GATEWAY PARK 2018 NAIOP & ULI UNIVERSITY CHALLENGE: LAFAYETTE SQUARE MALL REDEVELOPMENT

Ashley Bedell • Matthew Crouch • Jess Lawhead • Nathan Lowery • Chris McKinney

Nirav Patel • Anthony Schneider • Justin Strinka • Darren Trimble • Kris Wright

APRIL 6, 2018 Gateway Park

Table of Contents Introduction ...... 4 Project Overview ...... 4 History of Area ...... 4 Market Analysis ...... 5 Introduction ...... 5 Demographics ...... 5 Product Type Review (Highest and Best Use) ...... 6 Multi-Family ...... 6 Office ...... 6 Retail ...... 6 Industrial ...... 6 Future Development ...... 7 SWOT Analysis ...... 7 Strengths ...... 7 Weaknesses ...... 7 Opportunity ...... 8 Threats ...... 8 Development Plan ...... 8 Acquisition Phase ...... 8 Phase One ...... 8 Phase Two ...... 8 Leasing Plan ...... 8 Tenant relocation plan ...... 8 Compliance with Gateway Study ...... 10 Financing ...... 11 Lafayette Square Mall Valuation ...... 11 Current Tenants ...... 11 Rent Estimate ...... 11 Operating Expenses: NNN Expenses ...... 11 Net Operating Income ...... 12 Projected Valuation ...... 12 Budget ...... 13 Site Preparation ...... 13 Soft & Hard Costs Analysis ...... 14 Proforma Analysis ...... 14 Assumptions ...... 14 BTCF Analysis 1: Developer invests 30% Equity ...... 15 BTCF Analysis 2: $15M of Mezz Debt ...... 15 BTCF Analysis 3: $10M of Mezz Debt & Owner Donation of Land ...... 15 BTCF Analysis 4: Only Perform Site Work Needed for Phase 1 ...... 15

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BTCF Analysis 5: Sale of Land at Exit from Development ...... 15 BTCF Analysis 6: Pari Passu Joint Venture ...... 15 References ...... 17 Appendix ...... 18 Exhibit A: Site Plan ...... 19 Exhibit B: Parcel Information ...... 20 Exhibit C: Development Plan Outline ...... 21 Exhibit D: Demolition Area ...... 23 Exhibit E: Construction Schedule ...... 24 Exhibit F: Relocation Options ...... 26 Exhibit G: Mall Valuation ...... 27 Exhibit H: Project Timeline ...... 31 Exhibit I: Soft & Hard Cost Analysis ...... 32 Exhibit J: Proforma Data (BTCF Analysis 1 & 6) ...... 34 Exhibit K: Proforma Output (BTCF Analysis 1) ...... 35 Exhibit L: Termination/Relocation Assumptions ...... 39

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INTRODUCTION renovation, including addition of a food court, was completed but the mall continued to lose anchor Project Overview tenants: Lazarus in 2002, JCPenney in 2005, then The mission of this project is to determine the highest Macy’s (previously L. S. Ayres) in 2009 (Milz, and best use for the Lafayette Square Mall site. A 2009). Lafayette Square Mall has continued to development on the site should be profitable for struggle to retain anchor tenants, with only portions investors, maximize job creation and encourage of two of five anchor tenant spaces currently occupied community investment and engagement. The by Burlington Coat Factory and Shopper’s World. Lafayette Square area needs to be rebranded as a diverse business center with an emphasis on During it’s prime, Lafayette Square Mall was one of entrepreneurship, technology, e-commerce and the the key shopping destinations in Indianapolis. multiculturalism. Redeveloping the once booming Located just four miles outside of downtown, the mall shopping center into an industrial park will strip away was known for its convenience. It was a community the uncertainty surrounding the property, increase anchor and the neighborhood surrounding the mall occupancy at nearby retail centers and encourage was called Lafayette Square Area. When the mall future investment in the area. began struggling in the late 1990’s, the community struggled as well. The proposed redevelopment will transform the mall to an industrial park containing light industrial, technical and manufacturing uses. The development is planned to occur in two phases. Phase One will include four 175,000 SF buildings primarily located on the south half of the property. The frontage along Lafayette Road will become a landscape promenade encouraging pedestrian activity in the area. Approximately twelve acres at the southeast corner of the site (located east of Little Eagle Creek) will be reserved for a community use. Additional land is available for development of Phase Two of the project CONCEPUTAL RENDERING: Image of comparable based upon market demand. industrial project use set back from roadway through landscape promenade Due to the complex nature of the site’s size and The Lafayette Square Area Coalition was formed in existing structures it is more efficient to demolish the 2005 with a goal of working to revitalize the existing structures than renovate to meet a new use. neighborhood. In 2010, the group began to change The proposed light industrial, and technical campus the focus from revitalizing the Lafayette Square area style use requires a full re-development of to embracing the international destination the area infrastructure and construction of buildings. This was becoming. In 2012, the organization reorganized allows for a clean slate approach for re-development as the International Marketplace Coalition (IM) allowing the buildings to operate efficiently for new (Davis, 2015). tenants to ensure long term success. Through the work of the IM, an area once known for History of Area retail shopping is now known for international Lafayette Square Mall was developed in 1968 by cuisine. In 2011, together with the City of Edward J. DeBartolo Sr. and was the first enclosed Indianapolis, the IM completed the International mall in the metropolitan area (Prange Way). The mall Marketplace Gateway Study which outlines the was hugely successful from the 1970’s through the vision for strengthening the function, appearance and late 1990’s, but by the late 1990’s the mall was facing economic potential of the area. One of the goals of much competition and the decline began with the the Study is to redevelop Lafayette Square Mall, but closure of Montgomery Ward (Malls.com, n.d.). A the study recognizes that this will need to be a city or developer driven initiative and turns the focus to

4 Gateway Park improving the appearance and function of the area buildings at Park 100 sold for $22.3 Million. (International Marketplace Gateway Study, 2011). Together, both buildings had a total of 480,524 SF. There has been more focus on the vacancy and (Industrial Real Estate & Industrial Real Estate unknown future of Lafayette Square Mall than on all Developer, 2018). that the International Marketplace has to offer. By redeveloping the mall and eliminating the unknown Demographics (future), it will shift the focus to the positive aspects The charts below provide detail on key demographics of the community. for the area surrounding Lafayette Square Mall. The data should be analyzed when evaluating potentials MARKET ANALYSIS uses for the site. Introduction

After researching various uses, we believe that a POPULATION combination of light industrial and flex space is the 5 Mile Radius highest and best use for the Lafayette Square Mall site. Proximity to Interstate 65, downtown and 3 Mile Radius suburban employment centers make it an excellent location for both industrial product types. Area residents and business owners have foreign business 1 Mile Radius ties and excellent language skills. The combination of product types will create diverse job opportunities for 0 50,000 100,000 150,000 200,000 250,000 area residents. Companies in the technology, distribution, research & development and business The community surrounding the mall is densely service industry are all potential tenants. The job populated and diverse. Within a 1-mile radius, 29% creation and rebranding of the site would garner the of the population identifies as Hispanic. support of residents, the International Marketplace Coalition and the City of Indianapolis. MEDIAN HOUSEHOLD The Lafayette Square mall presents the opportunity to build over 1,000,000 square feet of urban industrial INCOME space. The Indianapolis industrial market has a vacancy rate of 5.2%. The Plainfield submarket is $41,000 $40,071 one of the most active submarkets within the $40,000 Indianapolis metropolitan area, with average rents of $39,000 $38,113 $37,683 $5.85 psf. In Industrial real estate, there are two $38,000 location strategies. A majority of industrial real estate $37,000 is adjacent to highways, seaports, rail and airports. $36,000 Due to e-commerce, there is greater need for urban, 1 Mile Radius 3 Mile Radius 5 Mile Radius infill industrial facilities (Kirk, 2017).

