gateway park - university of indianapolis · build over 1,000,000 square feet of urban industrial...

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 2018 NAIOP & ULI UNIVERSITY CHALLENGE: LAFAYETTE SQUARE MALL

REDEVELOPMENT

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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

Project Overview

The mission of this project is to determine the highest

and best use for the Lafayette Square Mall site. A

development on the site should be profitable for

investors, maximize job creation and encourage

community investment and engagement. The

Lafayette Square area needs to be rebranded as a

diverse business center with an emphasis on

entrepreneurship, technology, e-commerce and the

multiculturalism. Redeveloping the once booming

shopping center into an industrial park will strip away

the uncertainty surrounding the property, increase

occupancy at nearby retail centers and encourage

future investment in the area.

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

based upon market demand.

Due to the complex nature of the site’s size and

existing structures it is more efficient to demolish the

existing structures than renovate to meet a new use.

The proposed light industrial, and technical campus

style use requires a full re-development of

infrastructure and construction of buildings. This

allows for a clean slate approach for re-development

allowing the buildings to operate efficiently for new

tenants to ensure long term success.

History of Area

Lafayette Square Mall was developed in 1968 by

Edward J. DeBartolo Sr. and was the first enclosed

mall in the metropolitan area (Prange Way). The mall

was hugely successful from the 1970’s through the

late 1990’s, but by the late 1990’s the mall was facing

much competition and the decline began with the

closure of Montgomery Ward (Malls.com, n.d.). A

renovation, including addition of a food court, was

completed but the mall continued to lose anchor

tenants: Lazarus in 2002, JCPenney in 2005, then

Macy’s (previously L. S. Ayres) in 2009 (Milz,

2009). Lafayette Square Mall has continued to

struggle to retain anchor tenants, with only portions

of two of five anchor tenant spaces currently occupied

by Burlington Coat Factory and Shopper’s World.

During it’s prime, Lafayette Square Mall was one of

the key shopping destinations in Indianapolis.

Located just four miles outside of downtown, the mall

was known for its convenience. It was a community

anchor and the neighborhood surrounding the mall

was called Lafayette Square Area. When the mall

began struggling in the late 1990’s, the community

struggled as well.

The Lafayette Square Area Coalition was formed in

2005 with a goal of working to revitalize the

neighborhood. In 2010, the group began to change

the focus from revitalizing the Lafayette Square area

to embracing the international destination the area

was becoming. In 2012, the organization reorganized

as the International Marketplace Coalition (IM)

(Davis, 2015).

Through the work of the IM, an area once known for

retail shopping is now known for international

cuisine. In 2011, together with the City of

Indianapolis, the IM completed the International

Marketplace Gateway Study which outlines the

vision for strengthening the function, appearance and

economic potential of the area. One of the goals of

the Study is to redevelop Lafayette Square Mall, but

the study recognizes that this will need to be a city or

developer driven initiative and turns the focus to

CONCEPUTAL RENDERING: Image of comparable

industrial project use set back from roadway through landscape

promenade

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improving the appearance and function of the area

(International Marketplace Gateway Study, 2011).

There has been more focus on the vacancy and

unknown future of Lafayette Square Mall than on all

that the International Marketplace has to offer. By

redeveloping the mall and eliminating the unknown

(future), it will shift the focus to the positive aspects

of the community.

MARKET ANALYSIS

Introduction

After researching various uses, we believe that a

combination of light industrial and flex space is the

highest and best use for the Lafayette Square Mall

site. Proximity to Interstate 65, downtown and

suburban employment centers make it an excellent

location for both industrial product types. Area

residents and business owners have foreign business

ties and excellent language skills. The combination of

product types will create diverse job opportunities for

area residents. Companies in the technology,

distribution, research & development and business

service industry are all potential tenants. The job

creation and rebranding of the site would garner the

support of residents, the International Marketplace

Coalition and the City of Indianapolis.

