High Desert Portion of the Inland Empire

Private Offering Memorandum

Five Groups of Parcels Totaling 396 Acres of Retail, Commercial, Business and Industrial Properties along the I-15 Freeway and Proposed E-220 Freeway in Victorville and Apple Valley, California

Exclusive Advisor:

Ronald J. Barbieri, Ph.D., MBA, CPA Senior Vice President License ID# 00344191

Coldwell Banker Commercial RES 15500 West Sand Street 2nd Floor Victorville, CA 92392 DirectDISCLAIMER Phone No. 760.684.8048 [email protected]

1 DISCLAIMER

Coldwell Banker Commercial RES has been engaged as the exclusive agent to the Seller, in connection with Seller’s solicitation of offers for the purchase of all the property known as a 396-Acre parcel at the intersection of the I-15 Freeway and the future E-220 Cross Town Freeway in the cities of Apple Valley & Victorville, County of San Bernardino, State of California (the “Property”). The Owners of the property are also willing to sell one or more of the five subareas of the Property in separate Transactions. Prospective purchasers are advised that as part of the solicitation process, Seller will be evaluating several factors including the current financial qualifications of the prospective purchaser. Seller expressly reserves the right in its sole and absolute discretion to evaluate the terms and conditions of any offer and to reject any offer without providing a reason. Further, Seller reserves the right to terminate the solicitation process at any time prior to final execution of the Purchase Agreement.

The information contained in this Offering Memorandum is confidential and furnished solely for the purpose of a review by a prospective purchaser of the Property, and it is not to be used for any other purpose or made available to any other person without the express written consent of Seller or Ronald J. Barbieri of Coldwell Banker Commercial. The material is based in part upon information supplied by the Seller and in part upon information obtained by Coldwell Banker Commercial from sources it deems reasonably reliable. Summaries of any documents are not intended to be comprehensive or all-inclusive, but rather only outline some of the provisions contained therein and qualified in their entirety by the actual document to which they relate.

No representation or warranty, expressed or implied, is made by the Seller, or any of their respective affiliates as to the accuracy or completeness of the information contained herein. Prospective purchasers should make their own projections and form their own conclusions without reliance upon the material contained herein. The Buyer should conduct their own due diligence, including engineering and environmental inspections, to determine the condition of the Property and the existence of any potentially hazardous material located at the Property site or used in the construction or maintenance of the building at the Property site.

A prospective purchaser’s sole and exclusive rights with respect to this prospective transaction, the Property, or information provided herein or in connection with the sale of the Property shall be limited to those expressly provided in an executed Purchase Agreement and shall be subject to the terms thereof. In no event shall a prospective purchaser have any other claims against Seller or Coldwell Banker Commercial or any of their affiliates or any of their respective officers, directors, shareholders, owners, employees, or agents for any damages, liability, or causes of action relating to this solicitation process or the marketing or sale of the Property.

Prospective purchasers are not to construe the contents of this Offering Memorandum or any prior or subsequent communication from Coldwell Banker Commercial or Seller or their affiliates or any of their respective officers, directors, shareholders, owners, employees, or agents as legal, tax, or other advice. Prior to submitting an offer, prospective purchasers should consult with their own legal counsel and personal and tax advisors to determine the consequences of an investment in the Property and arrive at an independent evaluation of such investment.

2 This Private Offering Memorandum (POM) contains articles prepared by Ronald J. Barbieri, Ph.D., MBA, CPA, that appeared in prior issues of Coldwell Banker Commercial RES’s “Market Watch.” The articles reflect the author’s best estimates of future real estate trends in Southern California and the High Desert portion of the Inland Empire. Nevertheless, any potential purchaser of the Property, should be aware that any forecasts of future economic, demographic and real estate trends may prove to be overly optimistic or pessimistic, because of changes in the Federal and California political and economic environment that could significantly change current real estate trends that could positively or negatively impact the future value of properties offered for sale in this POM. During the Due Diligence Period any Buyer should conduct their own research and formulate their own assessment of future economic, demographic and real estate trends and their impact on the High Desert where the Property is located.

