looking at the nearby office and residential space in the pipeline, making some assumptions about the composition of uses built along Mercer and looking at the number of apartment, hotel and condo units in the immediate area, there will be a big improvement in the foot traffic throughout the day and into the evening. We consider the reasonable walking area and activity zone for neighborhood retail to the zone shown in the map below. The nearby area two large hotels, Fred Hutch Cancer Center, Numerous Offices and apartments. All of these different uses increase an already healthy demand for services that cater to the needs of daytime inhabitants and evening residents. Gross block by block analysis shows retail in 2016 will be supported by the following population counts: Both the destination customers and neighborhood customers in the area will support the limited amenity retail at street level and the Hotel restaurant.

RETAIL

UNIVERSITY OF WASHINGTON

SYNERGISTIC MIX • Hotel Restaurant – 5,000 square feet • Fresh Foods Grab & Go Market – 8,000 square feet • Hotel Rooftop Bar – 3,000 square feet • Spa - 2,300 square feet • Hair & Beauty Salon 1,200 square feet • Flower and Gifts – 1,500 square feet • Coffee Lounge - 1,200 square feet

2013 NAIOP REAL ESTATE CHALLENGE

PHASING

10.1 OVERVIEW

The overall phasing strategy is to begin the transformation of Chandlerâ&#x20AC;&#x2DC;s Cove into the Lakefront Promenade and deliver Lakefront East upon completion to capture the added value generated by the vibrant entertainment district.

STAGE

LAKEFRONT PROMENADE PHASE 1

In addition, a sales center will either be established at the Lakefront Promenade or a model unit and sales force will be established at the existing Vulcan Lake Union Discovery Center to begin pre-selling condominium units that will be built on Block 25 (rebranded as Lakefront East).

This phase includes the development of a structured, below finished-grade parking garage with new retail/ entertainment buildings at the southwest corner of the property (former Burger King site) as well as the lidding and construction of new retail fronting Fairview Avenue. Also taking place at this time will be the bridge and dock connection to the park as well as the existing dock removal /reconfiguration. This approach limits impacts on parking shortfalls and businesses by allowing either Block 25, 26, or 27 to accommodate any overflow parking needs while creating immediate public benefits and awareness of the evolving Lakefront District.

Lakefront Promenade Phase 2: Complete the promenade, including the new waterfront retail spaces, piers, decking and docks.

PROMENADE DESIGN

SHORELINE REVIEW

PERMIT

PARKING CONST. PROMENADE BUILDINGS TENANT LEASE-UP GROUNDSWORK

LAKEFRONT EAST DESIGN ALLEY VACATION

PERMIT CONSTRUCTION TENANT LEASE-UP FIT-OUT

Q3 Q4

2013

Q1 Q2

Q3 Q4

2014

Q1 Q2

Q3 Q4

2015

Q1 Q2

Q3 Q4

2016

Q1 Q2

Q3 Q4

2017

UNIVERSITY OF WASHINGTON

STAGE

Lakefront East (Block 25) construction will begin 6 months after the Lakefront Promenade transformation begins â&#x20AC;&#x201C; breaking ground with the completion of the Lakefront Promenade Phase 1. This timing would allow for the site to be used as interim surface parking and/ or construction staging. In addition, this phasing will allow project delivery approximately one year after the Lakefront Promenade transformation has been completed and Lakefront East will fully be able to capture the added value generated by the vibrant entertainment district.

2013 NAIOP REAL ESTATE CHALLENGE

FINANCIALS

11.1 COSTS LAND

cost breakouts. Over the last few weeks, R & H reviewed our numbers with their estimators to develop what we believe are conservative capital budgets.

HC Henry Pier and Chandler’s Cove aggregated land parcels are valued at $17,500,000, roughly $183/sq ft per square foot of upland property. Block 25 land parcels are valued $25,000,000, roughly $360/sq ft.

RISKS AND OPPORTUNITIES

VALUE ENGINEERING There are opportunities to reduce the construction costs through working with our contractor partners to modify our designs to return the most value. WE strongly believe the preconstruction phase is critical and recommend close coordination and value engineering the development designs.

SOURCES

In order to develop our pre-construction budgets we cross referenced numerous sources. We compared RS Means and Marshall & Swift Square Foot Costs for similar buildings using the 2013 publications. During our interviews with developers, brokers and appraisers, we gained some general ranges of construction costs for different uses. CONSTRUCTION COST ESCALATION We escalated our construction costs by 6% to account for Ultimately our Waterfront Costs: best resource for our costs came from the our 2017 start date. generous team at R & H Construction in Portland. Jake Sly from their preconstruction cost team spent a day walking Construction Tenant the site, reviewing conceptual drawings and looking at Waterfront Costs Budget Unit Allowance/SF our budget. Based on their guidance we reformatted our Waterfront Costs: Parking $27,000 Per Stall Site Improvements $55 Per SF of Land $175 $110 New Buildings Construction Per SF GSA Tenant Demolition $2 Per SF Building Waterfront Costs Budget Unit Allowance/SF Remodel Budgets $35 Per SF GSA Parking $27,000 Per Stall Site Improvements $55 Per SF of Land New Buildings $175 Per SF GSA $110 Demolition $2 Per SF Building Remodel Budgets $35 Per SF GSA Waterfront East Building Costs: Construction Lakefront East Costs Budget Unit Tenant Allowance/SF Waterfront East Building Costs: Underground $28,000 Per Stall Above ground parking $33,500 Per Stall Condo Tower Construction Per SF GSA $325 Lakefront East Costs Budget Unit Tenant Allowance/SF Hotel $290 Per SF GSA Underground $28,000 Per Stall Club $180 Per SF GSA $500 for pool/complex $30 for open space Above ground parking $33,500 Per Stall Retail $110 $90 Condo Tower $325 Per SF GSA Hotel $290 Per SF GSA

Club

$180

Per SF GSA

Retail

$110

$500 for pool/complex $30 for open space $90

UNIVERSITY OF WASHINGTON

11.2 INCOME

The development financial returns are split between two main sites, as these are financed separately using a different set of assumptions.

LAKEFRONT PROMENADE INCOME

The promenade development will drastically change the rent roll for the waterfront properties. The better performing retail tenants will more than double the income compared to the current, pre-development, rent roll. Gross Annual Income Source Income Per Unit Unit Parking $716,000 $200 Space/Month Marina $400,500 $15 Linear Foot/Month Retail Average $5,300,000 $46 Square Foot/Year Total $6,416,500 Gross Annual Income Source Income Per Unit Unit Parking $716,000 $200 Space/Month Marina $400,500 $15 Linear Foot/Month LAKEFRONT EAST INCOME $5,300,000 $46 through Square Foot/Year Lakefront East will Retail Average be generating a small percentage of the income a combination of leasing the retail and Total $6,416,500 fitness space to experienced operatorsGross for between $24-40 psf. Additional revenue streams will be generated by Lakefront East Revenue Expense which will be at 80% operating the hotel, occupancy by per Unit year 3 (yr 1 atPercentage 70% occupancy, yr 2 at 75% occupancy), ADR Rent Revenue Revenue will be starting at Hotel 10% less than the market average for a hotel of its 4 star22% rating, and will be increasing to stabilized $19,400,000 $148/SF figures by year 3. Retail $940,000 $34/SF 5% Health Club $1,780,000 $31/SF 5% Total $22,120,000 Lakefront East Gross Revenue Expense Rent Revenue Revenue per Unit Percentage Hotel $19,400,000 $148/SF 22% $940,000 $34/SF 5% Retail Health Club $1,780,000 $31/SF 5% Total $22,120,000 Lakefront East Condos Sale Price per Net Square Foot $1,045/SF Total Sales $177,880,000 Presales Prior to Construction 42% Month to Sell Out After Construction 12 CONDO SALES The income model Lakefront East Condos for Lakefront East is based on the typical model for condo sales in the market. This assumes a large percentage of condos will be sold prior to construction and all the units will be sold within a year after completing the Sale Price per Net Square Foot $1,045/SF condos. Total Sales $177,880,000 Presales Prior to Construction 42% Month to Sell Out After Construction 12 CONCLUSION Gross annual rental income from both properties is $28,525,000. The total sale income for the condos is $177,800,000. For Lakefront East, the hotel and the condominiums are driving the bulk of gross income and resale profits. The amenity retail and health club provide solid income, but are help support the overall value of the development through a cohesive, well balanced development strategy.

2013 NAIOP REAL ESTATE CHALLENGE

FINANCIALS

11.3 RETURN ON INVESTMENT

As indicated in the market analysis, both sites exhibit strong economic opportunities for investment. Each site was financially analyzed separately, then combined to derive a total project return. The affects of using and not using leverage were measured to analyze the most optimal investment strategy. Vulcan’s credit and capital allows it to act as the developer and owner of both projects. However, since the Lakefront East separates into condominiums for each use, Vulcan has the option to sell any use to a separate entity at anytime (which gives Vulcan more exiting options). All returns measured in this analysis are pre tax scenarios.

LAKEFRONT PROMENADE

The Lakefront Promenade presents an incredible opportunity for economic investment. Given the Lakefront Pstated romenade previously assumptions for costs and rents, the Project P erformance Lakefront Promenade is estimated to gain a profit of Lakefront Promenade The assumption Total Project Costs $75,200,000 ~$17.5 Million (Profit Margin of 23%). Project P erformance Market V alue @ 6 % C apRate $92,800,000 of keeping the high paying rental structures (i.e. Joey’s, Total Project $75,200,000 high Profit $17,600,000 Daniels), whileCosts increasing the square footage of Market Value @ 6% $92,800,000 Profit M argin 23% paying retail allows theCapRate project to capture the most value. $17,600,000 Profit 23% Profit Margin Lakefront Promenade Construction and Take Out Loan Terms Lakefront Promenade Lakefront P romenade Loan t o C ost 80% Project Performance Construction nd Take Out Loan Terms Interest Over CLaosts IBOR 250bp Total Project $75,200,000 Loan t o C ost Loan t o V alue 80% Market Value @ 6% CapRate $92,800,000 80% Interest Over LIBOR Debt Service Cover Ratio 1.15 Profit $17,600,000 250bp Loan M to argin Value Terms 30 Profit 23% 80% Debt S ervice C over R atio 1.15 Interest R ate 5% Terms in Cap Rate 30 6% Going Interest RPate 5% Lakefront romenade Going in Cap aRnd ate 6% Construction Take Out Loan Terms Loan to Cost 80% Lakefront Promenade Interest Over LIBOR 250bp Return Metrics Sale at Year 11 Loan to Value 80% Lakefront Equity Promenade Debt Service Cover Ratio 1.15 Return MCetrics Sale at Year 11 Stabilized ashflow Terms 30 Equity o n Equity Return Interest Rate 5% Stabilized Cashflow Exit Cap Going in RCate ap Rate 6% Return Equity Net Sale oPn roceeds Exit Cap RRate ate of Return Internal Net PSresent ale Proceeds Value @ 12% Discount Rate Net Internal RPate of Return Lakefront romenade Net P resent V Rate Return Metrics alue Sale @ at 1Y2% ear D1iscount 1 44 Lakefront Equity East Return Metrics Stabilized Cashflow

The financing assumptions for the Lakefront Promenade were established through discussions with both Home Street Bank and Wells Fargo. Both lenders stressed the point that the credit quality of Vulcan allows for more lenient loan terms. Both construction and take out loans would be non recourse loans.