Increased consumer spending and the expansion of e- Household incomes in the community surrounding commerce has driven the demand for industrial space the are 30% lower than the metro average. Only 15 in the nation’s largest cities. Every $1 billion in e- percent of the population holds a bachelor’s degree. commerce sales requires 1.25 million SF of This number may be slightly distorted due the high distribution space.("Last Mile \ City Logistics," n.d.) number of immigrant small-business owners in the In 2017, e-commerce had sales of $491 billion. In the area. Indianapolis market, tenants like Chewy.com and Pearson Education have moved into newly built spaces. Firms are seeking new, high-quality space in assets with more than 250,000 SF. Sales volume has also increased in recent years. In June 2017, two

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Product Type Review (Highest and Best Use) Within a 1-mile radius of our site, there is 4,911,297 As part of the market analysis, great time was existing SF of retail space and no projects under dedicated to analyzing various product types to constructed or scheduled to be delivered in the next ensure the appropriate product type for the Lafayette 12 months. The vacancy rate is 4.9%, however retail Square Mall redevelopment. spaces are only commanding an average of $11 per Multi-Family square foot. In recent years, most construction projects have been supermarkets and fitness center Before choosing light industrial/flex space as a build-to-suits. Like office, a majority of the leasing product type, we considered creating a multi-family and sales activity is centered in the city’s more development on our site. The vacancy rate for multi- affluent areas. Landlords in Carmel and Keystone family units in the West and Northwest Indianapolis Crossing have been able to raise rents to $21 per SF sub-markets is 9.3 %. With an asking rent of just 81 or higher. Revitalizing the existing structure into a cents per square foot. Within a 3-mile radius of the modern-day retail space, may have the potential for Lafayette Square Mall, the vacancy rate is 8.2%. profitability, but it will not resolve the long-term There are currently 1505 vacant units and 90 units branding and economic problems the area faces. The under construction. Within a 1-mile radius of our site, current demographics don’t bode well for attracting the vacancy rate increases 12.2%. Low rents and high big box retailers or high-end brands. This option vacancy rates make a multi-family project on our site would only be feasible if a group of major retailers less than desirable. It will be difficult to produce showed interest in the space, which seems highly attractive return on investment unless large amounts unlikely. of subsidy are awarded. Industrial Office Increased consumer spending and the expansion of e- We also considered creating an office park. The commerce has driven the demand for industrial space vacancy rate for office space in our submarket is 8.6% in the nation’s largest cities. Every $1 billion in e- and the gross rent per square foot is $18.03. There is commerce sales requires 1.25 million SF of 7,105,052 sf of existing office space and 135,800 sf distribution space. In 2017, e-commerce had sales of will be delivered in the next 12 months. Demand for $491 billion. In the Indianapolis market, tenants like office space is centered around the Central Business Chewy.com and Pearson Education have moved into District and the North Side (Carmel, Meridian newly built spaces. Firms are seeking new, high- Corridor, Keystone Crossing). Education, health quality space in assets with more than 250,000 SF. services and technology are driving forces for Sales volume has also increased in recent years. demand. It will be difficult to attract office tenants to the Lafayette Square site without a significant rebranding of the site and surrounding amenities. Retail With the opening of Circle Center Mall in 1995, many of Lafayette Square Mall’s patrons chose to frequent the new mall downtown in lieu of Lafayette Square Mall. Area residents are not shopping at the mall today. Current shopping patterns combined with the overall retail market prove retail is not the best use for the site. E-commerce has threatened the future of brick-and-mortar retail across the country. Indianapolis is no different. There is a vacancy rate of 5.1 % in the Indianapolis retail market. There is currently 536,000 square feet of retail space under construction, with a 12-month net absorption of 786,000 square feet.

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potential hazards like floodplains and they need access to utility infrastructure. The cost of building a data center far exceeds that of traditional office, industrial and flex spaces. Flex Space and Research and Development facilities are also a potential use for our Industrial development. These spaces carry higher buildout costs than most industrial spaces and have a higher tenant turnover. Flex/R&D also command higher rents. Future Development In April of 2018, construction will begin on Hanna International Lofts. Construction will be completed in two phases. The $18,000,000 mixed use development will include 65 units and 26,000 square feet of commercial space. The area will more than $176,000,000 in new development in the next 18 months (Brown, 2018).

SWOT ANALYSIS Strengths The size and proximity of all the parcels for this site WHERE PEOPLE SHOP : Graphical representation of where residents attending planning sessions live, work and shop in the area. offer an optimal layout and flow of proposed (International Marketplace Gateway Study, 2011) buildings and throughways allowing for ease of traffic patterns along with attractive landscaping and modern amenities. One competitive advantage to the The Lafayette Square mall presents the opportunity to proposed site is the interstate visibility and access build over 1,000,000 square feet of urban industrial allowing for better marketing, ease of truck and space. There is a need for industrial space close to the delivery traffic. The new class A industrial product core of major cities with a strong demand for light type creates a rewarding project versus the alternative industrial, e-commerce & flex space. The Lafayette of retrofitting the existing outdated buildings thus Square Mall has proximity to I-65, I-74, I-465 and allowing for higher rents and an enhanced aesthetic Downtown Indianapolis. view. Developing over 100 acres of real-estate in the Indianapolis area allows for project feasibility along There is also a significant demand for data centers. In with the ability to give back to the community. 2016, data centers experienced a record 350 Weaknesses megawatts of absorption. In this niche industrial market, absorption is measured by power generation, Displacement of existing tenants will be expensive. not by square footage. Data centers contain computer This project has high fixed cost including a mortgage, servers that process and store data for various users, utilities, employees, taxes, upkeep, etc. The almost like cloud storage. In recent years, it should demolition of the existing buildings could be viewed be noted that data center operators have been among as a loss of a community landmark, albeit a depressed the top REIT performers, with demand outweighing landmark. The cost of demolition and site work are supply. expensive and drive a need for higher rents. The reduction of retail may drive the demand for the Financing and location are the biggest barrier to entry community to look elsewhere to fulfil their buying in this market. One barrier being that there are few needs where transportation may be problematic. financing options for developers of data centers. The industrial buildings also have very strict location requirements. They must be constructed away from