The Marketing Team

Ronald J. Barbieri Senior Vice President Coldwell Banker Commercial – Real Estate Solutions Cell: (760) 220-4099 [email protected] DRE# 00344191

Steven Thompson Vice President Coldwell Banker Commercial – Real Estate Solutions Cell: (760) 985-4172 [email protected] DRE# 01963261

SUMMARY OF LAND INVESTMENT OPPORTUNITIES

Overview

This Private Offering Memorandum describes five land investment opportunities involving the purchase of either the entire property of 396.17 acres or one or more of the five subareas of the property. Four of the subareas are on the west side of the I-15 Freeway in the City of Victorville. They range in size from 15.63 to 97.35 acres. Two of the subareas in Victorville front on the freeway. The fifth parcel consists of 176.42 acres. It fronts on the east side of the I-15 in the Town of Apple Valley. The four properties in the City of Victorville have access to the I-15 Freeway via Stoddard Wells Road. The land in The Town of Apple Valley has access to the I-15 Freeway via the frontage road adjacent to the freeway.

The proposed E-220 Freeway, which would connect the City of Palmdale, CA with the Cities of Victorville, CA and Apple Valley, CA, would intersect the I-15 Freeway at the location of the property being offered for sale. The completion of the E-220 Freeway would provide excellent access to the parcels in Apple Valley and Victorville. All the required Environmental Studies have been completed and approved for the E-220 Freeway. The last step was to obtain funding for the construction of the freeway. Los Angeles County arranged funding for its portion of the project on the west end; but San Bernardino County was not willing to secure the funds required for the east end of the freeway. Consequently, the project has been postponed. Because of this recent decision by Caltrans, the owners of the property, decided to sell the parcels to one or more land investors who will be able to reap the benefits of the completion of the E-220 and the High- Speed Train to Las Vegas, as well as, the anticipated employment and population growth in the High Desert. The owners have substantially reduced the asking price in order to liquidate their position in the property within the next year. The entire 396.17 acres had been listed for $33.4 million. The owners have reduced the asking price to $24,675,000, which is significantly less than a recent appraisal. Also, the owners have authorized listing prices for the five individual subareas. A detailed price schedule is in the main body of this Private Offering Memorandum. The Title Page and the Appraisers’ Opinion of Value Letter is in Exhibit VIII. A copy of the appraisal is available upon request

Population Growth

The High Desert region of San Bernardino County consists of five cities. They are Victorville, Hesperia, Apple Valley, Adelanto and Barstow, which, including the adjacent unincorporated areas have a current population of approximately 450,000. The High Desert has been one of three expansion areas for Southern California and the Inland Empire, which also includes Riverside County. At the end of 2017, the population of California was 39,809,000. The population of Southern California was 22,936,000. The population of San Bernardino and Riverside Counties was 2,175,000 and 2,416,000 respectively. During that seven-year period, the population of California increased by 2,280,000, Southern California increased by 1,212,000 and the Inland Empire grew by 324,000. These population estimates were provided by the State of

5 California’s Department of Finance. Exhibit VII is a summary of the increases in population over the last 7 years for California and each of the Counties in the State.

Since the year 2000, the primary engine of population growth for the cities of Victorville, Hesperia, Apple Valley and Adelanto in the High Desert has been the migration of households from the Los Angeles Basin in which at least one household member continued to work in the Los Angeles Basin. An estimated 50,000 residents of the High Desert currently commute to the Los Angeles Basin for work. Such commuters function as Base Employment to the High Desert supporting an additional 50,000 secondary jobs in the Victor Valley region. Now that the I-15 freeway between the High Desert and the Los Angeles Basin has recently been expanded, the number of individuals commuting to the Los Angeles Basin is expected to increase. Over the last 15 years there has been an expansion of the industrial base in the High Desert. This is described in Exhibit I. There has been a significant increase in the number of aerospace employees at and around the Southern California Logistics Airport in Victorville and General Atomics has become the largest employer in the High Desert with facilities in Adelanto, El Mirage and Victorville. Manufacturing, Warehousing and Distribution firms have also established facilities in the High Desert. This is a growing source of Base Employment that is expected to accelerate over the next decade as raw industrial land in the Los Angeles Basin becomes more scarce. The Los Angeles Basin currently has over 2 Billion Square Feet of industrial space and very low vacancy levels.