If Vulcan did not use leverage for the Lakefront Promenade, their equity contribution would be the total development cost of ($75,500,000). Even though they would be receiving a higher cash flow (due to no debt service payments) and have a high return on equity (7.4%), their internal rate of return (IRR) and net present value (NPV) are significantly less than a leveraged scenario. In a leveraged scenario, Vulcan, would only have to contribute the current land & improvements as equity. A significantly smaller equity contribution up front with favorable terms yields a favorable IRR and NPV. Lakefront lending Promenade As Vulcan’s, real estate advisors, we strongly urge Vulcan Project Performance to use leverage to develop the Lakefront Promenade. Total Project Costs $75,200,000 Market Value @ 6% CapRate $92,800,000 Profit $17,600,000 Profit Margin 23% Lakefront Promenade Construction and Take Out Loan Terms Loan to Cost 80% Interest Over LIBOR 250bp Loan to Value 80% Debt Service Cover Ratio 1.15 Terms 30 Interest Rate 5% Going in Cap Rate 6% Unleveraged Leveraged Unleverag Unleveraged Leveraged Lakefront Promenade $75,200,000 $17,650,000 Return Metrics Sale at Year 11 $5,567,500 $785,500 Equity $75,200,0 $75,200,000 $17,650,000 7.4% 4.45% Stabilized Cashflow $5,567, $5,567,500 6.25% 6.25% Return on Equity $785,500 7.4% 4.45% $64,320,000 $59,540,000 Exit C7.4% ap Rate 6.25 6.25% 16.1% Net 10.9% S6.25% ale Proceeds $64,320 $64,320,000 $59,540,000 ($5,000,000) $6,040,400 Internal R ate o f R eturn 10.9 Unleveraged Leveraged 10.9% 16.1% Net Present Value @ 12% Discount Rate ($5,000, $6,040,400 ($5,000,000) UNIVERSITY OF WASHINGTON $75,200,000 $17,650,000 Lakefront East $785,500 $5,567,500

Profit Margin 23% Lakefront Promenade Lakefront Promenade Construction and Take Out Loan Terms Project Performance Loan to Cost 80% Total Project Costs $75,200,000 Interest Over LIBOR 250bp Market Value @ 6% CapRate $92,800,000 Loan to Value 80% Profit $17,600,000 The take-out structure of the LAKEFRONT Debt Service loan Cover Ratio will be based off 1.15 Profit Margin EAST 23% pro-rata share of value for each use in the completed As indicated through our market analysis, we advise Terms 30 building. developing residential condominiums, a hotel, a Interest The Rate pro-rata share will be use to determine 5% the appropriate amount of land allocated for each use. health club,Pand retail used to maximize economic and Going in Cap Rate 6% Lakefront romenade It will also determine the construction loan percentage synergistic value. Each use will be its own condominium Construction and Take Out Loan Terms repayment for each use. The residential condominiums but the entire building will be rolled into one master Loan to Cost 80% do not require a take out loan. This means that 54.2% condominium The estimated market value Unle Interest Over association. LIBOR 250bp ofLakefront the construction loan will be paid down as residential ofLoan the tproject would be approximately $260,000,000. P romenade o Value 80% condominiums are sold 45.8% of the construction This would also result in a lucrative profit margin. Return Metrics Sale at Yand ear 1 1 Debt Service Cover Ratio 1.15 loan will be closed out upon certificate of occupancy with Equity $75, Terms 30 take out loans from the income producing uses. The financing for the entire Lakefront East will fall Stabilized Cashflow $5 Interest Rate 5% under one construction loan. Through discussions with Return o n E quity Going in Cap Rate 6% Once do to the credit quality and stabilization of lenders, the lending market still views the residential Exit again, Cap Rate Vulcan, different lenders estimated favorable take out condominiums as a risky investment. Most developers Net Sale Proceeds $6 loan conditions. Vulcan will develop and operate the must put down a lot of equity (60% loan to cost) AND Internal R ate o f R eturn Unleveraged Leveraged three pay R a ate management fee have at leastPromenade a 50% pre-sale to meet FHA qualifications Net Pdifferent resent Vincome alue @ 1uses 2% Dand iscount ($5 Lakefront based on the effective gross income for each use. (lenders will typically not lend if the building is not FHA Return Metrics Sale at Year 11 approved). However, after multiple discussions, Vulcan’s Equity $75,200,000 $17,650,000 Lakefront Like the Lakefront Promenade, East will yield credit quality will allow them to access more leverage Lakefront East $785,500 Stabilized Cashflow $5,567,500 stronger financial returns when using leverage. Even (70% loan to cost) and will allow for a lower pre-sale Return M etrics Return on Equity 7.4% 4.45% with conservative exit cap rates, the Lakefront East will amount (about 40%). Lenders still want to see a high Total Project $244,500,000 Exit Cap Rate 6.25% 6.25% still yield an IRRCosts of 23.7%. Not using leverage is strongly pre-sale volume, but it does not need to hit the 50% FHA Market V alue $259,500,000 Net Sale Proceeds $64,320,000 $59,540,000 discouraged. benchmark. Profit $15,000,000 Internal Rate of Return 10.9% 16.1% Profit Margin 6.14% Net Present Value @ 12% Discount Rate ($5,000,000) $6,040,400 Lakefront East Lakefront East Construction Loan Terms Return Metrics Loan t o C ost 70% Total P roject C osts $244,500,000 Value Value per Use Upse Value er Use per UPro-‐rata se Pro-‐rata Value Share Pro-‐rata pSer hare Use Share Pro-‐rata Share Interest Over LIBOR 300bp Market V alue $259,500,000 dential os Condos Condos $178,559,152 Residential $178,559,152 $178,559,152 Condos 54.2% $178,559,152 54.2% 54.2% 54.2% Residential Pre Sales 40% Profit $15,000,000 el Hotel $49,020,464 $49,020,464 $49,020,464 18.9% $49,020,464 18.9% 18.9% 18.9% Profit Margin 6.14% b lth Club Health $18,688,747 $18,688,747 Club $18,688,747 7.2% $18,688,747 7.2% 7.2% 7.2% 5.1% ail Retail $13,239,029 $13,239,029 $13,239,029 5.1% $13,239,029 5.1% 5.1% al $259,507,392 Total $259,507,392 $259,507,392 100.0% $259,507,392 100.0% 100.0% 100.0% Lakefront East Construction Loan Terms Loan to Cost 70% st ront East Lakefront East Interest Over LIBOR 300bp an rms Out Terms Loan Terms Take Out Loan Retail Terms Retail Retail Hotel Hotel Hotel Health Retail Health Club CHealth lub USE Hotel Club Value Health Club VALUE PRO-RATA Use Value per Value Use PER per USE U se Pro-‐rata SPro-‐rata hare SHARE Share Use per U se Pro-‐rata Share Residential Pre Sales 40% Use e to Value Loan to Value 80% 80% 80% 70% 70% 70% 80% 75% 75% 75% 70% 75% $ Residential Residential C ondos C ondos $178,559,152 $178,559,152 54.2% 54. Residential C ondos $178,559,152 54.2% er SCervice Rover atio RCatio over Debt Ratio Service C1.15 over 1.15 Ratio 1.15 1.2 1.2 1.2 1.15 1.18 1.18 1.18 1.2 1.18 Hotel Hotel $49,020,464 18.9% 18. Hotel $49,020,464 $49,020,464 18.9% s Terms 30 30 30 30 30 30 30 30 Health 30 30 30 Club 30 $18,688,747 Health 7.2% 7.2% 7. Health Club Club $18,688,747 $18,688,747 e est Rate Interest Rate 5% 5% 5% 6% 6% 6% 5% 6% 6% 6% 6% 6% Retail Retail $13,239,029 5.1% 5.1% 5. Retail $13,239,029 $13,239,029 g Rin ate Cap Rate Going in Cap Rate 6% 6% 6% 8% 8% 8% 6% 8.2% 8.2% 8.2% 8% 8.2% $ Total Total $259,507,392 $259,507,392 100.0% 100. Total $259,507,392 100.0% Cap e Rate Exit Cap Rate 6.25% 6.25% 6.25% 8.25% 8.25% 8.25% 6.25% 8.45% 8.45% 8.45% 8.25% 8.45% Lakefront East East Lakefront East Lakefront Take ut LTake oan TOerms ut Loan Terms Retail Retail Hotel HH Take Out O Loan Terms Retail Hotel 45 2013 NAIOP REAL ESTATE CHALLENGE Loan o Value Loan to Value 80% 7 Loan to Vtalue 80% 80% 70% 70% Debt Service Cover SRervice Ratio Cover Ratio 1.15 Debt Service CDebt over atio 1.15 1.15 1.2 1.2

FINANCIALS

TOTAL PROJECT

Since both sites will yield higher IRR in a leverage based scenario, it does not come as a surprise that the when both sites are combined, the leveraged scenario yields a higher return. By combing both sites into one proforma the total project will yield a 16.9% leveraged IRR. Overall we wanted to test the development under accurate market and lending assumptions while keeping cap rates high. This would yield conservative returns. Even with the conservative returns, the total IRR of both projects yield a favorable 13.7%. We advise Vulcan to develop this project using leverage to fully capture the potential value.