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Opportunity In addition to securing approvals to move forward with development during the Acquisition Phase, the The rapid expansion of e-commerce has resulted in a buyout and relocation of existing tenants (description nationwide rise in demand for industrial space, follows) will occur during this time. causing national retailers to take millions of square feet in Indianapolis for their logistics networks. This Phase One is driving the demand for industrial buildings locally. The technological landscape is progressive in nature The approach to the re-development will be a two- and customers have come to expect businesses to phase approach. Phase One will consist of demolition operate faster, be more connected and offer them the of approximately 1,229,863 SF (Exhibit D), latest advances because of it. The new class A horizontal development of infrastructure, and finally buildings will offer the opportunity for these the new vertical development component of the 4 businesses to succeed in these areas. This industrial buildings with a square footage of 175,000 development helps to create a strong tax base for the each. During Phase One, the entire site will be mass neighborhood while creating jobs for the community graded, and have full complement of development and surrounding markets. amenities including site utilities, including sanitary sewer, storm sewer, domestic water, and fire Threats suppression water at all future building pads. In Phase One, construction will be completed on the main Demographical reputation of area may deter potential entrance, the promenade, green spaces, wet and dry businesses from wanting to locate to this area. Total detention, as well as the walking paths encompassing Cost to redevelop site including the demolition the entire site. The construction timeline, start to through leasing are only feasible with high rent rates. finish is slightly beyond 18 months (Exhibit E). Economic fluctuations & rising interest rates may deter potential tenants from leasing a building with Phase Two higher rents. Planning approval requires rezoning which is contingent on the development of this Phase Two development will occur upon the lease up project. Lastly, the unknowns of the changing market of Phase One. Phase Two is planned to include a demands have an influence on the success of this similar square footage of buildings but has been left project. Finally, the unknowns of the changing market flexible to react to market conditions. conditions may have an influence on the success of Leasing Plan this project. Assuming the rates of $6 per square foot (PSF), DEVELOPMENT PLAN leasing activity begins after 18months.The annual rent increase is 2%. Phase 1 will have 700,000 square Acquisition Phase foot (SF) of industrial space ready to rent. Location The site consists of approximately 110 acres (91 acres close to downtown, I-69 and a huge retail market owned by Ashkenazi and 19 acres owned by Sears). within 5-mile radius creates unique opportunity for The purchase agreement shall include a twelve-month the asking rent rates to be a reality. Assuming by the due diligence period to allow for typical due diligence end of 18 months we would have 63% occupancy and studies (survey, title, environmental, geotechnical, 100% occupancy by the start of year 3. Asking rent environmental, etc.), rezoning and entitlement. rates = 3% increase every year. Closing will occur fifteen days following the Tenant relocation plan expiration of due diligence and be conditional upon successful rezoning. Developer partnerships will be Prior to making the determination that the best option leveraged during this period. This project team will for Lafayette Square Mall was demolition and include the following and incorporate additional redevelopment members of the project team visited consultants as needed: Land Use Planner, Engineer, the mall to better understand the current tenant mix Architect, Land Use Attorney, Environmental Service and the surrounding area to understand relocation Agency, and ALTA Certified Title Company. opportunities. Though the mall has a high anchor vacancy, the shops within the mall have operated successfully and it is important that they have

8 Gateway Park assistance in finding new a new location to operate. relating to food, 35% retail and 56% service. Over Upon completion of this review the team determined 20% of the retail stores are related to cell phones – that relocation of tenants to allow for demolition of either service, cases, etc. and over 30% of the retail the mall and a new use on the site is the most viable square footage is related to shoe sales. These ratios option. show a higher percentage of the mall dedicated to singular uses than typical. The mall currently has two retail anchors (Burlington Coat Factory at 141,433 SF and Shoppers World at To determine the relocation strategy for the shop 199,972 SF) and a third entertainment anchor (Salon tenants, the tenants were broken down into five Monte Carlo at 52,372 SF). Burlington Coat Factory categories based on square footage and then spaces of stores average approximately 74,000 SF and store similar square footage within a one-mile radius were openings in 2018 will average 43,000 SF (Burlington determined. The most challenging group to relocate Coat Factory, n.d.). As Burlington looks to open new will be the twenty tenants that occupy under 1,000 SF. stores, they are looking for stores between 40,000 SF Many of these tenants either occupy space within the and 50,000 SF located in power centers, strip centers food court or operate out of a kiosk. There are or freestanding (Site Criteria, n.d.). Relocating numerous opportunities for relocation for the tenants Burlington Coat Factory to a new location will allow over 1,000 SF. These locations are mapped on them to operate in a more prototypical store than their Exhibit F. current location within Lafayette Square Mall. Shoppers World also operates at a space larger than Tenant Size Number of Spaces available needed. The ideal store size for Shoppers World is Tenants within One Mile between 50,000 SF and 100,000 SF (Wilson, 2016). Radius (Mar31) Shoppers World occupies three additional stores in 1,000 – 3,000 SF 24 28 Indiana, and none of them are within enclosed malls 3,000 – 5,000 SF 12 13 (Store Locations, n.d.). 5,000 – 7,000 SF 7 5 7,000 and over 7 16

Even if a new space requires a higher rent per square When spaces within both a one mile and a three-mile foot, the efficiencies gained through a lower square radius are reviewed the number of opportunities for footage will benefit both Burlington and Shoppers relocation greatly increases. World. There are currently two properties within a three-mile radius of Lafayette Square Mall that the As tenants relocate to new spaces outside of the mall anchor tenants could be relocated to. Lafayette Place, this will increase occupancy rates in the area and located on the south east corner of 38th Street and tenants will install new signage and will be Lafayette Road currently had over 84,000 SF of encouraged to participate in the IM’s Façade vacancy including a 56,859 SF box and two boxes of Improvement Program. Typically, tenants pay lower over 20,000 SF (See Exhibit F). There is also a vacant common area maintenance and marketing fees in Marsh (78,207 SF) just under three miles from freestanding shop buildings than at an enclosed mall Lafayette Square Mall (38th Street just west of 465) allowing for a tenant to pay higher rent or be more that would offer convenient interstate access similar profitable. to what they have to I-65 today. Redevelopment of the former Marsh to accommodate the anchors would help solve another challenge the city is currently facing to back fill the vacant Marsh stores throughout Indianapolis. There is also a 40,000 SF space available at 4213 Lafayette Road (Mar31).

In addition to the anchor tenants the mall has approximately 70 tenants operating in the shop space. While the interior space of the mall is mostly occupied, it is a unique tenant mix. The occupancy is broken down with approximately 9% of the tenants

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Compliance with Gateway Study

GATEWAY STUDY MAP

The redevelopment of Lafayette Square Mall follows Little Eagle Creek bisects the project site. Buildings the vision of the Gateway Study through creation of a will site on the west side of Little Eagle Creek and landscape promenade along Lafayette Road (item 32 will include windows to allow pleasant views from on Gateway Study Map), improving connections to Little Eagle Creek to the project and to allow those the Little Eagle Creek Greenway (item 19 on working within Gateway Park to benefit from the Gateway Study Map), and establishment of views of the natural beauty of Little Eagle Creek. As marketplace icons (item 39 on Gateway Study Map). design is completed there will be potential for tenants to have outdoor terraces to further enjoy the amenity The Lafayette Road landscape promenade will be a of Little Eagle Creek. linear park where pedestrians can walk, bike, or sit in the shade. The promenade will serve as the front door This area is also the proposed site of Market Place to Gateway Park and serve as an amenity to Tower, one of the marketplace icons identified within pedestrians and employees. The area will also the study. The development team intends to work provide green infrastructure to capture storm water with IM not only on the Tower, but to determine a runoff. community use for the twelve acres of the site located east of Little Eagle Creek. This property could be used for a variety of community activities including

community gardens, soccer fields, cricket fields or a

park.

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required to have a debt service coverage ratio of FINANCING 1.2:1.0 for the most recent trailing four quarters.