Industrial Growth

Exhibit II is a detailed study on the supply and demand for industrial space in Southern California. There are several conclusions that can be drawn from that research effort. First, the increase in demand for industrial space in Southern California is likely to continue at current levels which over the last seven years has fluctuated between 25 and 34 million Square Feet of building area per year. Second, the level of new construction in Los Angeles, San Diego and Orange Counties along the coast will be very limited because of the scarcity of vacant land. Consequently, the increase in demand for industrial space that has occurred in the three coastal counties over the last five years is expected to continue; but most of the added absorption in the future will have to be accommodated in the Inland Empire. This is expected to increase the annual Net Absorption of space in the Inland Empire by 5 million to 9 million SF. Third, there is a finite amount of industrial zoned land in the Los Angeles Basin portion of the Inland Empire. As this industrial zoned land is absorbed, land prices and industrial rents in Riverside County and San Bernardino County will increase, which over time will make it financially viable for a greater percentage of the industrial users and tenants to establish operations in the High Desert. One conclusion of the study was that the annual Net Absorption of Industrial space in the High Desert could exceed 5 million Square Feet per year and add 5,000 jobs to the High Desert and increase the demand for housing by an estimated 3,000 residential units per year in the second half of the next decade. This would only represent 20% to 25% of the Net Absorption of industrial space projected for the Inland Empire.

Intermodal Facility in Barstow

BNSF Railroad has committed to building a large intermodal facility in Barstow close to the intersection of the I-15 Freeway and Highway 58. There has not been any formal announcement.

6 Nevertheless, BNSF is moving forward with this facility. Trucking companies are acquiring land to park their trucks. Once completed this intermodal facility will accelerate the absorption of industrial space in the High Desert, because it will make it less expensive for companies located in the High Desert to ship goods to the east either by truck or train or to the ports of Los Angeles or Long Beach by train. This will have a very positive effect on the employment and population growth rate of the High Desert.

Anticipated Employment and Demographic Trends for the High Desert

Exhibit III is a research study that investigated economic, employment, population, and housing trends at the federal, state, and local level to estimate the extent the demand for Single-Family and Multi-Family units will increase in the Inland Empire and the High Desert over the next three years and the next decade. The results were surprising. During the period 2018 through 2020, the study anticipates a moderately accelerating expansion in the demand for Single-Family and Multi-Family housing units in Riverside and San Bernardino Counties and a moderate increase in demand for Single-Family units in the High Desert. For many millennials the High Desert will be one of the few areas in Southern California where they will be able to afford a Single-Family home. Recently, more millennials have started to get married and have children, so their desire to own a Single-Family home is accelerating. Over the next decade the demand for Single and Multi-Family residential units in the High Desert has a 50-50 chance of approaching the levels experienced from 2003 through 2005. After the next five years a substantial portion of the increased demand will likely be driven by the development of industrial space in the High Desert, and the migration of households to the Victor Valley area that have at least one member who commutes to work in the Los Angeles Basin. Also, the rate at which individuals retire to the High Desert could triple over the next decade provided the municipalities in the High Desert allow for Del-Webb type senior communities. The study concluded: The intermediate-term residential and industrial growth potential of the High Desert is comparable to the growth potential of the Ontario-Rancho Cucamonga area of 30 years ago.

Future Retail Growth

A significant transformation of the retail industry that began in earnest in 2017 will impact the occupancy of retail buildings throughout the United States and the High Desert over the next decade. An increasing proportion of consumer goods are being purchased over the internet. In many cases firms like Amazon enable individuals to purchase consumer products on the internet that are then shipped from fulfillment warehouses and delivered to the buyer’s home or business. Amazon’s purchase of Whole Foods will alter the way food and prepared meals are sold and delivered to households. An increasing percentage of groceries and prepared food will be purchased through the internet and delivered to the home, bypassing the traditional grocery stores. A limited number of individuals are already getting prepared meals delivered. As this expands it will compete with restaurants and fast food outlets as well as traditional markets such as Stater Bros.

Also, some large retailers such as Walmart and Target enable individuals to purchase on line and pick up the general merchandise or the groceries and meals at their existing retail facilities the same day. As the changes described above become more pervasive, they will magnify the impact

7 the creation of Super Walmart and Targets stores have had on the region. They have created a hierarchy of retail centers in the High Desert; At the top are the primary centers, which are located along the I-15 freeway or at the intersection of a few major arteries and streets. These centers command the highest rents and market values in the High Desert. In the middle are the older, secondary centers, that cater to cost conscious retailers occupying second generation space. They generate significantly lower rents for the landlords. At the bottom are a few neighborhood, power and strip centers that suffer from functional and locational obsolescence. The vacancy rates for such shopping centers tend to be high and the rents are low. Many centers in this category will likely be converted to other land uses over time. Exhibit IV is a recent article in Coldwell Banker Commercial RES “Market Watch” on the Retail Markets in the High Desert.