11.4 EXIT STRATEGY

Vulcan is in the business to improve the financial position of their investment portfolio and has been doing this while creating real value for Seattle’s residents. After a recent large divestment, we believe Vulcan’s real estate holdings are now down from 15% to about 10% of their portfolio. Because of the nature of the equity source (Mr. Allen), Vulcan can break out of the traditional Lakefront East Return Metrics Sale at Year 10 Lakefront East Total Equity Return M etrics Equity in Land Sale at Year 10 Total Equity Equity Additional Cash Equity i n L and Return on Equity Additional Croceeds ash Equity Gross S ale Residential Lakefront PPromenade Return on Equity Residential Net S ale P roceeds Project Performance Gross Sale Proceeds Residential Net Sale Proceeds Total Project Costs (not including residential) $75,200,000 Net S ale P roceeds R esidential Internal ate o@ f R 6eturn Market VRalue % CapRate $92,800,000 Net SPale Proceeds not including residential) Net resent Value (@ 12% Discount R$17,600,000 ate Profit Internal ate of Return Profit MR argin 23% Net Present Value @ 12% Discount Rate Lakefront East Lakefront Promenade Construction Return Metrics Sale at YOear 0 Terms and Take ut L1oan Lakefront E ast Total quity Loan tEo Cost 80% Return Sale at Year 10 Equity iM n OCetrics urrent Land Interest ver LIBOR 250bp Total quity Equity Additional Cash Loan tEo Value 80% Equity io n n CEurrent Land Return quity Debt Service Cover Ratio 1.15 Additional Cash Internal of ERquity eturn Terms Rate 30 Return o n E quity Net Present Value @ 12% Discount Rate Interest Rate 5% Internal f Return Going in RCate ap Roate 6% Net P resent V alue @ 1 2% D iscount R ate 46

hold and sell models and adjust exit strategies to meet their investment goals. Vulcan can look at the overall neighborhood, and other investment portfolio assets, to determine best strategy for these properties. Considering this, we believe a longer term hold strategy makes sense. At the same time, we know Vulcan is open to selling assets as good opportunities present themselves or internal investment strategies change.

HOLDING PERIOD

Waterfront Promenade will be completed almost a year before the Waterfront East development finishes. We recommend an eleven year hold on the Promenade and a ten year hold on the Lakefront East buildings. We believe Vulcan will most likely want to hold the property for a longer than normal period of time and modeled the financial returns holding until 2027. If market conditions turn overly positive, Vulcan may consider selling early. Lakefront East’s legal structure will allow the Hotel, Retail and Health Club to be sold separately in the event an attractive offer is made on one of the operating uses in the development. Unleveraged

Leveraged

Unleveraged

Leveraged

$244,500,000 $25,000,000 $244,500,000 $219,500,000 $25,000,000 22% $219,500,000 $178,500,000 22% $74,500,000 $178,500,000 $143,772,700 $74,500,000 -‐0.2% $143,772,700 ($119,542,600) -‐0.2% ($119,542,600)

$71,886,000 $25,000,000 $71,886,000 $46,886,000 $25,000,000 15.7% $46,886,000 $178,500,000 15.7% $74,500,000 $178,500,000 $91,975,800 $74,500,000 26% $91,975,800 $45,007,000 26% $45,007,000

Unleveraged

Leveraged

Unleveraged

Leveraged

$375,118,000 $42,500,000 $375,118,000 $332,618,000 $42,500,000 5.5% $332,618,000 3.5% 5.5% ($97,376,246) 3.5% ($97,376,246)

$91,003,000 $42,500,000 $91,003,000 $48,503,000 $42,500,000 12.8% $48,503,000 16.9% 12.8% $20,281,161 16.9% $20,281,161

Unleveraged

UNIVERSITY OF WASHINGTON

Leveraged

MARKET CYCLES

While hard to predict, some local developers believe we will have a 10-12 year cycle. If we have a downturn after the development is complete, it will make sense to hold the property long enough to stabilize the income and look to the next peak. This reinforces a 10 year target hold strategy with an option to adjust the sale date depending on how the market looks toward the end of the holding period.

2013 NAIOP REAL ESTATE CHALLENGE

EXIT STRATEGY

At the end of the holding period, Vulcan should reevaluate the stabilized value of the property and consider selling all or parts of the developed sites. If the market heats up during the holding period, Vulcan may consider selling some or all of the development assets.

CONCLUSION

Through thoughtful design and programming strategies, Tellarite Real Estate Advisors has identified the preceding plan for Seattleâ&#x20AC;&#x2122;s future Lakefront District. This document provides Vulcan with a variety of strategies and opportunities for achieving their mission of acting as stewards of capital and real estate assets that improve the physical and social landscape of the communities they invest in. We thank you for taking the time to read and consider our development proposal. We are very proud and excited about this neighborhood and this particular project, and we look forward to its realization.

DAVE KNIGHT JEFF BERNARD KELLY HOGG MARY FIALKO ALEX MARTINEZ ZACHARY CLEMENTS FRANCISCO TRAVERSO WANLU ZHU YINYAN CHEN JASON YAP

TELLARITE REAL ES TATE ADV ISORS

UNIVERSITY OF WASHINGTON

ACKNOWLEDGEMENTS

The students of the University of Washington would like to extend a very special thank you to the faculty and staff at who have assisted us in the development of this project, including: Al Levine, Chris Bitter, Stephen O’Connor, Glenn Crellin, Suzanne Cartwright, Nancy Tate, Melissa Best, Jim DeLisle and George Rolfe. Additionally, our team would like to offer their sincere appreciation for the generous time and guidance received from the following individuals:

THANK YOU HAL FERRIS – Spectrum Development Solutions JONAS SYLVESTER – Unico Properties LLC GABE GRANT – HAL Real Estate Investments MARIA BARRIENTOS – barrientos VAL THOMAS – Val Thomas Inc SCOTT SHAPIRO – Eagle Rock Ventures LLC DANA BEHAR – HAL Real Estate Investments PJ SANTOS – Lorax Partners GREG JOHNSON – Wright Runstad & Company JOHN HEMPELMAN – Cairncross & Hempelmann BRUCE LORIG – Lorig Associates DOUGLAS HOWE – Touchstone JUDITH KALITZKI – UW Foster School of Business

DESIGN & CONSTRUCTION

JONATHAN MORLEY – The Berger Partnership GUY MICHAELSEN – The Berger Partnership TODD BRONK – The Berger Partnership

MARKET DATA

MATT HOFFMAN – Heartland LLC ANDY ROBINSON – Kidder Mathews RICHARD BRISCO – Kidder Mathews RANDY LEE – PCC Natural Markets TOM BERNARD – Windermere JEFF SANFORD – Security Properties MARK HOYT – Security Properties ED MCGOVERN – Security Properties MARCO KRONEN – Windermere and Seattle Condo Blog WENDY LEUNG – Windermere and Seattle Condo Blog JULIE MCAVOY – Realogics Sotheby’s Int. Realty JAMES ALLARD – Elemental Pizza

2013 NAIOP REAL ESTATE CHALLENGE

HOTEL

JOHN GORDON – Kidder Mathews TED KENNEDY - Kennedy & Mohn, P.S MATTHEW BEHRENS – CBRE Hotels, Capital Markets CHRIS BURDETTE – CBRE Hotels, Capital Markets RICHARD NOEL – Marriott Residence Inn

FINANCE

JEFF LEWISON – Security Properties BLAKE CARBONATTO – Wells Fargo CARMEN ESTEBAN – HomeStreet Bank

PRICING

JAKE SLY – R&H Construction

DEVELOPMENT

ALAN CORNELL – Daniels Development KATLIN JACKSON – Heartland LLC JOSEPH POLITO – Touchstone JEFFREY REINSTEIN – Commune Hotels & Resorts JESSE STEIN – Kimpton Hotel Group

LAW

GLENN AMSTER – Kantor Taylor Nelson Evatt & Decina PC

ENVIRONMENTAL / SHORELINE PETER HUMMEL – Anchor QEA JOHN SMALL – Anchor QEA

UNIVERSITY OF WASHINGTON

APPENDIX

FINANCIAL PROFORMA

2013 NAIOP REAL ESTATE CHALLENGE

APPENDIX

NAIOP Real Estate Challenge Financial Underwriting Summary 2013 Lakefront East Promenade RETAIL

RETAIL

RESIDENTIAL

HOSPITALITY

HEALTH CLUB

TOTAL

DESIGN ASSUMPTIONS GROSS SF USABLE UNITS PARKING STALLS PARKING RATIO PER UNIT

116,105 116,105 299 2.57

27,625 27,625 55 2.00

200,298 150 166 1.11

130,787 225 75 0.34

57,150 57,150 191 3.33

531,965

LAND VALUE PER DEVELOPMENT UNIT ($ / NSF) SITE - INFRASTRUCTURE ( $ / SF OF SITE ) BUILDING SHELL ( $ / SF ) TENANT IMPROVEMENT ($ / SF ) PARKING ( $ / STALL ) SOFT COST ( $ / SF ) TOTAL ( $ / SF ) BASE YR. OPERATING EXPENSES ( $ / SF / YR )

$183 $55 $175 $110 $25,578 $145 $648 $5

$360 $3 $136 $143 $28,970 $128 $452 $3

$360 $3 $325 $0 $28,970 $128 $840 $0

$360 $3 $320 $0 $28,970 $128 $353 $87

$360 $3 $180 $71 $28,970 $128 $308 $16

$1,624 $68 $1,136 $324 $141,457 $659 $2,600 $110

$4.04 $0 $0.7 $5,567,426

$2.83 $0 $0.0 $794,342

$0.00 $1,045 $0.0 $0

$14.67 $0 $0.0 $3,921,637

$2.58 $0 $0.0 $1,532,477

$6.03 $1,044.80 $1 $11,815,882

6.00% 0.00% $479 $1,045 $13,239,029 $177,879,926 CONSTRUCTION/MARKETING/DISPOSITION

8.00% $375 $49,020,464

8.20% 7.1% $327 $602 $18,688,747 Sample Solution$351,618,596 12-7 (Purchase DIBS)