The Lafayette Square mall presents the opportunity to

build over 1,000,000 square feet of urban industrial

space. The Indianapolis industrial market has a

vacancy rate of 5.2%. The Plainfield submarket is

one of the most active submarkets within the

Indianapolis metropolitan area, with average rents of

$5.85 psf. In Industrial real estate, there are two

location strategies. A majority of industrial real estate

is adjacent to highways, seaports, rail and airports.

Due to e-commerce, there is greater need for urban,

infill industrial facilities (Kirk, 2017).

Increased consumer spending and the expansion of e-

commerce has driven the demand for industrial space

in the nation’s largest cities. Every $1 billion in e-

commerce sales requires 1.25 million SF of

distribution space.("Last Mile \ City Logistics," n.d.)

In 2017, e-commerce had sales of $491 billion. In the

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

buildings at Park 100 sold for $22.3 Million.

Together, both buildings had a total of 480,524 SF.

(Industrial Real Estate & Industrial Real Estate

Developer, 2018).

Demographics

The charts below provide detail on key demographics

for the area surrounding Lafayette Square Mall. The

data should be analyzed when evaluating potentials

uses for the site.

The community surrounding the mall is densely

populated and diverse. Within a 1-mile radius, 29%

of the population identifies as Hispanic.

Household incomes in the community surrounding

the are 30% lower than the metro average. Only 15

percent of the population holds a bachelor’s degree.

This number may be slightly distorted due the high

number of immigrant small-business owners in the

area.

0 50,000 100,000 150,000 200,000 250,000

1 Mile Radius

3 Mile Radius

5 Mile RadiusPOPULATION

$40,071

$37,683 $38,113

$36,000

$37,000

$38,000

$39,000

$40,000

$41,000

1 Mile Radius 3 Mile Radius 5 Mile Radius

MEDIAN HOUSEHOLD INCOME

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Product Type Review (Highest and Best Use)

As part of the market analysis, great time was

dedicated to analyzing various product types to

ensure the appropriate product type for the Lafayette

Square Mall redevelopment.

Multi-Family

Before choosing light industrial/flex space as a

product type, we considered creating a multi-family

development on our site. The vacancy rate for multi-

family units in the West and Northwest Indianapolis

sub-markets is 9.3 %. With an asking rent of just 81

cents per square foot. Within a 3-mile radius of the

Lafayette Square Mall, the vacancy rate is 8.2%.

There are currently 1505 vacant units and 90 units

under construction. Within a 1-mile radius of our site,

the vacancy rate increases 12.2%. Low rents and high

vacancy rates make a multi-family project on our site

less than desirable. It will be difficult to produce

attractive return on investment unless large amounts

of subsidy are awarded.

Office

We also considered creating an office park. The

vacancy rate for office space in our submarket is 8.6%

and the gross rent per square foot is $18.03. There is

7,105,052 sf of existing office space and 135,800 sf

will be delivered in the next 12 months. Demand for

office space is centered around the Central Business

District and the North Side (Carmel, Meridian

Corridor, Keystone Crossing). Education, health

services and technology are driving forces for

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.

Within a 1-mile radius of our site, there is 4,911,297

existing SF of retail space and no projects under

constructed or scheduled to be delivered in the next

12 months. The vacancy rate is 4.9%, however retail

spaces are only commanding an average of $11 per

square foot. In recent years, most construction

projects have been supermarkets and fitness center

build-to-suits. Like office, a majority of the leasing

and sales activity is centered in the city’s more

affluent areas. Landlords in Carmel and Keystone

Crossing have been able to raise rents to $21 per SF

or higher. Revitalizing the existing structure into a

modern-day retail space, may have the potential for

profitability, but it will not resolve the long-term

branding and economic problems the area faces. The

current demographics don’t bode well for attracting

big box retailers or high-end brands. This option

would only be feasible if a group of major retailers

showed interest in the space, which seems highly

unlikely.

Industrial

Increased consumer spending and the expansion of e-

commerce has driven the demand for industrial space

in the nation’s largest cities. Every $1 billion in e-

commerce sales requires 1.25 million SF of

distribution space. In 2017, e-commerce had sales of

$491 billion. In the 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.