In the future, almost all new construction of retail space will be in the prime locations, which for the most part is along the I-15 Freeway. When the proposed E-220 is completed the land around the intersection of the two freeway is expected to become a major retail node with several prime locations.

High Speed Rail Project to Las Vegas

On September 19, 2018 it was announced, Brightline Trains LLC, based in Miami, Florida is in the process of acquiring XpressWest, a private rail project, developed and owned by Las Vegas Strip contractor Tony Marnell. Over the last decade, XpressWest has secured most of the state and federal approvals needed to develop a 185-mile route for electric trains at speeds up to 150 Miles per hour Between Las Vegas and Victorville, CA along a route that parallels the I-15 Freeway. On November 30, 2018 Fortress Investment Group, the company financing Brightline, announced plans to partner with British entrepreneur Richard Branson to form Virgin Trains USA and take over the proposed XpressWest train route in Southern California and Southern Nevada. If the public offering is successful it would substantially increase the odds XpressWest would be built. Exhibits V and VI are recent newspaper articles on the new ownership of XpressWest.

The EIS/EIR studies for the E-220 Freeway provides for a rail connection between Victorville, CA and Palmdale, CA. Were XpressWest to move forward with this phase, it would likely regenerate interest in funding the E-220 Freeway in the near term. Should this occur, Caltrans would be looking to take ±40 commercially zoned acres of the offered “property” on the City of Victorville side of the I-15 freeway; and an additional ±40 commercially zoned acres of the offered “property” on the Town of Apple Valley side of the I-15 freeway. There are several uncertainties related to the funding and construction of the XpressWest Project. Any potential investor should conduct their own investigation concerning the viability and timing of this High- Speed Train Project.

Investment Horizon

The land investment opportunities described in this Private Offering Memorandum may yield profits for the investor / developer in the short to intermediate term. This could be realized from the growth of Southern California, the Inland Empire and the High Desert Region in San Bernardino County.

9 TABLE OF CONTENTS

· Executive Summary of Land Investment Opportunities

· Project Location

· Property Description for Each of the 5 Subareas

· Topography

· Zoning

· Availability of Utilities

· Economic and Demographic Trends

· Transportation Projects That Could Impact the Property

• High Desert Corridor (E-220 Cross-Town Freeway)

• High Speed Train To Las Vegas

· Completed Due Diligence Studies

· Listing Prices for Each of the Five Subareas

· Investment Opportunity

· Exhibits

• Exhibit I - Market Watch Industrial Report

• Exhibit II – Market Watch Industrial Report for Southern California

• Exhibit III – Market Watch Housing Report in Southern California

• Exhibit IV – Market Watch Retail Report

• Exhibit V – Daily Press Article

• Exhibit VI – Daily Press Article

• Exhibit VII – Daily Press Article

• Exhibit VIII – Appraisal Transmittal Letter

LOCATION

This land investment and development opportunity is in the State of California, which still has the second fastest growing population in the United States. According to the U.S. Census Bureau, California’s population increased by approximately 325,700 per year during the 7-year period ending with 2017. Exhibit VII is a summary of the population changes by County in California.

The property is in the Inland Empire area of Southern California, which is the fastest growing region in the state. Over the last seven years the Inland Empire, which consists of Riverside and San Bernardino Counties, has accommodated a substantial portion of the population growth in the Southern California region caused by the expansion of industrial employment in the Inland Empire and a general growth of employment in the coastal counties of Los Angeles, Orange and San Diego.

The property is in the “High Desert” area of San Bernardino County. The Cities of Apple Valley, Victorville, Hesperia, Adelanto, and Barstow, along with the adjacent unincorporated areas, constitute the “High Desert” in San Bernardino County. It is immediately northeast of the Los Angeles Basin and north and east of the San Bernardino Mountains. The High Desert’s primary access to Los Angeles Basin is through the Cajon Pass on the I-15 Freeway. The same freeway also provides access to Las Vegas, Nevada. BNSF and Union Pacific have rail lines that connect the High Desert, Las Vegas and the Central and Eastern United States with the Los Angeles Basin and the twin ports of Long Beach and Los Angeles.