786

COST ASSUMPTIONS

INCOME ASSUMPTIONS RENTAL INCOME ( $ / SF / MO ) SALE INCOME ( $ / USABLE SF ) PARKING INCOME ( $ / SF / MO ) NOI

VALUE ASSUMPTION CAPITALIZATION RATE VALUE ( $ / SF ) VALUE TOTAL $

6.00% $783 $92,790,430

LOAN TO VALUE DEBT SERVICE COVERAGE TOTAL DEBT (PRORATA FOR LAKEFRONT EAST) TOTAL EQUITY (PRORATA FOR LAKEFRONT EAST)

80.00% 1.15 $60,163,764 $17,500,000

80.00% 1.18 $10,449,948 $2,647,806

70% 0 $117,762,031 $50,469,442

75% 1.18 $36,765,348 $12,255,116

70% 1.2 $13,082,123 $5,606,624

75.0% 1.18 $238,223,214 $88,478,988

7.4% 16.0% 10.9%

4.6% 18.8% 9.0%

147.6% 31.7% -1.6%

25.3% 31.7% 4.4%

9.6% 12.6% 8.9%

38.9% 22.2% 6.3%

RE 571: Autumn 2012

DEBT ASSUMPTIONS

EQUITY ASSUMPTIONS RETURN ON EQUITY LEVERAGED IRR UNLEVERAGED IRR

Gross Rent Roll Grocery Café HOA Restaurant Less Vacancy/Credit Loss Grocery Café HOA Restaurant Less Operating Expenses Grocery Café HOA Restaurant

NET$OPERATING$INCOME Less$Debt$Service CASHFLOW

Principal Payments Less Depreciation Taxable Income Distribute Benefits to Partners Vulcan Taxable Income Less Taxes Cash Flow AFTER TAX CASH FLOW Changes in Capital TOTAL BENEFITS CUM BENEFITS

35% 15%

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

$208,000 $48,000 $96,000 $585,000

$209,040 $48,240 $96,480 $587,925

$211,130 $48,722 $97,445 $593,804

$213,242 $49,210 $98,419 $599,742

$215,374 $49,702 $99,403 $605,740

$221,835 $51,193 $102,386 $623,912

$230,709 $53,240 $106,481 $648,868

$239,937 $55,370 $110,740 $674,823

$247,135 $57,031 $114,062 $695,068

$252,078 $58,172 $116,344 $708,969

$257,119 $59,335 $118,671 $723,149

$0 ($24,000) ($72,000) ($219,375)

$0 $0 $0 $0

$0 ($24,851) $0 $0

$0 $0 $0 $0

($123,568) $0 ($95,052) $0

$0 $0 $0 $0

$0 $0 $0 $0 $621,625 ($673,171) ($51,546) $154,175 ($266,748) ($164,119)

$0 $0 $0 $0 $941,685 ($673,171) $268,514 $162,063 ($290,997) $139,579

$0 $0 $0 $0 $951,102 ($673,171) $277,931 $170,354 ($290,997) $157,288

$0 $0 $0 $0 $960,613 ($673,171) $287,442 $179,070 ($290,997) $175,514

$0 $0 $0 $0 $945,368 ($673,171) $272,197 $188,231 ($290,997) $169,431

$0 $0 $0 $0 $999,326 ($673,171) $326,155 $197,862 ($290,997) $233,019

$0 $0 $0 $0 $1,039,299 ($673,171) $366,128 $207,985 ($290,997) $283,115

$0 $0 $0 $0 $1,080,871 ($673,171) $407,700 $218,626 ($290,997) $335,328

$0 $0 $0 $0 $894,677 ($673,171) $221,506 $229,811 ($290,997) $160,320

$0 $0 $0 $0 $1,135,563 ($673,171) $462,392 $241,568 ($290,997) $412,963

$0 $0 $0 $0 $1,158,274 ($673,171) $485,103 $253,928 ($290,997) $448,033

($164,119) $57,442

$139,579 ($48,853)

$157,288 ($55,051)

$175,514 ($61,430)

$169,431 ($59,301)

$233,019 ($81,557)

$283,115 ($99,090)

$335,328 ($117,365)

$160,320 ($56,112)

$412,963 ($144,537)

$448,033 ($67,205)

($106,677)

$90,727

$102,237

$114,084

$110,130

$151,462

$184,025

$217,963

$104,208

$268,426

$380,828

($106,677) ($106,677)

$90,727 ($15,951)

$102,237 $86,287

$114,084 $200,371

$110,130 $310,501

$151,462 $461,963

$184,025 $645,988

$217,963 $863,951

$104,208 $968,159

$268,426 $1,236,585

$380,828 $1,617,413

UNIVERSITY OF WASHINGTON

Proforma

Tellarite Real Estate Advisors

OPERATING*PROFORMA Gross%Rent%Roll Daniels Cinema Elemental Bottle%House Chandler's Georgetown%Brew Coffe%House Joeys Hot%Tub%Boats Electric%Co Hampton%yacht Palace%Ballroom Underground%Parking Marina%(Moorage) Less%Vacancy/Credit%Loss Daniels Cinema Elemental Bottle%House Chandler's Georgetown%Brew Coffe%House Joeys Hot%Tub%Boats Electric%Co Hampton%yacht Palace%Ballroom Underground%Parking Marina%(Moorage) Less%Operating%Expenses Retail Underground%Parking Marina%(Moorage) Management Replacement%Reserve NET%OPERATING%INCOME Calculate%Tak_Out%Loan Calculate%Debt%Svc%Capacity Debt%Service%Available Trial%Loan%Amount Calculte%Loan%to%Value Calculate%Project%Value Trial%Loan%Amount TAKE_OUT%LOAN%AMOUNT CASH%FLOW Calculate%Interim%Loan%Amount Loan/Cost%Check INTERIM%LOAN%AMOUNT COST*PROFORMA Land Construction Demolition Cinema Elemental Bottle%House Georgetown%Brew Coffe%House Hot%Tub%Boats Electric%Co Hampton%yacht Palace%Ballroom Underground%Parking Other%Site%Imp TI% Remodel%of%Joeys%&%Daniels Contractor%Fees Services/Fees WSST A&E Developer's%G&A Legal%and%Organization Permits Other%Consultants Leasing%Fees Financing Interim%Fee Interim%Interest%Reserve Take_Out%Fee Contingency TOTAL%PROJECT%COSTS% SOURCES*OF*FUNDS Loan%Amount Equity%Required Vulcan%Land%Contribution Vulcan%Cash%Contribution !!!!TOTAL%FUNDS%AVAILABLE Feasibility*Metrics Profit Profit%Margin Cash%on%Cash%(ROE)

Amount 15,462 19,020 10,127 4,057 14,175 13,500 3,199 11,437 1,022 1,022 6,072 17,013 299 2,384

Client | Vulcan

Unit GSF GSF GSF GSF GSF GSF GSF GSF GSF GSF GSF GSF Stall Linear%ft

Rent/Cost @ @ @ @ @ @ @ @ @ @ @ @ @ @

Subtotals

$58 $25 $35 $58 $58 $45 $30 $58 $25 $25 $25 $58 $2,400 $168

Totals $6,457,545

$896,796 $475,500 $354,428 $235,306 $822,150 $607,500 $95,970 $663,323 $25,550 $25,550 $151,793 $986,754 $716,414 $400,512 ($347,047)

$896,796 $475,500 $354,428 $235,306 $822,150 $607,500 $95,970 $663,323 $25,550 $25,550 $151,793 $986,754 $716,414 $400,512

@ @ @ @ @ @ @ @ @ @ @ @ @ @

0% 5% 5% 5% 0% 5% 5% 0% 5% 5% 5% 5% 25% 5%

$5,340,619 $716,414 400,512 3% 2%

@ @ @ of of

2% 14% 5% $6,457,545 $6,110,498

$0 $23,775 $17,721 $11,765 $0 $30,375 $4,799 $0 $1,278 $1,278 $7,590 $49,338 $179,103 $20,026 ($543,072) $106,812 $100,298 $20,026 $193,726 $122,210

$5,567,426 $4,841,240

1.15 0.064418595

$5,567,426 $92,790,430

$5,567,426

$4,841,240 $75,152,832

6.00% 80.00%

$92,790,430 $74,232,344 $74,232,344 $785,483

$75,204,705

80.00%

$60,163,764 $60,163,764 $17,500,000 $40,799,456

54,496 19,020 10,127 4,057 13,500 3,199 1,022 1,022 6,072 17,013 84,836 170,004 75,031 26,899 $39,419,764

GSF GSF GSF GSF GSF GSF GSF GSF GSF GSF GSF GSF GSF GSF

@ @ @ @ @ @ @ @ @ @ @ @ @ @ @

$2 $175 $175 $175 $175 $175 $175 $175 $175 $175 $90 $55 $110 $35 3.5%

$40,799,456 40,799,456

@ @

9.50% 8.00%

$40,799,456

$108,993 $3,328,500 $1,772,138 $709,975 $2,362,500 $559,825 $178,850 $178,850 $1,062,548 $2,977,275 $7,635,209 $9,350,220 $8,253,432 $941,451 $1,379,692 $10,915,917

Allow 3.00% Allow Allow $6,457,545

$60,163,764 $60,163,764 $74,232,344 $2,039,973

@ @ @ +

7.00%

$3,875,948 $3,263,956 $100,000 $1,223,984 $1,500,000 $500,000 $452,028 $3,676,462

1.00% 3.26% 1.50% $272,898 Allow

$601,638 $1,961,339 $1,113,485 $2,312,871 $75,204,705 $60,163,764 $15,040,941

$17,500,000 $153,529 $75,204,705 $92,790,430 $75,204,705 4.4%

$75,204,705 $17,585,725

$17,585,725 23.38%

3/11/13 10:53 PM

2013 NAIOP REAL ESTATE CHALLENGE

xli

xlii

($2,597,262)

($1,912,537)

$0 $0

($119,699) ($206,812) ($3,994,433) ($16,447,061) ($4,114,132) ($16,653,874)