Traditional financing was discussed with Tim LAFAYETTE SQUARE MALL VALUATION Schlichte of Lake City Bank to determine the terms for the construction loan and mini permanent As a base assumption for the development ProForma, financing. Based on the project being speculative in it is assumed that the Lafayette Square Mall (LSM) nature, the bank would typically only finance the and the Sears properties will be acquired. The Sears lower of 70 percent loan to cost or 65 percent of the properties are currently listed at $1.8 Million, but the “as-complete” appraised value. Therefore, the Lafayette Square Mall will need to be purchased amount of equity needed to get the project started through an unsolicited offer. The following details would be 30 percent of cost or 35 percent of the value. the assumptions that will be used to generate an assumed acquisition price for the Lafayette Square The construction loan, which will be for up to two Mall based on the current (assumed) economics of the years, will have monthly interest only payments due. mall. The mini permanent loan which will be for up to five years will have monthly principal and interest Current Tenants payments based on a twenty-five-year amortization. The Lafayette Square Mall currently has 73 retail tenants within the mall, comprised of 3 Anchor Based on the current rate environment, the terms for Tenants and 70 non-anchor boutique tenants. These traditional financing would be in the range of Wall tenants represent roughly 617,331 SF of occupied Street Journal (WSJ) Prime plus three quarters to square footage: 393,777 SF anchor and 223,554 SF WSJ Prime plus one. This would place construction non-anchor. financing at 5.50 percent to 5.75 percent as of today. It is believed that WSJ Prime will continue to rise as it has over the last year which would place the permanent financing in the range of 6 to 6.5 percent at time of conversion. At the time of conversion there will be an option to keep the loan on a variable interest rate or to lock in a fixed rate at the time of conversion. If a fixed rate is chosen, then a Rent Estimate prepayment premium will be added to the financing. In order to value the current LSM without a current The prepayment premium would be 5 percent for any rent roll, the estimated rents are as follows: $8.00/SF principal paid in addition to the normal amortization for Anchor Tenants and $12.00/SF for Non-Anchor decreasing by 1 percent for each year during the five- Tenants. When applied to the current anchor and non- year fixed period. If the project is sold the anchor tenants, the 2018 projected Gross Rent prepayment premium would be waived. Income is projected at $5,832,864.

The loan would require a commitment fee of 40 basis Operating Expenses: NNN Expenses points which would be due when the commitment The assumed operating expenses (Common area was signed. In addition, there would be a conversion maintenance, insurance, property taxes & utilities or fee of 10 basis points that would be due at time of “NNN Fees”) for the LSM is estimated to be conversion. $5.68/square foot, or $6,987,163. With the current

tenants in place, roughly $3,507,213.87 will be Additional terms for the construction and permanent reimbursed by the current tenants paid as Additional financing are personal guarantees of all owners that Rent. In addition to the NNN fees, the Landlord has have 20 percent of ownership in the project or greater. assumed non-reimbursed administrative expenses of This guarantee would be limited to 110 percent of the Marketing, Payroll, Management & General “Other” ownership within the borrower. In order to convert to expenses totaling $933,258. the mini permanent financing, the project will be

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prior to closing. It is hard to predict the total amount it will take to buy out all these existing leases, but it is assumed at $2 Million dollars. The Sears shell, currently on the market at $1.8 Million dollars, has an assumed acquisition cost of $1.2M.

Lafayette Square Mall Purchase Price: $11,830,466 Existing Tenant Buyout $2,000,000 Sears Purchase Price $1,200,000 Total Acquisition Cost $15,030,466

Other than the termination and relocation of the existing tenants and the approval from the International Market Coalition, one other major component of the development is the current owner of Lafayette Square Mall: Ashkenazy Acquisition Corporation. Several options are available to a developer considering an acquisition strategy of the site. The valuation of the Lafayette Square Mall provides an understanding of the owner’s current financial position. Would Ashkenazy be willing the sell the entire site? If so, at what price? If they do not want to sell, would they be interested in partnering with our development company? If a partnership opportunity is available, the developer can utilize the understanding of the owner’s return metrics to emphasize that they are leaving money on the table by not utilizing the site to its highest and best use; ultimately missing out on higher returns. In scenario 1: with the sale of the mall, Ashkenazy will experience an IRR around 11.41% during the entire holding period of the asset. They should consider divesting an asset that is struggling and does not fit their current portfolio while they can still receive positive returns. In scenario 2: with a partnership, the developer can provide the owner with a greater return Net Operating Income than 6.7% per year which they are experiencing now. After all rents are paid (including NNN The developer can also provide an opportunity for reimbursements) and expenses paid, the projected them to receive the market value of their asset, plus 2018 Net Operating Income is to be assumed at interest. The budget and proforma analysis provide $1,419,656. clarity and understanding as to how a developer can achieve success and gain congruency with Projected Valuation Ashkenazy. With all leases, anchor and non-anchor, being short term, expiring under five years, the assumed cap rate at sale is twelve percent (12%). When applied to the projected 2018 Net Operating Income, it produced an estimated valuation of $11,830,466. The assumed development will require the termination of all leases within one year during the due diligence process,

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Color Legend

BUDGET Parcels do not need Dirt

Site Preparation Green & Excavation Work One of the largest hard costs within the budget is Parcels needed during the demolition and site work needed to prepare for Blue Phase 1 development. The cost components for demolition vary between that of existing structures and land improvements; and remain vital in the analysis. The site in which Lafayette Square Mall resides is made up of eleven separate parcels; all of which would be purchased and prepared in the proposed development. The eleven parcels encompass an area of 110.34 acres or 4,806,410 square feet. Within the 110.34 acres, there are five existing structures that make up the mall; totaling around 1.125M square feet.

Upon reviewing the aerial image of the entire site, several assumptions can be made. Parcels 1 and 2 contain vacant land with no land improvements. A developer can assume that no costs will be spent on either parcel regarding demolition, massing/excavation, and seeding work; they will be Scott Casey with Casey Bertram Demolition provided eliminated from the cost analysis. Furthermore, the quotes to aid in the budget analysis for demolition development of Phase 1 (consisting of 4 industrial costs. From his perspective, a developer could assume buildings at 175,000 SF each) only affects parcels demolition costs at $2.50/SF, massing/excavation 7, 8 & 10. Understanding that these are the only costs at $2.75/SF, and the cost for seed straw tacifier parcels needed during Phase 1 provides the at $0.45/SF. Utilizing these quotes, the demolition costs for the entire site as well as just for Phase 1 were developer with several opportunities. The examined. The first scenario of demolishing the demolition of the entire site can occur at one time existing structure and performing the site work on the to implement economies of scale or can occur entire site makes the most sense, but at a high price. through the development phases, in an effort to The assumption excluded the cost of site work on forgo costs into the future. The remaining parcels Parcels 1, 2, 9 & 11, but the total was still around unused by Phase 1 can either be sold off as $15M. If the developer decided to demolish the developed land, providing substantial returns, or existing structures, but only prepare the site needed held onto for future development. Finally, in an for Phase 1, demolition costs come in around $10M. effort to coordinate with the International Market By not preparing the rest of the site for Phase 2 and Coalition, parcels 9 & 11 will be donated to the beyond, this eliminates the ability to sell the residual community. Parcels 9 & 11 will not incur land at peak developed prices upon exit. Phase 1 demolition and excavation activity. involves only parcels 7, 8 & 10 which encompass 2.3 million square feet or about 54 acres. The residual parcels 1-6, contain 1.8 million square feet or about 42 acres. If the money is spent to prepare the entire site, leaving 42 aces of developed land with adequate infrastructure, the market price per acre is around $250,000 conservatively. We assume a fair market value for the land at about $10.5M.

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Soft & Hard Costs Analysis

With the assumed project timeline, the developer must take into consideration the fact that both the soft and hard costs will be spread out over a two-year period. The construction loan will be held for 18 months with the first year of operation beginning at month 18. Year 1 will be weighted heavier in costs with Year 2 experiencing the rollover of the permanent loan and revenues.

The soft costs are broken down between predevelopment costs, construction finance costs, permanent finance costs, professional fees, and other soft costs for a total of $9.3M. Before the site is acquired, a year-long due diligence period is assumed, encompassing around $250,000 of cash out of hand that is not eligible for financing. The hard costs were broken down into acquisition costs, site improvement costs, and construction costs totaling around $53M. Total project costs were estimated around $62M with soft costs containing 15% of the total and hard costs containing 85% of the total. The total amount of costs eligible for financing are $61.9M at a LTC ration of 70%, leaving the assumed construction loan at $43.3M. The equity needed for the deal was estimated to be around $18.6M. These numbers are assumptions from the cost analysis, which are defined greater upon review of financing metrics (LTC & DCR) in the proforma analysis.