11 The Property is in the northern portion of the Victor Valley area of the High Desert. The property is approximately one mile north of existing residential development in the Town of Apple Valley and the City of Victorville. Since 1990, the High Desert has grown to the east towards Apple Valley, to the west in the cities of Victorville and Adelanto and to the south in the city of Hesperia. At the present time, approximately 60% of the population is east of the I-15 Freeway.

HIGH DESERT

SITE

The development of industrial parks at the Southern California Logistics Airport (SCLA), in the Cities of Victorville, Apple Valley and Adelanto is expected to create Base Employment in the northern portion of the High Desert, which in turn, will support a high level of residential construction in the northern areas of the Cities of Victorville and Apple Valley. In the intermediate-term , the growth in industrial employment and population in the High Desert will create demand for a major retail, business and commercial node at the intersection of the I-15 Freeway and the Proposed E-220 Freeway, where the subject property is located. The reason is that as the population expands further north around the developed industrial parks, the subject property will become a central location along the I-15 freeway in the High Desert. The Town of Apple Valley maintains that the land area located on the east side of the I-15 freeway will be the primary retail center for the City of Apple Valley and the gateway to the city after the E-220 freeway is built.

PROPERTY DESCRIPTION

The total property consists of 396.17 acres of land flanking both sides of the I-15 freeway. There are 219.75 acres in the City of Victorville on the west side of the I-15 Freeway and 176.42 acres in the Town of Apple Valley on the east side of the I-15 Freeway. Stoddard Wells Road, a two- lane paved road, provides access from the I-15 freeway to the parcels in the City of Victorville. Under the Master Plan of the City of Victorville, Stoddard Wells Road will become a four-lane street with a left turn land. In fact, Approximately, 9.51 acres of the Property in the City of Victorville have been dedicated to the City of Victorville for the widening of Stoddard Wells Road and the Haul Road west of Stoddard Wells Road. The width of this Right-of-Way is 84 feet, which is enough to accommodate a major street.

The property has approximately 0.79 miles of frontage on the I-15 Freeway. It will also front on the north side of the planned E-220 Freeway for approximately 0.8 miles. The two-lane frontage road on the east side of the freeway along with Falchion Road and Apple Valley Road to the south of the property provides access to the large land parcel in the City of Apple Valley.

The property is naturally divisible into five groups of parcels as identified in the Parcel Map and table below. The owner is willing to sell the four groups of parcels in the City of Victorville and the parcel in the City of Apple Valley to separate owners. This may be desirable because each of the groups of parcels represent different investment opportunities; and three of the four groups of parcels have different zoning designations and likely Highest and Best Uses. The table below summarizes the number of acres in each of the five groups of parcels, the city in which the acreage is located, the land use permitted by existing and future zoning and other significant factors that will impact value.

The Five Subareas of the Property

Property Property Land Area Area ID Location Description in Acres

Three Parcels in the NWC of the Property, West I-1 Victorville of Stoddard Wells Road 97.35

Land West of Osborne's Pipe Building. The

Parcel Fronts on the East Side of Stoddard Wells I-2 Victorville Road 15.63

The Parcel Fronts on West Side of I-15 Freeway I-3 Victorville and the east side of Stoddard Wells Road. 34.90

Land Fronts on West Side of the I-15 Freeway

and the north side of the Proposed E-220 I-4 Victorville Freeway. 71.87

Parcel Fronts on the East Side of the I-15

Freeway and the north side of the Proposed E- I-5 Apple Valley 220 Freeway 176.42

All Parcels 396.17

15 I-1 Subarea in the NWC of the Property

This subarea consists of three parcels with a total land area of 97.35 Acres. Approximately 70% of the property is useable. As discussed in the Zoning Section there is a drainage wash that runs along the west side of Stoddard Wells Road that the City of Victorville will require to be maintained as a drainage system. Immediately west of that is an area reserved for an existing gas line and an existing electric power line. The balance of the property to the north and west was originally master planned as a combination High Density Mixed Use and medium density residential land uses. As discussed in the section on Zoning, this land use is no longer appropriate for this subarea. The Highest and Best Land use for this land area is likely industrial. Discussions with the City of Victorville staff suggest that they would be willing to support an industrial use designation for this subarea if presented to the City Council.

The aerial below depicts the boundaries for this subarea and the ensuing drone aerial photos provide a view of the topography. Access to this land area is from Stoddard Wells Road, which has on and off ramps to the I-15 Freeway both to the north and to the south of this subarea.