$0 $0 $0 $0 $0 $0

2014

$0 $0 $0 $0 $0 $0

2013

NPV Unleveraged NPV Leveraged Unleveraged IRR Before Taxes Leveraged IRR Before Taxes

$0 $0 $0 $0 $0 $0

2016 $0 $0 $0 $0 $0 $0

($39,110,963) ($22,512,256)

$0 $0

($17,327,018) ($5,185,239) ($22,512,256)

5.5% 12.8%

2019

2020

2021

$12,977,732 $14,638,889 $15,067,328 $3,885,241 $5,546,398 $5,974,837

$4,785,183 $86,355,447 $12,977,732 $14,638,889 $15,067,328 ($4,781,943) ($9,092,491) ($9,092,491) ($9,092,491) ($9,092,491) $3,240 $77,262,955 $3,885,241 $5,546,398 $5,974,837

($155,043,891) ($176,453,277) $86,355,447 ($47,722,591) $3,240 $77,262,955

$0 $0

($47,722,591) ($47,722,591)

2018

$4,785,183 $6,059,484 $6,117,132 $6,178,195 $6,239,846 $0 $74,513,344 $0 $0 $0 $0 $2,772,125 $4,209,273 $5,799,950 $6,157,227 $0 $1,709,642 $1,709,642 $1,709,642 $1,709,642 $0 $621,625 $941,685 $951,102 $960,613 $0 $679,226 $0 $0 $0 $4,785,183 $86,355,447 $12,977,732 $14,638,889 $15,067,328

2017

($33,925,724) ($28,979,675) ($5,185,239) ($126,064,216) ($181,238,460) ($39,110,963) ($155,043,891) ($181,238,460)

2015

12% ($97,376,246) Unleverage ROE 12% $20,281,161 Leverage ROE 3.5% 16.9%

Total Asset Value Total Costs of Sale Loan Repayment Net Cash Flow Unleveraged ($1,912,537) ($2,597,262) Net Cash Flow Leveraged ($4,114,132) ($16,653,874)

Net Operating Income Lakefront Promenade (All Uses) Condominiums Hotel Health Club Retail Structured Parking Total Net Operating Income Development Costs Lakefront Promenade Lakefront East Total Development Costs Total Equity Lakefront Promenade Equity Lakefront East Equity Total Equity Annual Cash Flow Net Operating Income Debt Service

1. Summary Pro Forma

Tellarite Real Estate Advisors

2023

$16,388,852 $7,296,361

$17,113,991 $8,021,500

$17,113,991 ($9,092,491) $8,021,500

$6,954,211 $0 $7,342,454 $1,778,028 $1,039,299 $0 $17,113,991

2024

Current Site Value (start of Year 0) Projected Site Value (end of Year 10)

$14,197,042 $5,104,551

$14,197,042 $16,388,852 ($9,092,491) ($9,092,491) $5,104,551 $7,296,361

$5,833,004 $6,683,865 $0 $0 $6,532,845 $6,927,633 $885,825 $1,778,028 $945,368 $999,326 $0 $0 $14,197,042 $16,388,852

2022

2026

$42,500,000 $352,297,822

$16,900,465 $7,807,974

$17,291,821 $8,199,330

$16,900,465 $17,291,821 ($9,092,491) ($9,092,491) $7,807,974 $8,199,330

$6,263,359 $7,304,541 $0 $0 $7,778,208 $8,235,833 $1,778,028 $856,770 $1,080,871 $894,677 $0 $0 $16,900,465 $17,291,821

2025

A $19,078,448 ($9,092,491) $9,985,956 $272,865,961 ($13,643,298) ($110,375,183) $278,301,111 $158,833,437

$7,448,549 $0 $8,716,309 $1,778,028 $1,135,563 $0 $19,078,448

2027

Client | Vulcan

APPENDIX

UNIVERSITY OF WASHINGTON

2013 NAIOP REAL ESTATE CHALLENGE

xliii

$0 $0 $0 $0 $662,512

$0 $0 $0 $0 $587,512

$587,512 $587,512

Land'Contribution ''Uses'Less'Land ''Vulcan'Equity'Test

Equity'Returns ''Equity'Contr

$10,100

$0 $0 $0

$0 $465,114 $0 $122,398 $0 $75,000 $0

$0 $465,114 $0 $122,398 $0 $0 $0

Interim'Loan'Generator ''Constr ''Land ''Equity'Contr

$0 $0 $0

$662,512 $662,512

$0 $0 $0 $0 $662,512

$0 $465,114 $0 $122,398 $0 $75,000 $0

$0 $0 $0

$662,512 $0 $597,613

$0 $0 $597,613

$0 $0 $0

$707,715 $707,715

$0 $0 $0 $0 $707,715

$0 $465,114 $0 $122,398 $0 $75,000 $45,203

$0 $0 $0

$707,715 $0 $597,613

$0 $0 $597,613

1%Qtr%14

$0 $0 $0

$646,516 $646,516

$0 $0 $0 $0 $646,516

$0 $465,114 $0 $61,199 $0 $75,000 $45,203

$0 $0 $0

$646,516 $0 $597,613

$0 $0 $597,613

$0 $0 $0

$621,516 $621,516

$0 $0 $0 $0 $621,516

$0 $465,114 $0 $61,199 $0 $50,000 $45,203

$0 $0 $0

$621,516 $0 $597,613

$0 $0 $597,613

$0 $0 $0

$621,516 $621,516

$0 $0 $0 $0 $621,516

$0 $465,114 $0 $61,199 $0 $50,000 $45,203

$0 $0 $0

$621,516 $0 $597,613

$0 $0 $597,613

$0 $0 $0

$329,521 $329,521

$0 $0 $0 $0 $329,521

$0 $155,038 $0 $61,199 $0 $50,000 $63,284

$0 $0 $0

$329,521 $0 $597,613

$0 $0 $597,613

Pre5Construction%(Permitting) 2%Qtr%14 3%Qtr%14 4%Qtr%14 1%Qtr%15

($64,900) ($64,900) ($110,102) ($48,903) ($23,903) ($23,903) $268,091

$0 $0 $0

$662,512 $662,512

$0 $0 $0

$662,512 $0 $597,613

$587,512 $0 $597,613

$0 $0 $597,613

Summary'of'Uses ''Land ''Construction ''''Audited'Costs ''''Tenant'Improvements ''''Contractor'Fees ''Services/Fees ''''WSST ''''A&E ''''Developer's'G&A ''''Legal'and'Organization ''''Permits ''''Other'Consultants ''''Leasing'Fees ''Financing ''''Interim'Fee ''''Interim'Interest ''''Take/Out'Fee ''Interim'Loan'Repay ''''''TotalUses

Summary'of'Sources 'Take/Out'Loan'Proceeds 'Interim'Loan'Proceeds 'Chandler's'Cove'Rent'Roll ''Equity'Contributed ''''Vulcan'Cash ''''Vulcan'Land ''''''Total'Sources

Pre5Construction%(Design) 2%Qtr%13 3%Qtr%13 4%Qtr%13

$0 $55,397 $0 $0 $6,797,206

$574,273 $38,759 $0 $61,199 $0 $0 $22,601

$6,044,976 $0 $0

$0 $0 $6,797,206

$0 $6,797,206 $0

4%Qtr%15

$26,106,275 $26,106,275 $0

$6,797,206 $6,797,206 $0

$8,606,275 $6,797,206 ($5,532,041) $0

$601,638 $115,227 $0 $0 $26,106,275

$574,273 $38,759 $0 $61,199 $1,125,000 $0 $45,203

$6,044,976 $0 $0

$17,500,000

$0 $17,500,000 $31,638,317

$0 $14,138,317 $0

3%Qtr%15

($95,109) ($17,500,000)

$0 $0 $0

$692,722 $692,722

$0 $0 $0 $0 $692,722

$0 $77,519 $0 $122,398 $375,000 $50,000 $67,804

$0 $0 $0

$692,722 $0 $597,613

$0 $0 $597,613

2%Qtr%15

$3,460,387 $3,460,387 $0

$3,460,387 $0

$0 $28,202 $0 $0 $3,460,387

$287,136 $38,759 $0 $61,199 $0 $0 $22,601

$3,022,488 $0 $0

$0 $0 $3,460,387

$0 $3,460,387 $0

$6,797,206 $6,797,206 $0

$6,797,206 $0

$0 $55,397 $0 $0 $6,797,206

$574,273 $38,759 $0 $61,199 $0 $0 $22,601

$6,044,976 $0 $0

$0 $0 $6,797,206

$0 $6,797,206 $0

Construction 1%Qtr%16 2%Qtr%16

$6,788,091 $6,788,091 $0

$6,788,091 $0

$0 $55,323 $0 $0 $6,788,091

$574,273 $38,759 $0 $61,199 $0 $0 $13,561

$6,044,976 $0 $0

$0 $0 $6,788,091

$0 $6,788,091 $0

3%Qtr%16

$11,933,991 $11,933,991 $0

$11,933,991 $0

$0 $97,262 $0 $0 $11,933,991

$1,017,082 $38,759 $0 $61,199 $0 $0 $13,561

$1,511,244 $9,194,883 $0

$0 $0 $11,933,991

$0 $11,933,991 $0

4%Qtr%16

$19,745,791

$4,571,354 $4,571,354 $0

$4,571,354 $0

$0 $37,257 $1,113,485 $54,486,553 $59,057,907

$274,639 $155,038 $100,000 $0 $0 $0 $0

$1,511,244 $0 $1,379,692

($19,745,791) $0 $59,057,907

$74,232,344 $4,571,354

Post%Const 1%Qtr%17

$54,486,553 $126,473,106

$2,159,188

$11,527,908

$17,500,000 $40,799,456

$132,005,147

10:55 PM 3/11/13

$601,638 $444,065 $1,113,485 $54,486,553 $126,473,106

$3,875,948 $3,875,948 $100,000 $1,223,984 $1,500,000 $500,000 $452,028

$30,224,881 $9,194,883 $1,379,692

$17,500,000

($14,213,750) $17,500,000 $131,851,618

$74,232,344 $54,486,553

Totals

xliv

Principal Payments Less Depreciation Taxable Income Distribute Benefits to Partner(s) VULCAN Taxable Income Less Taxes Cash Flow AFTER TAX CASH FLOW Changes in Capital TOTAL BENEFITS CUM BENEFITS