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The Lafayette Square mall presents the opportunity to

build over 1,000,000 square feet of urban industrial

space. There is a need for industrial space close to the

core of major cities with a strong demand for light

industrial, e-commerce & flex space. The Lafayette

Square Mall has proximity to I-65, I-74, I-465 and

Downtown Indianapolis.

There is also a significant demand for data centers. In

2016, data centers experienced a record 350

megawatts of absorption. In this niche industrial

market, absorption is measured by power generation,

not by square footage. Data centers contain computer

servers that process and store data for various users,

almost like cloud storage. In recent years, it should

be noted that data center operators have been among

the top REIT performers, with demand outweighing

supply.

Financing and location are the biggest barrier to entry

in this market. One barrier being that there are few

financing options for developers of data centers. The

industrial buildings also have very strict location

requirements. They must be constructed away from

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

offer an optimal layout and flow of proposed

buildings and throughways allowing for ease of

traffic patterns along with attractive landscaping and

modern amenities. One competitive advantage to the

proposed site is the interstate visibility and access

allowing for better marketing, ease of truck and

delivery traffic. The new class A industrial product

type creates a rewarding project versus the alternative

of retrofitting the existing outdated buildings thus

allowing for higher rents and an enhanced aesthetic

view. Developing over 100 acres of real-estate in the

Indianapolis area allows for project feasibility along

with the ability to give back to the community.

Weaknesses

Displacement of existing tenants will be expensive.

This project has high fixed cost including a mortgage,

utilities, employees, taxes, upkeep, etc. The

demolition of the existing buildings could be viewed

as a loss of a community landmark, albeit a depressed

landmark. The cost of demolition and site work are

expensive and drive a need for higher rents. The

reduction of retail may drive the demand for the

community to look elsewhere to fulfil their buying

needs where transportation may be problematic.

WHERE PEOPLE SHOP : Graphical representation of where

residents attending planning sessions live, work and shop in the area.

(International Marketplace Gateway Study, 2011)

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Opportunity

The rapid expansion of e-commerce has resulted in a

nationwide rise in demand for industrial space,

causing national retailers to take millions of square

feet in Indianapolis for their logistics networks. This

is driving the demand for industrial buildings locally.

The technological landscape is progressive in nature

and customers have come to expect businesses to

operate faster, be more connected and offer them the

latest advances because of it. The new class A

buildings will offer the opportunity for these

businesses to succeed in these areas. This

development helps to create a strong tax base for the

neighborhood while creating jobs for the community

and surrounding markets.

Threats

Demographical reputation of area may deter potential

businesses from wanting to locate to this area. Total

Cost to redevelop site including the demolition

through leasing are only feasible with high rent rates.

Economic fluctuations & rising interest rates may

deter potential tenants from leasing a building with

higher rents. Planning approval requires rezoning

which is contingent on the development of this

project. Lastly, the unknowns of the changing market

demands have an influence on the success of this

project. Finally, the unknowns of the changing market

conditions may have an influence on the success of

this project.

DEVELOPMENT PLAN

Acquisition Phase

The site consists of approximately 110 acres (91 acres

owned by Ashkenazi and 19 acres owned by Sears).

The purchase agreement shall include a twelve-month

due diligence period to allow for typical due diligence

studies (survey, title, environmental, geotechnical,

environmental, etc.), rezoning and entitlement.

Closing will occur fifteen days following the

expiration of due diligence and be conditional upon

successful rezoning. Developer partnerships will be

leveraged during this period. This project team will

include the following and incorporate additional

consultants as needed: Land Use Planner, Engineer,

Architect, Land Use Attorney, Environmental Service

Agency, and ALTA Certified Title Company.

In addition to securing approvals to move forward

with development during the Acquisition Phase, the

buyout and relocation of existing tenants (description

follows) will occur during this time.

Phase One

The approach to the re-development will be a two-

phase approach. Phase One will consist of demolition

of approximately 1,229,863 SF (Exhibit D),

horizontal development of infrastructure, and finally

the new vertical development component of the 4

industrial buildings with a square footage of 175,000

each. During Phase One, the entire site will be mass

graded, and have full complement of development

amenities including site utilities, including sanitary

sewer, storm sewer, domestic water, and fire

suppression water at all future building pads. In Phase

One, construction will be completed on the main

entrance, the promenade, green spaces, wet and dry

detention, as well as the walking paths encompassing

the entire site. The construction timeline, start to

finish is slightly beyond 18 months (Exhibit E).

