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Exhibit B -- Specifics of the Loan
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California Residents Only Loan Number: 1842 |
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PROPERTY Project: FAIRGROUNDS PLAZA II Property
address: 1624-1700 Fairgrounds Dr., Vallejo, CA EQUITY ANALYSIS
OPERATING STATEMENT
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TERMS
BORROWERS
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This attractive retail center is located a Tiger Wood’s drive away from the Six Flags Discovery Kingdom amusement park (formerly Marine World) in the north-bay city of Vallejo. You can spy the tops of the massive rollercoasters from the parking lot. Location, location, location. This property has it - just 1/4 mile east off Highway 37 on Fairgrounds Drive. Nestled in a subdivision, a park is across the street, while an under-construction gas station and a Best Western Motel sit between it and Highway 37. Fairgrounds Drive crosses Highway 37 at the first stoplight north off of Highway 80; on the west side of the highway it bisects the amusement park and the Solano county fairgrounds. After Six Flags, Highway 37 veers northeast towards Marin county - the Sears Point or Black Point cut-off, skirting San Pablo Bay, or one can continue straight through American Canyon, right into Napa Valley (as Highway 29). It is one of the most heavily-traveled roads in the bay area. Vallejo (2006 population - 116,844) is the largest city in Solano county and was California’s first state capital. Solano County is considered primarily a bedroom community and a majority of it residents commute to employment centers in the bay area. We financed these borrowers’ purchase of the property in 1999 (for $1.5 million). Of course, they believe they got a heck of a deal as it was nearly 20% empty. We accurately predicted then that we’d be paid off once rents were increased and stabilized. The loan performed as agreed - not one late - and paid off in 16 months. Built in 1989, the 32,830 S/F retail center sits on 3.99 fully-paved acres, with tons of parking, and contains 5 separate one-story stucco-skinned buildings ranging from 2,400 S/F to 12,800 S/F. It is nearly full, with one 1,400 S/F space vacancy. Anchored by a local Supermarket (8,000 S/F), our borrowers run their ministry and a restaurant in two of the retail suites. The other tenants are widely diversified, ranging from two city agencies to a hair salon. It also has a cell tower that generates $2,195 a month. The property was recently transferred into an LLC, solely-owned by a minister and his wife, who will provide their personal guarantees. They have credit mid-scores of 449 and 595, which have suffered since they were involved in a fairly severe automobile crash in 2003. Including equity in the LLC, they report a $3.2 million net worth, with equity in three other properties: another Vallejo commercial property, their S.F. home and a next-door duplex (rented to family). They report nearly $25,000 in non-taxable social security income on their 2005 & 2006 tax returns, but because of depreciation and other deductions from the shopping center, report a negative Adjusted Gross Income on their tax returns, ($86,797) in 2005 and ($6,732) in 2006. We ordered a new appraisal which came it at $4.95 million. The appraiser compared it to five sold retail centers in bay area bedroom communities (not S.F. or the East Bay). They ranged in value from $168 per S/F (a 2005 in an inferior Fairfield location) to $384 per S/F (the 2006 sale of a new, but also “unanchored” center in Vallejo). We feel his concluded value of $150.76 per S/F of leasable space, primarily based on the local nature of the tenants, is comfortably conservative. One might speculate that today’s replacement cost, if you could find a vacant 4-acre parcel, could easily run as high as $8-10 million. As an example, the above new Vallejo center sold for $4.25 million but was only 11,025 S/F. - our property is three times larger. There’s a bonus. The title report showed that the property includes four separate assessor’s parcels, including an approximate 30,000 S/F vacant and undeveloped corner parcel across the street immediately east of the shopping center. It was part of the legal description when the parcel was created in 1959 and has not been legally subdivided from the shopping center. To do so, the borrowers would have to apply to the county for a lot split; they are holding it for future development. This was not included in the appraisal. If later subdivided and sold, we have agreed to release this portion for 75% of the net proceeds or $225,000, which ever is greater (based on an estimated $10 per S/F value). Doing so would improve your collateral position on the shopping center. Per the tax returns, the property grossed $447,810 in 2005 and $487,142 in 2006 and reflected a Net Operating Income those years of $337,114 and $394,124, respectively. Per the rent schedule, scheduled rents, including CAM (common-area-maintenance), are $529,137. The appraiser calculated that the market would support $574,617 in annual gross rents (fully-occupied), with a net operating income of $352,702; this is very consistent with the prior operating history. At an 11.0% yield, a 52.5% LTV and to a former “as-agreed” B&B borrower on an attractive multi-tenant California property, this loan appears to be a reasonable 5-year investment. Every first mortgage investment involves substantial risk, so be sure to read the Risk Factors section of the Offering Circular before investing. A substantial and prolonged decline in real estate values is possible.
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