NET0OPERATING0INCOME Less0Debt0Service CASHFLOW

Underground Parking Marina Moorage

Chandler's Georgetown0Brew Coffe0House Joeys Hot0Tub0Boats Electric0Co Hampton0yacht Palace0Ballroom

Underground Parking Marina Moorage Less Operating Expenses Daniels Cinema Elemental Bottle House

Chandler's Georgetown0Brew Coffe0House Joeys Hot0Tub0Boats Electric0Co Hampton0yacht Palace0Ballroom

Underground Parking Marina Moorage Less Vacancy/Credit Loss Daniels Cinema Elemental Bottle House

Gross Rent Roll Daniels Cinema Elemental Bottle House

Chandler's Georgetown0Brew Coffe0House Joeys Hot0Tub0Boats Electric0Co Hampton0yacht Palace0Ballroom

RE 571: Autumn 2012

35% 15% $1,031,681 ($361,088) $670,592 $670,592 $552,144

($118,449)

($118,449) ($118,449)

($18,295) ($18,661) ($19,034) ($9,700) ($9,894) ($10,092) ($7,230) ($7,375) ($7,522) ($4,800) ($4,896) ($4,994) ($16,772) ($17,107) ($17,449) ($12,393) ($12,641) ($12,894) ($1,958) ($1,997) ($2,037) ($13,532) ($13,802) ($14,078) ($521) ($532) ($542) ($521) ($532) ($542) ($3,097) ($3,158) ($3,222) ($20,130) ($20,532) ($20,943) ($100,298) ($100,298) ($100,298) ($20,026) ($20,226) ($20,428) $6,059,484 $6,117,132 $6,178,195 ($4,781,943) ($4,781,943) ($4,781,943) $1,277,541 $1,335,188 $1,396,251 $1,151,231 $1,210,130 $1,272,042 ($1,397,091) ($1,397,091) ($1,397,091) $1,031,681 $1,148,227 $1,271,203

($17,936) ($9,510) ($7,089) ($4,706) ($16,443) ($12,150) ($1,919) ($13,266) ($511) ($511) ($3,036) ($19,735) ($100,298) ($20,026) $4,785,183 ($4,781,943) $3,240 $1,095,198 ($1,280,667) ($182,229)

($182,229) $63,780

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($179,999) ($20,076)

$746,348 $1,298,491

$746,348

$1,148,227 ($401,880)

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($181,799) ($20,126)

$826,282 $2,124,773

$826,282

$1,271,203 ($444,921)

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($183,617) ($20,327)

$919,396 $487,483 $363,359 $241,236 $842,869 $622,809 $98,388 $680,039 $26,194 $26,194 $155,618 $1,011,621 $734,468 $406,542

$0 ($237,750) ($265,821) ($88,240) $0 ($227,813) ($71,978) $0 ($10,646) ($19,163) ($37,948) ($246,689) ($179,103) ($60,077)

$910,293 $482,656 $359,762 $238,847 $834,523 $616,643 $97,414 $673,306 $25,935 $25,935 $154,077 $1,001,605 $727,196 $402,517

$901,280 $477,878 $356,200 $236,483 $826,261 $610,538 $96,450 $666,639 $25,678 $25,678 $152,551 $991,688 $719,996 $401,513

$896,796 $475,500 $354,428 $235,306 $822,150 $607,500 $95,970 $663,323 $25,550 $25,550 $151,793 $986,754 $716,414 $400,512

2020

2018

2017

2019

$908,657 $3,033,430

$908,657

$1,397,934 ($489,277)

($19,414) ($10,294) ($7,673) ($5,094) ($17,798) ($13,152) ($2,078) ($14,360) ($553) ($553) ($3,286) ($21,362) ($100,298) ($20,632) $6,239,846 ($4,781,943) $1,457,903 $1,337,122 ($1,397,091) $1,397,934

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($185,453) ($20,530)

$928,590 $492,358 $366,993 $243,648 $851,297 $629,037 $99,372 $686,839 $26,456 $26,456 $157,174 $1,021,737 $741,812 $410,608

2021

$688,676 $3,722,107

$688,676

$1,059,502 ($370,826)

($19,803) ($10,500) ($7,826) ($5,196) ($18,154) ($13,415) ($2,119) ($14,647) ($564) ($564) ($3,352) ($21,789) ($100,298) ($20,839) $5,833,004 ($4,781,943) $1,051,061 $1,405,532 ($1,397,091) $1,059,502

$0 $0 $0 $0 $0 ($377,947) ($68,236) $0 ($13,625) $0 ($134,908) $0 ($191,017) ($20,941)

$956,447 $507,128 $378,003 $250,958 $876,836 $647,909 $102,354 $707,444 $27,249 $27,249 $161,889 $1,052,389 $764,067 $418,820

2022

CONSTRUCTION/MARKETING/DISPOSITION

$1,288,477 $5,010,584

$1,288,477

$1,982,273 ($693,796)

($20,199) ($10,710) ($7,983) ($5,300) ($18,517) ($13,683) ($2,162) ($14,940) ($575) ($575) ($3,419) ($22,225) ($100,298) ($21,047) $6,683,865 ($4,781,943) $1,901,922 $1,477,442 ($1,397,091) $1,982,273

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($198,657) ($21,360)

$994,705 $527,414 $393,123 $260,996 $911,910 $673,825 $106,448 $735,742 $28,339 $28,339 $168,365 $1,094,485 $794,629 $427,196

2023

$1,513,335 $6,523,919

$1,513,335

$2,328,207 ($814,872)

($20,603) ($10,924) ($8,143) ($5,406) ($18,888) ($13,957) ($2,205) ($15,239) ($587) ($587) ($3,487) ($22,669) ($100,298) ($21,258) $6,954,211 ($4,781,943) $2,172,267 $1,553,031 ($1,397,091) $2,328,207

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($206,604) ($22,001)

$1,034,493 $548,510 $408,848 $271,436 $948,386 $700,778 $110,706 $765,172 $29,473 $29,473 $175,099 $1,138,264 $826,415 $440,012

2024

$1,115,927 $7,639,846

$1,115,927

$1,716,811 ($600,884)

($21,015) ($11,142) ($8,305) ($5,514) ($19,266) ($14,236) ($2,249) ($15,544) ($599) ($599) ($3,557) ($23,123) ($100,298) ($21,470) $6,263,359 ($4,781,943) $1,481,416 $1,632,487 ($1,397,091) $1,716,811

$0 $0 ($350,928) ($139,789) $0 $0 $0 ($394,064) $0 ($15,179) $0 $0 ($212,802) ($22,441)

$1,065,528 $564,965 $421,113 $279,579 $976,838 $721,801 $114,027 $788,127 $30,357 $30,357 $180,352 $1,172,412 $851,207 $448,812

2025

$1,846,985 $9,486,830

$1,846,985

$2,841,515 ($994,530)

($21,435) ($11,365) ($8,471) ($5,624) ($19,651) ($14,520) ($2,294) ($15,855) ($611) ($611) ($3,628) ($23,585) ($100,298) ($21,685) $7,304,541 ($4,781,943) $2,522,598 $1,716,008 ($1,397,091) $2,841,515

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($217,058) ($22,665)

$1,086,839 $576,265 $429,535 $285,170 $996,374 $736,237 $116,307 $803,890 $30,964 $30,964 $183,959 $1,195,860 $868,231 $453,300

2026

$2,612,319 $12,099,149

$2,612,319

$3,073,316 ($460,997)

($21,864) ($11,593) ($8,641) ($5,737) ($20,044) ($14,811) ($2,340) ($16,172) ($623) ($623) ($3,701) ($24,057) ($100,298) ($21,902) $7,448,549 ($4,781,943) $2,666,605 $1,803,802 ($1,397,091) $3,073,316

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($221,399) ($22,892)

$1,108,576 $587,790 $438,126 $290,874 $1,016,302 $750,962 $118,633 $819,967 $31,584 $31,584 $187,639 $1,219,777 $885,596 $457,833

2027

Sample Solution 12-7 (Purchase DIBS)

A APPENDIX

UNIVERSITY OF WASHINGTON

Proforma

Tellarite Real Estate Advisors

OPERATING*PROFORMA Gross*Rent*Roll Condominiums Extra9Residential9Parking Hotel Health9Club Grocery Café HOA Restaurant Less*Vacancy/Credit*Loss Hotel Health9Club Grocery Café HOA Restaurant Less*Operating*Expenses Hotel Health9Club Grocery Café HOA Restaurant Management9Hotel Management9Health9Club Management9Retail Replacement9Reserve9Hotel9 Replacement9Reserve9Health Replacement9Reserve9Retail NET*OPERATING*INCOME Calculate9TakUOut9Loans Calculate9Debt9Svc9Capacity9Hotel Debt9Service9Available Trial9Loan9Amount Calculte9Loan9to9Value9Hotel Calculate9Project9Value Trial9Loan9Amount Calculate9Debt9Svc9Capacity9Health Debt9Service9Available Trial9Loan9Amount Calculte9Loan9to9Value9Health Calculate9Project9Value Trial9Loan9Amount Calculate9Debt9Svc9Capacity9Retail Debt9Service9Available Trial9Loan9Amount Calculte9Loan9to9Value9Retail Calculate9Project9Value Trial9Loan9Amount TAKENOUT*LOAN*AMOUNT CASH*FLOW Calculate9Interim9Loan9Amount Loan/Cost9Check INTERIM*LOAN*AMOUNT COST*PROFORMA Land Construction Demolition Site9Prep Condominiums Hotel Fitness Grocery Café HOA Restaurant Underground9Parking Podium9Parking TI Contractor9Fees Services/Fees WSST A&E Developer's9G&A Legal9and9Organization Permits Alley9Vacation Affordablity9Fee Condo9Marketing Leasing9Fees Financing Interim9Fee Interim9Interest9Reserve TakeUOut9Fee Contingency TOTAL*PROJECT*COSTS* SOURCES*OF*FUNDS Loan9Amount Equity9Required Vulcan9Equity Cash9Contribution TOTAL9FUNDS9AVAILABLE Feasibility*Metrics Income9Producing9Value Condominium9Value Residental9Extra9Parking9Total9Sales 99Profit 99Profit9Margin ROE9Leveraged ROE9Unleveraged