Phase Two

Phase Two development will occur upon the lease up

of Phase One. Phase Two is planned to include a

similar square footage of buildings but has been left

flexible to react to market conditions.

Leasing Plan

Assuming the rates of $6 per square foot (PSF),

leasing activity begins after 18months.The annual

rent increase is 2%. Phase 1 will have 700,000 square

foot (SF) of industrial space ready to rent. Location

close to downtown, I-69 and a huge retail market

within 5-mile radius creates unique opportunity for

the asking rent rates to be a reality. Assuming by the

end of 18 months we would have 63% occupancy and

100% occupancy by the start of year 3. Asking rent

rates = 3% increase every year.

Tenant relocation plan

Prior to making the determination that the best option

for Lafayette Square Mall was demolition and

redevelopment members of the project team visited

the mall to better understand the current tenant mix

and the surrounding area to understand relocation

opportunities. Though the mall has a high anchor

vacancy, the shops within the mall have operated

successfully and it is important that they have

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assistance in finding new a new location to operate.

Upon completion of this review the team determined

that relocation of tenants to allow for demolition of

the mall and a new use on the site is the most viable

option.

The mall currently has two retail anchors (Burlington

Coat Factory at 141,433 SF and Shoppers World at

199,972 SF) and a third entertainment anchor (Salon

Monte Carlo at 52,372 SF). Burlington Coat Factory

stores average approximately 74,000 SF and store

openings in 2018 will average 43,000 SF (Burlington

Coat Factory, n.d.). As Burlington looks to open new

stores, they are looking for stores between 40,000 SF

and 50,000 SF located in power centers, strip centers

or freestanding (Site Criteria, n.d.). Relocating

Burlington Coat Factory to a new location will allow

them to operate in a more prototypical store than their

current location within Lafayette Square Mall.

Shoppers World also operates at a space larger than

needed. The ideal store size for Shoppers World is

between 50,000 SF and 100,000 SF (Wilson, 2016).

Shoppers World occupies three additional stores in

Indiana, and none of them are within enclosed malls

(Store Locations, n.d.).

Even if a new space requires a higher rent per square

foot, the efficiencies gained through a lower square

footage will benefit both Burlington and Shoppers

World. There are currently two properties within a

three-mile radius of Lafayette Square Mall that the

anchor tenants could be relocated to. Lafayette Place,

located on the south east corner of 38th Street and

Lafayette Road currently had over 84,000 SF of

vacancy including a 56,859 SF box and two boxes of

over 20,000 SF (See Exhibit F). There is also a vacant

Marsh (78,207 SF) just under three miles from

Lafayette Square Mall (38th Street just west of 465)

that would offer convenient interstate access similar

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

relating to food, 35% retail and 56% service. Over

20% of the retail stores are related to cell phones –

either service, cases, etc. and over 30% of the retail

square footage is related to shoe sales. These ratios

show a higher percentage of the mall dedicated to

singular uses than typical.

To determine the relocation strategy for the shop

tenants, the tenants were broken down into five

categories based on square footage and then spaces of

similar square footage within a one-mile radius were

determined. The most challenging group to relocate

will be the twenty tenants that occupy under 1,000 SF.

Many of these tenants either occupy space within the

food court or operate out of a kiosk. There are

numerous opportunities for relocation for the tenants

over 1,000 SF. These locations are mapped on

Exhibit F.

Tenant Size Number of

Tenants

Spaces available

within One Mile

Radius (Mar31)

1,000 – 3,000 SF 24 28

3,000 – 5,000 SF 12 13

5,000 – 7,000 SF 7 5

7,000 and over 7 16 When spaces within both a one mile and a three-mile

radius are reviewed the number of opportunities for

relocation greatly increases.