PROFORMA ANALYSIS Assumptions

The development will not be available for occupancy until 18 months after site acquisition and will be stabilized about 2 years after acquisition. The absence of income during the first 1.5-2 years is covered from the development fee. Our proforma begins at about Year 3 assuming that is when the first year of stabilized income takes place. The proposed development consists of 700,000 SF of rentable building area which can lease for $6/SF for a total potential rental income of $4.2M annually. Vacancy is fixed at 5%. The tenants will be expected to be all NNN leases, so no operating expenses were assumed in the proforma. With a project cost of $61.9M, the eligible loan based on DCR was $43M, solidifying an equity value of $18.9M. The interest rate for the loan is 6%, amortized over 25 years for an annual debt

14 Gateway Park service of $3.325M. Potential gross income is inflated by the primary lender due to the low amount of BTCF by 3% per year. Terminal cap rates in the market are to cover the debt service. at 5.5% currently. Year 1 analysis shows a going-in cap rate of 6.44%, demonstrating an opportunity to BTCF Analysis 4: Only Perform Site Work Needed for Phase 1 earn appreciable value when it comes time to sale based on market cap rates. By eliminating the site work for future phases, it saves $5M in demolition/excavation costs. This is an BTCF Analysis 1: Developer invests 30% Equity extremely viable option. The average IRRs over a Once a stabilized income level is reached, it is in the five-year period are more towards 30%, with the developer’s best interest to sell. Over a 5-year hold, asset’s growth rate at 8.10% over a five-year hold. the site could sell for anywhere between $74-84M. The equity needed is reduced by $2M. The development’s IRR decreases year by year to a BTCF Analysis 5: Sale of Land at Exit from stabilized level around 20%, but a quick sale can incur Development higher returns. Without debt, the five-year IRR overall is 11.4%, showing positive financial leverage The previous scenario eliminates the option to sell off (IRR returns are much lower without leverage). The the residual developed land at time of exit. The fair asset also grows 6.3% in value over a five-year hold. market value of the residual land is around $10.5M. Having the equity to put into the deal would provide The assumption is that the sale price will appreciate great returns. 3% annually. With the requirement of 30% equity, we can see that returns are much stronger given the BTCF Analysis 2: $15M of Mezz Debt ability to liquidate land upon the sale of the site. Another possible deal structure would be a partnership structure with Ashkenazy Acquisition **Recommendation (Best Case Scenario)** Corporation. Instead of purchasing the site outright for $15M, Ashkenazy would provide the developer BTCF Analysis 6: Pari Passu Joint Venture the land as equity in the deal, but structure it as $15M Focusing back on analysis 1, with the developer in mezzanine debt at 12%. The additional layer of putting in 30% equity ($18.9M), they can expect debt would add $1.9M of annual debt service per year IRRs of 55%, 33% & 26% for a sale in years 1-3 for a total of $5.2M. The initial required equity would respectively. By reducing the amount of equity that decrease from $18M to $3.9M. If you could get the the developer needs to bring up front, the return primary lender to approve the deal, which is metrics increase significantly. The most ideal impossible with a 0.76 DCR, it would be profitable in structure would be a joint venture partnership in an IRR sense. Every year would experience negative which an investor supports 90% of the equity, with BTCF due to the debt service being higher than the the developer only having to cover 10%. A typical NOI. The IRR would steady out to around 22% in the industrial development 90/10 joint venture may be long-run and look similar to the previous structure in structures as such: each equity partner will receive a Analysis 1. This option does not seem valid. 9% preferred return per year on their investment. BTCF Analysis 3: $10M of Mezz Debt & Owner Based on the IRR in a specific year for the entire Donation of Land project, each investor will get a split of the returns at certain benchmarks. Another scenario would be for Askenazy to donate the land which eliminates $15M from the entire cost structure. In return, the developer would provide them their $15M investment back upon the sale of the development, plus 12% interest/year from the mezz debt. The cost of the development would decrease to $46M with the loan amount and mezz debt totaling $42M. The DCR would be 1.05 on the blended financing. Although the average IRR over a five-year period is around 50%, the deal would not be accepted

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• Required Equity: $18,964,765 • 90% from Investor: $17,068,288 • 10% from Developer: 1,896,476 • Preferred Return of 9% = $1,706,829

Due to the high return numbers to the overall project, the developer will be able to experience a large capture of the excess distributions on the back-end of the split structure. Based on these terms, you can see that the developer’s IRRs have increased to 221%, 104% & 73% for a sale in years 1-3 respectively. It is in the developer’s best interest to seek a joint partnership in the development of the project.

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REFERENCES (n.d.). 2018: CoStar.

Brown, A. (2018, April 5). Mixed-Use Development Coming to International Marketplace. Retrieved from Inside Indiana Business: http://www.insideindianabusiness.com/story/37891274/mixed-use-development- coming-to-international-marketplace

Burlington Coat Factory. (n.d.). Retrieved March 30, 2018, from eMarketerRetail: https://retail- index.emarketer.com/company/data/5374f24b4d4afd2bb44465ac/5374f2634d4afd824cc156f6/lfy/fals e/burlington-stores-real-estate

Davis, V. (2015, July 30). Indianapolis Recorder. Retrieved from http://www.indianapolisrecorder.com/news/article_500da6c0-36e6-11e5-b8a7-4b3983c36b01.html

Industrial Real Estate & Industrial Real Estate Developer. (2018, January 2). Retrieved April 4, 2018, from ProLogis: https://www.prologis.com/industrial-real-estate

(2011). International Marketplace Gateway Study. Indianapolis: City of Indianapolis and Lafayette Square Area Coalition.

Kirk, P. (2017, July 21). Why Obsolete Warehouses on "Last Mile" Are Attracting Institutional Investors. Retrieved from National Real Estate Investor: http://www.nreionline.com/industrial/why-obsolete-warehouses- last-mile-are-attracting-institutional-investors

Malls.com. (n.d.). Retrieved April 1, 2018, from Lafayette Square Mall: https://www.malls.com/us/malls/lafayette-square-mall.html

Milz, M. (2009, January 8). WTHR Channel 13. Retrieved from wthr.com: https://www.wthr.com/article/macys- close-11-stores-including-lafayette-square

Site Criteria. (n.d.). Retrieved from Burlington Coat Factory: https://www.burlingtoncoatfactory.com/Others/SiteCriteria.aspx

Store Locations. (n.d.). Retrieved from Shoppers World: http://www.shoppersworldusa.com/store.html

Wilson, M. (2016, January 7). Q&A with Shoppers World CEO. Retrieved from Chain Store Retail: https://www.chainstoreage.com/article/qa-shoppers-world-ceo-his-undercover-experience/

es-including-lafayette-square

Site Criteria. (n.d.). Retrieved from Burlington Coat Factory: https://www.burlingtoncoatfactory.com/Others/SiteCriteria.aspx

Store Locations. (n.d.). Retrieved from Shoppers World: http://www.shoppersworldusa.com/store.html

Wilson, M. (2016, January 7). Q&A with Shoppers World CEO. Retrieved from Chain Store Retail: https://www.chainstoreage.com/article/qa-shoppers-world-ceo-his-undercover-experience/

Prange Way (November 28, 2007) www.labelscar.com/indiana/lafayette-square-mall

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APPENDIX

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Exhibit A: Site Plan

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Exhibit B: Parcel Information