Amount

Client | Vulcan

Unit

150 16 225 57,150 8,000 2,000 3,000 14,625

Units Stalls Rooms GSF GSF GSF GSF GSF

Rent/Cost

Subtotals

$1,185,866 $43,000 $102,306 $31.00 $26.00 $24.00 $32.00 $40.00

@ @ @ @ @ @ @

Totals3(less3condos) $25,727,466

$177,879,926 $679,226 $23,018,816 $1,771,650 $208,000 $48,000 $96,000 $585,000 ($5,801,554)

$23,018,816 $1,771,650 $208,000 $48,000 $96,000 $585,000

@ @ @ @ @ @

25% 0% 5% 5% 5% 5%

$5,754,704 $0 $10,400 $2,400 $4,800 $29,250

$23,018,816 $1,771,650 $208,000 $48,000 $96,000 $585,000 $23,018,816 $1,771,650 $890,150 $23,018,816 $1,771,650 $890,150

@ @ @ @ @ @ @ @ @ @ @ @

49% 5% 5% 5% 5% 5% 3.5% 3.5% 3.5% 5% 5% 2%

$11,385,876 $88,583 $10,400 $2,400 $4,800 $29,250 $805,659 $62,008 $31,155 $1,150,941 $88,583 $17,803

($13,677,456)

$6,248,456

$3,921,637 $3,323,421

1.18 0.071946063

$3,323,421

$3,921,637 $49,020,464

8.00% 75%

$49,020,464

$1,532,477 $1,277,064

1.2 0.075848163

$1,277,064

$1,532,477 $18,688,747

8.20% 70%

$18,688,747

$794,342 $673,171

1.18 0.064418595

$673,171

6.00% 80.00%

$13,239,029

$794,342 $13,239,029

$46,193,233

$36,765,348

$16,837,117

$13,082,123

$10,449,948

$10,591,223 $60,297,419 $1,937,908

$244,497,749

70.00%

$171,148,424 $171,148,424 $25,000,000 $147,941,969

200,298 130,787 57,150 8,000 2,000 3,000 14,625 138,792 31,440 82,150 $142,939,100

GSF GSF GSF GSF GSF GSF GSF GSF GSF GSF

@ @ @ @ @ @ @ @ @ @ @ @ @

Allow Allow $325 $320 $180 $200 $110 $110 $110 $80 $95 $93 3.5%

$20,000 $200,000 $65,096,850 $41,851,840 $10,287,000 $1,600,000 $220,000 $330,000 $1,608,750 $11,103,360 $2,986,800 $7,634,500 $5,002,869 $53,362,731

$147,941,969 $147,941,969 $147,941,969 $147,941,969

@ @ @ @

10.00% 8.00% 2.50% 5.00%

186,340 GSF $65,096,850 $147,941,969

@ @ @

$15.15 7.00% 4.00%

$14,794,197 $11,835,357 $3,698,549 $7,397,098 $716,460 $1,623,560 $2,823,051 $4,556,780 $5,917,679

@ @ @ 5.00% +

1.00% 4.00% 1.50% 2.50%

$1,711,484 $6,845,937 $904,461 $1,334,068

Allow Allow

$9,461,882 $171,148,424 $171,148,424 $60,297,419 $7,397,098

$8,731,167 $244,497,749

$171,148,424 $73,349,325 $25,000,000 $48,349,325 $244,497,749 $80,948,240 $177,879,926 $679,226 $259,507,392 $244,497,749

$244,497,749 $15,009,643

$15,009,643 6.14%

15.7% 22%

3/11/13 10:58 PM

2013 NAIOP REAL ESTATE CHALLENGE

xlv

xlvi

Principal Payments Less Depreciation Taxable Income Distribute Benefits to Partners Vulcan Taxable Income Less Taxes Cash Flow AFTER TAX CASH FLOW Changes in Capital TOTAL BENEFITS CUM BENEFITS

NET$OPERATING$INCOME Less$Debt$Service CASHFLOW

$0 $1,775,304 $0 $2,219,130 $0 $0 $0 $0

$0 $0 $0

$462,619 ($161,917) $300,702 $300,702 $617,290

$316,588 $316,588 $316,588

($62,008) $1,709,642 ($992,255) $717,387 $156,015 ($410,784) $462,619

($62,008) $1,709,642 ($992,255) $717,387 $146,222 ($376,552) $487,058 $487,058 ($170,470)

$0 $0 $0 $0 $910,742

$0 $591,768 $0 $0 $0 $0 $318,975 $0

$1,771,650

$0 $1,420,243 $0 $0 $0 $0 $318,975 $0

$0 $0 $0

$1,771,650

$0 $1,420,243 $0 $369,855 $0 $0 $318,975 $0

$0 $0 $0

2019

$0 $1,420,243 $0 $739,710 $0 $0 $318,975 $1,479,420

$0 $0 $0

$910,742 $0 $1,978,022

$0 $0 $1,067,280

2018

$0 $1,775,304 $0 $1,479,420 $0 $0 $455,678 $1,479,420

35% 15%

$0 $1,775,304 $0 $1,479,420 $0 $0 $455,678 $1,479,420

$0 $0 $0

$0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $3,994,433 $5,189,821 $5,189,821 $3,958,347 $2,109,072 $1,739,217

$1,739,217 $0 $2,806,497

$0 $0 $0 $0 $0

$2,109,072 $0 $3,176,352

$0 $0 $1,067,280

Permitting 1"Qtr"15 2"Qtr"15

$0 $0 $0 $0 $0 $0 $0 $0

$3,958,347 $0 $5,025,627

$0 $0 $1,067,280

4"Qtr"14

$0 $0 $0 $0 $0 $0 $0 $0

$5,189,821 $0 $6,257,100

$0 $0 $1,067,280

3"Qtr"14

$0 $0 $0

$5,189,821 $0 $5,189,821

$0 $0 $1,067,280

2"Qtr"14

$3,994,433 $0 $3,994,433

$0 $0 $0

Design 1"Qtr"14

$0 $0 $0

4"Qtr"13

$0 $0 $0

3"Qtr"13

Gross Rent Roll Health Club Less Vacancy/Credit Loss Health Club Less Operating Expenses Health Club

Summary1of1Uses 11Land 11Construction 1111Audited1Costs 1111Tenant1Improvements 1111Contractor1Fees 11Services/Fees 1111WSST 1111A&E 1111Developer's1G&A 1111Legal1and1Organization 1111Permits1(incl.1alley1vacation) 1111Affordability1Fee 1111Condo1Marketing 1111Leasing1Fees 11Financing 1111Interim1Fee 1111Interim1Interest 1111Take7Out1Fee 11Interim1Loan1Repay 111111TotalUses

1Take7Out1Loan1Proceeds 1Interim1Loan1Draws 1Condominium1Sales 11Equity1Contributed 1111Vulcan1Cash 1111Vulcan1Land 111111Total1Sources

ERROR

2"Qtr"13 RE 571: Autumn 2012 Summary1of1Sources

$0 $0 $0 $0 $2,097,951

$0 $118,354 $0 $369,855 $585,005 $705,763 $318,975 $0

$1,771,650

$307,494 $924,783

$307,494

$473,067 ($165,574)

($62,008) $1,709,642 ($992,255) $717,387 $166,464 ($410,784) $473,067

$0 $0 $0

$2,097,951 $0 $3,165,230

$0 $0 $1,067,280

$314,740 $1,239,524

$314,740

$484,216 ($169,475)

($62,008) $1,709,642 ($992,255) $717,387 $177,612 ($410,784) $484,216

2022

$0 $169,880 $0 $747,096 $17,735,129

$1,505,736 $118,354 $0 $0 $0 $0 $136,703 $0

$15,057,360 $0 $0

$0 $0 $17,735,129

$0 $16,988,033 $747,096

($213,009) $1,026,514

($213,009)

($327,707) $114,697

($885,825) $885,825 ($992,255) ($106,430) $189,507 ($410,784) ($327,707)

$1,771,650

$0 $170,341 $0 $747,096 $17,781,157

$1,505,736 $118,354 $0 $0 $0 $0 $182,271 $0

$15,057,360 $0 $0

$0 $0 $17,781,157

$0 $17,034,061 $747,096

$1,771,650

2021

$1,711,484 $85,070 $0 $8,218,053 $64,447,601

$2,258,604 $118,354 $0 $369,855 $1,755,015 $2,117,288 $227,839 $0

$22,586,040 $0 $0

$25,000,000

$22,722,591 $25,000,000 $56,976,644

$0 $8,506,957 $747,096

$2,258,604 $118,354 $0 $0 $0 $0 $136,703 $0

$22,586,040 $0 $0

$0 $0

$0 $25,353,233 $747,096

2"Qtr"17

$375,172 $1,401,686

$375,172

$577,188 ($202,016)

($64,488) $1,778,028 ($992,255) $785,773 $202,199 ($410,784) $577,188

$1,842,516

$0 $212,294 $0 $747,096 $21,976,518

$1,887,461 $118,354 $0 $0 $0 $0 $136,703 $0

$15,057,360 $3,817,250 $0

$1,842,516

$383,974 $1,785,661

$383,974

$590,730 ($206,755)

($64,488) $1,778,028 ($992,255) $785,773 $215,740 ($410,784) $590,730

$0 $0

$0 $21,229,422 $747,096

3"Qtr"17

2024

$0 $0 $253,532 $253,532 $0 $0 $747,096 $747,096 $26,100,329 $26,100,329

$2,258,604 $118,354 $0 $0 $0 $0 $136,703 $0

$22,586,040 $0 $0

$0 $0

$0 $25,353,233 $747,096

2023

$0 $253,532 $0 $747,096 $26,100,329

$2,258,604 $118,354 $0 $0 $0 $0 $136,703 $0

$22,586,040 $0 $0

$0 $0

$0 $25,353,233 $747,096

Construction 1"Qtr"17

1"Qtr"16 2"Qtr"16 3"Qtr"16 4"Qtr"16 CONSTRUCTION/MARKETING/DISPOSITION

4"Qtr"15

2020

$0 $0 $0 $0 $437,328

$0 $118,354 $0 $0 $0 $0 $318,975 $0

$0 $0 $0

$437,328 $0 $1,504,608

$0 $0 $1,067,280

3"Qtr"15

$393,366 $2,179,026

$393,366

$605,178 ($211,812)