As tenants relocate to new spaces outside of the mall

this will increase occupancy rates in the area and

tenants will install new signage and will be

encouraged to participate in the IM’s Façade

Improvement Program. Typically, tenants pay lower

common area maintenance and marketing fees in

freestanding shop buildings than at an enclosed mall

allowing for a tenant to pay higher rent or be more

profitable.

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Compliance with Gateway Study

The redevelopment of Lafayette Square Mall follows

the vision of the Gateway Study through creation of a

landscape promenade along Lafayette Road (item 32

on Gateway Study Map), improving connections to

the Little Eagle Creek Greenway (item 19 on

Gateway Study Map), and establishment of

marketplace icons (item 39 on Gateway Study Map).

The Lafayette Road landscape promenade will be a

linear park where pedestrians can walk, bike, or sit in

the shade. The promenade will serve as the front door

to Gateway Park and serve as an amenity to

pedestrians and employees. The area will also

provide green infrastructure to capture storm water

runoff.

Little Eagle Creek bisects the project site. Buildings

will site on the west side of Little Eagle Creek and

will include windows to allow pleasant views from

Little Eagle Creek to the project and to allow those

working within Gateway Park to benefit from the

views of the natural beauty of Little Eagle Creek. As

design is completed there will be potential for tenants

to have outdoor terraces to further enjoy the amenity

of Little Eagle Creek.

This area is also the proposed site of Market Place

Tower, one of the marketplace icons identified within

the study. The development team intends to work

with IM not only on the Tower, but to determine a

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.

GATEWAY STUDY MAP

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FINANCING

Traditional financing was discussed with Tim

Schlichte of Lake City Bank to determine the terms

for the construction loan and mini permanent

financing. Based on the project being speculative in

nature, the bank would typically only finance the

lower of 70 percent loan to cost or 65 percent of the

“as-complete” appraised value. Therefore, the

amount of equity needed to get the project started

would be 30 percent of cost or 35 percent of the value.

The construction loan, which will be for up to two

years, will have monthly interest only payments due.

The mini permanent loan which will be for up to five

years will have monthly principal and interest

payments based on a twenty-five-year amortization.

Based on the current rate environment, the terms for

traditional financing would be in the range of Wall

Street Journal (WSJ) Prime plus three quarters to

WSJ Prime plus one. This would place construction

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

prepayment premium will be added to the financing.

The prepayment premium would be 5 percent for any

principal paid in addition to the normal amortization

decreasing by 1 percent for each year during the five-

year fixed period. If the project is sold the

prepayment premium would be waived.

The loan would require a commitment fee of 40 basis

points which would be due when the commitment

was signed. In addition, there would be a conversion

fee of 10 basis points that would be due at time of

conversion.

Additional terms for the construction and permanent

financing are personal guarantees of all owners that

have 20 percent of ownership in the project or greater.

This guarantee would be limited to 110 percent of the

ownership within the borrower. In order to convert to

the mini permanent financing, the project will be

required to have a debt service coverage ratio of

1.2:1.0 for the most recent trailing four quarters.

LAFAYETTE SQUARE MALL VALUATION

As a base assumption for the development ProForma,

it is assumed that the Lafayette Square Mall (LSM)

and the Sears properties will be acquired. The Sears

properties are currently listed at $1.8 Million, but the

Lafayette Square Mall will need to be purchased

through an unsolicited offer. The following details

the assumptions that will be used to generate an

assumed acquisition price for the Lafayette Square

Mall based on the current (assumed) economics of the

mall.

Current Tenants

The Lafayette Square Mall currently has 73 retail

tenants within the mall, comprised of 3 Anchor

Tenants and 70 non-anchor boutique tenants. These

tenants represent roughly 617,331 SF of occupied

square footage: 393,777 SF anchor and 223,554 SF

non-anchor.

Rent Estimate

In order to value the current LSM without a current

rent roll, the estimated rents are as follows: $8.00/SF

for Anchor Tenants and $12.00/SF for Non-Anchor

Tenants. When applied to the current anchor and non-

anchor tenants, the 2018 projected Gross Rent

Income is projected at $5,832,864.