Number Ownership Address State Parcel Number Acreage 1 Lafayette Square Shopping Center LLC % Lafayette Square Mall 3919 Lafayette Road 49-06-18-103-034.000-600 2.03 2 Lafayette Square Shopping Center LLC % Lafayette Square Mall 3919 Lafayette Road 49-06-18-103-043.000-600 4.07 3 Lafayette Square Shopping Center LLC % Lafayette Square Mall 3919 Lafayette Road 49-06-18-103-032.000-600 10.20 4 Sears Roebuck and Co D768TAX, B2-116A 3919 Lafayette Road 49-06-18-103-031.000-600 1.79 5 Sears Roebuck and Co BC-151A 4051 Lafayette Road 49-06-18-107-006.000-674 17.55 6 Lafayette Square Shopping Center LLC % Lafayette Square Mall 3919 Lafayette Road 49-06-18-107-001.000-674 6.65 7 Lafayette Square Shopping Center LLC % Lafayette Square Mall 3919 Lafayette Road 49-06-18-107-009.000-674 49.06 8 L S Ayers & Co % Lafayette Square Mall 3919 Lafayette Road 49-06-18-107-010.000-674 1.62 9 Lafayette Square Shopping Center LLC % Lafayette Square Mall 3919 Lafayette Road 49-06-17-102-003.000-674 10.37 10 Lafayette Square Shopping Center LLC % Lafayette Square Mall 4360 W 38th Street 49-06-17-102-002.000-674 3.48 11 Lafayette Square Shopping Center LLC % Lafayette Square Mall 4220 W 38th Street 49-06-17-102-005.000-674 3.52

http://maps.indy.gov/MapIndy/

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Exhibit C: Development Plan Outline

ACQUISITION PHASE 1. Acquisition of property contingent on diligence and rezoning (365 days). a. Sears – purchase cost b. Existing mall owner – purchase cost(s) c. RFP Request(s) i. Quotation from Land Use Planner ii. Engineering iii. Architects iv. Land Use Attorney v. Environmental Service Agency vi. ALTA work

CONCEPT PHASE 2. Concept Plan Development a. Phase identification b. Building types and uses c. Common area realization d. Storm Water Retention area realization. e. Parking Realization

APPLICATION PHASE 3. Zoning Application a. Rezone to PUD? b. Pre-Application Phase i. Land Use Attorney c. Light Industrial use d. Institutional uses 4. Entitlement a. ESA i. Geotechnical ii. Wetland research iii. Phase 1 b. Traffic Study Engineer c. ALTA Survey d. ALTA Title Insurance

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PUBLIC DECISION PHASE 5. Preliminary Plat Approval and Application. a. Leasing Agent Engagement. 6. Initiate Full Site Engineering, Site & Building Design a. Demolition b. Phase Plan realization. i. Master Quantities. c. Architectural Design Concepts. d. Landscape buffering (surrounding property) 7. Construction of Infrastructure a. Earthwork b. Sanitary c. Storm Sewer d. Water 8. Listing of Out-lot Parcels for Sale 9. Final Plat Approval 10. Vertical Construction (Phase One) a. Industrial Structures. 11. Vertical Construction (Phase Two) 12. Vertical Construction (Phase Three)

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Exhibit D: Demolition Area

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Exhibit E: Construction Schedule

CONSTRUCTION SCHEDULE 470 Days Comments 15 days between Building starts 75 545 18 month duration Duration 175,000 sq.ft. Industrial Building Per Building (days) CONSTRUCTION SOFT TIME 45 State & City Permitting 30 State Building Design Submittal 30 City Building Design Submittal 30 State Fire Sprinkler Submittal 45 Shop Drawing Submittals 18 Site Demolition 180 Infrastructure Sitework 120 Mass Excavation 120 Sanitary Sewers 25 Storm Sewer 25 Domestic Water 10 Fire Suppression Water 10 Water Vault and Backflow 3 Foundation Milestone Footings & Interior Column Line Pads 5 Building Underslab Plumbing 4 Building Underslab Electric 3 Pour Floor 4 Verticle Site Work 34 Milestone Site Concrete Curb - Pole Lightting Base(s) 5 Electric Trench Pole Lighting 1 Vectren Natural Gas 2 IPL Undergroud Electric 2 Site Flat Work 10 Asphalt Paving - Base & Binder 2 Site Rough grade 2 Install Parking Lot Lighting 2 Landscaping 2 Final Site Grading 2 Asphalt Surface 2 Stripe Parking Lot 2

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Building Erection Milestone Erect PreCast Exterior Wall Panels 7 Strutural Steel Erection 5 Bar Joist Truss 5 Steel Decking/Roof Sheathing 10 Building Dry-In 12 Milestone EPDM Roofing 12 Windows 2 Steel Doors & Frames 2 Overhead Door Installation 3 Mechnical Rough In Milestone Electrical Switch Gear Installation 3 Sprinkler System Rough-In 10 HVAC Roof Top & Mechanical Rough-In 10 Interior Layout/Framing/Demising 10 Plumbing Rough-In 10 Electric Rough-In 7 Building Finishes 69 Milestone Drywall Hang/Tape/Bed/Sand 12 Interior Doors/ Frames/ Hardware 4 Interior Painting 15 Plumbing Trim 6 Acoustical Ceiling Grid & Tile 6 Electrical Trim/ Lighting 6 HVAC Mechanical Trim 7 Exterior Painting 15 Hard Surface Flooring 5 Speciality Floor Coatings 10 Dock & Equipment 10 Specialty Accessories & Signage 1 Carpet 1 BUILDING CLOSEOUT 10 Milestone Substantial Completion/ TCO 2 Occupancy/ Tenant Move-In/ FF&E 5 Punchlist 10 Closeout Documents 0

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Exhibit F: Relocation Options

Anchor Relocation Options Within One Mile

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Shop Relocation Options Within One and Three Miles

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Exhibit G: Mall Valuation Mall Occupancy as of 1/31/2018

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Current Property Taxes

Valuation

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Exhibit H: Project Timeline

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Exhibit I: Soft & Hard Cost Analysis

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Exhibit J: Proforma Data (BTCF Analysis 1 & 6)

Annual Property Operating Data

Name Lafayette Square Mall Cost $61,970,000

Location Indianapolis Loan % 70.00%

Type of Property Commercial * DCR 1.2 Size of Property (rsf) 700,000 Loan Amount (LTC) $43,379,000 Investors Discount Rate 16.00% Loan Amount (DCR) $43,005,235 Reinvestment Rate 8.00% Maximum Loan Amount $43,005,235 Finance (Safe) Rate 3.00% Interest Rate/yr 6.00% ADS Constant 0.077316168 Term/years 25 Assessed/Appraised Values: % Term/months 300

Land $5,500,000 37% Monthly PMT $277,083

Improvements $9,500,000 63% Annual DS $3,325,000 Personal Property $0 0% Initial Equity (CF0) $18,964,765 Total $15,000,000 100% Terminal Cap Rate 5.50% Operating Exp PSF $0.00 Market Rent PSF $6.00 Inflate OE 2% Vacancy % 5% Fixed *** Inflate PGI 3% Inflate Other Income 10% Selling Costs 5%

First Year Operating Statement

POTENTIAL RENTAL INCOME $4,200,000 Tax Factors: Less: Vacancy & Collection Losses $210,000 * Depreciable Life SL 39 Plus: Other Income $0 Tax Rate 35.00% EFFECTIVE RENTAL INCOME $3,990,000 Capital Gain Rate 15% OPERATING EXPENSES: Gain Recovery Rate 25% Real Estate Taxes $0 Additions to Basis $ - Personal Property Taxes $0