($64,488) $1,778,028 ($992,255) $785,773 $230,189 ($410,784) $605,178

2026

$0 $1,381 $0 $138,084 $276,168

$0 $0 $0 $0 $0 $0 $136,703 $0

$0 $0 $0

$0 $0

$0 $138,084 $11,621,488

2"Qtr"18

($195,431) $1,983,595

($195,431)

($300,664) $105,232

($64,488) $856,770 ($992,255) ($135,485) $245,605 ($410,784) ($300,664)

($921,258)

2027

$0 $38,280 $0 $3,827,964 $7,655,929

$0 $0 $3,698,549 $0 $0 $0 $91,136 $0

$0 $0 $0

($4,710,272) $0 $7,655,929

$0 $3,827,964 $8,538,236

$414,078 $2,397,673

$414,078

$637,043 ($222,965)

($64,488) $1,778,028 ($992,255) $785,773 $262,054 ($410,784) $637,043

$1,842,516

$0 $1,381 $0 $138,084 $276,168

$0 $0 $0 $0 $0 $0 $136,703 $0

$0 $0 $0

$0 $0 $11,759,573

$0 $138,084 $11,621,488

$175,390,641 $422,848,270

$4,357,029

$54,889,631

$25,000,000 $163,210,969

$480,924,701

$2,954,077

11:01 PM 3/11/13 $556,404

$556,404

$654,593 ($98,189)

($64,488) $1,778,028 ($992,255) $785,773 $279,604 ($410,784) $654,593

$1,842,516

2028

$1,711,484 $1,741,083 $904,461 $175,390,641 $422,848,270

$16,321,097 $11,835,357 $3,698,549 $7,397,098 $2,340,020 $2,823,051 $4,556,780 $5,917,679

$150,573,600 $7,634,500 $5,002,869

$25,000,000

$43,639,053 $25,000,000 $145,006,122

$60,297,419 $174,108,304 $177,879,926

3"Qtr"18 4"Qtr"18 Sample Solution 12-7 (Purchase DIBS)

$1,842,516

$0 $1,381 $0 $81,572,510 $81,710,594

$0 $0 $0 $0 $0 $0 $136,703 $0

$0 $0 $0

$0 $0

$0 $138,084 $132,650,990

Marketing 1"Qtr"18

$1,842,516

2025

$0 $300,479 $904,461 $77,013,372 $107,061,285

$2,387,748 $591,768 $0 $369,855 $0 $0 $136,703 $1,479,420

$15,057,360 $3,817,250 $5,002,869

$0 $0

$60,297,419 $30,047,913 $747,096

4"Qtr"17

A APPENDIX

UNIVERSITY OF WASHINGTON

2013 NAIOP REAL ESTATE CHALLENGE

xlvii

Distribute Benefits to Partners Vulcan Taxable Income Less Taxes Cash Flow AFTER TAX CASH FLOW Changes in Capital TOTAL BENEFITS CUM BENEFITS

Principal Payments Less Depreciation Taxable Income

Less!Debt!Serice Cash!Flow

Net&Operating&Income

!!Property!and!other!Taxes !!Insurance Total&Fixed&Charges

Income&Before&Fixed&Charges

!!Administrative!and!General! !!Sales!and!Marketing !Property!Operations!and!Maintenance Utilities Total&Undistributed&Expenses Gross&Operating&Profit Management!Fees Reserve!for!capital!Replacement

Undistributed&Operating&Expenses

!!Rooms !!Guest!Parking(Valet) !!Other!Operated!Departments Total&Department&Expense Total&Deparment&Income

Departmental&Expenses

!!Rooms !!Other!Operated!Departments !!Rentals!and!Other!Income Guest!Parking Total&Revenue Vacancy!Credit!loss

HOTEL&Revenue

35% 15% $965,997 ($338,099) $627,898 $627,898 $361,914

($409,207) $143,222 ($265,984) ($265,984) ($265,984)

($1,659,657) ($2,113,127) ($1,408,752) ($1,173,960) ($6,355,495) $4,823,875 ($821,772) ($1,173,960) $2,828,144 ($920,753) ($460,376) ($1,381,129) $4,209,273 ($2,645,122)

($5,075,325) ($47,581) ($203,013) ($5,325,919) $11,179,370

$18,625,950 $2,012,391 $426,327 $942,384 $22,007,053 ($5,501,763)

$1,681,055 $2,042,969

$1,681,055

$2,586,239 ($905,184)

($1,709,446) ($2,155,390) ($1,436,927) ($1,197,439) ($6,499,202) $6,454,467 ($838,207) ($1,197,439) $4,418,821 ($920,753) ($460,376) ($1,381,129) $5,799,950 ($2,645,122)

($5,227,585) ($49,009) ($209,103) ($5,485,697) $12,953,669

$19,557,248 $2,072,763 $439,117 $980,080 $23,049,207 ($4,609,841)

($1,813,552) ($2,242,468) ($1,494,978) ($1,245,815) ($6,796,813) $7,269,602 ($872,071) ($1,245,815) $5,151,716 ($920,753) ($460,376) ($1,381,129) $6,532,845 ($2,645,122)

($5,545,945) ($51,993) ($221,838) ($5,819,776) $14,066,415

$21,153,119 $2,198,994 $465,859 $1,039,767 $24,857,739 ($4,971,548)

($1,867,958) ($2,287,317) ($1,524,878) ($1,270,732) ($6,950,885) $7,706,748 ($889,512) ($1,270,732) $5,546,504 ($920,753) ($460,376) ($1,381,129) $6,927,633 ($2,645,122)

($5,712,323) ($53,553) ($228,493) ($5,994,369) $14,657,633

$21,999,244 $2,264,964 $479,835 $1,070,960 $25,815,002 ($5,163,000)

($1,923,997) ($2,333,063) ($1,555,376) ($1,296,146) ($7,108,582) $8,164,774 ($907,302) ($1,296,146) $5,961,325 ($920,753) ($460,376) ($1,381,129) $7,342,454 ($2,645,122)

($5,883,693) ($55,160) ($235,348) ($6,174,200) $15,273,356

$22,879,213 $2,332,913 $494,230 $1,103,088 $26,809,445 ($5,361,889)

($1,981,717) ($2,379,725) ($1,586,483) ($1,322,069) ($7,269,994) $8,644,596 ($925,448) ($1,322,069) $6,397,079 ($920,753) ($460,376) ($1,381,129) $7,778,208 ($2,645,122)

($6,060,203) ($56,814) ($242,408) ($6,359,426) $15,914,590

$23,794,382 $2,402,900 $509,057 $1,136,181 $27,842,520 ($5,568,504)

($2,041,168) ($2,427,319) ($1,618,213) ($1,348,511) ($7,435,211) $9,147,172 ($943,957) ($1,348,511) $6,854,704 ($920,753) ($460,376) ($1,381,129) $8,235,833 ($2,645,122)

($6,242,010) ($58,519) ($249,680) ($6,550,209) $16,582,383

$24,746,157 $2,474,987 $524,329 $1,170,266 $28,915,740 ($5,783,148)

$1,933,687 $3,976,656

$1,933,687

$2,199,499 $6,176,154

$2,199,499

$2,479,107 $8,655,261

$2,479,107

$3,082,315

$3,407,291 $2,773,155 $3,082,315 $3,407,291 $11,428,416 $14,510,732 $17,918,023

$2,773,155

$2,974,903 $3,383,844 $3,814,011 $4,266,392 $4,742,024 $5,241,986 ($1,041,216) ($1,184,346) ($1,334,904) ($1,493,237) ($1,659,708) ($1,834,695)

($1,760,730) ($2,198,498) ($1,465,665) ($1,221,388) ($6,646,280) $6,852,457 ($854,971) ($1,221,388) $4,776,098 ($920,753) ($460,376) ($1,381,129) $6,157,227 ($2,645,122)

($5,384,412) ($50,479) ($215,376) ($5,650,268) $13,498,737

$20,339,537 $2,134,946 $452,291 $1,009,482 $23,936,256 ($4,787,251)

$127,003 $1,564,151 $3,154,828 $3,512,105 $3,887,723 $4,282,511 $4,697,332 $5,133,086 $5,590,711 $451,483 $479,329 $508,893 $540,281 $573,604 $608,983 $646,543 $686,421 $728,758 ($987,693) ($1,077,483) ($1,077,483) ($1,077,483) ($1,077,483) ($1,077,483) ($1,077,483) ($1,077,483) ($1,077,483) ($409,207) $965,997 $2,586,239 $2,974,903 $3,383,844 $3,814,011 $4,266,392 $4,742,024 $5,241,986

($1,611,317) ($2,071,693) ($1,381,129) ($1,150,941) ($6,215,080) $3,347,596 ($805,659) ($1,150,941) $1,390,996 ($920,753) ($460,376) ($1,381,129) $2,772,125 ($2,645,122)

($4,927,500) ($46,195) ($197,100) ($5,170,795) $9,562,676

$17,739,000 $1,971,000 $413,910 $923,906 $21,047,816 ($6,314,345)

$4,902,298 $22,820,321

$4,902,298

$5,767,409 ($865,111)

$6,071,187 $773,706 ($1,077,483) $5,767,409

($2,102,403) ($2,475,865) ($1,650,577) ($1,375,481) ($7,604,327) $9,673,497 ($962,837) ($1,375,481) $7,335,180 ($920,753) ($460,376) ($1,381,129) $8,716,309 ($2,645,122)

($6,429,270) ($60,274) ($257,171) ($6,746,715) $17,277,824

$25,736,003 $2,549,237 $540,059 $1,205,374 $30,030,673 ($6,006,135)

TELLARITE REAL ES TATE ADV ISORS

UNIV ERS ITY OF WA S HINGTON COLLEGE OF BUILT ENV IRONMENTS

To: Fr: Dt:

Runstad Center Advisory Board Stephen H. O’Connor, Ph.D. February 13, 2013

Admissions:

424 GOULD HALL, BOX 355740 SEATTLE, WASHINGTON 98195-5740 T (206) 616.5335 F (206) 685-9597