Operating Expenses: NNN Expenses

The assumed operating expenses (Common area

maintenance, insurance, property taxes & utilities or

“NNN Fees”) for the LSM is estimated to be

$5.68/square foot, or $6,987,163. With the current

tenants in place, roughly $3,507,213.87 will be

reimbursed by the current tenants paid as Additional

Rent. In addition to the NNN fees, the Landlord has

assumed non-reimbursed administrative expenses of

Marketing, Payroll, Management & General “Other”

expenses totaling $933,258.

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Net Operating Income

After all rents are paid (including NNN

reimbursements) and expenses paid, the projected

2018 Net Operating Income is to be assumed at

$1,419,656.

Projected Valuation

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,

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

than 6.7% per year which they are experiencing now.

The developer can also provide an opportunity for

them to receive the market value of their asset, plus

interest. The budget and proforma analysis provide

clarity and understanding as to how a developer can

achieve success and gain congruency with

Ashkenazy.

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BUDGET

Site Preparation

One of the largest hard costs within the budget is

the demolition and site work needed to prepare for

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

eliminated from the cost analysis. Furthermore, the

development of Phase 1 (consisting of 4 industrial

buildings at 175,000 SF each) only affects parcels

7, 8 & 10. Understanding that these are the only

parcels needed during Phase 1 provides the

developer with several opportunities. The

demolition of the entire site can occur at one time

to implement economies of scale or can occur

through the development phases, in an effort to

forgo costs into the future. The remaining parcels

unused by Phase 1 can either be sold off as

developed land, providing substantial returns, or

held onto for future development. Finally, in an

effort to coordinate with the International Market

Coalition, parcels 9 & 11 will be donated to the

community. Parcels 9 & 11 will not incur

demolition and excavation activity.

Scott Casey with Casey Bertram Demolition provided

quotes to aid in the budget analysis for demolition

costs. From his perspective, a developer could assume

demolition costs at $2.50/SF, massing/excavation

costs at $2.75/SF, and the cost for seed straw tacifier

at $0.45/SF. Utilizing these quotes, the demolition

costs for the entire site as well as just for Phase 1 were

examined. The first scenario of demolishing the

existing structure and performing the site work on the

entire site makes the most sense, but at a high price.

The assumption excluded the cost of site work on

Parcels 1, 2, 9 & 11, but the total was still around

$15M. If the developer decided to demolish the

existing structures, but only prepare the site needed

for Phase 1, demolition costs come in around $10M.

By not preparing the rest of the site for Phase 2 and

beyond, this eliminates the ability to sell the residual

land at peak developed prices upon exit. Phase 1

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.

Color

Parcels do not need Dirt

& Excavation Work Green

Blue

Parcels needed during

Phase 1

Legend

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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

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service of $3.325M. Potential gross income is inflated

by 3% per year. Terminal cap rates in the market are

at 5.5% currently. Year 1 analysis shows a going-in

cap rate of 6.44%, demonstrating an opportunity to

earn appreciable value when it comes time to sale

based on market cap rates.

BTCF Analysis 1: Developer invests 30% Equity

Once a stabilized income level is reached, it is in the

developer’s best interest to sell. Over a 5-year hold,

the site could sell for anywhere between $74-84M.

The development’s IRR decreases year by year to a

stabilized level around 20%, but a quick sale can incur

higher returns. Without debt, the five-year IRR

overall is 11.4%, showing positive financial leverage

(IRR returns are much lower without leverage). The

asset also grows 6.3% in value over a five-year hold.

Having the equity to put into the deal would provide

great returns.

BTCF Analysis 2: $15M of Mezz Debt

Another possible deal structure would be a

partnership structure with Ashkenazy Acquisition

Corporation. Instead of purchasing the site outright

for $15M, Ashkenazy would provide the developer

the land as equity in the deal, but structure it as $15M

in mezzanine debt at 12%. The additional layer of

debt would add $1.9M of annual debt service per year

for a total of $5.2M. The initial required equity would

decrease from $18M to $3.9M. If you could get the

primary lender to approve the deal, which is

impossible with a 0.76 DCR, it would be profitable in

an IRR sense. Every year would experience negative

BTCF due to the debt service being higher than the

NOI. The IRR would steady out to around 22% in the

long-run and look similar to the previous structure in

Analysis 1. This option does not seem valid.