Property Insurance $0

Off Site Management $0 Year 1 Analysis Measures:

Payroll $0 Cap Rate 6.44% Expenses/Benefits $0 Cash on Cash 3.51% Taxes/Worker's Compensation $0 Yr 1 Financial Leverage Negative Repairs and Maintenance $0 Utilities: Year 1 Underwriting Measures: Gas $0 Operating Expense Ratio 0.00% Electric $0 Debt Coverage Ratio 1.20

Accounting and Legal $0 LTC Ratio 69.40%

Advertising/Licenses/Permits $0 Break-even Occupancy 79.17% Supplies $0 Miscellaneous $0 Operating Expense Ratio Contract Services: HVAC $0 100.00% Elevator $0 80.00% 60.00% TOTAL OPERATING EXPENSES $0 40.00%

NET OPERATING INCOME $3,990,000 20.00%

Less: Annual Debt Service $3,325,000 0.00% CASH FLOW BEFORE TAXES $665,000 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

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Exhibit K: Proforma Output (BTCF Analysis 1)

Before Tax Cash Flows

GENERAL DATA BUILDING DATA Reversion Data Purchase Price $61,970,000 Bldg RSF 700,000 Going Out Loan % 69.40% OE/RSF $0.00 Cap Rate 5.50% Loan Amount $43,005,235 Rents PSF $6.00 Interest Rate/yr 6.00% Term/years 25 INITIAL EQUITY Investors Discount Rate Monthly PMT $277,083 Price $61,970,000 16.00% Annual DS $3,325,000 Loan $43,005,235 Initial Investment $18,964,765

Before Tax Cash Flows: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Potential Gross Income $4,200,000 $4,326,000 $4,455,780 $4,589,453 $4,727,137 $4,868,951 * Vacancy & Credit Losses $210,000 $216,300 $222,789 $229,473 $236,357 $243,448 * Other Income $0 $0 $0 $0 $0 $0 * Effective Gross Income $3,990,000 $4,109,700 $4,232,991 $4,359,981 $4,490,780 $4,625,504 Operating Expenses $0 $0 $0 $0 $0 $0 Net Operating Income $3,990,000 $4,109,700 $4,232,991 $4,359,981 $4,490,780 $4,625,504 Debt Service $3,325,000 $3,325,000 $3,325,000 $3,325,000 $3,325,000 Before Tax Cash Flow $665,000 $784,700 $907,991 $1,034,981 $1,165,780

Future Sales Value $74,721,818 $76,963,473 $79,272,377 $81,650,548 $84,100,065 Growth Rate Less: Costs of Sale $3,736,091 $3,848,174 $3,963,619 $4,082,527 $4,205,003 6.30% Remaining Loan Balance $42,239,725 $41,427,000 $40,564,148 $39,648,078 $38,675,505 Net Sale Proceeds $28,746,002 $31,688,299 $34,744,610 $37,919,943 $41,219,556 number of pmts remaining 288 276 264 252 240 principal reduction $765,510 $812,725 $862,852 $916,071 $972,572

IRR Before Tax CF0 BTCF1 BTCF2 BTCF3 BTCF4 BTCF5 -$18,964,765 $665,000 $784,700 $907,991 $1,034,981 $1,165,780 Net Sale Proceeds $28,746,002 $31,688,299 $34,744,610 $37,919,943 $41,219,556 IRR 55.08% 32.62% 25.73% 22.32% 20.26% GPV of Equity @ discount rate $25,354,312 $24,706,004 $23,997,548 $23,252,605 $22,489,968 NPV of Equity @ discount rate $6,389,547 $5,741,239 $5,032,783 $4,287,840 $3,525,203

Detail IRR Calculations Sale at EOY 1 Sale at EOY 2 Sale at EOY 3 Sale at EOY 4 Sale at EOY 5 CF0 -$18,964,765 -$18,964,765 -$18,964,765 -$18,964,765 -$18,964,765 CF1 $29,411,002 $665,000 $665,000 $665,000 $665,000 CF2 $32,472,999 $784,700 $784,700 $784,700 CF3 $35,652,601 $907,991 $907,991 CF4 $38,954,924 $1,034,981 CF5 $42,385,336 Year 1 Year 2 Year 3 Year 4 Year 5 IRR 55.08% 32.62% 25.73% 22.32% 20.26% GPV @ Discount Rate $25,354,312 $24,706,004 $23,997,548 $23,252,605 $22,489,968 NPV @ Discount Rate $6,389,547 $5,741,239 $5,032,783 $4,287,840 $3,525,203

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IRR without Financing IRR with Financing CF0 -$61,970,000 CF0 -$18,964,765

CF1 $3,990,000 CF1 $665,000 CF2 $4,109,700 CF2 $784,700 CF3 $4,232,991 CF3 $907,991 CF4 $4,359,981 CF4 $1,034,981

CF5 $84,385,842 CF5 $42,385,336

IRRo 11.40% IRRe 20.26%

For a 5 Year Hold IRR Overall 11.40%

IRR on Equity 20.26% Positive Financial Leverage IRR on Mortgage 6.00%

For a 5 Year Hold:

IRR Before Debt 11.40% IRR Before Tax 20.26% IRR After Tax 17.02%

Effective Tax Rate 15.98%

BTCF Analysis 4

BTCF Analysis 5

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Waterfall (BTCF Analysis 6)

Benchmarks Initial Equity 18,964,765 9% Preferred Return Preferred Return 9% Up to 12% IRR 80/20 Split 90% 17,068,288 1,706,829 Up to 15% IRR 65/35 Split 10% 1,896,476 Beyond 15% IRR 50/50 Split

Year 1 Year 2 Year 3 Year 4 Year 5 Net Sale Proceeds $28,746,002 $31,688,299 $34,744,610 $37,919,943 $41,219,556 - Preferred Equity (1,706,829) (1,706,829) (1,706,829) (1,706,829) (1,706,829) - Initial Equity (18,964,765) (18,964,765) (18,964,765) (18,964,765) (18,964,765) Excess for Distr. $8,074,408 $11,016,705 $14,073,016 $17,248,350 $20,547,962

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Investor Year 1 Investment Preferred Return Return of Investment Excess 55.08% (17,068,288) 1,536,145.95 17,068,288 $4,267,626 (17,068,288) 22,872,060 IRR 34%

Year 1 Excess for Distr. Gap Investor's Cut 12% IRR $512,049 $512,049 $409,639.20 15% IRR 1,024,097 512,048 332,831.20 15% IRR 1,024,097 $7,050,311 $3,525,155.69 Total $8,074,408 $4,267,626 Overall IRR 34%

Developer Year 0 Year 1 Year 1 Investment Preferred Return Return Of Investment Excess (1,896,476) 170,682.88 1,896,476 $4,011,602 (1,896,476) 6,078,761.36 IRR 221% Developer Returns: Sale EOY1 Benchmark Excess for Distr. Gap Developer's Split 12% IRR 56,894 56,894 11,379 15% IRR 113,789 56,895 19,913 15% IRR 113,789 7,960,619 3,980,310 Total 8,074,408 4,011,602 Overall IRR 221%

Developer Year 0 Year 1 Year 2 Year 2 Year 2 Investment Preferred Return Preferred Return Return on Investment Excess (1,896,476) 170,682.88 170,682.88 1,896,476 $5,454,208 (1,896,476) 170,682.88 7,521,367.36 IRR 104% Developer Returns: Sale EOY2 Year 2 Excess for Distr Gap Developer's Cut 12% IRR 116,773 116,773 23,355 15% IRR 244,194 127,421 44,597 15% IRR 244,194 10,772,511 5,386,256 Total 11,016,705 5,454,208 Overall IRR 104%