BTCF Analysis 3: $10M of Mezz Debt & Owner

Donation of Land

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

by the primary lender due to the low amount of BTCF

to cover the debt service.

BTCF Analysis 4: Only Perform Site Work Needed for

Phase 1

By eliminating the site work for future phases, it saves

$5M in demolition/excavation costs. This is an

extremely viable option. The average IRRs over a

five-year period are more towards 30%, with the

asset’s growth rate at 8.10% over a five-year hold.

The equity needed is reduced by $2M.

BTCF Analysis 5: Sale of Land at Exit from

Development

The previous scenario eliminates the option to sell off

the residual developed land at time of exit. The fair

market value of the residual land is around $10.5M.

The assumption is that the sale price will appreciate

3% annually. With the requirement of 30% equity, we

can see that returns are much stronger given the

ability to liquidate land upon the sale of the site.

**Recommendation (Best Case Scenario)**

BTCF Analysis 6: Pari Passu Joint Venture

Focusing back on analysis 1, with the developer

putting in 30% equity ($18.9M), they can expect

IRRs of 55%, 33% & 26% for a sale in years 1-3

respectively. By reducing the amount of equity that

the developer needs to bring up front, the return

metrics increase significantly. The most ideal

structure would be a joint venture partnership in

which an investor supports 90% of the equity, with

the developer only having to cover 10%. A typical

industrial development 90/10 joint venture may be

structures as such: each equity partner will receive a

9% preferred return per year on their investment.

Based on the IRR in a specific year for the entire

project, each investor will get a split of the returns at

certain benchmarks.

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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



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



8 L S Ayers & Co % Lafayette Square Mall 3919 Lafayette Road 49-06-18-107-010.000-674 1.62


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

175,000 sq.ft. Industrial Building Duration (days)

Per Building

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)

Name Cost $61,970,000

Location Loan % 70.00%

Type of Property * DCR 1.2

Size of Property (rsf) Loan Amount (LTC) $43,379,000

Investors Discount Rate Loan Amount (DCR) $43,005,235

Reinvestment Rate Maximum Loan Amount $43,005,235

Finance (Safe) Rate 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

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:

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

Contract Services:

HVAC $0

Elevator $0

TOTAL OPERATING EXPENSES $0

NET OPERATING INCOME $3,990,000

Less: Annual Debt Service $3,325,000

CASH FLOW BEFORE TAXES $665,000

16.00%

Annual Property Operating Data

Lafayette Square Mall

Indianapolis

Commercial

700,000

8.00%

3.00%

Year 1 Analysis Measures:

Year 1 Underwriting Measures:

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Operating Expense Ratio

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Exhibit K: Proforma Output (BTCF Analysis 1)

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

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


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

Before Tax Cash Flows

GENERAL DATA BUILDING DATA Reversion Data

INITIAL EQUITY Investors Discount Rate

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BTCF Analysis 4

BTCF Analysis 5

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%

11.40%

20.26%

6.00%IRR on Mortgage

For a 5 Year Hold

IRR Overall

IRR on Equity Positive Financial Leverage

11.40%

20.26%

17.02%

Effective Tax Rate 15.98%

IRR After Tax

For a 5 Year Hold:

IRR Before Debt

IRR Before Tax

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Waterfall (BTCF Analysis 6)

Year 1 Year 2 Year 3 Year 4 Year 5


- 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

Initial Equity 18,964,765

90% 17,068,288

10% 1,896,476

Up to 12% IRR 80/20 Split

Up to 15% IRR 65/35 Split

Beyond 15% IRR 50/50 Split

Benchmarks

9% Preferred Return Preferred Return 9%

1,706,829

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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%

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%

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%

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%

Developer Returns: Sale EOY1



Gateway Park

39

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).

Gateway Park

40

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$

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%)