Developer Year 0 Year 1 Year 2 Year 3 Year 3 Year 3 Year 3 Investment Preferred Return Preferred Return Preferred Return Return On Investment Excess (1,896,476) 170,682.88 170,682.88 170,682.88 1,896,476 $6,948,506 (1,896,476) 170,682.88 170,682.88 9,015,665.36 IRR 73% Developer Returns: Sale EOY3 Year 3 Excess for Distr Gap Developer's Cut 12% IRR 192,799 192,799 38,560 15% IRR 393,881 201,082 70,379 15% IRR 393,881 13,679,135 6,839,568 Total 14,073,016 6,948,506 Overall IRR 73%

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Exhibit L: Termination/Relocation Assumptions

• Mall will remain open for all of 2018 while design is finalized, and approvals are sought. • 20% of small shop tenants expire annually. • 20% of tenants will elect to terminate leases for no fee when mall redevelopment is announced. • Kiosk users will be paid a termination fee of $5,000.00 • Based termination payments off tenant square footage and remaining lease term. Tenants expiring in 2020 will be paid an average of $10/SF; 2021 will be paid an average of $12/SF; 2021 will be paid an average of $15/SF and 2022 will be paid an average of $18/SF. o Rates are blended understanding different uses will have different relocation costs that will be covered by termination fee. o Rental rates in the area are approximately $10/SF. If tenant has one year remaining this would allocate to providing a rent credit for their first year to offset any relocation costs. As remaining terms increase the termination fee was increased to offset higher unamortized fit and finish. • Assumed anchors terminate in five years. Burlington Coat Factory and Shoppers World will each receive a $250,000 termination fee. Salon Monte Carlo will receive a $100,000 termination fee (lower amount due to lower square footage).

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Suite SF Tenant Lease Expiration Budget 1 221 21,083 Emmaus Church 2019 $ - Mall redevelopment to begin at expiration 6 262 5,668 Today's Man 2019 $ - Mall redevelopment to begin at expiration 12 284 1,535 Style N Dial 2019 $ - Mall redevelopment to begin at expiration 17 305 3,645 Foot Locker 2019 $ - Mall redevelopment to begin at expiration 23 346 3,995 Bedi Rug Store 2019 $ - Mall redevelopment to begin at expiration 28 370 1,247 D&L Jewelery Repair 2019 $ - Mall redevelopment to begin at expiration 34 395 5,757 International Marketplace Coalitoin 2019 $ - Mall redevelopment to begin at expiration 39 412 7,495 Studio G 2019 $ - Mall redevelopment to begin at expiration 47 528 8,237 Champs 2019 $ - Mall redevelopment to begin at expiration 52 580 2,464 Good Times Arcade 2019 $ - Mall redevelopment to begin at expiration 57 718 2,718 Novedades California 2019 $ - Mall redevelopment to begin at expiration 62 1030 184 Munchies 2019 $ - Mall redevelopment to begin at expiration 67 336a 3,745 Glamour 2019 $ - Mall redevelopment to begin at expiration 72 706a 5,910 Impression II 2019 $ - Mall redevelopment to begin at expiration

2 226 5,747 Noah's Ark Daycare 2020 $ - Elect Early Termination 7 264 2,664 Nap or Nothing 2020 $ - Elect Early Termination 13 285 702 Hat World 2020 $ - Elect Early Termination 19 310 894 Ice Cream & Smoothies 2020 $ - Elect Early Termination 24 350 4,800 Sunshine Beauty, Inc 2020 $ 48,000.00 30 374 7,482 JMP Fashions 2020 $ 74,820.00 35 402 928 Cinnabon 2020 $ 9,280.00 43 432 782 Lauritas Carnival 2020 $ 7,820.00 48 543 3,500 In New Style 2020 $ 35,000.00 53 700 1,502 Film Imagen LLC 2020 $ 15,020.00 58 726 4,840 Del Real Deal 2020 $ 48,400.00 63 1028a 905 International Wireless 2020 $ 9,050.00 68 378a 3,903 NYC Style 2020 $ 39,030.00 73 730a 5,258 Spoil UR Home 2020 $ 52,580.00

3 232 3,680 Faith Church 2021 $ - Elect Early Termination 8 268 2,404 Footaction USA 2021 $ - Elect Early Termination 14 286 1,894 International Logistics 2021 $ - Elect Early Termination 20 331 3,500 R&S Menswear 2021 $ - Elect Early Termination 25 354 5,238 Finish Line 2021 $ 62,856.00 31 384 544 Airgraff Airbrush 2021 $ 6,528.00 36 404 772 Angel's Charbroiled Chicken 2021 $ 9,264.00 44 454 987 Fujun Café 2021 $ 11,844.00 49 550 2,660 Kids Footlocker 2021 $ 31,920.00 54 708 5,256 Jimmy Jazz 2021 $ 63,072.00 59 729 2,796 Exclusive Lifestyle 2021 $ 33,552.00 64 296a 17,279 Rainbow 2021 $ 207,348.00 69 382a 1,795 The Fashion Closet 2021 $ 21,540.00 74 k105 150 Golden Touch/International Wireless 2021 $ 5,000.00

4 244 7,185 General Merchandise 2022 $ - Elect Early Termination 10 276 1,925 Underground by Journey's 2022 $ - Elect Early Termination 15 298 1,083 Bet Braids 2022 $ - Elect Early Termination 21 340 636 Eyes by India 2022 $ 9,540.00 26 362 784 Fouta Alterations 2022 $ 11,760.00 32 386 545 Dulseria Y Botanas Mi Pueblita 2022 $ 8,175.00 37 408 688 Sol Cubana 2022 $ 10,320.00 45 456 678 Philly Cheesesteak 2022 $ 10,170.00 50 560 4,365 Dream XV 2022 $ 65,475.00 55 716 4,375 Rama's 2022 $ 65,625.00 60 734 1,400 Domincan Style 2022 $ 21,000.00 65 312a 1,447 Gold & Diamond USA 2022 $ 21,705.00 70 394a 1,325 No Filter 2022 $ 19,875.00 75 k18 520 Rainbow Pretzals and More 2022 $ 5,000.00

A1 114,472 Shoppers World 2023 $ 250,000.00 A2 141,433 Burlington Coat Factory 2023 $ 250,000.00 A3 52,372 Salon Monte Carlo 2023 $ 100,000.00 5 256 2,288 28 Botique 2023 $ - Elect Early Termination 11 280 1,378 Grails Inc 2023 $ - Elect Early Termination 16 300 8,953 EL Jardin Del Eden 2023 $ - Elect Early Termination 22 342 2,972 One Love Fashions 2023 $ 53,496.00 27 366 2,400 Just show-n-off 2023 $ 43,200.00 33 390 283 Mimms Tax Service 2023 $ 5,094.00 38 410 1,800 By Yadii Salon 2023 $ 32,400.00 46 522 1,215 Smart Cell Indy I 2023 $ 21,870.00 51 575 2,270 Universal Car Audio 2023 $ 40,860.00 56 717 3,233 The Art of Man 2023 $ 58,194.00 61 1029 582 Metro PCS 2023 $ 10,476.00 66 324b 1,606 Global Fashions 2023 $ 28,908.00 71 516a 953 D&L Jewelery 2023 $ 17,154.00 76 k19 120 Cellaris/Cell AXS 2023 $ 5,000.00

40 $ 1,957,221.00 70 Total Shop Tenants (single tenants with mulitple leases were combined) 14 Shop Tenants Expiring Annually (20%) 14 Tenants Electing to Terminate (20%)